REFUND OF SERVICE TAX ON THREE MORE SERVICES ALLOWED TO EXPORTERS

ANALYSIS OF Notification No. 41/2007-SERVICE TAX, DATED 6-10-2007

As we all are aware that the Finance Ministry has come out with the notification of exemption of service tax to exporters after almost 9 months of announcement of such exemption by the commerce minister in Foreign Trade Policy. But the exemption was granted only for 4 services and too by way of refund.

Now, the CBEC has come up with a new notification no. 41/2007-ST DT. 6.10.07 in supersession of earlier notification. The three new services have been added in the list of eligible services. But number of conditions has been incorporated in the same. The salient features of the new scheme are as under:-

Conditions:-

The exporter who has received and used the services for the export can only apply for the refund.
The exemption will be granted by way of refund as was done in the earlier notification.
The refund will be granted only when the exporter has actually paid the amount to the service provider. Thus, receipt and bank reconciliation statement has become important for claiming of the refund.
No Cenvat credit should have been taken by the exporter of such services for which the refund has been applied by him.
No drawback has been taken of such specified services. The drawback rates are declared by the Government only and they do not give any detail that these services are included for fixation of drawback rates. As such, it is very difficult for the exporter claiming drawback to ascertain that these services have been included in fixation of the rates of drawback. Eventually, he has to forgo the refund,
No other exemption or refund of these specified services has been claimed by the exporter.

Procedure:-

i. The very first condition in this category that the person liable to pay service tax should pay the service tax. Thus, the exporter has to ensure that the service provider has paid the service tax. Further, it is provided that the refund will be granted to exporter and it will not be given to the service provider. But there is one exception in this regard that the person liable for payment of service tax and exporter are one and same person then the refund will be granted to him. This happens in many services as listed in Rule 2(1) (d) where service recipient and service provider are one and same person. One common example is of Goods Transported by Road.

ii. The exporter should file the refund claim with the department. The registered manufacturer exporter will easily file the claim. If the claim is filed by merchant exporter then he has to file a declaration with the department. The Assistant Commissioner will give a Service tax code to him and thereafter he can file the refund claim.

iii. The refund claim is to be filed on quarterly basis. It will be filed for the goods which custom officer give let export order. Normally, the department provide the six months period for filing of proof of export and one year period for rebate claim. But this claim gives only two months period. It might happen that the proofs of export are not received during this period.

iv. The refund claim should accompany with the documents of export of goods, payment of service tax on specified services and agreement of exporter with the buyer. The documents of export of goods are already filed by the exporter along with the Annexure 19 on monthly basis. Secondly, it is very difficult to give the details of payment of service tax. As the service tax is paid by the service provider and not by the exporter. Lastly, the agreement between the buyer and exporter has no relevance for the refund claim. The exporter might not like to give the same due to fear of leakage of his trade secret. But the department will insist for the same. Thus, there is every possibility of conflict in this claim.

v. The Assistant Commissioner will verify the refund claim and if he is satisfied with the same then he will sanction the same to the exporter. But no time limit has been provided for the sanction of the same. Even there is no provision for the interest payment. As such, it is sweet will of the department to sanction the refund claim in this regard.

vi. Lastly, if the payment is not received for the goods exported then the department will recover the amount from the exporter. Such type of condition does not exist in the Central Excise Act earlier. They were only concerned with the export of goods. But recovery of refund when the payment is not received has been introduced for this refund. As such the exporter has to give Bank Realization Certificate also to substantiate his claim. But the problem is that Foreign Exchange manual provides 180 days for payment but the refund provides maximum period of five months.

Services eligible for refund:-

The following services have been listed for the refund to the exporter:-

General insurance services;
Port services;
Technical testing and analysis services;
Technical inspection and certification services;
Other port services;
Goods transported by Road;
Goods transported by Rail.

Out of above, four services were already eligible for refund in the earlier notification. Now, three more services have been included which are general insurance services, Technical testing and analysis services and lastly Technical inspection and certification services. The last two services will be given refund only in case where there is provision in the agreement with the buyer for the same.

Conclusion: -

The Board has included some more services for the refund but numbers of conditions have been added to the scheme. These conditions will create undue hardship for the exporters. Even it may result in rejection of most of refunds of the exporters like condition of drawback. These problems should be resolved at the earliest. Further, the other services like commission to agents, banking and financial charges, courier charges, custom house agent charges should be included in the list of services. This inclusion will be real benefit to the exporters in such a tough time.

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REFUND OF SERVICE TAX ON THREE MORE SERVICES ALLOWED TO EXPORTERS

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