One year of GST roll-out: Export community face a long wait for refunds

Procedural delays continue to hold up refunds amid liquidity crunch

A year after the new tax regime rolled in, exporters and the government continue a delicate dance over the release of Goods and Services Tax (GST) refunds for exports.

The export community has repeatedly blamed the slow refund process as the prime reason for them facing a significant liquidity crunch, which has led to the cancellation of export orders in some labour-intensive sectors such as engineering and apparel. 

On the other hand, the tax authorities have countered by pointing out the new process will take some time to stabilise as many traders have not filed claims properly.

Exporters were earlier allowed duty-free imports of goods used for making products for export. With the GST, they have to first pay the duty and later apply for a refund. Exporters claim their costs have risen by up to 1.25 per cent (freight on board value) since July 1 last year.

“The refund process is not completely online and is followed by the manual filing of a set of documents,” points out Aditya Singhania from Taxmann.

Also, many refunds which accrue to the taxpayers, like in case of international tourists and wrong classification of the transaction are not yet in place, he adds.

Traders point out that earlier refunds were flowing on a monthly basis but from February this year, the government has gone in for a cumulative calculation. Now, having an error in any month is enough to disrupt the entire process and as a result, many refunds have got stuck, say experts.

The requirement of filing physical copies has also come under fire. An exporter has to first file an application online after which his cash ledger is debited. He then has to take a printout of the transaction and file with the tax authorities, who are generally not willing to accept the same quickly, leading to many refunds left waiting to be filed itself.

“The department comes under pressure to process the claims from the day of acceptance of the physical copy. The amount that remains outstanding due to claims that exporters haven't been able to file is roughly Rs 80-100 billion,” says Director General of the Federation of Indian Export Organizations (FIEO) Ajay Sahai. For the amount that has been filed, an estimated Rs 40-50 billion is still pending, he adds.

“According to GST provisions, an exporter is to be sanctioned 90 per cent of the refund amount provisionally within seven days of a refund application. However, because of glitches on the GSTN portal, many exporters have been unable to file for a refund of Input Tax Credit,” notes a report by PwC.

Government officials say that the estimated pendency of refunds has come down from a high of Rs 200 billion back in April. The drop has been attributed to two separate clearance drives pushed by the Finance Ministry, with the last one ending on June 16. But FIEO maintains that low disbursal by state governments and Input Tax Credit (ITC) remain crucial pain points. States such as Andhra Pradesh, Uttar Pradesh, Bihar and Chhattisgarh say they are out of funds to pay exporters. 

“Issues also remain with refunds for exports made through non-EDI ports, which constitutes about 15 per cent of India's outbound trade,” Sahai adds.

On the other hand, the much-awaited e-wallet mechanism has remained a non-starter. A ministry official concedes that meeting even the revised October 1 deadline looks difficult.

What it took to implement

13 Committees set up to address specific issues regarding GST

161  Notifications issued under Central GST law (between July 1, 2017, and June 27, 2018)

49 Circulars issued

13 Orders issued

What worked

• A war room — manned by senior officers from the Centre and states — took care of initial glitches, addressing issues through FAQs, tweets, call centres, and advertisements in newspapers and electronic media  
• Regular interaction and feedback on industry concerns

What did not

• Concept of credit matching had to be disbanded due to IT glitches
• Roll out of e-Way bill had to be postponed from February to April on account of technical reasons