Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, 2017, has been one of the most contentious provisions in India’s Goods and Services Tax (GST) framework, particularly for the export sector. Initially introduced with the intention of curbing double benefits to the exporters, the rule’s implementation sparked significant challenges for exporters, leading to confusion, litigation, and financial strain. Despite several amendments and judicial decisions, Rule 96(10) remained a complex and problematic provision until its eventual deletion in October 2024. However, its legacy continues to affect many exporters, with numerous cases still unresolved, due to 96(10) still on the statute till October 2024.
This article examines the history, challenges, and eventual resolution of Rule 96(10), shedding light on the government’s response, the role of the judiciary, and the future course of action for exporters still battling with the legal and financial implications of this provision.
(A) The Introduction of Rule 96(10) – A Restriction on Refund Claims
When Rule 96(10) was first introduced, its primary objective was to restrict exporters from claiming refunds of Integrated Goods and Services Tax (IGST) paid on exported goods if they procured those goods from suppliers who had already availed specific exemptions under customs notifications. The rule targeted exports where the supplier had benefited from the following schemes:
- Export Oriented Units (EOUs) importing goods without payment of Customs duty (BCD) and IGST under Notification No. 78/2017-Customs (October 13, 2017, as amended);
- Advance Authorization holders importing goods without payment of Customs duty (BCD) and IGST under Notification No. 79/2017-Customs (October 13, 2017, as amended);
- Deemed Exports under Notification No. 48/2017-Central Tax (October 18, 2017, as amended), exempting Customs duty and IGST for goods procured domestically;
- Merchant Exporters procuring goods at a concessional rate of 0.1% under Notification No. 40/2017-CT(R) and Notification No. 41/2017-IGST(R) (both dated October 23, 2017).
The intent behind this provision was to prevent exporters from claiming IGST refunds if the goods they exported had already benefited from these exemptions. However, the rule’s wording were unclear, leading to widespread confusion regarding its application. The situation became more complicated as exporters were required to track not only their own eligibility but also the exemption claims of their suppliers, creating unnecessary administrative burdens and legal uncertainty.
(B) Amendments to Rule 96(10) – The Government’s Response to Exporter Challenges
In response to mounting concerns from the exporter community, the government made several amendments to Rule 96(10) over the years, attempting to address some of the challenges faced by exporters. However, these amendments resolved the problem of few, still many exporter’s problem remains unresolved. Below are key amendments to Rule 96(10):
1. Notification No. 39/2018-CT (Sept 4, 2018) – Refining the Scope
- Amendment: The restriction was refined to apply only when the exporter (not the supplier) had availed exemptions under AA, EPCG, or EOU.
2. Notification No. 53/2018-CT (Oct 9, 2018) –96(10) not applicable on EPCG license
Amendment: This notification introduced a two-phase approach to IGST refunds, with Phase I restricting refunds if the exporter had availed exemptions, while Phase II allowed refunds even for exporters who had benefited from EPCG exemptions.
3. Notification No. 16/2020-CT (Mar 23, 2020) – Payment of IGST at the time of Import
- Amendment: The government clarified that exporters who availed BCD exemptions under AA, EPCG, or EOU schemes but paid IGST at the time of import would still be eligible to claim IGST refunds.
4. Notification No.14/2022 dated 5th July, 2022-Payment of erroneous refund
Amendment: This amendment inserted a new Rule 86(4B) which provides that where a registered person deposits the amount of erroneous refund sanctioned to him in contravention of 96(10) along with interest and penalty, wherever applicable, through Form GST DRC-03 by debiting the electronic cash ledger, on his own or on being pointed out, an amount equivalent to the amount of erroneous refund deposited by the registered person shall be re credited to the electronic credit ledger by the proper officer by an order made in Form GST PMT -03A.
5. Circular No. 233/27/2024 GST-Payment of IGST on Import of material consumed in relevant shipping bills
Clarification : This circular clarified that exporters who initially imported inputs without paying IGST and compensation cess under Notification no. 78/2017 customs and 79/2017 customs can still claim IGST refunds on their exports if they subsequently pay the IGST and compensation cess along with interest.
