After GST implementation, exporters have suffered a lot. Earlier there was no exemption on payment of IGST for EOU, Advance Authorisation Holder or EPCG Holder. All exporters were required to pay CGST + SGST / IGST for domestic purchases even when used for exports product. They were required to take the refund on refund of IGST paid on exports under Rule 96 of CGST Rules 2017. Lot of hue & cry was made by the exporters and thereafter GST Council has recommended to exempt the IGST on importation by EOU, Advance Authorisation Holder and EPCG Holder,

Supplies to the Merchant Exporters were required to pay 0.1% of IGST and exporters were entitled to claim refund of IGST claimed on exports under Rules 96 of CGST Rules 2017. Huge amount of duty which was locked in exports where gradually released through refund. Govt came out with the Circular No. 17/2017 dtd.15.11.2017 wherein manual filing and processing of refund claims in respect of zero-rated supplies was implemented.  Further Govt. also clarifies vide Circular No 78/2017 dtd. 13.10.2017, how to make the corrections in the documents already filed therefore refund of duty paid will be released. Further, Govt has issued the Circular No. 5/2018 Customs dtd. 23.02.2018 giving detailed procedure for releasing the refund which could not be given due to communication gap and understanding of the exporters.

However, the problems of exporters could not be solved but problems have been aggravated when rules 96 of CGST Rules 2017 amended retrospectively vide Notification No. 3/2018 C. Tax dtd. 23/01/2018.

It is important to highlight the impact of this notification amending the Rule 96. The wording of the amendment to Rule 96 is given below :

(10) The persons claiming refund of integrated tax paid on exports of goods or services should not have received supplies on which the supplier has availed 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 or notification No. 40/2017-Central Tax (Rate) 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 or 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.”;

It means, if any person who is receiving the supplies from any supplier who has claimed benefit under various notifications (once or number of times) as given below, then such person will not be entitled for claiming refund of IGST paid on exports.

Type of Supplier Notification No. Benefit
Supplier to Merchant Exporter 40/2017-Central Tax (Rate) 23rd October, 2017 Charging 0.05% of CGST & 0.05% of SGST
Supplier to Merchant Exporter 41/2017-Integrated Tax (Rate) dated the 23rd October, 2017 Charging 0.1% of IGST
EOU 78/2017-Customs dated the 13th October, 2017 Exemption of Basic Customs Duty as well as IGST
Advance Licence Holder & EPCG Holder 79/2017-Customs dated the 13th October, 2017 Exemption of Integrated Tax/Cess on import of goods under AA/EPCG. Schemes.

In other words, if any person who has receives the goods on or after 23rd October 2017 from EOU or Advance License Holder or EPCG Holder, then such person will never be able to claim IGST paid on exports. This is never the intention of the Govt. but wording of the notification has been so badly drafted. intention of change in law is mainly to make the provisions parallel with earlier laws like 25/2003 Excise dtd. 31.03.2003 as amended.

In view of the above following categories of the exporters will be deprived of the benefits of refund of IGST paid on exports.

  • EOU:

When EOU are importing the goods under the Notification No. 78/2017 Cus. dtd. 13.10.2017 following IGCRD Rules whereby, Basic Custom Duty and IGST is exempted and therefore EOU will not be entitled to pay IGST on exports and claim the refund under Rule 96. Albeit, there is no exemption to CGST + SGST / IGST when goods are supplied to EOU by domestic supplier. Therefore, EOU Unit will have to pay CGST + SGST / IGST on domestic procurement and claim the refund under Notification No. 48/2017 Central Tax dtd. 18.10.2017 or follow the procedure as given in the CGST Circular No. 14/2017 dtd. 06/11/2017 i.e. issue of Form A to domestic supplier & report consumption in Form B in line with Form A i.e. consumption of imported material and submit to Custom / IGST Officer.

