IGST paid through customs challans may settle export-scheme defaults, but unclear documentation rules leave businesses uncertain whether they can reclaim the tax as input credit.
India’s latest goods and services tax reforms may have eased some compliance burdens, but exporters still face a stubborn credit problem when they regularise defaults under the Advance Authorisation and Export Promotion Capital Goods schemes. The issue is simple in principle but awkward in practice: customs duty and integrated GST can be paid through challans on the ICEGATE portal, yet the tax credit for that payment is not always easy to claim because the challan itself is not treated as a prescribed document for input tax credit. Business Standard has highlighted that gap, arguing that the government collects the tax while the credit position remains uncertain for the exporter.
That uncertainty matters most when an Advance Authorisation holder misses an export obligation and later settles the liability under the Handbook of Procedures. Under the current framework, exporters can pay customs duty on the value of imported or domestically procured material that was not used as planned, with interest, through the customs payment system. But where IGST is discharged through a challan rather than through reassessment of the original bill of entry, the payment may not automatically flow into the GST return system. Tax specialists point out that Rule 36(1)(d) of the CGST rules recognises a bill of entry, or a similar customs document, for import IGST credit, but not a standalone payment challan.
Recent rulings have sharpened the concern. In the Becton Dickinson India case, the Tamil Nadu appellate authority for advance ruling upheld a denial of input tax credit on differential import IGST paid through TR-6 challans, even where those challans were backed by supporting documents. Commentators said the authority also treated reassessed bills of entry as subject to the normal time limit for claiming credit. While that case did not involve an Advance Authorisation or EPCG default directly, it illustrates the documentary hurdle exporters may face if they try to claim credit through GSTR-3B without a recognised customs document.
There is, however, a possible route forward. After the Supreme Court’s decision in Union of India v Cosmo Films, the Central Board of Indirect Taxes and Customs issued Circular 16/2023-Customs, which set out a reassessment process for regularising violation of the pre-import condition under Advance Authorisation. Tax commentators say no equally clear, general mechanism exists for reassessment when other Advance Authorisation or EPCG defaults are settled, leaving exporters in a grey zone. The position is even more complicated for domestic procurement against invalidation letters, where no bill of entry exists at all. In those cases, the rules need to state plainly whether the IGST component is creditable and, if so, what document will support the claim.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
