Revision Order can’t be passed If Submissions of Assessee were duly verified by AO during Assessment

Income Tax Appellate Tribunal (ITAT), Kolkata bench consisting of Rajpal Yadav, Vice President and Manish Borad, Accountant Member held that order passed by PCIT (Principal Commissioner of Income Tax) u/s 263 for making fresh assessment without considering the submission made by the appellant on sole ground that were duly verified by the AO in course of assessment is bad in law.

The assessee, Debdas Ghoshal is an individual engaged in business. As per records, revised return of income declaring total income of Rs. 5,93,510/-. A survey u/s 133A of the Act was conducted on 28.11.2014. Thereafter, notice u/s 148 of the Act was issued and served upon the assessee. The assessment was completed after making addition for unsecured loan at Rs. 17,00,000/- and income assessed at Rs. 22,93,510/-. Subsequently PCIT, Kolkata called for assessment records and after examining the same, issued the following show cause notice u/s 263 of the Act. After issuing the show cause notice, revisionary proceedings were carried out and after considering the submissions of the assessee and PCIT came to a conclusion that relevant issues relating to computation of gross profit, capitalization of the amount of Rs. 16,00,000/-, genuineness of unsecured loans and sundry creditors remained to be examined by the Assessing Officer (AO) and, therefore, the assessment order is erroneous insofar as prejudicial to the interests of the Revenue. AO was directed to re-compute the total income and the order was set aside for the limited purpose of examination of issues relating to gross profit at the time of survey u/s 133A of the Act. Aggrieved, the assessee preferred appeal before this Tribunal.

The Tribunal said” PCIT setting aside the assessment order passed u/s 143(3) of the Act. In the grounds the assessee has also submitted that all the issues raised by ld. PCIT were duly verified by the ld. AO in the course of the assessment and, therefore, the order u/s 263 of the Act is bad in law and against the principle of res judicata and natural justice.”

Export of Goods Without Payment Of IGST: GST Refunds Part 1

The Goods and Services Tax (GST) was introduced in India on July 1, 2017. It subsumed multiple central and state levies (central excise duty, service tax, state VAT, etc) into a single tax and was thus hailed as “one nation, one tax”. The rollout of GST was considered a major economic reform as it aimed to simplify the tax structure and widen the tax base. The tax itself has two components, a Central GST (CGST) and a State GST (SGST).

As an importer or exporter of goods and services, you would be familiar with GST. Under the GST regime, imports and exports are treated as the inter-state supply of goods and services. They attract an Integrated GST (IGST), which is the sum total of CGST and SGST. Furthermore, exports are treated as zero-rated supplies under GST. A zero-rated supply is one where the entire value chain and not just the final product is exempt from tax. This means any tax paid on the raw material or inputs used to make the final product is eligible for a refund. This provision is in line with the Indian government’s efforts to promote exports.

There are two ways to export under GST – a) through a bond or Letter of Undertaking (LUT) and without payment of IGST, and b) with payment of IGST, refundable at a later date. In the first of this two-part series on GST refunds for exports, we will discuss the process for exports made without payment of IGST.

Export through LUT/bond (without paying IGST)

To export goods/services without paying IGST, you must file a Letter of Undertaking (LUT) or an export bond. Exporting under LUT/bond is beneficial because it a) saves you the time and effort of seeking a tax refund, b) prevents the blocking of funds, which can be critical for small businesses.

An LUT is valid for one financial year. You can apply for one:

• If you are an exporter of goods/services and have a GST registration

• If you have not been prosecuted for tax evasion for an amount exceeding Rs 2.5 crore, or for any other offence under the CGST Act, IGST Act or any other law

If you don’t meet the conditions for an LUT, you can still export without paying IGST – by furnishing a bond on non-judicial stamp paper. The bond must cover the tax liability on the export as assessed by you (the exporter). If it falls short, you can furnish a fresh bond to cover the additional liability. A bond must be accompanied by a bank guarantee, which must not exceed 15% of the bond amount. Unlike an LUT, a bond does not have a fixed validity. Rather, it is a running bond with debit and credit facilities, so that it need not be furnished afresh for each export.

