Rejection of refund under inverted duty structure due to various discrepancies like non reflection of invoices in GSTR 2A, difference between value of export invoice and shipping bill etc.

PJ/Case Study/2020-21/160

25 July 2020

M/s Seaward Exports Pvt. Ltd. (OIA No. 29(DSD)CGST/JDR/2020 dated 18.02.2020)
Issue involved:

Wrong value of adjusted total turnover for calculating the refund claim
Discrepancy between value of export invoice and shipping bill.
Discrepancy as to invoices neither appeared in GSTR-2A nor physical copy submitted.

Brief Facts: M/s Seaward Exports Pvt. Ltd. is engaged in the export of granite/limestone. They have claimed refund of accumulated input tax credit on account of export of goods under letter of undertaking in terms of provisions of section 54(3) of the CGST Act, 2017. A show cause notice was issued denying the refund claim for various reasons such as assesse has taken wrong value of adjusted total turnover, discrepancy between values of export invoice and shipping bill, etc. An Impugned OIO was passed wherein the submissions of the appellant were partly adhered to and the refund claim was rejected. So the appellant has preferred to file an appeal.

Applicant’s Contention: The assesse has contended in the following manner

The impugned order has held that value of shipping bill is on lower side by Rs.6, 15,340/- when compared with the value declared in the invoice no. 477 to 508 issued in September, 2017. The invoice issued by us as per Form GST INV-1 includes various charges such as freight, packing and forwarding charges on which GST is being paid by them. However, the shipping bill mentions the FOB value of goods excluding such charges. Consequently, while sanctioning refund claim, lower of FOB value or invoice value is considered. This result in loss of refund of GST paid with respect to packing and forwarding charges.

Section 2(30) of the CGST Act defines “Composite Supply” which is defined as under:-
“a composite supply would mean a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.”

It is clearly mentioned in the illustration that freight, insurance is part of composite supply, therefore value of the same is included for determining the transaction value of goods. Hence GST is payable on such value. Thus, the inclusion of freight and insurance by us for payment of GST is valid in eyes of law.

We further submit that the impugned show cause notice has also relied upon the clarification issued by CBEC vide circular no. 37/11/2018-GST dated 15.03.2018 wherein it has been clarified that during the processing of the refund claim, the value of the goods declared in the GST invoice and the value in the corresponding shipping bill / bill of export should be examined and the lower of the two values should be sanctioned as refund.

We further submit that even otherwise, the clarifications issued vide circulars are not binding on us and we have liberty to challenge the same. This has been held in the case of BIRLA JUTE AND INDUSTRIES LTD. VERSUS ASSISTANT COLLECTOR OF C. EX. [1992 (57) E.L.T. 674 (Cal.)]which was further approved by Hon’ble Supreme Court on 2005 (179)ELT 272(Supreme Court). In this case it was held that Board Circulars are not binding on the assessee and they may opt not to follow these Circulars. The verdicts of hon’ble Calcutta High Court are produced as follows: -

“Departmental circulars and trade notices - Binding on departmental officers but not binding on quasi-judicial authorities and assessees -Court can compel Central Excise officers to comply with such instructions as are for benefit of assessee - Section 37B of Central Excises and Salt Act, 1944 - Rule 233 of Central Excise Rules, 1944.”

As such, the circulars are not binding on the assessee. Therefore, though the circular is not applicable on us and even if we accept the contention of the show cause notice for the sake of argument also, then too this circular is not binding on us. Therefore, the impugned show cause notice should be set aside.
The appellant has established from the section itself that transportation and insurance charges are to be included for computation of value for payment of GST. Hence, the appellant has correctly calculated the transaction value and thus the refund should be allowed on that amount only.

The appellant further submit that the custom portal calculates the amount as per drawback formula. It deducts transportation charges and insurance from the transaction value and then calculates the GST amount on the same whereas the GST Act clearly says that it is composite supply and transportation charges are to be added in the transaction value. Hence, the appellant submit that one has to follow the provisions prescribed in statue rather than the working done by portal. Hence, the appellant has correctly calculated the transaction value and debited the amount in the LUT. Thus, the aforesaid value should be taken for calculating the refund amount. It cannot be based on the amount shown in the shipping bills. Hence, impugned order is wrongly calculating the amount is totally erroneous and bad in eyes of law. Such an order-in-original is liable to be set aside.

The impugned order has held that the certain invoices have not been physically submitted to the department and so the ITC of Rs. 5,33,871/- is not admissible. In this regard, the appellant is hereby enclosing the legible copy of invoices with this appeal memorandum. The appellant submits that as they have produced the legible copy, the refund claim should be allowed.

Reasoning of Judgement: The judgement has been passed on the basis of the following validations.

