As per the provisions of section 16(3) of the IGST Act, the registered person making zero rated supply shall be eligible to claim a refund under the following prescribed options
- The registered person shall supply goods or services or both by without paying IGST and claiming a refund of unutilized Input tax credit under bond or Letter of Undertaking (LUT)
- The registered person shall supply goods or services or both by making payment of IGST and claiming a refund of such tax paid on the supply of goods or services or both.
Refund Procedure under option 1 is a combination of both manual and online process, the registered person after the supply of goods or services or both shall file an application in form RFD-1 and such application shall be printed and submitted manually to the concerned GST officials. The Refund shall be processed after verification of documents.
Refund Procedure under option 2 is a fully automated process as provided under instruction no. 15/2017-Customs dated 9th October 2017, The refund shall be processed within a fortnight automatically on the filing of GSTR-1 and GSTR-3B and filing of EGM. Under this procedure Shipping bill, itself is considered as an application and no separate application shall be needed.
The Refund Procedure under option 2 shall be considered as the most preferable option as there is no involvement of the manual process and fast processing of refunds.
Need for Amendment in Refund Procedure
As stated in the Circular No. 16/2019 issued by Central Board of Indirect Taxes & Customs, the following instances have come to the notice of the board which led to making a modification in the procedure as specified in the instruction 15/2017-Cus dated 09.10.2017 for verification of GST refund.
- The refund of IGST has been claimed by some exporters was based on the Ineligible documents or in a fraudulent manner and utilized such credit for the payment of IGST for the goods exported out of India.
- And it has been found that there is a huge variation between the FOB Value declared in the shipping bill and the taxable value as filed in GSTR returns apparently to effect higher IGST pay out leading to encashment of credit.
- Suspicious cases Identification
- Insertion of System Alert
- Examining the export goods
- IGST Refund Suspension
- GST Information verification
Suspicious cases Identification
- The DG (systems) shall forward the list of risky exporters to Risk Management Centre for Customs (RMCC) and respective Chief Commissioners of Central Tax which was identified based on the suitable criteria framed by the DG (systems) at the national level.
- The DG (systems) shall also inform to the Chief Commissioner of Central Tax about the IGST refunds granted to such risky exporters in past.
Insertion of System Alert
- An alert shall be inserted by Risk Management Centre for Customs (RMCC) for all risky exporters
- 100% of examination of export consignment shall be made mandatory for all risky exporters
- An alert shall be inserted to suspend the IGST refund in such cases
Examining the export goods
- The consignment shall be examined by the customs officer as per the RMCC alert
- Consignment shall be cleared as per the regular practice only if there are no violations of any of provision of the Customs Act, 1962 or other laws being observed and the result of examination tallies with the declaration in the shipping bill.
IGST Refund Suspension
- The Refund shall be suspended by the Deputy or Assistant Commissioner of Customs dealing with a refund at the port of export, if the result of such examination made does not tally with the declaration made in shipping bill or there is a violation regarding the provision of the Customs Act, 1962 or other laws being observed.
GST Information verification
- Standard Operating Procedure will be issued by the GST Policy wing for verification of the IGST refund claims and other related aspects by the Chief Commissioner of Central Tax.
- A report shall be furnished to the respective Chief Commissioner of Central Tax within a period of 30days clearly specifying the amount of IGST paid and claimed/ sanctioned as the refund was in accordance with the law or not.
- All cases reports shall be compiled and forwarded to RMCC and concerned customs port of export within a period of 5 working days, by the Chief Commissioner of Central Tax.
Actions that can be taken by Customs formations
In the case of No malpractices on verification
IGST refund shall be processed by the Customs officer at the port to the extent verified by the GST authorities based on the verification report from Chief Commissioner of Central Tax stating that ITC availed by the exporter was in accordance with the GST Law and rules made thereunder.
In case of Malpractices on verification
IGST Refund shall not be processed, if on verification it has been found that exporter has availed ITC fraudulently or on the basis of ineligible documents and utilized the said ITC for payment of IGST claimed as refund.