OCTOBER 17, 2018

By Surbhi Premi

EXPORT of goods/services is Zero-rated. The exporter of goods/services can either export goods/services without payment of IGST and claim refund of unutilized ITC or export goods/services on payment of IGST and claim refund thereof.

Rule 96 of the CGST Rules lays down the mechanism for refund of IGST paid on goods/services exported out of India. However, this rule places an embargo on refund of IGST paid on export of goods/services under certain situations.

The rule 96(9) as inserted by notification 75/2017-CT dated December 29, 2017 (and effective 23.10.2017) read -

(9) The persons claiming refund of integrated tax paid on export of goods or services should not have received supplies on which the supplier has availed the benefit of notification No.  48/2017-Central Tax  dated 18th October, 2017 or notification No.  40/2017-Central Tax (Rate) dated 23rd October, 2017 or notification No. 41/2017-Integrated Tax  (Rate) dated 23rd October, 2017.";

Rule 96(9), in its original form, denied refund if the supplier to exporter has availed benefit of either of the following notifications -

-  Notification No. 48/2017-CT, dated 18.10.2017 (Deemed exports)

-  Notification No. 40/2017-CTR, dated 23.10.2017 or Notification No. 41/2017-ITR, dated 23.10.2017 (Merchant exports)

For sub-rule (9), the following sub-rules were substituted by notification 3/2018-CT dated 23 January 2018 (w.e.f 23.10.2017)

(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, 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 Tax 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.";

As can be seen, the restrictions originally appearing in rule 96(9) now appeared under rule 96(10) with addition of two more notifications-

-  Notification No. 78/2017-Cus., dated 13.10.2017 (IGST exemption to imports made by EOU)

-  Notification No. 79/2017-Cus., dated 13.10.2017 (IGST exemption to imports made by holder of AA/EPCG)

The insertion of these notifications 78/2017-Cus & 79/2017-Cus created an anomaly as the language of the sub-rule (10) suggested that the bar on refund of IGST on exports prevailed in those cases where the supplier to the exporter has availed benefit of these notifications and not the exporter himself.

Some of the exporters got their bill of entry reassessed and paid IGST on imports so as to avoid any departmental objection to their refund claims. However, many exporters took a stand to go for refund of IGST paid on export of goods even if they imported the goods without payment of IGST under Notification No. 78/2017-Cus. and/or 79/2017-Cus.

To carve out this anomaly, this rule was retrospectively amended w.e.f. 23.10.2017 vide Notification No. 39/2018-CT, dated 4.9.2018.

Sub-rule (10) was again substituted w.e.f. 23-10-2017 vide Notification No. 39/2018-Central Tax, dated 04-09-2018. It reads -

(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.".

As can be seen, pursuant to the said amendment, the rule now provided that the refund of IGST on export shall not be available to exporter if -

-  The benefit of Notification No. 48/2017-CT, Notification No. 40/2017-CTR or Notification No. 41/2017-ITR has been availed on the supplies made to the exporter.

-  The benefit of Notification No. 78/2017-Cus. or Notification No. 79/2017-Cus. has been availed by the exporter.

Here it is pertinent to note that the rule was amended retrospectively.   Such amendments put exporters into huge problems as a lot of them had already claimed IGST refund for past 9-10 months by making clear declaration on the shipping bills. It would not be possible to make amendments in subsequent GSTRs to change the IGST paid exports to free of IGST. No mechanism was/is laid down to claim back credit of IGST paid on exports. This amendment endangered all the refund claims of the exporters who imported goods without payment of IGST under Notification No. 78/2017-Cus. or Notification No. 79/2017-Cus. At one end, the exporter's refund claim would become invalid and at the other end, the exporter would be ineligible to avail ITC beyond 30th September 2018. Therefore, as soon as this notification was released, exporters rushed to get their bill of entry reassessed and make payment of IGST so that at least they can claim ITC of IGST paid. Such payments triggered the interest liability also for no fault of exporters.

To put an end to this imbroglio, again this rule was retrospectively amended (w.e.f 23.10.2017) vide Notification No. 53/2018-CT , dated 9.10.2018.

