Admissibility of refund despite delay under Rule 96A – Devil Lies In The Details!

Explore the admissibility of refunds despite delays under Rule 96A in GST. Understand the intricacies, past clarifications, time limitations, and action points for exporters.

GST Council, vide its 50th meeting held on 11^th July 2023, has come out with a plethora of recommendations and consequent circulars & notifications. In this article, we are going to dive deep into one such clarification provided in circular on refund related issues as a measure for facilitation of trade. Circular No. 197/09/2023- GST dated 17th July 2023 has clarified the following matters relating to refund:

1. Refund of accumulated input tax credit under Section 54(3) on the basis of that available as per FORM GSTR 2B

2. Requirement of the undertaking in FORM RFD 01 inserted vide Circular No. 125/44/2019-GST dated 18.11.2019

3. Manner of calculation of Adjusted Total Turnover under sub-rule (4) of Rule 89 of CGST Rules consequent to Explanation inserted in sub-rule (4) of Rule 89 vide Notification No. 14/2022- CT, dated 05.07.2022

4. Clarification in respect of admissibility of refund where an exporter applies for refund subsequent to compliance of the provisions of sub-rule (1) of rule 96A

In this article, we are analysing the final para on the “admissibility of refund” where an exporter applies for refund subsequent to compliance of the provisions of sub-rule (1) of rule 96A.

What can be expected from this article?

√ Relevant extracts from the press release and circular

√ Past clarifications on the same matter

√ Extending the comprehension even in the case of voluntary payment

√ Admissibility of refund under substantive benefits of zero rating

√ Ambiguity around Time limitation for refund

√ Legitimate claim of Refund of interest – Circular not in line with the law

√ Action points for exporters

Relevant brief para from Press release of the 50th Meeting of the GST Council – Para 5(c) – Refer page 5 of 8:

“Clarification regarding admissibility of refund in cases where export of goods, or the realization of payment for export of services, as the case may be, is made after the time limit provided under rule 96A of CGST Rules, 2017.”

Relevant extracts from Circular & the analysis:

Para 4 of the Circular No. 197/09/2023- GST dated 17^th July 2023:

Clarification in respect of admissibility of refund where an exporter applies for refund subsequent to compliance of the provisions of sub-rule (1) of rule 96A: 

4.1 References have been received citing the instances where exporters have voluntarily made payment of due integrated tax, along with applicable interest, in cases where goods could not be exported or payment for export of services could not be received within time frame as prescribed in clause (a) or (b), as the case may be, of sub-rule (1) of rule 96A of CGST Rules. Clarification is being sought as to whether subsequent to export of the said goods or as the case may be, realization of payment in case of export of services, the said exporters are entitled to claim not only refund of unutilized input tax credit on account of export but also refund of the integrated tax and interest so paid in compliance of the provisions of sub-rule (1) of rule 96A.of CGST Rules. 

4.2 It is mentioned that in terms of sub-rule (1) of rule 96A of the CGST Rules, a registered person availing of the option to export without payment of integrated tax is required to furnish a bond or a Letter of Undertaking (LUT), prior to export, binding himself to pay the tax due along with applicable interest within a period of – 

(a) fifteen days after the expiry of three months, or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the goods are not exported out of India; or 

(b) fifteen days after the expiry of one year, or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange or in Indian rupees, wherever permitted by the Reserve Bank of India 

One has to understand and appreciate that Rule 96A is only a procedural mechanism prescribed to protect the best interest of the revenue in case of probable non-compliance with the key conditions attached to zero-rated supply, the tax liability or the interest prescribed under the said Rule 96A cannot be enforced and is not warranted in the true spirit of law, as long as the exports in terms of the relevant provisions have been made and the substantive conditions of zero rating has been duly complied with. This understanding has been well established by circular clarifications. Para 4.3 & 4.4 of Circular 197 further reads as below: 

‘4.3 In this context, it has been clarified inter alia in para 45 of Circular No. 125/44/2019 – GST dated 18.11.2019 that: 

“…….exports have been zero rated under the IGST Act and as long as goods have actually been exported even after a period of three months, payment of Integrated tax first and claiming refund at a subsequent date should not be insisted upon. In such cases, the jurisdictional Commissioner may consider granting extension of time limit for export as provided in the said sub-rule on post facto basis keeping in view the facts and circumstances of each case. The same principle should be followed in case of export of services 

4.4 Further, in Para 44 of the aforesaid Circular, it has been emphasized that the substantive benefits of zero rating may not be denied where it has been established that exports in terms of the relevant provisions have been made.’ 

