Audit procedure of risky exporters tends to be riskier and complicated 96/2020-21

The concept of risky exporters has been point of discussion from so many months due to its legal validity as per GST laws and its knotty process. The plight of these exporters are now widely acknowledged and interference of higher governmental authority is highly required for imposing a liberal audit procedure within a prescribed time limit for huge relief. We have already prepared an update on this issue and released vide serial number 86/2020-21. http://new.capradeepjain.com/amdview/gst-update-on-problems-being-faced-by-risky-exporters-86-2020-21-12474.
The audit undertaken is time consuming and with no pre-determined specified procedure. Even it is seen that the physical verification and audit of those exporters is conducted again who were already audited.
The problem is not resolved with the audit of that particular risky exporter detected but the department undertakes the audit of supplier of exporter (normally termed as L1 by department) if it is pointed out by DGARM. The audit chain doesn’t end with L1 exporter. Rather, we have seen that even supplier (L2) of the supplier(L1) of risky exporter is also physically verified and checked by department. If it is found that this L2 supplier has taken input tax credit of fake invoices generated, then the person who has supplied the fake invoices is also being trapped in the audit web.
It is an impossible task to detect that supplier who was involved in issuance of fake credit invoices. Generally, a large taxpayer (suppose L2 in this case) purchases its goods from innumerable suppliers and that supplier(L3) purchases its goods from another bunch of taxpayers. This audit chain won’t end anywhere leading to indefinite delay of refund of genuine exporter. In some cases, these L2 suppliers are asked to reverse the credit. If he does not do so, then the flag of risky exporter is not being removed and a negative report is issued against L2 supplier withholding the refund of the risky exporter. The poor risky exporter does not have direct link and dealing with L2 supplier but the ultimate consequences have to be borne by him due to fault found on part of L2 supplier. In such circumstances, the tag of risky exporter is not withdrawn even after 6 months. Even we have across a situation where the L2 supplier has taken the supply from around 100 suppliers and one of them is fake invoice supplier. Now L2 supplier sale goods to around 150 clients and one of which is L1 supplier of risky exporters. The same is situation with L1 supplier. He takes delivery of goods from hundreds of suppliers and supplies goods number of clients out of which one is risky exporter. Now, how to link this chain? It cannot happen that the same consignment of goods supplied by fake invoice supplier has been supplied by L2 to L1 and then from L1 to exporter. But the department is asking exporter to reverse the same. Even in one case even the description of goods is not same. For example, fake invoice supplier has supplied plastic granules to L2 and L1 has purchased steel material from L2 and supplied to exporter. Hence, we have requested to department that there cannot be any reversal but they are not convinced and our report is pending. Hence, the refund is withheld.
In another interesting example, the department is asking L1 supplier to reverse some credit pertaining to 2017-18 but the L1 supplier is not doing so. Now the exporter has told the department that his registration is of 2018-19 and he was not in existence before that date. Now audit of L1 supplier is being done by different division and exporter is different division. The division of L1 supplier says that he will submit negative report if reversal is not done. If it is done then the flag of risky exporter will not be removed and refund will withheld. We have told that the commissioner that the inquiry of L1 supplier should be done in context of risky exporter only and not the complete audit of unit. It is being done when summon is issued in an inquiry. But if department do complete audit then how risky exporter should be liable for every act of his supplier. He is accountable for the goods supplied by L1 supplier to risky exporter only. In these peculiar circumstances, learned commissioner understood our position and given the positive report.But it will not be position with everyone. Sometime the commissionerate of L1 supplier and risky exporter is also different. The Government should think about it.
The circular and the audit procedure is totally contradicting the law. It is requested to the government that refund to exporters should be released at the earliest and this process should be suspended or eased for the time being. It can be re-imposed when the normal conditions are restored and audit of such exporters can conducted later. The acute investigations against the so-called ‘risky reporters’ is resulting in freezing of funds for genuine exporters who are unfortunately the part of the discriminatory scrutiny.
The government should assure that all genuine exporters would continue to get their IGST refunds in a timely manner in a fully automated environment.
This is solely for educational purpose.
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Audit procedure of risky exporters tends to be riskier and complicated 96/2020-21

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