The sub-rule 96(10) as substituted by the notification 53/2018-CT reads -

"(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)  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 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.".

It is apparent that pursuant to the aforementioned amendment, the position prevailing post Notification No. 3/2018-CT was restored.

Inasmuch as refund of IGST on exports shall not be available where the supplier to the exporter has availed benefit of Notification No. 78/2017-Cus. or Notification No. 79/2017-Cus. This clearly depicts that the bar on refund claim is not qua the imports made by the exporter.

This poses a question as to whether post this amendment there is no bar of refund of IGST under Notifications 78/2017-Cus. or Notification No. 79/2017-Cus. or the bar is in those cases where the supplier of exporter has made imports under these notifications. If yes, to ensure compliance of this condition would pose serious challenges to the exporter.

This would be an immediate concern of the exporters (EOU, AA/EPCG holder) who initially imported goods without payment of IGST, paid IGST on exports and claimed refund thereof. And, thereafter, paid IGST alongwith interest on import of goods after amendment brought by Notification No. 39/2018-CT.

Interestingly, Notification No. 54/2018-CT was also issued on 9 October 2018 substituting what was inserted as sub-rule (10) on the very same day by notification 53/2018-CT dated 9 October 2018. And surprisingly this amendment has been made prospective.

By this new sub-rule (10), the position as prevailing consequent upon the amending Notification No. 39/2018-CT has been restored but prospectively and with the added relief to the EPCG holders who have been excluded from the bar.

This is a welcome step as a genuine exporter who had imported capital goods under EPCG scheme would have made him disentitled to refund claim of IGST on export of goods/services. Now, the embargo on refund claim is not applicable to EPCG holders insofar as the claim relates to Capital goods. The meaning of capital goods needs to be clarified as the term has been defined under the CGST Act and the FTP differently.

Therefore, the refund claims made before 9.10.2018 shall be governed by Notification No. 53/2018-CT i.e. the original position wherein the bar is with respect to the supplier and claims made on or after 9.10.2018 shall be governed by Notification No. 54/2018-CT i.e. the amended position wherein the bar is with respect to the imports (under notifications 78/2017-Cus, 79/2017-Cus) by the exporter himself. The amended provision would pose challenges to the refund claims made during the intervening period i.e. from 04.09.2018 to 8.10.2018.

Going forward, if an exporter intends to claim refund of IGST paid on exports, he should necessarily make payment of IGST on imports (without opting for benefits given under specified notifications), utilize ITC of such IGST for making payment of IGST on export and thereafter claim refund thereof.

Latest Press release of FIEO reported that GST Refunds are blunting competitive edge of exports. It stated that - the liquidity of the sector is further stressed with the blockage of funds in GST refund. While refund process has improved in last 6 months or so, yet the refund can only be claimed after manufacturing of goods and exports with a lead time of about 3-9 months depending on the production cycle. Even in most advanced countries including EU having VAT regime in place, an exemption has been provided on inputs required for export production. Are the interest rates in India less than in EU? Or the refund process is more efficient in India as compared to EU or Indian exporters more technology savvy than European exporters. If EU has worked out an exemption regime for exports, there must be some merit in it and we should also provide the same so as to provide level playing field for exports. The exemption under few export instruments has now been extended till 31st March, 2019. There too the inputs are subject to pre-import condition which affects the inventory management of the exporters also discouraging the domestic procurement of inputs by him. The exemption from GST should be provided on inputs required for export production to provide necessary competitiveness to exports.

Alternatively, if the exporter wants to import goods IGST free, he should export under bond/LUT without payment of IGST and thereafter, refund of unutilized credit can be claimed. Here, it is pertinent to note that at present, the process of ITC refund is partly electronic and partly manual which is cumbersome and adds to the transaction time and cost. The provision that 90% of ITC refund will be issued within 7 days is not always being implemented by tax authorities.

Despite all the efforts made by the government so far to streamline the refund process, the refund mechanism has not been functioning smoothly even though the GST has already completed a year. Further reforms in this regard are urgently called for.

(The author is Joint Director, Lakshmikumaran & Sridharan, Gurgaon and the views expressed are strictly personal)