Checking fraud in revenue leakage

One measure being considered is to link foreign exchange remittances with refund of IGST for risky and new exporters, apparently to curb fraudulent IGST refund claims

Last Tuesday, top officials of the goods and services tax (GST) administrations at Centre and states had met. The idea was to deliberate on streamlining, share knowledge and best practices, ways to plug revenue leakage and disseminate data between departments. 

This second national GST conference of the commissioners of state tax and chief commissioners of central tax, chaired by the Union revenue secretary, decided on a nine-point plan, mainly to augment revenue by reigning in fraudsters. 

One measure being considered is to link foreign exchange remittances with refund of Integrated GST (IGST) for risky and new exporters, apparently to curb fraudulent IGST refund claims. 

Already, Rule 96A of the Central GST Rules prescribes that the payment for services exported without payment of IGST must be realised within one year, unless extended by the commissioner. 

Also, Rule 89(2)(c) calls for a statement of detail on relevant Bank Realisation Certificates or Foreign Inward Remittance Certificates from service exporters claiming refund of unutilised input tax credit (ITC). The idea now seems to be to extend this obligation to select exporters of goods and services who export on payment of IGST under refund claim. 

Whether the laws can selectively discriminate among exporters, how risky exporters will be identified and processes evolved to target fraudulent elements in the trade without inconveniencing genuine exporters remains to be seen. 

Another step is to compulsorily investigate all major cases of fake ITC, bogus export and import, and fraudulent refunds, by the investigation wing of the income tax department. For this purpose, a Memorandum of Understanding would be signed among the Central Board of Direct Taxes (CBDT), Central Board of Indirect Taxes and Customs (CBIC) and GST Network to exchange data on a quarterly basis. 

CBIC and CBDT will also share data on cases involving evasion and fraudulent refunds, to enable profiling of fraudsters.

Another move is on a single bank account for foreign remittance receipt and refund disbursement. 

This suggestion betrays a poor understanding of how the businesses work. Exporters have considerations such as availability of credit, foreign exchange rates, ease and speed in remittances, operational convenience, etc, while choosing the bank through which they may receive payments. Any attempt to take away these flexibilities in operations can impose unnecessary costs on  exporters.  

The key message from the meeting is that exporters must get ready for closer scrutiny of their transactions, ITC and refund claims. The President of the Federation of Indian Export Organisations has said it is very unfortunate that exporters have been singled out for GST fraud. As with any other section of society, a fraction of exporters might have misused the GST refund facility. 

It will be unfair to subject the entire exporting community for serious checks and investigation, based on alleged misuse by a limited few, he said. 

He has requested the government to discuss these issues and explore solutions to minimise, if not avoid, the revenue leakage altogether. The authorities must respond positively. 

E-mail: tncrajagopalan@gmail.com