To promote export in India, the Government has always encouraged the Refund of taxes on export should be hassle-free. The process of granting a refund of IGST paid on the export of goods automatically initiates the filing of shipping bills. Taking undue advantage of this automation, many cases are unveiled on a daily basis where a refund is fraudulently claimed without actually exporting the goods. Cases of such fraud have increased substantially under GST. Therefore, the board is taking all possible steps to prevent such cases.

To keep a check on such fraud suppliers, CBIC (“The Board”) earlier issued Standard Operating Procedures (SOPs) on 23rd January 2020 wherein a detailed procedure was prescribed for the identification of risky exporters and how their refund should be dealt.

Now certain amendments are made in CGST Act and underlying rules to deal with risky exporters. Therefore, the board has made changes in the SOP prescribed earlier vide Instructions No. 04/2022-GST dated 28th November 2022.

1. Standard Operating Procedures defined earlier

The Board earlier issued an SOP to deal with fraud IGST refund claims. SOP defined through circular dated 23.01.2020 prescribed procedures for verification of risky exporters and their suppliers in the following manner:

• The Directorate General of Analytic and Risk Management (DGARM) would identify the exporters and their suppliers on the basis of risk parameters approved by the competent authority.
• DGARM was required to forward a list of such suppliers to the Risk Management Centre for Customs (RMCC).
• RMCC would have put an alert in their system with respect to identified exporters.
• With respect to such identified exporters, Jurisdictional CGST Formations were required to carry out the detailed verification of the exporter himself and their supplier.
• CGST Formations then forwarded their report to DGARM.
• On receipt of the report, DGARM was required to decide whether to issue NOC or not.
• In cases where NOCs were issued, the same was forwarded to the custom authorities at the port of export to release the withheld IGST refund.
• Further, DGARM was also required to review whether the exporter can be removed from the list of identified exporters.

2. Amendments made in CGST Rules

• So far, the IGST Amount of risky exporters was held by the government under SOP. Now Rule 96 of CGST Rules has been amended vide Notification dated 05.07.2022 to provide for withholding of IGST refund in cases where verification of credentials of exporters is considered essential.

• Rule 96(4)(c) of CGST Rules is reiterated below:

“(c) The Commissioner in  the Board or an officer authorized by the board, on the basis of data analysis and risk parameters, is of the opinion that verification of credentials of the exporters, including availing of ITC by the exporter, is considered essential before granting of refund, in order to safeguard the interest of revenue.”

• Newly inserted Rule 96(5A) of CGST Rules, 2017 is reiterated below:

“(5A) Where a refund is withheld in accordance with provisions of Clause (a) and Clause (c) of Sub-rule (4), such claim shall be transmitted to the proper officer of Central Tax, State Tax or Union Territory Tax, as the case may be, electronically through the common portal in a system generated Form GST RFD-01 and the intimation of such transmission shall also be sent to the exporters electronically through the common portal, and notwithstanding anything to the contrary contained in any other rules, the said system generated form shall be deemed to be the application for refund in such cases and shall be deemed to have been filed on the date of such transmission.”

• Newly inserted Rule 96(5C) of CGST Rules, 2017 is reiterated below:

“(5C) The Application for refund in Form GST RFD-01 transmitted electronically through the common portal in terms of Sub-rule (5A) and (5B) shall be dealth in accordance with the provision of Rule 89.”

3. Revised manner of dealing with refunds if risky exporters

• The Board has authorized DGRAM to exercise the power given under Rule 96(4)(c) of CGST Rules (Order No. 01/2022-GST dated 21.07.2022 issued vide CBIC-20023/04/2021- GST).
• As per Rule 96(5A) of CGST Rules, for transmission of IGST Amount, withheld under Rule 96(4)(c) of CGST Rules, a system-generated refund application for refund shall be filed in Form GST RFD-01.
• Further, as per Rule 96(5C) of CGST Rules, such system-generated refund applications filed in Form GST RFD-01 shall be dealt with in accordance with Rule 89, i.e, in a manner similar to other refund claims filed in GST RFD-01.

