CA Ritesh Mehta
Introduction: Timely refund mechanism is essential in tax administration, as it facilitates trade through the release of blocked funds for working capital, expansion and modernization of existing business.
It has always been the efforts of the Govt. to ensure that only the Goods and Services are exported and not the Tax components that are attached to it, so as to facilitate Indian Trade to be more competitive in the international market.
Treatment for Zero Rated Supplies: One of the major categories under which, claim for GST refund may arise would be, on account of exports. All exports (whether of goods or services) as well as supplies to SEZs have been categorised as Zero Rated Supplies in the IGST Act.
“Zero rated supply” under Section 16 of the IGST Act, 2017 means any of the following supplies of goods or services or both, namely:
(a) Export of goods or services or both; or
(b) Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
On account of zero rating of supplies, the supplier will be entitled to claim input tax credit in respect of goods or services or both used for such supplies even though they might be non-taxable or even exempt supplies.
Every person making claim of refund on account of zero rated supplies has two options. Either he can export under Bond/LUT and claim refund of accumulated Input Tax Credit or he may export on payment of integrated tax and claim refund of thereof as per the provisions of Section 54 of CGST Act, 2017. Thus, the GST law allows the flexibility to the exporter (which, will include the supplier making supplies to SEZ) to claim refund upfront as integrated tax (by making supplies on payment of tax using ITC) or export without payment of tax by executing a Bond/LUT and claim refund of related ITC of taxes paid on inputs and input services used in making zero rated supplies.
Refund to Exporters on Export of Services and Export of Goods without Payment of Tax: The application for refund of integrated tax paid on Export of Goods without payment of Tax and Export of Services is required to be filed in Form GST RFD 01A (as notified in the CGST Rules Vide Not. No. 55/2017- C.T. Dtd. 15/11/17) by the supplier on the common portal and a print out of the said form shall be submitted before the jurisdictional proper officer along with all necessary documentary evidence as applicable within the time stipulated for filing of such refund under the CGST Act. 2017
Refund to Exporters on Export of Goods with Payment of Tax:
Standardization of Procedure: As per Rule 96 of the CGST Rules 2017, dealing with refund of IGST paid on goods exported out of India, the shipping bill filed by an exporter shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India, 0nce both the export general manifest (EGM) and valid return in Form GSTR-3 or Form GSTR- 3B, as the case may be, has been filed. Thus, once the shipping bill and the Export Manifest (EGM) is filed and a valid return is filed, the application for refund shall be considered to have been filed and refund shall be processed.
Upon receipt of the information regarding furnishing of the valid return in Form GSTR 3B, from the common portal, the system designated by the Customs shall process the claim of refund and an amount equal to the IGST paid in respect of such export shall be electronically credited to the bank account of the applicant.
Processing of Refund: The IGST refund module have been designed to have an in-built mechanism to automatically process and grant relief after validating the shipping bill data available in ICES against the GST Return data transmitted by GSTN. Manual intervention would be limited to only exceptional cases where automatic validation becomes impossible due to some technical errors. Such exceptional cases would be only those which would be approved by the Board and the procedure in those cases would be separately laid out.
Validation of Refund Claim by Customs: In cases where the exporter has filed correct information in the GST returns and it gets successfully validated by the GSTN, it is thereafter transmitted electronically to the Customs system wherein the GST return data is matched with the shipping bill data. If the matching is successful, ICES processes the claim for refund and the relevant amount of IGST paid with respect to each shipping bill or bill of export is electronically credited to the exporter’s bank account as registered with the Customs authorities. But, wherever the matching fails on account of some error, the refund do not get sanctioned.
Reasons for Data not being transmitted from GSTN to Customs System:
It has been observed that a number of record have not been transmitted by GSTN to the Customs system which could be on account of various errors that have occurred in the validation carried out by the GSTN. It is understood that cases where such validations fail are on account of:
(i) Both GSTR 1/Table 6A and GSTR 3B have not been filled for that supply or there are missing invoices in GSTR 1 for that supply.
(ii) Invoices provided In Table 6A of GSTR 1 are incomplete, e.g., details of shipping bill and port number/code are not mentioned.
(iii) IGST paid under Table 3.1(b) of GSTR 3B being less than total IGST claimed in Table 6A of GSTR 1 of the same period. The claim cannot be more than that of the amount of IGST paid.
The exporters have the option to check the GST validation status for his shipping bills in his ICEGATE website login for all records transmitted by GSTN.
The matching between the two data sources is done at invoice level and any mis-match of the laid down parameters results in one or more of the following errors/responses:
Common Errors and Rectification Procedures
|SB001||Invalid SB details||Amend GSTR-1 by using Form 9A and fill correct SB details|
|SB002||EGM not filed||Approach shipping line for filing of EGM|
|SB003||GSTIN mismatch||Amend GSTR-1 by using Form 9A|
|SB004||Record already received and validated||No action required|
|SB005||Invalid Invoice Number||Amend GSTR·1 by using Form 9A and fill correct|
|SB006||Gateway EGM not available||Approach shipping line or Gateway port Customs|
|PFMS Validation Errors||Bank account details of exporter not validated in PFMS||Approach EDI section at the gateway post Customs with correct account number, bank name and branch address and IFSC Code of the branch|
Role of Exporters:
Exporters have to ensure that only correct as well as sufficient information is filed by them in both the GSTN and the Customs system.
(i) The exporter has the option to check the GST validation status for his SBs after logging Into ICEGATE website. This report shows the response/error code for each of his SBs wherever data has been received from GSTN.
(ii) The exporter also has the option to view the SB details relevant for IGST validation on the ICEGATE website. The exporter can view this while filing the GST returns and ensure that the details are entered accurately in the returns as well so that no mis-match occurs.
(iii) In case, the exporter’s account is not validated by PFMS, he may approach jurisdictional Customs Commissionerate with correct account details and get it updated in ICES.
(iv) If the exporter is not getting the refund due to suspension/alert on his IEC, he may clear his dues or submit e-BRC and have the suspension revoked.
Conclusion: More than eight months after the introduction of GST, exporters remain cash-strapped for working capital; this is despite assurances made by the Centre last October-November that the process of granting refunds for input tax credit (ITC) and IGST would be expedited. Given that exports of goods and services account for about 20 per cent of GDP and are characterized by labour intensity and a high working capital to sales ratio, this is no small matter. Looking to the contribution of Exporters in the GDP of the Country, the Refund process need to streamline at the earliest.
(The author is a Practicing Chartered Accountant and is a Member of Indirect Tax Committee of WIRC of ICAI & can be reached at email@example.com)