Article on Detailed Analysis of Rule 96(10) of CGST Rules 2017

Detailed Analysis of Rule 96(10) of CGST Rules 2017

Exports play an important role in the economic growth and development of any country. To promote the exports there are special provisions under GST laws for export of goods or export of services. The exports under GST are called zero rated supply and there are two methods of claiming refund for exporters i.e., export done on the LUT (Letter of Undertaking) basis and claim a refund of accumulated ITC and the export done on payment of IGST and claim a refund of such IGST paid. However, it is worth noting that there are certain specific procedures given under Rule 89 to 96A CGST Rules 2017, which provides for certain eligibility criteria/conditions for claiming the refund of accumulated ITC due to export done under LUT basis or claiming IGST refunds paid at the time of export of goods. One such restriction is Rule 96(10) of CGST Rules, 2017 which provides restrictions for claiming refund of IGST paid on export. In this article we are going to have detailed discussion about such restrictions placed under Rule 96(10) of CGST Rules 2017.

Before discussing the issue, it is necessary to understand what exactly Rule 96(10) talks about. For this purpose Rule 96(10) of CGST Rules 2017 is laid down as follows;
“(10) The persons claiming refund of integrated tax paid on exports of goods or services should not have -
(a) received supplies on which 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 except so far it relates to receipt of capital goods by such person against Export Promotion capital goods Scheme or Notification No. 40/2017-Central 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 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 has been availed; or
(b) availed the benefit under 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-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 1299 (E), dated the 13th October, 2017 except so far it relates to receipt of capital goods by such person against Export Promotion capital goods Scheme”.

From the reading of Rule 96(10) it is clear that such rule imposes some restrictions on the exporter regarding the claiming of refund of IGST paid at the time of export and states that the person would not be eligible to claim the refund of export done on payment of integrated tax if he has received the supplies on which the benefit of Notification No 48/2017(CT) has been availed or the benefit of Notification No. 40/2017-Central Tax (Rate) or benefit of Notification No. 41/2017-Integrated Tax has been availed i.e., Where the goods are purchased @ 0.1% as a merchant exporter or the benefit of Notification No. 78/2017-Customs has been availed or the benefit of Notification No. 79/2017-Customs has been availed.

However, exporters who are receiving capital goods under the EPCG scheme, either through import in terms of NN 79/2017-Customs dated 13.10.2017 or through domestic procurement in terms of Notification No. 48/2017-Central Tax, dated 18.10.2017, shall continue to be eligible to claim refund of Integrated tax paid on exports and would not be hit by the restrictions provided in Rule 96(10) of the CGST Rules. The same was also clarified in para 51 & 52 of Circular No.125/44/2019. The said paras of Circular No.125/44/2019 are as follows;

“51. Sub-rule (10) of rule 96 of the CGST Rules, restricted exporters from availing the facility of claiming refund of Integrated tax paid on exports in certain scenarios. It was intended that exporters availing benefit of certain notifications would not be eligible to avail the facility of such refund. However, representations were received requesting that exporters who have received capital goods under the Export Promotion Capital Goods Scheme (hereinafter referred to as "EPCG Scheme"), should be allowed to avail the facility of claiming refund of the Integrated tax paid on exports. GST Council, in its 30th meeting held in New Delhi on 28th September, 2018, accorded approval to the proposal of suitably amending the said sub-rule along with sub-rule (4B) of rule 89 of the CGST Rules prospectively in order to enable such exporters to avail the said facility. Notification No. 54/2018 Central Tax dated the 9th October, 2018 was issued to carry out the changes recommended by the GST Council. In addition, notification No. 39/2018- Central Tax dated 4th September, 2018 was rescinded vide notification No. 53/2018 Central Tax dated the 9th October 2018.

52. The net effect of these changes is that any exporter who himself/herself imported any inputs/capital goods in terms of notification Nos. 78/2017-Customs and 79/2017-Customs both dated 13.10.2017, before the issuance of the notification No. 54/2018 Central Tax dated 09.10.2018, shall be eligible to claim refund of the Integrated tax paid on exports. Further, exporters who have imported inputs in terms of notification Nos. 78/2017-Customs dated 13.10.2017, after the issuance of notification No. 54/2018 Central Tax dated 09.10.2018, would not be eligible to claim refund of Integrated tax paid on exports. However, exporters who are receiving capital goods under the EPCG scheme, either through import in terms of notification No. 79/2017-Customs dated 13.10. 2017 or through domestic procurement in terms of notification No. 48/2017-Central Tax, dated 18.10.2017, shall continue to be eligible to claim refund of Integrated tax paid on exports and would not be hit by the restrictions provided in sub-rule (10) of rule 96 of the CGST Rules.

Before we proceeds further, I would like to bring your attention that in rule 96(10) there is a restriction that if a person has received the supplies on which the benefit of Notification No 48/2017(CT) has been availed i.e., if goods were imported against advance authorisation, then such person would not be eligible for refund of IGST paid at the time of export. As we know that importer can save such BCD and/or IGST & compensation cess payable at the time of import by obtaining an advance authorisation given under chapter-4 of foreign trade policy (FTP) 2023. Hence the doubts/ambiguities were arised that if at the time of import the importer has saved only BCD amount but IGST & compensation cess has been paid to the government , then restrictions of Rule 96(10) would apply or not. To resolve such ambiguities, an amendment has been made by inserting an explanation to Rule 96(10) of CGST Rules, 2017(with retrospective effect from 23.10.2017). The said explanation is reproduced below;
“Explanation.- For the purpose of this sub-rule, the benefit of the notifications mentioned therein shall not be considered to have been availed only where the registered person has paid Integrated Goods and Services Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications”.
As per the said explanation it is clear that if at the time of import a person has availed the exemption of only BCD (not of IGST & compensation cess), then there would be no such restriction regarding the claim of refund of IGST paid at the time of export. Based on the said explanation, the Hon’ble Gujarat High Court in Cosmo Films Limited Vs. UOI [2020(10)LCX0092] has allowed for paying back the IGST portion for absolving Rule 96(10) implication. Relevant extracts of said judgement are as follows;
"By virtue of the above amendment, the option of claiming refund under option as per clause (b) is not restricted to the Exporters who only avails BCD exemption and pays IGST on the raw materials thereby exporters who want to claim refund under second option can switch over now".

Such decision of Hon'ble Gujarat High Court has been taken up with Hon’ble Supreme Court and the Hon’ble Supreme Court in the case of Union of India and others v.s Cosmo Films Limited [2023(04)LCX0010] has directed the revenue to issue circular relating to mandatory fulfillment of pre-import condition incorporated in Para 4.1.4 of FTP 2015-20.

Adhering to Hon’ble Supreme Court decision and direction, a circular no.16/2023-customs dated 07.06.2023 has been issued. It is pertinent to note that the said circular clearly states that the assessee need to pay IGST alongwith interest on the bill of entries on which IGST has not been paid and the refund has been availed at the time of export.

In nutshell, it can be concluded that as per rule 96(10) of CGST Rules 2017 the registered person would not be eligible to claim the refund of export done on payment of integrated tax if he has purchased the goods as a merchant exporter or where the goods are purchased by a registered person being a 100% EOU/ holder of AA License. Accordingly, in all the such cases the export must be done only on LUT basis, otherwise the refund of IGST paid at the time of export would not be eligible.

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.