Rule 96(10) - Where is the horizon!

[Navjot Singh]

Exodium

It's not the first time, we are giving much importance to the Rule, meant for Safeguard is now troubling the exporters at large.

The provision contained in Rule 96(10) has been mattering of discussion since its introduction vide Notification no. 3/2018-Central Tax dated 23.01.2018. The language of Rule 96(10) has been changed various times.

Now, the retrospective amendment is the right of parliament, but have a look at the GST Council's 30th Meeting, wherein it was advised not to re-open the scrutiny of the already sanctioned refunds but to bring the prospective amendment.

Now, the government has done exactly the opposite vide bringing Notification 16/2020 dated 23rd March 2020 retrospectively, then matter further fueled by the Cosmo Films (Guj HC) Judgement.

Few of the exporters have forgone their IGST Exemption with interest, few of them are paying back the refund received through automatic route with interest, and the rest of them are in a queue of litigation wherein they have challenged this vague and ultra vires rule. Also, this is being observed by me that, different stands are being taken by different Customs, GST Intelligence, DRI & GST Audit wing commissionerates, which makes the whole situation more cumbersome. The only common statement is All they have to say is, "Please pay the duty with interest".

Not to our surprise, the CBIC has not intervened yet through any circular/instruction.

In my view, it's high time, there should be an advisory at least for the officers to deal with the issue with more clarity.

Background 
The aftermath of Cosmo Films Judgement by Gujarat High Court

• Rule 96 (10) as it originally existed, when the Rules came into force provided that the persons claiming refund of Integrated Tax (IGST) paid on export of goods or services should not have received supplies on which the supplier has availed the benefit from Government of India, Ministry of Finance.
• On conjoint readings of the provision of Section 16 of the IGST, 2017, Section 54 of CGST Act, 2017), and Rule 96(10) of CGST Rules, which is substituted by Impugned Notification, it is apparent that the person who has availed the benefits of Notification No. 48/2017- Central Tax dated October 18, 2017, and other Notifications as stated in sub-­rule 10 of Section 96 ibid shall not have the benefit of claiming refund of integrated tax paid on exports of goods or services.
• Vide Notification No. 16/2020-Central Tax dated March 23 2020 an amendment has been made by inserting an explanation to Rule 96(10) of CGST Rules, 2017 as amended (with retrospective effect from October 23, 2017). By virtue of which the option of claiming a refund is not restricted to the exporters who only avails BCD exemption and pay IGST on the raw materials thereby exporters who want to claim a refund under the second option can switch over now.
• The above amendment was made retrospectively thereby avoiding the anomaly during the intervention period and exporters who already claimed a refund under the second option need to pay back IGST along with interest and avail ITC, in view of which, the grievance of the Petitioner was therefore taken care of.
• However, it is also made clear that Impugned Notification is required to be made applicable w.e.f. October 23, 2017, and not prior thereto from the inception of Rule 96(10) of the CGST Rule. Therefore, in effect Notification No. 39/2018- Central Tax dated September 4, 2018, shall remain in force as amended by the Impugned Notification by substituting sub-­rule (10) of Rule 96 of CGST Rules, in consonance with sub-section (3) of Section 54 of the CGST Act and Section 16 of the IGST Act.
• Subsequently, the DGGI, DRI, and Audit Wing of GST sent multiple notices to Exporters asking for their details of Exports made under Advance Authorizations and verbally requesting them to pay 'IGST paid on Export (Which was refunded) to be paid back along with interest.

What to do now?

Now, Ideally assessee has three options:

Challenge the validity of Rule 96(10):-

• The restriction imposed by the Rule (Which in itself got amended multiple times) is an ultravirus rule.
• Further, vide clause 114 of the Finance Bill 2021, Section 16 of the Integrated Goods and Services Tax Act, 2017 got amended so as to make provisions for restricting the zero-rated supply on payment of integrated tax only to a specified class of taxpayers or specified supplies of goods or services.
• Now that makes it limpid that, there were no restrictions earlier for any specified category. Furthermore, the jurisprudence of 'Safeguard & Conditions' is there to stop the misuse or for availment of the dual benefit of the refund options. Through opting for the automatic route, there is no availment of dual benefits.

Payment of 'Exemption IGST':-

• Those who wish to regularize the issue can opt for making payment of 'Exempted IGST', as the assessee must have filed a bill of entry accordingly.
• Now, as per Section 2(62), wherein it is stated that “input tax” concerning a registered person, means the central tax, State tax, integrated tax, or Union territory tax charged on any supply of goods or services or both made to him and includes- (I) the integrated goods and services tax charged on import of goods.
• Further, as per Rule 36(1)(d), the Bill of Entry is the document for assessing the IGST paid on Imports.
• Now, an Amendment in the Bill of entry (As per Section 149 of the Customs Act, 1962) will be required, as the original Bill of entry was filed availing the benefit of AA.
• Now, if the see the amendment in Rule 96(10), vide Notification No. 16/2020­ CT dated March 23, 2020, an amendment has been made by inserting an explanation to Rule 96(10) of the CGST Rules, under which the option of claiming refund is not restricted to the Exporters who only avails BCD exemption and pays IGST on the raw materials.
• This option has been opted for by a lot of exporters, but the real challenge is, 'Amendment/Reassessment of Bill of Entry.'

Payback the IGST Refund availed during the impugned period:-

• Another option being pushed by the DGGI and Audit authorities is to make payment of 'Refund already claimed through automatic route'.

• Again the challenge through this route is an assurance of 'Input Tax Credit of the amount paid.
• In our view, it is not the case of 'Erroneous Refund', Hence no question of 'Interest'. Also, if the 2nd Option opts, same is governed through the Custom Provisions, Hence no levy of interest can be asked by GST Authorities on the same.

Our 2 Cents

• If the assessee wishes to challenge the matter, necessary for WRIT to be filed in jurisdictional High Court. There are already many writs pending in this matter in different high courts.
• Now, whether 'Payment of Exempted IGST at the time of Import' or 'Payback of the refund of IGST' to have opted, both have different ways to deal with and come up with certain conditions. Hence, a careful calculation of the data needed to be prepared.
• Please note that it has come to our notice that, the authorities are evaluating the 'Pre-Import' condition as well while opting for the 'Payback of Exempted IGST' option. Now, the issue of 'Pre-Import condition is a matter pending before the Hon'ble Supreme Court, which can be challenged in a suitable manner before authorities.
• Licenses for which redemption requests are pending in DGFT are also not closing the license without the regularization of the matter. Though, that is not the right approach but sharing the precedence for your information purpose.
• Those, who are not doing anything or have not provided any data with the authorities, are being advised to provide the same at the earliest to avoid any one-sided/arbitrary actions by the authorities.
• All we have is, Knowledge and understanding of the matter that there is no wrongdoing on the part of the 'Assessee', hence moving further with the same attitude.

Now the way forward should be,

• Opting for the suitable option
• Doing the calculation accordingly
• Follow up with authorities as per the option opted.
• Filing papers with DGFT for the redemption of Advance authorization. (If licence is open)

CA. Navjot Singh

Managing Partner

+91 9953357999/navjot.singh@taxtru.in