This indeed was a welcoming clarity given by the board way back in 2018 itself vide Para 5 of Circular No. 37/11/2018-GST dated 15^th March, 2018, when the entire industry and department officers were left clueless on various aspects of refund mechanism at the early stage of GST law and the same was again reproduced when master circular 125 was issued. It may be noted that Circular 37/125 earlier clarified in the context that, payment of integrated tax first and claiming refund at a subsequent date should not be insisted upon by the tax officer. Further, Circular 197 is extending the same comprehension even where exporters have voluntarily made payment of due integrated tax, along with applicable interest and the circular certainly is appreciable to this extent.

Well now, Circular 197 goes on to further clarify the following: 

‘4.5 The above clarifications imply that as long as goods are actually exported or as the case may be, payment is realized in case of export of services, even if it is beyond the time frames as prescribed in sub-rule (1) of rule 96A, the benefit of zero-rated supplies cannot be denied to the concerned exporters. Accordingly, it is clarified that in such cases, on actual export of the goods or as the case may be, on realization of payment in case of export of services, the said exporters would be entitled to refund of unutilized input tax credit in terms of sub-section (3) of section 54 of the CGST Act, if otherwise admissible. 

4.6 It is also clarified that in such cases subsequent to export of the goods or realization of payment in case of export of services, as the case may be, the said exporters would be entitled to claim refund of the integrated tax so paid earlier on account of goods not being exported, or as the case be, the payment not being realized for export of services, within the time frame prescribed in clause (a) or (b), as the case may be, of sub-rule (1) of rule 96A. It is further being clarified that no refund of the interest paid in compliance of sub-rule (1) of rule 96A shall be admissible.’ 

Hence, Circular 197 makes it amply clear on the “admissibility of refund” where an exporter applies for refund subsequent to compliance, under both:

(a) Refund of unutilized ITC u/s 54(3) in the case of export without payment of tax

(b) Refund of the integrated tax paid in the case of export with payment of tax

This would help exporters claim refund of any amount paid under Rule 96A, especially considering that many exporters would have faced hardship during the COVID pandemic period with various business uncertainties across the globe. It is now time for such exporters to make use of these circulars in order to claim refund of any amount paid under Rule 96A.

However, DEVIL LIES IN THE DETAILS!

Time limitation for refund

While the circular has clarified on the admissibility of refund, it failed to clarify on the time limitation applicable for such refund claim.

Refund can be claimed within two years from the relevant date. However, Notification No. 13/2022-Central Tax dt. 05.07.2022 excludes the period from 01.03.2020 to 28.02.2022 for computation of period of limitation for filing refund application under section 54 of the said Act, due to COVID pandemic. In simple words, as of July 2023, the time limit for claiming past period is extend by another 2 years and is in addition to the two years from relevant date as prescribed in the Act (while such simple understanding may not apparently hold good for future periods beyond Feb’24)

Let us understand the refund time limitation for taxes and interest separately:

A. Time limitation for Refund of taxes

Explanation (2) of Section 54 defines the ‘relevant date’ based on which refund time limitation is calculated and the relevant 3 clauses in this case are extracted below:

‘Clause (a) in the case of goods exported out of India where a refund of tax paid is available in respect of goods themselves or, as the case may be, the inputs or input services used in such goods,-

(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India; or

(ii) if the goods are exported by land, the date on which such goods pass the frontier; or

(iii) if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India; 

Clause (c) in the case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, the date of-

(i) receipt of payment in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India, where the supply of services had been completed prior to the receipt of such payment; or

(ii) issue of invoice, where payment for the services had been received in advance prior to the date of issue of the invoice; 

Clause (h) in any other case, the date of payment of tax.’

