Goods & Services Tax (GST) in IndiaRight to Refund of ITC commences after the Export of Goods

December 5, 20230

The Delhi High Court, in M/s Indian Herbal Store Private Limited v. Union of India and others, [W.P. (C) 9908/2021 and W.P. (C) 9912/2021 dated 15.09.2023] held that the amendment to Rule  89(4)(C)  of the CGST Rules would not have retrospective application, as the right to refund of ITC commences after the export of goods; and directed to process the refund claim of accumulated ITC.


Indian Herbal Store Private Limited, (hereinafter referred to as “the Petitioner”) was engaged in exporting herbal goods through an e-commerce platform supplying goods through courier service. The Petitioner had filed for refund of the un-utilized input tax credit (hereinafter referred to as “ITC”)   in respect of zero-rated supplies and filed four separate applications for four quarters in the period, 01.10.2018 to 30.09.2019.

The four applications were rejected by the Commissioner of Delhi Goods and Services Tax by four separate orders dated 15.09.2020, 24.09.2020, 22.10.2020 and 05.11.2020 (hereinafter referred to as the “Impugned Original Orders”) on two grounds. Firstly, that the Petitioner failed to furnish the pertinent Foreign Inward Remittance Certificates (FIRCs) and could not establish a correlation with the conducted exports. Secondly, the calculation of the eligible export turnover was not in adherence to the provisions outlined in Rule 89(4)(C) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”).

The Petitioner filed four separate appeals against the Impugned Original Orders which were rejected by two orders-in-appeal on the dated 18.06.2021 for the period 01.10.2018 to 31.12.2018 and second again dated 18.06.2021 for the other three periods on the ground that the export turnovers were not in compliance with Rule 89(4)(C) of the CGST Rules (hereinafter referred to as the “Impugned Appellate Orders”)

Therefore, aggrieved by the Impugned Appellate Orders and non-process of the Refund Application, the Petitioner has filed the present Petition. Further, the Petitioner has also challenged constitutional vires of Rule 89(4)(c) of the CGST Rules.


1. Whether Rule 89(4)(C) of the CGST rules is ultra vires to Section 54 of the CGST Act as well as Section 2(5) and Section 16 of the IGST Act?

2. Whether the Rule 89(4)(C) of the CGST Rules is in contravention of Article 14 of the Constitution of India?

3. Whether the Petitioner is eligible for the refund applications in accordance with Rule 89 of the CGST Rules?


The Petitioners contended that Rule 89(4)(C) of the CGST Rules contains a formula for computing the maximum amount of refund admissible in respect of goods or services or both exported without payment of tax under a bond or a letter of undertaking in accordance with Section 16(3) of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the “IGST Act”).

It was further argued that the maximum amount of refund of ITC admissible was the fraction of amount of ITC in proportion of the export turnover to the total turnover, as adjusted by excluding exempt supplies and supplies in respect of which refund is claimed under Rule 89(4A) and Rule 89(4B) of the CGST Rules.

It was also contended that the amended to Rule89(4)(c) of the CGST Rules added a condition that the refund of ITC was restricted by capping the value of the export turnover to 1.5 times the value of similarly placed domestic supplies. Moreover, irrespective of the value of the goods exported and the export proceeds realised by an exporter, the value of exports would be considered as 1.5 times the value of such goods, as domestically supplied if the said value was less than the actual value of exports.

The Respondent contended that the Rule 89(4)(C) of the CGST Rules was a merely procedural provision for the purpose of calculation of admissible refund of ITC and hence,   amendment would be retrospectively applicable.

It was further stated   the Rule 89(4) of the CGST Rules applies prospectively i.e. from 23.03.2020. However, the amendment would have retroactive operation for computing the refund of ITC in respect of exports made prior to the date of the amendment (23.03.2020) but applied for after the amendment.


The High Court observed that in terms of Section 54 of the CGST Act, the right of refund of accumulated ITC stands crystalized on date when subject goods are exported.

It was further observed that in accordance with Section 54(1) of the CGST Act, the limitation for applying refund would be from the date of export of goods.

The High Court relied on Secy., Ministry of Chemicals & Fertilizers, Govt. of India v. Cipla Ltd., [(2003) 7 SCC 1] and held that “turnover” has to be read in reference to the period it relates. Thus, the ITC relatable to the turnover of a period must – unless it is indicated otherwise either expressly or by necessary implication – be ascertained in terms of the rules as in force during the said period.

It was further held that the Appellate Authority erred in applying Rule 89(4)(C) of the CGST Rules as amended with effect from 23.03.2020 for computing the export turnover for the purposes of determining the refund as claimed by the Petitioner.

The High Court relied on M/s Tonbo Imaging India Pvt. Ltd. v. Union of India and Ors [W.P.(C) No.13185/2020 decided on 16.02.2023] and held that the Karnataka High Court had already struck down the amendment of Rule 89(4)(C) of the CGST Rules.

Furthermore, the Impugned Original Orders as well as Impugned Appellate Orders were set aside. Moreover, the Respondents were directed to process the refund of the Petitioner.  ,


The Delhi  High Court held that the fundamental aim of the concept of zero-rated supplies under the CGST or IGST Act is to render the entire supply chain of exports tax-free, exempting them from both input and output taxes. In line with this, the IGST Act facilitates the refund of input taxes paid during the process of making a zero-rated supply. Any arbitrary and unreasonable restrictions devoid of a rational connection to the objectives of these laws,  would defeat entire  purpose of the same. Moreover, the amendment regarding computation of eligible refund ITC would not have retroactive applicability, but would have prospective application. It was also held that the right to refund of ITC commences from the day of export of goods.

– Team AMLEGALS assisted by Ms. Vidushi Tanya

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