GST update on amended Rule89

This update intends to discuss the amendment in rule 89 of the CGST rules vide notification no. 03/2018-Central tax dated 23-01-2018. Sub-rule (4A) and sub-rule (4B) of rule 89 has been substituted which reads as follows:-

“(4A) In the case of supplies received on which the supplier has availed the benefit of the Government of India, Ministry of Finance, notification No. 48/2017-Central Tax dated the 18th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1305 (E) dated the 18th October, 2017, refund of input tax credit, availed in respect of other inputs or input services used in making zero-rated supply of goods or services or both, shall be granted.

(4B) In the case of supplies received on which the supplier has availed the benefit of the Government of India, Ministry of Finance, notification No. 40/2017-Central Tax (Rate) dated the 23rd October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1320 (E) dated the 23rd October, 2017 or notification No. 41/2017-Integrated Tax (Rate) dated the 23rd October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1321(E) dated the 23rd October, 2017 or notification No. 78/2017- Customs dated the 13th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1272(E) dated the 13th October, 2017 or notification No. 79/2017-Customs dated the 13th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1299(E) dated the 13th October, 2017, or all of them, refund of input tax credit, availed in respect of inputs received under the said notifications for export of goods and the input tax credit availed in respect of other inputs or input services to the extent used in making such export of goods, shall be granted.”

This amendment has been made w.e.f. 23/10/2017.

Starting with notification no. 48/2017-Central tax, this notification states the category of supplies will be deemed to be exports. The list is as follows:

S. no.	Description of supply
1	Supply of goods by a registered person against Advance Authorisation
2	Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation
3	Supply of goods by a registered person to Export Oriented Unit
4	Supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorisation

Lets take a situation where a registered person makes a supply to any EOU. Circular no. 14/2017 dated 06-11-2017 stipulates the procedure to be followed by the EOU to procure goods from DTA without payment of duty. The whole transaction can be done in 3 ways:

	Condition
Scenario 1	Supplier charges duty and recipient claims credit of the same
Scenario 2	supplier pays duty and claims for refund itself and the recipient does not avail credit of the same
Scenario 3	Supplier pays duty and the recipient claims credit and simultaneously claims the refund

In the first case, there is no question of refund and thus no reference to the rules of refund is needed. Again in the second scenario, because the supplier will be claiming refund, there is no question of recipient being able to claim credit and refund. In the third scenario, the recipient will claim credit and refund which would mean that the supplier has not availed any benefit and thereby rendering the clause 4A redundant itself. In such a case the very need of this clause becomes unclear.

Coming on to clause 4B, it states that the refund of unutilized credit shall be allowed in case where a recipient receives goods from the suppliers availing benefit of the below mentioned notifications:

1. A supplier availing benefit of notification no. 40/2017-Central Tax (Rate) 23rd October, 2017

2. A supplier availing benefit of notification no. 41/2017-Integrated Tax (Rate) dated the 23rd October, 2017

3. A supplier availing benefit of notification no. 78/2017-Customs dated the 13th October, 2017

4. A supplier availing benefit of notification no. 79/2017-Customs dated the 13th October, 2017

Here again the same problem persists as is in the clause 4A. The abovementioned notifications relate to schemes like EPCG and Advance Authorisation allowing the holder to procure the goods without payment of duty (on payment of duty after GST). In every case and scenario of supply under these notifications, if the supplier is availing benefit, then there will not be any question of the recipient claiming credit and hence refund. And if the recipient avails credit or claims refund of the accumulated credit, then the very basic condition of the clauses that the supplier should have availed the benefit of the notifications gets violated. In any case the need and necessity of the clauses is beyond understanding.

A clarification from authorities for purpose of this notification as well as suitable amendment is required in this regard.

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GST update on amended Rule89

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