While we are celebrating completion of 6 years of implementation of GST and GST Council is sincerely feeling to resolve the issues. Still, exporters are struggling due to delay in refund or lock up of funds on account of accumulated input tax credit due to exports.
In the year 2017-18, we have seen number of times changes in the provisions relating to refund in CGST Rules 2017 and if you recall 3 times notifications were issued changing the stand for granting the refund and all the changes were having retrospective effect from 23rd Oct 2017 and therefore, each exporter has to go through litigation on account of different stand taken during 23rd Oct 2017 to 9th Oct 2018.
The issues are required more clarifications and simple solutions are provided below:
- Refund of tax paid on exports under the claim of refund:
Finally, only those exporters who had not claimed exemption of IGST under EOU Scheme or Advance Authorization Scheme, were given the option by Hon high Court decision upheld by Supreme Court in the case of M/s Cosmo Films Limited to pay IGST alongwith interest after getting re-assessment of such bill of entries and not to refund the amount of IGST paid on exported goods or pay back refund already granted alongwith the interest. Detailed procedure of payment of IGST is given in the Circular No. 16/2023 Cus dtd 07.06.2023.
The demand of refund already granted are being raised on the exporters who are EOU or Advance Authorization Holder, who have availed the IGST exemption. Similarly, demands are getting raised, who has been granted refund, who has received the goods against advance release order and claimed the benefit of Notification No. 48/2017 C Tax dtd 18th October 2017.
Even as on date EOU and Advance Authorization holder, who has claimed the benefit of IGST exemption have to file refund claim of accumulated input tax credit under Rule 89(4B), for which, no specific clarification has been issued.
a. Amendment to Rule 89(4B) was made vide following notifications and all were with retrospective effect i.e. 23.10.2017.
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- Notification No. 75/2017 Central Tax dtd 29thDecember, 2017 w.e.f. 23rd Oct 2017
- Notification No. 3/2018 Centra Tax dtd 23.01.2018 effective from 23.10.2017
- Notification No. 54/2018 Centra Tax dtd 09.10.2018 effective from 23.10.2017
b. GSTN portal do not provide any process of application for applying the refund under Rule 89(4B) i.e. exports made by EOU unit, Advance Authorization Holders, since Rule 89(4B) provides to granting the refund equal to ITC on input & input services used in export product i.e. on consumption base. However, no provision on GSTN portal has been made to that extent. Further, department have not notified any process of making the application as well as process of granting the refund after verification by Jurisdictional GST Officer.
c. Section 54 of GST Act 2017 allows the refund and Rule 89(4B) cannot override the provisions of Section 54.
In terms of provisions of Section 54 of the CGST Act 2017 which is reproduced below, the refund of accumulated of input tax credit on account of exports needs to be granted and accordingly rules are getting formed along with specific provision to file online refund claim on GST portal.
Section 54. Refund of Tax-
(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:
(2) ———————–
(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:
Provided that no refund of unutilised input tax credit shall be allowed in cases other than-
(i) zero rated supplies made without payment of tax;
(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:
Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:
Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.
Exporter who are exporting the goods or services or supplying goods & services to SEZ without payment of duty under LUT / Bond have no other option but to apply refund of accumulated credit. Rule 89 has been inserted for providing the procedures for availing the refund of accumulated input tax credit in various situations and also provides the procedure for obtaining the refund of electronic cash ledger in terms of provisions in Section 54 of CGST Act 2017 and accordingly, following rules are inserted and amended from time to time and that too with retrospective effect:
| Rule | Application of the rule | Remark |
| Rule 89(1) | Refund of any balance in the electronic cash ledger, and excess tax paid, etc, refund of duty paid for supply to SEZ, | Refund to be filed in FORM GST RFD-01 electronically on GST Portal by choosing the category of refund as “Refund of Excess Balance in Electronic Cash Ledger” or “Excess payment of Tax” or “Refund on account of Supplies to SEZ unit/ SEZ Developer (with payment of tax)” or through Facilitation centre notified by the Government. |
| Rule 89(1A) | Tax paid wrongly on account of determination of inter-state supply and intra state supply and vice-versa | Refund to be filed in FORM GST RFD-01 electronically on GST Portal choosing the category of refund as “Tax paid on intra-state supply which is subsequently held to be inter-states supply and vice-versa” or through Facilitation centre notified by the Government. |
| Rule 89(2) | Documentary evidence for Rule 89(1) and 89(1A) | Detailed procedure of providing the database while filing the refund claim under FORM GST RFD-01 has been specified. |
| Rule 89(3) | Provision relating to the debit to be made to the electronic credit ledger for refund applied under rule 89 | ——— |
| Rule 89(4) | Refund of accumulated input tax credit on account of supply of zero-rated goods and services or both under LUT/bond without payment of tax | To obtain the refund, a formula and procedure is prescribed and further the explanation has been produced to provide the definition and methodology to calculate the quantum of adjusted turnover, Net ITC, Turnover of zero-rated supply of goods, Turnover of zero-rated supply of services, etc, etc
Refund to be filed in FORM GST RFD-01 electronically on GST Portal choosing the category of refund as “Refund of ITC on Export of Goods & Services without Payment of Tax” or “On account of supplies made to SEZ unit/ SEZ developer (without payment of tax)” or through Facilitation centre notified by the Government. |
