GST Rule 96(10) A Nightmare For Exporters

A. Restrictions under RULE 96(10) of CGST rules on export with payment of IGST

1. Following categories of exporter are getting enquiry/notices from Customs/ DGRAM/ DRI/ GST dept. asking them to pay erroneous refund claimed by them on exports made by them with payment of IGST:

(a) Advance License Holder

(b) EOU

(c) Merchant exporters where supplier has availed the benefit of GST Notification No. 40/2017-Central Tax (Rate) dated 23.10.2017 i.e. exporter has received supplies at concessional rate of GST @ 0.10%.

2. The above issue arose due to following notifications/ circulars:

(i) CBIC vide notification no. 3/2018 Central Tax dated 23rd January, 2018 has inserted rule 96(10) in CGST Rules with retrospective effect applicable from 23.10.2017 vide which refund of IGST paid on exports with payment of duty has been denied to certain categories of exporters as mentioned in para 1 above.

(ii) Revenue has amended rule 96(10) with retrospective effect from 23rd October, 2017 vide notification no. 39/2018 dated 4th September, 2018 and created confusions.

(iii) On various representations to board, Revenue has again amended rule 96(10) and the issue was settled as under:

(a) Notification no. 53/2018, which is applicable with retrospective effect from 23rd October, 2017, restriction on export of goods with payment of GST is applicable only in case, exporter receives supplies on which the supplier has availed the benefit of advance license, EOU scheme or concessional rate of GST @ 0.10% on his supplies.

(b) Notification no. 54/2018 which is applicable from 9th October, 2018, In this notifications, exporters are restricted to export with payment of IGST if they are advance license holders/ EOUs or supplier has supplied goods to such exporters at concessional rate of GST @ 0.10%.

(iv) From above, one may find that law makers themselves were not certain and clear in their thoughts as CBIC has amended the relevant notification four times. We understand that frequent changes in above notifications were made due to ambiguous drafting of notification no. 3/2018 Central Tax dated 23rd January, 2018

(v) There may not be any malafide intention on part of exporter to export goods with payment of IGST and simultaneously take benefit of notifications restricted in Rule 96(10). Availing of refund through IGST route instead of LUT route may not be with intent to misuse law but rather due to convenience of refund through IGST route, unawareness of exporters and improper guidance by GST consultants.

(vi) It is pertinent to mention here that at initial stages, GST law itself was at nascent Stage and there were lot of notifications/circulars being issued on daily basis.

(vii) Various wings of MOF e.g. DRI, DGCCI, GST audit etc. are engaged in finding fault for non- compliance of rule 96(10) in large no. of cases. There can be following claim by the agencies in same situations, depending upon how they handle the matter :

(a) To pay whole amount of refund claimed by them on exports with payment of IGST along with interest and penalty. (Applicable on EOU /merchant exporters).

(b) To pay whole amount of refund claimed by them on exports with payment of IGST along with interest and penalty only on those shipping bills on which advance license has been mentioned. (For advance license holders only).

(c) Pay customs duty + IGST saved on import of goods along with interest and penalty (advance license / EOU supplier).

(d) Pay IGST at normal rate of 5%/12%/18%/28% as may be applicable along with interest and penalty (merchant exporters who have purchased at concessional rate of .10% of GST rate).

B. WHAT IS fault of exporter

 In above matter, the exporter has claimed refund of balance available in his Electronic Credit Ledger only. The only fault is that he should have claimed refund under LUT route instead of IGST route. Opting for a different route than provided by law is a procedural mistake.

Is it fair on part of revenue to ask for to pay back whole of refund issued under IGST for only fault of exporter that he has opted a refund route different than as allowed by law, which is a procedural mistake. It may not prove correct on test of law, being retrospective, defects in issuance of rule, above all various judgements of honourable Supreme Court that substantial benefit cannot be denied only due to procedural mistakes.

C. Rational of introducing the above law

Rule 96(10) was introduced to safeguard the interest of revenue by scrupulous persons who took input of irrelevant products and got refunds under IGST.  Hence, it was introduced to protect the interest of revenue by any possible misuse of simplified fast track refund Route of IGST. 

It is admitted that there is a procedural lapse on the part of exporters’ Consultant/ CHA (who are qualified professionals and are supposed to have knowledge of latest laws) by opting IGST route than LUT route.

However, there is a procedural lapse on part of revenue authorities also, which is as under:

(i) GST authorities should have sent instructions to all the custom ports to not to issue refunds under IGST route on all export transactions.

(ii) Custom authorities should have made necessary changes in their software e. not to allow IGST refund in such cases.

(iii) Further, custom authorities could have checked, on examination of each Shipping Bill, is there any contravention of rule 96(10), which could be as under-

(a) EOU export under a specific Shipping Bill, in which it is mentioned that exporter is an EOU.

(b) Exporters importing under advance licenses are required to specifically mention advance licenses number.

(c) Identifying the Merchant Export transactions as name of supplier in such cases is mentioned in tax invoice/ shipping bills.

So, there is a procedural lapse not only on part of exporters but also on part of revenue.  If the revenue authorities would have checked compliance of rule 96(10) in 2018 itself, such lapse on part of exporters would not have re-occurred till now.

So, only exporters cannot be penalised on such non- compliance, revenue should also admit lapse on its part.  

D . Revenue Neutral:

Whatever tax is collected by revenue in such cases is eligible to be re-credited to ECL of exporters, so it is only cash flow advantage to revenue, but otherwise it is revenue neutral, except the interest charged.

So, revenue should come forward to settle the issue in interest of Natural justice.

E. Legal Status

As per our knowledge many aggrieved exporters have filed writ petition in various High Courts.

F. Recent changes in law

 As per notification No. 14/2022–Central Tax dated 5th July, 2022 it has been notified that

 “Where a registered person deposits the amount of erroneous refund sanctioned to him, –(b) under sub-rule (3) of rule 96, in contravention of sub-rule (10) of rule 96 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.”;

 According to above, if an exporter pays full amount of erroneous refund from cash ledger along with interest and penalty, the amount of GST will be re-credited to the ECL of the exporter.

G. Solution

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.

The above proposal if accepted by revenue, it will get their legitimate dues within 3 months of issuance of circular without waiting for the time in litigation which may run into several years and avoid the avoidable litigation, which will save a lot of money time and energy of exporters and revenue authorities.

H. Aggrieved Exporters to Form a group:

 All exporters aggrieved by this matter are suggested to form a group for exchange of information

 (a) WhatsApp Group https://chat.whatsapp.com/E1GKHfOI6eT3Bwb3Guivse

(b) Google Group https://groups.google.com/g/Rule96subrule10demand

I. Suggestion for exporters:

All aggrieved exporters are suggested as under:

(a) To ascertain the GST payable, interest on excess refund received as referred in para G above.

(b) To share details of writ filed against 96(10) challenging the vires of 96(10).

(c) To make a representation to the CBIC stating that exporters are ready to pay the excess refund received by them along with interest as referred in para no. G above.

J. Disclaimer:

 The above suggestions are being made to avoid the avoidable litigation in the interest of revenue as well as trade without any bias, to create a harmony among trade and revenue and to create a win-win situation for the both as trade should pay whatever they are liable to pay and revenue should get whatever is their legitimate right.