The Federation of Pharmaceutical and Allied Products Merchant Exporters (FPME) has written to Finance Minister Nirmala Sitharaman requesting to continue Section 16 of the IGST Act, 2017 without any amendments.

Recently, the FM proposed a change in the finance bill where Section 16 (3) will now allow only export on Letter of Understanding (LUT)/Bond without GST and exporters will have to apply for ITC Refund.

Earlier, Section 16 of IGST Act, 2017 defined “Zero Rated Supply” and it provided two options to exporters, either to use LUT/Bond for removal of goods or services for export or Pay IGST on the export and claim a refund. The option was with the exporter, he/she could decide on the same at every removal. Those who were exporting on payment of integrated tax were getting IGST refund from the customs on a shipment basis without any application in a faceless manner.

Later, the process of input tax credit involves choosing a period for filing the claim, uploading the documents and thereafter, with considerable delay, getting the payment.

“A fairly large number of exporters are availing the IGST payment facility and they prefer to pay IGST since the refund was quick, it was a better option. The amendment does have a provision that the Government, on the recommendation of the Council, and subject to such conditions, safeguards and procedures may notify:-

i) A class of persons who may make zero-rated supply on payment of integrated tax and claim a refund of the tax so paid;

ii) A class of goods or services, which may be exported on payment of integrated tax and the supplier of such goods or services may claim the refund of tax so paid.

“This kind of selection by the GST Council may take its own time and till then all exporters will be stuck with cash flow problems deprived of IGST refund option,” stated in the association’s letter.

“As a Merchant Exporter, we have facility of purchase against 0.1 per cent for the purpose of exports, however majority of manufacturers are reluctant to supply at 0.1 per cent because they want to liquidate their accumulated ITC, which is very high due to all raw material purchase is at 18 per cent GST rate. So, if a new amendment is implemented, exporters major amounts more than their normal margins would be blocked and exporters will struggle for survival in this very competitive market,” highlighted the letter.

Pointing out the problems faced by the industry, the letter stressed, “From the day GST was implemented, exporters have been trying to understand and follow the process of the law. The IGST refund option was a settled process and exporters have now understood the compliances and procedure for the same. This amendment will completely change the process of refund and also impact badly on the exporters’ cash flow. Our pharma industry has kept the exports alive and grown considerably even in the tough times of COVID-19 when the members are already facing huge liquidity problem with the blocking of MEIS benefits from 2019 onwards. The aforesaid change in the Finance Bill, depriving exporters the facility to export on payment of IGST and its subsequent refund in an efficient manner, would only compound the cash flow problem.”

Sandeep Modi, Secretary and Director, Federation of Pharmaceuticals and Allied Product Merchant Exporter and Director, Infugen Pharma, explained, “With proposed changes, merchant exporters will face liquidIty issues where their margins are not much as they depend upon the local market for their purchases. Also, many manufacturers don’t give stocks on LUT as they have high Input Tax (nearly 18 per cent on API ) than on finished formulations(12 per cent). Such changes are contrary to our Prime Minister’s vision of ‘Ease of Doing Business’. Earlier the Government had a plan of launching an E-Wallet for exporters for IGST refund, which was futuristic and was matching our PM’s Vision, but going back to the old system will affect exporters and boost red-tapism in the system. Therefore, we have requested the Finance Minister to implement E-Wallet for refund, which will close the loopholes in the current system and promote ‘Ease of Doing Business.'”