The Union Budget 2021 was presented by the Finance Minister on 01.02.2021 in the parliament. The budget speech that went on for nearly 2 hours, merely 2 minutes were spared on GST wherein the Finance Minister applauded the parliament on GST and listed the measures taken by the Government in the last 4 years of implementation GST, “to further simplify it”. And towards the end of the two minutes, the FM assured us that the Government will take every possible measure to smoothen the GST further, which led us to believe that no major changes have been made in the GST front. However, the devil indeed lies in the details.

The Finance Bill 2021, proposes 16(3) amendments in GST Laws which comprise 15 amendments to the CGST Act, 2017 and 1 to the IGST Act. Although quite a few announcements were made with respect to Indirect Taxes including customs, in this article, I want to discuss the amendment to Section 16 of the IGST Act, which I find rather inappropriate.

Section 16 under Chapter VII of the IGST Act, 2017, defines Zero Rated supply which includes:

“(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.”

Further, until 31.01.2021 Section 16(3) of the Act allowed a registered person making zero rated supply to claim a refund as per the provisions of Section 54 of the CGST Act via two options:

  1. where the supply of goods or services or both are made under bond or Letter of Undertaking, without payment of integrated tax and refund of unutilised input tax credit can be claimed; or
  2. supply of goods or services or both, are made on payment of integrated tax and the refund of such tax paid on such supplies can be claimed.

Through Finance Bill 2021, the definition of zero-rated supply under Section 16(1)(b) has been amended to include transactions of supply to SEZ only when the said supply is for authorized operations. The amendment in the definition has been brought in to align the parent act with the Rules, wherein the refund on supplies to SEZ or SEZ developer was restricted to supplies for authorised operation since the said restriction was not part of the parent Act originally. The amendment puts the onus on the Supplier to ascertain whether the purchase by SEZ Unit is actually for authorized operations or not, when he may not have any idea or means to ascertain the same.

Secondly, Section 16(3) of the IGST Act has been substituted and a proviso has been added to the subsection which provides that the registered person claiming refund under Section 54 of the CGST Act, for exports made under LUT without payment of tax, shall be liable to deposit the refund so received along with interest, in case of non-realization of sale proceeds within thirty days after the expiry of the time limit prescribed under the FEMA, 1999 for receipt of foreign exchange remittances. This amendment has enabled the Rule 96B of the CGST rules inserted vide Notification 16/2020 CT dated 23rd March 2020 which was aimed at recovery of unutilized ITC or IGST refunded to an exporter in the event of non-realization of export proceeds.

Lastly, the option for claiming refund of tax paid on supply of goods and/or services with payment of IGST originally covered under Section16(3)(b), is now being addressed under the newly inserted Section 16(4). However, it is pertinent here to mention that the new subsection restricts the availability of this option to a class of persons engaged in the export of a class of goods or services as notified by the Government.

In fact, a plain reading of the new sub-section shows that the export with payment of tax is no more an option, but the Government may, on recommendation of GST Council, extend such an option to a notified class of exporters for notified supplies. This has been done in line of the Government’s drive to curb the problem of fake invoices and refund of IGST granted to the exporter on the basis of such fake invoices and illegitimate ITC claimed therewith.

However, in an attempt to get rid of the loopholes in the existing system, the Government has also done away with a system driven method of process of refund since the refund claims by the exporters under LUT is often met by adjudication, creating unnecessary hardship for the exporter to substantiate his claim and get it processed. Another thing that deserves our attention is that with these amendments in place, the GST Laws, which includes both CGST and IGST Act as well as the rules, is now devoid of any provision which enables a registered exporter to claim refund of IGST on exports.

The Finance Bill 2021 has been presented and now it awaits the Presidential assent. In the meantime, we can only speculate which classes of exporters and supplies will be notified by the Government to be eligible to avail the option under Section 16(4). While the intentions of the Government may be in the right place, the effectiveness of the proposed amendments in the realization of those intentions, remain uncertain.

The amendments proposed, though prospective, the departmental officers are known to implement any change in law or approach under the discussion of the GST Council to the batch of applications under process causing unwarranted litigation, ergo delay in sanctioning of refund claims. The exporters need to be watchful of the developments to come and act promptly so as to not lose any refund or any other benefits available to them.

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Qualification: LL.B / Advocate
Company: Hiregange & Associates
Location: Bangalore, Karnataka, IN
Member Since: 05 Feb 2021 | Total Posts: 1

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  1. Suchi says:

    We have been exporting with payment of tax.

    Need to know since when this amendment will come into force and can we continue to export with payment of tax

    1. Mahima Kesharwani says:

      The Ministry has not yet issued any notification in this regard. Once the amendment comes into force, you will have to check if the class of goods or services being exported by you have been notified to be eligible for export with payment of tax. As of now, you can continue to export with payment of tax till the amendments are notified.

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March 2021