NOVEMBER 12, 2024

By Adv. Radheshyam Sharma, Former GST Commissioner and Founder of Law at Par & Nithyasree Ravi, Associate, Law at Par

IN order to provide a level playing field to registered suppliers of goods meant for export by a registered recipient involving both intra-state and inter-state supplies, exemption was provided from the levy vide Notification No. - 40/2017- CT (R) & 41/2017 - Integrated tax (R) both dated 23-10-2017.

- Deemed exports were also granted similar benefits vide Notification No. 48/2017 - CT dated 18-10-2017. These included

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

2. Supply of capital goods by a registered person against Export Promotion

Capital Goods Authorisation

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

4. …

- Similar benefit were granted to Importers under Notification No. 78/2017 Customs & 79/2017 Customs both dated 13-10-2017, if the imported supplies were meant to be used in the production of finished goods for exports

- On account of apprehensions of double benefit to exporters receiving duty-free Inputs and also claiming refund of accumulated Input Tax Credit under Rule 89 & refund of IGST paid on exports under Rule 96, a series of amending notifications came to be issued. These amendments were aimed at denying refund of IGST paid at the time of exports if the exporter had availed certain exemptions under exemption Notification No. 40/2017 CT (R), 41/2017 Integrated tax (R) & 48/2017 CT for domestic supplies and Notification No. 78/2017 Customs & 79/2017 Customs in case of import of inputs.

- Vide Notification No. 39/2018 (CT) dtd. 04-09-2018 certain amendments were introduced in the CGST Rules. In Rule 96 for sub-rule (10), the following sub-rule was substituted retrospectively from 23-10-2017.

"(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."

- Notification No.53/2018-CT dated 09-10-2018 sought to amend Rule 96 by substituting the provisions of Sub Rule 10 with a retrospective effect from 23-10-2017.

- This rule was further amended by Notification No.- 54/2018 -CT dated 09-10-2018 effective from the same date. The words "except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme" was inserted vide this Notification.

- Vide Notification No. 16/2020-CT dated 23.03.2020, an Explanation was inserted in sub-rule (10) of rule 96 of CGST Rules retrospectively with a retrospective effect from 23.10.2017, which reads as follows:

"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."

- Rule 96(10) of CGST Rules, 2017 has been a subject matter of controversies from the beginning. Various wings of CBIC have booked cases and raised demands for either recovery of Customs Duty exempted at the time of procurement of the Imported Inputs or Refund of IGST amounts paid upon exports of finished goods.

- Pursuant to DRI Investigations regarding the double benefit that is exemption of IGST on Input materials under advanced authorizations under EOU Scheme and refund of IGST made on the goods exported on payment of duty, many taxpayers were forced to get the respective bills of entry reassessed and paying the duty forgone along with interest.

- Finally, this controversy has been settled by the CBIC through a clarificatory Circular No. 233/2024 - GST dated 10-09-2024.

"it is clarified that where the inputs were initially imported without payment of integrated tax and compensation cess by availing benefits under Notification No. 78/2017-Customs dated 13.10.2017 or Notification No. 79/2017-Customs dated 13.10.2017, but subsequently, IGST and compensation cess on such imported inputs are paid at a later date, along with interest, and the Bill of Entry in respect of the import of the said inputs is got reassessed through the jurisdictional Customs authorities to this effect, then the IGST, paid on exports of goods, refunded to the said exporter shall not be considered to be in contravention of provisions of sub-rule (10) of rule 96 of CGST Rules."

- Pursuant to further enquiries by DGGI, the affected companies took shelter under the explanation inserted in Rule 96(10) vide Notification No. - 16/2020 CT dated 23.03.2020 effective from 23.10.2017. The Exporters have been taking benefit of refund of IGST in respect of a particular GSTIN on the plea that they have paid IGST and Compensation Cess on Inputs even though in respect of their other GSTIN in another state they had availed full exemption under the Notification No. 78/2017 Cus & 79/2017 Cus both dated 13-10-2017.

- The most recent developments having taken place almost simultaneously are the deletion of Rule 96(10) vide Notification No. 20/2024 - CT dated 08.10.2024 and the judgement dated 10-10-2024 by the High Court of Kerala in the case of M/s Sance Laboratories Vs Union of India [2024-TIOL-1850-HC-KERALA-GST] in the Writ Petition No. 17447 of 2023 which was bunched together with many other writ petitions.

- The questions before the Kerala High Court in the case of M/s Sance Laboratories Vs Union of India were the following:-

I. Whether there is a conflict between the provisions of Section 16 of the IGST Act, 2017 providing the mechanism for the registered person making zero rated supply to claim refund of unutilized Input Tax Credit on inward supply of goods or services or both without payment of Integrated tax while exporting under Bond or LUT in accordance with the provisions of section 54 of the CGST Act, 2017 and the provisions of Rule 96(10) of the CGST Rules, 2017 placing certain restrictions on the persons claiming refund of integrated tax paid on export of goods or services through utilization of available credit-

II. A comparison of provisions of Rule 89 with Rule 96(10) of the CGST Rules, 2017 shows that exporters opting for paying the IGST and then claiming a refund in terms of Rule 96 are placed at a disadvantageous position to the exporters who may opt to seek a refund of unutilised credit by filing a LUT /bond in terms of Rule 89. Such a distinction could never have been the legislative intent and, therefore, Whether Rule 96(10) should be struck down ultra vires section 16 of the IGST Act, 2017-

- The Court found that the answers to both the questions were in the affirmative. As a result, the Hon'ble Court declared Rule 96(10) of the CGST Act, 2017 as ultra vires the provisions of the Section 16 IGST Act, 2017 and unenforceable on account of being "manifestly arbitrary". All the pending Show Cause Notices and Orders passed adversely in respect of the petitioners were quashed. The Court also dwelt on the outcome of the said Notification noting that it only has a prospective effect, therefore, the court granted relief to the petitioners retrospectively.

- The final nail in the coffin, officially omitting Rule 96(10) after seven years of unending disputes. However, the story doesn't end with its omission. By failing to give it a retrospective effect, the lawmakers seem to have still left a loophole that may continue to haunt exporters in respect of actions taken under the erstwhile flawed rule since the relief granted by the Judgement of Kerala High Court may be interpreted to be limited only to the petitioners to the case and not to all others adversely affected.

- As the dust settles on Rule 96(10), there is an urgent need of simplification of laws and rules leaving no scope for ambiguity and differing interpretations, fostering a business-friendly environment rather than creating hurdles for genuine exporters.

[The views expressed are strictly personal.]