Exporters have petitioned the government for an outright exemption on payment of goods and services tax, saying that the time it takes to get reimbursements under the current mechanism was causing a working capital crunch.

According to industry claims, about Rs 1.85 lakh crore of working capital will get stuck annually due to the implementation GST. Several exporters said they are already facing a capital shortage and have begun to turn away orders.

Prior to the implementation of GST on July 1, exporters were exempted from paying duties. Now, they have to pay the tax first and then seek a refund, a process that ties up a portion of their working capital and pushes up manufacturing costs as they have to pay duties on inputs. This has particularly hit small exporters, who work on meagre resources and for whom getting bank financing is tough.

Moradabad-based brass handicraft manufacturer and exporter Paragon Metals has Rs 6 lakh of drawback blocked with the government. Proprietor Ajay Kumar Gupta said it might have to lay off artisans and those doing job work if the refund claim is not processed soon.

Similarly, Rajkot-based exporter of bathroom accessories, Valiant Overseas, has stopped shipments for the time being and refused orders worth Rs 1 crore in the past few weeks as Rs 50 lakh of capital is blocked for the past two months, proprietor Kalrav Malaviya said. “We have no idea when we’ll get the refund. As of now, we have said no to five-six clients from Dubai.”

Besides seeking a blanket exemption from payment of GST and a deferred payment on goods not exported, as a likely solution to the problem exporters are also favouring use of e-currency where no physical exchange of money is involved.

Refund mechanism in place
The government has put in place a two-pronged refund mechanism for exporters. They can export by furnishing a bond instead of paying the integrated GST, and claim the refund of unutilised input tax credit. Alternatively, they can export after payment of IGST and then claim the refund.

In the first scenario, exporters get a 90% refund within seven days of acknowledgement of the refund application and the rest in 60 days. In the second, they get 100% refund within 60 days. But many exporters are unsure about the process.

“Working capital needs have increased by 10% due to GST as there was no VAT or excise on our products, and also drawback, which is at present 7.5%, will reduce to half from next month,” said Bhuvan Ahuja, CEO of Ahujasons, an exporter of shawls. Hence, profitability will be affected, too, he explained.

Ahuja said consignments worth Rs 3-4 crore from his company were stuck in the first 10 days of July.