NOVEMBER 13, 2017

By Anupama Ravindran, Advocate

1.1. AFTER a lot of hue and cry and expression of difficulty from the traders, Export Packages were discussed in the 22nd GST Council meeting. The press brief stated that an immediate relief measure was provided to exporters to prevent cash blockage of exports due to upfront payment of GST on inputs, etc. The immediate relief was provided to Advance Authorization (AA) / Export Promotion Capital Goods (EPCG) / 100% EOU Schemes by providing that IGST, Cess, etc., is not required to be paid on inputs imported by them. Also, domestic supplier to holders of AA or EPCG and EOUs would be treated as deemed export.

1.2. The Press brief was given effect vide Notification No. 48/2017-CT dated 18th October, 2017 which stated that, under Section 147 of the CGST Act, 2017, following supplies are treated as deemed exports:

a. Supply of goods by a registered person against Advance Authorisation

b. Supply of Capital Goods by a registered person against Export Promotion Capital Goods Authorisation

c. Supply of goods by a registered person to Export Oriented Unit

d. Supply of gold by a bank or Public Sector Undertaking specified nit eh notification No. 50/2017-Cus dated 30th June, 2017 (as amended) against Advance Authorisation.

1.3. The trade was hoping that the GST Council will look upon services at par with goods, and supply of services to Advance authorisation holder, or EPCG holder, or EOU will also amount to Deemed Export. That was however, not contemplated.

1.4. Notification No. 47/2017-CT dated 18th October 2017 was issued notifying the Tenth Amendment to the CGST Rules, 2017. Rule 89 titled "Application for refund of tax, interest, penalty, fees or any other amount" is amended to permit Application for refund in respect of deemed exports to be filed by either

a) The recipient of deemed export supplies; or

b) The supplier of deemed export supplies in cases where recipient does not avail of input tax credit on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund.

1.5. Prior to the amendment, Rule 89 of the CGST Rules provided the application for refund in respect of deemed exports shall be filed by the recipient of deemed exports supplies. The 10th Amendment to the Rules, in effect, permitted either the supplier or the recipient to seek refund of GST paid on deemed exports.

1.6. The Rules with respect to permitting refund for deemed exports draws authority from Section 54 of the CGST Act, 2017. The challenge unfortunately, is to identify which of the sub-sections of Section 54 permit the "recipient" of deemed exports, to claim refund.

1.7. Section 54(1) of the CGST Act states that "any person claiming refund of any tax and interest, if any, paid on such tax, or any other amount paid by him, may make an application before expiry of two years from the relevant date…". Therefore, refund contemplated under Section 54(1) is GST paid on outward supplies.

1.8. Section 54(3) states that "a registered person can claim refund of any unutilised input tax credit at the end of any tax period". Proviso to Section 54(3) specifically states that "refund of unutilised input tax credit shall not be allowed in cases other than zero rated supplies made without payment of tax OR where credit has been accumulated on account of inverted tax structure." Inverted tax structure is where the rate of tax on the inputs is higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies).

1.9. Clarity on certain terms has been provided vide Explanation to Section 54. "Refund" has been stated to include refund of tax on the supply of goods regarded as deemed exports, or refund of unutilised input tax credit as provided under sub-section (3). "Relevant date" meaning includes date of filing return relating to deemed export, where the supply is regarded as deemed export.

1.10. Coming to the issue, which Section allows "recipient" of deemed export to claim refund? Section 54(1) of the CGST Act provides only for persons who have paid tax and interest or any other amount, that is the supplier. The person on whom the liability to pay tax and interest or other amounts as applicable, is always the supplier of goods and/or services, even in the case of deemed exports. Exception is cases covered under Reverse charge mechanism, but that is outside the purview of this discussion. Therefore, the provision does not cover recipients of deemed exports.

1.11. Alternately in case of trying to fit the "recipient" of deemed export under Section 54(3), the said sub-section clearly states that refund of unutilised input tax credit is available only for zero rated supplies or for supplies with inverted tax structure. Therefore, Section 54(3) also covers only the suppliers. By definition of inverted tax structure, supplies involving nil rated supply is excluded. Therefore, Section 54(1) and 54(3) does not enable recipients of deemed exports to claim or to lodge refund application.

1. Glitches in design of Refund Forms

2.1. The Application for claiming refund, Form GST RFD-01 seeks to capture the Grounds of Refund Claim at Table 7 of the Form. The Table provides a list of reasons for claiming refund, one of which is refund by reason of being a recipient of deemed export. The Form has not been amended to include "Supplier undertaking deemed exports". However, there is an entry stating "Any other (Specify)".

