GST – Applicability of unjust enrichment for refund filed for export of services
Exports play a pivot role in contributing towards foreign exchange reserves so the government ensures that exports are not burdened with domestic tax laws and exporters are provided with incentives and refunds. However, it is quite disheartening that getting refunds sanctioned from the Government is a tedious task. The revenue authorities are reluctant to sanction refunds easily. Therefore, the assessee is forced to knock the door of Courts to seek relief. One such case was reported by the hon’ble Bombay High Court in the case of JAR PRODUCTIONS PVT. LTD. V/S UNION OF INDIA. The decision imparted in this case is the subject matter of discussion of our present update.
The petitioner is a company incorporated under the Companies Act, 2013 and is engaged in providing production services to company located in U.K. i.e. ASCL. The petitioner entered into an agreement dated 12.09.2019 which was effective from 28.03.2018. Furthermore, clause 4.10 of the Agreement, provides that if the refund is sanctioned, the amount shall be reduced from the production expenses while computing the consideration of production service. For providing the said services, the petitioner utilised various inputs and input services. The petitioner therefore applied for refund which was rejected by the revenue department on the ground that incidence of tax has been passed to the client thereby resulting into unjust enrichment.
The Appellate Authority held that refund cannot be granted since the petitioner is not beneficiary and it tantamount to unjust enrichment. Reliance was placed on the decision of Apex Court in the case of Mafatlal Industries V/s Union of India. The petitioner thereafter preferred a Writ Petition in this Court.
The Counsel of petitioner argued that the principle of unjust enrichment is not applicable in the case of export of services. In the present case, it is a zero-rated supply and unjust enrichment is not applicable. Furthermore, clause 4.10 of the agreement is also in support of the fact that refund received shall be deducted from expenses of production.
The Counsel of revenue argued that the petitioner admitted that it is a case of unjust enrichment and the credit notes will nullify the effect of the same. Further, it was submitted that the GST Law does not prescribes any mechanism for paying back the GST by way for issuance of credit notes.
The Court held that the present case is related to export of service u/s 2 of IGST Act, 2017, the refund of which shall be granted as per Section 54 of CGST Act, 2017 being a zero-rate supply. The agreement executed includes all cost related to production service including the amount of GST. This reflects the fact that the incidence of tax has not been passed to the recipient. It was held that the alternative argument cannot be treated as admission. Reference was made to the decision of MOTILAL OSWAL SECURITIES LTD V/S COMMISSIONER OF SERVICE TAX. Furthermore, it was stated since the present case is related to export of service, GST shall not be applicable. Therefore, it was held that the adjudicating authority and the appellate authority erred in rejecting the refund claim of the taxpayer.
The above decision is favourable for the exporters for passing the hurdle of unjust enrichment. It is settled principle of law that in case of exports, the incidence of tax is not passed on to the recipient and so the question of applying the principle of unjust enrichment for granting refund does not arise at all.
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