(c) Judicial Interventions – High Court Rulings Favoring Exporters
We had already published an article dated 23.07.2022 (link https://taxguru.in/goods-and-service-tax/gst-rule-96-10-nightmare-exporters.html) in which we had proposed a solution that all exporters should be allowed to pay the differential amount for any excess refund claimed by them while availing refund under IGST route vis a vis the LUT route as under:
Contention of the exporters that he has claimed what he was entitled to, may not be correct in all cases, as he might have claimed input on capital goods, services (in case a person is both an exporter and domestic supplier) so would have been entitled to lesser amount of refund if had got refund under LUT route. So as per natural justice, exporter should be liable to pay excess refunds he got through IGST vis-à-vis LUT route along with interest. These are legitimate dues of revenue, who must get it and exporters must pay it.
It is submitted that honourable High court of madras in the matter of M/S. Shobikaa Impex Private Limited vs Union Of India on 1 July, 2024vide their judgement dated held the similar view as under:
The Honorable High Court noted that the petitioner had wrongly claimed refund under Rule 96 (IGST route) of CGST Rules, 2017. However, the procedural irregularity committed by the petitioner should not come in the legitimate way of grant of export incentives as admittedly exports were made and the refund claims were itself based on the shipping bills.
Therefore, the Court held that the impugned order was to be set aside and the matter was to be remanded to pass fresh order by examining exports made by the petitioner for grant of refund under Rule 89(LUT route) of the CGST Rules, 2017.
Kerala High Court (Oct 2024)
- Case Facts: The Kerala High Court examined the validity of Rule 96(10) as introduced in Notification No. 53/2018-CT.
- Court’s Ruling: The Kerala High Court declared Rule 96(10) as ultra vires to Section 16 of the IGST Act, deeming it “manifestly arbitrary” and unenforceable. The court quashed all actions taken by the authorities based on this provision.
(D) Deletion of Rule 96(10) with effect from October 8, 2024
Acknowledging the challenges faced by exporters and the judicial scrutiny of the provision, the government issued Notification No. 20/2024 on October 8, 2024, deleting sub-rule (10) of Rule 96. This deletion marked a significant step in addressing the concerns of exporters, acknowledging that the provision had caused undue hardship. However, the notification took effect only from the date of its issuance, leaving many cases prior to October 8, 2024, unresolved.
(E) The Need of the hour: Withdrawal of Rule 96(10) since its inception
While the deletion of Rule 96(10) brings relief to exporters from October 8, 2024, the unresolved issue remains how to address the problems of exporters who have huge liability under Rule 96(10), which is beyond their capacity to pay. Cases pending before the notification date are still trapped in legal ambiguity, with exporters continuing to bear the burden of a provision that has now been recognized as flawed.
To mitigate further hardship and reduce ongoing litigation, it is imperative for the government to consider applying the deletion of Rule 96(10) retrospectively since its inception. This would not only ensure that exporters are not penalized for complying with an invalid rule, but it would also help reduce litigation, saving both time and resources for the exporters and the revenue officials.
(F) Suggestion for exporters:
In view of recent amendments/legal decisions and introduction of section 11A, it is high time to approach revenue authorities to remove Rule 96(10) since its inception.
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CA Pardeep Tayal (Author) | 9896092408
CS Sonal Anand (Co- Author) | 8950422005 | [email protected]
Author Bio
In view of recent amendments/legal decisions and introduction of section 11A, it is high time to approach revenue authorities to remove Rule 96(10) since its inception. All exporters whose issues are still unresolved are suggested to join “GST Rule 96(10) Grievance Forum”.
PLEASE fill up the enclosed Google form (https://docs.google.com/forms/d/e/1FAIpQLSfw9b-7jM4WEIu-Envz_vc-1Zg4ESL3y-_BuwH5vN3TD7xO8A/viewform?usp=sf_link) to be a member of the forum. I also propose top eleven members w.r.t to the stakes involved to become executive committee of the forum. Executive committee will decide the President/secretary of the forum.
We propose all the members of this forum to send a letter to the CBIC.
I offer myself as convener to the GST Rule 96(10) Grievance Forum.