2.2. Section 54(4) of the CGST Act states that the Application shall be accompanied by documentary evidence as may be prescribed to establish that refund is due, and also such evidence as the applicant may furnish that the tax and interest, if any, was collected from or paid by him and the incidence of such tax and interest has not been passed on to any other person (unjust enrichment). I stress on the words "Shall" and the word "and" to highlight that the evidence and the self-declaration is not optional.

2.3. However, none of the self-declarations provided in the From GST RFD-01 is appropriate for either the supplier or the recipient of deemed export. I hesitatingly venture to say that suppliers or recipients of deemed exports will be in partial non-compliance with Section 54(4).

2.4. With regard to providing information in the Statements provided in Form GST RFD-01 for claiming refund, none of the statements are appropriate for either the supplier or the recipient of deemed export to fill. Furthermore, supplier and recipient may be in the same State, and therefore supplier will be required to raise an invoice with intra-State taxes, that is CGST/SGST. Such information is neither captured in the declaration nor captured in the statement.

2. Clerical Errors made by Exporters - Circular No. 42/2017-Cus

3.1. The CBEC issued Circular No. 42/2017-Cus dated 07-11-2017 highlighting difficulties in disbursement of refund of IGST paid on export of goods under Rule 96. The Circular has expressed Government's willingness to process refunds, but their inability to do so because of errors made in documents provided by the exporters. The Circular highlights the following issues:

a. Incorrect Shipping Bill number mentioned in GSTR-1 - The Circular highlights that exporters have provided incorrect Shipping Bill in GSTR-1 which needs to be corrected in Table 9A of GSTR-1 of the subsequent month (Aug, 2017).

b. Invoice number and IGST paid amount mismatch - Circular highlights that Exporters have quoted different invoice for GST and Customs purposes. Also, IGST amount reflected in GSTR-1 does not tally with the IGST amount indicated in the Shipping Bill. Circular requires the exporter to ensure details of invoice number, IGST paid, etc. under GSTR-1 should match with the Shipping Bill data.

c. EGM mismatch - The board has also expressed that the information in the Export General Manifest (EGM) does not match with information in Shipping Bill in certain cases. In certain other cases, EGM is filed manually and hence not available for verification. The Board has directed Shipping Lines to file supplementary EGM Online by 1st October for exports undertaken in July, 2017. For all future shipments, Shipping Bill is to be filed online

d. Wrong Bank Account Numbers - Bank account details of exporters are invalidated by the Public Finance Management System (PFMS) and the same has been communicated to the corresponding Commissionerates. Circular requires the Exporters to get the Bank Account details corrected in the EDI system of Customs.It also requires Exporters not to change their Bank Account details frequently to avoid delay in disbursements of refunds.

3.2. Exports in August 2017 - Circular states that in respect of Exports made in Aug, 2017, Table 6A of GSTR-1 is to be filled online by the Exporters to claim refund of the Exports.

3.3. The Circular clarifies that in respect of 0.1% of GST for Merchant Exporters, following precautions are advised to be taken by Merchant Exporters:

a. Name and GSTIN of registered supplier should be provided against each item in 3 rd party details column of Shipping Bill.

b. GST Invoice details of registered supplier of each item to be declared in ARE certificate and date column in the Shipping Bill.

c. In case of export consignment containing multiple supplies by registered suppliers, Merchant Exporter to provide details of all registered suppliers and their invoices against each item in the Shipping Bill. Circular clarifies that for the purpose of concessional GST for the Merchant Exporter, his principal place of business or registered additional place of business shall be deemed to be a registered warehouse.

d. Merchant Exporters may exclude Commercially sensitive information while providing copies of Shipping Bill to registered suppliers.

4. Conclusion

4.1. I sincerely appreciate that the lack of cognition of recipient of the deemed exports is merely an oversight, or maybe few of us will bravely venture to interpret either Section 54(1) of Section 54(3) to cover recipient of deemed exports. However, such actions are not shielded by the department denying refund stating that the Act has not enabled them to give refund.

4.2. The Hon'ble Supreme Court in the case of ITW Signode India Ltd. v. Collector of Central Excise [2003-TIOL-38-SC-CX-LB] held as under:

"it is well settled principle of law that in case of a conflict between a substantive act and delegated legislation, the former shall prevail in as much as delegated legislation must be read in the context of the primary/legislative act and not the vice-versa."

Will the Department overrule the problems and the glitches with regard to Act and Rules, read beyond the case laws and provide the refund.

4.3. Can we make the ride to taking refund a little smoother for the businesses? Is anyone in high places listening? There are a couple of glitches with the Forms and procedures with regard to the self-declaration and statements as highlighted above.

4.4. Can Exporters also kindly take cognizance of the problems faced by the Department in processing refunds and file accurate information while seeking refunds?

Together, let us make it a Good and Simple Tax rather than the way others wish to name it!

(The views expressed are strictly personal.)