GST refunds still an issue for leather exporters

Though liquidity crunch is easing for leather exporters, GST refunds continue to be a challenge for some, even nine months after its implementation. Lack of clarity and inability to afford professionals, especially by smaller players, is a major issue.


Ajay Sahai, Director General and Chief Executive Officer, Federation of Indian Export Organisations, said that for small and medium companies, a substantial portion of the refunds is locked in GST and they continue to face liquidity crunch. Unlike the bigger players, who have access to the domestic market, these companies solely depend on exports.

Siddiq Ahmed, who handles finance for a small shoe manufacturer, agrees.

Though refunds have started coming in, they are still suffering from liquidity crunch. The company does business worth ₹3 crore annually, which requires a working capital of ₹1.5 crore.

“Earlier close to ₹70 lakh were stuck in refunds,” he added. Though the initial liquidity crunch has eased, they still have a hard time catering to the order of 35,000 pairs of shoes. With not many banks willing to come forward to give them loans, they now find themselves in a tight spot.

Issue of LUT

Israr Ahmed Mecca, Regional Chairman – South, Council for Leather Exports (CLE), said: “There are two parts to getting GST refunds – automated refunds and Letter of Undertaking (LUT).” In the case of the former, refunds are processed in a matter of a month if your documents and bills uploaded in the GST platform are right. The challenge is getting refunds through LUT route.

Under GST, leather was levied a tax of 5- 28 per cent, with raw materials coming under higher tax bracket than products. For these products, exporters have to take the LUT route. Around 30 per cent of the exporters of finished leather come under this category and are unable to get refunds. Finished leather accounts for about 15 per cent of the total exports.

“We have to submit the documents manually to get refunds. This takes longer time as there is not enough clarity about the process,” he said. PR Aqeel Ahmed, Vice-Chairman, CLE, said even consultants and auditors need to be trained. The CLE is working with FIEO to educate the exporters, he added.

“These issues are impacting auxiliary service providers as well. The demand for spare parts has reduced by half,” said K Rajasekaran, owner of Ramya Engineering works and executive member, Ambur Consumer Council. Most spare parts have come under the 28 per cent tax slab as opposed to 14.5 per cent in the previous tax regime. Due to cash crunch, companies that stock up are doing it sparingly. “For example, in the place of 10 orders, I’m getting orders only for two,” he explained. His turnover is likely to come down to ₹20-25 lakh from ₹35-40 lakh last year.

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