How to apply for LUT/bond

Applying for an LUT is fairly simple and entirely online:

1. Log in to the GST portal www.gst.gov.in

2. Under “Services”, click on “User Services”, then select “Furnish Letter of Undertaking (LUT)”

3. Select the financial year

• If you have previous LUTs issued manually, upload these by clicking on “Choose File” (in PDF/JPEG format, maximum file size 2MB)

1. In the LUT form (GST RFD-11) that appears, fill in the self-declaration, with which you undertake to:

• Complete the export transaction within three months of the date of issue of export invoice, or a further period as allowed

• Comply with GST law on exports

• Pay IGST with 18% annual interest on failure to export within the specified period

1. Next, fill in the names and details of two witnesses

2. Enter “Place of Filing”, click “Save”, then “Preview” to check the form before submission

3. Sign the form using one of two options given – Digital Signature Certificate (DSC) or Electronic Verification Code (EVC)

4. Once signed, the form cannot be reviewed/edited

5. Once the process is done, you will receive an acknowledgement

Unlike an LUT, which you can file online, a bond must be submitted in person to the GST officer (deputy/assistant commissioner) of the concerned jurisdiction. The steps to furnishing a bond:

1. Prepare the documents, which include:

• Form RFD-11 on exporter’s letterhead

• Bond on non-judicial stamp paper

• Bank guarantee

• Authority letter (authorising an employee/partner/other authorised person to sign the bond on behalf of the exporter)

• Any supporting documents

1. Submit the bond with the required documents

2. The officer will verify the documents

3. On successful verification, the officer will issue a signed acknowledgement letter, usually within three days of submission

‍How to claim refund of ITC

When you export under LUT/bond, you are entitled to claim a refund on Input Tax Credit (ITC) under Section 54 of the CGST Act, 2017, and Rule 89(4) the CGST Rules, 2017. What is ITC? Simply put, when you produce or purchase a product for export, you pay taxes on the inputs (goods and services) that go into making it. When you export the product, you can claim a refund of taxes paid on inputs. The process to apply for a refund on ITC for exports made under LUT/bond is online:

1. Log in to the GST website

2. Fill form GST RFD-01. You will need to:

• Furnish the following details – GSTIN (a 15-digit GST identification number issued to each registered member), name and address, tax period for which refund is sought, refund amount, grounds for refund claim (export of goods/services without payment of tax), bank account details

• File statements/declarations/undertaking relevant to your refund claim

• Upload corresponding documents/invoices, as listed in Annexure-A of GST RFD-01. You can upload four documents of up to 5MB each

1. Affix your digital signature and submit the form

2. Once the form is submitted, an Application Reference Number (ARN) is generated. This means your application has been electronically forwarded to the jurisdictional officer

3. If an application is forwarded to the wrong officer, that officer must assign it to the right officer electronically within three days of ARN generation

4. You can use the ARN to track the status of your claim on the website at Services > Refunds > Track Application Status

Important timelines in the GST refund process

‍An exporter receives acknowledgement of their refund application usually within 15 days of filing it

• If approved, the refund is credited to the exporter’s bank account within 60 days of the date of receipt of the application in its complete form

• If the refund takes more than 60 days, interest @ 6% is payable from the end of the 60-day period till the date of the refund (interest @ 9% if refund is ordered by an appellate tribunal, court or adjudicating authority)

• GST law allows the payment of a provisional refund of 90% of the total refund claim amount within seven days of the date of acknowledgement (exporters who faced prosecution in the five years prior to the refund period are not eligible)

Conditions for filing GST refund claim

• An exporter can file a refund claim only if they have filed all GST returns due on or before the date of refund application via forms GSTR-1 and GSTR-3B. GSTR-1 contains details of sales (export details go in Table 6A) and can be filed monthly or quarterly, depending on the exporter’s turnover. GSTR-3B is a monthly summary of sales (exports) made during the month along with GST to be paid, input tax credit claimed, and so on. The details contained in GSTR-1 and GSTR-3B must match.

• A refund application via GST RFD-01 cannot be filed if a) export duty was paid on the goods, b) goods were exported with payment of IGST, c) duty drawback was availed on CGST/SGST/IGST paid on the goods.

• Under GST law, a refund claim must be filed within two years of the relevant date (where relevant date is the date the ship/aircraft leaves the country or the date the truck crosses a land border).

How to calculate the GST refund amount

The formula used to calculate the refund amount is:

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷ Adjusted total turnover

Where,

• Refund Amount – Maximum refund admissible

• Turnover of zero-rated supply of goods – value of goods made during relevant period under bond/LUT and without payment of tax

• Turnover of zero-rated supply of services – value of services made during relevant period under bond/LUT and without payment of tax

• Net ITC – ITC availed on inputs/input services during relevant period

• Adjusted total turnover – total value of exports in a state/Union territory, as defined under Section 2 (112) of the CGST Act, excluding value of exempt supplies other than zero-rated supplies, during relevant period

• Relevant period – period for which claim is filed

Heads up! Recent updates in GST law

Since GST was introduced in 2017, there have been many tweaks and updates to the rules, including those governing refund of ITC for exports made under bond/LUT and without payment of IGST. Here are some key updates, which have led to some confusion among exporters:

Amendment of Clause C of Rule 89(4) of CGST Rules: This amendment, made via notification dated March 23, 2020, is related to the definition of “turnover of zero-rated supply of goods” and, by extension, to the formula for calculating the refund amount. You can check the old definition here and the new one here. Under the old definition, refund amount was calculated on the basis of the actual value of the exported goods. Under the updated definition, a limit has been placed on this value.

