The Karnataka High Court has held that a GST demand cannot be sustained merely because an exporter failed to furnish a Letter of Undertaking (LUT), if the underlying transaction otherwise qualifies as an export of services and is therefore a zero-rated supply under the GST law. 

The bench of Justice B.M. Shyam Prasad quashed both the adjudication order and the appellate order and remanded the matter for fresh consideration. 

The petitioner/assessee writ petition challenged an adjudication order dated August 28, 2024, passed under Section 73(9) of the CGST/KGST Acts, as well as the appellate order dated June 12, 2025, which had dismissed the company’s appeal on the ground of limitation. The petitioner also sought a refund of ₹72.08 lakh that had been recovered by the tax authorities. 

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The petitioner contended that the services supplied by it qualified as “export of services” under Section 2(6) of the GST Act and therefore constituted zero-rated supplies. However, the tax department confirmed the GST demand solely because the company had not furnished a Letter of Undertaking (LUT) in the prescribed format before making the exports. According to the petitioner, the tax recovery was made due to a procedural lapse rather than any substantive violation of the GST law. 

The appeal filed against the adjudication order was rejected as time-barred, prompting the petitioner to approach the High Court seeking quashing of both orders and refund of the recovered amount. 

The High Court observed that the adjudicating authority had failed to examine the true nature of the transaction before raising the GST demand. The Court emphasized that the authority was required to determine whether the services satisfied the statutory definition of export of services and consequently qualified as zero-rated supplies. This crucial issue had not been considered while passing the demand order. 

The Court also relied upon its earlier decision dealing with similar circumstances and referred to the CBIC Circular dated March 15, 2018. The circular clarifies that non-furnishing of an LUT or bond under Rule 96A of the CGST Rules is not an incurable defect and that authorities may accept the LUT even after exports have been made, depending upon the facts of each case. 

According to the Court, the earlier precedent had clearly held that the absence of an LUT cannot automatically result in denial of benefits where the exports are otherwise genuine and the procedural requirement can be fulfilled subsequently. The authorities were expected to consider the circular before rejecting any claim. 

The High Court observed that the petitioner’s entitlement to refund must be examined after permitting it to furnish the Letter of Undertaking. Since neither the jurisdictional issue nor the refund claim had been properly considered, the Court found it appropriate to interfere with both the adjudication and appellate orders. 

The Court quashed the adjudication order dated August 28, 2024, and the appellate order dated June 12, 2025, restoring the proceedings to the adjudicating authority for fresh consideration. The petitioner was granted liberty to place the Letter of Undertaking before the authority. 

The High Court directed the second respondent to reconsider the matter by passing a reasoned order after taking into account the Letter of Undertaking and the petitioner’s claim that the transactions constituted export of services. The authority has been instructed to complete the proceedings within eight weeks from the date of receipt of the certified copy of the judgment.

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