GST UPDATE ON GUJARAT HIGH COURT DECISION ON RETROSPECTIVE AMENDMENT IN RULE 96(10) OF CGST RULES 147/20-21

Recently, the Hon’ble Gujarat High Court in the case of M/s COSMO FILMS LIMITED VERSUS UNION OF INDIA & OTHERS [CIVIL APPLICATION NO. 15833 OF 2018] had considered the issue of validity of retrospective amendment in Rule 96(10) of CGST Rules, 2017 restricting export of goods on payment of IGST and claim of refund thereon where the benefit of advance authorisation notification no. 79/2017-Customs dated 13.10.2017 has been availed. The petitioner requested to declare the retrospective amendment in Rule 96(10) denying benefit of refund of IGST as ultra vires the CGST Act, IGST Act, and Rule made thereunder and the Constitution. The present update seeks to highlight the key observations of the Hon’ble Gujarat High Court.

The petitioner submitted that neither Section 16 of the IGST Act nor Section 54 of the CGST Act prescribes any power to issue impugned notification no. 54/2018-Central Tax dated 09.10.2018 so as to deny the impact of zero rating exports for granting benefits of rebate under Section 16 of the IGST Act, so as to nullify the benefits under the Advance Authorization Scheme availed by the exporters. It was submitted that in view of the impugned notification, the petitioner is put at a disadvantageous position against regular exporters who are exporting goods without payment of IGST on the output side and at the same time, claiming refund of input taxes on the input side thereby effectively incurring no tax cost either on the input side i.e. on procurements or on the output side i.e. on exports in terms of Section 16 of the IGST Act, whereas, only because the petitioner has availed the benefit under Advance Authorization Scheme, in view of amended Rule 96(10) of the CGST Rules, the petitioner is denied the benefit of IGST refund /rebate on the output side i.e. export. This is in violation of Article 14 of the Constitution of India. It was submitted that Advance Authorisation license holders or regular exporters earn foreign exchange for the country and boost the economy of the nation and so there is no justification for differential tax treatment to regular exporters and AA license holders.

The petitioner submitted that sufficient safeguards already exist to prevent undue benefits being claimed, as Rule 89 of the CGST Rules prohibits availment of input tax credit by recipient in case of Deemed Export Benefits are claimed by the supplier. Moreover, in case of Merchant Export Benefits and AA benefits, the quantum of rebate can in no case exceed the input tax credit balance i.e. the input tax credit earlier availed. It was therefore submitted that, the amendment of sub-rule (10) of Rule 96 are unreasonable and liable to be stuck down.

It was further submitted by the petitioner that the AA License scheme has been introduced with the objective of boosting exports, enhancing foreign exchange earnings and attracting more investment in the country, and therefore, AA License holders are granted with additional fiscal benefits and incentives vis-a-vis regular exporters. It was therefore submitted that to deny the benefits which are available to regular exports that are not holding the AA Licensee to the AA License holders, it goes against the policy of granting of AA License and denial of such benefits defeats the whole purpose of the AA License scheme.

The Departmental Representative, on the other hand, submitted that, the intention of Rule 96 (10) is to ensure that an exporter is not able to utilize the input tax credit availed on inward supplies which are used in making domestic output supplies for payment of IGST on exports and thereby encash the same.

After considering the submissions made, the Hon’ble High Court analysed the series of amendments made with respect to Rule 96(10) of CGST Rules, 2017 and concluded that there is no discrimination as enshrined in Article 14 of the Constitution of India with respect to operation of the restrictions contained in Rule 96(10) of the CGST Rules, 2017 and so the contentions of the petitioner are not acceptable. However, it was concluded that the original notification no. 39/2018-Central Tax dated 04.09.2018 made the amendment applicable retrospectively w.e.f. 23.10.2017 whereas the subsequent notification no. 54/2018-Central Tax dated 09.10.2018 seeks to apply restriction retrospectively since inception of Rule 96(10) which is not permissible. Hence, it was held that notification no. 54/2018-Central Tax dated 09.10.2018 was effective w.e.f. 23.10.2017 and not prior to that. Furthermore, the Hon’ble High Court also held that the explanation inserted in Rule 96(10) of the CGST Rules, 2017 vide notification no. 16/2020-Central Tax dated 23.03.2020 (with retrospective effect from 23.10.2017) clearly states that the restriction stated in Rule 96(10) of CGST Rules, 2017 will not apply where IGST/compensation cess is paid on inputs while exemption of only BCD is availed under the notification no. 79/2017-Customs dated 13.10.2017. This avoids the anomaly during the intervention period and the exporters who have already claimed refund of IGST on exports along with IGST exemption on inputs under AA will have to payback IGST along with interest and avail ITC. To sum up, the decision confirms that the restriction of Rule 96(10) with respect to various notifications is applicable w.e.f. 23.10.2017 but not prior to that as is stated in notification no. 54/2018-Central Tax dated 09.10.2018. Along with this, the decision brings clarity that in situation where an exporter has mistakenly claimed refund of IGST on export along with benefit of IGST exemption of inputs under AA scheme, then the exports on payment of IGST can be regularised by paying back the applicable IGST on inputs along with interest and claiming credit of the IGST so paid. This interpretation would be of immense use to the exporters who had claimed double benefit due to confusion during initial period.

This is solely for educational purpose.
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GST UPDATE ON GUJARAT HIGH COURT DECISION ON RETROSPECTIVE AMENDMENT IN RULE 96(10) OF CGST RULES 147/20-21

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