ECGC Insurance Claims Under the RELIEF Scheme: Navigating GST Refund Risks and FEMA Realisation Obligations for Indian Exporters

The Government of India's RELIEF scheme, launched in March 2026 against the backdrop of escalating West Asia hostilities, has brought much-needed commercial relief to Indian exporters grappling with disrupted freight corridors, spiking war-risk insurance premiums, and buyer payment failures. However, beneath the surface of this policy intervention lies a critical and largely unaddressed compliance trap — one that sits squarely at the intersection of GST law, FEMA regulations, and the Export Credit Guarantee Corporation of India's (ECGC) insurance settlement mechanics.

This analysis unpacks that intersection in detail and provides exporters — particularly MSMEs — with a structured understanding of the legal risks and the steps needed to protect their GST refund positions.

I. Understanding ECGC Claims and the RELIEF Scheme

What Are ECGC Claims?

ECGC operates as India's export credit insurer. When an overseas buyer defaults on payment, or when political upheaval in the importing country prevents settlement, ECGC steps in and compensates the exporter for the resulting financial loss. In essence, these are insurance payouts triggered by:

• Buyer default or insolvency (commercial risk)
• War, sanctions, or political disruption in the importing country (political risk)

The RELIEF Scheme: Structure and Scope

On March 19, 2026, the Ministry of Commerce unveiled the RELIEF (Resilience & Logistics Intervention for Export Facilitation) Scheme under the Export Promotion Mission (EPM), with a financial outlay of ₹497 crore. The scheme was designed to absorb the extraordinary burden placed on Indian exporters by the West Asia conflict — particularly disruptions around the Strait of Hormuz, which caused vessel diversions, extended sailing routes, transshipment congestion, and emergency conflict surcharges.

Commerce officials acknowledged that exporters to the Middle East faced unprecedented challenges — shipments failing to reach destinations, future exports being jeopardised, and widespread payment uncertainty across the region.

The scheme is structured into three distinct components:

1. **Component I (₹56 crore)😗* Covers exporters already holding ECGC cover for shipments made between February 14 and March 15, 2026. The government tops up war and political risk losses beyond standard ECGC coverage, keeping premium levels at pre-disruption rates.

2. **Component II (₹159 crore)😗* Applies to fresh export shipments from March 16 to June 15, 2026, offering enhanced ECGC coverage up to 95% for exports destined to UAE, Saudi Arabia, Kuwait, Qatar, Oman, Bahrain, Iraq, Iran, Israel, and Yemen.

3. **Component III (₹282 crore)😗* Specifically targets non-ECGC-insured MSME exporters, reimbursing up to 50% of additional freight and insurance costs for shipments to the same ten countries.

ECGC Ltd. will operate a real-time, dashboard-based tracking system for claims and fund disbursement.

The critical issue: While the RELIEF scheme provides commercial comfort, it does not resolve — and may inadvertently obscure — the GST law obligation tied to export proceeds realisation.

II. The GST Legal Framework: Why Realisation of Export Proceeds Matters

A. Section 16(3) of the Integrated Goods and Services Tax Act, 2017 — The Governing Provision

The proviso to Section 16(3) of the IGST Act, 2017, as it currently stands following Notification No. 27/2023-Central Tax (effective October 1, 2023), reads:

"Provided that the registered person making zero rated supply of goods shall, in case of nonrealisation of sale proceeds, be liable to deposit the refund so received under this sub-section along with the applicable interest under section 50 of the Central Goods and Services Tax Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 (42 of 1999.) for receipt of foreign exchange remittances, in such manner as may be prescribed."

This provision transformed what was once a procedural condition into a hard statutory obligation. From October 1, 2023, realisation of export proceeds is no longer optional for an assessee to retain either the IGST refund on exports or the refund of unutilised Input Tax Credit (ITC). Failure to realise proceeds within the FEMA-prescribed window mandates deposit of the refund along with applicable interest.

B. Rule 96B of the CGST Rules, 2017 — The Recovery Mechanism

Rule 96B(1) operationalises the statutory obligation:

Where an assessee has received a refund of ITC or IGST on export of goods, but sale proceeds remain unrealised — in whole or in part — within the FEMA-permitted period (including any extension), the assessee must:

• Deposit the refund (proportionate to unrealised proceeds) within 30 days of the FEMA deadline's expiry
• Failure to deposit within this window triggers recovery proceedings under Sections 73, 74, or 74A of the CGST Act

However, the proviso to Rule 96B(1) carves out a critical protection: where the RBI writes off the requirement of realisation of sale proceeds on merits, the refund already paid shall not be recovered.

Rule 96B(2) provides a restoration route: if foreign exchange is subsequently realised after the initial recovery, and the assessee furnishes evidence of such realisation within three months from the actual date of receipt, the recovered amount is refunded by the proper officer — provided the proceeds were received within the extended FEMA period.

C. The GST Compliance Timeline at a Glance

D. An Important Textual Distinction: Rule 96A vs Rule 96B

Rule 96A, which governs exports under Letter of Undertaking (LUT) or Bond, explicitly uses the phrase "foreign exchange" or "Indian Rupees wherever permitted by RBI" — acknowledging INR receipt as a valid realisation mode in RBI-permitted scenarios.