GST UPDATE ON REFUND AMENDMENTS MADE IN CGST RULES, 2017- Part I

GST UPDATE ON REFUND AMENDMENTS MADE IN CGST RULES, 2017- Part I - 001/2020-21

UPDATE ON REFUND AMENDMENTS MADE IN CGST RULES, 2017- Part I
Certain important amendments have been made in connection with refunds Notification 16/2020-CT Dt. 23.03.2020 in the CGST Rules, 2017, which are explained in this article.
Clause (C) of sub-rule (4) of Rule 89 has been substituted as below -
(C) "Turnover of zero-rated supply of goods" means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both.

As per the above, the value of exports (zero rated supply) shall be limited to 1.5 times of the domestic price of such goods supplied either by the same supplier (refund claimant) or similarly placed supplier.
This provision has been inserted to keep an eye on the valuation done by exporters. Generally, different pricing strategies are followed in respect of goods sold globally and locally by the taxpayers. The department thinks that exporters value the exported goods at higher prices for claiming higher refund in cash and thus encashing the unavailed ITC of their electronic credit ledger.
New changes bring new challenges and complexities attached to it. The first and foremost question arises is what if taxpayer is not at all having domestic sale of same goods? Typically, the answer is contained in the rule inserted itself that the price of "similarly placed suppliers" have to be compared for this purpose. Now, who will be similarly placed Suppliers” is to be seen. There will be lot of litigation of this issue. What factors is to be considered for deciding “similarly placed supplier”. These factors can be supplier at same place, almost same turnover, almost same working conditions, having same set of machines, same manufacturing process etc. It will definitely have many rounds of legal battles.
In the current regime, there is no specific definition of “similar goods” to be described in the law. One has to keep in mind that the law uses “similar goods” and not “identical goods”. Hence, there is lot of difference between the two.
Though taking into consideration the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, “similar goods” means imported goods –
(i) which although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable with the goods being valued having regard to the quality, reputation and the existence of trade mark;
(ii) Produced in the country in which the goods being valued were produced; and
(iii) Produced by the same person who produced the goods being valued, or where no such goods are available, goods produced by a different person,
In common parlance, similar goods means goods produced in the same country or region as the import goods are, which, although not alike in all respects, have like characteristic and like component materials which enable them to perform the same functions and to be commercially interchangeable.

An example of similar goods is interchangeable rubber tubes imported from two different producers with different trademarks but of the same standard, quality and equivalent reputation as well as similar characteristics, components and functions for use by motor vehicle manufacturers.
The department will adopt different strategy while valuing similar goods for the purpose of refund sanction. In the most unlikely conditions, the methods adopted by the taxpayers will be in sync with the revenue authorities. In the absence of clarity on the valuation method to be adopted (which is an issue that was debated in the customs which still persists), it needs to be analysed whether the valuation a common benchmark for valuing the goods can be adopted (as per customs valuation act). Not to mention, this will mean blocking of working capital for the exporters as the department will not issue refund before giving a clean chit to the taxpayers.
In the erstwhile regime, many cases have been given in favour of department despite correct methodology adopted by the assessee as per Rule 5 of the Customs Valuation Act, 2007 i.e. Transaction value of similar goods.- Subject to the provisions of rule 3, the value of imported goods shall be the transaction value of similar goods sold for export to India and imported at or about the same time as the goods being valued.
Moreover, the valuation rules under Custom were restricted to valuation of imported goods and in GST, the valuation issue will arise for domestically supplied goods.
In case of S.S. ENTERPRISES VersusCOMMISSIONER OF CUSTOMS, HYDERABAD(2019 (370) E.L.T. 1372 (Tri. - Hyd.), valuation report given by chartered engineer was taken as base for the valuation of goods and hence, the appeal was allowed in favour of department. Many similar cases for valuation of goods were given in favour of department thereby leading to increased litigation costs to assessee along with payment of undue interest and penalty.
It is humble request from the all exporters that before accomplishing any rule in the Act, a disclaimer should be attached-“Passengers are responsible for their own luggage, to be more precise, taxpayers should take care of working capital in their best possible manner. Government should bring in more clarifications sooner for the ease of all exporters.”
This is solely for educational purpose.
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GST UPDATE ON REFUND AMENDMENTS MADE IN CGST RULES, 2017- Part I - 001/2020-21

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