Kudos to CBIC for dropping difficult CGST Rules, reducing compliance burden

In a welcome move, the Goods and Services Tax (GST) Council has decided to omit Rule 96(10), Rule 89(4A) and Rule 89(4B) from the Central GST (CGST) Rules, 2017, with prospective effect. It is a remarkable step that will enable the exporters to liquidate their accumulated input tax credit (ITC) over a period of time and also make it much easier to get refunds of unutilised ITC on account of exports without payment of Integrated GST (IGST).  

Rule 96(10) of the CGST Rules, 2017, says that in case an exporter had imported his inputs without IGST payment or taken refund of the GST paid on his inputs procured from domestic sources under deemed exports or procured his export goods on payment of 0.1 per cent GST, then he should not export his goods on payment of IGST under refund claim.  Broadly, the concept is ‘no or nominal GST on inward supplies, then no GST on outward supplies’. The idea behind the restriction is to prevent an exporter from utilising his accumulated ITC for payment of IGST that could be claimed as refund, in situations where he procured his inputs or export goods without full GST payment. It is this restriction that the GST Council has decided to do away with but this removal of restriction will operate with prospective effect because actions against many exporters have already been taken for violation of these restrictions and there is no point in reopening such cases through a retrospective amendment.

Anyway, going forward, it is a great relief for exporters who can now get their inward supplies without full GST payment and utilise their accumulated ITC to pay full IGST on the export goods and claim a refund of the same. The exporters can thus convert their idle ITC balances into cash, vastly improving their cash flows. In cases where violation has already taken place, the exporters need not pay IGST on the export goods as demanded by some field formations but may regularise by making payment of IGST on the imported inputs along with interest, as recommended by the GST Council and clarified through the Central Board of Indirect Taxes and Customs (CBIC) Circular no.233/27/2024-GST dated September 10, 2024.

When goods are exported without IGST payment under bond or letter of undertaking, the ITC of GST paid on related inputs and input services remains unutilised. Rule 89(4) allows refund of such unutilised ITC through a prescribed formula. Rules 89(4A) and 89(4B) were introduced, quite unnecessarily, allowing refund of unutilised ITC of GST paid on inputs and input services in situations when any of the other inputs or export goods were procured without or 0.1 per cent GST payment.  It created its own problems as detailed in my article titled ‘CGST Rule 89(4) or 89(4B)? Refund issue can snowball into major problem’ in this newspaper dated July 16, 2023’ (https://www.business-standard.com/opinion/columns/cgst-rule-89-4-or-89-4b-refund-issue-can-snowball-into-major-problem-123071600648_1.html). The GST Council has now decided to get rid of these rules, with prospective effect. The exporters can henceforth claim refund of such unutilised ITC as per the formula prescribed in Rule 89(4) of the CGST Rules, 2017. It is a huge relief for the exporters. However, pending litigation will go on.

The CBIC has shown rare generosity and therefore, deserves generous praise for the above-mentioned amendments to the CGST Rules, 2017.  

Email : tncrajagopalan@gmail.com