Refund issues play havoc on exporters’ bottomline in post-GST era, seek relief from Delhi HC : 07-12-2018

Exporters are facing acute crunch of working capital as they continue to experience refund issues in the post-GST regime with the government inserting rules retrospectively and taking a rigid stance on how certain policies should be implemented.

Issues such as refund of Integrated Goods and Services Tax (IGST) on export of goods or services in case of exports with payment of tax, advance authorisation, which warrants a requirement of pre-import, sanction of refund claim by assigned jurisdictional authority and refund of GST by Indian branch office are some primary issues adding to the woes of exporters.

Harpreet Singh, Partner at KPMG India explains that under GST, exporters are entitled for benefit by way of refund or rebate. In the refund option, input taxes are refunded to the exporters and no taxes are levied on the output for exports. However, under the rebate option, input taxes are used to pay output tax on exports and the tax paid on output is refunded to the exporters.

“Recently, certain kind of exporters have been restricted from availing the rebate option. These exporters include tax payers who have availed prescribed benefits like EOU exemption on imports and advance authorisation. In this regard, it is to be noted that the said exclusion is nowhere specified in the Act and has been retrospectively inserted in the regulations,” says Singh.

The restriction, he says, appears to be inconsistent with the overall scheme of the Foreign Trade Policy and the ‘Make in India’ policy promoted by the Government.

As far as Advance Authorisation (AA) is concerned, there is a benefit of exemption from payment of IGST on imports. However, Directorate of Revenue Intelligence (DRI) has issued several notices to exporters contending that the import of raw material against which the benefit of AA is being availed should precede the exports. “Such a condition curtails benefit of exporters who are functioning under AA. Restriction for claiming rebate coupled with pre-import condition under AA has imperiled the benefit of input tax credit to exporters. With writs being filed on imposition of said restrictions, finally the courts are likely to decide on the constitutionality of such provisions,” adds Singh.

His statement is in reference to the writ petition filed by a group of exporters in Delhi High Court last week following the lack of pending credit claims from the government.

Abhishek Rastogi, partner at Khaitan & Co, who is arguing the matter before the Delhi High Court says that the denial of credit on non-fulfilment of the export obligation will have to cross the hurdle of constitutional validity. “When such licenses were issued in the pre-GST regime, the exporter would take a decision that partial non-fulfilment of export obligations would not be an issue,” he said

“In the transitional phase to the GST, such issues are bound to occur. However, in the past, the GST council has addressed various such issues pragmatically and it is hoped that this issue is resolved at the earliest,” Rastogi added.

Exporters say that the provision is creating a big hardship and they hope that some respite lies ahead in the near future. “We hope there is some resolution in terms of this unintended omission. The export orders and calculations were based on certain assumptions of law in the erstwhile regime and hence the amendment will help the entire industry,” Aditya Mody, MD of Devashish Polymer, the petitioner said.

Moreover the increased documentation warranted by banks and the stringent norms post GST are also acting as a deterrent to exports .

Dilip Kumar, Director of Lucknow-based Nazrana Chikan said that they have reduced their exports by up to 50% since they have not got back their refunds since July 2017. “Now we hardly get 0.2 or 0.3% of invoice value on duty drawback. The GST wallet has also not been created so far. If exports have to be increased, the process needs to be made simpler for those in the trade,” laments Kumar.

Earlier this year too, exporters had flagged off concerns over the limitations on getting the Advanced Authorisation licenses in the post GST era. After the DRI had issued notices to exporters on wrongfully availing export exemptions, exporters had taken the central government, DGFT and CBIC to court on the raging issue.

Additional issues
Some of the additional issues include sanction of refund claim by assigned jurisdictional authority. Presently as per the circular issued by CBIC, the jurisdictional authority shall sanction the refund claim only for respective GST heads, over which they have jurisdiction. Hence, the concerned jurisdictional officer is required to forward the refund order to a nodal officer for sanctioning the refund claim of remaining GST heads. This whole process leads to unnecessary delays and duplication in refund processing .

Experts say that this unnecessary delay can be reduced if the officer sanctions and disburses the entire refund claim post verification, since the basic condition for refund or document verification remains the same irrespective of the nature of GST taxes involved.

Besides this there is the issue of refund of GST by the Indian branch office. Under GST, transactions between an Indian branch office and head office outside India do not qualify as ‘export of services’ and were subjected to GST. Much recently, such services were exempted from GST, provided that the place of supply falls outside India. In case the tax payer provides exempted output, it is required to reverse input tax credit pertaining to the exempted turnover. Accordingly, Indian branch offices .

“While the Government is actively working towards simplifying exports and refunds under GST, issues like different refund sanctioning authority for each nature of tax, restrictions for specified exporters in claiming rebate, credit blockages for Indian branches etc still need to be addressed,” asserts Singh.

Source : PTI

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