Big Relief to Exporters claiming the IGST refunds – Omission of Rule 96 (10) of CGST Rules, 2017 in view of Notification 20/2024- Central Tax dated 8th Oct 2024

[satyajit naik]

Summary: Rule 96(10) of the CGST Rules, 2017 restricts registered persons from exporting taxable goods on payment of IGST while claiming a refund if they have received supplies benefiting from certain notifications. Key notifications include those allowing supplies against Advance Authorization, Export Promotion Capital Goods Authorization, and exemptions for goods imported by Export Oriented Units (EOUs). The GST department has initiated legal actions, including summons and show-cause notices, for alleged erroneous IGST refunds, imposing penalties and interest under the CGST Act. This stringent interpretation creates challenges for exporters, potentially disrupting business operations and deterring foreign investments.

In response, exporters have contested Rule 96(10) in High Courts, resulting in recent rulings, such as the Kerala High Court declaring it “ultra vires” to the IGST Act. Additionally, Circular 233/27/2024-GST provides relaxations for Advance Authorization holders and exporters.

Further, insertion of Notification No. 20/2024 – Central Tax dated 08^th Oct 24, the Central Government has notified the omission of Rule 96(10), of the CGST Rules as recommended by the GST Council, as a result exporters enjoys the big relief.

Brief History of Refunds under Rule 96 (10) of CGST Rules, 2017

Rule 96(10) of the CGST Rules, restricting to a “registered person” from exporting the taxable goods on payment of IGST and claiming refund of IGST paid, if the exporter/supplier has received the supplies on which the benefit of following Notifications has been availed.

Notification No. 48/2017-Central Tax dated 18-10-2017 with summarized contents

• Supply of goods by a registered person against Advance Authorization.
• Supply of capital goods by a registered person against Export Promotion Capital Goods Authorization
• Supply of goods by a registered person to Export Oriented Unit
• Supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorization.

Notification No. 40/2017-Central Tax (Rate) dated 23-10-2017 with summarized contents

• Rate @ 0.05% on intra-State supply of taxable goods by a registered supplier to a registered recipient for export subject to specified conditions.

Notification No. 41/2017-Integrated Tax (Rate) dated 23-10-2017 with summarized contents

• Integrated Tax rate of 0.1% on inter-State supply of taxable goods by a registered supplier to a registered recipient for export subject to specified conditions.

Notification 78/2017-Customs dated 13-10-2017 with summarized contents

• To exempt goods imported by EOUs from integrated tax and compensation cess

Notification No. 79/2017-Customs dated 13-10-2017 with summarized contents

• Seek to amend various Customs exemption notifications to exempt Integrated Tax/Cess on import of goods under AA/EPCG. Schemes

In view of the above scenario, the GST department has initiated legal actions, issuing summons and show cause notices for alleged erroneous IGST refunds. This includes levying interest not exceeding 24% under Section 50 of the Central Goods and Services Tax Act 2017 and imposing penalties equivalent tax under Section 74 of the Act.

Challenges to file IGST refund towards the export of Goods and Services

• A stringent interpretation or retrospective application of the rule can create uncertainty in business.
• Disrupt the smooth functioning of Exporters and export-oriented businesses.
• Foreign investors and trading partners may perceive such developments as unfavorable, potentially eroding confidence in India’s business environment.
• It could deter foreign investments hampering efforts to expand international trade.
• Accumulation of ITC and increasing a cascading effect.

In response, exporters have taken recourse by approaching the respective High Courts, contesting the validity of Rule 96(10) of the CGST Rules. They seek a stay on the ongoing recovery proceedings.

Clarification provided to Exporters

The circular 233/27/2024-GST, dated 10^th Sept 2024, issued and through this Circular, relaxation has been provided to Advance Authorization Holders & 100% EOUs against the recovery for past Refunds. However, such relaxation will be subject to the following conditions:

1. Bill of Entry (for inputs) to be Amended u/s 149, Customs Act
2. Payment of IGST & GST Compensation Cess, as applicable to such imports.
3. Payment of interest (from date of import upto present date)

Game Changer & Festival Gift to Exporters:

On 8^th Oct 2024, CBIC has issued one more Notification No. 20/2024 – Central Tax dated 08^th Oct 2024, the Central Government has notified the Omission of Rule 96(10) of CGST Rules, 2017 as recommended by the GST Council. The relevant para of the aforesaid notification has been reproduced below for ease of clarity.

“6. In the said rules, in rule 86, in sub-rule (4B), in clause (b), the words, brackets and figures “in contravention of sub-rule (10) of rule 96,” shall be omitted.”

The above notification is a most loved welcome move for exporters which shall provide huge relief to Indian Industrial economy. The exporters who had been covered with SCN, Summons & Demand Notices etc due to effect of Rule 96(10) can now breathe a sigh of relief. This would ensure a simple and expedited procedure for refunds. It will also promote ease of doing business in India and to promote exports.

Relevant Ruling and triggered the part of relief

In the matter of M/S. SANCE LABORATORIES PRIVATE LIMITED AND OTHERS VERSUS UNION OF INDIA AND OTHERS -  2024 (11) TMI 188 - KERALA HIGH COURT the Hon’ble High Court of Kerala in a set of writ petitions and declared Rule 96(10) of the Central Goods and Services Tax Rules 2017 (‘CGST Rules’) as “ultra vires” to Section 16 of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’), and unenforceable due to its manifestly arbitrary nature.

Conclusion

This amendment streamlines procedures and ensure that refunds on exports are no longer considered contraventions of earlier provisions, provided the reassessment of the Bill of Entry is completed. No recovery of refunds should be made by the Central Government for the period during 23^rd October 2017 and 8^th October 2024, holding that the rule is ‘unconstitutional’ The exporters can now enjoy the hassle free refunds of IGST.