Last month, the government amended Rules 89 and 96 of the Central Goods and Services Tax (CGST) Rules, 2017, through notification 3/2018-GST dated January 23, 2018. Many exporters are yet to fully comprehend the implications.
The amendment says those claiming refund of the integrated tax (IGST) paid on export of goods or services should not have received supplies on which the supplier has availed of the benefit of the notifications (i) 48/2017-Central Tax dated October 18, 2017 (refund of tax paid on deemed export) (ii) 40/2017-Central Tax (Rate) or 41/2017-Integrated Tax (Rate), both dated October 23, 2017 (supply to merchant exporter at 0.1 per cent tax) (iii) 79/2017-Cus dated October 13, 2017 (generally, supplier has imported his inputs under advance authorisation or his capital goods under EPCG authorisation without payment of IGST and/or compensation cess); (iv) 78/2017-Cus dated October 13, 2017 (supplier is an Export Oriented Unit (EOU) which has imported any goods without payment of IGST and/or compensation cess).
It means that in these cases, an exporter or supplier to Special Economic Zones (SEZ) may export/supply the goods/services only without payment of IGST. However, refund of unutilised credit can be claimed in such cases. So, exporters wanting to ship on payment of IGST must guard themselves by first getting a declaration from their suppliers that they are not availing of the benefit of these notifications.
They must also note a few more points. Merchant exporters procuring goods at 0.1 per cent GST must export without payment of IGST. On deemed export, the refund of GST paid on deemed export can be claimed by supplier or recipient. The stipulation that the exporter must export without IGST payment applies only in cases where the GST refund on deemed export is claimed by the supplier and not when the recipient claims the refund.
Exporters must avoid procurement from EOUs because the latter import all their requirements of raw materials, capital goods, consumables, etc, without payment of IGST or compensation cess under notification 52/2003-Cus dated March 31, 2003, as amended by notification 78/2017-Cus dated October 13, 2017. Similarly, EOUs mostly procure all their requirement of raw materials, capital goods, consumables, etc, under the deemed export provisions. The amendment says if such an EOU supplies its finished goods to any exporter even on payment of GST and the latter uses these as his inputs for manufacturing the export product, the exporter must export without GST payment.
Many domestic manufacturers obtain EPCG authorisation. If they import their capital goods without IGST payment or procure these under deemed export, they cannot fulfil the export obligation through the latter route. However, there is no bar on their supplying finished products to exporters, by taking or not taking the deemed export benefits. If the exporter uses these as his inputs for manufacturing the export product, he is barred from exporting on payment of IGST under refund claim.
Advance authorisation holders may procure their inputs from domestic suppliers under deemed export provisions by obtaining invalidation letters from those issuing the authorisation. The domestic supplier may obtain advance intermediate authorisation but if such an entity imports the inputs without IGST payment, he or it cannot discharge the export obligation by making supplies to the advance authorisation holder. Nevertheless, if having done so, the advance authorisation holder must export without IGST payment.
In sum, exporters must be careful before exporting on IGST payment.