SEPTEMBER 21, 2018

By Ashit Kr. Chatterji, Tax Consultant

THE Amendments to GST Acts and Rules are taking a toll on the people and the Industry heavily. In nine months of 2018 (upto 13th September, 2018) we have Central Goods and Services (Tenth Amendment) Rules, 2018 in place. That means 10 amendments in eight and a half months.

In today's world of automation, a team consisting of members from the function(s) of accounting, tax, SCM, sales& marketing, information technology need to put their heads together to conceptualise and make the changes in the business process, ERP or any other automated system. This takes time, money and energy. Leave apart the money and energy, the essence of time becomes primary in most of the cases of Indirect taxes. Hardly is there any breathing time to implement the changes. Needless to mention the retrospective changes are being brought in right, left and centre. The predominant question remains in front of businesses: what shall one do during this intervening period of effective date of the law and the implementation of the same? Should they stop doing business during this period or should they continue doing business being non-compliant?

The lawmakers need to understand the extreme hardship a section of exporters would face due to the above retrospective amendment to the Rules.

Analysis on Changes to Rule 96 of CGST Rules:-

It was an Industry demand to exempt IGST while importing inputs/capital goods under an Advance Authorisation/EPCG License. The lawmakers were kind enough to exempt payment of IGST under notification No. 79/2017-Customs dated 13th October, 2017. This was a welcome move.

Exactly after 102 days, on 23rd January, 2018, Notification No 3/2018-Central Tax dtd. 23rd January'18 was published to amend and bring in the Central Goods and Services Tax (Amendment) Rules, 2018. In this amendment Rules, changes were made in Rule 96, inter alia, which is reproduced below:-

Italicised portions are extracts from Notifications/Circulars/Policy

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(x) with effect from 23rd October, 2017, in rule 96,

(a)..................;

(b) ................;

(c) .................;

(d) for sub-rule (9), the following sub-rules shall be substituted, namely:-

"(9) The application for refund of integrated tax paid on the services exported out of India shall be filed in FORM GST RFD-01 and shall be dealt with in accordance with the provisions of rule 89".

(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, …."

The Legislation wanted to put an embargo on the Exporters by wording it as: - The persons claiming refund of integrated tax paid on exports of goods or services should not have received supplies (Emphasis supplied) on which the supplier has availed the benefit .

While looking at the above Rule 96(10) coupled with Notification No 79/2017-Customs dated the 13th October, 2017, most of the interpreters were of the Opinion that imports would not be attracted since a foreign Supplier cannot get an Advance Authorisation and/or EPCG License and accordingly, cannot fall in this category. The Industry continued to do exports against payment of IGST and some of them also got their refunds.

Since the lawmakers found some ambiguity in the above notification they issued another Notification to, probably, correct the earlier one. Here the devil crept in. An apparent discrimination was brought in which I would discuss in the subsequent paragraphs.

The second amendment which was brought in to the same Rule 96(10) of Central Goods and Services Tax (Eighth Amendment) Rules, 2018 vide Notification No. 39/2018 dtd. 4th September, 2018 is reproduced below:-

6. In the said rules, with retrospective effect from 23rd October, 2017, in rule 96, for sub-rule (10), the following sub-rule shall be substituted, namely: -

"(10) 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.".

On the same date 4th September, 2018 i.e along with the above Notification a Circular No 59/33/2018 was also issued by the Ministry of Finance, Department of Revenue as Clarification on Refund Related Issues-regarding which inter alia contained the following:-

5. Scope of rule 96(10) of the CGST Rules:

5.1 Rule 96(10) of the CGST Rules, as amended retrospectively by notification No. 39/2018-Central Tax, dated 04.09.2018 provides that registered persons, including importers, who are directly purchasing/importing supplies on which the benefit of reduced tax incidence or no tax incidence under certain specified notifications has been availed, shall not be eligible for refund of integrated tax paid on export of goods or services. For example, an importer (X) who is importing goods under the benefit of Advance Authorization/EPCG, is directly purchasing/importing supplies on which the benefit of reduced/Nil incidence of tax under the specified notifications has been availed. In this case, the restriction under rule 96(10) of the CGST Rules is applicable to X. However, if X supplies the said goods, after importation, to a domestic buyer (Y), on payment of full tax, then Y can rightfully export these goods under payment of integrated tax and claim refund of the integrated tax so paid. However, in the said example if Y purchases these goods from X after availing the benefit of specified notifications, then Y also will not be eligible to claim refund of integrated tax paid on export of goods or services.

