APRIL 10, 2018

By S B Parikh

EXPORTERS are very much concerned about the delay in getting GST refunds due to blockage of their working capital. Government is taking every step to release GST refunds on account of exports and such refund claims are being monitored on daily basis. Readers are aware that Zero rated supplies (commonly known as exports) can be made in either of following ways:

(i) on payment of IGST with claim for refund of IGST paid on export goods or services; or

(ii) without payment of IGST (i.e. under Bond or LUT) and claim refund of accumulated ITC/credit attributable to such exports, as per prescribed formula.

For first type of refunds, Shipping Bill itself has to be treated as a claim for refund and such refund claims are being processed and disbursed by Customs formations of the port where the Shipping Bill or Bill of Export is filed.

This Article relates to the second type of refund. For refund of accumulated credit, the exporter has to apply for refund by filing the Form GSTRFD-01A through common portal viz. www.gst.gov.in. After entering particulars like values of zero rated supplies, adjusted total turnover, net ITC etc., the refund amount will be automatically calculated by System, as per the formula prescribed at Rule 89(4) of the CGST Rules, 2017. If the application for refund in Form GSTR-01 Ais complete and processed, the amount claimed as refund would be debited automatically from Electronic Credit Ledger of the exporter. A Receipt showing Application Reference Number (ARN) will be generated by the System. Presently, the Menu for backend processing of such refund claims through GSTN is not available with GST officers. So, exporter has to take printouts of the Form GSTRFD-01A, ARN etc. and submit the same alongwith other documents to their jurisdictional GST office (either CGST office or SGST office, in which the exporter has been assigned for the purpose of administration).

The procedure for manual processing GST Refund claims has been prescribed by CBEC (now known as CBIC) vide Circular Nos. 17/17/2017-GST dated 15.11.2017, 24/24/2017-GST dated 21.12.2017 and 37/11/2018-GST dated 15.03.2018.Among other documents, the invoices of inputs and input services are also required to be submitted with the refund claim. In this regard, Para 14 and 14.1 of the Circular No. 37/11/2018-GST dated 15.03.2018 are reproduced below:

QUOTE

14. Requirement of invoices for processing of claims for refund:  It has been brought to the notice of the Board that for processing of refund claims, copies of invoices and other additional information are being insisted upon by many field formations.

14.1  It was envisaged that only the specified statements would be required for processing of refund claims because the details of outward supplies and inward supplies would be available on the common portal which would be matched. Most of the other information like shipping bills details etc. would also be available because of the linkage of the common portal with the Customs system. However, because of delays in operationalizing the requisite modules on the common portal, in many cases, suppliers' invoices on the basis of which the exporter is claiming refund may not be available on the system.  For processing of refund claims of input tax credit, verifying the invoice details is quintessential. In a completely electronic environment, the information of the recipients' invoices would be dependent upon the suppliers' information, thus putting an in-built check-and-balance in the system. However, as the refund claims are being filed by the recipient in a semi-electronic environment and is completely based on the information provided by them, it is necessary that invoices are scrutinized.

UNQUOTE

In view of the above instructions, GST officers, who manually process the refund claims, are required to 'verify' and 'scrutinize' the invoices. Now, the moot question arises, if the Department notices some discrepancy in any input invoice submitted by the exporter, what would be its effect on the refund claim.

To illustrate, following types of discrepancies are generally noticed in the invoices:

- Exporter's name, address and/or GSTIN written in supplier's invoice do not match with the exporter's registration profile available in GSTN.

- Input tax credit on vehicles, club or gym membership, works contract etc.(which is not available as per Section 17(5) of the CGST Act, 2017) has been taken.

Suppose, the exporter has taken total ITC of Rs.1,00,000/- lakh in a particular month (for which refund has been claimed), out of which Rs.10,000/- may not be admissible as per the view of Department. The exporter has filed refund claim of accumulated credit of Rs.80,000/- as per the prescribed formula. Under such circumstances, the easiest way for the Department would be to reject the refund claim to the extent Rs.10,000/- and pay the remaining amount of Rs.70,000/- to the exporter. However, this method is not legally sustainable. The exporter may argue that he has claimed refund from only admissible credit and for denial the inadmissible credit, adjudication process under Section 73 or 74 of the CGST Act, 2017, has to be followed.

In a case regarding rejection of refund claim by lower authority, the CESTAT has held to the effect that even if the Cenvat credit was considered to have been taken wrongly, disallowing the same requires quasi-judicial process involving issuance of Show Cause Notice followed by a speaking order [Serco Global Services Pvt. Ltd. Vs CCE, Delhi III - 2015-TIOL-1044-CESTAT-DEL]. Similarly, in the case of K Line Ship Management (India) Pvt. Ltd. Vs CST, Mumbai - 2017-TIOL-2406-CESTAT-MUM, the CESTAT has held to the effect that it was not open to Revenue to examine the admissibility of Cenvat Credit while adjudicating the admissibility of refund under Rule 5 of CCR, 2004; that for recovery of Cenvat credit wrongly taken or erroneously refunded, Rule 14 has been provided in CCR, 2004.

In view of the above, it is very clear that if the Department objects to any amount of ITC/Credit claimed by the exporter, a demand thereof must be/have been raised by issuing Show Cause Notice under Section 73 or 74 of the CGST Act, 2017. After completion of adjudication process, such ITC can be recovered, if found to be inadmissible.

Now, the further question arises is that while pending adjudication regarding admissibility of ITC, what would be the fate of the refund claim, which is required to be disposed of in a time-bound manner.It is felt that if admissibility of ITC has been questioned on the basis of rectifiable mistake, refund may be granted (if it is otherwise OK) to facilitate exporters and also to avoid payment of interest by Department. If adjudicating authority disallows ITC later, it can be recovered in the manner prescribed. However, if the Department has strong and legally sustainable case that the ITC is not admissible; and the exporter does not agree with the view of Department, the refund claim can be withheld by the Commissioner under the provisions of Section 54(11) of the CGST Act, 2017. If the adjudicating authority orders under Section 73(9) to the effect that the ITC is not admissible to the exporter, then the refund amount may be sanctioned and appropriated against the liability of payment of amount equal to ITC wrongly taken by the exporter. Suppose, the Department rejects such refund claim, in that case, the ITC debited in Electronic Credit Ledger is required to be allowed as re-creditunder Rule 93 of the CGST Rules, 2017, and then it has to be recovered. However, in this case, the order regarding rejection of refund may not be sustainable inasmuch as only admissibility of credit is in question, not the admissibility of refund.

Before parting, I would like to add that presently GST officers are not verifying/scrutinizing Input invoices, which have been used for taking credit and such credit is being utilized for payment of GST. Presently, taxpayers themselves avail the ITC admissible to them and utilize it towards payment of GST without any intervention of the Department. It is also pertinent to note here that while allowing refund of IGST paid on export goods, input invoices are not being scrutinized/verified. So, it is felt that while processing refund claims of accumulated ITC, it would not be proper on part of Department to delay or deduct refunds on account of minor discrepancies in supplier's invoices. It is suggested that the requirement of verification and scrutiny of input Invoices as prescribed under Para 14.1 of the Circular No. 37/11/2018-GST dated 15.03.2018 may be withdrawn or modified; and this work may be undertaken by Department during Audit or detailed Scrutiny of Returns.

(The views expressed by the author are strictly personal)