Benefits of duty under Advance authorisation, Customs - Exim - SEZ

[mk Jain]

Sir/mam,

1.How can we take the benefit of duty on domestic inputs (Raw material) against advance authorization.

2. Is any benefits of IGST or refund on input from domestic purchase

3. Can take the benefits EPCG and Advance authorization both parallel.

As per my understanding only custom duty benefits available on advance authorization. IGST refund on export only and DBK/RODTEP also available with AA/EPCG.

MK

Posts / Replies

[YAGAY andSUN]

Your understanding is largely correct, but let us clarify each point in detail:

1. How can we take the benefit of duty on domestic inputs (Raw material) against advance authorization?

Advance Authorization (AA) is a scheme under the Foreign Trade Policy (FTP), which allows exporters to import inputs without payment of Customs duty, subject to certain conditions. However, when it comes to domestic inputs (raw materials), the situation is a bit different:

• The benefit of duty exemption on raw materials that are domestically purchased can be obtained by using the Advance Authorization scheme, provided the inputs are used in the manufacture of export products.

• You can claim a duty drawback (DBK) on the customs duty paid on the inputs used in the manufacturing process.

• Duty Credit Scrips like RODTEP (Remission of Duties and Taxes on Exported Products) may also be available, depending on the export product and the specific scheme under the FTP.

So, while AA itself covers exemptions on customs duties for imported inputs, you may still claim benefits for domestic inputs, either through Duty Drawback or RODTEP, if eligible.

2. Is there any benefit of IGST or refund on input from domestic purchase?

Yes, there is a benefit. Under the GST (Goods and Services Tax) regime, you are entitled to a refund of Input Tax Credit (ITC), including IGST paid on domestic purchases of inputs, provided:

• The inputs are used in the manufacture of export products.

• The goods or services are exported, and the ITC is not utilized for payment of tax on any domestic supplies.

For exports, the IGST paid on the inputs (raw materials) can be claimed as a refund under the GST Refund Process. This is available to all exporters, whether they are under Advance Authorization, EPCG, or not.

Key point: The IGST refund is not available unless the goods are exported. So, while domestic purchases do benefit from ITC, the refund can only be claimed after the export of the goods.

3. Can we take the benefits of EPCG and Advance Authorization both in parallel?

Yes, you can use both the EPCG (Export Promotion Capital Goods) scheme and the Advance Authorization (AA) scheme simultaneously, but there are some conditions and restrictions to consider:

• EPCG Scheme: This allows the import of capital goods at zero customs duty, subject to an export obligation. The capital goods are used for manufacturing export goods.

• Advance Authorization: This allows the import of inputs (both raw materials and intermediates) without paying customs duty, subject to export obligations as well.

However, a few points to note:

• EPCG is primarily for capital goods, and AA is for raw materials. They serve different purposes but can be utilized in parallel for different needs in your business.

• When using AA for raw materials, the exports are typically subject to the duty exemption under AA. When using EPCG, the capital goods must be used for manufacturing export products, and there is an export commitment attached.

• Overlap Restrictions: Both schemes cannot be used for the same input or item. You cannot use both AA and EPCG for the same set of raw materials or the same capital goods. However, you can use them for different items or in separate phases of the manufacturing process.

Summary:

• AA and Domestic Inputs: You can claim duty benefits on domestic inputs via Duty Drawback or RODTEP, but Advance Authorization only provides duty benefits on imported inputs.

• IGST Refund: You can claim an IGST refund on inputs used in export production. The refund is available for domestic purchases of inputs.

• AA and EPCG Together: You can use Advance Authorization and EPCG together, but they should not overlap in terms of the same input. EPCG covers capital goods, while AA covers raw materials and intermediate goods.

Let us know if you need further details on any of these!

[Sadanand Bulbule]

Dear Yagan & Sun Sir

I draw your kind attention to the deletion of Rule 96 (10) of the CGST Rules being declared as unconstitutional by the Hon’ble Kerala High Court followed by the CBIC Circular No. 233/27/2024-GST, dated 10th Sept 2024 streamlines procedures and ensures that refunds on exports are no longer considered contraventions of earlier provisions. No recovery of refunds should be made by the Central Government for the period during 23rd October 2017 and 8th October 2024, holding that the said rule is ‘unconstitutional’. 

The legal position being so, still the authorities are issuing SCN to payback the refunded amount with interest and penalty. Plz enlighten on this issue.

 

[YAGAY andSUN]

Dear Sir,

You have raised an important legal issue regarding the deletion of Rule 96(10) of the CGST Rules, which was declared unconstitutional by the Hon’ble Kerala High Court. Additionally, the CBIC Circular No. 233/27/2024-GST, dated 10th September 2024, has provided clarity on the matter, stating that refunds on exports, for the period between 23rd October 2017 and 8th October 2024, should not be considered as contraventions of the earlier provisions and thus should not be subject to recovery.