5.2 Overall, it is clarified that the restriction under rule 96(10) of the CGST Rules, as amended retrospectively by notification No. 39/2018-Central Tax, dated 04.09.2018, applies only to those purchasers/importers who are directly purchasing/importing supplies on which the benefit of certain notifications, as specified in the said sub-rule, has been availed.

Let us now have a look at Section 16(3) of the IGST Act and Section 54 of the CGST Act under which the exporters are allowed to claim refund on exports against payment of IGST:-

Section 16 of IGST Act . (1) "zero rated supply" means any of the following supplies of goods or services or both, namely:––

(a) ....................

(b) .....................

(2) x x x

(3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:––

(a) x x x; or

(b ) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied,

in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made there under.

Section 54 . (1) 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 the expiry of two years from the relevant date in such form and manner as may be prescribed:

Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in the return furnished under section 39 in such manner as may be prescribed.

(2) x x x

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than––

(i) zero rated supplies made without payment of tax;

(ii) ........................................

(4) .....................

It is not very clear why such an amendment was brought in Rule 96(10) which eventually closed the opportunity for a section of exporters to claim refund of the IGST paid by them through this route.

On the one hand, the Ministry of Finance is trying to minimise the pending export refunds which got accumulated because of various reasons.

Worthwhile to mention here that the CBIC has done a commendable job to set up an automated process for such refunds with bare minimum manual interventions.

On the other hand, closing the opportunities of refunds against IGST paid to a section of exporters, is unthinkable.

Let us quickly run through the Foreign Trade Policy and how it encourages the Exporters. The Hon'ble Minister for Commerce and Industry in his Foreword to the mid-term review of the Foreign Trade Policy 2015-20 (w.e.f. 5th December 2017) mentioned ‘to boost exports' and ‘to encourage exports' more than 10 times.

The opening paragraph of Chapter 4 of the Policy, which contains benefits like Advance Authorisation, DFIA and so on, has been worded as ...

4.00 Objective

Schemes under this Chapter enable duty free import of inputs for export production, including replenishment of inputs or duty remission.

Similarly, the objective clause of Chapter 5 also states:-

5.00 Objective

The objective of the EPCG Scheme is to facilitate import of capital goods for producing quality goods and services and enhance India's manufacturing competitiveness.

So it is evident from the above that the objective and intent of Foreign Trade Policy does not align with that of the amendments made in Rule 96 of CGST Rules and that too with retrospective effect.

While taking a benefit, an eligible Importer has not been restricted in any way by the Foreign Trade Policy which is predominantly to boost the exports, however, the amended Rule 96(10) in a way puts a restriction and/or penalisesa section of exporters who have taken the benefits under Chapter 4 and/or 5 of the Foreign Trade Policy.

Is it not a clear discrimination created within the exporters? The distinction drawn between the exporters, who have availed a legitimate License under Chapter 4 or 5 of the Foreign trade and who have not, is arbitrary and discriminatory.

Putting such distinction and restriction would not and cannot accomplish the objective of India's manufacturing competitiveness.

In the above backdrop, this is a humble request before the law makers to correct/clarify the following anomalies:-

1. The amendment to Rule 96(10) of CGST Rules should be struck down/aligned to the benefits of the Foreign Trade Policy and not to close the benefits of the Exporters for claiming Refund against payment of IGST,

2. The distinction created within the exporters which tantamount to be discriminatory may please be looked into.

3. If one carefully reads the construction of the latest amendment in Rule 96(10) of the CGST Rules ......[(10) The persons claiming refund of integrated tax paid on exports of goods or services should not have - .......................(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.]

That is, in effect, a stigma would be attached to the person who has availed the benefits of the notification 78/2017 or 79/2017- Customs dt 13/10/17.

4. Since the above notification has been made effective retrospectively, what would be the effect on persons who have already acted on the same with a bonafide belief.

(The views expressed are strictly personal.)