Exporters' Boon or Bane? Navigating Rule 96(10)'s Complexities

Exports are the lifeblood of any nation's economic growth, and governments strive to create an enabling environment for exporters. In India, the Goods and Services Tax (GST) regime introduced specific provisions for zero-rating exports, allowing exporters to claim refunds of the Integrated Goods and Services Tax (IGST) paid on exported goods or services.

However, the path to claiming these refunds is not without its complexities. Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, 2017, has emerged as a pivotal regulation governing the eligibility criteria for IGST refunds on exports. This rule has undergone a series of amendments since its inception, each aimed at striking a delicate balance between facilitating exports and preventing the misuse of tax benefits.

The journey of Rule 96(10) began with Notification No. 75/2017-CT, which introduced the initial restriction on claiming IGST refunds if the supplier to the registered exporter had availed certain benefits under specific notifications. These notifications included No. 48/2017-Central Tax, No. 40/2017-Central Tax (Rate), and No. 41/2017-Integrated Tax (Rate), all dated October 2017.

Subsequent amendments through Notification No. 3/2018-CT and Notification No. 39/2018-CT further refined the rule, shifting the focus from the supplier's actions to the registered exporter's own actions.

The restriction on claiming IGST refunds now applied if the exporter themselves had availed benefits under notifications such as No. 78/2017-Customs and No. 79/2017-Customs, both dated October 13, 2017.

In a significant development, Notification No. 54/2018-CT introduced a crucial exception.

Exporters who had received capital goods under the Export Promotion Capital Goods (EPCG) Scheme without paying IGST were exempted from the refund restriction, provided they had paid Basic Customs Duty (BCD). This exception was further clarified through Notification No. 16/2020-CT, which inserted an explanation to the rule.

The complexities of Rule 96(10) did not end there.

Notification No. 53/2018-CT and Notification No. 54/2018-CT introduced a two-phase approach, with different conditions applying before and after October 9, 2018. The pre-October 9, 2018 phase focused on the supplier's actions, while the post-October 9, 2018 phase shifted the focus to the exporter's own actions.

Amidst this intricate web of amendments and exceptions, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular 125/44/2019-GST to provide clarity on the net effect of these changes. The circular highlighted the Hon'ble Gujarat High Court's judgment in the case of Cosmo Films Ltd. v. UOI, which held that Notification No. 54/2018-CT should apply retrospectively from October 23, 2017.

As exporters grappled with the complexities of Rule 96(10), the tax authorities initiated investigations across the country.

The primary contention was that exporters who had availed benefits under certain notifications should have exported goods under the Letter of Undertaking (LUT) route (Rule 96A) instead of the IGST-paid route (Rule 96). Demands for refund reversal, along with interest and penalties, were issued to exporters alleged to have violated Rule 96(10).

In response, the CBIC issued Circular 174/06/2022-GST, providing a mechanism for exporters to deposit erroneous refunds, pay applicable interest and penalties, and subsequently claim re-credit of the IGST amount through Form GST PMT-03A.

While some exporters have chosen to challenge the validity of Rule 96(10) in courts, others have explored alternative options, such as contesting the matter on merits or following the prescribed procedure outlined in Circular 174/06/2022-GST. The legal battle continues, with exporters seeking clarity and relief from the complexities of this ever-evolving rule.

FAQs:

Q1. What is the significance of Rule 96(10) of the CGST Rules, 2017?

A1.Rule 96(10) governs the eligibility criteria for exporters to claim refunds of IGST paid on exported goods or services. It aims to prevent the misuse of tax benefits while facilitating exports.

Q2. What are the key notifications and amendments related to Rule 96(10)

A2.Some of the key notifications and amendments include Notification No. 75/2017-CT, Notification No. 3/2018-CT, Notification No. 39/2018-CT, Notification No. 53/2018-CT, Notification No. 54/2018-CT, and Notification No. 16/2020-CT, among others.

Q3. What is the significance of the Cosmo Films Ltd. v. UOI case?

A3.The Hon'ble Gujarat High Court's judgment in this case held that Notification No. 54/2018-CT should apply retrospectively from October 23, 2017, clarifying the effective date of the rule's implementation.

Q4. What are the potential consequences for exporters who violate Rule 96(10)?

A4.Exporters found to have violated Rule 96(10) may face demands for refund reversal, along with interest liabilities and penalties.

Q5. What options do exporters have to address Rule 96(10) violations

A5.Exporters can choose to challenge the validity of Rule 96(10) in courts, contest the matter on merits, or follow the procedure outlined in Circular 174/06/2022-GST to deposit erroneous refunds, pay applicable interest and penalties, and subsequently claim re-credit of the IGST amount.

Q6. What is the significance of the EPCG Scheme exception in Rule 96(10)

A6.Exporters who received capital goods under the EPCG Scheme without paying IGST, but paid Basic Customs Duty (BCD), are exempted from the refund restriction under Rule 96(10).

Q7. How does Rule 96(10) impact the LUT (Letter of Undertaking) route for exports?

A7.According to the tax authorities' contention, exporters who availed benefits under certain notifications should have exported goods under the LUT route (Rule 96A) instead of the IGST-paid route (Rule 96). Remember, the intricacies of Rule 96(10) and its amendments require careful navigation by exporters to ensure compliance and avoid potential penalties or refund denials. Seeking professional guidance and staying updated on the latest developments is crucial for seamless export operations and tax compliance.