8 years of GST: How automation has changed the refund game for exporters

Business Standard

a day ago

Zero-rating is an often misunderstood concept, and it is much wider than merely not charging or collecting tax on an event. Zero-rating aims to eliminate not only the tax on the output, but also the taxes paid on the input, and zero-rating of exports is permissible under World Trade Organization (WTO) regulations.
Zero-rating of exports is expressly recognised and provided for under the Goods and Serves Tax (GST) law, but even before the introduction of GST, a mechanism for refund of taxes paid on manufacture of goods (excise duty) being exported was prevalent. Goods could be exported under bond without payment of excise duty, and the exporter could also opt to pay the excise duty and seek a refund later (called as rebate under excise law). If excise duty was not leviable on the goods being manufactured and exported, and the exporter was not in a position to take credit of taxes paid on inputs (called Modvat, and later Cenvat under excise law), the exporter could seek a refund of excise duty paid on the input. However, the process of seeking refund of excise duty was not automated, and hence, the mechanism of verification of exports and cross-linking of goods with exports was time-consuming.
Such zero-rating of exports is a vital lifeline for exporters and has a direct impact on their working capital needs. Locking up of funds in delayed refunds can increase working capital requirements. Hence, reduction in the time taken for refund of GST paid on goods exported has been an important guiding principle. Automation of Integrated GST (IGST) refunds paid by Customs has greatly helped in faster processing of IGST refunds on exports, and this has not only reduced the time taken in processing and payment of IGST refunds but has also resulted in certainty and reduced costs, thus adding to the ease of doing business. The Customs system processes refunds through a verification mechanism where human intervention is reduced to the minimum, while retaining simplicity of the mechanism.
The GST law provides that the shipping bill itself is an application for refund of IGST paid on the export goods, and that a refund application is deemed to have been filed only when the transport manifest for the export of goods has been filed by the shipper or carrier, and the GST return has been filed by the taxpayer. Similar to excise law, there is a requirement of proof of export, ie the verification of the actual export of goods, but this is now totally automated and there is no additional paperwork requirement for proof of export. The shipping bill and filing of export manifest is prima facie evidence of physical export of goods from the country. Similarly, the GST return takes care of verification of payment of tax on the goods or inputs.
The exporter still has the option both of exporting goods without payment of GST (export under a letter of undertaking) similar to the earlier mechanism of export under bond, and seeking refund of taxes paid on the input from the GST officer, as well as the option of paying IGST and taking a refund of IGST paid from Customs. The simplicity and speed of processing of IGST refunds has made the export of goods under payment a popular mode, as the exporter is not worried about locking up of their finances, or an adverse impact on their working capital. The average time taken for payment of IGST refund from the Customs system is less than one week once the exporter has filed their GST returns and the shipping line has filed the manifests (about 5 weeks on average for both). On the other hand, the time taken at the GST side for refund through GST authorities is almost 90 days, according to the latest data. Of course, one of the reasons for the time taken is that on the GST side, the refund is filed periodically, ie for a tax period together, whereas in the Customs system, each export shipping bill becomes a refund application. However, the faster processing of IGST refunds on the Customs side naturally leads to expectations of faster processing and payment of refunds by GST officers.
Earlier, exporters often preferred the procedure of export under bond/letter of undertaking, as there was no requirement of paying the tax, and then seeking refund. The bond was submitted to the excise authorities and the bond would be debited to track each removal of excisable goods for the purpose of export. After the export was made, the export documents would be produced before the excise officer as evidence of export and the bond would be recredited. The process was manual, and hence a bit complex, but the exporter was not required to pay duty, and hence, the lower financial costs made this the preferred option. After introduction of GST, the option for export on payment of IGST and subsequent refund of IGST from Customs has become the preferred option, as this option is convenient and speedy, as well as user-friendly, as the Customs portal of the Central Board of Indirect Taxes and Customs (CBIC), ie ICEGATE, allows taxpayers to log on and easily track and view the status of their shipping bills and IGST refund claims. The number of shipping bills filed under claim for IGST refund as a percentage of total shipping bills filed has steadily increased from 11 per cent to 27 per cent of total shipping bills since the introduction of GST. IGST refunds of almost ₹1,18,000 crore were processed by Customs as compared to refunds of about ₹76,000 crore paid by GST officers during FY25. One of the reasons for the exporters preferring this mode would definitely be faster processing times, and hence, the benefit to the trade in terms of lower working capital requirements.
The faster processing times for IGST refunds on exports have led to expectations from the trade that the time taken by GST officers should also reduce. One of the aspirations for the future should, perhaps, be to compress the time taken by GST officers in paying IGST refunds on exports, as the difference in time taken is substantial. Since GST refunds are being given for a number of purposes, the expectation that the time taken has to be reduced across — regardless of the reason for refund — is also natural, and that should remain the aim. In fact, the data shows that the average time taken in processing GST refund (across all categories of refunds) is 48 days (compared with 90 days taken to process IGST refunds in case of export on payment of IGST). Finally, in the Customs system, processing of some payments such as drawback is risk-analysis-based and only shipping bills selected by the system are pushed to an officer for processing, and the remaining bills are auto-processed. The time has come to contemplate a similar risk-based approach for GST.