4. Revised procedure of identifying risky exporters and manner of dealing with them

4.1 Putting an Alert in the system of risky exporters

• On the basis of amendments in the CGST Rule, certain changes have been made in the alert module of ICES for which Advisory No. 14 dated 29 Sep 2022 has been issued by DG Systems to all the system managers. 
• In such advisory, it has been informed that a new role has been evolved for the officers of DGARM for putting PAN India suspension, either on IEC or GSTIN of exporter as the case may be, to withhold IGST refund.
• An option to revoke said the alert had also been made available to DGARM officers. 
• Further, instructions have been issued by DG Systems vide No. DGSYS/APP/ICES/GEN/41/2022 dated 29 Sep 2022 to the Customs field officers regarding procedures to be followed to deal with IGST refunds withheld due to DGRAM alert on risky exporters.
• DGARM will identify the exporters based on data analysis and risk parameters where verification of credentials of the exporter including the availability of ITC by the exporter is considered necessary before grant of refund.
• DGARM will then place an all-India alert on such exporters on the Indian Customs EDI system with the reasons for putting the said alert.

4.2  IGST refund Withheld and refund application is filed in form GST RFD-01

• Once an alert has been placed on an exporter, the IGST refunds of such exporters will be withheld and the data in respect of Shipping Bills filed by such exporter, for which IGST Scroll could not be generated due to DGARM alert, along with the reasons thereof shall be transmitted to GSTN through ICEGATE for generation of refund claims in FORM GST RFD-01 in accordance with the provisions of Rule 96(5A) of CGST Rules.
• Further, the past cases where the exporter was identified as risky, which could not be processed due to pending verification or due to receipt of a negative report, would also be transmitted to GSTN through ICEGATE for generation of refund claims in FORM GST RFD-01 in terms of provisions of Rule 96(5A) of CGST Rules.

4.3 Availability of GST RFD-01 and other information to the jurisdictional officer

• Such refund claims are available to the jurisdictional proper officer for further processing on the back-office system under the category “Any other (GST paid on export of goods)” with the remarks “Refund of IGST paid on export of goods (Refund not processed by ICEGATE)”. 
• Further, the risk parameters, based on which the exporter has been identified as a risky exporter by DGARM, will be shared with the jurisdictional tax authorities along with GST RFD-01.
• In cases, where the verification report in respect of the exporter has already been submitted to DGARM by the jurisdictional CGST authorities, the details of the same shall also be shared with the jurisdictional proper officer along with GST RFD-01.
• Transmission of such IGST refunds withheld on account of identification by DGARM as risky exporters to the jurisdictional proper officer is being initiated on the portal. 

4.4 Processing of refund application and granting of refund by jurisdictional officer

• On receipt of such refund application, the jurisdictional proper officer shall immediately process such refund claims in the same manner as other GST RFD-01 refunds filed under the provisions of rule 89 of the CGST Rules, 2017.
• However, it may be noted that as these refund claims have been generated by the system on the basis of Shipping Bills/ Bills of Export filed by the exporter, these claims would be auto-acknowledged by the system and no Deficiency Memo in Form GST RFD-03 can be issued against such GST RFD-01.
• The proper officer shall ascertain the genuineness of the exporter & verify the correctness of availing and utilization of ‘ITC’ by the exporter and exercise due diligence in processing the said refund claims to protect the interest of the revenue.
• The proper officer may If necessary, physically verify the places of business of the exporter to ensure that the exporter is present and functional/active at his declared place of business. 
• The proper officer shall pass a detailed speaking order in respect of the refund claim and duly upload the same along with the refund sanction order in Form GST RFD-06 as per Instruction No. 03/2022-GST dated 14 June 2022. 
• The officer shall also observe the time limit for processing the refund as per the provision of Section 54(7) of the CGST Act. Needless to mention that the process of review and post-audit as prescribed in para 2.2 of Instruction No. 03/2022-GST dated 14 June 2022 will be applicable to such refund claims also.
• In cases where a detailed investigation of the exporter or his suppliers is required to verify the genuineness and correctness of the ITC availed by the exporter, the matter may be examined, if required, for resorting to provisions of Section 54(11) of the CGST Act, 2017 for withholding of the refund.

4.5 Advisory on the continuation of the tag of Risky Exporter by jurisdictional officer

• The proper officer while issuing the refund acceptance order in FORM GST RFD-06 will also be required to respond to the common portal, recommending whether the alert against the said taxpayer needs to be continued or whether it can be removed. Functionality for the same will be available on the system in due course.
• GSTN will forward the alert to DGARM for necessary action for removal or continuation of the data in respect of the result of the processing of refund by the proper officer along with the feedback received from the proper officer on the need for removal or continuation of the alert. 
• The Zonal Principal Chief Commissioners/Chief Commissioners are directed to closely monitor the progress of settlement of such forwarded refund claims to ensure that proper verification is done before sanction and the refunds have been processed in a timely manner.
• Further, the SOPs dated 23.01.2020 and 20.05.2020 prescribing earlier are superseded.