Restriction on exporting with payment of IGST – Rule 96(10) way forward

It has become natural under GST for the Revenue authorities to impose restrictions by way of a circular, advisory note on the GST portal, or by way of insertion of a rule, etc. to enable revenue augmentation. This is done many times in spite of the fact that such a restriction is not provided for, in the Statute (i.e. the parent Act).

Rule 96(10)
One such restriction is in the case of the rule 96(10) of the Central Goods and Services Rules, 2017 (in short ‘Rules’) which sought to restrict the option, for certain exporters, to export goods with payment of tax and claim refund of such IGST. More understanding of this rule can be obtained by going through the article at this link- https://www.taxtmi.com/article/detailed?id=9087

One needs to understand that the option of exporting goods with payment of IGST and claiming refund of such IGST was a much preferred option, rather than exporting under LUT since:

• a. This route allowed the exporters to encash their ITC accumulated on account of capital goods purchases,
• b. It also allowed them to encash the credits that were accumulated over many years (for whatever reason), and
• c. It was a very convenient way of claiming refund since one need not have filed a separate refund application, but the shipping bill filed itself would serve as the application and refund in many cases would have hit the exporters account within 15 days, when compared to a minimum of 3 to 4 months in case of export without payment of tax under LUT.

Subsequently vide notification No. 20/2024 dated 08-10-2024, this rule was deleted from the rule book,indicating that it has been felt that procedural restrictions like these should not come in the way of promoting and encouraging exports so that more foreign exchange is received in the country. Also, this will help to reduce working capital blockages for exporters.

Relevant Court decisions
Prior to this deletion, in case of Cosmo Films Ltd.2020 (43) G.S.T.L. 577 (Guj.) the Gujarat HC held that this rule is not restricting an exporter from claiming of refund under ‘with payment of tax’ option, since an option is provided in the said rule to pay IGST on import while claiming exemption only of Basic Customs Duty.

Another relevant decision in this regard would be of the Madras High Court in the case of M/s. Shobikaa Impex Private Limited vs Union Of India2024-TIOL-1454-HC-MAD-GST where it was held that when there is no dispute regarding export of goods, any procedural irregularities committed in claiming the refund (i.e. applying refund under rule 96(10) instead of rule 89) should not lead to denial of the export benefits by way of refund. The matter was remitted back,in order to compute the eligible refund under rule 89.

This indicates that the Courts are also not looking at complete denial of refund merely because it is claimed under the wrong rule.

Later, in the case of Sance Laboratories Pvt. Ltd. Vs. Union of India and Ors. [TS-700-HC(KER)-2024-GST]], the Kerala High Court has struck down this rule 96(10), as it was deemed ultra vires of section 16 of the Integrated Goods and Services Tax (IGST) Act, 2017. The court found the rule unenforceable on grounds of “manifest arbitrariness,” for the following reasons:

1. Violation of Statutory Rights: The court held that the saidrule violated the statutory rights of exporters u/s 16 of the IGST Act, which permits a refund of taxes on exported goods and services. The rule imposed conditions restricting such refunds, which was beyond the scope of the Act.
2. Arbitrariness: The rule was deemed arbitrary, as it placed excessive restrictions on the availability of legitimate refunds, impacting exporters’ liquidity and business operations. The court observed that the restrictions lacked a reasonable basis and imposed undue hardship.
3. No recovery: The High Court clarified that no IGST should be recovered which were already refunded during the period from October 23, 2017, to October 8, 2024, thereby providing relief to businesses that had claimed refunds under the provisions of Rule 96(10) during this period.

This decision has come as a big relief and emphasizes the importance of ensuring that tax rules align with the legislative intent and avoid creating unnecessary impediments for businesses, particularly exporters, who rely on timely tax refunds for operational sustainability​.

Though, this has come after so many years, and in many cases the exporters have exported with payment of tax without having knowledge of the restriction in rule 96(10). In many of these cases, the department has initiated proceedings and either,

• a. Recovered the IGST refund claimed by the exporters and that too with interest @ 18% p.a. from the date of receipt of refund by the exporter, up to the date of payment of such refund back to the Exchequer, or
• b. These exporters have paid back the IGST exemption availed by them on imports, along with interest to regularise the refund of IGST claimed.

