Clarification on IGST Refund Regularization & Non-Compliance

Clarification on IGST Refund Regularization under Circular No. 233/27/2024-GST (Dated 10th September 2024): Addressing Non-Compliance with Rule 96(10) for Exporters

Summary: On September 10, 2024, the CBIC clarified rules for exporters regarding the refund of Integrated Goods and Services Tax (IGST) paid on exports. Under Rule 96(10) of the CGST Rules, exporters who initially imported goods without paying IGST and later paid these taxes (with interest) can still claim IGST refunds on exports, provided they only availed exemptions related to Basic Customs Duty (BCD). The clarification was necessary to address confusion surrounding compliance with Rule 96(10), which restricts refunds if certain tax exemptions were previously utilized. Exporters who had previously benefited from specific customs notifications (e.g., Notifications 78/2017 and 79/2017) are not barred from claiming refunds if they paid IGST and compensation cess afterward. Tax offices are encouraged to issue public notices to inform traders of these provisions, as the current process may lead to economic losses for exporters due to delays and non-refundable interest payments on taxes.

Introduction

On 10th September 2024, the Ministry of Finance (CBIC) issued a clarification for tax authorities regarding exporters who imported inputs without paying IGST and compensation cess but later paid these taxes. Rule 96(10) of the CGST Rules restricts IGST refunds on exports if the exporter has availed certain tax exemptions on imported inputs. Exporters who initially imported goods without paying IGST and compensation cess (under Notification No. 78/2017 or 79/2017) and later paid these taxes (with interest) have questioned if they can still claim IGST refunds on exports. As per Notification No. 16/2020, applied retrospectively from 23rd October 2017, if only the Basic Customs Duty (BCD) exemption was claimed and the IGST and compensation cess were later paid, the exporter is considered to not have availed the full exemption. If the taxes and interest were paid after the initial exemption, the IGST refund on exports is not in violation of Rule 96(10). Exporters who later paid IGST and compensation cess after initially claiming exemptions can still claim IGST refunds. Tax offices should issue public notices to inform traders and industries.

I. Rule 96. Refund of integrated tax paid on goods ¹[or services] exported out of India. –

(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.

Explanation. Rule 96(10) of the CGST Rules states that exporters cannot claim a refund of integrated tax (IGST) paid on exports if they have taken advantage of certain tax exemptions or benefits provided under specific government notifications from 2017. These include supplies received under Notification 48/2017 (CGST) or Notification 40/2017 (CGST Rate) and Notification 41/2017 (IGST Rate), except for capital goods under the Export Promotion Capital Goods (EPCG) Scheme. Additionally, if benefits under Notification 78/2017 or 79/2017 (Customs) have been availed, except for capital goods, the exporter is ineligible for an IGST refund. However, if the exporter has only received an exemption from Basic Customs Duty (BCD) while paying IGST and Compensation Cess on inputs, they can still claim the refund. Essentially, those who have already benefited from certain tax exemptions cannot claim an IGST refund, with limited exceptions for capital goods.

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

G.S.R. (E). – In exercise of the powers conferred by section 147 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby notifies the supplies of goods listed in column (2) of the Table below as deemed exports, namely:

Description of supply

• Supply of goods by a registered person against Advance Authorisation
• Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation
• Supply of goods by a registered person to Export Oriented Unit
• Supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorisation.

Explanation –

Advance Authorisation means an authorisation issued by the Director General of Foreign Trade under Chapter 4 of the Foreign Trade Policy 2015-20 for import or domestic procurement of inputs on pre-import basis for physical exports.

Export Promotion Capital Goods Authorisation means an authorisation issued by the Director General of Foreign Trade under Chapter 5 of the Foreign Trade Policy 2015-20 for import of capital goods for physical exports.

Export Oriented Unit means an Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio-Technology Park Unit approved in accordance with the provisions of Chapter 6 of the Foreign Trade Policy 2015-20.

III. notification No. 40/2017-Central Tax (Rate)

Under Section 11(1) of the Central Goods and Services Tax (CGST) Act, 2017, the Central Government, after determining that it is in the public interest, based on the recommendations of the GST Council, is exempting the intra-State (within a state) supply of certain taxable goods. These goods are supplied by a registered seller to a registered buyer for the purpose of export. The exemption reduces the central tax (CGST) applied under Section 9 of the Act, so that the tax rate will only be 0.05%, instead of the standard rate.

Exemption:

Exempts the intra-State supply of taxable goods by a registered supplier to a registered recipient for export, from so much of the central tax under section 9 of the CGST Act, reducing it to 0.05%, subject to conditions.

IV. notification No. 41/2017-Integrated Tax (Rate)

Under the powers granted by Section 6(1) of the Integrated Goods and Services Tax (IGST) Act, 2017, the Indian government has decided, based on public interest and the recommendations of the GST Council, to provide a tax exemption for certain inter-State sales.This exemption applies to registered suppliers who sell taxable goods to registered buyers for the purpose of exporting these goods. The exemption reduces the Integrated GST (IGST) on such sales to 0.1%, as long as certain conditions are met.

