GST Refunds for Exporter of Services – 7 Controversies

In this article I will discuss – 7 controversies in GST refund for exporters of services. These are elaborated as below: –

1. Forex Receipt – FIRC / BRC

In case of service exporters, GST refunds are available on the basis of receipt of convertible foreign exchange. And to evident the payment against export invoices, proofs demanded by department is Foreign Inward Remittance Certificate or Bank Realisation Certificate. The same has been asked in the board circulars as well.

But now a day’s banks are issuing foreign remittance advices instead of the forex remittance certificate. As per RBI Circular – AP(DIR) Circular No 74 of 26 May 2016, RBI decided to discontinue with immediate effect issuance of FIRC for any export related payment. It has also been decided that FIRC may be issued for inward remittance covering FDI / FII. In all other cases, there is no provision for issuing FIRCs.

In reference to that circular Foreign Exchange Dealers’ Association of India has issued Special Circular SPL-04 dated 21^st April,2016 in this regard.

Let me clarify that getting Bank Realisation Certificate (BRC) by a bank is long procedure and subject to the exporters business. Generally, BRC is used for getting the Export Benefits under various export promotional schemes of Government of India. Bank upload the details of export realisation on DGFT portal and then the server has given an acknowledgement for the same to the Bank, DGFT’s module allows exporters to view status of their eBRCs on DGFT’s website.

Practical issue in BRC comes in case of partial payments. BRC issued by bank is invoice to invoice and in case of partial payments it shows the date of realisation is the date of receipt of last remittance. For an example, against an invoice of $100,000 raised on 30^th June, 2019 remittances received of $ 25,000 on 15^th July, 2019 and $ 75,000 on 07^th August, 2019 – BRC shows realisation date as 07^th August, 2019. So, in that case FIRC suffice the purpose because BRC shows some other picture.

But as the banks have stopped issuing the FIRC – BRC is technical and procedural – Department is not accepting remittance advice. A suitable clarification / amendment is required to be issued to avoid these kind of documentation controversies.

2. Statement-3 and Export Turnover

Statement-3 is uploaded in Form RFD-01, it contains the details of invoices against which the remittances has been received. Situation become worsen when partial payment has been received against the invoices. One of the problem with Statement-3 is that it freezes the invoices entered irrespective of the fact whether full payment is received or partial payment is received. Once the invoice number entered in any particular claim period, GST portal freezes that particular invoice and refund cannot be claimed against same invoice in future period. Problem comes where the payment against the invoice has not been received in full, sometime partial payments received in claim month and rest in another month. In the case of partial payments, while filing refund claim in respect of the particular invoice in next month, it doesn’t capture the details of the invoice as it has already been entered in previous month. It leads to mismatch with export turnover and hence creates a confusion.

Let us understand it with an example, suppose an invoice X of $1,00,000 raised by party in April and against that invoice a payment of $50,000 received in June and $50,000 in July. When we will file the refund claim for June – $50,000 is the export turnover but GST portal freezes the Invoice X in the month of June and will not accept the same invoice in July month refund claim. And hence the accurate figures will not be captured in Statement -3 of July month of refund claim due to invoice freezing in June month.

To overcome the issue, it is advisable that: –

1. while filing the Export Turnover in Form RFD-01, actual export remittances must be considered by ignoring the Statement-3 details.

2. Upload a correct statement-3 in scanned form duly signed and stamped by stating the facts and practical problem of reporting.

3. Upload a statement of calculation of export turnover by providing the chart containing the details of all the export remittances with corresponding export invoices. Also mention the export invoices not accepted by the system.

3. Circular -135/05/2020 dated 31^st March,2020 – Restricted ITC to GSTR-2A

Recent circular-135 is restricting the Input Tax Credit refund to the invoices appearing in the GSTR-2A. It modifies the circular the circular 125 which permits to claim refund of ITC on the basis of invoices where the invoices are not appearing in GSTR-2A.

Input Tax Credit is the taxpayers legitimate right and it cannot be restricted to the details with GSTR-2A. This pro revenue exercise of the government is not in line to GST law. To deliberate further, if all the conditions of availing ITC are complied with, ITC cannot be denied on the basis that the invoices are not appearing in GSTR-2A.

