Challenges SMEs / Exporters are facing in Availing ITC

INR 60 Billion of Input Tax Credit Still Awaited by Exporters across India

Exporters all across the country are experiencing difficulties in availing Input Tax Credit (ITC) refunds. This is largely due to the technical difficulties they face while filing returns and some of the State tax departments being cash-starved. The amount of ITC awaited nationwide is believed to be approximately Rs. 60 Billion!! West Bengal and Uttar Pradesh are lagging way behind in terms of providing Input Tax Credit refunds. Maharashtra has a rate of acceptance of 5% while the figure is a mere 10% even in Delhi. The states of Andhra Pradesh, Bihar, Chhattisgarh, and Uttar Pradesh have revealed they are out of funds to pay the exporters.

The Federation of India Exports Organization (FIEO) is of the opinion that small and medium scale (SME) exporters are being hit by the irregularities in the ITC refunds and unpaid Input Tax Credit constitutes a major chunk of the refunds. As per FIEO Director General Ajay Sahai, “Almost 40 per cent of all refund seeking exporters have not been able to submit their applications. This totals about 1,16,000 people across the country.”

Sahai has also alleged that many state authorities are not willing to accept the physical copies of the online-filed ITC return applications because as per rules, they would be bound to release at least 9% of the tax refunds within the next 7 days of filing if they accept these applications. Exporters allege many of the tax authorities are turning down even the most legitimate claims of ITC returns due to lack of funds. But in reality, there are various reasons a claim made for ITC refund can be dismissed, pending VAT from the previous tax regime being a major reason.

What could make the process of Input Tax Credit refunds easier?

FIEO has requested the government to do away with the requirement of physical verification of documents because it makes the whole process tedious, adds to the processing time, and leads to exporters bearing the cost. While there are quite a few claims of the GSTN portal having glitches, the fact of the matter, as per the commerce ministry, is that the traders/exporters haven’t been filing their returns in the correct manner.

The new tax regime is a bit tough to comprehend in the first go, and with the continuous amendments confusing the SME traders, instances of incorrect filing of returns cannot be ruled out. There have also been many incidents across the country where the suppliers did not file their returns for months, but the buyers were claiming their ITC for taxes paid by them – obviously their claims were right away rejected! It has been made compulsory under the GST law for the sellers to pay taxes in order to facilitate the buyers with their ITC refunds as a buyer can claim Input Tax Credit only if the supplier has paid the taxes to the government. So, in case a discrepancy is found on the part of either the buyers or the suppliers, they need to communicate it to the other party so that both can make corrective adjustments in their books for providing the information to the GST portal at the time of filing their taxes and returns. The whole process takes time and while the GSTN/government cannot be held directly responsible for the irregularities caused by the suppliers, the different cut-off dates for filing of taxes does have a role to play in this. Perhaps this could be an area for the authorities to seriously look into improving.

In order to make sure the process is smooth for the SMEs / exporters of India and that they understand its significance and importance, the GST department has selected numerous GSPs (GST Suvidha Providers) all across the country to help the traders/exporters with their GST return filing and compliance needs. In addition, an official from the commerce ministry has also indicated that there have been demands to fully automate the process of ITC refunds and the government is considering it. Hopefully the process of getting ITC will get easier in the days to come.