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GST refunds denied to MNC back offices

GST refunds denied to MNC back offices

A host of back offices of multinational companies in the financial sector face a tax whammy, with Goods and Services Tax authorities denying them refunds of amounts paid on inputs, saying the work done for parent companies can’t be considered as exports and will be counted as a service for the same entity.

GST authorities have rejected refunds on these grounds across states, including Haryana, Maharashtra, Tamil Nadu and Karnataka. The denial of refunds running into hundreds of crores of rupees to these outfits can derail their business model and may impact India’s attractiveness as the world’s back-office hub, especially with the emergence of low-cost sites in the Philippines and East Europe.

“Rejection orders are based on the premise that the services are provided by the local entity to its overseas affiliate company, which is the ‘same entity’ and therefore, the said services do not qualify as exports,” said an industry official privy to the development. Industry has approached the government for expeditious resolution of the issue. Individual companies will approach appellate bodies to seek relief.

Typically, tax paid on inputs that are used for exports is refunded. According to a clarification provided by the Central Board of Indirect Taxes and Customs in the form of frequently asked questions, where the Indian arm is set up as a liaison office or a branch, they would be treated as establishments of the same entity and hence, supplies between them will not qualify as export of services. “However, if the Indian arm is set up as a wholly owned subsidiary company incorporated under the Indian laws, the foreign company and the Indian subsidiary would not be governed by the provisions of distinct person or related person as both are separate legal entities,” it said.

Experts said the law is very clear on this aspect and this principle was followed even under the previous service tax regime. “It is essential to clarify without any ambiguity that global delivery centres operating in India for foreign customers are not liable for GST on services provided by them and are fully entitled to claim input tax refunds,” said MS Mani, a partner at Deloitte India. “From the law, it’s very clear that services provided to a separate legal entity would qualify as export of services.

Only services by one office to another of the same legal entity doesn’t qualify as export. It’s unfortunate that such fundamental issues are still being raised even after more than two years of GST implementation,” said Pratik Jain, national leader, indirect taxes, at PwC. Bipin Sapra, a partner at EY, agreed. “There is no ambiguity in law that a subsidiary of an overseas company can supply services to their overseas parent and qualify as export. Any challenge to this will be increasing the cost of delivery of such services from India,” he said.

The issue appears to have been raised largely by state tax authorities. “Hope the government takes urgent notice of this and comes up with a clarification so that the issue can be put to rest. This also means that state authorities need comprehensive training on taxation of service sectors, which was earlier administered by central government authorities,” Jain added.

Source: Economic-Times

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Breather for exporters as Centre to pay ITC refund for State GST

Breather for exporters as Centre to pay ITC refund for State GST

In a major relief to exporters, the Centre will now pay the input tax credit (ITC) refunds of state taxes, thereby reducing transaction time and costs, and manual interface in claim processing.

As per industry, there is a huge difference in the amount claimed, state goods and services tax (SGST) sanction amount received from central tax authority and the amount actually disbursed.

“The central government has been authorised to pay the amount of refund towards state taxes to the taxpayers,” according to the 2019-20 budget. At present, the taxpayers file refund claims with the central tax officer, who clears half the claims, and the rest are cleared by the state tax authorities, leading to higher time taken in claim processing and refund sanctioning.

Exporters also say that ITC refund is partly electronic and partly manual. The exporter files refund application at the portal, takes a printout along with acknowledgement and carries it to GST authorities in hard copy along with required documents, which too vary from authorities to authorities. The physical interface adds to the transaction time and cost.

“The states and Centre did their own respective approval of ITC refund but now only one will approve both. This is a relief for exporters as it would reduce transaction time and costs,” said Ajay Sahai, director general at Federation of Indian Export Organisations.

The breather comes as exporters grapple with tight credit norms amid slowing global trade growth. Total disbursement of export credit was Rs 7.38 lakh crore in December 2018, a decline of 20% on year.