To summarize the legal position:

1. Kerala High Court's Judgment: The Hon'ble Kerala High Court struck down Rule 96(10) of the CGST Rules, which previously required exporters to pay back any refunded input tax credit (ITC) if the export proceeds were not received within the stipulated period. The court held the rule unconstitutional, and this judgment effectively removed the requirement to reverse refunds in cases where export proceeds were delayed.
2. CBIC Circular: The CBIC Circular dated 10th September 2024 clarified that refunds granted to exporters during the period from 23rd October 2017 to 8th October 2024 will not be subject to recovery, as Rule 96(10) was found unconstitutional. The circular provides that no action should be taken for recovery of the refunded amount during this period.
3. Issue with SCNs (Show Cause Notices): Despite this legal position, you are stating that authorities are still issuing Show Cause Notices (SCNs) demanding repayment of refunded amounts along with interest and penalties. This is a serious concern, as it seems to contradict the Kerala High Court's ruling and the CBIC's clarification under the circular.

The Possible Reasons for this Issue

• Misinterpretation or Lack of Awareness: The authorities may not be fully updated on the legal developments or may not have properly integrated the ruling into their procedural framework. This could result in the continued issuance of SCNs.
• Administrative Inertia: Sometimes, administrative departments may be slow in implementing changes following judicial pronouncements, leading to delays or confusion in following new legal guidelines.
• Contradiction in Circulars or Notifications: There could be gaps in communication between various authorities at different levels (local, state, and central), causing inconsistent application of the law.

How to Address the Issue?

1. Responding to the SCN: If you have received an SCN demanding recovery, it's crucial to highlight the Kerala High Court's ruling and the CBIC Circular in your response. You can refer to the specific dates and legal basis, explaining that the refund should not be recovered due to the unconstitutionality of Rule 96(10) during the specified period.
2. Escalation: If the authorities continue to issue SCNs in spite of the clear legal position, you may consider escalating the matter by approaching higher authorities within the department. This could include reaching out to the CBIC or filing a grievance with the GST Council.
3. Legal Recourse: If there is persistent non-compliance with the court’s order, you may have the option of seeking judicial recourse by filing a writ petition or a legal appeal to enforce the ruling.
4. Documentation and Record: Ensure that you maintain all records of communication, SCNs, and any responses you have received. This will be essential if you need to challenge any unjust recovery actions in the future.

Conclusion

The authorities should ideally follow the judicial pronouncements and the CBIC Circular. If there is a continued demand for repayment of refunded amounts during the specified period, it may be a case of administrative error or non-compliance, which should be rectified through proper legal channels. You are correct in asserting that the refund should not be recovered, and pursuing the matter through the right legal channels will be essential.

***

[YAGAY andSUN]

A representation by Bar Associations, Experts and Consultant to CBIC along with Writ Petitions either in HC or SC (as the case may be) shall definitely work positively and in favour of Exporters/GST Registrants.

[Sadanand Bulbule]

Dear Sir, 

I have attended personal hearing and impressed the factual and legal position. However the adjudicating authority says, the subject notification omitting Rule 96(10) of the CGST Rules is with prospective effect. So the impugned benefit cannot be given retrospectively. This is much against the clarification issued by the CBIC. In my view, the litigation would go back to the High Court. 
Your comments plz. 

[YAGAY andSUN]

Dear Sir,

It is settled legal position that if any notification or circular is of clarificatory nature, then, it holds retrospective effect.  It seems Revenue Department has forgotten the very concept of ease of doing business and complicating such issues. Such negative understanding will surely make Indian Exports more expensive as FTP says " India need to export the Goods and Services but not the taxes". 

In my view, Schemes like AA, EPCG, IGST Refund must be litigation free to support the growth of Indian Exports.

Regards

YAGAY and SUN

[Sadanand Bulbule]

Dear Sir
I fully endorse your statement. 
CBIC Circular emphasises that “No recovery of refunds should be made by the Central Government for the period during 23rd October 2017 and 8th October 2024, holding that the said rule is ‘unconstitutional’.

Unfortunately the AO is relying upon the prospective effect of the notification. This is the tragic outcome. These days litigation is very expensive. 

[YAGAY andSUN]

It is settled legal position that Department is Bound by CBIC Circular.

Yes, it is generally settled that the Department (Revenue Department) is bound by the CBIC (Central Board of Indirect Taxes and Customs) Circulars, but there are some nuances to consider. To understand this better, let's look at a few key points:

1. Nature and Importance of CBIC Circulars:

• CBIC Circulars are issued by the Central Board of Indirect Taxes and Customs to provide clarifications on various provisions of indirect taxation, including GST, customs, and excise laws.

