Serious fraud in GST refunds comes to light

In a worrying development, it has come to light that more than 1300 exporters who have wrongfully claimed Rs. 1875 crores GST refunds have been found untraceable in their at their registered place of business. Exporters get refund of the taxes that go into the raw materials and services used as it cannot be part of the international price of their exports. Additionally, the government has also identified 7516 business entities as “risky” exporters basis red flags raised against these by various statutory agencies. Exporters are identified as ‘risky’ on the basis of specific risk indicators based on data relating to customs, GST, income tax and foreign trade transactions.

Among the 1300+ missing exporters, seven were accredited as “STAR” exporters. Additionally, 3 other STAR rated have also been reported under “adverse” category to The Central Board of Indirect Taxes and Customs (CBIC). These 10 exporters together have claimed Integrated GST (IGST) refund of Rs 28.9 crores deceitfully, as per the media reports on the matter. The reports quote an unidentified official in further claiming that authorities have suspended IGST refund or drawback claim worth Rs1,363 crore in the case of 2,830 risky exporters.

Refund of tax credits has always been a matter of debate with government agencies remaining skeptical of the possibilities of fraud in grant approval process. On the other hand, business houses state that delay in refund processing adversely impact their liquidity position, making it a tricky affair. In light of the coronavirus pandemic, businesses were granted additional time to file tax returns and audit reports in addition to given relief on interests and late fees payable. With the economy gradually coming out of the 2+ month long lockdown, statutory agencies are now starting to focus more on compliance with such violations coming to light.

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