The Commerce Ministry has taken note of exporters’ complaints that the input duty refund under the duty drawback scheme claimed by some last year was much lower than the IGST (Integrated Goods & Services Tax) refunds due to them and it may ask the Finance Ministry to address the issue.
“Exporters have said that they are willing to pay back the drawback with interest and they should be instead given IGST refund which is a much higher amount. The DGFT is likely to take up the matter with the Customs Department,” a government official told BusinessLine.
Last year, when the GST regime was implemented, exporters were given the option of continuing with the popular duty drawback scheme (at a higher rate for some items) for three months (July-September) if they agreed to forego refund of IGST paid by them. After a number of exporters opted for the duty drawback option, they discovered that the IGST paid by them on inputs was much higher and opting for refunds under IGST would have been a better deal.
“In the initial period everyone was confused about GST impact. A number of exporters were not aware of the implications and chose to be compensated for input taxes under the duty drawback scheme. Now when they understand that GST refund would give them a much higher amount for many items, the government should oblige,” said Ajay Sahai from the Federation of Indian Export Organisations (FIEO). Giving an example, Sahai said that for vegetables the drawback rate is 1 per cent. So, if an exporter is shipping say cauliflowers to West Asia at ₹40 per kg, he will get 40 paise as drawback. However, air freight is ₹100 per kg for cauliflowers and if the exporter is paying 5 per cent GST of ₹5 on that, then by opting for 40 paise of duty drawback, he is losing out on the ₹5 as GST refund. “What is the problem in not giving him the ₹5 as GST refund if he is willing to refund the duty drawback he got together with interest. The exporter is asking for what is rightly his,” Sahai said.
While the Finance Ministry has once refused to allow exporters to switch their stated preference, Commerce Ministry officials say that they will take up the issue again. “Exporters need to be compensated fully for the input taxes paid as it is vital to help them stay competitive in the global market,” they said.