At the outset, exports were made to be zero rated to make domestic products competitive in an
international market and increase foreign currency reserves for the Government. Intent of the law
is not just to make outward zero-rated but the entire supply chain of a particular transaction tax
exempted. Therefore, the Government not only exempted the outward supply from tax but also
gives refund of the tax paid on inward supplies. Adding taxes to the zero-rated supplies would be
against the policy of the Government. The Government introduced a rule no. 89(4)(c) from
23.03.2020 which restricts the refund of unutilized input tax credit by restricting maximum value
which can be considered as the value for export of goods. “Turnover of zero-rated supply of goods”
means the value of zero-rated supply of goods made during the relevant period without payment
of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods
domestically supplied by the same or, similarly placed, supplier, as declared by the supplier,
whichever is less.
In a similar case came before the High Court of Karnataka where respondent had rejected the
refund claim based on the grounds that the applicant did not submit the proofs to establish the
turnover is not more than 1.5 times the value of like goods domestically supplied by the same of
similar placed supplier.
In the writ petition, the petitioner challenged the adjudication order on following grounds that rule
no. 89(4)(c) of the CGST Rules, 2017 ultra vires section 54 of CGST and 16 of IGST Act, Article no.
269A read with 246A, Article no. 14 and 19(1)(g) of the Constitution of India. The petitioner also
submitted that the law is vague in the sense it neither defines “like goods” and “similar placed
suppliers” nor provides consequences if value of “like goods” or “similar placed suppliers” cannot
be identified or what if “similar placed suppliers” have different pricing polies.
Considering the above facts, HC allowed the writ petition by declaring “rule no. 89(4)(C) as ultra
vires the provisions of the Central Goods and Services Tax Act, 2017 and the Integrated Goods and
Services Tax Act, 2017 as also violative of Articles 14 and 19 of the Constitution of India and
resultantly, the same are hereby quashed”.
SW Point of View:
Rule no. 89(4)(C) should not impact 100 % export-oriented entities; however, it may have an impact on other entities. Government may provide more clarity over the rule.
