Mr. Pradeep Jain has written a very informative article titled: PROPOSED REFUND PROCESS UNDER GST - HAPPINESS ON THE WAY TO EXPORTERS. In continuation I wish to add my comments on the issue of refund under GST as follows:
However in the proposed GST legislation there is post refund condition that the value of the exported goods ought to be realised in free foreign exchange within the initial or extended time limit prescribed under FEMA,1999 which at present is condition only under the proviso to Section 75 of the Customs Act, 1962 read with the Rule 16A of the Customs, Excise Duties and Service Tax Drawback Rules, 1995 (effective 06-12-1995) qua the customs portion of the drawback and the Foreign Trade Policy qua the relief of input customs duties exemption for manufacture and export of the resultant product. Failure to realise the export value in foreign exchange entails (under the Drawback Rules or the FTP) recovery of the customs portion of the Drawback availed and paid or the import inputs custom duties that were saved even if the export has been consummated.
There is no such condition in respect of:
a) Cenvat credit of capital goods or input duties or service tax availed of capital goods inputs and or input services and
-either utilised for payment of duty on the final product on payment of duty under claim of rebate in terms of Rule 18/CEX Rules, 2002 read with Notification 19/2004-CE (NT) under ARE1 procedure; or
-retained for further utilisation and the relevant final goods removed for export under bond in terms of Rule 19(1)/CEX Rules, 2002 read with Notification 42/2011-CE (NT) under ARE1 procedure.
b) Rebate of duty paid on inputs used in the manufacture the export goods vide Rule 18/CEX Rules, 2002 read with Notification 21/2004-CE (NT) under ARE2 procedure; or
c) Duty free procurement of inputs under bond for manufacture and export of the final goods vide Rule 19(2)/CEX Rules, 2002 read with Notification 43/2011-CE(NT) or 44/2001-CE(NT).
d) State VAT or CST saved for purchase of goods ultimately exported under CST form ‘H’
e) Input and final goods duties reliefs or exemptions availed by 100% EOUs, STPI and similar export oriented dispensations.
f) Refund of accumulated credit under Rule 5 of the CCR, 2004.
In other words such export related reliefs were never and are not still subject to recovery if the value of the relevant export goods is not realised in foreign exchange.
Even in case of FEMA, Drawback Rules and the FTP it is provided that though failure to realise payment for export goods in foreign exchange will invite penalisation (under FEMA) or recoveries of drawback granted or duty exemption availed under the FTP such penalisation or recoveries will be waived if evidence is submitted that the credit insurance company (e.g. ECGC) have settled in India a claim against the non-realisation to the Indian exporter in Indian Rupees on the premise that the export prices whether FOB/C&F/CIF include the cost incurred in India by the Indian exporter in INR for payment to ECGC the premium amount for the credit insurance policy resulting in realisation of the premium cost also in foreign exchange through the export price and the national aggregate of such INR premium cost realised through export price in foreign exchange will far outweigh the aggregate value in foreign exchange of the export bills not realised.
However the moot point is why under GST refund mechanism for exports should the amount refunded on consummation of export be subject to export value realisation in foreign exchange and recovery upon failure to realise the export value in foreign exchange which failure in any case is liable to penalisation under FEMA?
GST is a destination tax and a consumption tax and cannot be levied on export goods and the SGST and CGST or ISGST credit remaining surplus on account of zero rated export is to be allowed refund or allowed to be retained for payment of SGST and CGST or IGST on any further domestic sale.
The exported goods will be taxed in the country to which the export has taken place and goods are retained or consumed in that country.
Can such goods be taxed again in India extra-territorially by way of recovery of the last point GST refund that was allowed on the occasion of export? Recovery will amount to taxing the goods again as if the goods are still in India and not exported. Goods can be taxed only if the goods are existing and available in India and not when existing and available or already consumed outside India.
In the domestic front there is no condition that if the seller in India fails to realise his GST paid goods value from the buyer of his goods in India then he should refund the amount of GST that was paid or the purchaser should refund the amount of credit of GST that he had taken.
If the GST is say around 22% then the exporter not only looses the value of goods because of failure to realise payment from the buyer abroad but also will incur a further loss of 22% or whatever is the aggregate of the SGST and CGST or IGST.
Export per se should entitle refund of GST irrespective of whether the payment gets realised or not as it is not an export promotion benefit/largesse it is merely a tax refund as exports cannot taxed in the country of export.
It is my plea to all the stake holders to strongly oppose the payment realisation condition in the draft GST legislation for availing refund in respect of exports.
If the Government does not concede such a demand then exporters will have to prevail on ECGC to not only cover the export value against the risk of non-realisation but also against the risk that the GST refunded will also be recovered.
If the exporter is liable to penalisation under FEMA against failure to realise value in foreign exchange then penalising him also for the same offence under GST by way of recovery of refund amounts to double jeopardy which militates against Article 20 of the constitution and also Section 26 of the General Clauses Act. Why should a person be punished twice for the same offence or be punished for the same offence under to legislations?