prpri Un-resolved Issues of the Exporters in GST Regime Un-resolved Issues of the Exporters in GST Regime

Unfortunately, exporters are receiving ends at all times irrespective of the facts which government rules the country, since the schemes and policies are made by the officials of two different ministries, which never coincides with the object of the Government. In spite of the fact that India is one of the Country who is the part of WTO Agreement, whereby it is agreed that no taxes to be exported and there should be level playing fields amongst all exporters in the world.

However, prior to implementation of GST and 101 Constitutional Amendment Act, there were different taxes, which were imposed by Central Govt, State Govt., local bodies and therefore any policy declared by Ministry of Commerce in Foreign Trade Policy was restricted to either exemption of taxes or refund of taxes. Still all the State Governments had the policy to exempt VAT / Sales Tax on exports and allow 100% credit / set off for their inputs, but taxes levied by local bodies were always subjected to cost and these were getting exported via cost. There was always a difference in the policy announced by Ministry of Commerce and notifications issued by the Department of Revenue either giving refund / exemptions or time gap, but exporters are suffering during the pre-GST regime also.

Each exporter was expecting that such gap which was prevailing in pre-GST Era will vanish and the methodology will be adopted at par with other countries, but this has become the dream and the time has come to say that earlier practice was better than current one in GST Era and not on account of GST Act, but the provisions made in the rules or procedure issued by way of a notification or circular are different, which decides the fate of exporters. Further restrictions and travel towards the bad fate of the exporters are made through the technology developed by GSTN and ICE Gate w.r.t. non-adhering to the procedure prescribed in the rules / provisions of the act and bugs in the system.

Attempt has been made to highlight the areas, where there is a difference and on account of such difference, exporters are suffering from 1st July onwards and huge amount has been locked up in working capital and thereby becoming non-competitive in the international competitive market and there is no level playing field as committed by India through signing WTO agreement.

1. Date of Implementation

Though GST Laws were enacted in the month of Feb 2017, the implementing date was notified on 1st July 2017. Notifications under GST Law w.r.t. imports and exports were issued on 28.06.2017 and 30.06.2017 the Circular was issued for giving the LUT / Bond and procedure for exporting on payment of duty under the claim of refund on 4th July 2018. Whereas, this time gap also made all exporters to suffer. However, amendments in foreign trade policy considering the changes in GST Regime was made in Trade Notice No. 11/2015-20 dated the 01/07/2017 without issuing notification to amend foreign trade policy and new foreign trade policy was declared on 5th Dec 2017.

2. Special Economic Zone

Section 16 of IGST Act 2017 provides that supply to SEZ Developer and SEZ unit are zero rated supply and Section 7 of IGST Act 2017 clearly provides such supply will be considered as inter-state supply. Supplies are made to SEZ Developers or SEZ Units will be either without payment of IGST under LUT or on payment of IGST under the claim of refund, but the trade & industry was not made aware that such supplies also to be covered under LUT and therefore there was a procedural lapse. Even the service provider to SEZ Developers / SEZ Units have supplied without payment of IGST without submission of LUT. Further, number of small suppliers of goods / services or both have not obtained the registration and they have supplied the goods or services or both to SEZ, whereas they need to obtain the registration whenever they do inter-state supply without any threshold limit.

Further, since there was no clarity, when any person having SEZ & DTA in the same state then they have taken the single registration either through migration process from old number to new number of VAT Registration. Since it was auto-migrated, no system was developed by GSTN to take separate registrations for such unit which was provided on 19.03.2018 and therefore number of SEZ have to receive the goods with payment of GST till that time.

Further, Section 7 of SEZ Act 2005 & Rule 27 of SEZ Rules 2006 have not been amended so far and therefore the exemption so far availed of IGST payment will be unnecessarily in the litigation considering provisions of Section 51 of SEZ Act 2005, which has overriding effect over any other law of the land of the India. Further, earlier contractors of SEZ Developer & Unit were entitled for exemption but in the GST Regime are not entitled for such exemption of custom duty and IGST.

3. Interface of GSTN with ICE Gate:

GSTN provides for tax invoice and tax invoice is used for uploading GSTR-1, whereas shipping bill denotes commercial invoice number and therefore exporters could not get the refund even though they have paid IGST on exports under the claim of refund against the Tax Invoice. There was a mismatch of tax invoice number appearing in GSTR-1 and number reflected in shipping bill. ICE Gate system should have allowed to incorporate tax invoice number on shipping bill also in the column provided for ARE-1 in shipping bill and therefore exporters had to file concordance table to the Annexure A as given in the circular no. 5/2018 Cus dtd. 23.02.2018 and therefore most of the exporters were deprived of obtaining the refund claim under Rule 96 of CGST Rules 2017 of IGST paid by them on exports from the period of 1st July’17 till almost in the month of March’18.

