Various petitions filed against DRI by exporters over GST exemption notices
A large number of exporters have dragged the Directorate of Revenue Intelligence (DRI) – India's primary anti-smuggling intelligence agency to High Courts in various states alleging wrongful availing of Goods and Services Tax (GST) exemptions by the DRI
The exporters claimed that they have filed various writ petitions before the Gujarat High Court, Punjab High Court, Bombay High Court and Madras High Court. Some of the courts have agreed to hear the exporters' plea and in some cases the notices' have been put on stay.
Reportedly, Bombay and Punjab and Haryana High Courts have served notices to the Union Government, DRI, and the Central Board of Indirect Taxes and Customs over the issue of denying rebate on integrated goods and services tax (IGST) paid by exporters enjoying the benefits of advance authorization (AA) license.
However, Gujarat High Court has stayed the proceedings initiated by DRI to exporters over this issue. An AA license was issued to exporters to allow them duty-free import of inputs, which are physically incorporated in export products.
Exporters were earlier entitled to import raw material without payment of IGST under the AA licence, and pay IGST on exports and claim rebate (refund) paid on exports. They received the benefits of rebate of IGST initially. However, the government then amended sub-rule (10) of Rule 96 of the central GST through a notification dated 4th September, 2018. It denied rebates on IGST on exports if exporters enjoyed AA benefits with effect from 23rd October, 2017.
Earlier, Gujarat High Court had upheld the validity of this rule. The Court also upheld the validity of another amendment to the rule that allowed rebates to those who only avail of exemption on basic Customs duty and pay IGST on raw material. This amendment was made effective with retrospective effect.
This means that those who claimed a refund under this option were required to pay back IGST on raw material, along with interest and avail of input tax credit. Aggrieved, exporters filed a review petition in Gujarat High Court, as well as petitions in the Bombay and Punjab and Haryana High Courts.
Subsequently, the DRI had started issuing notices to exporters for wrongfully availing GST exemptions in cases where exports preceded imports.
The exporters were directed to pay IGST first as the foreign trade policy has been amended and several notifications were issued in the last few months. The IGST rate in these cases is 18 per cent on the average, while for some products it is 12 per cent and 5 per cent for very few. As per industry trackers under the earlier tax regime and foreign trade policy (FTP), there was no duty if imported raw materials were used for exports, even when exports preceded imports.
According to various tax experts this could be a temporary relief for several exporters.
For exporters to avail certain benefits, the current GST framework has laid down certain conditions. According to revenue department notification, raw materials could not be imported after export of the final product. Following which the government then introduced an amendment in the GST framework that led to DRI chasing down the exporters.
The amendment mainly emphasized on the 'pre-import condition' that every exporter was required to follow to avail duty exemptions on imports. The notice read the following, "in cases where exports preceded imports, availing of exemption does not seem legal and proper. This office has initiated an inquiry in wrongful availment of exemption".
"After DRI notices, the matter has been raised afresh in several courts which have issued notices or granted a stay on proceedings. The retrospective amendment is also said to be a subject matter of challenge," said Abhishek Rastogi (Partner at Khaitan & Co.), who is currently appearing for plethora of petitions for exporters.