Unlocking Additional IGST Refunds: New Relief for Revised Export Prices

Today, we’re diving into the process for claiming a refund on additional Integrated Goods and Services Tax (IGST) that exporters have to pay when the price of their goods goes up after export.

Navigating GST has been a significant challenge for exporters, particularly when the export price of goods is revised upwards after the export; they are hit with an additional Integrated Goods and Services Tax (IGST) on this new, inflated value. Such price adjustments can result from various factors, including linking of the prices of the export commodities to some international index or as per the terms of contract between the two parties etc. Historically, this unforeseen tax burden has imposed substantial financial strain on exporters, tying up their working capital and depleting their resources, leaving them without a viable mechanism for recovering the additional IGST paid.

The issue of refunding additional IGST has been a recurring problem. A notable case illustrating this was Vedanta Limited W.P. (MD) No. 6209 of 2019 [2019(10)LCX0098], decided by the Chennai High Court on 31.10.2019. In this instance, Vedanta had initially paid IGST of Rs. 94,42,39,026 on exports. Due to price fluctuations on the London Metal Exchange, the company had to pay an additional Rs. 2,02,94,956. While the respondents successfully refunded the original Rs. 94,42,39,026, they could not process the additional amount due to limitations in their electronic refund system, which did not support manual interventions. The court referenced Circular No. 40 of 2018, which provides a manual process for correcting such discrepancies but noted that the respondents had not fully addressed the electronic system’s limitations. Emphasizing the need for an effective resolution to support exporters, the court cited a similar case from the Gujarat High Court (M/s. Amit Cotton Industries vs. The Principal Commissioner of Customs), which had directed the refund of IGST with interest due to system issues. Consequently, the Chennai High Court directed the respondents to refund the additional Rs. 2,02,94,956 within four weeks of receiving the order. The writ petition was disposed of with this directive, and no costs were awarded.

The situation has significantly improved with the GST Council's groundbreaking recommendation in its 53rd meeting dated 22.06.2024. The Council has proposed a new mechanism that allows exporters to claim additional IGST paid due to upward revisions in export prices. This pivotal development is anticipated to offer substantial relief to many taxpayers, facilitating the recovery of extra IGST that they have borne. This change will simplify the process for taxpayers, providing them with the means to claim refunds for additional IGST incurred due to price increases post-export.

Following the Council's recommendations, Notification No. 12/2024 - Central Tax, dated 10.07.2024, introduced Sub-rule (1B) and clause (bb) & (bc) in sub-rule (2) in Rule 89, which states:

“(1B) Any person, claiming refund of additional integrated tax paid on account of upward revision in price of the goods subsequent to exports, and on which the refund of integrated tax paid at the time of export of such goods has already been sanctioned as per rule 96, may file an application for such refund of additional integrated tax paid, electronically in FORM GST RFD-01 through the common portal, subject to the provisions of rule 10B, before the expiry of two years from the relevant date as per clause (a) of Explanation (2) of section 54:

Provided that the said application for refund can, in cases where the relevant date as per clause (a) of Explanation (2) of section 54 of the Act was before the date on which this sub-rule comes into force, be filed before the expiry of two years from the date on which this sub-rule comes into force.”;

(ii) in sub-rule (2), after clause (ba), the following shall be inserted, namely: -

“(bb) a statement containing the number and date of export invoices along with copy of such invoices, the number and date of shipping bills or bills of export along with copy of such shipping bills or bills of export, the number and date of Bank Realisation Certificate or foreign inward remittance certificate in respect of such shipping bills or bills of export along with copy of such Bank Realisation Certificate or foreign inward remittance certificate issued by Authorised Dealer-I Bank, the details of refund already sanctioned under sub-rule (3) of rule 96, the number and date of relevant supplementary invoices or debit notes issued subsequent to the upward revision in prices along with copy of such supplementary invoices or debit notes, the details of payment of additional amount of integrated tax, in respect of which such refund is claimed, along with proof of payment of such additional amount of integrated tax and interest paid thereon, the number and date of foreign inward remittance certificate issued by Authorised Dealer-I Bank in respect of additional foreign exchange remittance received in respect of upward revision in price of exports along with copy of such foreign inward remittance certificate, along with a certificate issued by a practicing chartered accountant or a cost accountant to the effect that the said additional foreign exchange remittance is on account of such upward revision in price of the goods subsequent to exports and copy of contract or other documents, as applicable, indicating requirement for the revision in price of exported goods and the price revision thereof, in a case where the refund is on account of upward revision in price of such goods subsequent to exports;

(bc) a reconciliation statement, reconciling the value of supplies declared in supplementary invoices, debit notes or credit notes issued along with relevant details of Bank Realisation Certificate or foreign inward remittance certificate issued by Authorised Dealer-I Bank, in a case where the refund is on account of upward revision in price of such goods subsequent to exports;”.

