Many rulings have been held in favour of assesses on the ground of “Taxes shall not be exported along with goods and services outside India”. In other words, the taxes consumed in the goods or services exported shall be refunded to the exporters in totality.

GST has been introduced in India on the fundamental principle of seamless credit of GST throughout, which would consequently result in reduction of prices of goods and services and value of goods and services will not be burdened with tax element. Unfortunately, the GST has been implemented against its fundamentals and the same is proved by various amendments took place since the inception of GST.

There are many instances, but the latest one is the amendment in Rule 89 (4) (C) of the CGST Rules, 2017 introduced by way of substitution of the definition of “Turnover of Zero Rated Supply of Goods” vide Notification No.16/2020-Central Tax dated 23.03.2020.

The Definition is now read as under:

“(C) ‘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, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;"

Shocking, but yes… it’s something newly invented term "1.5 times" to restrict the refund to the exporters. Now exporters have to face this new issue apart from 2A matching, restriction of refund to FOB, delay in release of refunds, etc.

I am not saying it is absolutely baseless and arbitrary, but any prudent exporter will at least expect the rational behind the term “1.5 times the value of like goods domestically supplied” and the manner of its implementation. Surprisingly, the definition of ‘Like Goods’ is not provided in the CGST Rules. Thus, as an immediate aid, I expect somebody to explain “what is 1.5 times of like goods..?”.

The consequences of the restriction of export turnover for the purpose of claiming refund is the secondary aspect. Primary aspect is what is like goods and what are the parameters to determine it. It is an accepted fact that the introduction of “1.5 Times” concept may result in positive as well as negative also, but immediately what is required is the definition of similar goods and the reasons behind introduction of “1.5 Times” concept.

There are two options provided to exporters to claim refund of GST. First, to obtain LUT and export goods without payment of IGST and seek refund. And, second option is to pay GST on export goods and consider shipping bill as an application for refund. The second option has been evolving speedily as compare to the first option. In the first option, the exporters are not allowed to seek refund of GST paid on Capital Goods whereas, in second option, there is no such restriction. The issue of refund of GST paid on Capital Goods to exporters is pending before the Courts and result may be expected soon.

In the second option, the value of exported goods is also not under challenge and IGST paid on the said value is easily available by way of refund. On the contrary, in case of refund under the first option where goods are exported under LUT, the value of exported goods is subject to scrutiny and the same is now restricted to 1.5 times of the like goods supplied in the domestic market.

Almost, my all clients are exporters and following are there doubts on the issue:

  1. How the valuation of goods exported is scrutinized especially under the circumstances the  overseas buyer is not a related party?
  2. Why the value of goods is restricted to the 1.5 times of like goods supplied domestically?
  3. What if, I don’t have like goods supplied in the domestic market?
  4. Should I maintain value of export goods similar to the like goods supplied in the domestic market, even if, I can otherwise export it at high value?
  5. What is the remedy for me if my GST ITC will accumulate permanently due to application of 1.5 times concept?
  6. From where I should pay Bank interest on the amount which will accumulate permanently due to application of 1.5 times concept, as I am running business on Bank facility?
  7. What information I should provide to the Departmental Officers for determining the valuation of export goods? And is it mandatory?
  8. The term ‘like goods’ has not been specifically explained for the said sub-rule. Department may take a different view with regards to like goods & may further reduce refund by reducing value of exports;
  9. Law does not define phrase “Similarly Placed Suppliers”. Prices charged by suppliers are always different depending upon their reputation, hold in the market, competition, quality they offer, special packaging and many other aspects. Thus, the matter under consideration is which price shall be considered as base for computing 1.5 times of domestic value. Government should have given the acceptable deviation margin arising on account of such aspects.
  10. When the Input Tax Credit history says that the Cenvat Credit/ ITC is a common pool, where is the question of restricting its refund to the value of the exported goods.

The above points are few, but there are still many unanswered questions on this issue ….!!

Now let me tell you the practical approach. It was explained by one of the Departmental Officers that even if, you don’t have any like goods domestically supplied by your company, you are required to take value of the like goods supplied domestically by any other Indian supplier and then apply 1.5 times ratio on the said value for the purpose of arrive at the value of “Zero Rated Supply”. And if, your goods are unique and the like goods are not supplied in the domestic market, then the case shall be referred to the CBIC for determining value of the said goods for the purpose of “Zero Rated Supply”. I was totally shocked, as I can't even imagine referring the case to the CBIC for determining the export valuation, that too for the purpose of GST refund of accumulated ITC…!!

I know it’s rather tuff time for exporters and very difficult to even digest such a baseless and arbitrary amendments and moreover the views of the Departmental Officer on the same. It is extremely difficult for Indian businessmen to establish business in India, fetch business from overseas buyers, export goods following the cumbersome Customs procedures, bring FOREX in India, contribute overall GDP of India and on the other side, struggle for the export benefits and eventually lose them due to such an arbitrary amendments and Departmental Officers’ views.

Before parting, it is my request to our professional fraternity to guess what is the meaning of Like Goods and how to implement 1.5 times concept, because, what we can do is only analysis to help exporters.