• New Rule 96B: The same notification announced the introduction of a new rule, Rule 96B, in the CGST Rules. It states that in a situation where an exporter has received a tax refund (of ITC or IGST paid on exports) but where money from the sale has not been realised (in full or in part) within the period allowed by the Foreign Exchange Management Act, the exporter must deposit the refunded amount with applicable interest within 30 days of the expiry of the said period. However, such a recovery need not be made if the RBI “writes off the requirement of realisation of sale proceeds”. This rule has created doubt over the definition of “export of goods”, which the IGST Act defines simply as “taking goods out of India to a place outside India”, without mentioning a time limit for the sales proceeds to be received.

• Change of forms under new GST returns system: Under the new GST returns system, which is currently running on a trial basis, form GSTR-1 will be replaced by GST Anx-1 and GSTR-3B by GST RET-1 (Normal). In GST Anx-1, you can provide invoice details for exports made without payment of tax in Table 3D. Information contained in this form will auto-populate GST RET-1, which is the main returns form. The auto-population feature is one of the ways in which the new system aims to simplify the process of filing returns. Another is by reducing the number of returns required to be filed for a tax period from two to one.

Filing GST returns and claiming a refund can be challenging for the most astute exporter. We hope the information in this piece helped clear some, if not all, of your doubts regarding refund claims for exports made under a bond or LUT and without payment of IGST. Watch out for Part 2.

Export With Payment Of IGST: GST Refunds Part 2

In the first of this two-part series about GST refunds on exports, we discussed the process for claiming a refund on exports made via a Letter of Undertaking (LUT) or bond without the payment of Integrated GST (IGST). In this piece, we will discuss the refund process for exports made with payment of IGST. As you might have read in our earlier blog, these are the two ways of exporting goods and services under the GST regime.

To recap, GST (Goods and Services Tax) was rolled out in India on July 1, 2017, as a single indirect tax replacing multiple Central and state taxes such as excise duty, service tax and Value-Added Tax (VAT). It is made up of two components, Central GST (CGST) and State GST (SGST). Integrated IGST, which is the sum total of CGST and SGST, is what exporters pay to send their goods and services out of the country (or to supply to a special economic zone within the country). Once paid, this tax can be claimed as a refund at a later date. This is because exports are treated as “zero-rated supplies” under GST, which means the rate of tax they attract is zero. This tax exemption applies not only to the final product or the final provision of service but to the inputs/input services that go into making this final product or service. Zero-rating exports makes them more competitive in the global market.

In this piece, you can read about:

• How to claim a refund of IGST

• Conditions for claiming a refund

• Important timelines in the refund process

• Common problems in IGST refund process

• Proposed amendments in law affecting IGST refunds

‍Export with IGST payment: How to apply for a refund

‍When an exporter sends goods and services out of the country on payment of IGST at the applicable rate, they can claim a refund of the tax under Rule 96 of the CGST Rules, 2017. The refund process is different for goods and services.

1. For export of goods

The exporter need not file a refund application because the shipping bill (or bill of export) is considered one. A shipping bill is an application for customs clearance and one of three mandatory export documents. It is filed on Icegate, Indian Customs’ website. A shipping bill is considered to have been filed as an application for IGST refund when:

• The carrier files an Export General Manifest (EGM) or export report with the number and date of the shipping bill. (An EGM is filed when goods are transported by sea or air while an export report is filed for transportation by land. Both documents are considered proof of shipment and export.)

• The exporter furnishes a valid GST return in form GSTR-3B, where valid return means self-assessed tax has been paid in full for the tax period for which refund is sought. (GSTR-3B is a monthly summary of exports made along with details of GST to be paid, input tax credit claimed, etc. How much tax you pay is decided on the basis of GSTR-3B.)

While these are the two conditions for a refund application, remember that refunds are granted on the basis of two returns – GSTR-3B and GSTR-1. The latter is a monthly or quarterly return with invoice-wise details of exports made.

