Fraudulent IGST refunds: Exporters to face stern action, say reports

Finance ministry sources said on Sunday that stern action would be taken against the exporters who fraudulently claimed integrated goods and services tax (IGST) refunds totalling Rs 2,020 crore.

Sources in the Central Board of Indirect Tax and Customs (CBIC) said that after feeling the heat, some 'fake', 'risky' exporters were lobbying with some prominent trade associations to allege that genuine exporters were being harassed by being asked for over 1,500 documents each for verification purposes. However, this is not true.

CBIC verifies each exporter in a two-stage verification process with hardly three to four documents, in line with the requirements, the sources added. Exporters are identified as 'risky' on the basis of specific risk indicators based on customs, GST, income tax and data from the Directorate General of Foreign Trade (DGFT).

They said that IGST refunds had been suspended in all such cases where there was an adverse report post verification about the exporter or his suppliers.

However, Customs officials have been sensitized to expedite refunds to genuine exporters in these difficult times, they said.

Finance ministry sources said that so far, IGST refunds of more than Rs 1.37 trillion had been disbursed and only about Rs 2,026 crore were pending, which were being processed.

A grievance redressal mechanism with a 24x7 mobile helpline is available to genuine exporters to resolve refund related issues, they said.

Central GST officers have found 1,474 ‘risky’ exporters including 7 star exporters, who tried to claim IGST refunds of over Rs. 2,020 crore. They were untraceable at their declared place of business and therefore their refunds had been rejected.

Sources said that the process of exporters’ risk management started in June 2019. Reportedly, some fake exporters have fraudulently availed input tax credit taking advantage of the highly efficient fully automated IGST refund system to encash it after paying IGST on export goods and then claiming refunds. The general modus operandi of risky exporters is to pay IGST at the highest rate of 28 per cent in order to quickly encash the undue ITC claims.

According to sources, out of the 1,474 untraceable exporters, 1,125 exporters are from Delhi alone. Non-existing exporters have also been detected in large numbers in Surat (215), Thane (28), Faridabad (15) and Kolkata (11). These fraudulent exporters were mainly involved in export of ready-made garments, wallpaper, wall coverings, leather apparel, smoking pipes, mobile phones, cigarette holders, footwear, plastics, floor coverings, ball bearings or roller bearings.

Out of the non-traceable 7 star exporters, five operated from Delhi, and one each from Mumbai and Kolkata. Adverse reports have been received in respect of other three star exporters, two in Mumbai and one in Jaipur. These star exporters were involved in export of ready-made garments, kitchenware, utensils, sound system, amplifiers, microphones, sea food, shrimps, unstitched fabric, sarees, dupattas, etc.  They tried to claim IGST refunds amounting to Rs.28.9 crores unsuccessfully.

Sources claimed that CBIC’s data analytics based on 360 degree profiling of exporters using multiple data sources (GST, Income Tax, Customs, DGFT, etc.) was able to weed out fraudulent exporters from genuine ones with a high degree of success. The confirmation comes after CGST formations carried out a physical and financial verification of the risky exporters.