In response to these issues, exporters contested the validity of Rule 96(10) in various High Courts. The rule has since been omitted.

What was Rule 96(10) and How did it create problems for Exporters

Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, 2017, placed restrictions on exporters from claiming refunds on Integrated Goods and Services Tax (IGST) paid on exports. This rule applied if the exporters or their suppliers had availed certain benefits. The rule was intended to prevent exporters from using input tax credit (ITC) meant for domestic supplies to offset IGST for their exports, and to avoid double benefits where exporters claimed exemptions on inputs and also claimed a refund of IGST on exports.

Here’s how Rule 96(10) created problems for exporters:

• Restrictions on refunds: Exporters were restricted from claiming refunds on IGST paid for exports if they or their suppliers had benefited from certain notifications, such as those related to Advance Authorization, Export Promotion Capital Goods Authorization, and exemptions for goods imported by Export Oriented Units (EOUs).
• Ambiguity in wording: The language of the rule suggested that even if only one supply of inputs benefited from the specified notifications, the exporter was restricted from seeking a refund on the IGST paid for their exported goods. This limited the exporter’s options and compelled them to export goods without paying IGST under a bond or letter of undertaking, even if only a portion of the supplies had received the benefits.
• Financial strain and procedural hurdles: This created significant challenges for exporters because it limited their ability to seek refunds for IGST paid on exports, even when a large portion of their inputs had not benefited from the notifications. This caused financial strain and procedural hurdles for exporters seeking rightful refunds.
• Legal actions and penalties: Tax departments initiated legal action, issuing summons and show-cause notices for alleged erroneous IGST refunds. This included levying interest not exceeding 24% and penalties equivalent to 15% of the tax under the CGST Act.
• Retrospective application: The retrospective application of the rule was validated by some courts, which had implications for exporters’ rights to refunds. This affected exporters who had legitimately expected and used their entitlement to refunds before the substitution of Rule 96(10).
• Disruption of business: The rule created uncertainty, disrupted the smooth functioning of export-oriented businesses, and potentially deterred foreign investment.
• Capital blockages: The rule also caused liquidity issues and capital blockages for exporters.

In response to these issues, exporters contested the validity of Rule 96(10) in various High Courts.