In this specific circumstance, as long as taxes are not paid under Rule 96A, the refund would get covered only under clause (a) and (c) for export of goods and services respectively. However, where the tax on export has been specifically paid under Rule 96A, Circular 197 specifically states that the refund application in the said scenario may be made under the category “Excess payment of tax” which could be perceived by the proper officer to be falling under the residuary clause (h) as “the date of payment of tax”. Meaning thereby, it may be wrongly understood that refund shall be applied within 2 years time limit from the date of payment of taxes under Rule 96A and the same shall be subject to COVID relief, wherever payment of tax has been made on or before 28.02.2022.

This would result in more ambiguity for an exporter as explained with illustration below:

Particulars	Illustration 1	Illustration 2
Date of issue of the invoice for export	28-Feb-21	1-Sep-19
Date of payment under Ride 96A	30-Jun-21	31-Jan-20
Actual date of goods shipment under clause (a) / Date of realisation of forex for export of service under clause (c)	30-Jun-22	30-Jun-21
Time limitation based on clause (h) residual category*	28-Feb-24	31-Jan-24
Time limitation based on clause (a) or (c) as applicable*	30-Jun-24	28-Feb-24
* Time limitations calculated excluding COVID relief period from 01.03.2020 to 28.02.2022 vide Notification No. 13/2022-Central Tax dt. 05.07.2022

As illustrated above, with the circular creating more ambiguity on the time limitation, it would be appropriate if CBIC can suitably clarify the time limitation. Nevertheless, for a proactive exporter taking quick action on refund applications, with the COVID reliefs still alive for past periods, the ambiguity around time limitation might not pose a major concern!

On an alternate note, one can also argue that such payment of “taxes” under Rule 96A cannot even be construed as taxes but rather be perceived merely as an “amount” collected in the true spirit of exports being zero-rated and not leviable to taxes in India. When such a view is taken, the time limitation would be calculated similarly to the interpretation we have analyzed in detail for refund of interest as follows.

B. Time limitation for Refund of Interest:

While the circular has magnanimously clarified the admissibility of refund, it unfortunately erred to the extent of clarifying that “no refund of the interest paid in compliance of sub-rule (1) of rule 96A shall be admissible.”

At the outset, Circulars play a vital role with specific regards to the refund under GST law and most of the practical procedures have been clarified only through circulars. Circulars are explanatory or clarificatory in nature and could be issued for the purpose as specified in the Act. GST circulars are issued by the CBIC to provide any clarifications at large, as may be needed. While the Act, Rules & Notifications are equally binding on the revenue and the taxpayer, Circulars are binding only upon the revenue officers. Whereas, the assessee/ taxpayer is at his discretion to follow the directions/ clarifications provided in the circular. In so far as the circular is in line with the provisions laid down in the law, taxpayers do comply with the circulars, as long as it is beneficial. However, where the clarification provided in the circular is not in line with the Act and the Rules prescribed, the taxpayer is not obliged to abide by the circular clarifications.

In this context, let us understand the position of law with regard to refund of interest paid under Rule 96A:

Refund of interest perse is permitted under the law, since Section 54 states that ‘(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed’ 

However, one has to understand the validity of interest under Rule 96A, before analyzing the possibility of a refund.

Whether interest under Rule 96A is legally valid?

1. Interest is compensatory in nature:

It is a settled law that interest is compensatory in nature vide various decisions by the Apex court under the Indian Tax laws and the same comprehension holds good in the GST law as well.

Since Exports are zero-rated under the GST law, there is no levy of tax as long as the substantial provisions are complied with. The same view has been expressed explicitly in Circular 197 as well, wherein it is stated that the substantive benefits of zero rating may not be denied where it has been established that exports in terms of the relevant provisions have been made. In such case, the amount paid by the taxpayer under Rule 96A is a mere deposit of “amount” and not a levy of tax, since export is zero-rated. This is in line with the EXIM policy of the Indian Government, wherein India is permitted to only export goods or services and cannot export taxes. When there is no tax, there arises no delay in payment of tax and consequently, there is no element of compensatory nature involved resulting in time loss to the exchequer, causing a levy of interest. When there is no liability to pay interest, the payment made under Rule 96A takes the form of “an amount” collected without the authority of law, in violation of the Article 265 of the Constitution of India, which the exchequer is obliged to refund.

