Indian Tax Solution

IGST exemption: Small exporters face uncertainty

NEW DELHI, AUGUST 9:

Small exporters continue to face problems in securing exemption from paying Integrated Goods & Services Tax (IGST) on their shipments as Customs officials use their discretion to decide which exporter needs to furnish bank guarantees - instead of only a bond - in the absence of detailed guidelines on the matter.

Althought the Commerce Ministry is in discussions with the GST Council on the matter to see if the issue can be resolved through broad guidelines to check the discretionary powers of Customs officials, exporters are unhappy with the piece-meal redressal.

"Problems should be addressed at one go. On bank guarantees and bonds, the government has issued at least four instructions and things are still not smooth. Exporters don't even know the time-line prescribed for acceptance of bond/LUT, and so accountability cannot be enforced when there is a delay," pointed out Ajay Sahai of exporters' body FIEO.

Contrary to an earlier communication from the Central Board of Excise and Customs, the GST Commissioner has to be satisfied about the track record of the exporter before granting exemption from IGST payment without a bank guarantee, pointed out TS Bhasin, President, Engineering Export Promotion Council. "This discretion-based system is not advisable," he said.

Commerce Ministry officials are trying to sort out the problem. "The problems of status holders and other large exporters have largely been sorted out, with the Centre deciding to accept Letters of Undertaking (LUTs) instead of bank guarantees. We are in talks with the GST Council to see if some specific guidelines could be issued for small exporters to sort out their problem," the official said.

According to the Central Goods and Services Tax Rules, 2017, exporters of goods without payment of integrated tax are required to furnish only an LUT instead of a bank guarantee if they are status-holders as specified in the Foreign Trade Policy or have sizeable inward remittances.

The instruction adds that smaller exporters with a good track record will have to furnish a bond on a non-judicial stamp paper while those whose export record is not good will have to furnish a bank guarantee. Since it is the GST commissioner who gets to decide whether the small exporters' track record is good or not, there is a lot of discretion involved.

"There are excellent officials who are taking a broad view and asking for only bonds. But there are others who insist on bank guarantees as well, causing distress to exporters," Sahai said. Furnishing of bonds supported by a bank guarantee blocks the working capital of exporters as they have to make a margin money deposit against the guarantee.

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