Is the Govt Walking the Talk on Support to Exporters ?
Exports like many other sectors in the economy, has taken a major hit due to the COVID 19 pandemic and consequential business disruptions and lockdowns. A PIB Press release dated 15th Oct 2020 from the Ministry of Commerce & Industry , inter alia states “India’s overall exports ( Merchandise and Services combined ) in April -Sept 2020-21 are estimated to be USD 221.86 Bn, exhibiting a negative growth of -16.66% over the same period last year “ .
The Govt announced various steps to boost exports and support exporters in this period, e.g: The validity of Foreign Trade Policy (2015-20) extended by one year i.e. upto 31-3-2021 and relaxations granted and time lines extended due to COVID-19. ( b). Interest Equalization Scheme on pre and post shipment rupee export credit was extended by one year i.e. upto 31-3-2021. ( c) .Line Ministries have notified various sectoral incentive packages, such as Production Linked Incentive Scheme (PLI) by Ministry of Electronics and Information Technology (MeitY) and PLI Scheme by Department of Pharma for Key Starting Materials (KSMs)/ Drug Intermediates and Active Pharmaceutical Ingredients (APIs).( source ;Ministry of Commerce Press release dated 15th Sept 2020)
The above are primarily reliefs in the domain of export finance/working capital . One would have expected some tax measures also to support the beleaguered exporters. Instead, ironically soon after the lockdown was imposed, Notification 16/2020 dated 23.3. 2020 imposed artificial restrictions of the quantum of IGST refunds for exports. Though this notification may have been an aberration and in fact has been comparatively unnoticed till now, it raises questions whether the Govt is really walking the talk on supporting exporters in the arena of GST reforms, as it is supporting them through other financing schemes .
Notification 16/2020 dated 23.3. 2020 has led to amendment of clause (C) to Rule 89(4) ; amending the definition of ‘turnover of zero-rated supply of goods’ as follows
|Pre Amendment||Post Amendment|
|Clause (C) to Rule 89(4) – Defined ‘Turnover of zero-rated supply of goods’ for exporters claiming refund of unutilized ITC under Section 54(3) to mean the assessable value of goods exported or supplied to SEZ units/ developers [excluding turnover on which refund is claimed under sub-rules (4A) and (4B),( not relevant for the present issue ]||Clause (C) to Rule 89(4) substituted to define the said term( “turnover of zero rated supply of goods “ for exporters -to mean the assessable value of such supply , OR , 1.5 times the value of supply of like goods domestically by the same supplier or a similarly placed supplier, as declared by the supplier, whichever is less.|
Effect & Implication of the Amendment
The exporters of zero rated supply of goods had the option of exporting without payment of tax under Bond or LUT . They had the option of claiming refund of the consequential unutilized ITC as per the following formula in Rule 89(4):
Refund Amount = Net ITC * Turnover of Export( Zero rated goods ) / Total Adjusted Turnover.
Before amendment, the actual transaction value of the exported goods was taken in the numerator for determining the ratio of export turnover to total turnover and the same ratio was applied to the ITC to arrive at the refund amount . Now , post amendment, the numerator is artificially restricted (by a deeming/legal fiction ) , to max 1.5 times the “value of supply” of similar goods by same exporter or similarly placed suppliers , in the domestic market
Anomalies & Questions
( a) Exporters who do not pay GST on the exported final products and claim refund of unutilized ITC under Rule 89 (4)( C), and
( b) Exporters who opt to pay IGST on exported final products and claim refund for the same tax under Rule 96 .
There is no” intelligible differentia” spelt out for this classification , to satisfy the test of Article 14.
It may be perhaps prudent, and not too late, to rescind the said amendment to Clause C of Rule 89(4) for the reasons stated above in this article , , as inter alia the New Rule 96 B itself builds in adequate safeguards against artificially inflated & fabricated export turnover . The revenue loss , if any , will be far less than the goodwill earned from bona fide exporters, and perhaps also the increase in quantum of exports due to such positive and confidence building measures