A similar view has been decided on various decisions of the Courts and one such recent decision by the Gujarat High Court under the GST law in the case of Comsol Energy has been discussed in the context of refund claim and the time limitation thereto.

2. Interest under the provisions of GST law:

Section 50 of the CGST Act deals with Interest and the relevant provisions are extracted as below:

Section 50. Interest on delayed payment of tax.-

50(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council:

From the above, it is amply clear that, for interest to be levied under Section 50, there should be:

(i) Liability to pay tax

(ii) Failure to pay the tax

In the given instance, since exports are zero-rated, there arises no liability to pay tax under the provisions of the law. A mere caution prescribed under Rule 96A to protect the interest of the revenue cannot be construed to be a liability to pay tax under the Act upon due compliance with the substantive law, since the act provides for the substantive benefit of zero-rated. When there is no liability to pay tax, there is no consequent failure to pay tax.

Time limitation for claiming refund of interest:

In this regard, it may be relevant to refer to the Gujarat High Court decision in the case of Comsol Energy Private Limited Vs State of Gujarat – Special Civil Application No. 11905 of 2020 order dated 22/12/2020, wherein the petitioner Comsol Energy had filed the refund claims of IGST paid on ocean freight under the RCM after the decision of Hon’ble Gujarat High Court in the case of Mohit Minerals in Jan 2020. The Court allowed the refund claim of IGST paid on ocean freight under RCM beyond the statutory time limit prescribed under Section 54 of CGST Act.

Relevant extracts of the verdict:

> Observed that, Article 265 of the Constitution of India provides that no tax shall be levied or collected except by authority of law. Since the amount of IGST collected by the Central Government is without authority of law, the Respondent is obliged to refund the amount erroneously collected. 

> Further observed that, Section 54 of the CGST Act is applicable only for claiming refund of any tax paid under the provisions of the CGST Act. The amount collected by the Respondent without authority of law is not considered as tax collected by them and therefore, Section 54 of the CGST Act is not applicable. 

> Noted that, Section 17(1) of the Limitation Act is the appropriate provision for claiming the refund of the amount paid to the Respondent under the mistake of law. 

> Set aside Impugned Deficiency Memo and directed the Respondent to process the refund claim along with simple interest at the rate of 6% per annum at the earliest.

From the above citation, it can be inferred that the time limitation to claim refund of interest collected under Rule 96A without authority of law would be governed under the provisions of Section 17(1) of the Limitation Act.

Here, it is noteworthy to reemphasize that Circulars are explanatory or clarificatory in nature, binding only upon the revenue officers and that the taxpayer is at his discretion to follow the directions/ clarifications provided in the circular. Thus, while the taxpayer may take an alternate view to apply for a refund of interest based on the above understanding of the law, such applications may not be acceptable by the proper officer sanctioning the refund, who is bound by the circular clarifications and hence could be subject to litigations. However, with an array of hope in setting up the GST Appellate Tribunal (GSTAT) in a phased manner emerging in this 50^th GST council meeting, one can expect such matters to get settled at Tribunal without having to wait longer or knocking on doors of the High Court.

Also, in our view, in such matters where interest is already paid and then claimed as refund, it is worth litigation for the taxpayers to seek refund of such “amount” collected without authority of law, especially when:

√ there is neither a requirement of pre-deposit, when the entire interest is already paid

√ nor a further interest impact, since there is no deferment of liability under litigation 

Circular 197 also clarifies the mechanism and the category under which refund applications are to be made for refund of taxes, as under:

‘4.7 It may further be noted that the refund application in the said scenario may be made under the category “Excess payment of tax”. However, till the time the refund application cannot be filed under the category “Excess payment of tax” due to non-availability of the facility on the portal to file refund of IGST paid in compliance with the provisions of sub-rule (1) of rule 96A of CGST Rules as ”Excess payment of tax”, the applicant may file the refund application under the category “Any Other” on the portal.’ 

