Clarification on Redemption of Advance Authorisations Impacted by Erstwhile Rule 96(10) of CGST Rules: A Long-Awaited Resolution

Introduction

On 11 November 2025, the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry issued Policy Circular No. 07/2025-26, providing long-awaited clarity on the redemption of Advance Authorisations (AAs) impacted by the now-defunct Rule 96(10)of the Central Goods and Services Tax (CGST) Rules, 2017.

This circular seeks to resolve long-standing grievances among exporters whose AA redemptions had been withheld or delayed due to interpretational issues arising between October 13, 2017, and January 9, 2019, a period marked by significant policy confusion on IGST exemptions and the so-called “pre-import condition.”

Background: The Advance Authorisation Scheme and the GST Transition

The Advance Authorisation Scheme (AA), a flagship export promotion mechanism under the Foreign Trade Policy (FTP) 2015–2020, allows duty-free import of inputs required for the manufacture of export products.

With the rollout of the Goods and Services Tax (GST) in July 2017, the tax structure on imports changed dramatically. While exporters continued to enjoy exemption from Basic Customs Duty (BCD) under the AA Scheme, questions arose over whether Integrated GST (IGST) and Compensation Cess would also be exempted.

To address this, the Government of India issued Customs Notification No. 79/2017-Customs, dated October 13, 2017, which extended IGST and Cess exemptions to exporters — but with a crucial caveat: the “pre-import condition.”

This meant that inputs had to be imported before exports took place, creating logistical and compliance complications for exporters who followed a parallel import-export cycle or used domestic sourcing.

The Controversial Rule 96(10) and Its Fallout

Simultaneously, Rule 96(10) of the CGST Rules, 2017 was introduced, restricting the refund of IGST paid on exports for those who had availed specified duty exemptions, including under the AA Scheme and Export Promotion Capital Goods (EPCG) Scheme.

Effectively, exporters who had claimed IGST exemption at the import stage under Notification 79/2017 were barred from claiming IGST refunds on their exports.

This rule was criticized by the export community as discriminatory and retrospective in effect, leading to financial strain and blocking of working capital. The period from October 13, 2017, to January 9, 2019, became particularly contentious, as policies kept changing and interpretations differed across customs zones and DGFT regional authorities.

Policy Corrections: Withdrawal of the Pre-Import Condition

Recognizing industry hardships, the Government issued Customs Notification No. 01/2019-Customs dated January 10, 2019, formally removing the pre-import condition. On the same day, the DGFT amended Para 4.14 of the FTP via Notification No. 53/2015-2020, allowing exemption from IGST and Compensation Cess under the AA Scheme without the pre-import restriction.

While this brought relief to exporters prospectively, thousands of Advance Authorisations issued between 2017 and 2019 remained in limbo, as Customs and DGFT authorities were unsure whether to grant redemption or Export Obligation Discharge Certificates (EODCs) for such cases.

Judicial Developments: The Supreme Court’s 2023 Verdict

The policy stalemate reached the judiciary, culminating in the Supreme Court judgment dated April 28, 2023 [2023 (5) TMI 42 - Supreme Court], in which the Court upheld the Revenue’s appeal but directed that affected exporters should be permitted to claim refunds or Input Tax Credit (ITC) wherever admissible.

Following this, Customs Circular No. 16/2023-Customs (dated June 7, 2023) was issued to operationalize the ruling. The DGFT also issued corresponding Trade Notices No. 07/2023-24 (June 8, 2023) and No. 27/2023 (September 25, 2023), clarifying that exporters could regularize their cases subject to compliance verification.

The 2025 DGFT Clarification: Policy Circular No. 07/2025-26

The new circular of November 11, 2025, is the final administrative step toward resolving the issue. It permits redemption and issuance of EODCs in the following situations:

1. Payment of IGST in Cash – Where the exporter has paid IGST in cash during imports under the AA Scheme between October 2017 and January 2019.
2. Non-Availing of IGST Exemption – Where no exemption from IGST, Compensation Cess, or other levies (except BCD) was availed.
3. Compliance with Pre-Import Condition – Where the pre-import requirement and other procedural conditions were duly met.

The DGFT explicitly states that EODC shall not be withheld if these conditions are satisfied, provided all other export obligations are fulfilled.

This clarification, issued under the approval of the Director General of Foreign Trade, is expected to unlock thousands of pending authorisations and ease long-pending disputes between exporters and customs authorities.

The Controversy in Retrospect

The Rule 96(10) episode is often cited as one of the most confusing policy phases in India’s post-GST export framework. The controversy stemmed from:

• Frequent policy changes within short intervals (2017–2019).
• Lack of coordination between GST, Customs, and DGFT wings.
• Ambiguities in interpretation regarding refund eligibility and pre-import obligations.
• Financial impact on exporters, many of whom faced working capital blockage or EODC rejections.

Export associations had repeatedly lobbied the government to issue retrospective relief, arguing that exporters had acted in good faith under rapidly changing notifications.

Conclusion: Closing a Chapter in Export Policy Uncertainty

The DGFT Policy Circular No. 07/2025-26 marks a long-awaited resolution to a seven-year-old issue that arose in the early GST transition period. By clearly defining the conditions under which EODCs can be issued and acknowledging the compliance efforts of exporters, the government has taken a pragmatic step toward restoring industry confidence.

While the scars of the 2017–2019 confusion remain a lesson in policy synchronisation, this circular represents a mature reconciliation between trade facilitation and revenue protection, ensuring that genuine exporters are not penalised for systemic ambiguities.

Author’s Note:
The DGFT’s clarification underscores the importance of inter-departmental coherence in India’s trade policy architecture. As India aspires to expand its export base under new FTP frameworks, consistency, clarity, and timely communication will be crucial to ensuring that such disruptions are not repeated.