In An Important Decision By The Hon'ble Madras High Court (‘HC'), In The Case Of Afortune Trading Research Lab LLP, 2024-VIL-175-MAD

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In an important decision by the Hon'ble Madras High Court (‘HC'), in the case of Afortune Trading Research Lab LLP, 2024-VIL-175-MAD, wherein the Court held that convertible foreign exchange received
India Tax
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In an important decision by the Hon'ble Madras High Court ('HC'), in the case of Afortune Trading Research Lab LLP, 2024-VIL-175-MAD, wherein the Court held that convertible foreign exchange received by an intermediary in a foreign country and transfer the same in INR to exporter would suffice the requirement of 'Export of Services' for claiming GST refunds.

Facts

The petitioner is engaged in the business of providing opinions on stock market and predominantly all the clients are in foreign country.

The customers make the payment through PayPal platform. PayPal receives the amount in CITI Bank in foreign exchange i.e. US dollars and transfer the same in INR in Petitioner's HDFC bank.

The Petitioner filed GST refund for export of services. However, the refund was rejected by the Department as well as the first Appellate Authority on the ground that payments are not received in convertible foreign exchange.

Consequently, a writ before HC was filed contending that the payment is received as per the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016 and RBI Guidelines. Also, that the PayPal is duly authorised to receive the payment on behalf of Petitioner.

HC Decision

The Court observed that routing payment through authorised intermediaries is in accordance with FEMA (Manner of Receipt and Payment) Regulations, 2016. Regulation 3(2) provides that in case of exports from India, receipt shall be made in currency appropriate to the place of final destination.

The Court, thus, held that Petitioner has duly complied with the conditions of 'receipt of convertible foreign exchange'. Hence, the Petitioner is entitled for refund.

Our Remarks

This is a welcome decision since payment intermediaries have become a prominent payment bridge for many exporters in industries like Tourism, Media, Advertisements, Consulting etc.

It has been observed that Revenue Authorities are rejecting GST refunds on baseless grounds like:

  • That the Invoice number is not mentioned in e-BRC/FIRC
  • That the Foreign Remittance declaration/receipt etc. is not proper and only e-BRC is acceptable
  • That, in case of export with payment of IGST, exporter has recovered the amount from foreign customer and thus, unjust enrichment is applicable

Although taxpayers must take cognizance of such objections by the Authorities, yet all these grounds seem untenable in law and exporters may also challenge refund rejection on these grounds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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