Refund of IGST paid on export of services: Blunder of GSTN system

1. GST law provides for the refund of IGST paid on export of services on realization of payment. The same shall be done by filing of Form-RFD-01 online on the GST portal of the claimant within the prescribed period of 2 years from the relevant date.

2. Relevant date in such case will be calculated as given below:

a. If supply of service is completed prior to the receipt of payment, then the date of receipt of payment.

b. If payment is received in advance prior to the date of issuance of invoice, then the date of issuance of invoice.

3. While filing the refund claim in RFD-01 following documents are required to be uploaded on the portal as per Circular No. 125/44/2019 – GST dated 18th November 2019

a. Declaration under second and third proviso to Section 54(3)

b. Undertaking in relation to Section 16(2)(c) and Section 42(2)

c. Statement 2 under Rule 89(2)(c)

d. BRC/FIRC/any other document indicating the receipt of sale proceeds of services

e. Copy of Form GSTR- 2A of the relevant period

f. Statement of inward invoices

g. Self-certified copies of invoices entered in Annexure-II whose details are not found in Form GSTR- 2A of the relevant period

h. Self-declaration regarding non-prosecution under Sub-rule (1) of Rule 91 of the CGST Rules for availing provisional refund.

4. Without analyzing the vires of the document requirements provided by the said circular, this article highlights the blunder that has been made by GSTN on the GST portal. For filing RFD-01 a statement 2 as mentioned under clause (c) above needs to be submitted as per rule 89(2)(c)

5. The following details are required to be furnished in the Statement-2:

a. GSTIN of claimant

b. Tax Period

c. Type of Document

d. Document no.

e. Document Date

f. Document Value

g. Taxable Value

h. IGST

i. Cess

j. BRC/FIRC No.

k. BRC/FIRC Date.

l. BRC/FIRC Value.

6. The GST portal provides an offline utility for uploading Statement-2 bearing the details of Export Invoices and FIRC/BRC as stated above. This Statement-2 is a part of Refund form RFD-01. The details are filled in the utility, validated and a JSON file is created which is to be uploaded on the GST Portal.

7. Validation done by the portal before calculating the refund claim amount:

a. The portal validates the export invoice data from the export invoices as uploaded and filed in the respective GSTR-1 by the claimant. If the data filled in utility matches with the data present in GSTR-1 and other information also gets validated, then the system automatically shows the refund amount in the “Refund claimed” field. However, if there is any variation in invoice data then system throws an error and does not proceed to calculate refund amount. This is correct validation and is working fine in the utility.

b. The portal validates and compare the invoice taxable value with the realized value as per BRC/FIRC.

-If the invoice taxable value is less than or equal to FIRC/BRC value then the GST portal validates and accepts this combination in Statement-2. Consequently, the data and the refund amount get reflected in the “Refund claimed” field of form RFD-01 and the claimant can proceed. Though this validation was not there previously, and it has very recently been added to the RFD-01 form. This validation works fine in case where net taxable value is lower than the realized value.

-If the invoice taxable value is more than FIRC/BRC value then during validation the GST portal throws an error “Net taxable value of the provided documents cannot be more than the sum of BRC/FIRC values”. This is a big blunder made by the GSTN while launching the said utility.

8. The export invoices are issued to the foreign entities in Freely convertible currency. The taxable value in GST invoice is converted to INR as per the exchange rate prevalent at the time of issuance of invoice. It is a fact that foreign remittance in convertible currency is susceptible to exchange rate fluctuation when converted to Indian rupees resulting in gain or loss. In most of the cases, this so converted foreign currency value will not match with the Invoice taxable value reported in GSTR-1 which is in Indian rupees.

9. There will always be situations where the value in INR will fluctuate and might be different at the time of raising of invoice and realization thereof. Though multiple invoices and BRC/FIRC can be included in Statement-2 and overall totals are considered by the utility. However, in cases where the net taxable value is less than or equal to the value realized as per BRC/FIRC then Statement -2 data is accepted else it gets rejected.

10. There may be other cases as well where lesser realization is made. This does not imply that a claimant can not file the claim proportionate to the lesser value. However, this system flaw will not allow such claimant to file their legal claim.

11. This can never be intention of law. The flaw is system created. This needs to be rectified at the earliest. The clock is ticking and the time for filing claim is limited. The said loss of time shall be extended for the ones who are unable to file the claim due to error in utility.

12. These are such a crucial time, where a pandemic has already broken the back of businesses and on the top of it such cash-flow shortage will definitely be detrimental to the existence of many business. The GST council and GSTN should urgently look into the matter and take appropriate steps to rectify the mistake and issue clarifications and extend time limits to file the claims.

The author can be contacted at [email protected]