Rule 96(10) of CGST Rules, 2017: 360° Analysis Boon for Exporters

1. Exports are backbone of any economy: Introduction

Exports are a crucial component of economic growth and development of any country. They are catalyst in expansion of markets, diversify their economies, improve their balance of trade, and promote international cooperation. As such, countries that invest in developing their export capacity are likely to reap significant benefits in terms of economic growth and prosperity.

It is crucial for any governments to carefully consider the potential impact of tax policies on exports and the overall economy. Striking the right balance between generating revenue and promoting export growth is a complex task that requires careful analysis and understanding of the specific dynamics of each country’s economy.

2. Export Under GST: _LUT route (without payment of GST) and Rebate route (payment of GST and claim of refund)

The Government has introduced GST w.e.f. 01-07-2017 and made special provisions for export of Goods and Services along with Supply to SEZ. The Export under GST are called ZERO Rated Supply.

Under the Goods and Services Tax (GST) regime, there are two methods of refund available for exporters  : LUT (Letter of Undertaking) and with payment of IGST (Integrated Goods and Services Tax).

It’s worth noting that the certain specific procedures vide Rule 89 to 96 CGST Rules, 2017 are laid down, which provides for certain documentations, and eligibility criteria for claiming the refund of un-utilized ITC under LUT method of export or claiming IGST refunds paid on export of goods.

It may be noted that there are certain restrictions in place under GST law for claim of refund. One such restriction is Rule 96(10) of CGST Rules, 2017 which provides for claiming refund of IGST paid on export.

3. Rule 96(10) of CGST Rules, 2017 and Its legislative history:

For ease of reference the Rule 96(10) after 9.10.2018 is reproduced below:

“(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-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 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme.]

The Rule 96(10) place the restriction on  a person claiming  refund if Integrated Tax paid on Export of Goods if the exporter or supplier of exporter has availed the benefit of notification No. 78 and 79/2017-Customs, both dated the 13th October, 2017,

1. Prior to Rule 96(10) there was Rule 96(9) which got substituted with Rule 96(10) and said restriction was first introduced w.e.f. 23-Oct-2017. Thereafter government has made series of changes/amendments vide different notifications issued from time to time, in the said rule. Therefore, it is important to understand the net effect of such changes made vide such notifications issued with respect to amendments in Rule 96(10).

2. Summary of such changes/amendments made in Rule 96(10) [initially introduced as “Rule 96(9)” in CGST Rules, 2017], vide different notifications issued on time to time, is tabulated below for ease of reference:

