In our earlier article, “Furnishing of bonds/letter of undertaking on export of services – Why Govt needs to re-visit?”, we had discussed why the Govt needs to re-visit these provisions. The hardships continue to exist and now the tax payers are taking their own measures. A Writ Petition has been filed by Aphro Ecommerce Solutions. Private Limited with the Delhi High Court.

The petitioner Company is a web developer and IT software solution provider in International and Domestic market and through the instant writ petition seeks parity and a level playing field in business.

The primary issue for the consideration of this Hon’ble Court in the present writ petition is that Notification and Circular above casts a burden on start-ups, exporters with export revenue of less than one crore in the preceding year with a blockage of working capital in furnishing the bank guarantee and the said measure is of no avail to the Government or the Respondents in any manner.

Section 16(3)(a) of the Integrated Goods and Services Act, 2017 prescribes an option for claiming refund which can be availed if the supply of goods & services or both either made under the bond or under the letter of undertaking. A bare reading of this provision nowhere postulates any other embargo upon the supplier that have to be fulfilled for claiming refund. However, the rules if read with FORM GST RFD-11 prescribes furnishing of bank guarantee in case if refund of integrated tax is being claimed through the bond route. Thus the said rule and the prescribed FORM is on the face of it is against and contrary to Section 16(3)(a) which in no terms prescribes furnishing of bank guarantee for availing a option of return.

the petitioner herein through the present writ petition is also challenging the constitutional validity of Notification no. 16/2017 dated 07th July 2017 issued by Central Board of Excise and Customs, as the same violates Article 14 of the Constitution of India as well as Section 16 of Integrated Goods & Services Act, 2017. The said notification categorizes registered person in such a manner so as to make a distinction among the registered persons in two different classes, one eligible for submission of letter of undertaking and another not so eligible. In the most humble submission of the petitioner herein the said distinction introduced by a way of notification not only runs contrary to the constitutional mandate of Article 14 but also at the same time is de-hors the provisions of Section 16, which in no terms classifies a registered person for the purposes of claiming refund of integrated tax in a manner which has been illegally, unjustifiably and unconstitutionally done by this notification. Hence the petitioner herein is aggrieved not only by the imposition of a mandate of furnishing a bank guarantee but also for also unconstitutionally and prejudicially classifying the petitioner in a category through a Notification and Rules which the parent Act does not stipulate. The manner in which the impugned notification classifies a person eligible to only submit a letter of undertaking is per se unconstitutional and is not only against the mandate of Article 14 but is also in contravention to Article 19(1)(g), as the said classification directly restricts the likes of the petitioner to carry on their trade and business in a fair manner. In another words, a reading of notification lays down that an exporter is eligible for submission of letter of undertaking without furnishing any bank guarantee if they have received a minimum of one crore rupees in the preceding financial year as due foreign inward remittances or are status holder under para 3.2 of the Foreign Trade Policy 2015-2020. The big players in the business of export are placed in an advantageous position as there is no requirement of Bank Guarantee/Bond for them, whereas the Petitioner herein is compelled to furnish a Bank Guarantee of Bar & Bench (www.barandbench.com) maximum 15% of the bond amount which will be discretionally decided by the concerned jurisdictional Commissioner. It is on account of this unreasonable and arbitrary distinction, the working capital of the Petitioner Company gets blocked in a manner of Bank Guarantee which will have a direct bearing in doing business and competing in the market. The restriction so imposed by mandating furnishing of bank guarantee, companies like the Petitioner herein, which has received foreign inward remittances amounting to less than one crore rupees in the preceding financial year, would also have a direct bearing on its scale of growth and as such goes against the “Make-in-India” policy promoted by the Government itself. Hence for the aforesaid reasons the present writ petition is being preferred.

Read the full petition here.