CBIC introduces additional safeguards for verification of IGST refunds on exports with payment of tax

In order to make India’s exports competitive in the global markets and in line with the principles of international trade and commerce of zero-rating exports, the GST and customs laws have provisions on place for grant of refunds in case of input taxes paid on exported goods.

On similar lines, the GST law also has an alternative route to benefit the exporters – ‘export of goods with payment of taxes’, wherein the taxes paid on sale would be refunded.

In line with this initiative, the Central Board of Indirect Taxes and Customs (‘CBIC’) has brought in several exporter friendly and self-assessment procedures by way of complete automation of the procedure for claiming IGST refunds (Instruction No. 15/2017 – Cus dated 9 October 2017).

However, the CBIC has noticed instances of fraudulent ITC claims using ineligible documents and subsequent utilisation of the credit for the purpose of payment of IGST exports.

In addition, there were substantial variations between the FOB value declared in the Shipping Bill and the Taxable Value declared in the GST returns, with the intent of higher IGST payment using utilisation of available credit.

In order to curb these practices, the CBIC has issued Circular No. 16/2019-Customs dated 17 June 2019 introducing additional verification of issue of IGST refunds on export of goods with payment of taxes.

The CBIC seeks to establish a mechanism for identification of suspicious cases, which alerts the customs officers to examine the goods. Thereafter, all IGST refunds pertaining to the export shipment would be issued only upon verification by the GST field formations and after following the existing procedure for claim of IGST refunds on export of goods.

The summary of the Circular is given below:

In addition to the existent procedure for claiming IGST refunds (Instruction No. 15/2017 – Cus dated 9 October 2017), the CBIC has prescribed the following:

Identification of Suspicious cases: The GST authorities would define suitable criteria to identify risky exporters (at a national level) and share the same with the Risk Management Centre for Customs (RMCC) and respective Chief Commissioners of CGST. From time to time, the GST authorities would pass on details of past IGST refunds granted along with other relevant details.
Generation of alerts: RMCC shall alert the customs officers and direct a mandatory and complete examination of all export consignments.
Examination of the export goods: Customs officers shall examine the consignment as per the RMCC alert and clear the same under normal customs procedures in case no discrepancies are noticed.
Suspension of IGST refunds: Any IGST refund claims pertaining to the relevant Shipping Bills of the goods exported shall be kept on hold till receipt of report from the GST authorities.
Verification by GST formations: The GST authorities shall verify the IGST refund claims and other related aspects as per the Standard Operating Procedure (‘SOP’) to be issued by the GST policy wing and report the same to the Chief Commissioner of IGST within 30 days.
Report to RCMC: The Chief Commissioner of IGST shall compile and forward the reports of all cases to RMCC and concerned customs port of export within 5 working days of receipt from GST authorities.
Way forward:
1. No malpractices reported on verification: Thecustoms officer at the port of export shall process the IGST refund to the extent verified by the GST Authorities as per the advisory to be issued.
1. Malpractices reported on verification: Refund claims would not be processed.

The Circular goes a long way in brining transparency in the process as well as keeping a check on the fraudulent practices by exporters to claim IGST refund at the cost of genuine taxpayers who have been relentlessly following up with the GST authorities time and again for the grant of IGST refunds.