R
ule 96(10) was introduced in the
(CGST Rules) vide
and further amended vide
w.e.f. 9-10-2018. This Rule still haunts the exporters who are registered under GST law and claim refund under Section
of the
(CGST Act).Rule 96(10) of the , as it stands today, prohibits a “registered person” from exporting the taxable goods on payment of IGST and claiming refund of IGST paid, if—
the exporter-supplier has received the supplies on which the benefit of dated 18-10-2017, except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme or dated 23-10-2017, or dated 23-10-2017, has been availed by the supplier; or
the registered person has availed the benefit of dated 13-10-2017, or dated 13-10-2017, except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme, on the procurement of the goods or services.
The question arises for consideration is the extent of applicability of Rule 96(10). The reason for the above is that Rule 96(10) begins with the words “The persons claiming refund of integrated tax paid on exports of goods or services should not have.…”
To understand the above, let us take a simple example where an exporter-company has Goods and Services Tax (GST) registrations in Maharashtra and Rajasthan. One unit in Maharashtra i.e. Unit A, and Rajasthan i.e. Unit B, respectively. Both the units (Unit A and Unit B) are engaged in the supply of goods domestically as well as outside India. Unit A manufactures two products i.e. X and Y and Unit B manufactures product Z. Unit A imports the raw materials for manufacture of product X without payment of basic customs duty (BCD) and Integrated Goods and Services Tax (IGST) by availing the benefit of
. read with . i.e. under Advance Authorisation Scheme whereas product Y is manufactured wholly out of tax-paid raw materials and capital goods. Further, product Z manufactured at Unit B is also produced wholly out of tax-paid raw materials and capital goods.
The questions that arise are-
Whether Unit B will be hit by restriction placed under Rule 96(10) or not. In other words, will Unit B be allowed to export product Z on payment of IGST and claim refund under Section of the read with Rule 96 of the ?
Whether exports of product Y by Unit A will be hit by restriction placed under Rule 96(10) or not?
The term “registered person” is defined under Section of the (CGST Act) as a person who is registered under Section 25 but does not include a person having a unique identity number. Sections of the , making it abundantly clear that “each” registration of a person would be considered as a “distinct person”. Hence, one can contend that since “each” registration of a person would be considered as a “distinct registered person” under GST and consequently Unit B should not hit by restriction of Rule 96(10). The word “persons” appearing in Rule 96(10) has to be read in the said context.
Further, since the objective of restriction created by Rule 96(10) is to prevent drawing upon the input tax credit (ITC) of other domestic supplies and thus avail double benefit, the said restriction would not apply to Unit B, since Unit A and Unit B do not fall under the same Goods and Services Tax Identification Number (GSTIN). Accordingly, as the two units do not share the same ITC pool, there would not arise a situation where the exports made from Unit B (registered under Rajasthan GSTIN) on payment of IGST would draw upon the ITC balance of Unit A (registered under Maharashtra GSTIN).
As discussed, the purpose of Rule 96(10) is achieved if the refund pertaining to a particular export made from tax-free raw materials/capital goods imported/procured under specified notifications is not claimed under Rule 96 but under the provisions of Rule 89. When a registered person who imports/procures raw material without payment of GST under specified notification, pays IGST on exports under Rule 96 by utilising his ITC balance, he avails double benefit since the raw material used in making export goods was imported/procured tax-free and the ITC pertaining to other raw material not used in making export goods is claimed as refund when used for paying IGST on exports. However, when such person exports said goods without payment of IGST and claims refund of unutilised ITC as per Rule 89(4) or 89(4-A) or 89(4-B), as applicable, the objective of restricting double benefit to such exporter, is achieved.
Hence, in the aforementioned example, ideally speaking, the restriction of Rule 96(10) on export of products Y and Z manufactured at Unit A and Unit B respectively, using tax-paid raw materials/capital goods, should not apply.
However, the use of the words “The persons claiming refund of integrated tax paid on exports of goods or services should not have …” when read literally could mean that a registered person would be barred under Rule 96(10) of the from exporting goods on payment of IGST, as soon as the benefit of any of the specified notification has been availed.
The said interpretation is contrary to the intention and would result in punishing a “registered person” even when the registered person does not avail the double benefit of exporting on payment of IGST as well as importing without payment of GST. Such registered person who on a case-to-case basis chooses to import or procure goods availing the benefit of the exemption and in good faith also exports the finished goods thereof without payment of IGST, would be mandatorily required to export other finished goods without payment of IGST, even though the raw materials thereof were procured on payment of IGST.
In light of the above, the GST Council and Central Board of Indirect Tax and Customs must take cognizance of the hardship faced by a law-abiding assesses in situations as illustrated above and take appropriate steps to provide clarity.
†Partner, LKS Attorneys,
††Principal Associate, LKS Attorneys
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