MAY 13, 2020

By Rishab J ¹

THE intention of the legislature and the enactments are not always in concurrence. This statement is of much wider applicability, when one considers the provisions of GST Law. While unceasing chain of amendments to make good earlier errors, have been the most common trend, the resultant perfect law has merely been an expectation not converting into reality.

Under the erstwhile indirect tax regime, a person importing inputs under Advance Authorization ('AA') and as an Export Oriented Unit ('EOU'), was allowed to procure such inputs without payment of Customs Duty, i.e., Basic Customs Duty ('BCD'), Countervailing Duty ('CVD') or Special Additional Duty ('SAD'). With the introduction of the Goods and Services Tax ('GST'), the levy of CVD and SAD has been merged and an Integrated Goods and Services Tax ('IGST') has instead been levied in lieu of duties such as the Central Excise and Sales Tax, which stand subsumed by GST. The Industry and the Government agreed that the benefits available to a person under AA or an EOU must continue and the same should not be restricted to BCD only. Hence, by way of Notification Nos. 78 and 79 - Customs dated October 13, 2017, the relevant Notifications (relating to Advance Authorization, EOU and other similar schemes) were amended and an exemption from payment of IGST were provided for importing inputs under AA, EOU and other similar schemes. In light of these new Notifications, a host of changes were made to the refund provisions, and a new rule 96(10) ² was introduced. The said rule has been amended 6 times ³ and the said Rule at present reads as follows:

"(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 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme 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 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme.

Explanation.- For the purpose of this sub-rule, the benefit of the notifications mentioned therein shall not be considered to have been availed only where the registered person has paid Integrated Goods and Services Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications.”

The aforesaid Rule renders a person ineligible to claim refund of the IGST paid on exports, if such a person has:

- Received goods from a supplier who has claimed benefits available to him as a Deemed Export or Merchant Export supply, i.e. claimed refund of the tax paid or the ITC, as the case may be or discharged GST at concessional rates;

- Availed the exemption from payment of IGST on procurement of goods under AA, EOU or other similar schemes.

It is imperative that we consider ambit of the term 'Person' which has been rendered ineligible by virtue of this Rule. There is no specific definition of the 'Person'. However, Section 2(94) of the CGST Act defines the term 'Registered Person' to mean a person who is registered under Section 25 but does not include a person having Unique Identity Number. By corollary therefore, 'Person' under Rule 96 would also mean a registered person and hence, even if one inward supply is undertaken on which the supplier has availed benefit of deemed export or merchant export scheme or the recipient himself has availed the benefit of AA or EOU scheme, then none of his exports will be eligible for rebate, i.e., claim refund of the IGST paid, and they necessarily have to either forgo the refund or opt for claiming of refund of ITC by undertaking export under LUT or Bond.

Is the scope of this Rule beyond Section 16 of the IGST Act?

Section 16(3) of the IGST Act provides that zero - rated supply can be undertaken by adopting the following alternatives:

(a) under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or

(b) 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 thereunder.

Section 54 of CGST states the manner in which the refund of tax can be claimed by the eligible assessee and it also prescribes a condition that such a refund application must be made within two years of the date on which the ship or the aircraft in which such goods are loaded, leaves India, which is the 'relevant date' in terms of explanation to the said section. There is no other condition prescribed. Hence, one doubt which arises is whether the restriction provided under Rule 96(10) is ultra-vires as the parent enactment does not prescribe any such condition.

Is the Rule violative of Article 14 of the Constitution of India?

For claiming refund of ITC for exports made under LUT and Bond, the procedure and restrictions are laid down under Rule 89. Similar to Rule 96(10), Rule 89(4A) and 89(4B) also prescribe certain restrictions on claiming refund of ITC but it is only a partial restriction, i.e., the restriction prescribed in such rule only restricts availment of refund of credit on those inputs for which the benefits under AA and other similar schemes have been claimed and not on all inputs / input services. Hence, to apply a bar on such a person without considering the fact that for certain exports, no inputs might have been procured by claiming benefit under AA or EOU scheme [as prescribed under Rule 96(10)] and there operates a restriction on relevant transactions [as done by Rule 89(4A) and 89(4B)] may be violative of Article 14 and hence can be challenged.

Does the recent amendment rationalize the earlier restriction?

By way of Notification No. 16/2020 - C.T dated March 23, 2020, an explanation was added to Rule 96(10) which provided that if a person has claimed benefit of only BCD and have paid the applicable IGST and Compensation Cess, then for the purposes of Rule 96(10), they will not be considered to avail the benefit of the Notifications and will be eligible to claim refund of the IGST paid. The said explanation, though an attempt by the Government to ensure that procurements of inputs on payment of GST would be an extended benefit of rebate, even if such inputs were procured under AA or EOU scheme. This is a step in the right direction without reaching the destination, as a major concern of the industry and trade relates to the use of the term 'Person' and not 'Transaction', as indicated earlier and therefore, even after the amendment, if procurements are made without payment of IGST and such inputs are used for undertaking exports under LUT or Bond, such a person would be ineligible to claim rebate under Rule 96(10), irrespective of the fact that the inputs used in the relevant export consignment are GST suffered inputs.

In conclusion thereof, while many rectifications are being made to the Rule, despite these numerous amendments, it is far from being satisfactory/ concrete. This has led to the same being challenged by a number of exporters before various High Courts and it all but seems apparent that the outcome of such litigation may decide the future of this Rule.

[The views expressed are strictly personal.]  

¹ The author is an Advocate at Shivadass & Shivadass (Law Chambers), Bangalore

²It was Rule 96(9) when introduced and subsequently became Rule 96(10)

³Notification No. 75/2017-C.T., dated 29-12-2017; Notification No. 3/2018-C.T., dated 23-1-2018; Notification No. 39/2018-C.T., dated 4-9-2018; Notification No. 53/2018-C.T., dated 9-10-2018; Notification No. 53/2018-C.T., dated 9-10-2018 and Notification No. 16/2020 - C.T., dated 23.03.2020