Recently, many of the exporters have come under the tracing radar of tax authorities in India for claiming the tax credit two times for the same export under the inverted duty structure. Although, the exporters who have received notices from the indirect tax department was found saying that they have claimed the tax credit only for what was theirs only- although in two stages. As per the notices, the anomalies have tracked by taxman’s lens during an audit conducted by the tax authorities.
The tax department also makes a strong claim that these exporters have claimed double benefits. Inverted duty structure is a critical part of the indirect tax framework and refers to a particular situation where the goods and services tax (GST) paid on the raw material exceed than the amount of raw material exported. This has created a scenario, where exporters can claim for refunds. Although, the industry trackers also added to this by stating that double refunds have been claimed in two stages by exporters in many cases.
Abhishek A Rastogi, a partner at Khaitan & Co said, “In several situations, the exporters have more accumulated credit than the integrated goods, and service tax (IGST) paid under the rebate option, thereby unable to set off the credits. Many exporters have been issued notices under the inverted duty structure, especially those who were paying partial duty through credit and seeking refunds of the rest of the taxes paid”. The issue came to highlight when a shortfall of close to INR 30,000 crore was observed in GST collection by the revenue department. Although, this is not the first instance where the exporters have come under the scrutiny of the indirect tax department.
The notices for wrongfully availing exemption in cases where imports have exceeded exports have been issued to exporters by The Directorate of Revenue Intelligence (DRI), the primary anti-smuggling intelligence agency. DRI has instructed the exporters to pay IGST in cases where the goods are exported partially or fully only after the raw material is imported.
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The advanced authorization scheme of the erstwhile tax regime authorize the exporters to avoid paying taxes on the imported raw material, which will be used for manufacturing exported goods based on the past exports. The industry trackers, therefore, hindsight a series of litigations ahead. On this, Rastogi said, “There is no double benefit claimed under the CGST Act, we may file a writ petition to challenge relevant provisions so that the Indian exporters get the full benefit of input taxes.”
