A significant statutory conflict is currently unfolding in the courts, and it has profound implications for global organizations operating in India.
At the heart of the matter is a “Catch-22” between GST mandates and refund eligibility.
Under GST Law, transactions between related parties or distinct branches (even without consideration) are treated as “Deemed Supplies” under Schedule I.
While the law mandates these be treated as taxable events, a secondary hurdle exists for those seeking refunds: Export Realization.
To qualify as a “Zero-Rated” export and unlock Input Tax Credit (ITC) refunds, the law typically requires proof of foreign exchange realization.
How can an entity provide a Foreign Inward Remittance Certificate (FIRC) for a transaction that by the law’s own definition was performed without consideration?
The High Court is now challenging this “statutory incompatibility.” The logic behind this is very clear: The government shouldn’t “deem” a sale for tax purposes, then deny the export benefit because no money changed hands.
If your refunds are stuck because of inter-company “deemed” charges, the tide is turning. It’s time to re-evaluate those pending claims.
