Madras High Court Holds CBIC Circular Cannot Override Rule 96 of CGST Rules on IGST Refunds for Exporters

In a significant decision, the Madras High Court has clarified the legal position regarding the interplay between CBIC Circular No. 37/2018 and Rule 96 of the CGST Rules in the context of IGST refunds for exporters who have claimed higher duty drawback rates.

The petitioner challenged an order dated 13 July 2021, which rejected its request for duty drawback by relying on the CBIC Circular No. 37/2018-Cus dated 9 October 2018. The impugned order cited the circular’s clarification that exporters who declare and avail a higher rate of drawback at the time of submitting shipping bills are deemed to have consciously relinquished their claim to IGST refunds.

Counsel for the petitioner argued that the Gujarat High Court, in Amit Cotton Industries v. Principal Commissioner of Customs, had found the circular to be in conflict with Rule 96 of the CGST Rules, which governs the entitlement to IGST refunds. This position was subsequently followed by a Division Bench of the Madras High Court in W.A.(MD).No.1559 of 2021, which reiterated that the circular cannot override the statutory provisions of Rule 96. The Division Bench had observed that the circular could not save the Department’s position and that several other High Courts had adopted the same view.

Justice Mohammed Shaffiq, delivering the order, noted that the impugned order was based solely on the circular, which has been judicially determined to be inconsistent with the governing rule. The Court held that reliance on such a circular, in the face of contrary statutory provisions and binding judicial precedents, is impermissible.

Accordingly, the Court set aside the impugned order and directed the respondent authorities to reconsider the petitioner’s claim for refund. The authorities were instructed to pass fresh orders in accordance with the decisions of the Madras and Gujarat High Courts and the relevant statutory provisions, after affording the petitioner a reasonable opportunity of hearing. The exercise is to be completed within four weeks from the date of receipt of the Court’s order.

The judgment reinforces the principle that administrative circulars cannot override statutory rules, and that exporters’ entitlement to IGST refunds must be determined in accordance with Rule 96 of the CGST Rules, irrespective of the CBIC circular’s contrary stipulations.