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TMI BlogREFUND OF ITC ON EXPORT OF GOODS WITHOUT PAYMENT OF TAX – RULE 89(4) OR RULE 89(4B)?X X X X Extracts X X X X X X X X Extracts X X X X ..... REFUND OF ITC ON EXPORT OF GOODS WITHOUT PAYMENT OF TAX – RULE 89(4) OR RULE 89(4B)? - By: - Somesh Jain - Goods and Services Tax - GST - Dated:- 25-4-2024 - - GST Law, as introduced, allowed export of goods either on payment of tax (which tax was available as refund) or without payment of tax (with refund of unutilized input tax credit), without any restriction. Thereafter, Rule 96(10) was introduced in the CGST Rules which barred refund of output GST paid on export of goods by an Advance Authorization holder or an EOU unit (referred to as such exporter ) importing goods without payment of GST. CBIC Circular No. 45/19/2018-GST, dated 30-5-2018 (Para 7.1) clarified that this is to ensure that the exporter does not utilize the input tax credit availed on other domestic supplies received, for making the payment of integrated tax on export of goods and claiming refund thereof. Many cases have been booked by the tax department for violation of Rule 96(10) which are pending at various forums. After being aware of the implications of Rule 96(10) , such exporters have stopped making exports on payment of tax. Now, all export supplies are made without payment of tax and refund is claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of unutilised input tax credit. However, this option is also not free from its share of uncertainties and ambiguities. Refund of unutilised input tax credit in case of export of goods without payment of tax Section 16(3) of the IGST Act, as amended, provides for refund of unutilised input tax credit on exports made without payment of tax, subject to such conditions, safeguards and procedure as may be prescribed. The relevant extract of the said section is as under: (3) A registered person making zero rated supply shall be eligible to claim refund of unutilised input tax credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed: Rule 89(4) of the CGST Rules provides the formula for determining the amount of refund eligible as per the provision of Section 16(3) of the IGST Act. There are two more sub-rules (4A) and 4(B) which also provides for refund of ITC in special situations. Rule 89(4A) provides for refund of input tax credit, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availed in respect of inputs or input services used in making zero-rated supply, by an Advance Authorisation holder or EOU Unit who procures goods domestically without payment of GST. Rule 89(4B) provides for refund of input tax credit availed in respect of inputs or input services to the extent used in making export of goods by an Advance Authorisation holder or EOU Unit importing goods without payment of GST or by merchant exporter. In absence of any methodology prescribed under sub-rule (4A) and (4B), various Advance Authorisation holders or EOU Units claiming exemption of GST on import of goods have claimed refund of unutilised ITC under Rule 89(4) . The tax department has started investigations in such cases by alleging that refund has been claimed erroneously under Rule 89(4). Whether Rule 89(4B) is mandatory? This brings us to the burning question as to whether such exporter can claim refund under Rule 89(4) or they have to necessarily follow Rule 89(4B)? As seen above, Section 16(3) of the IGST Act provides for refund of unutilised input tax credit on exports made without payment of tax, subject to such conditions, safeguards and procedure as may be prescribed. Now it has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be seen whether the CGST Rules provides for any restriction or conditions for claiming refund in case of such exporters. The relevant extract of Rule 89(4) of the CGST Rules is as under: (4) In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC Adjusted Total Turnover The above rule does not restrict its applicability in case where Advance Authorisation holders or EOU units have claimed benefit of exemption from payment of GST on import or domestic procurement of goods. Further, in the said rule, the terms Net ITC , turnover of zero-rated supply of goods and adjusted total turnover have been defined. The definition excludes relevant amounts in respect of which refund is claimed under sub-rules (4A) or (4B). The relevant extract of the said definitions is as under: (B) Net ITC means input tax credit avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; (C) Turnover of zero-rated supply of goods means the value of zero-rated supply of goods made during the relevant period other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B ) or both; (E) Adjusted Total Turnover means the sum total of the value of- (a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and (b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services, excluding- (i) the