2. For export of services

The exporter must file a refund application in form GST RFD-01, which is the same form prescribed for making a refund claim for input tax credit on exports made under LUT/bond without payment of IGST. The application takes the same route as one for exports made without payment of tax.

IGST refund process for export of goods

For the export of goods, once a refund application (in the form of a shipping bill) is deemed to have been filed, here’s what happens next:

Step 1: The GST Network (GSTN), as the GST website is called, transmits invoice details contained in GSTR-1 to Icegate electronically. It does so only if:

• Export invoices are submitted in GSTR-1/Table 6A and they have the correct shipping bill number and date and port code

• The return for the corresponding period has been filed in form GSTR-3B

• The IGST liability stated in GSTR-3B is equal to or more than the IGST claimed to have been paid in GSTR-1

Step 2: Icegate matches the GSTR-1 data with the shipping bill details. A mismatch can lead to the refund application being rejected (more on that later)

Step 3: If the details match, Icegate sends an electronic confirmation to GSTN that the goods covered in the invoices have been exported

Step 4: Icegate then processes the refund claim. The exporter will receive an Application Reference Number (ARN) with which they can track the status of their application

Key timelines in the GST refund process

Refund timelines for exports made with payment of IGST are the same as those for exports under LUT/bond without payment of tax:

• The refund must be credited to the exporter’s bank account within 60 days of the date of receipt of the complete application

• If it takes longer than 60 days, interest @ 6% is payable from the end of the 60-day period till the date of refund

• A provisional refund amounting to 90% of the total refund claim might be made within seven days of the date of acknowledgement of the application (exporters who faced prosecution in the five years prior to the refund period are not eligible)

A refund claim must be filed within two years of the relevant date (where relevant date is the date the ship/aircraft leaves the country or the truck crosses a land border; for services export, it is the date payment is received or when invoice is generated, as the case may be)

Who is ineligible for IGST refund?

As per CGST Rules, refund of IGST is not available to an exporter if:

• They have availed of duty drawback on CGST, SGST or IGST. However, they may claim a refund of IGST if they have availed of drawback on basic customs duty

• They obtained Inputs at a concessional rate of 0.1%. In such a case, export cannot be with payment of IGST but must be executed through LUT/bond

• They imported inputs under the Advance Authorisation scheme. Here too, the final product must be exported under LUT/bond and not with payment of IGST. (Advance Authorisation is an export incentive that allows duty-free import of inputs required in making products for export)

‍Reasons why your IGST refund claim might be stuck

‍1. Non-transmission of data: As mentioned above, GSTN won’t transmit data to Icegate if the details in forms GSTR-1 and GSTR-3B don’t match. In 2018, Rs 10,000 crore worth of GST refund claims (70% of the total filed) were stuck due to discrepancies in returns data. This issue of problematic refund claims persists till today. Solution: To correct errors in GSTR-1/6A, file Table 9A, an amendment table, in the same form. Form GSTR-3B, once submitted, cannot be amended. But corrections made in form GSTR-1 will auto-populate GSTR-3B in GSTN.

2. Data mismatch on Icegate: If Icegate finds a mismatch between the returns data transmitted by GSTN and the shipping bill details, you will receive one of the following error codes in response to your application:

• SB001 – Invalid SB (shipping bill) details. The shipping bill number in GSTR-1 and in the shipping bill don’t match, probably due to a data entry error in GSTR-1. Solution: Amend GSTR-1 Table 9A.

• SB002 – EGM not filed. Solution: Ask your carrier to file the export manifest/export report immediately.

• SB003 – GSTIN mismatch. Your GSTIN (unique GST identification number) in the shipping bill and returns don’t match. Solution: Amend your shipping bill. But remember, shipping bills cannot be amended after the EGM has been filed.

• SB004 – Record already received. This error code pops up when the GSTN transmits the shipping bill invoice record for a second time and the previously transmitted record has already been validated for IGST refund.

• SB005 – Invalid Invoice Number. The invoice number declared in GSTR-1 and the shipping bill don’t match, due to a data entry error or because the exporter has used two sets of invoices (one for GST and one for exports). Solutions: For a typo, amend GSTR-1 or the shipping bill, wherever the mistake might lie. As mentioned earlier, shipping bills can’t be edited after EGM generation. When two sets of invoices have been used, there is no fix. An SB005 error code is one of the most common mistakes made while claiming a refund.

• SB006 – Gateway EGM not available. If goods are exported from an inland container depot (ICD), the gateway EGM might have been filed manually and not electronically on Icegate as required. Solution: Approach the carrier to have a supplementary EGM filed immediately and ensure it mentions the ICD shipping bill.

