GST Update on restriction of refund of IGST paid on exports under Rule 96(10) of the CGST Rules

The provision contained in Rule 96(10) has been matter of discussion since its introduction vide Notification no. 3/2018-Central Tax dated 23.01.2018. The language of the Rule 96(10) as inserted retrospectively vide notification no. 3/2018-Central Tax dated 23.01.2018 is produced for the sake of convenient reference as follows:-

(10) The persons claiming refund of integrated tax paid on exports of goods or services should not have received supplies 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 or notification No. 40/2017-Central Tax (Rate) 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.”;

The content of various notifications referred in the above mentioned provision is summarised as follows:-
1. Notification no. 40/2017-Central Tax (Rate) dated 23rd October, 2017:- This notification prescribes CGST rate of 0.05% if goods are supplied by registered supplier to a registered recipeint for export subject to certain conditions.

2. Notification no. 41/2017-Integrated Tax (Rate) dated 23rd October, 2017:- This notification prescribes IGST rate of 0.1% if goods are supplied by registered supplier to a registered recipeint for export subject to certain conditions.

3. Notification no. 48/2017-Central Tax dated 18th October, 2017:- This notification notifies supplies to be considered as deemed exports.

4. Notification no. 78/2017-Customs dated 13th October, 2017:- This notification provides exemption to IGST and compensation cess levied on goods imported by EOU.

5. Notification no. 79/2017-Customs dated 13th October, 2017:- This notification amends various notifications issued under advance authorization so as to provide IGST exemption and Compensation Cess exemption to goods imported against advance authorization.
We submit that as per the above referred Rule 96(10) of the CGST Rules, 2017, the refund of IGST paid on exported goods is not allowed if the goods are procured from supplier who has availed benefit of above cited notifications. For example, refund of IGST paid on exported goods is not allowed if goods are procured against an advance license invalidated in favour of local supplier because the Rule refers that the ‘supplier should not have availed the benefit of the mentioned notifications’.

We submit that if an advance license or EPCG license is invalidated in favour of a local supplier and subsequently the supplier supplies goods against such license, the person receiving such goods will become ineligible to claim refund of IGST paid on goods exported. Similarly if the goods are procured by an EOU from local supplier where the local supplier avails the benefit on supply made to EOU, refund will be denied to EOU of IGST paid on exports.

On interpreting the language of the provision, it is clear that the restriction as regards refund of IGST paid on exports is applicable only when person supplying the goods to exporter avails benefit of cited notifications. It is not applicable when advance authorisation holder himself exports the goods.
However, recently, the Notification No. 39/2018-Central Tax dated 04.09.2018 has amended this Rule 96 (10) and the amended Rule reads as follows:-
The persons claiming refund of integrated tax paid on exports of goods or services should not have –

(a) received supplies on which 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 or 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 has been availed; or

(b) availed the benefit under 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.

The language of the amended provision clearly debars all the exporters including holder of advance authorisations from availing the benefit of refund of IGST paid on the export of goods. Not only this, Circular No. 59/33/2018-GST dated 04.09.2018 clarifies in paragraph no. 5 that restriction under Rule 96(10) applies only to those purchasers/importers who are directly purchasing/importing supplies on which benefit of certain notifications as specified in the sub-rule has been availed. The amendment in the provision contained in Rule 96(10) leaves no scope for the holder of advance authorisation to claim the refund of IGST paid on export of goods/services.

It is pertinent to mention here that the intention of the government to debar the benefit of refund of IGST to exporters availing the benefit of specified notifications was revealed in the clarification issued in paragraph 7 of the Circular No. 45/19/2018-GST dated 30.05.2018 wherein the scope of restriction imposed vide Rule 96(10) of the CGST Rules was discussed. It was stated that a manufacturer might have imported capital goods by availing the benefit of notification no. 78/2017-Customs dated 13.10.2017 or notification no. 79/2017-Customs dated 13.10.2017 and thereafter goods manufactured from such capital goods may be supplied to an exporter. It was clarified that restriction does not applies to such inward supplies of exporter. In our opinion, the restriction as regards refund of IGST paid on exports to exporter importing capital goods under specified notification is absurd as in case of EPCG, the export obligation is required to be discharged in 6 years and debarring exporter to claim refund of IGST paid on export of goods merely because IGST exemption was availed on import of capital goods is totally absurd.

In our opinion, the impact of this amendment is far reaching as the exporters holding advance authorisations and who have already claimed refund of IGST paid on exports will face the rigours of recovery of refunds as the amendment is applicable retrospectively w.e.f. 23.10.2017.

The content of this GST update is for educational purpose only and not intended for solicitation.

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GST Update on restriction of refund of IGST paid on exports under Rule 96(10) of the CGST Rules

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