The differences between Notification No. 40/2017-Central Tax (Rate) and Notification No. 41/2017-Integrated Tax (Rate) are as follows:

Type of Supply:

Notification 40/2017: Applies to intra-State supply of taxable goods, which means supplies made within the same state or union territory. This notification is issued under the CGST Act.

Notification 41/2017: Applies to inter-State supply of taxable goods, which means supplies made between different states or union territories. This notification is issued under the IGST Act.

Rate of Concessional Tax:

Notification 40/2017: The concessional tax rate for intra-State supply of goods is 0.05% (CGST).

Notification 41/2017: The concessional tax rate for inter-State supply of goods is 0.1% (IGST).

Notification No. 40/2017-Central Tax (Rate) and Notification No. 41/2017-Integrated Tax (Rate) are both subject to the fulfilment of the following conditions, namely

Conditions:

(i) The registered supplier must issue a tax invoice for the goods supplied to the registered recipient.

(ii) The registered recipient must export the goods within 90 days from the date of the tax invoice issued by the registered supplier.

(iii) The registered recipient must indicate the GSTIN and tax invoice number of the registered supplier on the shipping bill or bill of export.

(iv) The registered recipient must be registered with an Export Promotion Council or Commodity Board recognized by the Department of Commerce.

(v) The registered recipient must place an order on the registered supplier at a concessional rate and provide a copy to the jurisdictional tax officer of the registered supplier.

(vi) The registered recipient must move the goods from the registered supplier’s place either:

(a) Directly to the Port, Inland Container Depot (ICD), Airport, or Land Customs Station for export; or

(b) Directly to a registered warehouse before moving them to the Port, ICD, Airport, or Land Customs Station for export.

(vii) If the registered recipient aggregates supply from multiple suppliers, the goods must be moved to a registered warehouse, and after aggregation, moved to the Port, ICD, Airport, or Land Customs Station for export.

(viii) In case of aggregation (condition vii), the registered recipient must endorse receipt of goods on the tax invoice and obtain acknowledgment of receipt from the warehouse operator. Both the endorsed invoice and acknowledgment must be given to the registered supplier and the jurisdictional tax officer.

(ix) After export, the registered recipient must provide the shipping bill, GSTIN details, tax invoice, proof of export (e.g., export general manifest or export report) to both the registered supplier and the jurisdictional tax officer.

Failure to Export:

The registered supplier will lose the exemption if the registered recipient fails to export the goods within 90 days from the date of issue of the tax invoice.

V. Notification No. 78/2017-Customs

Notification No. 78/2017-Cus, dated 13th October 2017, exempts goods imported by Export Oriented Units (EOUs) from Integrated Tax and Compensation Cess. Issued under sub-section (1) of Section 25 of the Customs Act, 1962, it amends the previous Notification No. 52/2003-Customs dated 31st March 2003. The amendment changes the exemption wording, where goods were earlier exempted from customs duty under the First Schedule of the Customs Tariff Act, 1975, and additional duties under Sections 3(1), 3(3), and 3(5). Now, goods are exempted from both full customs duty under the First Schedule of the Customs Tariff Act, 1975, and additional duties under Sections 3(1), 3(3), and 3(5), as well as from Integrated Tax and Compensation Cess under Sections 3(7) and 3(9). However, the exemption from Integrated Tax and Compensation Cess is only valid until 1st April 2018. The original Notification No. 52/2003-Customs was last amended by Notification No. 59/2017-Customs, dated 30th June 2017.

VI. Notification No. 79/2017-Customs

Notification No. 79/2017-Cus amended various customs exemption notifications to provide exemptions from Integrated Tax (IGST) and Compensation Cess on imports under the Advance Authorization (AA) and Export Promotion Capital Goods (EPCG) schemes, with these exemptions being valid only until 31st March 2018. After this date, the exemptions would cease to be effective unless extended or reintroduced by a subsequent notification, meaning imports made under these schemes after 31st March 2018 would no longer automatically qualify for IGST and Compensation Cess exemptions.

VII. Observation and suggestion:

In cases where an importer initially avails the benefits of Notification No. 78/2017-Customs or No. 79/2017-Customs and imports goods without paying IGST and compensation cess, but later pays these taxes due to reassessment or non-fulfilment of export obligations, the payment is made along with interest. The Bill of Entry is reassessed by the jurisdictional Customs authorities to reflect this payment. Upon exporting the goods, the IGST paid can be refunded under Rule 96 of the CGST Rules, and such a refund is not considered a violation of Rule 96(10). However, this process may result in an economic loss for the exporter, primarily due to the out-of-pocket interest payments and delays in receiving the IGST refund. The interest paid is non-refundable, and the cash flow delay between paying IGST and receiving the refund can create a financial burden. Nonetheless, the IGST refund on exports remains claimable as per the rules.

VIII. Conclusion:

Rule 96(10) restricts exporters from claiming a refund of IGST paid on exported goods if they have availed benefits under Notification No. 78/2017 or 79/2017, except when only the Basic Customs Duty (BCD) exemption is availed. According to the explanation in Rule 96(10), if the exporter has only availed the BCD exemption while paying IGST and Compensation Cess on the inputs used for exported goods, the restriction does not apply, and they are eligible for an IGST refund.