DGFT Issues Guidelines On Refunds & ITC For Exports Affected By Erstwhile CGST Rule 96(10)

Rule 96(10) provided that a person cannot claim refund of Integrated Goods and Services Tax (IGST) paid on export of goods or services if exporter had availed benefit of specified exemption notifications under certain input benefits or exemptions Schemes on inward supplies (like under Advance Authorisation, Export Promotion Capital Goods, Export Oriented Unit schemes) and simultaneously claimed an IGST refund on the final exported product.

The validity of Rule 96 (10) was challenged before the Supreme Court in case of Cosmo Films which dealt with the mandatory fulfilment of a "pre-import condition" to claim exemption from Integrated Goods and Services Tax (IGST) and Compensation Cess on imported goods under the Advance Authorisation scheme. While upholding Revenue's appeal, the Supreme Court directed that affected parties be permitted to claim refund or Input Tax Credit wherever admissible.

A Single Judge Bench of Kerala High Court in Sance Laboratories Pvt. Ltd. declared Rule 96(10) of the CGST Rules as ultra vires Section 16 of the IGST Act and manifestly arbitrary. The said Rule has also been challenged before other jurisdictional high courts.

Considering the difficulty being faced by the exporters due to restriction in respect of refund on exports¹, imposed by Rule 96(10) of the CGST Rules, 2017 the Government omitted the said Rule prospectively, without any savings clause vide Notification No. 20/2024-Central Tax dated October 08, 20242.

DGFT recalling its earlier 2017 Circular of pre-import condition which was followed by a 2019 Circular withdrawing the said condition, thereby allowing exemption from IGST and Compensation Cess under the Advance Authorisation Scheme without prior import requirements, addressed difficulties faced by certain exporters in redemption of Advance Authorisations due to erstwhile Rule 96(10).

In alignment with the above, DGFT refers to previous clarifications Trade Notice No. 07/2023-24 dated June 08, 2023 and Trade Notice No/. 27/2023 dated September 25, 2023 and clarified that Export Obligation Discharge Certificate shall not be withheld if:

• IGST was paid in cash on imports under AA during the specified period.
• No exemption from IGST/Compensation Cess (except BCD) was availed.
• Pre-import and procedural conditions were complied with.

Click Here To Read/Download The Order