Changes in Service Tax Refund Scheme

Change in Service Tax Refund Scheme

Prepared By:
CA Pradeep Jain
And Sukhvinder Kaur, LLB[FYIC]

The scheme of refund of service tax paid on specified services which were utilised for export of goods was given effect in 2007 vide Notification No. 41/2007-ST dated 06.10.2007. The exemption was granted by way of refund. However, announcing the grant of exemption and actual granting of refund of service tax paid proved to be two different scenarios. The exporter claiming refund of service tax was not granted refund claim on various issues. Like for Port services, the ground taken for rejecting the refund was that the Authorisation from the Port Authorities was not obtained by the service provider providing Port and other port services. The issue that a particular service would fall under the Port services was also disputed. For example the Terminal Handling Charges and Repo charges were alleged to be not falling under the Port services.

The refund claim of services provided by Customs House Agent services was being rejected on the various grounds. The refund was not granted if exporters invoice no and date was not mentioned in the service provider’s invoice. That the licence number of the CHA was not mentioned on the invoice of the CHA.

For fumigation (specialized cleaning services) the refund claim was being denied on the ground that the exporter had not produced a written agreement with the buyer for carrying out the cleaning activity of export cargo.

Service tax paid on Insurance service availed regarding export goods was being denied on the ground that the document issued by the insurer for payment of insurance premium was not specific to the export goods. These are only few of the grounds for denying refund claim. These issues were not the conditions which the claimant-exporter were not fulfilling intentionally. But these were technical issues which were existing and could not be addressed.

Thereafter, to remove the anomalies existing in Refund scheme contained in Notification No. 41/2007-ST, the Government had introduced an improved scheme vide Notification No. 17/2009-ST dated 07.07.2009. The said Notification removed certain anomalies existing in Notification No. 41/2007-ST but gave birth to new issues. We have written a series of articles titled “Johnny and service tax refund- Part-I” to bring about the problems faced by the exporters.

The refund claims under Notification No. 17/2009-ST were being denied on newer grounds. The use of the word that no refund claim less than Rs. 500/- will be entertained was interpreted by the Department to the effect that the each invoice/shipping bill was to be treated as an individual refund claim instead of the entire refund claim filed for one consignment/period.

Another issue was that the documents were not certified in the manner provided in the Notification. It was being insisted that the certification was to be done on the original invoice and if done afterwards, was not accepted. The refund claim of service tax paid on CHA services was being denied on the ground that the CHA licences numbers were not present in the invoices or the CHA was not holding valid licences. The refund of Terminal handling charges was denied saying that it is claimed under port charges. Instead it should be claimed under that category only. But there was no category like Terminal handling charges in the service tax. In nutshell the refund was not provided to the exporters. We once again continued with article series “Johnny and service tax refund- Part-II” to highlight the problems of exporters. Further, it was demanded through series of representation from all associations that the straight forward exemption should be granted in place of exemption by way of refund.

Now, in the Budget 2011-12, the Finance Minister has proposed to introduce a scheme for the refund of service tax paid on specified services used in export of goods on the lines of drawback of duties in a far more simplified and expeditious manner. This has been proposed to reduce the considerable difficulties in the sanction of refunds.

This may reduce the difficulties faced by the exporter in claiming refund. The technical issues may be redressed and fewer conditions would be required to be fulfilled. Thus, this is a welcome step on behalf of the Government which will help the exporters.

The Government has not agreed to demands of exporters of straight forward refund but has allowed the refund only. But it should be formulated in such a way that the exporters get the refund and it is not stuck up again as in old schemes. Hope for the best.

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Changes in Service Tax Refund Scheme

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