• These circulars are primarily intended to guide tax officers on how to interpret and apply the law. They help bring uniformity and clarity in the administration of tax laws.

• The CBIC Circulars typically address issues that may arise in the day-to-day implementation of tax laws, offering guidance, interpretation, and clarifications.

2. Binding Nature of CBIC Circulars on the Department:

• Binding on Revenue Authorities: CBIC Circulars are binding on the revenue authorities, such as tax officers, customs officers, and GST officers, who must follow them when applying tax provisions. If a circular clarifies an issue, tax officers are expected to follow the guidance unless there is a higher judicial authority (such as a Supreme Court or High Court) decision that overrides the circular.

• This binding nature ensures consistency in the application of tax laws and prevents arbitrary or inconsistent decision-making by tax officers. For instance, if a circular clarifies a tax provision in a certain manner, the department cannot take a position contrary to that clarification.

3. Judicial Review and Limitations:

• Judicial Precedents: Even though CBIC Circulars are binding on the tax officers, judicial bodies, such as the High Courts and Supreme Court, have the authority to review and invalidate any circulars or administrative directions that are inconsistent with the law.

• Courts have held that tax circulars cannot override the law. If a circular conflicts with the statutory provisions, it can be challenged in court, and the court may strike it down or interpret it in a manner that aligns with the law. For example, if the circular contradicts the Central Goods and Services Tax Act (CGST Act), the provisions of the Act would take precedence over the circular.

• The judicial position is clear that even if a circular is issued by the CBIC, it is not an absolute authority. If the circular is found to be against the letter of the law, the court will uphold the law over the circular.

4. CBIC Circulars and Their Practical Impact:

• Enforcement of Circulars: Practically, when a CBIC Circular is issued, the Department is expected to follow it, and the taxpayer can rely on the circular for their transactions and interactions with tax authorities. For instance, if the CBIC issues a circular clarifying a specific tax treatment, taxpayers can rely on that circular for their compliance.

• Assurance for Taxpayers: Taxpayers are generally expected to comply with the circular’s directions, and if the department acts contrary to the circular, the taxpayer may challenge it in courts. The taxpayer may argue that the department's actions are in violation of the CBIC Circular, which provides protection against arbitrary or unjust tax assessments.

5. Exceptions and Court Rulings:

• CBIC Circulars Not Binding on Courts: As mentioned, CBIC Circulars do not have the force of law and are not binding on the judiciary. Courts can examine the circulars in light of the statutory provisions and interpret the law accordingly.

• Binding on Department but Not on Taxpayers: While the circulars are binding on the department and officers, they are not automatically binding on the taxpayer unless the circular is consistent with the law. In some cases, taxpayers can argue that they should be allowed to contest a tax matter even if it deviates from the circular if the circular is not in line with the law.

Conclusion:

Yes, the department is bound by CBIC Circulars, as these circulars provide guidance on how to interpret and enforce tax laws. They are intended to ensure uniformity and consistency in the application of indirect tax laws. However, these circulars are subject to judicial review and cannot override statutory law. If a circular contradicts the provisions of a law or the Constitution, the judiciary has the power to invalidate or modify the circular. Hence, while they are generally binding on the department, their authority is not absolute, and courts have the final say in matters where the circulars may conflict with the law.

[Shilpi Jain]

Pls note that there was a recent HC decision which held that deletion of rule 96(10) without any saving clause regarding past actions - no demand can be raised for any exports done with payment of tax. - Glen Industries Private Limited & Anr WPA 3254 of 2025 

[Shilpi Jain]

Basis the above, no restriction is now valid on exports made with payment of tax for situations that were earlier covered under the said rule.

Also for any such exports done in the past, no valid demand can be raised now as the rule has been deleted without any savings clause.

[Shilpi Jain]

Reply to the specific queries raised

1.How can we take the benefit of duty on domestic inputs (Raw material) against advance authorization.

The IGST charged by supplier can either be claimed as refund by you or by the supplier. W.r.t. customs duty benefit for this, see if you can do invalidation of your AA to enable the domestic supplier to import duty free.

2. Is any benefits of IGST or refund on input from domestic purchase

As mentioned above

3. Can take the benefits EPCG and Advance authorization both parallel.

Yes. EPCG is for capital goods and AA is for inputs/RM.

As per my understanding only custom duty benefits available on advance authorization. IGST refund on export only and DBK/RODTEP also available with AA/EPCG.

IGST refund on inputs can be claimed irrespective of exports, though if not exported the duty benefits on import will have to be paid back. RoDTEP not available post 5.2.25 as the law stands today for AA.

Dbk would not be eligible for AA holders