Clarification on Regularization of IGST Refund for Exporters: IGST Refund On Export

In a recent update dated September 10, 2024, the Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 233/27/2024-GST, providing crucial clarifications regarding the regularization of Integrated Goods and Services Tax (IGST) refunds for exporters. This circular addresses issues surrounding the refund of IGST paid on exports in cases where inputs were imported without payment of IGST and compensation cess. Here’s a detailed breakdown of the key points and implications of this circular:

Background

Under Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, 2017, a bar exists on claiming a refund of IGST paid on the export of goods or services if the exporter has availed benefits of certain concessional or exemption notifications on inputs/raw materials. This has led to queries from field formations and trade/industry on whether such refunds can be regularized if IGST and compensation cess are paid later, along with interest.

Key Clarifications Provided

1. Retrospective Amendment (Notification No. 16/2020-CT):
   • An Explanation was added to Rule 96(10) via Notification No. 16/2020-CT dated March 23, 2020. This Explanation, effective retrospectively from October 23, 2017, states:
     • “For the purpose of this sub-rule, the benefit of the notifications mentioned therein shall not be considered to have been availed only where the registered person has paid Integrated Goods and Services Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications.”
2. Implications of the Explanation:
   • The Explanation clarifies that if the benefits of the exemption notifications were not availed concerning IGST and compensation cess, it is deemed that the benefits were not availed for the purposes of Rule 96(10). This implies that if IGST and compensation cess are paid at a later date along with interest, it can be considered that the benefits of the notifications have not been availed. Consequently, the refund of IGST claimed on exports made with IGST payment may not be viewed as contravening Rule 96(10).
3. Regularization of Refunds:
   • The Circular clarifies that if inputs were initially imported without payment of IGST and compensation cess, availing benefits under Notification No. 78/2017-Customs or Notification No. 79/2017-Customs, but IGST and compensation cess are later paid along with interest, the Bill of Entry should be reassessed by the Customs authorities. In such cases, the IGST refund on exports will not be considered a contravention of Rule 96(10).

Action Points for Exporters

• Reassessment and Payment: Ensure that any outstanding IGST and compensation cess on imported inputs are paid, along with applicable interest. Reassess the Bill of Entry through the Customs authorities to reflect these payments.
• Refund Claims: Exporters can proceed to claim IGST refunds on exports, provided the revised compliance is in place and the payment of IGST and compensation cess has been duly made.

Conclusion

This circular provides much-needed clarity on the process for regularizing IGST refunds in specific scenarios where initial importation of inputs was done without payment of IGST and compensation cess. Exporters should ensure compliance with these updated guidelines to facilitate smooth processing of their refund claims.

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Practical Example: Regularizing IGST Refund for Exporters

Company XYZ is an exporter of textiles. The company imported raw materials under Notification No. 78/2017-Customs, which provides exemptions from Basic Customs Duty (BCD). However, at the time of import, Company XYZ did not pay Integrated Goods and Services Tax (IGST) and Compensation Cess because it availed the exemption notifications.

Steps Involved:

1. Initial Importation:
   • Date: January 2023
   • Raw materials imported under Notification No. 78/2017-Customs
   • IGST and Compensation Cess were not paid at the time of import.
2. Export Transaction:
   • Date: March 2024
   • Company XYZ exports finished textiles and claims a refund of IGST paid on the exported goods.
3. Issue Raised:
   • The refund claim is initially challenged due to the initial non-payment of IGST and Compensation Cess on the imported raw materials, as per Rule 96(10) of the CGST Rules.
4. Rectification:
   • Following the guidance in Circular No. 233/27/2024-GST, Company XYZ decides to regularize the situation:
     • Payment of IGST and Compensation Cess: In September 2024, Company XYZ pays the IGST and Compensation Cess on the imported raw materials, including interest.
     • Reassessment of Bill of Entry: Company XYZ requests the Customs authorities to reassess the Bill of Entry to reflect the payment of IGST and Compensation Cess.
5. Refund Claim Processed:
   • With the reassessed Bill of Entry and proof of payment of IGST and Compensation Cess, Company XYZ resubmits the refund claim for IGST paid on the exported textiles.
   • According to the circular, since the IGST and Compensation Cess have been paid, and the reassessment is completed, the refund claim is processed and approved.

Outcome:

• Refund Received: Company XYZ receives the refund of IGST on the exported textiles, as the payments and documentation are in compliance with the updated regulations outlined in the circular.

Key Takeaways:

• Timely Rectification: The company’s proactive steps in paying the outstanding taxes and reassessing the Bill of Entry helped in regularizing their refund claim.
• Compliance: Adhering to the clarifications provided in the circular ensured that the refund was processed without contravening Rule 96(10).