Share of PSU banks in total disbursement of export credit declined from 65% in FY16 to 45% in FY18.

Exporters have said the number of refund applications filed on the portal are higher than those received in the state tax office.

“The ability for Centre to give the refund for both the CGST and SGST will ease the problems being faced currently specially by the exporters and remove the delay in getting the entire cash post the sanction of refunds,” said Bipin Sapra, partner at EY


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Source: Economic-Times
GST refunds worth Rs 22,000 cr pending with govt: FIEO

GST refunds worth Rs 22,000 cr pending with govt: FIEO

As much as Rs 22,000 crore GST refund is pending with the government, creating a liquidity problem for exporters and impacting overseas shipments, FIEO said.

Federation of Indian Export Organisations (FIEO) President Ganesh Gupta said the delay in refund is mainly impacting small exporters who provide jobs in labor-intensive sectors.

 

“Refunds of about Rs 7,000 crore are pending on account of IGST (integrated GST) and about Rs 15,000 crore ITC (input tax credit) as of September 30. This is impacting small exporters,” Gupta told reporters.

 He said that liquidity is a major area of concern particularly for MSME exporters who constitute the bulk of exports in employment-intensive sectors.

While refund process has improved in the last six months, the refund can be claimed only after manufacturing of goods and exports with a lead time of about three-nine months depending on the production cycle, he added.

He demanded that exemption from GST should be provided on inputs required for export production to provide the necessary competitiveness to exports.

“At present, ITC refund is partly electronic and partly manual. The exporter files refund application at the portal takes a printout along with acknowledgment and carries it to GST authorities in hard copy along with required documents which to varies from authority to authority,” Gupta said.

Talking about credit woes, he said the cost of exports has increased by about 5-6 percent and the big exporters are now using letters of credit (LCs) in place of letters of undertaking.

“The immediate concern of the export sector is with regard to the flow of credit from the banking sector. Even getting a renewal of limits is taking abnormal time with huge documentation requirement. The export credit declined by 26.4 percent in the financial year ending March 2018,” he said. Technically, export credit is under the priority sector lending but through a complex mechanism, he said, adding the cost of credit is also an issue as interest rates are moving northward.

On rupee, Gupta said the limited intervention by the RBI has not been able to contain the volatility as it is a global phenomenon.

The rising crude prices, northward movement of Fed rates in the US, pullout by FIIs and increasing current account deficit which is expected to touch 3 percent of GDP as estimated by the IMF are bound to put pressure on the rupee, he said.

“Contrary to general perception, such depreciation has not benefited exports to the extent anticipated,” he said.

Further, he said the federation has suggested a barter system trade with Iran.

He has suggested setting off/adjustment of export receivables against import payable from the same entity in Iran.

“Though the RBI guidelines allow such transactions, which are also recognized in the Foreign Trade Policy, banks are not clear whether this facility is applicable for exports/imports to/from Iran,” he said.


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Source : Moneycontrol
GST refunds: Manufacturing units in hilly areas may move court

GST refunds: Manufacturing units in hilly areas may move court

Taxpayers may move court against the revenue GST-Refunddepartment which sought reversal of transitional credit availed by them on account of cash balancelying in the ledger before Goods and Services Tax (GST) kicked in. This has led to the department blocking GST refund available to manufacturers operating in hilly states, which were given tax sops in the earlier regime under an area-based exemption scheme.

The department has argued that transitioning provision under GST was meant only for excess credit lying with a taxpayer, and it didn’t apply to cash balance in the ledger. “Cash credit cannot be transitioned into GST, only the ITC can be. They can claim refund for the same even now,” finance secretary Hasmukh Adhia told FE.

According to sources, over 200 manufacturing units in Jammu and Kashmir have received these notices and many of them are facing delays in GST refunds. Last year, the GST Council had resolved that all investment-linked indirect tax sops will take the form of refunds — rather than exemptions — for their residual periods in the GST regime. It was also decided that the Centre will refund only 58% of the cost of waivers of previous central taxes (like excise duty and countervailing duty) because the 42% of its share of GST is shared with states.

