Exporters get the shivers from two provisions in Finance Bill 2020

They are worried that the two proposals would make it difficult to seek refunds under indirect tax laws

Exporters are a worried lot due to two provisions in the Finance Bill 2020, which they say would make it difficult for them to seek refunds.

The two proposed provisions are: an amendment in the Section 16(3) of the Integrated Goods and Services Tax (IGST) Act and insertion of rule under the Customs Act for empowering authorities to confiscate goods which were misdeclared for the purpose of refunds and remission.

The amendment to section 16(3) of the IGST Act would take away payment of taxes through IGST credit and retain only payment of these taxes and claiming refunds through input tax credit (ITC).

Ajay Sahai, CEO and director general of exporters' body FIEO, explained that for IGST refund, there is no need for any application, as the shipping bill served as a document for application and if GST returns were in place, then the refund process was seamless.

He said most exporters avail IGST refunds, instead of ITC refund. "That is because the system itself is much more efficient than the ITC system," Sahai said

Sahai explained that if the exporter has to pay Rs 1,20,000 as taxes and has IGST credit of Rs 1,00,000 on his account, he can pay Rs 1,00,000 through IGST credit and only Rs 20,000 need be paid from his bank account. This means under IGST he can use that credit to pay future taxes or take refund from IGST account.

On the other hand, in ITC there are a couple of issues, Sahai said.

"First, I have to choose the period for which I have to file a claim. It will be a  minimum of a month, maybe a quarter, six months or a year. If it is for a quarter, I have to wait for the quarter to get over before filing the application. In any case, I then have to combine all the shipping bill and the documents, file a claim, which will be scrutinised prima facie and then an acknowledgement issued,", he said.

In case of ITC refund, exporters have to deal with two tax authorities--the Centre and a certain state tax body.

One technical issue that enters ITC refunds is that one cannot get a refund on capital goods input tax credit, because it is 100 per cent exports. "I imported capital goods and paid GST on that. I can adjust under the IGST, but in the ITC system, ITC of the GST of the capital goods is not permitted. That is also a challenge for all of us," said Sahai.

However, a senior official at the Central Board of Indirect Taxes and Customs (CBIC) said IGST refunds are proposed to be stopped to plug large-scale frauds in the GST system.

Sahai said, "I agree with the department of revenue that there may be few cases of frauds also. But from November 20, they have brought a new GSTR 2B form, where there will be matching of inputs. So, with matching in place and the issue of fraud claims will definitely get addressed," said Sahai.

Then the finance Bill also proposes to insert a rule under the Customs Act for empowering authorities to confiscate goods which were misdeclared for the purpose of refunds and remission.

Sahai said confiscation is generally done in the rarest of rare cases, say in case of smuggling etc.

He explained that if duty drawback rates or for that matter yet to be declared Remission of Duties and Taxes on Export Products (RoDTEP) are wrongly claimed by a few percentage points, field formation can confiscate goods meant for exports.

"If goods are confiscated, what will the exporter concerned reply to his buyers overseas? Not only his image will be tarnished but also of the country," Sahai explained.

The word 'wrongful claim' is subject to various interpretations and will put exporters at the mercy of field formations even if the remission rates are wrongly calculated or dispute about classification of the product under a particular rate arises, Sahai said  

"The remission rates may be 2 per cent of the product value and for such a small benefit, the entire goods should not be confiscated. We request the government to kindly look into the newly created Sub-Section(ja) of Section 113 of the Customs Act," he told reporters.

Exporters say that a large number of them are still awaiting for their claims for 2019-20 and 2020-21 (up to December 2020) both in respect of Merchandise Exports India Scheme (MEIS) and Services Exports India Scheme (SEIS).

They say their liquidity has entirely dried up. Many of them in the micro and small sector are not in a position to take new orders due to rising uncertainty and lack of liquidity at their disposal.

That is why FIEO demanded immediate announcement of rates under RoDTEP as exporters are not able to finalise their contracts.

Exporters continued to contract most months of the current financial year, briefly looking up in September when lockdown was lifted in many areas. However, it again contracted in October and November. Since then, exports rose moderately by 0.14 per cnet in December and 6.16 per cent in January. However, recent merchandise global trade barometer from the World Trade Organisation indicate that the rebound in world trade in October-December, 2020 may not sustain in January-June, 2021.