The Goods and Services Tax Appellate Tribunal (GSTAT), State Bench, Bhopal, has held that an appeal involving the legality of recovery of interest as a precondition for restoration of Input Tax Credit (ITC), as well as the validity of Rule 96(10) of the CGST Rules, raises substantial questions of law requiring adjudication by a Judicial Member and a Technical Member.
The bench of Upendra Kumar Singh (Judicial Member) and Sunil K. Das (Technical Member) directed that the matter be listed for admission hearing before the appropriate Bench on 31 July 2026.
The appellant, a manufacturer engaged in the export of goods, imported inputs without payment of Integrated Goods and Services Tax (IGST) under an Advance Authorisation Licence. After manufacturing the export goods, it exported them on payment of IGST and successfully obtained a refund of the tax paid on such exports.
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Subsequently, the State GST authorities objected to the refund on the ground that the exporter had already availed the benefit of Notification Nos. 78/2017-Customs and 79/2017-Customs, both dated 13 October 2017, while importing inputs under the Advance Authorisation Scheme. According to the department, exporters availing these customs exemptions were not entitled to export goods on payment of IGST and thereafter claim refund of such IGST from their electronic credit ledger in view of Rule 96(10) of the CGST Rules.
To resolve the objection, the appellant voluntarily deposited the refunded amount of ₹43.62 lakh through Form GST DRC-03 and sought re-credit of the same in accordance with CBIC Circular No. 174/06/2022-GST dated 6 July 2022. However, before granting re-credit, the department insisted that the appellant first pay interest of ₹13.23 lakh under Section 50 of the CGST Act, 2017. The appellant deposited the interest but later sought its refund. The claim was rejected by the appellate authority, which held that payment of interest was mandatory under the Circular for restoration of the credit, leading to the present appeal before GSTAT.
The appellant challenged not only the rejection of the interest refund but also questioned the applicability of Rule 96(10) of the CGST Rules, 2017. It argued that the rule has already been declared ultra vires Section 16 of the CGST Act by the Kerala High Court in Vinayaka Cashew Company v. Union of India. On this basis, it contended that the restriction imposed through Rule 96(10) could not legally deny the refund or justify recovery of interest.
The State GST authorities maintained that the original refund had been sanctioned in contravention of Rule 96(10) of the CGST Rules. They argued that since the appellant had wrongly obtained the refund despite enjoying customs duty exemptions under the Advance Authorisation Scheme, the demand for repayment and the requirement to pay interest before restoration of credit were legally justified.
After hearing both sides, the GSTAT observed that the appeal requires examination of several significant statutory provisions, including Sections 16, 50 and 54 of the CGST Act, 2017, Rule 96(10) of the CGST Rules, the customs exemption notifications, and CBIC Circular No. 174/06/2022-GST. The Tribunal noted that these provisions would need to be revisited to determine the legality of the department’s action.
The Bench further observed that the dispute involves important questions regarding the interpretation of the statutory framework governing export refunds, re-credit of ITC, and levy of interest. It also took note of the appellant’s reliance on the Kerala High Court’s decision declaring Rule 96(10) ultra vires, indicating that the issue raises substantial legal questions requiring detailed adjudication.
Holding that the appeal prima facie involves questions of law, the GSTAT stated that, in terms of Section 109(8) of the CGST Act, the matter should be heard by a Bench comprising a Judicial Member and a Technical Member. The Tribunal accordingly directed that the case be listed for admission hearing on 31 July 2026.
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