Notifications on GST exemptions puzzle exporters

The Department of Revenue Intelligence (DRI) has sent notices to a number of advance authorisation (AA) holders alleging irregular availment of exemption of Integrated Goods and Services Tax (IGST) on their inputs imported under AA as well as refund of IGST paid on their export products and asking them to regularise the matter by making payment of IGST on their inputs.  

When the GST was introduced on July 1, 2017, the exporters were allowed to import under AA for physical exports on payment of IGST and export without payment of IGST under legal undertaking or on payment of IGST and claim refund of the same. On October 23, 2017, such imports under AA were allowed without IGST payment.

On January 23, 2018, the exporters were barred from exporting on payment of IGST under refund claim if the supplier to the AA holder availed IGST exemption on his imports under his AA. Since the restriction applied to suppliers, the exporters continued to avail IGST exemption on import of their inputs under AA and exported their finished products on payment of IGST under refund claim.

On September 4, 2018, the exporters were barred from exporting on payment of IGST under refund claim with retrospective effect from October 23, 2017, if they, as AA holders, availed IGST exemption on their imports under AA.

On October 9, 2018, two notifications were issued – one, with retrospective effect from October 23, 2017, barring exporters from claiming refund of IGST paid on export goods if the supplier to the AA holder availed IGST exemption on his imports under his AA; and the other, with prospective effect, barring exporters from claiming refund of IGST paid on export goods if they, as AA holders, availed IGST exemption on their imports under AA. On March 23, 2020, an explanation was added, with retrospective effect from October 23, 2017.

That is a summary of the relevant points in the messy and poorly drafted notifications that dealt with GST exemptions/refunds on inputs/export product under other schemes also.

Meanwhile, the Gujarat High Court, in the case of Cosmo Films (SCA No. 15833 of 2018), upheld the restrictions with retrospective effect and said the exporters who availed the refund of IGST paid on export product may regularise by paying the IGST exempted on imports along with interest. The DRI latched on to that judgment and sent its notices.

The exporters are bewildered that their legal actions have become illegal through retrospective amendments that have brought in fresh liability. Quite a few are not sure whether they can take input tax credit (ITC) of the IGST on the inputs, if they make payment now. Many are not clear whether they can pay IGST through challan or reassessed bill of entry. 

Most cannot understand why this restriction is brought in at all, when they are only utilising the ITC to pay IGST on export product that they can anyway utilise for payment of GST on domestic sales. They feel it is only a cash flow issue that is revenue neutral, where no double benefit accrues. Some see no justification for demands to pay IGST on inputs and are contemplating litigations.

Overall, there is widespread resentment against the government on this matter. The finance minister should personally take cognisance of the issue and find a judicious solution. 

Email : tncrajagopalan@gmail.com