It is not to be forget that the government has itself allowed a scope of 10% of ITC for the invoices not appearing in GSTR-2A by amending Rule 36(4). This Circular -135/2020 dated 31-03-2020 is contrary to the Rule 36(4) itself.

Circulars are binding on the department and its officers. It helps them to interpret the law correctly and follow the procedures in right way. Circulars are part of delegated legislation which is required to interpret the main legislation. And winning in court of law against these delegated legislations is easy in comparison to challenging main legislation. Circulars cannot be contrary to main law and hence must be in spirit with it.

Hence, It is advisable to claim ITC of those invoice also which are not appearing in GSTR-2A. Let the department reject it. That can be challenged in court. But once not applied the refund against these invoices, there will no resort left with us.

4. Time Limit of Refunds

General time limit to file the GST refunds is two years. In case of service export, it is two years from date of receipt of remittance.

As the law provided that department can issue deficiency memo against these refunds within 15 days of filing of refund claims. Taxpayer is to file application afresh with rectifying the defects as intimated by the department. And more interestingly that fresh application is to be filed within two years of date of receipt of remittance. However, department can also issue deficiency memo further – if it is not satisfied with the refund application and more interestingly taxpayer has to file the fresh application again within the time-limit of two year.

If you are filing refund application in the last month of the two years’ time period, say in 23 months – two deficiency memo can spoil your whole refund – say both deficiency memo issued at 15^th day of filing of application and you replied on say 5^th day however you have 7 days’ time limit to file afresh application. In that case total days gone in this whole process is 40 days – unfortunately time limit of two years expires and refund application is time barred legally.

Hence It is advisable to not wait for last moment, file it at earliest you can. Trying to file it within 21 months of date of remittance – don’t drag it beyond.

5. Deficiency Memos

Issuance of Deficiency memos against GST refund are highly controversial on the reason that these are issued in such a manner that whole GST refund filed by taxpayer is wrong.

As per practical experience – Deficiency memos are issued by the department are not as in expected lines. These are generally: – 

A. Non-Specific – These are comprehensive one and not directing the taxpayers where they are wrong and which documents they have not uploaded.

Some examples: –  

i. Kindly attach the relevant documents as per Circular No 125. and in the correct jurisdiction

ii. Circular No. 135 not complied with.

B. Lacks clarity – However practices are improving day by day but still many of the jurisdictions are issuing such kind of Deficiency Memos by mentioning: –

i. Supporting document not attached

ii. Supporting documents not legible

Can it be the case that all supporting documents are not attached or all the supporting documents are not legible.

However, things are improving, but still lot of issues are there. So, my sincere and practical advice to readers are that while filing refund application, don’t give chance to department for issue deficiency memo. Upload all the relevant documents / details as asked in Circulars of department. Wherever you want to give any clarification, give it under a covering letter and enclosed all suitable documents. Don’t leave any stone unturned from your-side. And most important, while filing fresh refund application after issuance of Deficiency Memo – don’t forget to file a suitable reply by mentioning how you have take care of the points raised in the deficiency memo.

6. No refund on Capital Goods

It’s the irony of the GST refunds that refund of ITC on capital goods is not available to the exporters. Government intention might be that refund facility can be easily misused in case of capital goods where the exporters can claim the whole refund of ITC on Capital Goods in a single month and in next months it starts using that Capital Good in domestic supplies. However ultimately the sufferer is 100% exporter, whose ITC on capital goods get piled up due to no refund.

There should be mechanism for refund of Capital Goods so that exporters cannot be deprived of GST Input / Output refunds.

7. Provisional GST refunds

Issuance of provisional refunds is a farce. As per law, 90% of the claimed refund must be sanctioned provisionally within 7 days of issue. But in how many cases, it is being sanctioned. Figures are not that great. Its high time for the government to come forward and strictly enforce the sanctioning of refunds on provisional basis so that exporters will get early cash.

(Author can be reached at [email protected])