Over 5k 'Risky' Exporters Identified for Fraud in GST Return

Fraudulent claims of Integrated GST (IGST) refunds by exporters could exceed INR 1,000 crore

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What was being considered a setback has unravelled a series of fraudulent filings on GST returns by exporters. So far, the government authorities have identified 5,106, what are being called "risky" exporters for claiming GST refunds based on bogus invoices. Central Board of Indirect Taxes and Customs (CBIC) would now manually check their claims before issuing refunds.


Recently, in addition to the automated process of refunds for exporters under goods and services tax (GST), the indirect tax department had introduced manual checks to curb large-scale tax evasion after multiple instances of availing "integrated GST refund using fraudulent input tax credit (ITC) claims by some exporters," were observed by various authorities.

Risk & Mitigation

According to CBIC, some exporters were declaring a much higher value of exports in their GST returns compared to the value mentioned in the shipping bill. Since exports are zero-rated, the exporting firm gets back the entire Integrated GST (IGST) paid on the export. Reportedly, such fraudulent claims of IGST refunds by exporters could exceed INR 1,000 crore.

CBIC has instructed its Customs and GST formations to verify the correct availment of input tax credit (ITC) by few exporters who are perceived as "risky" on the basis of pre-defined risk parameters. The new verification exercise is apparently aimed at preventing unscrupulous exporters from defrauding the exchequer and bringing a bad name to the larger exporting community.

Not Much of a Threat

Unlike what is being portrayed, CBIC has assured no threat to the exporters' community, claiming that only 3.5 per cent of the total exporters were found "risky". "Only 5,106 risky exporters have been identified so far as against about 1.42 lakh total exporters," the statement read, further declaring that only 1,436 Shipping Bills filed by total 925 exporters have been interdicted.

Considering that about 20,000 Shipping Bills are filed by roughly 9,000 exporters on a daily basis, the intervention is negligible. Noticeably, even for the risky exporters, the exports are allowed immediately but the refund would be released only after the verification of ITC, which will be a maximum of 30 days.

The genuine exporters would continue to get their IGST refunds in a timely manner and in a fully automated environment, CBIC stated. Notably, India has been progressing on the exports front. The nation's overall exports (Merchandise and Services combined) in April-May 2019-20* are estimated to be $92.33 billion, exhibiting a positive growth of 4.32 per cent over the same period last year.

Impact on the Industry

GST as a regulation was promulgated with the aim to simplify "ease of doing business' by rationalising documentation, increasing the speed of commercial transactions and most important – to enhance the country's image internationally. However, as is observed with every facility, it is open to either good use or intentional misuse.

Expressing his concern over the malicious usage of taxes, Sunu Mathews, MD, LEAP India Pvt Ltd provided, "Misuse of input tax credit is a serious concern for tax authorities as it seems to have created a hole in the system that the enforcement agencies are struggling to fix."

Today export houses, mostly MSMEs, are subject to rigorous scrutiny which can negatively impact their ability to respond to their customers thereby adversely affecting the business. Mathews is of the view that the authorities should find a practical and robust mechanism to ensure that such malafide practices are eliminated and honest taxpayers are not impacted by this malaise.

Agreeing to him, Archit Gupta, Founder & CEO ClearTax, suggested, "Exporters have to exercise extreme caution in making sure there is proper documentation and shipping bill matches with GST Return values for smooth IGST refund. Such instances lead to heightened scrutiny for businesses."