Reconsider disallowing IGST for exports: Commerce department to FinMin | Business Standard News

Clipped from: https://www.business-standard.com/article/economy-policy/reconsider-disallowing-igst-for-exports-commerce-department-to-finmin-121022600070_1.html

The move to disallow IGST for exporters is aimed to plug large-scale frauds in the GST system

Exporters have said that over time the IGST refund system had become seamless, whereas input tax credit refunds took longer.

The commerce department has conveyed to the finance ministry exporters’ concern related to the Budget proposal of disallowing integrated goods and services tax (IGST) for exports and recommended a re-look at the proposal before the Finance Act is finalised.

Exporters have said that over time the IGST refund system had become seamless, whereas input tax credit refunds took longer.

Besides, while capital goods input taxes can be adjusted under IGST, it is not permitted under the input tax credit system, which will be a challenge for exporters.

The move to disallow IGST for exporters is aimed to plug large-scale frauds in the GST system.

“We came across cases where several exporters were wrongfully claiming IGST refunds. Therefore, we decided to do away with it,” said a government official.

“The commerce department has flagged the concern of exporters to the revenue department. It will be discussed,” the official added.

According to the Finance Bill, 2021, the amendment to Section 16 (3) in the IGST Act would take away payment of taxes through IGST credit but retain only paying these taxes and claiming refunds through input tax credit (ITC).

Exports of goods or services are treated as zero-rated supplies. An exporter may supply goods or services after paying IGST and can claim a refund of the amount of the tax paid on such goods or services. The exporter may supply goods or services under a bond or letter of undertaking without paying integrated GST and then claim a refund of the unutilised input tax credit.

Exporters have also protested the insertion of a rule under the Customs Act for empowering authorities to confiscate goods which were mis-declared for the purpose of refunds and remission.

Ajay Sahai, director general and chief executive officer of the Federation of Indian Export Organisations, said the IGST refund process became seamless over time because there was no need for any application.

“The shipping Bill was serving as a document for application and if GST returns are in place, the refund process was seamless.”

He added that a majority of the exporters availed of IGST refunds, instead of ITC refund as the system was much more efficient.

For example, if an exporter is to pay Rs 1.2 lakh as tax and has IGST credit of Rs 1 lakh on his account, he can pay Rs 1 lakh through IGST credit and against Rs 20,000 as IGST, use that credit or take refund from the IGST account.

On the other hand, in ITC there are a couple of issues, Sahai said. “First I have to choose the period for which I have to file a claim. It will be a minimum of a month, maybe a quarter, six months, or a year. If it is for a quarter, I have to wait for a quarter to be over to file the application. In any case, I have to combine all the shipping bills and the documents and file a claim, the claim is scrutinised prima facie and then an acknowledgement issued,” he said.

Besides, in the case of ITC refund, exporters have to deal with two tax authorities — the Centre and a certain state tax authority.

Exports continued to contract most months of the current financial year, briefly looking up in September, when lockdown was lifted in many areas. However, they again contracted in October and November. Since then, exports rose moderately by 0.14 per cent in December and 6.16 per cent in January. However, the recent merchandise global trade barometer from the World Trade Organization indicates that the rebound in world trade in October-December 2020 may not sustain in January-June 2021.

The Department of Revenue in November introduced a new GSTR 2B form for matching inputs.

“With matching in place and the issue of fraud claims will be addressed,” said Sahai.

The Finance Bill also proposes to insert a rule under the Customs Act for empowering authorities to confiscate goods mis-declared for refund and remission.

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