value of exempt supplies other than zero-rated supplies; and (ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period. Thus, the exclusion in the above rule is only in case where any refund is actually claimed under sub-rule (4A) or (4B) and not where it is claimable under the said sub-rules. Further, there is nothing even in sub-rule (4A) or (4B) which restri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts refund for such exporters only under the said sub-rules and make them disentitle under Rule 89(4). Sub-rule (4B) only provides that: 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, on a plain reading of the above rules, it appears that such exporters have two options available with them: a more beneficial Rule 89(4) or less beneficial Rule 89(4A)/(4B) . Accordingly, it is possible to contend that in case no refund is claimed under sub-rules (4A) and (4B), the entire amount of refund can be claimed under Rule 89(4). Further, it is settled principle of tax law that when the case of the assessee is covered by two beneficial provisions, the assessee is entitled to claim that provision which is more beneficial, regardless of whether one is general and another is specific. The following observations of the Hon ble Supreme Court in the case of HCL. LIMITED VERSUS COLLECTOR OF CUSTOMS, NEW DELHI - 2001 (3) TMI 971 - SC ORDER are apposite: Where there are two exemption notifications that cover the goods in question, the assessee is entitled to the benefit of that exemption notification w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich gives him greater relief, regardless of the fact that that notification is general in its terms and the other notification is more specific to the goods. Thus, such exporters have option to either claim refund under Rule 89(4) or Rule 89(4B). Having said that, it may be cautioned that the above position is prone to litigation and the tax department will certainly dispute the above interpretation. One such case came before the Hon ble Gujarat High Court in the case of MESSERS FILATEX INDIA LTD. VERSUS UNION OF INDIA - 2022 (2) TMI 1002 - GUJARAT HIGH COURT wherein the above interpretation was not argued and the court finally disposed of the matter on concession of the parties. Nevertheless, if an assessee wants to conservatively follow the procedure of 89(4B) , the rules does not provide any formula for calculation of such refund amount. Calculation of refund under Rule 89(4B) . Rule 89(4B) merely states that the refund of input tax credit availed in respect of inputs or input services to the extent used in making such export of goods shall be granted. It does not provide any formula for calculation of refund amount, unlike Rule 89(4). In case of companies engaged in both domes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic supplies and exports of finished goods manufactured by using a number of raw materials procured at varying prices, some of which may be imported by claiming exemption, it becomes very difficult to determine the input tax credit in respect of inputs or input services to the extent used in making such export of goods. Thus, in absence of any statutory formula, the best valuation possible must be made [ AR KRISHNAMURTHY AND ANOTHER VERSUS COMMISSIONER OF INCOME-TAX - 1989 (2) TMI 2 - SUPREME COURT ]. Viscount Simon in Gold Coast Selection Trust Ltd. v. Inspector of Taxes, 17 ITR 19 (supp) observed valuation is not an exact science. Mathematical certainty is not demanded, nor indeed is it possible. The Hon ble Supreme Court in the case of HUKAM CHAND MILLS LIMITED VERSUS COMMISSIONER OF INCOME-TAX, BOMBAY - 1976 (3) TMI 4 - SUPREME COURT further observed as under: In the absence of some statutory or other fixed formula, any finding on the question of proportion involves some element of guess work. The endeavour can only be to be approximate and there cannot in the very nature of things be great precision and exactness in the matter. Thus, the calculation of the refund amount has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be based on some rational and logical basis. The Hon ble Gujarat High Court gave indication of one such logical method in Filatax India Ltd. (supra). The refund amount can be calculated by applying the input output ratio in respect of all raw materials to the turnover of exported goods, to arrive at the quantity of inputs consumed in making export supplies. The inputs procured or imported without payment of GST shall be excluded. The value of the input quantity so arrived can be ascertained on the basis of weighted average price of inputs purchased during that period and the amount of input tax credit can be determined by applying the rate of tax applicable on inputs. In case of input services, turnover method or any other appropriate method may be applied. Conclusion Since the introduction of the Goods and Services Tax (GST), exporters have found themselves navigating a landscape fraught with uncertainty and ambiguity. On one hand, the government has articulated a clear policy intent to bolster exports, offering a range of benefits and incentives aimed at facilitating trade and enhancing competitiveness on the global stage. The reality on the ground however tells a different stor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Despite the government's ostensibly supportive stance, exporters continue to grapple with a maze of complexities and inconsistencies within the GST framework. This uncertainty becomes particularly detrimental when coupled with the punitive repercussions of non-compliance. Justice Louis Brandeis in his dissenting opinion in Di Santo v. Pennsylvania 273 US 34 (1927) said that it is usually more important that a rule of law be settled, than that it be settled right. Thus, it is extremely necessary to bring much needed clarity for the exporters. A transparent and predictable GST regime is not just a regulatory necessity but a strategically imperative for fostering sustained growth and prosperity in the export-oriented economy. - Reply By Rachit Agarwal as = Dear Sir, I am an CA Article assistant under a mid size firm, and I have a client (ref as company) whose business is of exporting goods. The company is an star exporter under export promotion council. The company have outward supply of export without payment of tax and exempted supply within India. The Exempted supply is sale of export duty scrips which is an exempt supply under GST, and as for the ITC, the company is not lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to reverse any ITC for making such supply as per Explanation 1(d) of Rule 43 . The Export of Goods is of Goods procured under NN 40/2017 CTR , i,e. procurred on paying 0.1% of GST and the company fulfills all the condition under the said notification. The Company has made the export of Goods in April,2023. As per Section 54(1) , the Refund application can be filed within 2 years from relevant date. As per Explanation 2 (a) (ii) to section 54 relevant date is the date on which the goods passes the frontier. What is the date of passing the frontier? which document will provide such date? Is it the date of export general manifesto (E.G.M.)? Since EGM evidence that the goods have left the custom barrier and have been exported. Without EGM it is not certain that goods have left India, shipping bill can not prove such. As per Rule 84(4B) of CGST, 2017 , 'Where the person claiming refund of unutilized input tax credit on account of zero-rated supplies without payment of tax has 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 ,he refund of input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.' As per above quoted rule, the company is allowed for such refund, and since the case is of concessional rate, refund application has to be filed under Any other category, and this type can not cross the threshold of a month. In my case, I have filed the refund application, for period April, 2023, since the export is made in April, 2023. As the rule state that the Input and Input services to the extent used in making such export shall be granted as refund. The rule does not provide a definitive clause, i.e. time limit for such expenses. The company is incurring the expenses since April, 2022 to make possible such export, therefore in the refund application, in Annexure-B(Invoice wise of ITC in accordance with GSTR-3B ) I have demanded the ITC to be refunded since April 2022 to April 2023. All the ITC is availed have been Auto Populated in GSTR-2B in their respective month. Am I in Right here??, Since the Act and Rules do not provide a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definitive period of such expenses to extent to make such export. Is there any precedent set by the higher courts in this regards?? and How can one proof that expenses are in relation to such export? Dated: 9-9-2024 Reply By Pavan Mahulkar as = @ RACHIT AGARWAL for Category of deemed Exports time barring provisions as per explanation to Section 54 is as hereunder (b) in the case of supply of goods regarded as deemed exports where a refund of tax paid is available in respect of the goods, the date on which the return relating to such deemed exports is furnished; For definitive period of such expenses to extent to make such export, the time barring period for deemed export will be considered. Question: How can one prove that expenses are in relation to such export? As per Rule 89(4B) 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 Proportionate ITC to the extent of deemed Export u/r 89(4B) to be granted... that too for Inputs and Input services, not for the Capital Goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. Dated: 8-10-2024 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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