With the end of 2019 right around the corner, it is interesting to reflect back on the changes that the tax fabric has seen in the past year. One of the major reliefs that the assessees received at the beginning of 2019 (in January) was the removal of a ghost known as “Pre-import condition” specifically for manufacturers who were Advance Authorization holders.
To understand the implications of the same, it is pertinent to have a quick re-look at the position prevailing prior to January 2019. The objective of Advance Authorization scheme was always to allow “duty-free” imports of raw materials (inputs) which are to be physically incorporated in the export products.
History of “Pre-Import Condition”
Duty-free import for Advance Authorisation holders prior to the GST regime was governed by Notification No. 18/2015-Customs as issued under the Customs Act, 1962. However, with the implementation of GST, there was no similar notification for exemption of IGST on import of inputs and thus in respect of imports made by Advance Authorisation holders, ITC of IGST paid on import against Advance Authorisation started getting accumulated.
After various representations were made to the department, the Central Government issued Notification No. 79/2017-Customs dated October 13th, 2017 amending the Customs Notification No.18/2015-Customs to allow upfront exemption from payment of IGST at the time of filing of Bill of Entry for home consumption. The amending notification however inserted a “pre-import condition” to allow upfront exemption from payment of IGST for goods imported under Advance Authorisation.
With the pre-import condition in place, there were various inquiries and litigations that were initiated against “importers” who failed to comply with the pre-import condition and IGST exemption was being denied to them. Gujarat High Court however in the matter of Maxim Tubes Company Pvt. Ltd. [2019 (368) ELT 337 (Guj-HC)] struck down the pre-import condition as being ultra vires the Advance Authorisation Scheme as contained in the Foreign Trade Policy, 2015-20 as well as the provisions of the Handbook of Procedures.
To address the said issue of ‘pre-import’ and provide impetus to ‘deemed export’ supplies, the Government of India through Notification No. 01/2019-Customs dated 10-01-2019 amended Notification No. 18/2015-Cus. and Notification No. 20/2015-Cus in order to remove the ‘pre-import condition’ from Notification No. 79/2017-Customs, so as to enable the importers to avail the benefit of exemption from payment of IGST prospectively and also extended the said exemption to supplies which were treated as “deemed exports” under GST as well.
Essentially, the timeline of advance authorisation holder gets split into three phases:
- Period prior to 13th October 2017
- Period from 13th October 2017 to 10th January, 2019
- Period from 10th January onwards
History of Rule 96(10) of the CGST Rules, 2017
Parallelly, Rule 96 of the CGST Rules, 2017 was split into Rule 96(9) and Rule 96(10) w.e.f. 23rd October, 2017 vide Notification No. 3/2018-Central Tax. The same states:
<pstyle="font-style: italic;">“96(10). The persons claiming refund of integrated tax paid on exports of goods or services should not have received supplies on which the supplier has availed the benefit of the Government of India, Ministry of Finance, notification No. 48/2017- Central Tax dated the 18th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3 Sub-section (i), vide number G.S.R 1305 (E) dated the 18th October, 2017 or notification No. 40/2017-Central Tax (Rate) 23rd October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1320 (E) dated the 23rd October, 2017 or notification No. 41/2017-Integrated Tax (Rate) dated the 23rd October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1321 (E) dated the 23rd October, 2017 or notification No. 78/2017-Customs dated the 13th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1272(E) dated the 13th October, 2017 or notification No. 79/2017-Customs dated the 13th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1299 (E) dated the 13th October, 2017.”
According to Rule 96(10) as introduced originally (extracted above), the “exporter” was allowed to export goods on payment of IGST only if the said exporter has not received goods from a “supplier” who had availed the benefit of any of the notifications specified in the said rule.
However, after multiple amendments, the rule now provides that an exporter who is availing the benefit of the notifications specified in (b) or receives supplies from a person who is availing the benefits under clause (a) of Rule 96(10) will not be entitled to claim refund of IGST paid on export of goods w.e.f 9-10-2018. The same is extracted as under:
“(10) The persons claiming refund of integrated tax paid on exports of goods or services should not have –
(a) received supplies on which the benefit of the Government of India, Ministry of Finance notification No. 48/2017-Central Tax, dated the 18th October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1305 (E), dated the 18th October, 2017 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme or notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1320 (E), dated the 23rd October, 2017 or notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1321 (E), dated the 23rd October, 2017 has been availed; or
(b) availed the benefit under notification No. 78/2017-Customs, dated the 13th October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1272(E), dated the 13th October, 2017 or notification No. 79/2017-Customs, dated the 13th October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1299 (E), dated the 13th October, 2017 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme.”.
It is pertinent to note that the timeline of Rule 96(10) also has a timeline that can be divided into three phases:
- First is position till 23rd October, 2017.
- Second is position between 23rd October, 2017 to 9th October 2018.
- Third is the position after 9th October, 2018.
Missing connection for Advance Authorization holders and CGST Rule 96(10)
It is pertinent to note that till 23rd October, 2017 there was no implication of Rule 96(10) of the CGST Rules, 2017 on anyone including the Advance Authorisation holders. However, with the introduction of pre-import condition and Rule 96(10) from 23rd October, 2017 till 10th January, 2019 there was a double whammy on the “importer” and corresponding “exporter”.
The importer was not getting the benefit of IGST exemption on imports which they were promised at the time of being given the scheme and also were being barred from refund while exporting goods on the payment of IGST. Thus, anyone undertaking transactions within the said timeline were hit by two draconian provisions prevailing at the time.
However, it is even more interesting to note that the removal of the pre-import condition from 10th January, 2019 onwards was accompanied with the additional benefit of allowing the Advance Authorization holders to fulfil their export obligations even by domestically clearing goods as per Notification No. 48/2017-Central Tax (relating to deemed exports).
Big hit to exporters who actually missed to see the huge impact on account of Rule 96(10)
While this amendment was viewed as a relief to the assessees (importers), the overall impact of that same actually came out to be a big surprise for Advance Authorisation holders as Rule 96(10) of the CGST Rules, 2017 was not amended which bars the exporters from claiming refund in case of export of goods on payment of IGST if the said exporters have availed the benefits of Notification No. 79/2017-Cus. What this implies is that any Advance Authorisation holder must forget about exporting goods on payment of IGST and availing the benefit of the quick refund as offered by the Customs portal of ICEGATE.
Various assessees as on date are unaware about the fact that they are hit by provisions of Rule 96(10) of the CGST Rules, 2017 by merely being holders of Advance Authorisation. All exports made by such assessees shall be under the scrutiny of the department.
[The authors are Senior Associate and Joint Partner, respectively, in GST Practice, Lakshmikumaran and Sridharan, Mumbai]
