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Decoding the Puzzle of Rule 96(10), CGST Rules, for Advance Authorisation Holders - in light of GST Circular dated 10-09-2024 |
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Decoding the Puzzle of Rule 96(10), CGST Rules, for Advance Authorisation Holders - in light of GST Circular dated 10-09-2024 |
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Over last 5 years, the Exporters with Advance Authorisation Licence were praising the Government, for effectively implementing GST. One of reasons for such effusive praise was automatic processing of Refunds, upon export of goods. In an effort to aid the export of goods, the Govt. set-up system for automatic refunds, upon filing the Shipping Bills. Thus, the Govt. limited the interaction of exporters with Customs Department, thereby saving time & effort. Everything was going-in smoothly until the insertion of Rule 96(10), CGST Rules, into the Rulebook. With its insertion, the Govt. sought to reincarnate the bureaucratic red-tape, into the lives of Advance Authorisation Holders. The automatic refunds upon filing the Shipping Bills were conclusively stopped. In addition, the previously disbursed refunds were sought to be recovered as ‘Erroneous Refunds’. These actions have led to wide-spread litigation by the Exporters. Some are challenging the legality of Rule 96(10) per se. While some are challenging the jurisdiction of GST Department to issue notices. This Article, is divided into several sections, namely: (1) the Legislative History of Rule 96(10), CGST Rules; (2) Leading Case-laws on Rule 96(10), CGST Rules; (3) Relaxation by Govt. vide Circular 233/27/2024-GST; (4) Jurisdiction of GST Department to recover erroneous refunds; (5) Correct business practice to seek refunds; (6) Our Conclusions.
NN: 79/2017-Customs was issued on 13-10-2017. The main purpose of this Notification was to exempt IGST & GST Compensation Cess, on imports by Advance Authorization holders & EPCG holders. Further, this Notification amended several other notifications, issued under the Customs Act. The details are disclosed as under:
The Advance Authorization Holders, availed the exemption from import on imported goods, under NN: 18/2015-Customs dated 01-05-2015. The benefit was sought on following Duties, inter alia:
Rule 96, CGST Rules, provides for refund of integrated tax on exports, upon payment of IGST. Such refunds are sanctioned by Proper Officer of Customs, upon reporting of transactions in Export General Manifest (EGM) & GSTR-1. Under this mechanism, ITC is availed on inputs. Subsequently, the finished goods are exported with IGST, in terms of Sec. 16(4), IGST Act. The exporter files GSTR-3B & pays GST to the government. The Shipping Bill filed by the exporter is deemed as application for refund. The ICEGATE portal processes such Shipping Bill. The IGST levied on export goods is treated as refund amount. Such refund is electronically credited to the Bank Account of exporter. Rule 96(10), CGST Rules in its present form was brought into force by NN 54/2018, Central Tax, dated 09-10-2018. It prescribes disqualification from claiming refund under Rule 96, CGST Rules. The contents of Rule 96(10) are reproduced as under: “96. Refund of integrated tax paid on goods or services exported out of India:- (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-lnteqrated 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.” Rule 96(10)(b), CGST Rules, uses the term, “availed the benefit”. Such term is capable of very wide interpretation. Thus, if an importer has availed the exemption from (1) IGST; (2) GST Compensation Cess, under NN: 79/2017-Customs, then he would be disqualified to avail refund under Rule 96(10), CGST Rules.
The Explanation to Rule 96(10), CGST Rules had been inserted vide NN 16/2020, Central Tax, dated 23-03-2020. Further, the Explanation was enforced retrospectively i.e., 23-10-2017 onwards. The text of Explanation to Rule 96(10), CGST Rules is reproduced as under: “96. Refund of integrated tax paid on goods or services exported out of India- (10) The persons claiming refund of integrated tax paid on exports of goods or services should not have: 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.” Upon perusal of the Explanation clause, it can be interpreted to be an exception to Rule 96(10), CGST Rules. However, this exception is subject to the following conditions:
If an Advance Authorisation Holder has availed IGST exemption on imported goods, then, condition no.1 & 3 are not satisfied. Thus, the Advance Authorisation Holder would be unable to claim, refund under Rule 96(10), CGST Rules.