Rule 96 of CGST Rules, 2017
Principle/Amending Notification	Date of notification and effective date of operation of amendment	Comments	Provision after respective amendment
Notification No. 75/2017-CT	29.12.2017 (with effect from 23.10.2017)	Rule 96(9) was inserted to provide that bar in claiming refund of IGST paid on export would apply when supplier to registered person has claimed benefit of deemed export and  merchant export notification.	The persons claiming refund of integrated tax paid on exports of goods or services should not have received supplies on which the supplier has availed benefit of- a.  notification No. 48/2017-Central Tax, dated the 18th October, 2017 or b.  notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017 or c. notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017
Notification No. 3/2018-CT	23.01.2018 (with effect from 23.10.2017)	Rule 96(9) was brought as Rule 96(10) retrospectively. Further it was additionally provided that the bar would also apply if supplier to registered person has availed IGST exemption under AA, EPCG or EOU.	The persons claiming refund of integrated tax paid on exports of goods or services should not have received supplies on which the supplier has availed benefit of – a.  notification No. 48/2017-Central Tax, dated the 18th October, 2017 or b. notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017 or c. notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017 d. notification No. 78/2017-Customs, dated the 13th October, 2017 e. notification No. 79/2017-Customs, dated the 13th October, 2017
Notification No. 39/2018-CT	04.09.2018 (with effect from 23.10.2017)	Rule 96(10) amended retrospectively. It was amended to provide that bar under said rule would apply when registered person himself avails IGST exemption benefit under AA, EPCG and EOU and not when supplier to registered person avails the same.	The persons claiming refund of integrated tax paid on exports of goods or services should not have- (a) received supplies wherein benefit availed of- a.  notification No. 48/2017-Central Tax, dated the 18th October, 2017 or b.  notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017 or c. notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017 (b) availed the benefit of- a. notification No. 78/2017-Customs, dated the 13th October, 2017 b. notification No. 79/2017-Customs, dated the 13th October, 2017
Notification No.  53/2018-CT	09.10.2018 (with effect from 23.10.2017)	Two notifications issued on same day. One notification provided for Rule 96(10) which would apply from 23.10.2017 to 08.10.2018 (Phase I) (Notification No.  53/2018-CT) Another notification provided for Rule 96(10) which would be applicable from 09.10.2018 (Phase II) (Notification No.  54/2018-CT) First notification provided during Phase I the bar would apply if supplier to registered person avails IGST exemption under AA, EPCG or EOU. The same would not apply if registered person himself avails IGST exemption benefit under said scheme.	The persons claiming refund of integrated tax paid on export of goods or services should not have received supplies on which the supplier has availed benefit of a.  NN. 48/2017-CT dated 18.10.2017 or b.  NN. 41/2017-CT (Rate) dated 25.10.2017. c. notification No. 78/2017-Customs, dated the 13th October, 2017 d. notification No. 79/2017-Customs, dated the 13th October, 2017
Notification No.  54/2018-CT	09.10.2018 (with effect from 09.10.2018)		The person claiming refund of integrated tax paid on exports of goods or service should not have- (a) Received supplies wherein benefit availed of – a.  NN. 48/2017-CT dated 18.10.2017 except against EPCG scheme or b.  NN. 40/2017-CT (Rate) dated 23.10.2017 or c. NN. 41/2017-IT (Rate) dated 23-10-2017 (b).  availed benefit of – a.  notification No. 78/2017-Customs, dated the 13th October, 2017 b.  notification No. 79/2017-Customs, dated the 13th October, 2017 except against EPCG scheme.
Notification No. 16/2020-CT	23-3-2020 (with effect from 23.10.2017)	Explanation was inserted in Rule 96(10) to provide that bar would not apply if IGST is paid and BCD is claimed as exemption under said scheme.	Explanation – For the purpose of this sub -rule, the benefit of the notification mentioned therein shall not be considered to have been availed only where the registered person has paid Integrated Goods and Service Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications.

From the above table it is evident that all the above-mentioned notifications have its effective date of insertion/substitution effective from 23.10.2017 (specifically stated in the Notification), except for Notification No.  54/2018-CT, which has effective date of implementation as the date of issue of notification and not from 23.10.2017. Further, Vide Notification No.  53/2018-CT, the effect of Notification No. 39/2018-CT was nullified.

4. When Violation of Rule 96(10) triggeres 

The violation of Rule 96(10) is related to availment of benefit in terms of

a.  notification No. 48/2017-Central Tax, dated the 18th October, 2017

b. notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017

c. notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017

d. notification No. 78/2017-Customs, dated the 13th October, 2017

e. notification No. 79/2017-Customs, dated the 13th October, 2017

In this article we shall discuss the violation of Rule 96(10) of CGST rules with respect to notification No. 79/2017-Customs, dated the 13th October, 2017. The said Notification allows the importer to import the inputs or capital goods without payment of Basic Custom duty and/or IGST on import. However with regards to Capital goods the Government has made amendment in Rule 96(10) by excluding the goods imported under EPCG without payment of IGST, the relevant exclusion made in said rule 96(10) (b) is as under:

“except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme”

hence there is no violation of said Rule when there is duty free import of Capital goods under EPCG license.

The Violation of Rule 96(10) of CGST Rules, 2017 can be divided into two part for ease of understanding:

A. Violation Pre 09-10-2018 (Notification No.  53/2018-CT):

The persons claiming refund of integrated tax paid on export of goods or services should not have received supplies on which the supplier of said registered person (Exporter) has availed benefit of notification No. 78/2017-Customs, dated the 13th October, 2017 or notification No. 79/2017-Customs, both dated the 13th October, 2017

Before issuance of Notification No.  54/2018-CT, a registered person shall not be eligible to claim refund of IGST paid on export of goods, if supplier of said registered person has availed the benefit of above mentioned notification on import of goods.