To explain it plainly, sub-rule (1B) provides that if a person exported goods on payment of tax, and later received a refund of that tax under Rule 96, but the value of the exported goods increased due to factors like changes in the contract terms etc., resulting in additional IGST being paid, the exporter can now apply for a refund of this extra tax by making an application in FORM GST RFD-01. This refund application must be submitted within 2 years from the relevant date specified in Clause (a) of Explanation (2) of Section 54. This relevant date is:

However, if the 2-year period from the relevant date had already expired before the sub-rule (1) was introduced, then the new deadline will be 2 years from the date this sub-rule came into effect, which is July 10, 2024. Therefore, refunds for additional IGST must be claimed within 2 years from July 10, 2024.

It's crucial to emphasize that this significant relief is only available to exporters who initially paid IGST on their exports and later received a refund under Rule 96. Exporters who did not pay GST initially but later incurred additional IGST will not be eligible for a refund under this new provision. Therefore, this benefit is specifically intended for those who have already met the initial tax payment and refund conditions.

Additionally, sub-rule (2) specifies that the refund application must include the relevant documents listed in Annexure 1 in FORM GST RFD-01, depending on the case. With the introduction of the new provision for refund of additional IGST paid, new clauses (bb) and (bc) have been added to outline the documents required for the refund of such tax. These clauses will be discussed in detail in the subsequent sections.

Currently, under Rule 96(1), the shipping bill that the exporter files is deemed to be an application for refund of the integrated tax paid on the goods exported out of India. Thus, the refund of IGST paid on exports is processed automatically by the Customs officer without manual intervention. However, there was no established process for handling refunds of additional IGST paid due to price increases on exported goods. To address this, Notification No. 12/2024 - Central Tax, dated July 10, 2024, introduced a proviso to Sub-rule (1) of Rule 96, which states:

“Provided that the exporter of goods may file an application electronically in FORM GST RFD-01 through the common portal for refund of additional integrated tax paid on account of upward revision in price of goods subsequent to export of such goods, and on which the amount of integrated tax paid at the time of export of such goods has already been refunded in accordance with provisions of sub-rule (3) of this rule, and such application shall be dealt with in accordance with the provisions of rule 89.”;

However, a detailed mechanism and procedure for obtaining a refund for additional IGST resulting from increased export prices was clarified vide Circular No. 226/20/2024-GST, dated July 11, 2024. Here’s a detailed summary of the procedure:

1. Exporters may file a refund application electronically in FORM GST RFD-01 on the common portal.

2. Such application would be headed by the jurisdictional GST officer of the concerned exporter.

3. The exporter should file the application under the category "Any other" with specific remarks "Refund of additional IGST paid on account of increase in price subsequent to export of goods" until a separate refund category is developed in FORM GST RFD-01.

4. The application shall accompany the following required documents as prescribed in clause (bb) of sub-rule (2) of rule 89:

5. Additionally, Statements 9A & 9B as prescribed in clause (bb) & clause (bc) of sub-rule (2) of rule 89 must be attached in Annexure-1 of FORM GST RFD-01. The format for these statements is available within the form itself. The details required are as follows:

Statement 9A as per clause (bb): A statement containing the following information:

Statement 9B as per clause (bc): A reconciliation statement reconciling the values declared in supplementary invoices, debit notes, or credit notes with the relevant details from the Bank Realization Certificates or foreign inward remittance certificates issued by Authorized Dealer-I Bank.

6. The exporter must ensure that the refund application in FORM GST RFD-01 is fully completed and accurate before submission.

7. The refund application will be processed using the documents provided by the applicant. Additionally, information regarding the verified details of shipping bills, the IGST amounts involved, and the refund sanctioned by customs, will be made available to the jurisdictional officer by GSTN to help them to process these refund claims.

8. Application shall be filed within 2 years from the relevant date given in Clause (a) of Explanation (2) of Section 54. If the 2-year period had already passed before the new sub-rule (1B) was introduced, then it can be filed within 2 years from July 10, 2024.

9. The officer will verify that the exporter has reported the export invoice and debit note in FORM GSTR-1 and paid the additional IGST and interest in FORM GSTR-3B. They will also check the revised value as declared and foreign exchange remittances.

10. The proper officer will verify the completeness and eligibility of the refund claim, and if valid, issue a refund sanction order in FORM GST RFD-06 and the payment order in FORM GST RFD-05.

11. Refunds are not provided if the claimed amount is less than Rs. 1,000.

12. With respect to cases of downward revision in the price of goods subsequent to exports when the export has been made with the payment of IGST, the circular notes that the exporter is required to deposit the IGST refund received in proportion to the reduction in the price of the exported goods, along with the applicable interest. Importantly, while granting refund of additional IGST paid on account of upward revision of price of goods subsequent to exports, the proper officer will also verify whether the exporter has deposited the excess refund amount in case of downward revision in price of goods subsequent to exports, during the relevant tax period.

Conclusion: In summary, the GST Council’s latest update provides crucial relief for exporters by introducing Sub-rule (1B) in Rule 89, which streamlines the refund process for additional IGST paid on revised export prices. Starting July 10, 2024, exporters can reclaim extra IGST using FORM GST RFD-01. By submitting the necessary documentation and adhering to the specified timelines, exporters can efficiently recover overpaid IGST as outlined in Circular No. 226/20/2024-GST.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.