FIRCs Not Mandatory If CA Certificate Proves Foreign Exchange Receipt
The current judgment is between Kuehne Plus Nagel Private Limited and Union of India & Ors. The assessee company is involved in logistics and warehousing services, which also exports services (likely to foreign clients), and filed a claim for GST refund. This refund was for the April to June 2021 quarter and amounted to Rs. 1.82 crore. The reason they were asking for the refund is that they had unutilised Input Tax Credit (ITC) on their zero-rated export services.
Under GST law, when a company provides export services that are zero-rated, and they collect GST on their purchases but cannot charge GST on their export invoices, they can claim a refund of the unused ITC.
The company operates under an RBI-approved netting mechanism. Meaning, if the company owes some money to its foreign clients and the foreign clients also owe them money, the two parties adjust these amounts against each other instead of transferring funds back and forth. This is legal and allowed by the Central Bank of India for certain companies, especially those working internationally.
To prove they actually received the value for their export services, the company submitted:
- A Chartered Accountant (CA) Certificate confirming the foreign exchange receipt
- EEFC (Exchange Earners’ Foreign Currency) bank statements
- Proof of monthly reconciliation under the netting system
This means they gave solid documentation that indicates they received foreign currency in India through an acceptable channel.
However, even after submitting these documents, the GST department rejected their refund, saying that the company did not submit the Foreign Inward Remittance Certificate (FIRC).
The bank issues the FIRC as evidence of foreign currency receipts in India. It is usually one of the required documents under CBIC Circular No. 125/44/2019 for GST export refunds.
Appeal and Further Rejection:
- The company considered this rejection unfair and challenged the refund rejection. However, the appellate authority upheld the rejection despite the fact that the company operates under an RBI-approved system.
- The company then approached the High Court under Article 227 of the Constitution, which permits the Court to supervise and correct lower authority decisions when they go wrong.
- The main question the High Court had to decide was: Can a GST refund of unutilised ITC be denied just because FIRCs are not submitted, even when there is other valid and certified proof of foreign exchange receipt through an RBI-approved method?
High Court’s Decision:
The High Court deeply examined the entire matter and announced a judgment on June 10, 2024, quashing the rejection order. Saying:
- The company had clearly shown that it received payment in foreign currency using valid documents.
- The Chartered Accountant’s certificate, bank statements, and the fact that the company was following an RBI-approved netting mechanism were enough to prove that the foreign exchange was realised.
- Even if FIRC was not there, the other documents were strong and valid.
- The Court also said, Don’t reject someone’s refund just because they didn’t give one document (FIRC), especially when they have already given other strong documents to prove their case.
- The High Court also took help from a case of the Supreme Court titled Union of India v. Mangal Textile Mills Pvt. Ltd. In that case, the Supreme Court accepted CA certificates as valid evidence of foreign exchange realisation. Hence, the Madras High Court used the same logic and ruled in favour of the company.
Final Court Directions:
Finally, the High Court passed the following directions:
- The GST Department must now reprocess the refund application dated 16.02.2023. The department was being the time for 12 weeks from the date of the order.
- The Department should not insist on FIRCs this time. Instead, they must accept the CA-certified foreign exchange realisation and the RBI-approved mechanism as valid.