1. Let us consider a scenario wherein an exporter has imported inputs against Advance Authorization claiming IGST exemption under Notification No. 79/2017-Cus dated 13.10.2017 read with Notification No. 18/2015-Cus dated 01.04.2015. It may be noted that said exemption was initially not available on the implementation of GST. It is only from 13.10.2017 that the exemption of IGST is available subject to pre-import condition.
2. Now, Rule 96(10) as substituted by Notification No. 3/2018-CT dated 23.01.2018 provides as under:
“(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), dated 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-Cus Tax 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.”
3. Above referred sub-rule has been given a retrospective effect and is made applicable from 23.10.2017. Readers will observe that NNotification No. 79/2017-Cus (which grants IGST exemption against Advance Authorization) forms part of the above referred sub-rule. Hence a confusion is created in the trade and industry as to whether the exporter in our case will be able to export the goods on payment of IGST and claim refund thereof given that he has procured inputs claiming IGST exemption against Advance Authorization ?? We submit following grounds to argue that the exporter in such case is NOT debarred from exporting goods with payment of IGST:
a. 16(3) of the IGST Act, 2017 provides for two options to the registered person making zero-rated supply for claiming refund. Sec. 16(3)(b) reads as under:
“(3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely :-
(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied,”
Above referred provision clearly provides that a registered person will be allowed to supply the goods or services with payment of IGST subject to certain conditions, safeguards and procedure as may be prescribed. Hence once it is established that such person is not debarred from making the supply with payment of IGST, the refund of same has to be granted and additional conditions cannot be imposed for restricting such refund.
Seen in this background, Rule 96(10) does not debar the person from making export of goods with payment of tax. It only says that refund of IGST paid on such exports will not be granted if such exporter has received supplies on which supplier has claimed the benefit referred in the given Notifications. Hence the said sub-rule is clearly restricting only refund of such IGST paid which is not permitted as per Sec. 16(3)(b) of the IGST Act, 2017. Hence the said sub-rule is ultra vires the provisions of Act.
b. Sec. 54(1) of the CGST Act, 2017 reads as under:
“54. Refund of tax. — (1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed”
Hence Sec. 54(1), under which refund claims of IGST paid on export of goods are covered in absence of any specific provision in this regard, only provides for the period within which the application is to be made and also grants power to prescribe the form and the manner. It is only in exercise of said power that Rule 96(1) provides that the shipping bill itself will be treated as an application and also provides for matching of data between GSTN and ICEGATE portal.
Hence only “form and manner” can be prescribed for granting refund of IGST paid on export of goods and additional conditions cannot be imposed. Thus Rule 96(10) seems to be travelling beyond the mandate given by Sec. 54(1) and hence is ultra vires to the provisions of Act.
c. Rule 96(10) clearly recognizes two parties viz. “person claiming refund” and the “supplier, who supplies availing benefit under the given Notifications, to the person claiming refund”. Hence the restriction will apply only if the supplier avails the benefit and not the recipient (i.e. the exporter). In the case before us, on import of goods against Advance Authorization, the supplier who is located outside India is not availing any benefit under Notification No. 79/2017-Cus. It is the exporter who imports such goods availing the benefit by claiming IGST exemption.
Privy Council in the case of Crawford v. Spooner (1846) 6 Moore PC 1 has held that Court cannot aid the Legislature’s defective phrasing of an Act. It cannot add or amend and by construction make up for the deficiencies which are left there.
Hence such case is clearly not covered by the restriction placed under Rule 96(10).
d. Circular No. 45/19/2018-GST dated 30.05.2018 says as under at paragraph number 7 with regard to applicability of Rule 96(10):
“Sub-rule (10) of rule 96 of the CGST Rules seeks to prevent an exporter, who is receiving goods from suppliers availing the benefit of certain specified notifications under which they supply goods without payment of tax or at reduced rate of tax, from exporting goods under payment of integrated tax. This is to ensure that the exporter does not utilise the input tax credit availed on other domestic supplies received for making the payment of integrated tax on export of goods.”
The above Circular clearly establishes that the supplier and an exporter are two different persons and the restriction shall apply only if such exporter receives the goods from a supplier who avails the benefit of the given Notifications on his outward supply. Hence it shall not cover a scenario where IGST exemption has been claimed on import of goods against Advance Authorization.
It must also be noted that the restriction placed by Rule 96(10) shall apply only if the supplier supplying goods to the exporter avails the benefit of the given Notifications on his outward supply to such exporter. Hence if such supplier avails any benefit on his input side, the exporter in question is not covered by the restriction.
4. On the basis of above reasoning we submit that the restriction placed under Rule 96(10) should not apply if the exporter imports the goods claiming IGST exemption against Advance Authorization. It must however be noted that such exporter must ensure that his other inward supplies are not covered by the stated Notifications wherein supplier to such exporter has availed the benefit. It must also be noted that Rule 96(10) is silent on whether the restriction, if the case is covered, shall apply at the transaction level, entity level and also whether the said restriction will expire at the end of the tax period in which such supplies are received.
5. Before we part we may also point out that the above referred Circular states that the purpose of introducing the said sub-rule is to “ensure that the exporter does not utilise the input tax credit availed on other domestic supplies received for making the payment of integrated tax on export of goods”. Such reasoning requires further clarity as in the case before us, since imports are made by claiming IGST exemption, an exporter might be using the input tax credit availed on other domestic supplies for making the payment of integrated tax on export of goods.
6. It is hoped that the Government comes out with a suitable clarification soon to relieve the trade and industry from the uncertainty.
(views are strictly personal)