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Grant exemptions with grace
December, 03rd 2007
Last week, the Finance Minister acknowledged in Parliament that the rupee appreciation has hurt exports and extended some more concessions/relief to exporters, but the manner in which he has gone about granting exemptions from service tax for exports is not at all graceful.
It was in April this year that the Commerce Minister won a lot of applause for announcing that service tax on export related services will be exempted. When no notifications came from the Finance Ministry to give effect to the announcement, there were widespread speculations on whether the Finance Minister would do anything at all.
To put the speculations to rest, the Finance Ministry came out with a Press Note that there are no differences between the Finance and Commerce Ministries on the issue concerning rebate or refund of service tax paid on various input services used for goods or services exported.
The decision regarding rebate or refund of service tax was taken with the approval of the Commerce Minister, Finance Minister and the Prime Minister, said the Press Note and went on to assure that modalities for refund/rebate of service tax on certain services that are not input services but are related to goods or services exported from India, and to neutralise service tax on services received/rendered abroad are being worked out.
In the meantime, the rupee continued to appreciate rapidly and the Commerce Minister announced a relief package, but the Finance Minister gave effect to only some of the recommendations and that too only to some sectors and after some delay that betrayed reluctance.
Regarding service tax exemptions, it was five months after the Commerce Ministers April statement that the Finance Ministry issued a notification (no. 40-2007-ST dated 17th September 2007) exempting certain services used for exports but through a refund procedure.
The refund was restricted to tax on port services for exports, other port services provided for exports, services of transport of goods by road from Inland Container Depot (ICD) to port of export provided by goods transport agency and services of transport of export goods in containers by rail from ICD to port of export.
The refund provision was extended to tax on more services through notification no. 41/2007-ST dated 6th October 2007. These services included insurance services, technical testing and analysis services and inspection and certification services relating to exports.
Last week, the refund provision was extended (notification no. 42/2007-ST dated 29.11.2007) to tax on specialised cleaning services namely disinfecting, exterminating, sterilising or fumigating of export containers and storage and warehousing services for exports.
Another notification (no. 43/2007-ST dated 29.11.2007) exempted tax on business exhibition services but only for exporters of knitted or crocheted fabrics or apparel and clothing accessories and other textiles such as carpets and floor coverings, if the exporters had registration with concerned Export Promotion Councils.
The piecemeal grant of exemptions/refunds and the stiff conditions and procedures that govern such grants betray a certain reluctance to give the relief. Some restrictions are such that the exporters feel that they may not be able to get the intended relief due to one procedural/interpretational issue or the other.
Moreover, tax on such obvious services relating to exports such as services of customs house agents are not covered under the relief measures. Fiscal relief to harried exporters can always be granted with grace.

T N C Rajagopalan
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