Cannot Deny ITC Refund on Zero-Rated Supplies for Non-Furnishing of BRCs: Key Takeaways from the Rajiv Sharma HUF vs. Union of India Case

Introduction

In a recent ruling, the Delhi High Court clarified that denying Input Tax Credit (ITC) refunds on zero-rated supplies due to the non-furnishing of Bank Realization Certificates (BRCs) is not permissible. This blog breaks down the case of Rajiv Sharma HUF vs. Union of India and Ors. [W.P.(C) 9381/2023]. We will examine the court’s findings and discuss the implications for businesses involved in exports. Understanding this judgment is crucial for optimizing ITC claims and maintaining GST compliance.

Facts of the Case

Rajiv Sharma HUF, a business exporting automotive spare parts, applied for a refund of unutilized ITC on zero-rated supplies for November 2021. The refund amount was ₹12,82,643, claimed under Section 16 of the Integrated Goods and Services Tax (IGST) Act. Although the goods were exported without tax payment, and the refund application was submitted, the Revenue Authority issued a Show Cause Notice (SCN). They proposed rejecting the refund due to the absence of BRCs, bank statements, and ledger accounts of suppliers. The Assessee provided explanations, but the refund claim was still denied. This led to an appeal.

When the Appellate Authority upheld the decision, Rajiv Sharma HUF filed a writ petition challenging the rejection.

Court Observations

1. Deficiency Memo: The court observed that the proper officer did not issue a deficiency memo. This absence implied that all required documents for the refund application were considered submitted.
2. Refund Rejection Conditions: Under Rule 92(3) of the Central Goods and Services Tax (CGST) Rules, a refund application can only be rejected if the officer is convinced that the claim is inadmissible. The lack of a deficiency memo suggested that the officer found no initial issues with the documents.
3. BRCs Requirement: Referring to CBIC Circular No. 125/44/2019 – GST, dated November 18, 2019, the court clarified that BRCs are not mandatory for ITC refunds on exported goods. The Revenue’s insistence on BRCs was, therefore, incorrect.
4. Inconsistent Rejection Reasons: The court noted inconsistencies between the reasons provided by the Appellate Authority and the grounds cited in the original rejection order. These inconsistencies further weakened the case for refund denial.

Judgment

The Delhi High Court set aside the previous orders and sent the case back to the adjudicating authority for re-examination. The adjudicating authority was tasked with verifying whether the Assessee had paid suppliers for the inward supplies in question. They were instructed to provide a reasoned order and offer the Assessee an opportunity to be heard.

Implications for Businesses

This ruling has significant implications for businesses involved in exports. It emphasizes the need to follow established rules and guidelines, such as those outlined in the CGST Rules and CBIC circulars. Exporters should:

• Ensure Compliance: Although BRCs are not required for ITC refunds, maintaining thorough documentation and following guidelines is crucial to prevent unjust rejections.
• Stay Updated: Regularly update your knowledge with the latest circulars and court rulings. Staying informed helps in managing ITC claims effectively.
• Consider Legal Options: If faced with refund rejections, explore legal remedies. Courts can overturn decisions if they find procedural errors or misinterpretations of the law.