HEADLINES:
June 18 2019
Centre’s refusal to provide IGST refund hurts exporters
24 October 2018

Govt. says it has already given them drawback on taxes paid

While exporters are saying that a large part of their working capital is tied up in the Integrated Goods and Services Tax (IGST) they have paid on inputs, the government in a recent circular said that it would not be refunding this amount to them since it has already paid them a drawback on the taxes they have paid.

Exporters, however, say that the drawback amount paid back is only a fraction of the total amount they have paid and that most of it is locked in IGST. The system of drawback is such that exporters were eligible for two options: either an industry-wide drawback rate, or a higher brand rate.

“What they did was that in the transition period they said that if you take a higher drawback, then you will not get an IGST refund, and the exporters had to mention this choice,” Suranjan Gupta, Executive Director of Engineering Export Promotion Council of India said.

“Now, in the period when all of this was not very clear, what happened was that the companies ticked the higher refund box. But the problem is that where the drawback was say, ₹40,000, the IGST paid was ₹2 lakh.”

Several small exporters, The Hindu spoke to, said that the actual amounts tied up in IGST ran to ₹20 lakh each or so, whereas what they received as drawback was only ₹5-6 lakh. What they also say is the current system creates an unfair advantage for exporters operating in a single State, as opposed to those who have operations that cross State lines. “An exporter who operates in, say, Delhi and has all his suppliers in Delhi, pays CGST and SGST and gets a refund for that and also gets the drawback,” one fabric exporter based in Delhi and Gurgaon said, on the condition of anonymity as he did not want to speak against the tax authorities, “an exporter operating across State lines, however, does not get the IGST refund and only gets the drawback. How is this fair?”

“The inherent definition of drawback is that all the taxes you have paid on inputs, the government is giving back to you,” a senior official in the Finance Ministry said on the condition of anonymity as the government has made its official position clear in the circular. “Many exporters after GST came and said that they are entitled to a drawback and in addition they wanted a refund of the IGST.” “What we have clarified is that you cannot have both,” the official added.

Legal position

“We have also pointed out the portion of the law that says that when you claim a drawback, then you cannot claim any other benefits, and this is something the exporter has to sign while claiming drawbacks. They have done this, so where is the question of getting IGST credit?”

The circular, reviewed by The Hindu, reads thus: “It has been noted that exporters had availed the option to take drawback at higher rate in place of IGST refund out of their own volition. Considering the fact that exporters have made aforesaid declaration while claiming the higher rate of drawback, it has been decided that it would not be justified allowing exporters to avail IGST refund after initially claiming the benefit of higher drawback. There is no justification for re-opening the issue at this stage.” The exporters, however, are saying that there is more nuance to this argument than the government is making out to be.

“What a lot of exporters are saying is that fine, if it was the case of a higher drawback rate, then no IGST will be refunded,” Mr. Gupta said. “But what if the drawback rate is identical in both types available? This is the case in a lot of tariff lines, so it doesn’t matter if the exporter ticked the higher rate box or not. If there is no revenue loss to the government, then why can’t they give the IGST refund?”

 

 

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