Illogical rules need review

When the Goods and Services Tax (GST) was introduced last July, no exemption/refund was available for export-related transactions, except for zero-rated supplies. In October 2017, supplies to merchant exporters were allowed on payment of 0.1 per cent tax [notifications 41/2017-IT (Rate) and 40/2017-CT (Rate)], refund of tax paid on deemed export allowed (notification 48/2017), import under advance authorisations and EPCG (Export Promotion Capital Goods) authorisations allowed without Integrated GST (IGST) payment (notification 79/2017-Cus) and import by Export-Oriented Units (EOU) allowed without IGST payment (notification 78/2017-Cus). These exemptions/ refunds were subject to certain conditions.

In January, Rule 96 (10) of the Central GST (CGST) Rules, 2017, was substituted and given retrospective effect from October 23, 2017. It denied refund of IGST paid on export goods if the supplier to the exporter had availed of the benefit of any of these notifications mentioned earlier. This restriction caused a lot of confusion and difficulty. So, the Central Board of Indirect Taxes and Customs (CBIC) has now issued a Circular (45/19/2018-GST, dated May 30) which clarifies some issues.

The circular is useful but does not go far enough. CBIC now says the said restriction does not apply to an exporter having procured goods from suppliers who have not availed of the benefits of the specified notifications. Further, not applicable to an exporter who has procured goods from suppliers who have, in turn, received goods from registered persons availing of the benefits of these notifications, since the exporter did not directly procure those goods without payment of tax or at a reduced rate of tax. Thus, the restriction under the said Rule 96 (10) is only applicable to exporters who are directly receiving goods from suppliers who are availing of the benefit under the said notifications. 

Further, there might be a scenario where a manufacturer could have imported capital goods by availing of the benefit of the said notifications 78/2017-Cus or 79/2017-Cus. Thereafter, goods manufactured from such capital goods might be supplied to an exporter. The said restriction does not apply to such inward supplies of an exporter, says CBIC. 

So, in export by a merchant exporter, if the supporting manufacturer who supplied the export goods avails of the benefits mentioned in any of the said notifications, then the merchant exporter cannot export on payment of IGST under refund claim; he can export only without payment of IGST. Similarly a manufacturer-exporter who receives any inputs from suppliers, uses these in the manufacture of finished products and exports these in his own name is not eligible for refund of IGST paid on export goods, if his supplier has availed of any benefits under the said notifications.

Despite the clarifications, anomalies persist at the ground level. CBIC’s intention to deny use of accumulated input tax credit for payment of IGST on export under a refund claim gets defeated if the manufacturer-exporter imports his inputs without IGST payment under advance authorisation, instead of procuring his inputs under deemed export from domestic sources. Also, a manufacturer can procure his inputs from domestic sources under deemed export and utilise the accumulated credit to supply to a merchant exporter on payment of GST and let him export on IGST payment under refund claim. The illogical Rule 96(10) of the CGST Rules, 2017, must be reviewed.