The scheme was meant for industrial units in three Himalayan and eight northeastern states during the residual period of the area-based tax sops. As many as 4,284 manufacturing units in these states, including several pharmaceutical, automobile and FMCG firms, will benefit from the scheme.

“While there is discussion on the refund due to the exporters, there are issues raised even for the units located in the tax preferred zones. There have been instances where the units located in J&K have not even seen a single rupee of refund under the budgetary support scheme. Further, refunds have been denied under the budgetary support scheme in cases of minor issues such as PLA transfer to the TranS1 has been disputed”, said Abhishek A Rastogi, partner at Khaitan & Co said.

Experts say many taxpayers had to opt for transitioning of ledger balance in GST as VAT and excise authorities had rejected refund demands as it would reflect poorly on their revenue targets.

Rajat Mohan, a partner with AMRG & Associates, said that tax authorities under erstwhile regime had a tendency to arm-twist the taxpayers for pre-depositing taxes so as to meet stringent revenue targets, much of which found their way in cash ledgers of the organisation without actually corresponding to a taxable event. This led to inflated ledger balance at the end of FY 17.

“On a policy level, government denying the carry forward of such cash balances in GST regime and coercing the taxpayers to apply for tax refunds under erstwhile regime would result into unease and exploitation,” Rajat Mohan, partner, AMRG & Associates said.

Source :  Financial Express
GST refunds to exporters top Rs 12,000 crore, only 40% payment left

GST refunds to exporters top Rs 12,000 crore, only 40% payment left

The second round of the dedicated period for clearing refund overdue of exporters under the Goods and Services Tax (GST) regime may have seen Rs 12,000 crore settled by the government.

Ganesh Kumar Gupta, president of Federation of Indian Exporters Organisation (FIEO), told DNA Money that the exporters’ body has estimated that around Rs 12,000 crore of the Rs 20,000 crore pending refund had been cleared in the second round of refund fortnight – May 31 to June 14 – which was extended by two days to June 16. This works out to 60% of the exporters’ refund overdue.

“Close to Rs 12,000 crore refund of exporters out of the Rs 20,000 crore has beenGST refunds to exporters top Rs 12,000 crore, only 40% payment left settled during this period. This is a good number because in April they (government) refunded Rs 1,000 crore. In May, they refunded, according to government estimates, around Rs 8,000 crore. So, if they have refunded around Rs 12,000 crore in 15 days (17 days), I would say it’s a very good number,” said the FIEO chief.

This is over 70% of the amount cleared during the refund fortnight of March. The Central Board of Indirect Taxes and Customs (CBIC) had cleared Rs 7,000 crore then. According to official data released recently by the government, GST refund sanctioned to exporters till now was Rs 30,000 crore.

Gupta said the FIEO would request the government for another refund fortnight; “we will ask them (government) for another refund fortnight”.

Vanaja Sarna, chairperson of CBIC – erstwhile Central Board of Excise and Customs (CBEC) – could not confirm FIEO’s figure as the tax authority was still in the process of collating the information collected by it.

“We will be putting out a press release tomorrow in which we will be giving the details. The refund fortnight has just finished on Saturday and we are collecting information from our field. I don’t want to put out any wrong figure,” she said.

Also Read: GST leads to formalisation of an economy, widening of tax base, says govt

Asked if CBIC’s number could be anywhere closer to the FIEO’s, she did not want to make a guess; “I can’t really tell you because I am looking at IGST (interstate GST) and ITC (input tax credit) refund. In ITC, I am looking at Centre and state numbers, so I have to have complete figures from states before I give it. Let it come and you will know tomorrow,” said the CBIC head.

Interestingly, there is a controversy over the amount of pending export refund. The government maintains it is around Rs 14,000 crore while the FIEO claims it was close to Rs 20,000 crore.