While it is appreciable that CBIC has clarified to file such refund applications under the category “Any other” on the portal, it is quite important that such applications should be carefully made in a detailed manner since a standardized mechanism has still not been prescribed for the refund sanctioning adjudication officer, whenever a refund application is received by him under the category “any other” on the portal, as it always depends upon the facts & circumstances of the case.

In such a scenario, it would ideally be the responsibility of the taxpayer/exporter/refund applicant to ensure that the refund application is appropriately made with the following details:

> a comprehensive letter covering the entire facts & circumstances and cause of the refund

> citing reference to this circular 197

> attaching relevant documents including proof of shipment in the case of export of goods or realization of forex against export of services, as the case may be

> condonation approval by the jurisdictional commission or an acknowledged letter seeking such condonation

> all other documents, as may be relevant

A proper application for a refund claim, along with appropriate details, explanations, and documentation would more likely result in ease of obtaining the refund, especially in an online refund mechanism. 

Now, what should be the ACTION POINTS FOR AN EXPORTER? 

√ For any recent export of goods or services, where a delay in shipment in the case of goods or delay in realization of FOREX in the case of services is expected, it is ideal to seek in writing, an extension from the Jurisdictional Commissioner, explaining the facts & circumstance clearly, since he has the authority to condone the delay and is also been given suitable directions by the board.

√  Even in the case of the export of goods or services where such delay is already pre-existing, as long as the tax liability or interest has not been admitted and paid so far, it is advisable to seek condonation of delay, since the board has explicating clarified that the Jurisdictional Commissioner may consider granting condition of delay as provided in Rule 96A on post facto basis, keeping in view the facts and circumstances of each case. Meaning, where a prior approval has not been taken before expiry of the time period, officer has been given suitable direction and power vide these circulars to condone the delay, even when sought after the expiry of time limit under Rule 96A.

√  There may be instances where the taxpayers may get delayed response from the Jurisdictional Commissioner towards the letter seeking condonation of delay. Nevertheless, in our view, as long as the extension has been sought in writing and the submission of the same has been acknowledged on the document, the intention to seek condonation can be demonstrated in order to comply in the true spirit of Rule 96A compliance procedure. Such genuine intentions proven with documentary evidence, along with the subsequent actual exports made in terms of the relevant provisions would result in non-denial of substantive benefits of zero rating, even in case of any future disputes.

√  Where a refund of an amount already paid under Rule 96A has been applied and pending with the adjudication officer or first appellate authority, this circular may be cited to get appropriate refund sanction.

√  Where such refunds are already rejected by the first appellate authority and the taxpayer waiting for GST Appellate Tribunal to be formed, CBIC may issue an appropriate suitable rectification mechanism remanding the matter back to the adjudication officer, rather than delaying the legitimate refund claim of the taxpayer.

√  Where a refund of interest is rejected, the taxpayer can certainly proceed with litigation, since there is neither a requirement of pre-deposit nor an interest impact due to deferment of a liability under litigation, as explained above.

√  And last but not least, for any delay in receipt of the refund, it is the taxpayer’s right to claim interest on delayed refund under Section 56!

Bottomline: While Rule 96A is a procedure prescribed in order to safeguard the best interest of the revenue, the same cannot lead to a mechanism of collecting tax liability, where there is no levy of taxes to begin with. A procedural delay cannot deny the substantive benefit of zero-rated supply provided in the law and this has been well established vide this circular. But, where the circular fails, is on the denial of refund of interest, which is collected without authority of law, when there is neither a levy of tax nor a compensation nature is established u/s 50. In such circumstances where interest is already paid, it is worth litigation for the taxpayers to seek refund of such “amount” collected without authority of law, when there is neither a requirement of pre-deposit nor an interest impact due to deferment of a liability under litigation.

Perhaps, ASKING, SEEKING & KNOCKING OPEN DOORS!