Further IGST has to be paid on transaction value, which may be on ex-work basis, FOR, FAS, FOB, C&F, C&I, CIF, Door delivery etc. and in accordance with Section 15 of CGST Act 2017, GST will be payable on transaction value and not only on FOB value, whereas refund is denied when IGST paid is more than tax to be paid on FOB value.

There is no mechanism to get the differential amount either in electronic cash ledger or electronic credit ledger maintained by GSTN and therefore exporters at loss on duty paid on such difference i.e. transaction value – FOB value. Even exporters have received the demand alongwith interest.

Since, there is no direct interface through electronic mode between ICE Gate and GSTN, report generated by each of them and shared by each of them is not accessible to the taxpayer and it creates lot of interface with govt. officials which was not envisaged. Albeit, such information can be availed by the taxpayer only after doing the necessary login of ICE gate which itself is the difficult task by itself. Even number of exporters have followed up with ICE Gate helpdesk as well as GSTN helpdesk but in vain, still they are struggling to get their refund and remain at the mercy of the govt. officials. There are number of cases, where such corrections were made in the said annexure as mentioned above and uploaded. Still there are no responses either from custom office or GSTN and exporters have been deprived of the refund from the month of July’17 onwards.

4. Provisions in the Act & Rules / Notifications and amendment thereof vis-à-vis system design of GSTN:

  • Periodicity of filing the Refund under Rule 96 & Rule 89: In accordance with the provisions of the Act & Rules the taxpayer can file refund claim on any periodical basis i.e. monthly, bi-monthly quarterly, half yearly or yearly. However, in accordance with the system, refund has to be filed on monthly basis.
  • System is overriding the provisions of Rules & Act:

a. Provisions of Act & Rules do not stipulate to grant the refund of duty on minimum of the followings, whereas, rule does not provide such limitation.

√ Amount of refund applied as per formula

√ Balance at the end of the month for which refund is applied

√ Balance at the end of the date of filing the refund claim,

b. The system which was amended on 13th April 2018 only. Till that time, exporters have faced the difficulties in filing the online refund claim. Till that time, refund claim is filed online, even physical copies are not accepted by the jurisdictional officers and exporters have to run from pillar to post to solve the queries which remain un-solved.

c. Statement A which is required to be filed for applying the refund under Rule 89 cannot be uploaded in the system and therefore online application cannot be made and until online application is made, jurisdictional officers are not accepting the physical copy. Thereby exporters are deprived of the refund of duty paid by them on inward supplies used for exports.

d. Deemed Export Refund: In accordance with the provisions of the Rule 89 of CGST Rules 2017 and notification 49/2017 Central Tax, refund is granted on duty paid when goods are supplied, which are termed as “Deemed Exports” and such refund can be applied either by recipient or supplier. The system has been designed that only recipient can apply for the refund and not the supplier. Jurisdictional officials not accepting the refund claims from supplier and therefore huge refund is blocked on account of such system design.

  • Restriction of Refund for supplies received from EOU, EPCG / Advance Authorization Holder:

CBIC issued most awaited clarification vide Board Circular 45/19/2018 GST dtd. 30.05.2018 on refund under Rule 89. In any case, exporters will not bear the incidence of IGST on the inputs and therefore more clarity has been given in the said circular. However, Rule 89 was amended vide Notification No. 3/2018 dtd. 23.01.2018, which was made effective from 23rd October 2018 and clarification has been issued only in the month of May 2018. Till the time, there was a lot of confusion and exporters were suffered

Section 54 of CGST Act 2017 and Section 16 of IGST Act 2017 provides for refund of duty paid on exports or inward supplies used for exports which are cleared under LUT without payment of IGST. Whereas notification no. 3/2018 Central Tax dtd. 23.01.2018 has been issued restricting the refund claim to those persons who has received the supplies from EOU, EPCG / Advance Authorization Holder or supplies made at 0.1% of tax on the condition that these goods will be exported. Albeit, it has been stated that conditions and procedures can be given in the rules for safeguarding the revenue, but rule cannot make change the eligibility condition.  Further, the notification has been drafted in the manner so that lot of litigations are expected due to understanding and different interpretation without specifying the period. Separate article is given explaining the impact of such amendments.

Notification 3/2018 Central tax issued on 23.01.2018 and made applicable retrospectively from 23.10.2017 without understanding the fact that incidence of tax has been already paid and collected by Govt and now they cannot deprive any exporters for getting that amount back.

  • Formula of calculating the refund of inverted duty structure:

Section 54 of CGST Act 2017 provides the refund of duty under inverted duty structure i.e. when your input tax is higher than that of output tax. It provides the wording on input tax paid on the supplies, which includes goods & services. However, notification number 21/2018 Central Tax dtd. 18.04.2018, restricts refund of ITC on goods only and not considering ITC on services. It is important to note that when any outward supplies are supplied at higher rate, it is supplied from the inward supplies which includes goods & services and therefore restriction has been placed by the rule which is not permitted under the law and needs to be challenged before the Hon. High Court.

