Last Tuesday, the government amended Rule 96 (10) of the Central Goods and Services Tax
(CGST) Rules, 2017, retrospectively from October 23, 2017. This sent shock waves through the exporting community.
The amendment says export-oriented units (EOUs), advance authorisation holders (AAHs) and Export
Promotion Capital Goods (EPCG) authorisation holders which import their requirements without payment of Integrated GST (IGST) are not eligible for refund of the IGST paid on export
When GST was introduced, the government ignored pleas to retain upfront exemption from IGST on import by EOUs and under advance authorisation and EPCG authorisation. Instead, it mandated IGST payment on all such import. This blocked he precious working capital of exporters; with refund of IGST paid on export
goods also getting blocked due to glitches in the computer system, their situation became desperate.
Reacting to representations from exporters, the government granted IGST exemption on such import with effect from October 13, 2017. However, it also put the wholly unreasonable conditions of pre-import and physical shipment to fulfil the export
Then, this January, the government introduced a confusing restriction that refund of IGST would be denied if the supplier to an exporter had taken some benefits, including import, without IGST payment. Following this, a messy clarification in May said the restriction would not apply to capital goods.
Now comes the latest amendment to the said Rule 96 (10), followed by a clarification (Circular 59 of September 4, 2018) that the restriction on refund will apply not only to EOUs and import under advance authorisation but also where GST exemption has been availed of on import of capital goods under EPCG authorisation.
What does this mean? Simply that EOU, AAH and EPCG authorisation holders which import without IGST payment have no option but to export
without payment of IGST under a legal undertaking. They are to then claim refund of any unutilised credit manually, under Rule 89 of the said CGST
Rules, 2017. A process involving much paperwork, uncertainty, delay and corruption. Secondly they have to return all the refund granted till date of IGST paid on export
Third, if they prefer to forgo IGST exemption on import and take credit of the IGST paid, then they may continue to export
on payment of IGST under claim of refund under Rule 96.
The government says those directly purchasing or importing supplies, on which the benefit of reduced tax incidence or no tax incidence under certain specified notifications has been availed of, shall not be eligible for refund of IGST paid on export
of goods or services. Conceptually, it can justify its stand for import or domestic procurement of inputs but not for import under the EPCG scheme.
The draconian aspect is retrospective application of the change. From the exporter’s perspective, the present situation is worse than the pre-GST days. An additional anomaly is that this restriction is applicable for goods covered under GST but not for those subject to excise duty. In sum, the Union finance ministry
is piling on one problem after another on exporters.
It seems preoccupied with its own woes, without any attempt to understand the difficulties of exporters at the ground level. It is now for the Federation of Indian Export
Organisations to explain these difficulties to the ministry and persuade it to reverse such decisions.