Summary: The Central Board of Indirect Taxes and Customs (CBIC) has introduced a new mechanism to address the issue of additional Integrated Goods and Services Tax (IGST) paid on upward price revisions for exported goods. Previously, there was no mechanism to claim refunds for extra IGST paid via debit notes, causing significant compliance challenges and financial strain for exporters. The updated rules, now included in Rule 89 and Rule 96 of the CGST Rules 2017, allow exporters to claim refunds on additional IGST paid due to price increases. This involves issuing debit notes and ensuring export proceeds are realized. The mechanism introduces new procedural requirements and documentation, including Statements 9A and 9B, and mandates refunds to be filed within two years from the date of the Let Export Order (LEO). Exporters must navigate these new provisions and may need to address open issues related to past refunds and consolidated debit notes. Overall, while this update helps in unlocking working capital for exporters, careful adherence to the new rules is essential to avoid compliance issues.
Introduction
The Central Board of Indirect Taxes and Customs (CBIC) has recently introduced a mechanism to refund additional Integrated Goods and Services Tax (IGST) paid on upward price revisions of exported goods. This long-awaited update addresses a critical gap in the GST refund process for exporters, yet it introduces several complexities. This article explores the new rules, delves into the intricacies of implementation, and provides personal commentary on the implications for stakeholders.
Overview of the New IGST Refund Mechanism (Background)
Under the GST regime, exports are zero-rated supplies, and Section 54 of the CGST Act read with Rule 96 of the CGST Rules allows exporters to claim a refund of the IGST tax paid on such exported goods. The refund in this case is automatically deemed to be filed based on the shipping bill filed for such exported goods, enabling exporters to receive refunds without manual intervention by customs or jurisdiction officers.
However, when the price of such exported goods is revised either upward or downward after shipment, additional IGST becomes payable or adjustable due to the requirement of issuing debit or credit notes in accordance with Section 34 of the CGST Act. Until now, there was no mechanism prescribed in the GST law to claim a refund of the additional IGST paid against debit notes. Conversely, when a credit note is issued for downward price revision, taxpayers are required to repay the refunded amount of IGST to the government as per Rule 96B of the CGST Rules, considering that export proceeds would not be realized to the extent of the credit notes issued for such downward revisions.
This lack of a mechanism for claiming refunds on additional IGST paid against debit notes has led to significant compliance challenges and financial impacts for exporters, often blocking working capital in substantial amounts.
Now, this is a welcome step from CBIC where they have introduced the long-awaited mechanism via making amendments in Rule 89 and 96 of CGST Rules 2017. Therefore, now exporters can claim the refund of the aforesaid additional IGST amount paid against the debit notes and unblock their working capital.
Summary of New Provision inserted in Rule 89 & 96
| New Rule | Purpose of Insertion |
| Insertion of Sub-rule (1B) in Rule 89 | This sub-rule facilitates the refund of additional IGST paid due to post-export price increases |
| Clauses (bb) and (bc) in Sub-rule (2) of Rule 89 | These clauses prescribe the documentation and procedural requirements for claiming the refund. |
| Amendment to Rule 96 | Modifications to allow for refund claims through the GST portal rather than the automated customs refund system. |
| New Statements 9A & 9B | Introduced for detailing the adjustments and reconciliation of additional IGST paid. |
Conditions of eligibility for refund after amendments in Rules
Refund would be eligible-
1. On Debit note issued with payment of IGST;
2. Where refund has already been sanctioned on the original export invoice in the automated route;
3. Export proceeds should be realised for both original invoices and debit notes
List of the possible instances where in debit notes have been issued and possibility of refund claim in line with the amended provisions:
| Original invoice | Debit note | Eligibility of refund as per new rule
(Yes/No) |
Remarks |
| Issued with payment of IGST | Issued with payment of IGST | Yes | Full eligibility for refund as both original invoice and debit note are with payment of IGST. |
| Issued with Payment of IGST & under LUT without payment of IGST | Issued with payment of IGST | Yes, Partially | Partial refund eligible only for the portion of the original invoice with payment of IGST. |
| Issued with payment of IGST | Issued under LUT without payment of IGST | No | Refund not eligible as the debit note is issued under LUT without payment of IGST. No question of refund is exist.
