Gujarat HC clears air on rebate denial for exporter with Advance Authorisation licence

Shishir Sinha New Delhi | Updated on October 28, 2020

Says rebate denial operates prospectively with effect from October 23, 2017

The Gujarat High Court has cleared the air on rebate denial for exporters under the Advance Authorisation (AA) scheme.

In a recent ruling, a Division Bench of the High Court said rebate denial to AA holders operates prospectively with effect from October 23, 2017. Exporters who have already claimed refund during the intervening period (October 23, 2017 to date of amendment in the rule, September 4, 2018), will not be required to pay back IGST (Integrated Goods & Services Tax) along with interest and avail Input Tax Credit (ITC), it said.

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An AA is issued to allow duty-free import of inputs, which are physically incorporated in export products (making normal allowance for wastage). In addition, fuel, oil, energy, and catalysts which are consumed or utilised to produce export products may be allowed.

The petitioner in the matter, Cosmo Films, holds such an AA licence. With the help of this, it imported goods without payment of import duty in line with various notifications under GST laws issued by Central and State governments. The provisions with respect to export goods or services are contained under the IGST Act, 2017. Section 16 of this Act deals with export of goods and services and provides benefits which can be claimed either for supply without payment of IGST and claim refund of unutilised ITC at the end of the period (refund), or supply on payment of IGST and claim refund of such IGST paid (rebate).

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For the purpose of procedure for granting refund of IGST on exported goods and services, there is a mechanism provided under Rule 96 of the GST law. There is sub rule (10) of Rule 96 which provides for the exemption for AA licence holders importing goods from levy of custom duties and IGST.

The petitioner was entitled to import raw materials without payment of IGST under AA licences and pay IGST on exports and claim rebate (refund) of the IGST so paid on exports. The petitioner has received the benefits of rebate of IGST at the relevant point of time. Thereafter, sub-rule (10) was amended by a notification dated September 4, 2018 with retrospective effect from October 23, 2017, providing that rebate on exports cannot be availed by the petitioner if the inputs procured by the petitioner have enjoyed AA benefits or deemed export benefits under the said notification.

According to Abhishek Rastogi, lawyer for the petitioner, the amendment put Cosmo Films at a disadvantageous position as compared to regular exporters who are exporting goods without payment of IGST on the output side and at the same time claiming refund of input taxes, thereby effectively incurring no tax cost.

After hearing the arguments, the court took note of a February 2020 notification and explained that claiming refund is not restricted to the exporters who only avail basic custom duty exemption and pay IGST on the raw material. It can also be used by exporters who supply goods/services without payment of IGST and claim refund of unutilised input tax credit, it added.

“The amendment is made retrospectively, thereby avoiding the anomaly during the intervention period and exporters who already claimed refund under second option need to pay back IGST along with interest and avail ITC,” it said.

Published on October 28, 2020

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