B. Violation Post 09-10-2018 (Notification No.  54/2018-CT):

After issuance of Notification No.  54/2018-CT, restriction has been placed upon the registered person from availing the refund of IGST paid on export of goods, if said registered person has availed the benefit of notification No. 78/2017-Customs, dated the 13th October, 2017 or notification No. 79/2017-Customs, both dated the 13th October, 2017, on import of goods.

Therefore the restrictions under Rule 96(10) as envisaged under Notification No.  54/2018-CT only came into force from the date of the publication of the said notification (i.e. 09.10.2018). Therefore the restrictions under Rule 96(10) cannot apply to the period prior to 09.10.2018.

Hence, prior to 09.10.2018 if a supplier if exporter has availed the benefit of above mentioned Notification shall be considered a violation of Rule 96(10) and after 09.10.2018 if an exporter himself avails the benefit of said notification then same shall be considered as violation of Rule 96(10) of CGST Rules, 2017.

5. The issuance of Circular 125/44/2019-GST, dated 18.11.2019

The CBIC has further clarified the net effect of above amendments by issuing the Circular 125/44/2019-GST, dated 18.11.2019

The extract of Para No. 52 of said Circular, is as mentioned below- 

“The net effect of these changes is that any exporter who himself/herself imported any inputs/capital goods in terms of notification No. 78/2017-Customs, dated the 13th October, 2017 and notification No. 79/2017-Customs, both dated the 13th October, 2017, before the issuance of the Notification No.  54/2018-CT, shall be eligible to claim refund of the Integrated tax paid on exports.”

6. Judgement in matter of Comos Films Ltd. v/s UOI (SCA No. 15833 of 2018)

The Hon’ble Gujarat High Court in the case of Cosmo Films Ltd. v. UOI (SCA No. 15833 of 2018) has held that – Rule 96(10) as substituted w.e.f. 09.10.2018 vide Notification No.  54/2018-CT, shall apply retrospectively from 23.10.2017. 

The Hon’ble Court in Para 9 of said Judgement held as under:

“9. In view of above amendment, the grievance of the petitioner raised in this petition is therefore taken care of. However, it is also made clear that Notification No.  54/2018-CT is required to be made applicable w.e.f. 23rd October, 2017 and not prior thereto from the inception of the Rule 96(10) of the CGST Act. Therefore, in effect Notification No. 39/2018 dated 4th September, 2018 shall remain in force as amended by the Notification No.  54/2018-CT by substituting sub−rule (10) of Rule 96 of CGST Rules, in consonance with sub−section (3) of Section 54 of the CGST Act and Section 16 of the IGST Act. The Notification No.  54/2018-CT is therefore held to be effective w.e.f. 23rd October 2017. Rule is made absolute to the aforesaid extent, with no order as to costs.”

7. Investigation initiated by Department across Country

The department initiated country wide Investigation on Exporter and only case of department is that noticee ought to have exported goods under LUT/bond in terms of Rule 96A (LUT route) of CGST rules and not under Rule 96 (IGST Paid route) of CGST Rule 96(10) ibid.

The department is alleging that the refund claimed by exporter on IGST paid exports against Advance Authorization license is in violation of Rule 96(10)(b) and hence liable to be surrendered.

The whole basis of the demand itself is not correct because mere mentioning of Advance license number in the Shipping bill may not lead to violation of Rule 96(10) of CGST rules. The violation needs to be proved based on facts and not based on the declaration on the shipping bills considering the fact that Advance Authorization (AA) scheme permits post export and pre-import benefits to exporters.

8. Circular 174/06/2022-GST, dated 06-07-2022.

Meanwhile the CBIC has also taken note of this serious issue and issued the Circular No. 174/06/2022-GST, dated 06-07-2022. The key take away of said circular is as under:

a. Erroneous refund need to deposit through cash ledger in form DRC-03.

b. Pay Interest and penalty wherever applicable in form DRC-03 through cash ledger.

c. Intimate department as per prescribed format in Annexure-A for such payment.

d. Proper officer shall Re-credit the IGST paid by using FORM GST PMT-03A within 30 days from date of intimation.

9. Remedy available to Exporter

The issue has serious implications on all the Exporter/Importer across Country. The exporter has exported the goods with payment of IGST as it was automated and there was no manual filing required for this. Most of the exporter has exported the goods with payment of IGST and claimed the IGST refund.

