GST Department Freezes ITC for So-called Risky Exporters

The total of 245 Star Export Houses and 5,000 other exporters went alienated from claiming their shares of Input Tax Credit (ITC) from the government due to taxman’s heavy investigations. On the other hand, amidst the existing exports decline, merchandise exports declined by 0.34% year-on-year in November consistently for the fifth time in the past eight months.

Owing to this abrupt scenario in exports a new system has been proposed to identify the unscrupulous exporter genre who are claiming more input tax credit showing wrong documentation. The execution is away as the process calls for pre-launch verification leading to a considerable sum of legitimate ITC being withheld. According to some sources from export agencies, the Export houses with a Star Tag re also among those who are identified for verification showing that the current system is unreliable.

In a letter to senior Indirect Tax These types of taxes paid on Consumption by the consumer but they do not pay directly to the government (unlike income tax). For example, GST, Sales Tax, VAT, Custom Duty and Octroi Tax officials, the director-general of analytics and risk management (DGARM) stated that the scrutiny reports for 94 Star Export Houses out of the required 245 firms had been received while 161 reports were still pending.

Talking about 161 pending verification, 103 cases have been suspended, this calls for immediate action in respect of the 103 Star Export House, said DGARM. The GST department has done critical investigations to highlight the fraud. Star Export Houses are not among those fly-by-night cases and they should not be the ones in custody of the tax government, said a government official. The SEH tag is given to the exporters by the government based on their export performance (Rs 15 crore to Rs 5,000 crore FOB in the current and three preceding years).

The system warns the exporters who are involved in releasing the high share of their tax liabilities through an Input Tax Credit (ITC) A complete guide for understanding the basics of input tax credit and it calculation with detailed examples under GST (Goods and Services Tax) India credited in their accounts. Some unscrupulous exporters have been marked ‘risky’ by the IT department if suppliers do not upload the relevant invoices in their returns.

For instance, the merchant exporters whose esports usually consist of low-value addition leading to utilization of claimed ITC into paying taxes. Similarly, exporters argue that failure of their suppliers to upload invoices shouldn’t reflect on their credibility as genuine taxpayers.

Exporters can claim just the right amount of ITC in lieu of their exports by either paying the IGST while exporting the goods and claiming returns for the same or do not pay the taxes at the time of export instead give a bond or undertaking for the same. In such cases, the accumulated input tax credit is available for refund.

The exporters marked as ‘risky’ by the department also have their refunds blocked and the reason has been declared for the same. They might have been informed of the procedure to extricate themselves from this list.

Ajai Sahai (Director General and CEO Federation of Indian Exports Organisation (FIEO)) says that the department has no counters for such exporters. As per the stats by FIEO, about 5,000 such exporters have been suspected which grab for about 7% of MSMEs. Further stated by Ajai Sahai the department is investigating the exporters, on the other hand, the system is not efficient enough to allow the exporters to easily claim a return on GST paid by them on exported goods.

Adding on to this troublesome situation, and identified exporter exports are accountable to complete cargo check at ports which are creating even more hassles for businesses as the customs department does not have enough resources to carry forward such checks.

The acute investigations against the so-called ‘risky reporters’ is resulting in freezing of funds for genuine exporters who are unfortunately the part of the discriminatory scrutiny, said Rajat Mohan (senior partner at AMRG & Associates).