Exim Matters: GST reforms overlook exporters' credit plight

Exporters seek a reassessment mechanism or explicit ITC eligibility for IGST paid through ICEGATE challans to regularise AA and EPCG defaults

The Goods and Services Tax (GST) council’s recommendations made last week are welcome, but much of what is presented as next-generation reform amounts to removing longstanding irritants and correcting restrictions that should not have been built into the system. Wider input tax credit (ITC) eligibility, easier registration, faster refunds, and less coercive enforcement will help businesses. Much of this is overdue correction rather than transformation. A lot depends on legal formulations and implementation. 

For exporters, obtaining ITC of integrated GST (IGST) paid through challans on the ICEGATE (Indian Customs Electronic Data Interchange Gateway) portal while regularising defaults under Advance Authorisation (AA) and Export Promotion Capital Goods (EPCG) schemes remains an unresolved issue. Here, the government gets the tax, but credit remains uncertain because the challan is not recognised as a document for taking ITC. When an AA holder fails to fulfil export obligation (EO), Para 4.49 of the Handbook of Procedures (HBP) allows regularisation by payment of customs duty on the value of unutilised imported or indigenously procured material under AA plus applicable interest. Paragraph 4.50 prescribes payment through the ICEGATE portal. For EPCG, paragraph 5.21 of HBP provides for payment of duties proportional to the EO shortfall. 

The difficulty arises where IGST is paid through a challan without reassessment of the original bill of entry. The additional payment is not automatically reflected in GSTR-2A or GSTR-2B statements. Rule 36(1)(d) of the CGST rules recognises a bill of entry or a similar document prescribed under customs law for assessment of import IGST, but not a payment challan. 

In the Becton Dickinson India Private Limited case, the Tamil Nadu advance ruling authority declined ITC against differential import IGST paid through challans following a valuation adjustment. The appellate authority upheld that conclusion on October 8, 2025. Although the case did not concern AA or EPCG default, it illustrates the documentary obstacle. Exporters claiming such ITC through GSTR-3B risk disputes over its admissibility. 

A solution, however, is possible. Following the Supreme Court’s judgment in Union of India versus Cosmo Films Limited, CBIC Circular 16/2023-Customs dated June 7, 2023, provided a bill of entry reassessment procedure for regularising violation of the pre-import condition under AA. There is no comparable general procedure for reassessment when other AA or EPCG defaults are regularised. Exporters need a similar workable mechanism or express recognition of challans as documents supporting credit. 

Domestic procurement exposes a further complication. An authorisation holder obtaining supplies against an invalidation letter has no bill of entry for those supplies. For EPCG, paragraph 5.21 expressly requires regularisation payments on notional Customs duties, taxes and cess saved on the Free On Rail value of supplies. A challan for such payment cannot refer to an underlying bill of entry because the procurement is from domestic sources. Here, the rules must clarify both the eligibility for credit of the IGST component and the document supporting that credit. 

Exporters want to pay and regularise defaults under AA and EPCG authorisations. They need certainty about credit for the IGST they pay. The Council should recommend a general bill of entry reassessment procedure or express provisions recognising ITC eligibility against IGST paid through challans generated through the ICEGATE portal. That would reduce disputes and make regularisation more predictable for exporters. A payment mechanism without credit certainty remains incomplete. Accepting the tax while leaving the credit in doubt is an anomaly that deserves correction.