Availability of output GST refund to Advance Authorization holders – Impact of Gujarat High Court decision

by | Nov 24, 2020 | Insight

Through this update, we wish to apprise you regarding recent ruling in the case of Cosmo Films v. UOI, 2020-VIL-514-GUJ wherein the vires of amendment made to Rule 96(10) of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) vide Notification No.54/2018 – Central Tax dated October 9, 2018 (‘Notification’) was challenged before the Gujarat High Court.

Brief summary of this ruling is as under:

  • The amended Rule 96(10) of the CGST Rules barred refund of IGST paid on exports where inputs were imported without payment of IGST under Advance Authorization (‘AA’). The petitioner contended that this amendment violated Article 14 of the Constitution of India, 1950.
  • The High Court upheld the validity of the Notification and held as under:
  • There is no discrimination qua the petitioner. Further, the Petitioner’s grievance is addressed by insertion of Explanation vide Notification No. 16/2020 – Central Tax dated March 23, 2020 which allows refund of IGST where inputs are imported on payment of IGST. 
  • The retrospective insertion of Explanation resolves the anomaly during the intervention period (October 23, 2017 – October 8, 2018). Any exporter who claims benefit of output GST refund, needs to payback IGST on imported inputs along with interest and can avail ITC of such IGST.
  • Notification should be considered as retrospective from October 23, 2017. 

NITYA Comments: 

The ruling is incorrect and Notification is prospective in nature. Notification No.53/2018 – Central Tax dated October 9, 2018 (‘Notification No.53’) was issued to nullify the effect of retrospective amendment. Government’s intention is further evident from Paragraph 3.2 of Circular 70/44/2018 – GST dated October 26, 2018 which clarified that refund of GST is available till October 9, 2018 even if IGST exemption was availed on imported inputs. Hence, High Court giving retrospective effect to Notification, will make Notification No.53 redundant. 

After October 9, 2018, exporters can claim output GST refund only if IGST exemption is not claimed on imported inputs. 

Relying on aforesaid High Court ruling, DRI has started issuing notices to exporters and proposing to deny IGST exemption from October 23, 2017. The exporters need to present correct factual and legal position to authorities to justify their stand. To give detailed understanding on this issue, Deepak Suneja, Partner at NITYA Tax Associates has coherently discussed the issue and our take in a short video titledNITYA Legal Monologue | Claiming of Output Stage Refund by Advance Authorization Holders’ at https://youtu.be/Q8vmnxjyqNA.



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