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Refund amidst COVID crisis: Section 96B of CGST Act, 2017

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Refund amidst COVID crisis: Section 96B of CGST Act, 2017
By: Aporna Dasgupta
July 15, 2020
All Articles by: Aporna Dasgupta       View Profile
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As per section 16 of the Integrated Goods and Service Tax Act, 2017 (“IGST Act”), any zero rated does not fall under the purview of GST. As prescribed by the provision, a person can opt for either of the following:

  1. Make supply under Letter of Undertaking (LUT) bond, without payment of IGST. The unutilized ITC can be claimed by applying for a refund.
  2. Make supply by paying IGST and avail refund of the taxes paid.

Essentially, LUT is a document which in a way authenticates a said zero-rated transaction. This is one of the steps taken to restrict bogus supplies and refund claims based on bogus invoices. The validity of an LUT is of one financial year, after which a new LUT is to be applied for.

One of the conditions to be satisfied in order to enjoy the benefits of LUT is that the goods should leave the country within a period 3 months from the date of invoice and in case of services, proceeds from the supplies made are to be realized within a period one year.

The country has witnessed complete shutdown of almost all kinds of operations since the last week of March, 2020. Innumerable businesses had to face the wrath of complete standstill of operations and cash inflow since March. Due to various hindrances faced, the businesses failed to make the realizations within the prescribed time period. One may think that the new section has been inserted as a counterfeit to the situation.

Let us understand what it actually has to offer.

Rule 96B(1) in CGST Rule, 2017 by Notification No. 16/2020 – Central Tax dated 23.03.2020, which states:

Where any refund of unutilised input tax credit on account of export of goods or of integrated tax paid on export of goods has been paid to an applicant but the sale proceeds in respect of such export goods have not been realised, in full or in part, in India within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), including any extension of such period, the person to whom the refund has been made shall deposit the amount so refunded, to the extent of non-realisation of sale proceeds, along with applicable interest within thirty days of the expiry of the said period or, as the case may be, the extended period, failing which the amount refunded shall be recovered in accordance with the provisions of section 73 or 74 of the Act, as the case may be, as is applicable for recovery of erroneous refund, along with interest under section 50.

By virtue of this section, the time limit to realize export proceeds depends upon the limit prescribed in FEMA, 1999. Only upon non-compliance with timeline mentioned in FEMA, 1999 the given section would attract demands from the businesses.

On perusal we find that section 8 of FEMA, 1999 gives reference to the RBI Act, 1947 regarding the time limit to realize export proceeds.

Section 8 of Chapter II of FEMA, 1999-

Realization and repatriation of foreign exchange.-Save as otherwise provided in this Act,where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realise and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank.

In order to cushion the impact of COVID-19 on the economy as a whole, RBI has taken multiple steps, including extending the period for realization and repatriation of export proceeds as mentioned in press release- RBI/2019-20/206, A. P. (DIR Series) Circular No. 27 dated 01.04.2020.

The timeline which in normal course of business would have been 9 months has now been extended to 15 months from the date of export for all the exports made on or up to 31.07.2020:

It has, therefore, been decided, in consultation with Government of India, to increase the present period of realization and repatriation to India of the amount representing the full export value of goods or software or services exported, from nine months to fifteen months from the date of export, for the exports made up to or on July 31, 2020.

This goes to mean that Rule 96B instructs an exporter of goods to repay the amount that was refunded to him in proportion to the unrealized export proceeds within the given time (or extended) period allowed under the FEMA, 1999. Further, the rule also allows re-availment of credit of the amount, as and when export proceeds are realized, within the extension permitted by RBI or if RBI waives the requirement of realization altogether.

The question that arises here is does the department have the authority to link a legitimate refund claim on account of export of goods to its respective realizations?

Studying the definition of the term ‘export of goods’ as per section 2(5) of IGST Act, 2017, the only condition it lays is that there has to be a movement of goods from India to a place outside India. Further, as per rule 96A(1)(a), the time limit is with respect to goods being sent out from India. Nothing has been mentioned in relation to inward remittances from such exports.

Circular No. 37/11/2018-GST dated 15.03.2018 reconfirmed that inward remittance is not a pre-requisite to apply for refund of credit on account of export of goods. The same has been emphasized by para 48 of Circular No. 125/44/2019-GST dated 18.11.2019 which stated:

In case of export of goods, realization of consideration is not a pre-condition. In rule 89(2) of the CGST Rules, a statement containing the number and date of invoices and the relevant Bank Realization Certificates (BRC) or Foreign Inward Remittance Certificates (FIRC) is required in case of export of services whereas, in case of export of goods, a statement containing the number and date of shipping bills or bills of export and the number and the date of the relevant export invoices is required to be submitted along with the claim for refund. It is therefore clarified that insistence on proof of realization of export proceeds for processing of refund claims related to export of goods has not been envisaged in the law and should not be insisted upon.

The Rule 96B as we read is bringing in the element of export proceeds w.r.t not just services but also goods, which seems to be ultravires IGST Act, 2017.

Hence, in the light of the ongoing crisis where realizing proceeds have become as uncertain as life itself, complying with the yet another condition to file for a refund which is perhaps beyond the scope of the Act makes the whole event look like a utopian dream, which in reality may add to the number of litigations with regard to refund claims!


Aporna Dasgupta


By: Aporna Dasgupta - July 15, 2020


Discussions to this article


In the second last para of the article, is it Rule 96B?

By: Hema Muralidharan
Dated: 17/07/2020

Hi Hema,

It is supposed to be section and not rule. Oversight while proof reading.

By: Aporna Dasgupta
Dated: 17/07/2020

Sorry readers! 96B has been mentioned a section of CGST Act, 2017. However it is actually rule 96B of CGST Rules, 2017.

By: Aporna Dasgupta
Dated: 17/07/2020


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