When all data points match, Icegate returns an SB000 (Successfully Validated) response code and assigns an IGST scroll number to the eligible shipping bill. You can use this number to check the status of your claim on Icegate on IGST Scroll Sanctioned Status.

3. Scroll generation problems: An eligible shipping bill receives a temporary scroll number first, followed by a final one. The final scroll number is automatically transmitted to the exporter’s bank, after which the refund is credited in their bank account. But problems can arise at the scroll generation stage:

• Shipping bill appears in temporary scroll but not final scroll: There might be two reasons for this – a) the exporter’s bank account details haven’t been validated by the Public Financial Management System (PFMS), the government’s financial management platform for direct benefit transfers, and b) the exporter’s Importer-Exporter Code (IEC) has been suspended by customs. Solutions: Update your bank account details on Icegate by furnishing the proper documents, or wait for your IEC suspension to be lifted, as the case may be.

• Scroll generated is for an amount lower than IGST paid at export: This could be due to a) a data entry error in the shipping bill by the exporter, b) the exporter’s failure to enter the amount of compensation cess paid in the shipping bill along with IGST paid, c) GSTN failure to transmit compensation cess data to Icegate, d) an error by the custom officer while sanctioning the refund. Solution: Submit a Revised Refund Request (RRR) seeking the differential refund amount on Icegate.

4. Short payment of tax

Sometimes, the self-assessed IGST paid by an exporter is less than what is actually due. This might lead to their refund claim getting stuck. A short payment is usually a genuine mistake by the exporter and sometimes a deliberate attempt at tax evasion. There is a provision under GST law for recovery of tax that is short paid whereby the exporter can voluntarily pay the amount due with applicable interest by a specified date, with or without a nominal penalty.

Here is what happens in a genuine case of short payment:

• The exporter receives a show cause notice from a GST officer asking them to pay the tax due with interest. If the exporter pays up within 30 days of the date of notice, no penalty will apply

• If the exporter receives an order of payment along with a show cause notice, they must pay a penalty of 10% of the tax amount or Rs 10,000, whichever is higher (Note: The show cause notice is issued three months before the time limit for order of payment, which is three years from the due date for filing of the annual GST return for the relevant financial year)

• The exporter must pay the amount of tax short paid in form GSTR-3B of the subsequent months, thereby ensuring that the total IGST refund being claimed in the shipping bill and GSTR-1 is fully paid

• For refund amounts up to Rs 10 lakh, the exporter must submit self-certified copies of challans (receipts) as proof of payment to the concerned customs officer at the port of export. For refund amounts above Rs 10 lakh, the exporter must also submit a certificate from a chartered account stating that the short payment has been resolved

Note: The CA certificate facility was introduced by the government in 2018 as an interim measure to prevent blockage of refunds for 2017-2018. It has since been extended and is now valid for all shipping bills filed/to be filed till March 31, 2021. For such bills, CA certificates may be submitted at the port of export till October 30, 2021. Furthermore, this facility is also extended to exporters whose refund claims are stuck not due to short payment of tax but as a result of non-transmission of returns data by GSTN.

Heads up! Proposed Finance Bill amendments

‍Recently, exporters are worried about two proposed changes in the Finance Bill, which they believe will affect their refunds and business. The proposals are:

• Amendment of Section 16 of the IGST Act withdrawing the facility of export on payment of IGST

• Insertion of a sub-section in Section 113 of the Customs Act, which allows customs to confiscate an exporter’s goods if they make a “wrongful claim” for refund

The Federation of Indian Export Organisations (FIEO) has sought a review of these “harsh” changes. According to FIEO president Sharad Kumar Saraf, most exporters prefer to export with payment of IGST because “IGST refund is without any application because shipping bill itself is treated as application. It can be claimed for each shipment and 100% reimbursement is available in one go. The entire process is dealt [with] by customs smoothly”. In comparison, the refund process for exports under LUT/bond has procedural challenges (filing of application, uploading of documents, delayed payments) and transactional costs, he added.

Regarding the proposed change in the Customs Act, Saraf said the term “wrongful claim” can be interpreted in many ways, which would put exporters at a disadvantage and affect India’s exports.

The amendments need to be passed by Parliament and notified by the Finance Ministry in order to come into effect.

Final words

‍

As you might have realised by now, most glitches that result in your IGST refund claim getting stuck are due to the entry of incorrect information in shipping bills and GST returns. This underscores the importance of being extra careful while filling these details so that your refund can be processed smoothly without loss of time, effort and money.