Entitlement of interest on IGST refunds for exporters covered under risky exporters circular

CA Anil Bezawada
CA Ramesh Pathuri

In recent times IGST refund on exports is being suspended by the customs department to some of genuine exporters also on a ground that some exporters are claiming IGST refunds fraudulently by bogus ITC bills or fraudulent ITC claims. In this article we are analyzing the legality of such withholding of refunds & the implication of interest in such cases to genuine exporters.

In the case of export with payment of IGST shipping bill filed with customs for exporting goods itself shall be treated as refund application. The shipping bill shall be processed by the customs department using IGST refund module, which is designed to process the refund application electronically/automatically.

Rule-96 prescribes the detailed procedure for claiming the refund of IGST paid on export of goods or services or bothwith payment of taxes (i.e. applications filed under 2nd option). Rule-96(4) has given power to the department to with held the refund amount under the following cases, where

a) a request has been received from the jurisdictional Commissioner of central tax, State tax or Union territory tax to withhold the payment of refund due to the fact that exporter has not filed GST Returns or issue of eligibility of refund is pending before Courts.

b) the proper officer of Customs determines that the goods were exported in violation of the provisions of the Customs Act, 1962.

From the above discussion it is clear, the refund of IGST on exports can be withheld on the above two reasons only. In case no refund is paid to the applicant by the department except under the circumstances covered under Rule 96(4), interest shall be paid to the applicant.

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Now let’s look in to the issue which is suffering the exporters in recent days. In order to curb the exporters from claiming the refund on the basis of ineligible documents or fraudulently, customs department is marking few exporters as risky exporters and verifying the IGST payments made by such exporters through the respective GST field formations. Circular No. 16/2019 has been issued by the customs prescribing the detailed procedure to verify the IGST payments made by the exporters for export of goods and services.

The step wise procedure for identification of risky exporters and verification of IGST payments made by such exporters is as follows,

I. Based on a pre-defined criteria system identifies the risky exporters and send such list of exporters to respective chief commissioners of central tax and RMCC (Risk Management Centre for Customs).

II. After identification of risky exporters, jurisdictional GST officers shall carry out the verification of all export consignments made by them, IGST payments made towards such consignments and eligibility of input tax credit used for making such IGST payments.

III. The export consignments of such risky exporters shall be verified by the customs officers as per the RMCC alert. The consignment shall be cleared only when the outcome of an examination tallies with the declaration in the shipping bill.

IV. Though the export consignments are cleared by the customs officers, the refund of IGST paid against such consignments shall be suspended by the Deputy or Assistant commissioner of customs dealing with refund at the port of export till the verification of the eligibility of refund by the jurisdictional GST officers.

V. Chief Commissioner of Central Tax shall get the verification of the IGST refund claims and other related aspects done in accordance with the Standard Operating procedure to be issued by the GST policy wing.

VI. The officers who have conducted the verification shall furnish a report to the respective Chief Commissioner of Central Tax within 30 days specifying clearly whether the amount of IGST paid and claimed/ sanctioned as refund was in accordance with the law or not.

VII. Chief Commissioner of Central Tax shall compile and forward report of all cases to RMCC and concerned customs port of export within 5 working days thereafter.

VIII. Action to be taken by customs formations on receipt of verification report from GST formations:

a) Cases where no malpractices have been reported on verification: the Customs officer at the port of export shall proceed to process the IGST refund to the extent verified by the GST Authorities

b) Cases where malpractices have been reported on verification: the customs officer will not process the refund claim.

The above said procedure i.e. verification of the eligibility of refund claims made by the risky exporters, is taking lot of time (i.e. 4 to 5 months). The departmental officers instead of restricting themselves verification of the above issues, they are doing whole audit of exporter. In this process it is taking lot of time and refunds are withheld. During this period the refund of IGST claimed would be suspended by the customs authorities.

Further the customs authorities have no justification under GST law to suspend the IGST refund for such a long period of time for reasons explained in Circular No. 16/2019. As per the provisions of GST the refund of IGST in case of export with payment of taxes can be suspended/withheld only in two cases as specified under Rule-96(4)). In all other cases refund should be granted with interest

Circular No. 16/2019 is going contrary to 96(4) of CGST Rules, 2017, it is ultra-virus the Rules. In the case of genuine exporters there is no dues pending from them or there is no violation of provisions of Customs Law in exporting the goods. The reasons enumerated or innovated by Circular No. 16/2019 is beyond scope of Rule 96(4) of CGST Rules, 2017. So withholding of these refunds under the Circular is without authority of law hence the exporter shall be granted interest for such delay.

Recently in case of M/S. Saraf Natural Stone Vs Union Of India 2019-TIOL-1587-HC-AHM-GST, it was held that-The position of law appears to be well settled. The provisions relating to an interest on delayed payment of refund have been consistently held as beneficial and non-discriminatory. It is true that in the taxing statute the principles of equity may have little role to play, but at the sametime, any statute in taxation matter should also meet with the test of constitutional provision.

In the case of M/s. Amit Cotton Mills Vs CC 2019-TIOL-1443-HC-AHM-GST, hon’ble High Court took the same stand & granted the interest for delay in sanctioning the IGST Refund. Further held neither departmental circulars override the statutory provisions nor binding on Courts.

Hence the exporters in whose case the IGST refund got delayed from the date of shipping bill due to verification of IGST payments under risky export’s circular or for any other reason can claim the interest for the delay.

For any further queries/comments please write to anil@hiregange.com, ramesh@hiregange.com

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