Amit Mitra, West Bengal finance minister and former chairman of the empowered committee on GST, on Monday put the number at around Rs 25,000 crore.

Despite the piling up backlog of exporters’ refund, Gupta appreciated the effort put in by the commissionerate of CBIC in trying to settle as much refund as possible during the 17-day period.

“All the commissionerate co-operated in clearing the refund backlog. The bureaucracy has really done a good job. I should not always crib. I should not always criticise. If there is something good, I must say that also. The bureaucracy really co-operated in resolving the issues and problems of exporters,” he said.

The FIEO functionary, however, felt that some snags in the export refunding process at the state level still remained; “there is still some problem at the state level. Many states have not trained their field formation officers properly. These are states like Bihar, Jharkhand, Chhattisgarh, Madhya Pradesh (MP) and others. These states continue to have teething problems and glitches in refunding exporters”.

M S Mani, partner, Deloitte India, also said that “process-related impediments” continued to delay the refunds.

“While there has been some progress in sanctioning exporters’ refund claims, many process-related impediments continue to delay the refunds. Businesses would expect the timelines suggested at the time of introduction of GST to become a reality, now that we are a year ahead,” he said.

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  • The government says the refund claims are Rs 14,000 crore while the FIEO claims it was close to Rs 20,000 crore
  • According to official data by the government, GST refund sanctioned to exporters till now was Rs 30,000 crore

Rs 20,000-crore – pending refunds, according to FIEO

Rs 7,000 crore – Refunds by CBIC

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Source: DNA India
GST refund: ‘Mini-social crisis’ brewing

GST refund: ‘Mini-social crisis’ brewing

GST refund : Exporters

Exporters are troubled by the ‘inordinate delay’ in getting Goods and Services Tax (GST) refunds. On Tuesday, representative assocations told the Centre that since the working capital crunch (owing to the delay) is occurring in the middle of the festival season, it was causing difficulties in paying salary and Diwali bonuses to workers.

In a meeting with Revenue Secretary Hasmukh Adhia, who chairs the Committee on Exports to address GST-related problems, exporters sought the Centre’s immediate intervention to avert what they called a ‘mini social crisis’.

 ‘Affecting payments’

Claiming that the delay in getting GST refunds was severely affecting their cash-flow, P.K. Shah, former chairman and currently board member, EEPC India, the apex body for engineering exporters, said in a statement, “All this is happening when we are in the middle of the festival season, and the workers employed in the trading and manufacturing units have to be paid their dues including Diwali bonuses.”

EEPC India said the authorities ought to release at least 90% refunds immediately after the shipments and let verification and adjustment be done at a later stage. “This will help small and medium exporters to tide over their blockage of funds, and allow them to pay salaries and bonuses of workers in the festival season. Our members have pointed out that they are in a desperate situation and hence the government must intervene to avoid a mini social crisis.”

Also read: Fast-track GST refund, else Rs 65,000 crore may get stuck: Exporters tell government

 Exemption sought

The demands of the apex body for the country’s exporters, the Federation of Indian Export Organisations (FIEO) include seeking an outright exemption from the GST regime. The FIEO said in a statement that “It is not fair to expect micro and small units to borrow to pay for taxes, which in any case will be refunded. Why not an outright exemption window be provided to exporters?” It added that alternatively, an e-wallet may be created so that money flows out while paying GST on inputs required for exports or procurement of exports goods by Merchant Exporters, and money is re-credited to the wallet once the proof of exports is given.

The FIEO also mooted that Merchandise Exports from India Scheme (MEIS), Service Exports from India Scheme (SEIS) and Duty Credit Scrips be permitted for payment of Integrated GST and Central GST. Besides, utilisation of the Scrips could be considered for payment of bank interest, it said. Exporters also sought exemption from IGST on imports under Advance Authorisation and Export Promotion Capital Goods schemes.


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Source: The Hindu
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