We strongly advise that purchase of material from domestic supplier on payment of CGST + SGST / IGST and EOU to issue Form A to domestic supplier & report consumption in Form B. Kindly note, if option of claiming refund under deemed export category by EOU Supplier is obtained, still such EOU will not be entitled to claim IGST Refund even paid on its physical exports. If issuance of Form A to the supplier and report consumption of domestic material in Form B is not feasible then only alternate left for EOU to claim refund of input under Rule 89 of CGST Rules 2017. It is important to note, if any taxable person having one GSTN may have Domestic Unit, EOU Unit, Service Unit, etc. and if EOU Unit is importing the goods without payment of duty or procuring the domestic goods under Form A and claim the refund under Deemed Export, then all the units having the same GSTN will not be entitled to export the goods & services on payment of IGST under the claim of refund under Rule 96 of CGST Rules 2017.

  • Merchant Exporter:

Merchant exporter is entitled to procure the goods from his supplier on payment of 0.01% of CGST + SGST / IGST and Merchant exporter cannot claim refund of IGST paid on export of goods under Rule 96 of CGST Rules 2017. However, if Merchant Exporter is also engaged as manufacture exporters / service exporters and even standalone purchases has been made on payment of 0.01% of CGST + SGST / IGST then all the units under the same GSTN will not be entitled to claim the refund of IGST paid on exports under Rule 96 of CGST Rules 2017.

  • Suppliers of Supplies against Advance Authorisation / EPCG Authorization:

If any exporter is exporting the goods under Advance Authorisation Scheme / EPCG Scheme and obtain the advance release order from licensing authority and against such ARO and such supplies are received from domestic supplier, then the Advance Authorisation / EPCG holder receiving the goods against ARO / invalidation letter will not be entitled to avail refund of IGST paid on export of goods & services under Rule 96 of CGST Rules 2017. Further, any EPCG holder or Advance Authorisation holder for any goods imported or indigenously received against any Authorisation number cannot claim refund of IGST paid on export of goods under Rule 96 of CGST Rules 2017 any time. It is nothing but denial to the legitimate benefit to the exporters and liquidity loss to the exporters.

In view of the above, all exporters coming under above category will have to obtain the refund of accumulated credit under Rule 89 of CGST Rules 2017 and not on payment of IGST under the claim of refund under Rule 96 of CGST Rules 2017.

Any exports made on payment of IGST under the claim of refund during 23.10.2017 till date (since system is accepting), refund may be granted to you, but it will have to be repaid back on the same day. However, there is no system set up by the GSTN for payment of such liability of wrongly granting the refund or recredit the amount of IGST paid under the claim of refund but not granted.

Exporters will get relived only when following actions are taken with immediate effect and if the council takes the proactive steps and resolve the difficulties of exporters:

  • Withdraw the amendment made vide Notification Number 3/2018 C. Tax dtd. 23/01/2018
  • The amount transferred in TRAN-1 will be allowed to use for payment of IGST paid exports and refund to be granted
  • Refund to be granted under Rule 89 of CGST Rules 2017 without asking any input document and it should be sanctioned only on refund claim filed on common portal

If these suggestions are not implemented, exporter will have very bad days and will face the liquidity crunch.

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3 responses to “GST Flaws on Exporters – (Operation Successful Patient Died)”

  1. Praful Sheth says:

    There seems to by typographical error in the rates mentioned by you.
    Correct rates under Notification No 40/2017 are 0.05% CGST & 0.05% SGST and under Notification No 41/2017 is 0.1% IGST

  2. Rajaram S says:

    Sir,

    Could you please provide clarity on below mentioned issue relating to EOU’s.

    1. Do they need to issue Form A & Submit Form B to GST officer irrespective of whether EOU claim refund or not?

    Because circular 14 is silent about whether Form A/B is mandatory for Deemed Exports
    Awaiting your expert opinion.

  3. Jagdish says:

    We are Manufacturer – Exporter & purchasing goods under noti.no. 40/41- on payment of 1% IGST or CGST+SGST, Can we entitle to take credit in our input or Not?

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