Rule 96(10) provides restriction of claiming the benefit of receiving the refund of export with payment of tax on goods or services in certain cases. Clause (b) of the said sub-rule specifically restricts such benefit upon availment of the benefit of Notification no. 78/2017-Customs and 79/2017-Customs dated 13th October 2017.

The following is provided currently as per the extract of Rule 96(10) of the CGST Rules 2017:

(10) The persons claiming refund of integrated tax paid on exports of goods or services should not have –

(a) …………………… or

(b) availed the benefit under notification No. 78/2017-Customs, dated the 13th October, 2017, or notification No. 79/2017- Customs, dated the 13th October, 2017 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme.

Notification no. 78/2017-Customs sought to provide exemption from IGST and Compensation Cess upon import of goods in case of Export Oriented Units. On the other hand, a similar exemption had been provided for holders of Advance Authorization in respect of inputs under Notification no. 79/2017-Customs.

Both these notifications emanate from their mother notifications in Customs laws wherein the exemption from Basic Customs Duty was also provided. For instance, Notification no. 78/2017-Customs replaces the exemption from Basic Customs Duty with Basic Customs Duty and IGST within the mother Notification no. 52/2003-Customs dated 31st March 2003. The confusion that was prevailing here was whether not taking the benefit of Notification no. 78/2017-Customs meant payment of both BCD and IGST on imports or paying only IGST while availing exemption from BCD. This was because of varied interpretations regarding these notifications. Some inferred that Notification no. 78/2017-Customs only provided exemption from IGST whereas the others interpreted that it reinforced the exemption from BCD and also provided exemption from IGST.

Now an explanation has been inserted after clause (b) of Rule 96(10) with effect from 23rd October 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”

The above explanation now makes it clear that under the aforesaid notifications, one could easily import without payment of BCD but by payment of IGST. In such a scenario, the restriction of Rule 96(10) of the CGST Rules 2017 would not be attracted and one can export with payment of IGST. Thereby, there is no correlation whatsoever between payment of BCD on imports and export with payment of IGST for EOUs and holders of Advance Authorization. Only where a person imports inputs without payment of BCD and IGST, one cannot export with payment of IGST.

Though the above explanation is a welcome step by the Government, it opens an array of possibilities given the language of the explanation and the late insertion of it from a restrospective date. Let us analyse some of these possibilities in detail below:

a) Practically upon approaching the Customs Authorities to allow imports without payment of BCD but with payment of IGST, one used to meet roadblocks. This means that after insertion of the aforesaid exemptions, one could only opt for exemption of both BCD and IGST or payment of both upon import. Thereby, if any taxpayer wished to avail the benefit of claiming refund of export with payment of IGST, then he had no option but to make payment of both BCD and IGST during import which otherwise would have been allowed as exemption to EOUs and holders of Authorization.

Since this is a retrospective amendment from 23rd October 2017, can such person ask for refund of imports made upon payment of BCD though they were eligible for exemption under 78/2017 or 79/2017?

b) It only provides for the situation where the registered person has paid IGST on inputs. It does not discuss about capital goods at all. The exception where the capital goods is allowed to be imported without payment of tax and export is allowed with payment of tax is only under EPCG scheme.

If any EOU imports capital goods without payment of BCD and IGST (or without payment of BCD and with payment of IGST), whether the person would be deemed to have not availed the benefit of 78/2017 is yet to be clarified.

c) Further, it has not been clarified whether the explanation is qua the duty or qua the time period.

‘Qua the time period’ refers to the situation where from a particular date say ‘1st April 2020’, if import is without payment of IGST, export also needs to be without payment of IGST. Where imports are with payment of IGST while claiming exemption of BCD, one could avail the benefit of claiming the refund of export with payment of IGST during that particular time period.

Let’s take another situation where the accumulation of ITC occurs due to import of goods with payment of IGST in a prior period which had not been claimed as a refund on export with payment of tax during the said time period. Subsequently when the import is being made without payment of IGST, one can export with payment of IGST to claim back the refund to the extent of accumulated ITC of the prior period. This is considered as the ‘qua the duty’.

It is of paramount importance that the government should clarify the nature of the restriction under Rule 96(10) through the explanation to avoid any unfounded litigation.


Ever since the insertion of the restrictions under Rule 96(10), the government has made several amendments to this rule given the unintended impact it created through its drafting earlier. It has provided retrospective amendments while rolling back the same to provide for a prospective impact. Once again there seems to be an explanation inserted by the government retrospectively which seems to have been made without putting complete thoughts on the impact of it. This called for an immediate impact before businesses act and take unintended decisions from the perspective of the government. Further, the need of the hour is to make suitable amendments in the explanation considering the open issues which continue to prevail. Such explanation should be such that the constant chopping and changing may be avoided in this particular Rule in future.

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June 2021