In the first of this two-part series about GST refunds on exports, we discussed the process for claiming a refund on exports made via a Letter of Undertaking (LUT) or bond without the payment of Integrated GST (IGST). In this piece, we will discuss the refund process for exports made with payment of IGST. As you might have read in our earlier blog, these are the two ways of exporting goods and services under the GST regime.
To recap, GST (Goods and Services Tax) was rolled out in India on July 1, 2017, as a single indirect tax replacing multiple Central and state taxes such as excise duty, service tax and Value-Added Tax (VAT). It is made up of two components, Central GST (CGST) and State GST (SGST). Integrated IGST, which is the sum total of CGST and SGST, is what exporters pay to send their goods and services out of the country (or to supply to a special economic zone within the country). Once paid, this tax can be claimed as a refund at a later date. This is because exports are treated as “zero-rated supplies” under GST, which means the rate of tax they attract is zero. This tax exemption applies not only to the final product or the final provision of service but to the inputs/input services that go into making this final product or service. Zero-rating exports makes them more competitive in the global market.
In this piece, you can read about:
When an exporter sends goods and services out of the country on payment of IGST at the applicable rate, they can claim a refund of the tax under Rule 96 of the CGST Rules, 2017. The refund process is different for goods and services.
1. For export of goods
The exporter need not file a refund application because the shipping bill (or bill of export) is considered one. A shipping bill is an application for customs clearance and one of three mandatory export documents. It is filed on Icegate, Indian Customs’ website. A shipping bill is considered to have been filed as an application for IGST refund when:
While these are the two conditions for a refund application, remember that refunds are granted on the basis of two returns – GSTR-3B and GSTR-1. The latter is a monthly or quarterly return with invoice-wise details of exports made.
2. For export of services
The exporter must file a refund application in form GST RFD-01, which is the same form prescribed for making a refund claim for input tax credit on exports made under LUT/bond without payment of IGST. The application takes the same route as one for exports made without payment of tax. Read about it here.
For the export of goods, once a refund application (in the form of a shipping bill) is deemed to have been filed, here’s what happens next:
Step 1: The GST Network (GSTN), as the GST website is called, transmits invoice details contained in GSTR-1 to Icegate electronically. It does so only if:
Step 2: Icegate matches the GSTR-1 data with the shipping bill details. A mismatch can lead to the refund application being rejected (more on that later)
Step 3: If the details match, Icegate sends an electronic confirmation to GSTN that the goods covered in the invoices have been exported
Step 4: Icegate then processes the refund claim. The exporter will receive an Application Reference Number (ARN) with which they can track the status of their application
Refund timelines for exports made with payment of IGST are the same as those for exports under LUT/bond without payment of tax:
A refund claim must be filed within two years of the relevant date (where relevant date is the date the ship/aircraft leaves the country or the truck crosses a land border; for services export, it is the date payment is received or when invoice is generated, as the case may be)
As per CGST Rules, refund of IGST is not available to an exporter if:
1. Non-transmission of data: As mentioned above, GSTN won’t transmit data to Icegate if the details in forms GSTR-1 and GSTR-3B don’t match. In 2018, Rs 10,000 crore worth of GST refund claims (70% of the total filed) were stuck due to discrepancies in returns data. This issue of problematic refund claims persists till today. Solution: To correct errors in GSTR-1/6A, file Table 9A, an amendment table, in the same form. Form GSTR-3B, once submitted, cannot be amended. But corrections made in form GSTR-1 will auto-populate GSTR-3B in GSTN.
2. Data mismatch on Icegate: If Icegate finds a mismatch between the returns data transmitted by GSTN and the shipping bill details, you will receive one of the following error codes in response to your application:
When all data points match, Icegate returns an SB000 (Successfully Validated) response code and assigns an IGST scroll number to the eligible shipping bill. You can use this number to check the status of your claim on Icegate on IGST Scroll Sanctioned Status.
3. Scroll generation problems: An eligible shipping bill receives a temporary scroll number first, followed by a final one. The final scroll number is automatically transmitted to the exporter’s bank, after which the refund is credited in their bank account. But problems can arise at the scroll generation stage:
4. Short payment of tax
Sometimes, the self-assessed IGST paid by an exporter is less than what is actually due. This might lead to their refund claim getting stuck. A short payment is usually a genuine mistake by the exporter and sometimes a deliberate attempt at tax evasion. There is a provision under GST law for recovery of tax that is short paid whereby the exporter can voluntarily pay the amount due with applicable interest by a specified date, with or without a nominal penalty.
Here is what happens in a genuine case of short payment:
Note: The CA certificate facility was introduced by the government in 2018 as an interim measure to prevent blockage of refunds for 2017-2018. It has since been extended and is now valid for all shipping bills filed/to be filed till March 31, 2021. For such bills, CA certificates may be submitted at the port of export till October 30, 2021. Furthermore, this facility is also extended to exporters whose refund claims are stuck not due to short payment of tax but as a result of non-transmission of returns data by GSTN.
Recently, exporters are worried about two proposed changes in the Finance Bill, which they believe will affect their refunds and business. The proposals are:
The Federation of Indian Export Organisations (FIEO) has sought a review of these “harsh” changes. According to FIEO president Sharad Kumar Saraf, most exporters prefer to export with payment of IGST because “IGST refund is without any application because shipping bill itself is treated as application. It can be claimed for each shipment and 100% reimbursement is available in one go. The entire process is dealt [with] by customs smoothly”. In comparison, the refund process for exports under LUT/bond has procedural challenges (filing of application, uploading of documents, delayed payments) and transactional costs, he added.
Regarding the proposed change in the Customs Act, Saraf said the term “wrongful claim” can be interpreted in many ways, which would put exporters at a disadvantage and affect India’s exports.
The amendments need to be passed by Parliament and notified by the Finance Ministry in order to come into effect.
As you might have realised by now, most glitches that result in your IGST refund claim getting stuck are due to the entry of incorrect information in shipping bills and GST returns. This underscores the importance of being extra careful while filling these details so that your refund can be processed smoothly without loss of time, effort and money.
Signup to Cogoport. Get trade new & updates, and get assistance with booking international shipments online!
Managing cashflow in the export business is a huge challenge. Follow this guide to make your transactions less of a risk & more of an opportunity.
Minimum order quantity ensures that suppliers make a profit on sales while buyers get the right products for the right price. However, buyers can still negotiate a lower MOQ in China. We’ll tell you how.
China is the world’s factory, sending goods in all directions via sea. But recently, frequent maritime accidents have resulted in huge cargo losses, making shipping from the country a risky affair. The need for marine cargo insurance for your China shipments has never been more urgent than now.
For importers, buying goods from China comes with benefits as well as the risk of fraud – whether it’s ending up with substandard goods or losing money to fake companies. Don’t be a victim of a scam. Follow these best practices
Read key cyber-security frauds affecting exporters-importers. Why SMEs should be alert? How SMEs can protect themselves when under attack? Useful tips to stay safe.
For traders who source goods from Asian countries that have their own languages and cultures, a local freight forwarder brings many advantages. Follow these tips to make the right hire for your business needs.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.
The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.
A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!
Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.