Remedy
So, what is the remedy that these exporters now have? Can they claim back the interest which was paid on the import IGST / the refunds that were regarded as erroneously claimed? Would they still have time limit to claim refund in respect of interest paid more than 2 years back?

In this regard it would be relevant to refer to the decision of the Supreme Court in the case of Mafatlal Industries Ltd. 1997 89 ELT 247 SC, where it was held that only in case of an unconstitutional levy, the time limit given under the relevant law will not be applicable and the time limit under the Limitation Act will apply.

In the case of rule 96(10), whichis struck down as being ultra vires and arbitrary, the time limit of 2 years given under the GST law will apply since the rule is not held to be unconstitutional. This time limit will have to be computed from the date of payment of the interest.

However, it would also be relevant to refer to the following 2 decisions rendered in the context of GST

• a. The HC of Punjab and Haryana in the case of M/s. Durga Board and Paper Industries Ltd held that an amount received on the basis of a provision of law which has been declared ultravires has to be treated as in contravention to Article 265 and hence such amount has to be refunded back even if no application for refund has been filed since excess amount has been received unlawfully.
• In this regard it would be relevant to note that in the case of Mafatlal supra it was held that when any provision is held as ultra vires then the refund of the amounts paid would be governed by the general law and the procedure and period of limitation provided by the specific statute will have no application
• b. The Gujarat HC in the case of M/s. Aculife Healthcare Pvt Ltd. held that in the case of refund of GST paid on notice pay recovery, the time limit of 2 years will begin from the date of the circular that clarifies the issue stating that it is not liable.
• This indicates that the courts take a liberal view in cases where the taxes have been wrongfully paid and the limitation period is taken to begin from the date clarity emerges regarding the taxability.

Considering the above cases, one could consider to file an application for refund in cases where interest has been paid for the recovery of refund u/r 96(10) ibidand contest the matter.

Options available

Thereby, the following can be summarised as options available to various exporters who were subject to the restrictions u/r 96(10):

• a. Refund claimed u/r 96(10) but no proceedings yet– If refund has been claimed by an exporter u/r 96(10) and where time limit and reasons exist for department to start proceedings to recover such amounts, the exporter can recompute refund as per rule 89 and
  • i. If recomputed refund is NOT far too less than the refund already obtained under rule 96(10) – whenever department starts proceedings/investigation, support of the decision of the Madras HC can be taken to claim that the refund should not be completely denied but should be recomputed as per the applicable rule and proceedings should be asked to be dropped.
  • ii. If recomputed refund is far too less than the refund already obtained under rule 96(10) – challenge the validity of said rule in HC where already there is a favourable decision or where stay has been granted against recovery for refund granted u/r 96(10).
• b. No refund claimed – Compute refund under both rule 96(10) and 89. If refund u/r 96(10) is far higher then consider challenging the said provision as stated above. Else proceed to file the refund u/r 89.
• c. Refund claimed u/r 96(10) and recovery of refund / import benefits along with interest is also completed–Apply for refund of such interest (since IGST paid would have taken back as input tax credit) if payment is made not more than 2 years back. It would not be granted immediately, since 2 Courts (Gujarat and Kerala) have given contradictory decisions. It may lead to further litigation until a final view is reached at by the Courts in this regard. Though, this would keep the case alive which is very much required considering the principle laid down in Mafatlal Industries supra as per which one has to fight his own battle to gain the benefits when a particular provision is struck down or is held ultra vires.
• Even if interest was paid more 2 years back, apply for refund considering the decisions mentioned above where courts have taken liberal view regarding time limit.
• d. Same as above but interest was paid under protest – Should apply for refund of interest irrespective of when it was paid since there would be no time limit to claim refund for payment of amounts paid under protest.
• e. Going forward – Since rule 96(10) no more exists in the rule book, the exporters are free to choose to either export under with payment or without payment of IGST and claim refund after due evaluation in order to optimse their refund claims.

This article is a part of Article Writing Competition 2025.