Analysing the difference between the value in the shipping bill and GST tax invoice, reference was made to Para 9 of circular No. 37/11/2018-GST dated 15.03.2018 which is reproduced below for quick reference.

9. Discrepancy between values of GST invoice and shipping bill/bill of export:
It has been brought to the notice of the Board that in certain cases, where the refund of unutilized input tax credit on account of export of goods is claimed and the value declared in the tax invoice is different from the export value declared in the corresponding shipping bill under the Customs Act, refund claims are not being processed. The matter has been examined and it is clarified that the zero rated supply of goods is effected under the provisions of the GST laws. An exporter, at the time of supply of goods declares that the goods are for export and the same is done under an invoice issued under rule 46 of the CGST Rules. The value recorded in the GST invoice should normally be the transaction value as determined under section 15 of the CGST Act read with the rules made thereunder. The same transaction value should normally be recorded in the corresponding shipping bill / bill of export.
9.1 During the processing of the refund claim, the value of the goods declared in the GST invoice and the value in the corresponding shipping bill / bill of export should be examined and the lower of the two values should be sanctioned as refund.

The office of commissioner appeals holds that the adjudicating authority is correct in determining the refund of unutilised input tax credit on lower of the two values i.e FOB value of the goods exported out of India.

Coming to the second issue of invoices neither appearing in Form GSTR-2A nor physical copy of invoices were being provided. In this regard reference was to made Para 2.3 of Circular No. 59/33/2018-GST dated 04.09.2018 which clarifies as under

“In view of the difficulties being faced by the claimants of refund, it has been decided that the refund claim shall be accompanied by a print-out of FORM GSTR-2A of the claimant for the relevant period for which the refund is claimed. The proper officer shall rely upon FORM GSTR-2A as an evidence of the accountal of the supply by the corresponding supplier in relation to which the input tax credit has been availed by the claimant. It may be noted that there may be situations in which FORM GSTR-2A may not contain the details of all the invoices relating to the input tax credit availed, possibly because the supplier’s FORM GSTR-1 was delayed or not filed. In such situations, the proper officer may call for the hard copies of such invoices if he deems it necessary for the examination of the claim for refund. It is emphasized that the proper officer shall not insist on the submission of an invoice (either original or duplicate) the details of which are present in FORM GSTR-2A of the relevant period submitted by the claimant”
It was held that the appellant had submitted the copies of Form GSTR-2A in which the invoices are being reflected. On examination it was found that credit relating to a few invoices is ineligible for claiming ITC.

Further the appellant has submitted the invoices which are not reflected in GSTR-2A but a few deficiencies such as GSTIN & address of the appellant were not mentioned on the invoice. So ITC is ineligible to that extent.
Coming to the next contention, the commissioner appeals has re calculated the Adjusted total turnover which had been calculated wrong by the taxpayer and rejected the refund claim to the extent claimed excess as per the calculation.

Decision: The impugned order stands modified with respect to the extent mentioned above and allows the appeal of the appellant.

Conclusion: GSTR-2A is very dynamic and changes on real time basis. A facility should be provided by the Government wherein GSTR 2A can be downloaded for a particular date.
However, as per the recent amendment,circular no.135 dated 31.03.2020 clarified that the refund of accumulated ITC shall be restricted to the ITC as per those invoices, the details of which are uploaded by the supplier in FORM GSTR-1 and are reflected in the FORM GSTR-2A of the applicant. This clarification was much required after enactment of Rule 36(4) in the CGST Rules, 2017. It is noteworthy to mention that such restriction has not been imposed in the Act or rules. Circular inconsistent with the Act or Rules is void ab-intio and cannot be implemented. The landmark judgment given in the case of Dhiren Chemicals was reversed in the case of Commissioner of Central Excise, Bolpur v/s M/s Ratan Melting & Wire Industries [2008-TIOL-194-SC-CX-CB]. In this case, it was held that the Board circular will not prevail over the Order of the Supreme Court. It was further held that a circular which is contrary to the statutory provisions has no existence in law. This circular has created a havoc among taxpayers as already refund sanction process takes time and such restrictions block their working capital for indefinite period.
The current clarification should be discarded and the previous circular should be made applicable again. Because while applying for a refund, if any credit is not reflected in GSTR 2A of a particular month, then refund pertaining to that invoice is rejected. Moreover, if that credit is reflected afterwards, then the portal doesn’t allow to file revised refund or refund under “any other” tab. Assessee cannot be denied of its substantive right by issuance of any circular and inadequacy of online portal. The Government should give a relaxation that refund on the basis of books should be sanctioned and the asseesee will be liable to reverse the refund for the invoice not reflecting till September 2020. The competitiveness of the portal should be increased and petty issues should be sorted out by the department on their own without issuing any notice.

Prepared by - CA Akanksha Anchaliya

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PJ/Case Study/2020-21/160
25 July 2020

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