Introduction
In a major victory for exporters, the Gujarat High Court has ruled in favor of Kuehne + Nagel Pvt. Ltd., allowing the refund of unutilized Input Tax Credit (ITC) without the submission of Foreign Inward Remittance Certificates (FIRCs). This judgment will benefit businesses that export services and receive foreign exchange through RBI-approved net-off clearing mechanisms.
Let’s break down the case, the court’s reasoning, and what it means for exporters under India’s GST framework.
The Case Background
Kuehne + Nagel Pvt. Ltd. is a logistics and freight forwarding company involved in international and domestic transport, customs clearance, and warehousing services. When services were exported without payment of GST under a Letter of Undertaking (LUT), the company accumulated unutilized ITC and filed a refund claim of ₹1.82 crore for the period April to June 2021.
The refund was claimed under Section 54 of the CGST Act, 2017, read with Section 9 of the IGST Act and Rule 89 of the CGST Rules.
Why the Refund Was Rejected
The GST department rejected the refund citing non-submission of FIRCs, even though the company:
- Operated under an RBI-approved net-off mechanism.
- Submitted a Chartered Accountant (CA) certificate certifying receipt of net foreign exchange.
- Provided complete documentation including RBI approval, bank advice, EEFC statements, export invoices, and reconciliation data.
The rejection was based on CBIC Circular No. 125/44/2019, which mandates FIRCs or BRCs for export of services.
What is the Net-Off Clearing Mechanism?
Under this mechanism:
- The company receives payments from global group entities and also makes payments to them.
- Instead of individual payments, it adjusts receivables and payables monthly.
- Only the net foreign exchange is remitted to India.
- This is permitted by RBI, which issued approvals dated 30.09.1997 and 24.12.1997.
Example: If the company has to receive USD 1,000 and pay USD 800, only USD 200 is brought to India after netting.
Every month, a CA verifies and certifies the net amount received, and the bank confirms the remittance.
Documents Submitted by the Company
Along with the refund application, the petitioner submitted:
- Form GST RFD-01 and ARN
- Export Turnover computation as per Rule 89(4)
- Statement of input tax credit (as per CBIC Circular 135/05/2020)
- GSTR-2A summary
- RBI Approval letters
- Chartered Accountant’s monthly certificate
- EEFC bank statements
- FIRCs for partial receipts
- Invoice-wise Statement-3
- Reconciliation of forex receivables and payables
Despite submitting all this, the GST officer rejected the claim only due to missing FIRCs for specific invoices.
Court’s Observation and Verdict
The Gujarat High Court made the following key points:
- Substance Over Form: The actual receipt of convertible foreign exchange is not disputed. The technical non-submission of FIRCs cannot outweigh the fact that the company complied in spirit and submitted robust supporting documents.
- CA Certificate is Valid Evidence: Relying on the Supreme Court’s decision in Union of India v. Mangal Textile Mills Pvt. Ltd., the court reaffirmed that CA-certified documents must be accepted when they substantiate financial transactions.
- RBI Approval is Binding: The company had clear RBI authorization to operate on a net-off clearing basis. The bank certified that USD 95.6 million was received during the refund period on a pan-India basis. This included invoices from Gujarat.
- Circulars Cannot Override Law: The court clarified that circulars like 125/44/2019 serve as procedural guidance and cannot override statutory eligibility for refund under the CGST Act.
Final Judgment
The court quashed the order dated 10.06.2024 and directed GST authorities to:
- Process the refund application filed on 16.02.2023
- Accept the CA certificate as proof of foreign currency receipt
- Disburse the refund within 12 weeks
The petition was allowed with no costs.
Key Takeaways for Exporters
🔹 You can claim GST refunds without FIRCs if you follow RBI-approved clearing processes and submit a certified CA report.
🔹 Always maintain strong monthly documentation, including EEFC statements, forex reconciliations, and RBI letters.
🔹 If your refund is denied on procedural grounds, you have legal recourse based on this precedent.
🔹 CBIC circulars cannot invalidate statutory rights under the CGST and IGST Acts.
Practical Advice for Businesses
If you’re exporting services and using netting arrangements, follow this checklist:
✅ Obtain RBI approval in writing
✅ Appoint a qualified Chartered Accountant to verify forex movement
✅ Maintain bank confirmations, invoices, and remittance proofs
✅ File complete documentation while applying for GST refunds
✅ In case of rejection, approach the High Court with proper legal support
Conclusion
This judgment is a game-changer for exporters. It reinforces the principle that genuine transactions must not be penalized due to procedural lapses. Authorities must take a pragmatic approach and evaluate the substance of compliance, not just the form.
LinkedIn Link : RMPS Profile
This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
Published on: August 2, 2025