New Delhi: After unearthing firms that made fake export credit claims, the Department of Revenue has asked the Directorate General of Foreign Trade (DGFT) to seek regular compliance and verification reports from other regulators, besides seeking statutory records of compliance from exporters, including certifications from the banks.
According to a Finance Ministry source, the DGFT, which is under the Commerce Ministry, has also been asked to take precautions like "asking exporters to submit 'No NPAs' (non-performing assets, or bad loans) certificates from banks in view of the disclosures of mis-availment of IGST (Integrated Goods and Services Tax) refunds by certain exporters holding 'star' status."
The Revenue Department has identified several star-rated export houses that are bogus or shell export houses claiming fake refunds, the source said.
"Of the 241 cases taken up for detailed scrutiny, data of 82 star exporters show that declarations before income tax and GST are at significant variance," he said.
Data matching between income tax and GST of the star exporters has also shown that 40 out of 241 entities have declared turnover from business ranging from NIL to less than Rs 1 crore in fiscal 2017-18 and 2018-19, whereas it is understood that an exporter must maintain exports of $3 million in a year to be eligible for the status", the source added.
He also said the Revenue Department has drawn the DGFT's attention to the preliminary findings of the investigation which show the "mis-availment" of IGST refunds by certain 'star' exporters.
"These instances emphasise the need to make the system of accrediting exporters more robust. Since an exporter enjoying 'star' status is allowed many facilities, including reduced customs inspections, it makes for a strong case for DGFT to continuously, or annually, seek a compliance and verification reports from other regulators or obligate the exporters to produce statutory records of compliance, including 'No NPAs' certifications from banks," he said.
"In its drive to check fraudulent availment of IGST refunds, the CBIC (Central Board of Indirect Taxes and Customs) has extensively used data analytics and matched data with income tax, GST and customs to identify risky exporters," he said.
"Ongoing investigations have thrown up at least 9 star export houses as 'non-traceable' at their premises declared on record. All these star export houses have availed IGST refunds, which are now being questioned by the tax officers. There are instances where an exporter with over Rs 50 crore of exports of readymade garments has taken refund of Rs 3.90 crore while the entity's total GST payment in cash was a merely Rs 1,650."
In another case, tax payments in cash have been found as Rs 51,201 while the exporter has obtained refund of Rs 9.59 crore. Investigators are of the view that all such cases involve fake invoicing and fraudulent tax credits, which have been encashed through the facility of IGST refunds.
The ongoing exercise by CGST field formations has revealed serious issues in compliance. Besides the fact that 9 star exporters were not traceable at the addresses, in two cases the premises were also found sealed and seized by the banks as the exporters had been declared as NPAs.
A sample study of 241 star exporters has shown that 40 had declarations of turnover from business ranging from 'Nil' to less than Rs 1 crore in 2017-18 and 2018-19.
'Star' export houses are recognized under the Foreign Trade Policy by virtue of their export performance having crossed a certain threshold, which is presently $3 million in the current and previous 3 financial years.
Alarmed at the misuse of IGST refunds by the star status exporters, the CBIC has requested to DGFT to install a more robust accreditation process and take necessary action as per law.