Mastering ITC Claims for Disputes in Exports: A Roadmap to GST Compliance Success
Exporting goods and services can be lucrative, providing opportunities to tap into global markets. However, the complex tax compliance structure, particularly under the Goods and Services Tax (GST) regime, can sometimes pose challenges.
One of the common issues that exporters encounter is Input Tax Credit (ITC) complaints.
In this blog, we’ll focus on the critical problems of ITC complaints under exports of goods and services, understanding the fundamental reasons for complaints with case scenarios, and how to address them effectively with the help of timely ITC claims and ITC refunds.
Types of ITC Complaints Under Exports
I. Mismatch in Export Documentation
At the time of GST filling of goods and services in the case of exports, documentation plays a key role. Maintaining meticulous records of invoices, receipts, shipping documents, and communication with suppliers and authorities is imperative so you don’t face challenges during ITC claims.
Case Scenario:
An exporter submits invoices and shipping documents to the tax authority as proof of export. However, the shipping documents’ invoice numbers must match the invoices filed with the tax authority. This discrepancy creates doubts about the eligibility of ITC claimed on inward supplies, which are further used for making export supplies.
II. Reversal of ITC on Exports
In the case of the return of goods and services due to quality or defect, one must reverse the claimed ITC. Keeping wrongful ITC amounts is illegal and can lead to scrutiny or audit calls from the authorities. If a business uses ITC on non-business goods, this amount will be reversed to avoid ITC complaints.
Case Scenario:
A textile manufacturer exports fabrics to various countries. Upon arrival at the foreign buyer’s location, a portion of the exported fabric is found to have quality issues, and the buyer returns the goods. The manufacturer must reverse the ITC claimed on the returned goods, leading to a dispute over the reversal process.
III. Mismatch in Export Declaration
The exporter’s GST returns should match the documentation, e-invoices, custom declarations, and the applicable legal provisions of the importer’s business. Reconciliation of returns of both parties is a must to avoid hindrance at the time of ITC claims.
Case Scenario:
A trading company exports agricultural products to overseas buyers. The customs declaration for the exported goods mentions a different quantity and description than what was declared in the GST return for claiming ITC. This mismatch raises concerns about the accuracy of the GST ITC claim.
IV. Non-Compliance with Export Requirements
If there is any specific requirement of the importing country where the exporter is trading, the business must fulfill such requirements according to the laws applicable in both countries—non-fulfillment leads to unnecessary ITC complaints.
Case Scenario:
An electronics manufacturer exports component to an overseas assembly plant for further processing. However, the overseas assembly plant needs to provide the required details, like bank details, address, tax certificate from the resident country, etc., to the Indian exporter so that they can comply with GST. Non-compliance with the required export documentation or processes causes complications in claiming GST ITC on the exported components.
V. Export of Non-GST Goods/Services
If a business is providing such services or selling goods that do not come under the provision of GST, then they can’t claim ITC on the same.
Case Scenario:
A consultancy firm provides advisory services to clients outside the country, assuming they qualify as exports and claim ITC. However, it was later determined that the services fall under the category of non-GST supplies, leading to disputes over the eligibility of ITC claimed earlier. Further, a Refund is allowed in this case also as per Circular No. 125/44/2019.
VI. Incomplete Documentation
If, at the time of ITC claims, any documentation or legal formality is unadhered to as per the applicable law, then the business’ ITC claim on exported goods and services can be questioned.
Case Scenario:
A jewelry manufacturer exports precious stones to international buyers. Due to oversight, some crucial export documentation, such as shipping bills, certificates of origin, or delivery receipts, needed to be maintained. This results in the tax authority questioning the validity of the ITC claim on these exports.
GSTR to Be Filed in Case of Exports
For claiming an Input Tax Credit under the Goods and Services Tax regime, taxpayers typically need to file the following GST returns:
GSTR-3B: This is a monthly self-declaration return where taxpayers declare their input tax credit claims and output tax liabilities. Taxpayers use a summary return to report their tax liability for a particular period. The ITC claimed in GSTR-3B is reconciled with the ITC available in Table 6A in GSTR-1.
GSTR-1: In the case of exports, businesses are to file Table 6A in GSTR 1, which should match the details appearing on the ICEGATE portal.
Form RFD-1: Exporters of services who paid IGST on exports should complete their refund claim by applying in form RFD-1 on the GST portal in addition to GSTR-1 and GSTR-3B.
GSTR-9: An annual return that provides a consolidated summary of all the monthly/quarterly returns filed during a financial year. It is essential for reconciling and verifying the ITC claimed during the year.
Timelines for Claiming ITC Under Exports
Goods exported where a refund of tax paid is available
Start dates for claiming Refund on different types of Exports, which can also be described as ‘relevant dates:
1. Goods exported by air or sea – It starts from the date on which the goods leave Indian coasts.
2. Goods exported by road – The date on which the goods pass the border
3. Goods exported by post – The date on which the post office has done the dispatch
4. Goods for Deemed Export – the date on which the return relating to such deemed exports is furnished in the case of supply of goods regarded as deemed exports where a refund of tax paid is available in respect of the goods;
Deadline before you should claim your refunds:
Any person claiming a refund of any tax and any interest paid on such tax or any other amount he paid may apply in the form and manner prescribed within two years of the relevant date.
However, a registered person claiming a refund of any balance in the electronic cash ledger under subsection (6) of section 49 may do so in the return furnished under section 39 in the manner prescribed.
Services exported where a refund of tax paid is available
Start dates for claiming Refund on different types of Exports, which can also be described as ‘relevant dates
5. Service supplied before payment receipt – When payment for services is received in convertible foreign exchange (or in Indian Rupees as permitted by the RBI), the supply of services is complete.
6. Services received in advance before invoice date – When the invoice is issued, the payment for the services received in advance is received.
Deadline before you should claim your refunds:
The relevant date for claiming a refund of tax paid on services, inputs, or input services used in such services is within two years of the date.
Unused ITC on inputs for taxes paid on inward supplies used for the export of goods and services is refunded.
This Refund is claimable at the end of the fiscal year.
How GSTrobo Can Help You Stay Compliant
It isn’t easy to navigate GST compliance for exports while claiming ITC. Businesses can maintain good customer relationships, comply with GST rules, and improve the overall quality of their products and services by dealing with quality complaints and trade disputes effectively and implementing preventive measures. To protect your reputation and ensure business growth, it is critical to take a proactive approach to dealing with these issues.
However, if you stick to the basics and take accurate care of these elements, such as keeping track of vendor GST compliance, timely follow-ups from suppliers, automated email reminders to avoid delays, and most importantly, not missing the 180-day reversal GST rule of ITC claim, you will be GST-safe. A software solution like GSTrobo lets you easily navigate all these features in one dashboard.
However, two flaws in these fundamentals force them to be followed. First, it must be consistent, and second, it must be accurate. This can be addressed using automated software such as GSTRobo, which will help you tick mark all these essential elements while saving you significant time and money. Please don’t put it off until it’s too late; sign up for a free trial today!
