Refund rejected for claim under 89(4) since few exports under advance authorisation

[NRSR CO]

We are into the cashew manufacturing industry. We do export as well as local sales. In our export there will be export with advance authorisation and in some cases export against DFIA.

We were filing refund applications under 89(4) (Export without payment of duty) till february 2021 in Central GST jurisdiction and we got the refund. We filed a refund application under the same rule for March 2021. A Jurisdictional officer issued SCN asking why refund can't be rejected since few exports under AA (expecting application has to be filed under rule 89(4B) since export includes Advance Authorisation)..

We would like to bring into your notice that Rule 89(4B) is incomplete for beneficiaries of notification 79/2017. Master circular 125/44/2019 is silent about the manner of computation of refund under rule 89(4B).

We have local sales (neither 89(4) nor 89(4b) applicable)as well (we are not 100% EOU). Hence the input tax credits cant be practically segregated based on utilization (say its difficult to identify which input service or inputs used for exports (either DFIA export or AA exports) or local sales.

Formula given in the rule 89(4) is proper from all respects and the whole manner of application under rule 89(4) is explained properly under 125/44/2019. Whereas 89(4B) even though the beneficiary amendment, is read and understood in a narrow mind set. Such interpretation will cause unnecessary delay in refund sanction and working capital block .

Department is expecting the nexus of input and input services used in export.

Need expert advice on the issue.

[Shilpi Jain]

Refund should be available as per formula in the rule and no nexus is required to be shown between inputs and output

[NRSR CO]

Hello Ma'am, Thanks for the reply. Dept.is saying in case of export against advance authorisation ,refund application should be under 89(4b). In 89(4) formula is prescribed. But in 89(4b) no formula is prescribed.

[KASTURI SETHI]

Dear Querist,

The department is absolutely right. You are to prove the consumption of inputs and input services in the exported goods. CMA's certificate regarding the usage would suffice.

Emphasis is laid on the words, 'To the extent used in the export of goods' in Rule 89 (4B).

[NRSR CO]

Kasthuri sir,

We have export against DFIA, Export against advance authorization and local sales as well. Goods imported will be exported in another month. So it is difficult to establish the nexus in manufacturing sector. There are common input and input services which will be used commanly for all exports as well as local sales. Moreover there are no circulars or instructions from department side to apply for the refund in this circumstances.

[Shilpi Jain]

Identifying one to one inputs or services to the export is impossible in many ages which is why it is objectively to be identified Vicente formula provided.

[CA Hemanth Kumar]

Dear NRSR CO,

If we see the common portal, there is no separate application provide for exports made under AA. Common application is provide for all categories of exports made under LUT where the refund will be derived as per the formula prescribed under 89(4).

[NRSR CO]

Hello Hemanth, But in the master circular there is one point about the merchant exporters. There it says to file under other category. But not syas how to derive the ITC.

[NRSR CO]

2022 (2) TMI 1002 - GUJARAT HIGH COURT MESSERS FILATEX INDIA LTD. VERSUS UNION OF INDIA

New case law on the subject.

AI Summary

Refund under advance authorisation: requirement to demonstrate input nexus may block formula-based export tax refunds and liquidity. Issue whether exporters using advance authorisation must claim refund under Rule 89(4B) by proving nexus of specific inputs/input services to exported goods, or whether the formulaic computation under Rule 89(4) can be applied where inputs are commonly used for exports and domestic sales. The master circular lacks guidance on 89(4B) computation, the common portal does not separate application types, and department officers have requested evidentiary proof such as a cost accountant's certificate, creating practical difficulty and liquidity concerns.