The Petitioner was a license holder under Advance Authorization scheme. Exemption from BCD & IGST were claimed on imported goods. The Petitioner was exporting goods & claiming refund of IGST under Rule 96, CGST Rules. The Petitioner had admitted that he was disqualified u/r 96(10), CGST Rules. Accordingly, he voluntarily surrendered IGST refund on export goods alongwith interest. Subsequently, the Petitioner requested the Department to recredit the surrendered IGST into Electronic Credit Ledger. The Hon’ble Gujarat High Court while considering the scope of disqualification u/R 96(10), CGST Rules held as under: “7. As per Rule 96(10) of the CGST Rules, a registered person importing raw-material without payment of import duty under the advance license shall not be eligible for utilizing accumulated ITC for payment of IGST on exports of goods or services. 8. On the case on hand, the writ-applicant is importing raw-material under the advance license without payment of the import duty. The finished goods produced using the raw-material so imported have been exported by the writ applicant. The writ-applicant opted for the second route, i.e. payment of IGST on exports, and thereafter claimed refund of such IGST on exports instead of opting for the first route, i.e. exports under the Letter of Undertaking. However, inadvertently, the writ-applicant utilized the ITC for payment of the IGST on exports (instead of paying the IGST separately) which, in turn, was automatically refunded. In view of Rule 96(10), the writ-applicant could not have utilized the ITC for payment of the IGST on exports. Upon realizing the aforesaid mistake, the writ-applicant separately paid the requisite IGST (which was refunded in past) along with the interest thereon.” An Application was filed before Authority for Advance Rulings, Gujarat (AAR). The Applicant was a manufacturing-exporter of tyres and holding license under Advance Authorisation scheme. Further, the Applicant was availing only partial benefit of NN 18/2015-Customs, i.e., no IGST exemption was claimed on imported inputs. With this background, an Advance Ruling was sought, whether refund of IGST would be permissible under Rule 96, CGST Rules. The Ld. AAR held that availing partial exemption of BCD on imports under NN 79/2017-Customs, is equivalent to availing the exemption. Thus, the case of Applicant was covered by NN 79/2017-Customs. It was also held that the Applicant was disqualified u/R 96(10), CGST Rules, and ineligible to claim refund u/R 96, CGST Rules. The relevant portion of the judgement is enclosed as under: “11. In view of the above, we hold that the availing exemption under Notification No. 79/2017-Cus., dated 13-10- 2017 in respect of additional duty of Customs under sub-sections (1), (3) and (5) of Section 3, anti-dumping duty under Section 9A, but opting to pay IGST on the import of goods under Advance Authorization, would tantamount to availing the benefits of exemption under Notification No. 79/2017-Cus., dated 13-10-2017, as contemplated under Rule 96(10) of CGST Rules, 2017. Consequently, the applicant is not eligible to claim refund thereof under Rule 96(10) of CGST Rules, 2017, as amended. 12. In the light of the aforesaid circumstances, we rule as under: Ruling Question 1: Whether availing exemption under Notification No. 79/2017-Cus., dated 13-10-2017 in respect of additional duty of Customs under sub-sections (1), (3) and (5) of Section 3, anti-dumping duty under Section 9A, but opting to pay IGST on the import of goods under Advance Authorization, would tantamount to availing the benefits of exemption under Notification No. 79/2017-Customs, dated 13- 10-2017, as contemplated under Rule 96(10) of CGST Rules, 2017? Answer: Answered in the affirmative, as discussed above. Question 2: If the answer to the above question is negative, then whether the applicant is allowed to export goods on payment of IGST and claim refund thereof under Rule 96(10) of CGST Rules, 2017? Answer: Answered in the negative, as discussed above.” Thus, upon scrutiny of judgements in I-tech Plast (supra) & Balkrishna Industries (supra), the following propositions emerge:
On 10-09-2024, the Govt. of India notified Circular 233/27/2024-GST. Through this Circular, relaxation has been provided to Advance Authorisation Holders & 100% EOUs against Recovery for past Refunds. However, such relaxation will be subject to the following conditions:
If all such conditions are satisfied, then Refunds disbursed under Rule 96(10) to Advance Authorisation Holders would be deemed as valid, and no coercive action would be taken by Govt. of India. In our opinion, this Circular adopts a middle path, with the Govt. providing relaxation on following counts:
As per NN 11/2017-Integrated Tax, dated 13-10-2017, the State GST officers are authorized as Proper Officers for sanctioning refund u/S 54, CGST Act. However, refunds sanctioned u/R 96, CGST Rules are expressly excluded from the jurisdiction of State GST Department. The contents of NN are reproduced as under: “In exercise of the powers conferred by section 4 of the Integrated Goods and Services Tax Act, 2017 (12 of 2017) (hereafter in this notification referred to as the “IGST Act”), on the recommendations of the Council, the Central Government hereby specifies that the officers appointed under the respective State Goods and Services Tax Act, 2017 or the Union Territory Goods and Service Tax Act, 2017 (14 of 2017) (hereafter in this notification referred to as “the said Acts”) who are authorized to be the proper officers for the purposes of section 54 or section 55 of the said Acts (hereafter in this notification referred to as “the said officers”) by the Commissioner of the said Acts, shall act as proper officers for the purpose of sanction of refund under section 20 of the IGST Act, read with section 54 or section 55 of the Central Goods and Services Tax Act, 2017 and the rules made thereunder, except sub rules (1) to (8) and sub rule (10) of rule 96 of the Central Goods and Services Tax Rules, 2017, in respect of a registered person located in the territorial jurisdiction of the said officers who applies for the sanction of refund to the said officers.” Thus, basis above, if a Refund has been sanctioned under Rule 96, no action whatsoever can be initiated by the officers of State GST Department.
Rule 96(3) & Rule 96(4), CGST Rules stipulates 2 situations for disbursal /adjudication of refund claims.
In cases where the refund is withheld u/R 96(4), CGST Rules, only then the matter is transmitted for adjudication by Officers of Central Tax. In such cases, the ‘refund sanctioning authority’ are the Officers of Central Tax. Whereas, in cases, where the refund is passed without any reassessment, then the matter is said to be adjudicated by Proper Officer of Customs. In such cases, the ‘refund sanctioning authority’ are the Officers of Customs. As per Instruction no. 04/2022-GST, dated 28-11-2022, the refund transmitted under Rule 96(4), CGST Rules shall be dealt as if an Application has been filed under Rule 89, CGST Rules. Further, the Proper Officer under GST should pass a detailed speaking order in respect of refund claim, transmitted to him. Subsequently, the refund sanction order would be passed in GST-RFD-06. The relevant contents are reproduced as under: “2.2 Further, sub-rule (5A) has been inserted in rule 96 to provide for transmission of IGST refunds, withheld in terms of provisions of clause (c) of sub-rule (4) of rule 96 of the CGST Rules, as system generated refund in Form GST RFD-01 and to provide that the said system generated form shall be deemed to be the application for refund in such cases and such application for refund shall be deemed to have been filed on the date of such transmission on the portal. In addition, sub-rule (5C) has also been inserted in rule 96 to provide that such system generated refund in FORM GST RFD-01 have to be dealt with in accordance with rule 89 i.e. in a manner similar to other GST RFD-01 refund claims. . . . . 9. The proper officer shall pass a detailed speaking order in respect of the refund claim and shall duly upload the same along with the refund sanction order in Form GST RFD-06 on the portal in terms of Instruction No. 03/2022-GST dated 14.06.2022. The officer will also follow the timelines for processing of the refund claim in terms of provisions of sub-section (7) of section 54 of the CGST Act. It is needless to mention that the procedure of review and post-audit as prescribed in para 2.2 of Instruction No. 03/2022-GST dated 14.06.2022 will also be applicable to such refund claims.” In COMMISSIONER OF CUSTOMS VERSUS SAYED ALI - 2011 (2) TMI 5 - SUPREME COURT, the Supreme Court was dealing with an issue, where the Bills of Entry were filed with Commissioner of Customs, Mumbai. Clearance Order u/S 47, Customs Act was also passed by the Commissioner of Customs, Mumbai, after allowing the benefit