| Rule 89(4A) | Refund of input tax credit to such persons who has availed the benefit under notification No. 48/2017-Central Tax dated the 18th October, 2017 i.e, supplier/recipient applying for refund against supply to EOU/Advance authorisation holder, EPCG authorisation holder. | Refund to be filed in FORM GST RFD-01 electronically on GST Portal choosing the category of refund as “On account of Refund by Recipient/supplier of deemed export” or through Facilitation centre notified by the Government. |
| Rule 89(4B)(a) | Refund of accumulated input tax credit to such persons who has availed the benefit under notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017 or notification No. 41/2017 Integrated Tax (Rate), dated the 23rd October, 2017 i.e, supply to the merchant exporters receiving the goods at concessional rate of duty @ 0.1% of the tax rate. | Refund to be filed in FORM GST RFD-01 electronically on GST Portal choosing the category of refund as “NO category has been specified on the GSTN portal” or through Facilitation centre notified by the Government. |
| Rule 89(4B)(b) | Refund of accumulated input tax credit by the exporter who has exported the goods without payment of tax but availed the benefit IGST Exemption on import of goods under EOU Scheme/ Advance authorisation Scheme under Notification No. 78/2017-Customs, dated the 13th October, 2017 or notification no. 79/2017-Customs, dated the 13th October, 2017 i.e, exporter (EOU /Advance authorisation holder) who has procured the inputs claiming IGST exemption on imports. | Refund to be filed in FORM GST RFD-01 electronically on GST Portal choosing the category of refund as “NO category has been specified on the GSTN portal” or through Facilitation centre notified by the Government. |
| Rule 89(5) | Refund of accumulated input tax credit on account on inverted duty structure | Refund to be filed in FORM GST RFD-01 electronically on GST Portal choosing the category of refund as “Refund on account of ITC accumulated due to Inverted Tax Structure” |
| Rule 96(9) | Refund of tax paid on Services supplied on payment of Tax under the claim of refund | Refund to be filed in FORM GST RFD-01 electronically on GST Portal choosing the category of refund as “Export of services with payment of tax” |
| Rule 96(10) | Refund of tax paid on goods exported out of India to the recipient out of India | Automatic refund through ICEGATE Portal and directly credited to the bank of the supplier. |
It is important to note that there that the refund claim has to be filed online on the GST portal and can be claimed by submitting an application as per the prescribed procedures under the CGST Rules and as per the Rules the refund claim shall be filed online in FORM GST RFD-01. Respondent submits that while applying for any refund application, the following options are available and appear on the GST portal:
Considering all the provisions, it is too difficult task of obtaining the refund for the exporters, who are availing IGST exemption on imports under either Advance Authorization Scheme or EOU Scheme or procuring the indigenous inputs against advance release order / invalidation letter and also exporting against drawback shipping bill or supplying to SEZ will have to file following refund claims in sequential order for one period:
| 1 | Exports made under Advance Authorisation | Rule 89(4B) | Specific calculation as per batch manufacturing record |
| 2 | Supply to SEZ without payment of duty under the fulfilment of Export obligation towards advance authorisation | Rule 89(4B) | Specific calculation as per batch manufacturing record |
| 3 | Exports made using invalidation letter for procurement of indigenous goods and claiming fulfilment of export obligation under Advance Authorisation | Rule 89(4A) | Specific calculation as per batch manufacturing record |
| 4 | Supply to SEZ using invalidation letter for procurement of indigenous goods and claiming fulfilment of export obligation under Advance Authorisation | Rule 89(4A) | Specific calculation as per batch manufacturing record |
| 5 | Supply to SEZ without payment of duty against duty drawback or free shipping bill | Rule 89(4) | |
| 6 | Exports made under duty drawback shipping bill or free shipping bill | Rule 89(4) | As per Formula covering all the inputs and input services excluding refund claim under Sr No 1 to 5 above |
| 7 | Inverted Duty Refund, if applicable | Rule 89(5) | Excluding export turnover |
Therefore, it is advisable to withdraw the IGST exemption granted to the EOU or Advance Authorization Holders for importing inputs.
Further, even though it has been stated in the rule notified corresponding to the Section 54 of the Act that refund has to be applied on the GSTN portal electronically or through facilitation centre notified by the Commissioner there is no specific provision or tab provided on the GST portal and further no specific circulars have been issued for the benefit of trade and industry and field formation. Respected jurisdictional officer has correctly granted the refund claim under the provisions of Section 54 of the Act inspite of issuing various Board Circulars for clarifying the issues relating to refund, but still the said problem is un-resolved.
- Board Circular No. 125/44/2019-GST, dated 18-11-2019
- Board Circular No. 135/05/2020-GST dated 31-03-2020,
- Board Circular No. 134/04/2020-GST dated 23-03-2020
- Board Circular No. 147/03/2021-GST dated 12-03-2022,
- Board Circular No. 3/2022-GST (Instruction) dated 14-06-2022
- Board Circular No. 197/09/2023- GST dtd 17-07-2023
It is proposed to provide simple format under Rule 4B, so as to enable exporters to file the refund claim and there will be no interface with the tax officials. Otherwise, refund can be granted under Rule 89(4) of CGST Rules 2017. In any case, govt is not the loser and they are refunding the amount on account of accumulation of input tax credit against export goods supplied without payment of duty.
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