GST Update on problems being faced by Risky Exporters 86/2020-21

A few days ago some newspapers carried a report which read as “Resolve risky exporters' issue immediately, release refunds: FIEO”. This heading of the newspaper states that Federation of Indian Export Organisations has directed fast resolution of issues related to 'risky exporters' and immediate release of their refunds to help them tide over the problems arising due to COVID-19 pandemic. In this update we intend to share problems being faced by Risky Exporters.
Before we move forward let us have a quick look at which exporters are Risky Exporters. An exporter is tagged as risky if the customs department suspects that duty drawback claims and IGST refunds or claims excessive Input tax credit on the basis of bogus invoices. The consignments of risky exporters undergo manual checking before their claims are refunded.
Here is a list of problems being faced by Risky Exporters.

The parameters on which they are flagged as risky is not known.
Refund is being withheld leading to working capital issues.
If all the required formalities are being completed and the department is satisfied as to remove the flag and in fact removes at one port but sometimes do forget to remove at another port resulting in blocking of refund to the exporter and again resulting in the exporter to find out why the refund has been blocked.
Submission of documents demanded by authorities is not easy in the crisis times.
In case the risky exporter is registered in multi locations that is different units and if registered person of one state is declared as Risky then refund relating to all the units is blocked and the seal of containers even belonging to other units are also cut open. It is being told by Customs department that the audit is being done on IEC basis instead of on Registration basis.
In the above case, the cost to the exporter increases as once the seal is being cut the container is to be fumigated.
Lack of communication from the department to the exporter that he has been flagged as ‘Risky’. He comes to know only when the refund is withheld or the ITC is blocked.
Lack of communication between GST and Customs Department even in the latest era of telecommunication, resulting in the exporter becoming a carrier of information from here to there and vice-a-versa.
Even the supplier of exporter (normally termed as L1 by department) is also being checked if it is pointed out by Delhi office. We have seen that even supplier (L2) of the supplier(L1) of risky exporter is also being physically verified and being checked by CGST department. If this L2 supplier is known as fake invoice credit taking unit then the person who has supplied the fake invoices is also being watched. 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. But the poor risky exporter do not have dealing with L2 supplier, hence he cannot ask him to reverse the credit. In such circumstances, the flag of risky exporter is not being removed even after 6 months. The poor exporter has to face problems even though there is no fault at his end.
Even the author of this write up has come across situation where the some suppliers of risky exporter have surrendered their registration or their registration is being cancelled. Now the department asks this poor exporter to reverse the credit taken on invoices by such supplier. However, all the invoices of these suppliers are appearing in GSTR-2A. if the amount is huge then the matter is not sorted out and poor exporter is deprived of this genuine refund. Even the interest is not being paid by the department to such exporters. The poor exporter faces the music due to fault of supplier or even supplier of suppliers.
The impression in trade and industry and particularly in exporters is that the Government does not intend to give refunds, hence the concept of “risky exporter” is being introduced.
There is legal backing of this concept of “risky exporter”. If it is challenged in High Court then it will be very difficult to defend in Court of law. There is no provision in law to declare an exporter as “risky exporter”. Even the criteria of its selection is not known to anybody. We were discussing this concept with a senior advocate then a new problem crop up is to challenge it in the state where the IEC registration is taken or in a state where factory is located or in a state in whose area the port is located where action is initiated by putting flag on his IEC. Even it is very cumbersome problem when the export has taken place from different ports falling in different states. The exporter has to find the solutions of all these problems but it is clear that this concept of “risky exporter” will not be legally sustainable.

The exporters marked as ‘risky’ have their IGST/ITC refunds blocked as well as their duty drawback amount is blocked until they are declared non-risky, such exporters are accountable to complete cargo check at ports and airports which are creating even more hassles for businesses as the customs department does not have enough resources to carry forward such checks. The standard operating procedure which a risky exporter has to be follow is very complex and there is a need to simplify this procedure.

This is solely for educational purpose.
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GST Update on problems being faced by Risky Exporters 86/2020-21

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