HC validates “Nil value” for import of services absence self-invoice in light of CBIC Circular

This tax alert summarizes a recent ruling of the Kerala High Court (HC)[1] on the validity of Rule 96(10) of the Central Goods and Services Tax Rules, 2017 (CGST Rules).

The key observations of the HC are:

• Section 16 of the Integrated Goods and Services Tax Act, 2017 (IGST Act) does not restrict the right of an exporter to claim a refund of either tax paid on exports or input tax credit (ITC) on inputs and input services used in the export of goods or services.
• The phrase “subject to such conditions, safeguards, and procedure as may be prescribed” in Section 16 and similar phrase in Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act) does not permit imposition of conditions or limitations that would effectively negate the right to refund provided by Section 16.
• Rule 96(10) creates unequal treatment between exporters seeking refunds of ITC under Section 16(3)(a) of the IGST Act read with Rule 89 of the CGST Rules and those under Section 16(3)(b). 
• If the Court finds provisions of plenary or subordinate legislation manifestly arbitrary, those provisions must be struck down.
• The Rule creates a restriction not contemplated by Section 16 of the IGST Act on the right to refund.

Basis above, HC struck down Rule 96(10) of the CGST Rules for the period prior to its deletion.

Comments

• The decision is likely to benefit taxpayer in cases where the tax authority has commenced action to recover refunds that have already been issued.
• It is relevant to note that rule 96(10) is also challenged in various writ petitions before other HCs.
• Taxpayers may need to examine if the principle from this ruling could be relevant to Rule 36(4) of the CGST Rules during the initial phase, where it limited the availment of input tax credit on invoices or debit notes not reported by suppliers in the returns (beyond the prescribed threshold), even when all the stipulated conditions in the CGST Act were met.

[1] TS-700-HC(KER)-2024-GST