Now, the department is issuing Summons and Show Cause Notices (SCN) for erroneous refund, along with interest under Section 50 of CGST Act and penalty under section 74 of CGST Act, 2017

The Exporters have approached the jurisdictional High Court challenging the validity of Rule 96(10) of CGST, 2017 and requesting stay on recovery proceeding. The matter is sub-judice and it will have to be seen whether the provisions are upheld or struck down.

One of the alternate option for exporters who have not challenged , have an option to follow the circular No. 174/06/2022-GST, dated 6-07-2022. and Judgement of Cosmos Films Pvt. Ltd and pay IGST amount claimed as refund along with applicable interest and penalty with effect from 23.10.2017 onwards and said exporter can claim re-credit of said refund amount in Electronic credit ledger in form DRC-03A.

10. Contest case on merit

The GST being new and evolving law the Jurisprudence will take its own course. The exporter can contest this matter on merits and Government and Courts may take note of this issue being Legal issue and direct appropriate reliefs. Following are few grounds on which the exporter may contest their case:

I. Show Cause Notice for demand of refund cannot be issued without challenging the order sanctioning the refund. The exporter has paid IGST on export and claimed the refund by filing application (Shipping bill) and refund has been sanctioned hence the refund order have attained finality and same being an appealable order, new proceedings cannot be initiated without challenging the said orders.

• M/s. Eveready Industries India Ltd. v. CESTAT, Chennai [2016-TIOL-676-HC-MAD-CX = 2016 (337) E.L.T. 189 (Mad.)
• CCE, Tirupathi v. Panyam Cements & Minerals Industries Ltd. [2016 (331) E.L.T. 206 (A.P.)

I. Demand for the period prior to 09.10.2018 is not sustainable in terms of Notification No. 54/2018-CT, which is effective from 09.10.2018 and not from 23.10.2017. Therefore, refund of IGST for prior to period 09.10.2018 is not sustainable. Further, the Judgement in the matter of Cosmos Films Pvt. Ltd (supra) is pending review and hence the same shall be subject to final outcome the issue related to effective date of implementation of N.N. 54/2018 dated 8-10-2018 will be addressed.

II. The exporter is entitle for re-credit of ITC, thus demand is revenue neutral in the present case.

• Zenith Spinners v. Union of India — 2015 (326) E.L.T. 97
• Reil Electricals India ltd. Versus Jt. Secretary (Revisionary Authority), New Delhi 2021 (378) E.L.T. 406 (Mad.)

III. In case if goods were exported without payment of tax, under Bond/LUT, the exporter is eligible to claim refund under LUT route and said refund if claimed would available in Cash. Thus, demand to that extent is not sustainable being revenue neutral, as noticee is duly entitled for refund under Rule 96A of CGST Rules.

IV. Sub rule (10) of rule 96 of the CGST Rules is beyond the power of the Central Government the impugned provision is ultra vires Section 54 of the CGST Act, ultra vires Section 16 of the IGST Act and also violation of principles of equality [Article 14] and Right to do business [Article 19(1)(g)] of the Constitution of India.

V. In any case, Hon’ble Gujarat HC in case of Zaveri and company Vs UOI. SCA No. 15091 of 2018 has held that Notification No. 54/2018 dated 9.10.2018 is prospective, and therefore applicable w.e.f. 09.10.2018

VI. Rule 96(10) of the CGST Rules is ultra vires the Rule making power conferred upon the Government under Section 164 of the CGST Act also.

VII. The whole case of department is on assumption and presumptions, as there is no corroborative evidence to prove the allegation against the noticee. The notice is solely issued based on SBs wherein export were under advance authorization (AA) and authorization number were mentioned in the shipping bill. The department has completely ignored that fact that export obligation under AA can also be discharged from domestically procured inputs.

VIII. No suppression of facts from the department, thus demand under Section 74 of CGST Act, 2017, is not sustainable in the present case. For this reason, penalty under Section 122 cannot be imposed.

IX. Interest under Section 50(1) of CGST Act, 2017 read with Section 20(xxv) of IGST Act, 2017, in its present form, does not contemplate a scenario involving interest on deposit of erroneous sanction of refund through DRC-03, and therefore, CGST Act does not provide for a substantive provision to demand interest in the instant case.