Process to tag ‘risky’ exporters to change

Exports of goods turned negative for the first time in 19 months amid a demand slowdown in the West.

Tax authorities label as “risky” those exporters who are suspected to have claimed tax refunds on the basis of fraudulent invoices. Mint had reported that more than 1,300 exporters had wrongfully claimed goods and services tax (GST) refunds worth ₹1,875 crore in 2020.

Based on GST, income tax and foreign trade transactions data, the Central Board of Indirect Taxes and Customs (CBIC) identified 7,516 entities as risky exporters. However, a group of micro, small and medium enterprises exporters said in a letter to CBIC chairman Vivek Johri that the mechanism used to tag exporters as risky is “neither transparent nor time-bound”.

Queries emailed to the ministry of commerce and the ministry of finance remained unanswered till press time.

“Once an exporter is profiled ‘risky’, refund of all taxes under various schemes is immediately stopped, including the Integrated Goods and Services Tax (IGST) refund, duty drawback and Rebate of State & Central Taxes and Levies (RoSCTL),” said Animesh Saxena, chairman, policy committee, Federation of Indian Micro and Small & Medium Enterprises (FISME).

“Shipments are marked for special inspection, which also delays clearance. This leaves the exporter financially crippled and operationally hamstrung,” Saxena said.

Claiming tax refunds fraudulently has been a common practice of tax evasion, but the complete reliance on data has been questioned by exporters on the grounds that honest exporters get dragged in.

“The risky exporter mechanism is being reviewed and is expected to be substantially eased in one or two months. After being flagged, a case would be resolved in a routine manner at the local GST office level and the search engine used for identifying risky exporters would also be tweaked,” FISME said after meeting commerce minister Piyush Goyal and CBIC’s Johri on Wednesday.

“CBIC agreed to create an online grievance redressal mechanism to address issues of exporters and importers,” it said.

Exporters said the government’s decision to put a large number of exporters on ‘risky exporter profile’ in 2020 had led to severe backlogs. The government had assured that restrictions would be lifted once the investigation was over but that did not happen in the last two years, they said.

A “speaking order” should be issued before red-flagging exporters, MSME exporters said. There should be a mechanism to allow the exporter to present the case to an empowered official of the directorate general of analytics and risk management and the process should be completed in a time-bound manner.