FIEO's Press Release on Exporters’ concerns for GST
September 28, 2017
Exporters’ concerns relating to GST - Meeting with Hon’ble Finance Minister held on September 28, 2017
1. Exemption from GST to Merchant Exporters
The Merchant exporters account for over 30% of country’s exports who usually work on razor thin margins of 2-4%. The imposoition of GST has made their costing haywire, particularly for products having higher GST rate, as they have to pay GST and seek refund after some time lag. Many of them have stopped entering into new contracts which will adversely impact country’s exports in next quarter. Merchant Exporters were availing exemption from Central and State taxes under pre-GST regime and same exemption may be provided under the GST regime as well against an Electronic Bond. Exports of Tiles, handicraft, textiles, agri-commodities may witness decline as such sectors are dominated by merchant exporters.
2. Exemption from IGST against Advance Authorisation/ EPCG and EOU Scheme
These instruments provided exemption from all customs duties including CVD, SAD which are replaced by IGST on imports. The imposition of IGST is affecting the liquidity of exporters and blunting their competitive edge. EU and many other countries, operating under GST/VAT regime, do provide complete exemption from import charges on inputs used in exports. Indian Exporters are thus losing out to their competitors from such countries. Ab-initio exemption from IGST may be provided against such Advance Authorisation/EPCG and EOU Scheme
3. Revised refund procedure for interim period
As per the existing provision, the refund would flow to the exporters only after filing of GSTR-1, 2 & 3 provided the EGM in respect of such exports have also been filed. The extended time provided for filing for GSTR-1 for the month of July,2017 now is extended till 10th of October, 2017. Therefore, in case, the exporter wants to file for refund, he has to wait at-least till 10th of October, 2017 as the auto-populated entries in GSTR-2 will be available only after 10th of October, 2017. If the exporter files GSTR-3 by 15th of October, 2017 and applies for ITC refund, 15 days time is available for issuance of acknowledgement while 7 days time limit is given for 90% of the refund. Therefore, even in the best of situation, ITC refund would not be available before 1st week of November,2017. In short, exporter would, in the meantime, be paying GST liabilities for the month of July, August and September, 2017.
Most of the exporters, particularly from MSME category, hardly have financial wherewithal to pay GST liabilities for 3 months without having refund in the meantime. In the given situation, exporters may be provided GST refund (both IGST as well as ITC) based on GSTR-1 & GSTR-3B so that the cash flow to export sector is maintained. GSTR-3B already captures the details of zero rated outward taxable supplies (export related supplies), ITC available for the month and payment of GST made during the month. These details are adequate to provide IGST refund as well as ITC refund on exports, as the case may be. The filing of GSTR-1 would ensure that exporter has reflected his output liabilities as well.
4. Testing of Refund Procedure
In the meantime, GSTN may provide the facility of filing GSTR-2 & 3 so that those exporters who have taken supplies from suppliers, who have already filed GSTR-1, may proceed with the refund as per CGST Rules, 2017. While there may be few cases of this nature, it will provide testing of the software of exports refund so that glitches, if any, may be addressed before the system is put to test by filing of refund applications from a large number of exporters.
5. Usages of Scrips and it validity
The premium on the scrips have already come down substantially due to its limited usages in the GST where it can be used only for payment of basic customs duty. The reduction in premium is adversely affecting exporters benefitting importers. Therefore, we would suggest to look into the ways of increasing utilization of such scrips. MEIS/SEIS Duty Credit Scrips should be allowed for the payment of IGST and at-least of CGST. The validity of scrips may be extended to 36 months and already issued scrips may be deemed to be validated by 36 months so that there is no distress sale by the exporters.
6. Amendment in Drawback rules for goods manufactured in EOUs
Merchant exporters under the pre-GST regime were placing orders on EOUs which were exporting the products on their behalf. Since EOUs for such transactions are raising invoice on the merchant exporters, these transactions are considered as domestic supply on which IGST/CGST and SGST should be paid beside the merchant is required to pay basic customs duty on inputs used in export of such products. Since merchant exporters are paying basic customs duty on the inputs, in all fairness, the merchant exporters should be eligible to claim duty drawback for the basic customs duty paid on inputs. Unfortunately, clause 10(c) of Notification 131/2016 dated 31st October, 2016 disallow the same as the drawback rates specified do not cover the cases where goods are manufactured by a 100% EOU. The Ministry of Finance may be asked to modify the aforesaid condition in the above referred Notification.
7. Amendment in Drawback rules for goods manufactured in SEZs
Similar problem is being faced when the merchant exporter exports the goods manufactured by SEZ unit as clause 10(d) of the Notification 131/2016 dated 31st October, 2016 disallow drawback on goods manufactured by any unit in SEZ. The Ministry of Finance may be asked to modify the aforesaid condition in the above referred Notification.
8. E-Wallet for exporters
The micro & small exporters are particularly hit with the GST as they have to borrow money to pay GST. The availability of Credit and more so the cost of credit is adversely impacting them. Government may consider introduction of e-wallet for exporters in which based on preceding year’s exports and an average GST rate, e currency is credited to exporters’ account. Like a running account, money may be debited from the e-wallet when duty paid supplies have to be undertaken and the amount may be credited when the proof of exports is made available from ICEGATE. We have been given to understand that such a mechanism may work through the GSTN though the software would require some modification. The trade & industry feels that such a proposal is feasible to implement and will address large concerns of the exporters. If such a proposal is accepted, the problem of Merchant Exporters of procurement of goods, meant for exports, from manufacturer as well as the issue of manufacturers of inputs through domestic procurement or imports will be addressed.
9. Refund of embedded tax through Duty Drawback
Lot of embedded taxes have become visible in the GST including the tax on power, tax on petroleum products, tax on inputs used in exempt sector. For e.g. sectors like tiles manufacturing where Energy (Natural gas) constitutes major component of cost (> 30-35%). In line with the efforts of the Government to bring Indian manufacturer at same level play as other manufacturer in International market, it is important that there should not be any tax burden on export sales. For imparting competitiveness to exports, such taxes may be refunded through duty drawback by working out the rate factoring these embedded taxes.
10. Extension of Duty Drawback
Since the filing of GSTR 1,2,3 for July has been extended, It is apparent that exporters will not be able to get their refund by December. It is understood that Govt is working out a mechanism to grant refund for export sector on the basis of GSTR 1 and GSTR 3B, however, the final mechanism worked out may still take time to implement till the complete modalities are worked out. In absence of clear refund timelines, the new Drawback rates notified on 21st September have added to the woes of exporting and thus effecting their order book position. It is suggested that that the transition period of drawback may be extended beyond 30th September 2017 till 31st December 2017 OR till the time refund mechanism stabilizes. It will enthuse confidence among the exporting community and will give them a partial relief to the sector which is already facing working capital crunch.