This note briefly sets out the impact of delay in forex remittance against Export of Goods on account of changes made to section 16 of IGST Act, 2017
FINANCE BILL, 2021
Clause 114 of Finance Bill, 2021 seeks to insert a proviso to subsection (3) of section 16 of IGST Act, 2017. The proviso is reproduced below:––
“Provided that the registered person making zero rated supply of goods shall, in case of non-realisation of sale proceeds, be liable to deposit the refund so received under this sub-section along with the applicable interest under section 50 of the Central Goods and Services Tax Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange remittances, in such manner as may be prescribed.”
PRIOR TO FINANCE BILL, 2021
No such proviso existed. There was no condition mandating realisation of sale proceeds in respect of refund claims filed on export of goods inbuilt in the IGST Act, 2017. However, a restriction was placed through Rule 96B of CGST Rules, 2017, which required the supplier to return the amount of refund arising out of export of goods in case the sale proceeds of the refund is not realised within the prescribed time limit.
ANALYSIS
A registered person making zero rated supplies of goods without payment of the integrated tax (with LUT) shall be eligible to claim refund of utilized input tax credit on inward supplies of inputs and services. While a registered person making zero rated supplies of goods with payment of the integrated tax (without LUT) shall be eligible to claim refund of integrated so paid.
The proviso makes it a mandate for the registered person claiming refund on account zero rated supply of goods to receive sale proceeds within the time limit prescribed under Foreign Exchange Management Act, 1999. In case of non-realisation of sale proceeds within the time limit, the refund received would have to be paid back to the government along with interest within 30 days from the expiry of time limit prescribed under FEMA, 1999.
Though the proviso speaks of ‘zero rated supply of goods’, the intention of the proviso seeks to deal with only ‘export of goods’ and not supplies to SEZ Developers / SEZ unit since the payment to be made by the SEZ Developer / SEZ unit to the supplier would not be governed under FEMA.
Apart from the difference of mentioning ‘zero rated supply of goods’ instead of ‘export of goods’, mentioned in the Finance Bill, 2021 and Rule 96B respectively, there does not appear to be any inconsistency between both. The addition of the proviso to the IGST Act, 2017 appears to be made to fortify the requirement of realisation of foreign remittances for export of goods.
However, it needs to be seen whether the Rule 96B would remain unaltered after the insertion of the proviso proposed in the Finance Bill, 2021. Until the same is clear, there is a very real possibility that the requirement of receipt of foreign remittances for export of goods may become more stringent.