QUESTION

Taxpayer is registered in Gujarat State. During the financial year 2018-2019, taxpayer procured goods from supplier at a concessional rate of 0.05% and 0.1% respectively under the notification -No. 40/2017 Central Tax (Rate), dated 23rd October 2017 . Taxpayer has exported goods within time prescribed under the said notification and also eligible to procured the goods as all condition attached to the said notification were fulfilled. As per Circular No. 37/11/2018-GST dated 15.03.2018 in para 13.2 it is clarified that “exporter of such goods can export the goods only under LUT / bond and cannot export on payment of integrated tax”. Therefore the exporter has to export such goods under LUT and if such exports made with payment of IGST then it is not eligible for refund. Further, Rule 96(10) (a) provides that `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 ` I have following question relates to export and refund (a) what is the consequence if exporter has exported the goods with payment of tax instead of under LUT and also get refund from the department ? (b) whether penalty of Rs. 10000/- is leviable under section 122(1)(viii) ? (c) what is the situation if exporter repaid the amount of refund to the government ?

ANSWER
 

Facts of the case:  Merchant Exporter has procured goods from supplier at a confessional rate of 0.05% and 0.1% respectively under the notification -No. 40/2017 Central Tax (Rate) and has  exported goods within time prescribed but on payment of IGST.

Law Applicable: 

Circular No. 125/44/2019 - GST
Notification No. 40/2017 ' Central Tax (Rate) and notification No. 41/2017 ' Integrated Tax (Rate) both dated 23.10.2017 provide for supplies for exports at a confessional rate of 0.05% and 0.1% respectively, subject to certain conditions specified in the said notifications. It is clarified that the benefit of supplies at confessional rate is subject to certain conditions and the said benefit is optional. The option may or may not be availed by the supplier and / or the recipient and the goods may be procured at the normal applicable tax rate. It is also clarified that the exporter will be eligible to take credit of the tax @ 0.05% / 0.1% paid by him. The supplier who supplies goods at the confessional rate is also eligible for refund on account of inverted tax structure as per the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act. It may also be noted that the exporter of such goods can export the goods only under LUT / bond and cannot export on payment of Integrated tax.

SECTION 54 OF CGST ACT
(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilized input tax credit at the end of any tax period:

Provided that no refund of unutilized input tax credit shall be allowed in cases other than''

      (i)     zero rated supplies made without payment of tax;
     (ii)    'where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies),except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:


Interpretation: As per section 54, refund of unutilized ITC can be claimed only in two cases as follows:
     (i)     zero rated supplies made without payment of tax;
    (ii)    'where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

In case of Merchant Exporter availing benefit of confessional rate of tax i.e. 0.1%, export can be made only under LUT/Bond and not on payment of IGST.

Therefore in case if you have claimed refund of IGST paid on export, then repay the refund amount to Government with interest, otherwise recovery proceeding may be initiated under section 73/74.

On repayment, the amount will be re-credited in your Electronic Credit Ledger that you can utilize for further purchases.

However you can go for litigation for claiming refund of IGST paid on export, but it will result in wastage of time and energy because that process may be lengthy and law is clear that "no refund of unutilised input tax credit shall be allowed in cases other than.........."
 
Conclusion:  You are required to repay the amount of refund of IGST along with interest to the Government.

In case of Merchant Exporter purchasing goods at confessional rate of tax of 0.1% can opt for two alternative routes as follows:

Route 1. Refund Procedure:
Claim refund of ITC in FORM RFD-01.

Route 2. Tax Planning:
Instead of going for refund in order to utilize accumulated ITC make some purchases on payment of normal tax and accordingly export the same on payment of IGST.

Purchases                   90,00,000/- @0.1%   ITC available          9,000/-                       Sale 1,00,00,000/-
At the end of 11 months
Purchases                   90,00,000 x 11           ITC available          9,000 x 11= 99,000/-
In last month
Purchase                     49,50,000/- @ 18%   ITC available           8,91,000/-                  Sale  55,00,000/- @ 18% =9,90,000/-
 
TOTAL                                                                                           9,90,000/-

In this way your ITC will be fully utilized in single transaction and refund will be automatically processed on export on payment of IGST.

Similarly for utilizing re-credited amount of refund, make some purchases on payment of normal tax in order to utilize that ITC and then claim refund on export.

You are suggested to prefer Route 2 because Route 1 i.e. filing of Refund Claim may be lengthy procedure. (Reply dt.24.10.2020)