Also, Debit note issued under LUT without payment of IGST is not recommendable as per the law considering original underlying supply has been made with payment of IGST. |
| Issued under LUT without payment of IGST | Issued without payment of IGST | No | Refund would be eligible under the category of “refund of accumulated ITC against export of goods” in respect of the debit note. |
Time limit for refund application
Refund claims must be filed within two years from the relevant date as defined in clause (a) of Explanation (2) of Section 54 of the CGST Act i.e. two years from the date of filing of Let Export order for goods exported.
If the relevant date precedes the implementation of Rule 89(1B) of the CGST Rules, the claim must be filed within two years from the implementation date of the said rule i.e. 10th July 2024.
Interim Solution until GST portal not updated as per the new Rule
Until a specific category for such claims is available on the portal, exporters should select the category “Any other” in FORM GST RFD-01. They must include the remark: “Refund of additional IGST paid on account of increase in price subsequent to export of goods,” and provide relevant documents as specified in Rule 89(2) of the CGST Rules, including Statements 9A & 9B.
Interest Liability on Debit Notes
New Statement 9A and 9B contains a column of interest paid in respect of the debit notes issued for upward price revision. However, In the author’s view, the liability to discharge interest would arise from the date of event requiring issuance of the debit note. According to Section 50 of the CGST Act, interest is payable on delayed payment of tax. Hence, interest liability would not arise until the event causing the additional tax liability occurs.
Future Recommendations for Stakeholders
1. Proceed to file the refund application for the past period: Exporters should review their past transactions and file refund applications where debit notes have been issued but refunds not yet granted. Such past refund to be filed within 2 years from the date of new Rules are inserted i.e. 1oth July 2024.
2. Issuance of separate debit notes: Exporters may need to issue separate debit notes where original export invoices has been issued with payment of IGST and for the invoices where issued under LUT without IGST in order to streamline the refund process.
3. Issue debit notes within the 2-year time limit: Considering the time limit for refund claim would be calculated from the Let export order date, exporter are recommended to issue debit notes within the 2-year time frame from LEO date.
4. Ensure realization of proceeds for both original invoices and debit notes: Amended section 16 of IGST Act mandate the realisation of export proceed for claiming of refund for goods exported out of India. This is crucial for eligibility under the new rules.
Open issues would get resolve over time’
1. Section 16 + Rule 96B ultra vires before 01.10.2023 period: The amended section 16 of IGST Act contains the requirement of realisation of payment w.e.f. 01.10.2023. However, rule 96B contains realisation requirement from 23.03.2020 even though it was not mandated by the parent section (i.e. beyond the Act). Therefore, whether the refund sanctions on original invoice before 01.10.2023 need to be paid back if payment not realised remains unresolved.
In Author’s view, refund should not be disallowed in all such cases and the taxpayers may proceed to file refund claim of debit note wherever realisation have not been made.
2. No clarity on past refunds: Whether new rule can be applied for the debit notes issued in the past where rejection orders were passed, or matters are already in appeal.
In Author’s view, the taxpayer should proceed to file the refund claim again and the refund should be granted. Benefit of a taxpayer cannot be denied for the cases where machinery itself not available earlier and provided by the government subsequently.
3. Consolidated Debit Note issues where original supplies were made both with IGST and without IGST payment.: Considering the requirement to link debit notes with the original export invoices at the line-item level as per the new statements 9A and 9B, it is necessary to address cases where exporters have issued consolidated debit notes for multiple export invoices. This applies regardless of whether the invoices were issued with payment of IGST or under LUT without payment of IGST. As a result, taxpayers might face challenges when claiming refunds for such debit notes.
In Author’s view, refund should be granted to the taxpayers to the extent of original invoices issued with payment of taxes if proper reconciliation would be provided by the taxpayers to the authority.
Author Commentary on the CBIC Update
The new IGST refund mechanism introduced by the CBIC is a positive step for exporters. It addresses a significant issue by allowing refunds on additional IGST paid due to price increases after goods have been exported. This change helps exporters by freeing up their working capital, which was previously tied up.
However, this new system is not without its practical challenges. Exporters will need to carefully follow the new rules and procedures to claim these refunds. It’s important for businesses to understand these regulations thoroughly to avoid any compliance issues.
(Inputs or Feedback on this article can be shared to [email protected]. Views expressed here are personal to the author)
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