• Dated 01^st July, 2025

Landmark Ruling: Exporters Entitled to IGST Refund Despite Duty-Free Imports

BRIEF FACTS:

The petitioner, MessrsAddwrap Packaging Pvt. Ltd., is engaged in the manufacture and export of conductors and Optical Fiber Ground Wires (OPGW). After the introduction of the GST regime, exports were treated as "zero-rated supplies" under Section 16 of the IGST Act, granting exporters two options to claim refunds. The petitioner opted to pay IGST on exports and claim a refund. However, the refund was denied by the department under Rule 96(10) of the CGST Rules, which restricted IGST refunds if the exporter had availed duty-free imports under schemes like Advance Authorization. The petitioner challenged the constitutional validity of this restriction, arguing it violated their statutory and fundamental rights.

ASSESSEE'S CONTENTION:

The petitioner contended that Rule 96(10) is ultra vires to Section 16 of the IGST Act and Section 54 of the CGST Act, which do not prescribe such restrictions.The rule arbitrarily discriminates between exporters based on their procurement method (domestic vs. duty-free imports), violating Articles 14 and 19(1)(g) of the Constitution.The restriction disrupts working capital flow, thereby negatively impacting competitiveness in international markets.Applying Rule 96(10) retrospectively and recovering already sanctioned refunds is legally unsustainable and violates natural justice.The rule contradicts the GST's foundational principle of tax neutrality for exports and is inconsistent with WTO-aligned trade policy.

DEPARTMENT'S CONTENTION :

The Department,argued that Rule 96(10) was introduced to prevent double benefits, i.e., availing duty-free imports and simultaneously claiming IGST refunds.It maintained that the restriction was a legitimate policy measure to protect revenue and ensure fair tax administration.The rule was lawfully notified and applicable, and exporters were expected to comply with refund eligibility conditions therein.The department sought to recover past refunds granted in contravention of the amended Rule.

DECISION:

TheHon'ble Gujarat High Court quashed Rule 96(10) and the related refund rejection orders, holding that the Rule was unconstitutional, discriminatory, and arbitrary. The Court held that restricting IGST refunds solely due to availing of Advance Authorization benefits—without considering actual tax incidence—was legally untenable. It directed that exporters be allowed to claim refunds of IGST paid on exports, regardless of duty-free imports. The Court emphasized that Rule 96(10) went beyond the statutory scope and violated the right to equality and freedom of trade guaranteed under the Constitution.

BTA's COMMENT:

This judgment is a significant victory for exporters, reinforcing that export-related tax benefits cannot be curtailed by subordinate legislation that exceeds statutory limits. It upholds the principle of tax neutrality in exports, safeguards constitutional rights, and provides relief from retrospective recovery of refunds. The ruling sets a precedent for challenging GST provisions that unduly restrict legitimate entitlements and encourages alignment of tax policies with constitutional mandates and global trade norms.

Case Reference: MESSRS ADDWRAP PACKAGING PVT. LTD. & ANR. vs. UNION OF INDIA &ORS.(Gujarat High Court)

Author: Madhurima Bose

Edited by: Shaily Gupta