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Delhi high court directs Centre to clarify CGST rule on refund

LiveMint logoLiveMint 25-08-2017 Shreya Agarwal

New Delhi: The Delhi high court on Friday directed the Centre to issue a clarification on one of the rules pertaining to the central good and services tax (CGST) which provides for a refund of integrated tax paid on export of goods and services.

The directive came on a petition filed by Aphro eCommerce Solutions Pvt. Ltd, a Delhi based-web developer and IT software solutions provider, seeking “parity and a level playing field in business.”

The petition raises issues with the policy of the government for refund of integrated tax paid on exports of goods and services. One of the provisions allows a refund of the tax paid on furnishing of a bond or letter of undertaking.

A notification was issued on 7 July 2017 by the government for implementation of this provision. It lays down submission of letter of undertaking without furnishing any bank guarantee for exporters with a turnover of at least Rs1 crore and for ‘status holders’ under the Foreign Trade Policy 2015-2020.

Exporters with a turnover of less than Rs1 crore are mandated to furnish a bank guarantee of maximum 15% of the bond amount to be decided at the discretion of the concerned jurisdictional commissioner.

Discrimination between big and small entities has been alleged by the petitioner, who claimed that the policy places “the big players in the business of export in an advantageous position.”

Blockage of the working capital of small time exporters and entrepreneurial ventures by such a policy has been highlighted by the petition.

Counsel for the petitioner argued that, “On one hand one boasts of encouraging start-ups in India, on the other there are policies like this. On every export of Rupees 50 lacs, upto Rupees 15 lacs get blocked in this manner for a small time exporter.”

No observations were made by the court on the constitutional validity of the policy. However, the court after studying the challenged provision, opined that the circular issued by the Government on 7 July, in this regard provided that “the bond has to be furnished by the exporter on the amount of tax paid on supply.”

Therefore, whether any bond will have to be furnished with a bank guarantee on zero-rated supplies was unclear. The court has directed the Government to issue a clarification in response to this query.

The matter is expected to come up for hearing next on 26 October.

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