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Dated: 14.03.2025

Madras High Court establishes that exporters cannot be denied IGST refunds based on circulars

Introduction

The issue of Integrated Goods and Services Tax (IGST) refund on exports has been a subject of legal battles in India. One such significant case is M/s. Modern India Products vs. The Assistant Commissioner of Customs & Union of India, which was heard before the Madurai Bench of the Madras High Court. This case provides clarity on whether exporters are entitled to IGST refunds despite duty drawback claims.

The case originated as W.P.(MD) No. 9796 of 2020, where the single judge ruled in favor of the petitioner, M/s. Modern India Products. The Union of India and the Customs Department then appealed this decision in W.A.(MD) No. 1559 of 2021. However, the Division Bench upheld the previous ruling, confirming that the petitioner was entitled to a refund.

In this article, we analyze the legal battle, court decisions, and implications for exporters.

Background of the Case

Petitioner: M/s. Modern India Products

• M/s. Modern India Products is a merchant exporter engaged in the export of absorbent gauze rolls.
• The company exported goods worth ₹12,72,827/- on 26.09.2017 and paid ₹2,54,449/- in IGST.
• The petitioner sought a refund under Section 16 & Section 54 of the IGST Act, claiming that exports qualify as zero-rated supply.

Initial Problem

• As per Rule 96 of CGST Rules, 2017, a shipping bill is considered an automatic application for IGST refund.
• Despite this, the refund request was not processed by the authorities.
• The petitioner filed multiple representations (on 28.06.2018 & 18.07.2019) but did not receive any response.
• This led to the filing of Writ Petition (W.P.(MD) No. 9796 of 2020) before the Madras High Court.

Legal Arguments & Court’s Observations

Arguments by the Petitioner

1. Refund is Legally Required: The petitioner argued that the IGST refund must be granted automatically upon export, as per Sections 16 & 54 of the IGST Act and Rule 96 of CGST Rules.
2. Previous Court Rulings Support Refunds:

• Amit Cotton Industries vs. Principal Commissioner of Customs (Gujarat HC, 2019) held that customs circulars cannot override statutory provisions.
• Precot Meridian Ltd. vs. Commissioner of Customs (Madras HC, 2020) ruled that IGST refunds should not be denied based on procedural grounds.

3. Unlawful Denial: The Customs Department had no valid reason to withhold the refund.

Arguments by the Customs Department

1. Circular No. 37/2018 – Customs (Dated: 09.10.2018): The department relied on this circular, which prohibits IGST refunds if exporters have claimed duty drawback.

2. Exporters Consciously Gave Up IGST Claims: The department argued that exporters who claimed a higher rate of duty drawback were not entitled to IGST refunds.

Madras High Court’s Decision in W.P.(MD) No. 9796 of 2020

• The single-judge bench ruled in favor of the petitioner on 17.04.2021, ordering the Customs Department to refund ₹2,54,449/- with 9% interest.
• The court rejected Circular No. 37/2018, citing precedents where courts had ruled that circulars cannot override laws.

Appeal in W.A.(MD) No. 1559 of 2021

Why Did the Customs Department Appeal?

• The Customs Department challenged the single judge’s ruling, arguing that Circular No. 37/2018 legally prevented IGST refunds if duty drawback was claimed.
• The department hoped to overturn the judgment and deny the refund.

Final Ruling by Division Bench (21.02.2025)

1. Customs Circular Cannot Override Rule 96:

• The court reaffirmed that circulars do not override legal provisions.
• IGST refunds must be granted, even if duty drawback was claimed.

2. The Gujarat HC’s 2019 Ruling was Upheld:

• The judgment cited Amit Cotton Industries vs. Principal Commissioner of Customs, where the Gujarat High Court ruled in favor of IGST refunds.
• The court observed that many High Courts had taken the same stance.

3. Appeal Dismissed:

• The Division Bench upheld the earlier ruling.
• The refund of ₹2,54,449/- was confirmed.
• The Customs Department lost the case.

Legal & Business Implications of the Ruling

1. Strengthening Exporters’ Rights

• The ruling establishes that exporters cannot be denied IGST refunds based on circulars.
• Exports are zero-rated, meaning IGST paid on exports must be refunded.

2. Limiting the Power of Customs Circulars

• The Madras High Court reaffirmed that government circulars cannot override the law.
• This strengthens Rule 96 of CGST Rules, which allows exporters to claim IGST refunds.

3. Precedent for Future Cases

• The decision will serve as a precedent for similar cases across India.
• Exporters can use this ruling to challenge unlawful IGST refund denials.

Conclusion

The Madras High Court’s ruling in M/s. Modern India Products vs. Assistant Commissioner of Customs is a major victory for exporters. The decision confirms that IGST refunds cannot be denied based on internal circulars and that law takes precedence over executive instructions.

This case reinforces the legal rights of exporters and ensures that Customs authorities must process IGST refunds as per statutory provisions. It also serves as a warning to tax authorities against arbitrary denials of refunds.

For exporters, this judgment provides a strong legal basis to claim legitimate tax refunds, strengthening India’s export-friendly tax regime.

In case you face any issues related to Indirect Tax-Customs, GST, Foreign Trade Policy (FTP), Arbitration matters and Central Licensing and related advisory matters in India then please feel free to get in touch with SJ EXIM Services.

We offer Legal advice and litigation support in matters related to Indirect Tax-Customs, FTP, other Indirect Tax matters & Arbitration law, all sorts of Central licensing and related matters. Come and explore the new way of doing business with us!

Source: Madras High Court

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