Export of goods on payment of IGST | Goods Return

[Nikunj Kishorbhai Tosar]

Fact of the case:

Export of goods made with payment of IGST, and refund received of it against the unutilized ITC. Subsequently the customer returned the partial goods due to quality issues. the rejected goods were imported and IGST paid on filing the Bill of Entry.

Question 1: whether the refund received is required to be paid back with interest considering the Rule 96B - "Recovery of refund of unutilised input tax credit or integrated tax paid on export of goods where export proceeds not realised".

Question 2: to record the rejected goods imported - a credit note (export with payment of tax) can be generated, and liability can be reduced in GSTR-1

Export of Goods	Amount
Export Invoice With payment of tax	Liabilty Increased	5,00,000
Impact on ITC	ITC Decreased	-5,00,000
Refund Received	Cash Increased	5,00,000
	Total (A)	5,00,000
Goods Retuned	Amount
Credit note with payment of tax	Liab Decreased	-5,00,000
Impact on ITC	ITC Increased	5,00,000
Refund to be paid back	Cash Decreased	-5,00,000
	Total (B)	-5,00,000
Net Impact	(A) - (B)	-

Thanks in Advance.

[YAGAY and SUN]

Question 1: Applicability of Rule 96B

Rule 96B of the CGST Rules applies when export proceeds are not realized within the period allowed under FEMA. However, in your case, the partial goods exported with payment of IGST were returned by the customer due to quality issues and re-imported into India with IGST paid at the time of filing the Bill of Entry. This constitutes a commercial return of goods, not a case of non-realization of export proceeds. Therefore, Rule 96B is not attracted, and refund received earlier under export with payment of tax is not required to be repaid with interest merely due to the return of goods, provided the transaction is adequately disclosed and documented.

Question 2: Treatment of Returned Goods and GST Liability

For the returned goods, a credit note can be issued under Section 34 of the CGST Act, even for exports made with payment of tax. This will reduce the outward tax liability in GSTR-1. Since the goods were physically returned and IGST was paid upon re-import, the reversal of liability via credit note is appropriate. The IGST paid on re-import can be claimed as input tax credit under Section 16, subject to eligibility.

Your accounting treatment—reducing outward liability and restoring ITC aintains neutrality. However, if the refund was claimed and retained for the full export amount, and part of the goods were returned, then proportionate refund should ideally be adjusted or voluntarily reversed to avoid dual benefit, although not under Rule 96B, but as a general principle of avoiding unjust enrichment.

Conclusion:
Refund is not repayable under Rule 96B in case of goods return. Issuance of credit note and ITC on re-import is valid. Ensure proportionate adjustment in refund/ITC to maintain tax neutrality and avoid future disputes.

[Shilpi Jain]

The said rule talks about non-realisation. Bu the present case of non-payment is due to rejection which is ideally a case of reduction in invoice value. 

Though, if you have sufficient balance in itc ledger you could consdier to take a stand of no interest , coul dbe disputed.

[Nikunj Kishorbhai Tosar]

Thank you for your valuable reply.

As per my view, Refund is not required to be paid back with interest where exported goods return and on re-import of goods IGST paid on filing of BOE.

AI Summary

Export refund adjustment: returned goods re imported with IGST support credit note treatment and avoid Rule 96B recovery.
Whether an export refund obtained on goods exported with payment of IGST must be repaid with interest where those goods are later commercially returned and re imported with IGST paid. Rule 96B targets non realisation of export proceeds under FEMA and does not apply to documented commercial returns with re importation. A credit note should be issued to reduce outward liability and IGST paid on re import may be claimed as input tax credit, with proportionate adjustment to avoid unjust enrichment.