Single authority mechanism for processing GST refunds to exporters soon

Topics GST Council | GST2.0 | GST refund

The upcoming Goods and Services Tax (GST) Council meeting on September 20 is likely to approve the mechanism to allow a single authority — state or Central — to sanction and process GST refunds for exporters in a faster and simpler manner. Refunds of around Rs 10,000 crore have piled up.

The move is expected to give a fillip to the struggling exports sector, which contracted 0.37 per cent to $107.41 billion in April-July 2019-20.  Outbound shipments are facing headwinds due to weak global demand and liquidity constraints.

The GST Council, comprising the Union finance minister and those from the states, will meet in Goa and discuss the single-authority mechanism, which is expected to come into effect this month.

“The Centre and states will discuss the mechanism. It will streamline the process and address liquidity concerns of exporters to some extent,” said a government official.

Currently, state and central officers separately settle State GST and Central GST refund claims, making the procedure complex. 

For example, if a taxpayer files for refund with a central tax officer, she or he gets half the refund, while the rest is cleared by a state tax officer after further scrutiny. The case is the reverse if the assessee falls within a state officer’s jurisdiction.

As part of the package to address economic slowdown, Union Finance Minister Nirmala Sitharaman last month announced a time-bound clearance of refunds for micro, small and medium enterprises. She said the existing dues would be cleared within 30 days, while those in future would be done within 60 days of application.

Under the single-authority mechanism, once a refund claim is filed with a tax officer, Centre or state, the officer will check, assess, and sanction all of it. This will later get adjusted/settled among the two tax authorities through internal account adjustments by the end of the month.

The move is also expected to reduce litigation.

“A single authority for clearing the refunds would ease the burden of exporters to a large extent ... It would also streamline and reduce litigation and bring more uniformity in the positions taken,” said Bipin Sapra, partner, EY.

According to the formula for dividing GST assessees, state tax officials administer and control 90 per cent of the assessees below the Rs 1.5-crore annual turnover, and the remaining 10 per cent is done by central tax officers. Above Rs 1.5 crore, the load is equally divided.

“In a situation of weak demand generation and working capital stress, a single authority for GST refunds would provide a fillip to businesses. Faster refund processing and disbursements would significantly improve business sentiment,” said M S Mani, partner, Deloitte India.

A notification issued on August 31 by the Central Board of Indirect Taxes and Customs inserted sub-section 8A in Section 54 of the Central GST Act, saying, “The government may disburse the refund of the State tax in such manner as may be prescribed.”

Ajay Sahai, director general and chief executive officer, Federation of Indian Export Organisations, said: “Liquidity is a key concern ...We are happy that ITC (input tax credit) refund has been assigned to one authority ...”

He added many exporters had been classified as risky and they were facing problems in getting GST refund, and others were facing the same problem owing to a technical mismatch.

“If the examination has not revealed any wrongdoing, the refund should be expedited. Some refund is stuck on account of technical mismatch, for which manual intervention has just been allowed. At a few ports, there are other errors holding up payments,” he added.

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