Section 16 of IGST Act, 2017 entitles exporters to claim refund under either of the two options:

1. Export without payment of IGST under bond or Letter of Undertaking (LUT) and claim refund of unutilized Input Tax Credit (ITC) or

2. Export with payment of IGST and claim refund of such IGST paid.

The 2nd option is more viable & beneficial since the former option comes with certain restrictions & limitations viz.,

  • ITC on Capital goods is not refundable.
  • Transitional ITC is not refundable.
  • Refund is formula driven which sometimes do not allow the complete refund
  • Time consuming procedure is involved in claiming refund whereas 1st option involves the automatic processing of the refund once the data of Shipping bill & GST returns matches.

The exercise of the aforesaid options was left to the exporters. However, in the Month of October 2017, the Government while restoring the tax-free procurements, for the EOU’s, under Advance authorization/EPCG etc., restricted[1] the second option for such exporters. That is to say, exporters who avails GST free procurements are not eligible for option of making exports with payment of IGST thereby such exporters are left with option making of exports under LUT and claiming refund of unutilized ITC. Such exporters viz.,

3. EOU’s importing the goods without payment of Customs duty (BCD) & IGST vide Notification No. 78/2017-Customs dated 13.10.2017 as amended[2];

4. Imports under Advance Authorization holders without payment of Customs duty (BCD) & IGST vide Notification No. 79/2017-Customs dated 13.10.2017 as amended[3];

5. Persons availing the benefit of deemed exports vide Notification No. 48/2017-CT dated 18.10.2017 as amended[4] which exempts payment of Customs duty (BCD) & IGST when procured domestically.

6. Merchant exporters procuring the goods at concessional rate of 0.1% vide Notification No. 40/2017-CT(R) dated 23.10.2017 & Notification No. 41/2017-IGST(R) dated 23.10.2017.

The aforesaid restriction was challenged before HC’s[5] and pending for final decision as on date. Not being aware of the aforesaid restrictions, Certain exporters simultaneously availed the benefit of above-mentioned notifications and also has claimed refund under 2nd option. This was questioned by the department and started demanding to payback the refunds/exemptions claimed.

Many times, paying back the exemption would be advantageous due to various reasons. For example, the exporters would have availed the IGST exemption of Rs.1,00,000/- at the time of procurements and has paid IGST & claimed refund of 2,50,000/- at the time of exports. In this scenario, the paying back of exemption would be viable than losing the option of encasing the refund on output. However, unclear aspect is how the exemption has to forego i.e. mere foregoing IGST exemption would be sufficient or both IGST & BCD (becomes a cost if forego). In view of the authors, mere foregoing IGST exemption would entitle the refund under 2nd option to the exporters.

Recently, the Government vide Notification No. 16/2020-CT dated 23.03.2020 has made an amendment by inserting following explanation to Rule 96(10) of CGST Rules, 2017 as amended (with retrospective effect from 23.10.2017)

“Explanation.- For the purpose of this sub-rule, the benefit of the notifications mentioned therein shall not be considered to have been availed only where the registered person has paid Integrated Goods and Services Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications.” 

By virtue of the above amendment, the option of claiming refund under 2nd option is not restricted to the Exporters who only avails BCD exemption and pays IGST on the raw materials thereby exporters who wants to claim refund under 2nd option can switch over now. Thankfully, the amendment was made retrospectively thereby avoiding the anomaly during the intervention period and exporters who already claimed refund under 2nd option need to payback IGST along with interest and avail ITC.

In this background, the suggested course of action is tabulated below:

S. N Status The suggested course of action
1 Not claimed exemptions under any of the aforesaid notifications There is no restriction on refund options. The Exporters are free to claim refund under either of the options.
2 Claimed exemption of BCD only and paid IGST on the procurements Now with retrospective amendment, there is no restriction on refund options. The Exporters are free to claim refund under either of the options.
3 Claimed exemption of BCD and IGST on the procurements under any of the aforesaid notifications If exporters wanted to shift to refund under 2nd option, the IGST component has to be paid back along with interest & avail ITC. Otherwise, they can continue with 1st option i.e. exports under LUT and claim ITC refund.
4 For procurements of inputs in future Avail BCD exemption and pay IGST at the time of procurement. Can make exports under either of the option i.e. LUT or with payment of IGST and claim refund of it

However, there is still an ambiguity on the periodicity & extent of restriction i.e. till what period the restriction is going to be applied. For example, exporters would have availed exemption initially but later stopped claiming exemption. In this background, whether this restriction applies only to the extent of exports made using such GST free stock. Logically & conceptually, the answer should be affirmative but the rule lacks clarity. Suitable clarification may be issued clarifying the same in order to avoid future disputes.

Further, certain Customs ports are not allowing the practice of only claiming BCD exemption & paying IGST. Therefore, it is recommended to make suitable clarification under customs law to give full effect to the above provisions.

Acknowledgements to Antara Das for helping the authors in drafting the article.

(For any feedback /queries mail to venkataprasad@hiregange.com/laxman@hiregange.com)

[1] Rule 96(10) of CGST Rules, 2017 as amended vide Notification No.03/2018 CT dated 23.01.2018 (w.e.f 23.10.2017) and Not No.39/2018-CT dated 04.09.2018 (w.e.f 23.10.2017)

[2] Exception is given to receipt of goods under EPCG scheme

[3] Exception is given to receipt of goods under EPCG scheme

[4] Exception is given to receipt of goods under EPCG scheme

[5] Granuels India Limited (WP No.24021/2019) before the High Court of Andhra Pradesh & Zaveri & Co. (P.) Ltd vs Union of India [SCA No. 15091 Of 2018] before the High Court of Gujarat

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Qualified as Chartered Accountant and completed Bachelor of law from Osmania University. He regularly Appears before Customs, Excise and Service Tax Appellate Tribunal (CESTAT) and various tax authorities. He • Is a Faculty for GST training selected by the Indirect Tax Committee of ICAI and re View Full Profile

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