Exporters move Gujarat, Delhi High Courts over control on IGST refunds

An amendment was carried out in CGST Act in January to insert the sub-section 10 in Rule 96 to disallow exporters from taking refund of IGST paid on exports with retrospective effect of October, 2017

Exporters have approached the Gujarat and Delhi high courts against an amendment carried out earlier this year in the goods and services tax (GST) laws to deny to Integrated GST refund facility to those who have claimed customs duty benefits under the advance authorisation licences.
 
An advance authorisation licence is issued to allow duty-free import of inputs, which are physically incorporated in export products.
 
An amendment was carried out in the Central GST (CGST) Act in January to insert the sub-section 10 in Rule 96 to disallow exporters from taking refund of integrated GST paid on exports with retrospective effect of October, 2017.

 
After exporters filed petitions earlier, the government again amended the rule this month, taking out the retrospective effect tax provision, but retained the amendment in the ongoing cases. As such, exporters are again in court.
 
Exporters claim refund of input tax credit in one of the two ways. First, they can opt for a refund system where they apply for input tax credit after exports are made. Second, they can also opt for refunds after paying IGST. It is the second route, technically called the rebate option, which has been denied to exporters, if they claim benefits of advance authorisation.
 
Abhishek Rastogi, a counsel for petitioners and partner at Khaitan & Co, said, “The rule curtails the rebate option for exporters and create substantial hardship on an arbitrary basis.”
 
He said while retrospective applicability has been diluted by the notification earlier this month, there may be an impact during the period when the effect was retrospective. As such, exporters have also challenged the notification issued this month, he said.
 
Benefits under advance authorisation can be taken in two ways. One, goods, which go into exports, are imported tax-free altogether. The other is that persons supplying goods to advance authorisation licence holder is taken as deemed exporter and tax benefits are availed of.
 

Persons availing these benefits are denied the option of getting a rebate on IGST paid on exports. On why exporters choose the option of paying IGST and then getting refund and not directly opt for input tax credit, Ajay Sahai, director general and CEO of the Federation of Indian Export Organisations (FIEO), attributed this to a mess in the input tax credit (ITC) refund process.
 
He said roughly 40 per cent of those filing for ITC refunds online are not able to file manually later, which is required to get refunds. On the other hand, system in IGST refunds is much more efficient.
 
Also, ITC refunds are not shipment-wise but done once in three months. Even if you have documents for one or two shipments misplaced, you would not get the refunds in case of ITC. But refunds on IGST are shipment-wise, so if an exporter don't get refunds for those shipments, for which documents are misplaced, he would get it for other shipments.
 
“Why should exporters be forced to opt for less efficient system of refunds,” Sahai asked.
 
FIEO had earlier claimed that ITC refunds worth Rs 150 billion and at least Rs 80 billion of IGST refunds are stuck with the government.
 
The finance ministry had rejected these claims as exaggerated and inaccurate, saying a large number of exporters have been granted refunds so far while a few claims are still pending owing to deficiencies found in the claims.

 

Setting claims

• About 92.68 per cent or Rs 388.24 billion of the total IGST refund claims of Rs 418.89 billion has been disposed, the finance ministry said 
• In case of input tax credit refunds, the pending claims stood at Rs 20.77 billion 
• FIEO had claimed that input tax credit refunds worth Rs 150 billion and at least Rs 80 billion of IGST refunds are stuck with the government