Further, the notification has been issued restricting the ITC only on goods on 18.04.2018, whereas system do not allow refund claim taking the ITC for goods and services prior to 18.04.2018. In the present case, rules override the section and system override the rules. This can happen only in India.

  • Payment of IGST to the Advance Authorization holder for replenishment of goods

Notification No. 79 Cus dtd. 13.10.2017 has been issued to exempt IGST to EPCG Holder and Advance Authorsation Holder. However, it restricts the exemption only in the case imports are made prior to exports. Whereas, foreign trade policy very clearly provides the exemption of duties to imports against Advance Authorisation holders even if it is for replenishment. Prior to GST Era, there was option to pay additional duties under the Custom Tariff Act to the Advance Authorisation Holders in the case of pre-export / post-exports. However, in GST Era such option is not been given to the exporters and when goods are imported before exportation then one has to take the exemption and if it is for replenishment i.e. post exportation then no exemption of IGST is given. This is not in terms of IGST.

The board circular admits that despite issuing number of circulars still exporters are not getting refund and they have issued one more circular on account of no interface of GSTN with ICEGATE. And therefore, exporter has been asked to obtain Chartered Accountants Certificate for the period of export made from 1at July 2017 to 31st March 2018 and required to be submitted on or before 31st Oct 2018 to provide the following details:

a) Even if there is no short payment, the IGST paid on exports reflected in GSTR-3B is equal or greater than the IGST paid on exports reflected in GSTR-1 then Chartered Accountant Certificate is required to be furnished (no format prescribed) on or before 31.10.2018 to Custom office of port of exportation covering all the reports from all the ports or submit port wise at the option of exports and copy of such certificate will have to be given to Jurisdictional GST Officer. It has been very clearly stated that non-submission of CA Certificate shall affect the future IGST Refund.

b) When there is a short payment on IGST paid on exports reflected in GSTR-3B is less than IGST paid on exports reflected in GSTR-1 and such short payment will have to be paid through challan and details of such payment if more than Rs. 10 lacs will have to be certified by Chartered Accountant. Such certificate will have to be furnished on or before 31.10.2018 to Custom office of port of exportation covering all the reports from all the ports or submit port wise at the option of exports and copy of such certificate will have to be given to Jurisdictional GST Officer. It has been very clearly stated that non-submission of CA Certificate shall affect the future IGST Refund. It is unfortunate, even if exporters have balance in electronic credit ledger such amount cannot be debited. Needless to say, though interest amount is not mentioned, it will have to be paid as delayed payment @18%.

Further, in any case exporters will have to face the audit of the department in the name of Post Refund Audit”.

It seems that making exports is crime, since they have to face lot of hurdle for claiming the refund either under Rule 96 or Rule 89 of CGST Rules 2017.

5. Way Forward-Proactive Thinking:

Hon. Prime Minister has announced India as “Manufacturing & Service Hub” and promoting “Make-in-India” Brand but the actions of the govt. While we have to accept govt has issued various board circulars dtd. 15th Nov 2017, 21st Dec 2017, 15th March 2018 for laying down the procedure of manual filing and processing of different types of refunds but due to above issues, refunds are still locked up which is more than Rs 20,000 Cr. Govt has issued a circular on 30th May 2018 for clarifying the refund related issues w.r.t. followings:

1. Refund of balance in electronic cash ledger filed by ISD registered person or composition tax payer and refund of electronic cash ledger / credit ledger by non-resident taxable person

2. Refund of IGST paid made on export of services and supplied to SEZ Developer and Unit for the period 01.07.2017 till 31.03.2018

3. Refund of un-utilized ITC of compensation cess availed in cases where final product is not subject to levy of compensation cess on account of zero rated supply.

It is further clarified that LUT should not be insisted for zero rated supply of exempted on non-GST goods i.e. non-taxable goods.

Still following actions are required to be taken without any further delay to save exporters and to achieve the dream of Hon. Prime Minister of “Make-in-India”:

  • Notification 3/2018 Central Tax dtd. 23.01.2018 should be rescinded and new notification needs to be issued with simple drafting allowing exporters to get the refund as envisaged in Section 54 of CGST Act 2017. In other words, restrictions put in the notification needs to be withdrawn with retrospective effect from 23.10.2017.
  • System needs to be modified and remain valid for different period as per the amendment made time to time in the rules, since system cannot override the provisions of the rules or the sections.
  • While, drafting the rule either for making or amendment, it has to be ensured that provisions of the rules cannot override the section.
  • Till the time system is modified as envisaged, manual application to be accepted and to be processed immediately and grant the refund.
  • Govt should come out with the system to grant provisional refund on the based on the returns filed by GSTR-3B and GSTR-1 showing IGST paid on exports and such provisional refund can be to the extent of 90% in case of refund under Rule 96 and Rule 89.
  • CBIC/ GST Council should consider all the difficulties as mentioned above and provide a simple solution, so that there will be some energy for revival of exports.

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August 2021