Garment exporters have asked the Centre for clarity on the refund process for Integrated Goods and Services Tax (IGST) paid on import of machinery as they were not in a position to use input tax credit.

In a letter written to the Finance Ministry, the Apparel Export Promotion Council has pointed out that after the implementation of GST in July this year, apparel exporters were required to pay IGST up to 18 per cent on assessable value plus the basic customs duty (BCD) while clearing shipments of capital goods under the Export Promotion Capital Goods (EPCG) scheme. "The incidence of a very high IGST without any corresponding relaxation for export obligation has rendered the EPCG scheme unattractive," it said.

The letter, addressed to the Drawback Committee Chairman, G. K. Pillai, points out that the only way for apparel exporters to claim IGST refund is through input tax credit. But apparel exporters who import capital goods normally export 100 per cent of their products and don't sell their products in the domestic market. "Hence, issue of utilisation of input tax credit doesn’t arise for these exporters. On the contrary, domestic players importing capital goods are better placed as they have various opportunities to utilise input tax credit," AEPC Chairman Ashok G Rajani said.

In the pre-GST regime apparel exporters availed of benefit of the EPCG scheme where exporters were allowed to import capital goods without paying any import duty. “The scheme was popular amongst apparel exporters and encouraged many of them to invest in new units or go for expansion. But things have changed after the implementation of GST as there is no clarity on the refund process of IGST,” Rajani said. The working capital requirement of the exporters has gone up drastically due to the high rate of IGST, he added.