With the introduction of the Goods and Services Tax (GST), industry expected the government to continue to work towards a robust and faster indirect tax system, in its prursuit of improving the ‘Ease of Doing Business’ in India. However, thanks to the scale of the reform, efforts are on to align various existing import-export policies with GST even after six months of its roll-out. A serious issue that cropped up for exporters was the adverse effect on the benefits that were provided by the commerce ministry in the pre-GST regime and the delay caused by the GST network in executing the refund claims. Due to these difficulties, the wafer-thin margins of exporters have been affected, and exporters were compelled to file petitions in high courts. The government, by taking up these problems in the GST Council meeting, and the courts, by providing interim reliefs, extended a helping hand to exporters. What must now be ensured is that this doesn’t become a case of ‘too little, too late’.
With the rollout of GST, many export schemes under the Foreign Trade Policy 2015-20 (FTP) like the Merchandise Export India Scheme (MEIS), Service Export India Scheme (SEIS), Advance Authorisation Scheme and the Export Promotion Capital Goods (EPCG) Scheme were trimmed, resulting in a crunching of benefits. The immediate hit was in terms of scrips awarded under the MEIS and SEIS schemes as they could only be used for the payment of basic customs duty as opposed to the earlier regime where they were used for the payment of service tax, central excise duty and other additional duties of customs as also basic customs duty. This led to a fall in demand for such scrips in the market and the domestic scrip-holders, who had procured it for making payment of duties on domestic procurements, were left in a lurch. Furthermore, all upfront exemptions given for additional duty of customs, including countervailing duty (levied in lieu of excise duty), and special additional duty (levied in lieu of Value Added Tax) on goods imported by license holders under the Export Promotion Capital Goods scheme and Advance Authorisation Scheme were rescinded and no exemption was granted for integrated GST (IGST) levied on imports. Due to the restrictions placed on upfront exemptions on all additional duties of customs, exporters were exposed to working capital issues and increased costs of borrowing to manage the cash flow. Consequently, exporters were compelled to file writ petitions in high courts, which granted them the interim relief of upfront IGST exemption to affected exporters.
The piling grievances of exporters all over the country acted as an eye-opener for the government. In the 22nd meeting of the GST Council, held on October 6, 2017, it was resolved that imports made by persons operating under the EPCG scheme and Advance Authorisation Scheme will be temporarily exempted—upto March 31, 2018—from the levy of IGST. These issues were followed by the mid-term review of the FTP (December 5, 2017)—aside from the welcome increase of 2% in reward rates under SEIS and MEIS, other changes reconciling any inconsistencies in the FTP and GST were also included. It is worth noting that the amended FTP categorically records that upfront exemption from IGST and GST compensation cess is available only upto March 31, 2018. This clearly indicates that the temporary relief from payment of IGST under the export promotion schemes may not be automatically continued after March 31, 2018. It is expected that, to seek continued relief, exporters may have to resort to litigation.
Refunds under the service tax and the excise regime have always had bones of contention, leading to unexplainable delays and unnecessary litigation. To assuage such concerns of exporters, under the GST regime, a smooth mechanism along with upfront grant of provisional refund of up to 90% on inputs and input services within seven days of filing of claims was promised. However, this gave rise to a new problem, concerning the documents that would be required to be filed for refund claims, as the GST laws did not afford sufficient clarity in this respect. Additionally, the GST Network did not carry the format for the refund claims. Such procedural bottlenecks were hampering trade, and the increasing discontent caused the government to take concrete measures to identify authorities to sanction refunds and enable offline methods of filing refund claims. This was accompanied with the promise that the pendency of refunds pertaining to past few months would be cleared in a span of few weeks. However, it remains to be seen whether such refunds would be processed in the manner as trade expects, since the enabling provisions are riddled with qualifications—for instance, the grant of refund should be to the satisfaction of the concerned officer that the claim was complete. This does not instil great hope since trade’s concerns are that GST refunds would also be delayed like those claims in the erstwhile regime. As of now, the ground-level processes relating to refunds and documentation are being revamped by acknowledging trade’s concerns and practical difficulties with the GST network.
It may be hoped that the environment will eventually be in favour of the export sector in India. So far, these developments appear structured and formulated. However, the aim should be to ensure that they are, in effect, operational and convenient for the sector under the “Good and Simple Tax” regime. Co-authored with Anjali Krishnan and Saasha Malpani, associates, Khaitan & Co.