of Export-passbook-scheme. Subsequently, upon investigation conducted by Commissioner of Customs (Marine & Preventive) Wing, Mumbai, it was alleged that benefit under Export-passbook-scheme was illegally availed. The question arose, ‘Whether Commissioner of Customs (Marine & Preventive) Wing, Mumbai is ‘Proper Officer’ to issue Show-cause-Notice for recovering the benefit under Export-passbook-scheme? The following was held as under: “14. From a conjoint reading of Sections 2(34) and 28 of the Act, it is manifest that only such a customs officer who has been assigned the specific functions of assessment and re-assessment of duty in the jurisdictional area where the import concerned has been affected, by either the Board or the Commissioner of Customs, in terms of Section 2(34) of the Act is competent to issue notice under Section 28 of the Act. Any other reading of Section 28 would render the provisions of Section 2(34) of the Act otiose in as much as the test contemplated under Section 2(34) of the Act is that of specific conferment of such functions. Moreover, if the Revenue’s contention that once territorial jurisdiction is conferred, the Collector of Customs (Preventive) becomes a “proper officer” in terms of Section 28 of the Act is accepted, it would lead to a situation of utter chaos and confusion, in as much as all officers of customs, in a particular area be it under the Collectorate of Customs (Imports) or the Preventive Collectorate, would be “proper officers”. In our view therefore, it is only the officers of customs, who are assigned the functions of assessment, which of course, would include re-assessment, working under the jurisdictional Collectorate within whose jurisdiction the bills of entry or baggage declarations had been filed and the consignments had been cleared for home consumption, will have the jurisdiction to issue notice under Section 28 of the Act.” Basis the Supreme Court’s judgement in Sayed Ali (supra), the following propositions emerge:
In the case of Advance Authorisation Holders, the Refunds were passed without reassessment. Thus, the Proper Officer of Customs would be the treated as adjudicating authority for refund sanctioned u/R 96, CGST Rules. If it is alleged that refund granted were erroneous in nature, then, the remedial action would also be initiated by the Proper Officer, Customs. It can be argued that CGST Officers do not have jurisdiction to recover such amount. Thus, no coercive action can be initiated by CGST Officers for recovery of erroneous refunds granted to the Advance Authorisation Holders under Rule 96(10), CGST Rules.
As per Rule 89(1), CGST Rules, any eligible person can file refund application under form GST-RFD-01, within 2 years from the relevant date. As per Sec. 54(3), CGST Act, the refund of unutilised ITC can be granted against export of goods or services. Further, as per Rule 89(4B), CGST Rules, if an exporter has availed the benefit of NN 79/2017-Customs, refund of ITC availed is available against inputs /input services used in manufacturing such export goods. The relevant provisions are reproduced hereinunder: “(4B) Where the person claiming refund of unutilised input tax credit on account of zero rated supplies without payment of tax has- (a) received supplies on which the supplier has availed the benefit of the Government of India, Ministry of Finance, 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-lntegrated 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 (b) availed the benefit of 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, the refund of input tax credit, availed in respect of inputs received under the said notifications for export of goods and the input tax credit availed in respect of other inputs or input services to the extent used in making such export of goods, shall be granted.” Thus, in order to claim refund u/S 89(4B), CGST Rules, the following conditions are required to be satisfied:
If all the aforesaid conditions are satisfied, the refund can be availed by Advance Authorisation Holders for following inward supplies:
Thus, the Advance Authorisation Holders can apply for Refunds under Rule 89(4B), CGST Rules, as Refund can be obtained for Domestic Procurements & Foreign Procurements. Plus, this approach is least prone to litigation.
Basis our analysis of Rule 96(10), CGST Rule, we conclude with the following:
By: Narayana Chambers - October 3, 2024
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