05-May-2020 Recovery Of Refund Granted To Dealer

Whether the newly inserted Rule 96B relating Recovery of refund of unutilized input tax credit or integrated tax paid on export of goods where export proceeds are not realized within specified time limit is legitimate ?

Rule 96B has been inserted vide the Notification No.16/2020 Date 23.03.2020 laying out the provisions for recovery of refund granted to the applicant in respect of the unutilized input tax credit accumulated on account of export of goods or of the integrated tax paid on export of goods, wherein if the sale proceeds in respect of such exported goods have not been realised, in full or in part, in India within the period allowed under the Foreign Exchange Management Act, 1999, including any extension of such period, the person to whom the refund had been granted shall deposit the amount so refunded within 30 days of the expiry of the period allowed under the FEMA,1999.

Earlier as per the provisions of CGST rules, there was no requirement for the realization of sales proceeds related to export of goods, however with the issue of  “Notification No. 16/2020 – Central Tax” dated 23rd March 2020, the provisions of The Foreign Exchange Management Act,1999 have become applicable for the realization of proceeds from the Export of goods to prevent a unwarranted refund of Input tax credit granted on account of export of goods or the integrated tax paid on the export of such goods.

Where a refund has already been granted on export of goods but the export proceeds are not realized within time period allowed under FEMA, 1999, and such refund received by the exporter is not deposited into Government treasury within the above mentioned period of 30 days, the amount so refunded shall be recovered in accordance with the provisions of section 73 or 74 of the Act, as the case may be, as is applicable for recovery of erroneous refund, along with interest under section 50.

Further the amount of refund earlier granted shall be deposited only to the extent of non-realisation of sale proceeds i.e in case of part realization of sales proceeds, the amount of refund to be repaid shall be restricted to the proportionate amount of refund in respect of which export proceeds have not been realized.

However, where sale proceeds, or any part thereof, in respect of such export goods are not realised by the applicant within the period allowed under the FEMA, 1999 (42 of 1999), but the RBI writes off the requirement of realisation of sale proceeds on merits, the refund paid to the applicant shall not be recovered.

Thus from the provisions of the above rule we can infer that the rule is applicable to both, refunds granted on account of export of goods with payment of tax and without payment of tax under LUT. Further the period for realization of export proceeds is to be determined in accordance with the provision of the FEMA,1999 and the guidelines issued by the Reserve Bank of  India.

Further, if the sale proceeds are realised by the applicant, in full or part, after the amount of refund has been recovered from him and the applicant produces evidence about such realisation within a period of three months from the date of realisation of sale proceeds, the amount so recovered shall be refunded by the proper officer, to the applicant to the extent of realisation of sale proceeds. However the sale proceeds have to be realised within such extended period as permitted by the Reserve Bank of India in order to claim the refund of the amount so recovered/deposited as per Rule 96B(1).

The question that arises here is whether the government is correct as per the provisions of the CGST Act and IGST Act on imposing such conditions/restrictions on the amount of refund claimed in respect of export of goods.

In order to further deliberate the above question it is important to analyze the difference in the definitions and the whole process laid down for exporting goods & services and claiming refund in respect thereof. The definition of export of services under section 2(6) of the IGST Act, 2017 requires receipt of consideration in convertible foreign exchange, as a mandatory condition to qualify as export. In line with this provision, Rule  96A(1) of the CGST Rules, requires an exporter of services to provide a letter of undertaking to pay the tax if he does not receive the payment in convertible foreign exchange, within an year or such further period allowed by the Commissioner. Additionally, Rule 89(2) of the CGST Rules, which lays down documentary requirements for claiming refund on export of services, requires the exporter to furnish a statement of invoices and relevant foreign inward remittance certificates (FIRC). Thus, we can infer that for export of services the receipt of export proceeds is a crucial element.

However the definition of export of goods under section 2(5) of the IGST Act, lays down a single condition to qualify as export - taking goods out of India to a place outside India. In line with the said provision, the undertaking which the exporter of goods provides, is merely to export goods within 3 months (or extended period) from the date of issue of the invoice for export, as per Rule 96A(1).  The exporter is required to provide a statement of invoices with details of shipping bills or bill of export, as the case may be, per terms of Rule 89(2). Therefore it can be understood that for export of goods, physical movement to a place outside India has been the sole condition for qualifying as export and claiming the refund. This understanding was affirmed by the Para 12 of CBEC Circular No. 37/11/2018. In the said para it was clarified that realisation of consideration is not a pre-condition for export of goods and therefore, there should be no insistence for proof of realisation of export proceeds by the refund authorities as such insistence has not been envisaged in the law. The same understanding was carried forward through para 48 of the CBEC Circular No. 125/44/2019-GST dated 18 November 2019 which superseded Circular No. 37.

By insertion of Rule 96B the government has contradicted its earlier stand on the realization of export proceeds in respect of export of goods and seems to have ventured outside the purview of the provisions of the IGST Act.

Please feel free to write to us on pranav@apmh.in / harshit@apmh.in for any further queries on the above blog.

Co-Author

CA Harshit  Vedpathak

Assistant Manager

Representation & Litigation