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IT, ITeS cos can now claim service tax refund
January, 20th 2010

The $50-billion information technology services and BPO outfits, including Infosys, Wipro, TCS, WNS, Genpact, will now be able to get their service tax refunds, running into a few thousands of crores, expeditiously, as the government has announced a new simplified procedure to resolve the long-pending issue that has caused much hardship to the industry.

The Central Board of Excise and Customs, the apex indirect taxes body, on Tuesday issued a circular directing its field officials to issue pending service tax refunds within 30 days, and also relaxed certain norms for issue of such refunds.

The refunds will boost the bottomlines of software exporters at a time when they look to recover from the global economic slowdown. Both Infosys and TCS have reported good results for the quarter ended December 2009.

The circular puts to rest the ambiguity over definition of services used as inputs by technology and BPO companies. Service tax paid on inputs, such as transportation of staff, telecom facilities, software maintenance and up-grades, provision of food to employees working in 24x7 environment, hiring recruitment agencies and other related services, would be eligible for refund. The IT-BPO sector employs over two million workers.

The primary issue of dispute has been the proof of linkage between the input services used and the output services exported. Not only was a substantial amount of claim value was being denied by the authorities on the said ground, but show cause notices were also being issued, demanding refunds already sanctioned in the past years, causing hardship to the industry.

In case, absence of an input service adversely impacts the quality and efficiency of the provision of service exported, it should be considered as eligible input service, the circular said.

However, industry argues that the circular can only resolve the issue if its implemented in letter and spirit by the field. The circular is a positive step towards clarifying the issues faced by the departmental officers in granting refunds but it will be useful to the industry only if the refunds are, henceforth, granted to them, said Bipin Sapra, partner, Ernst & Young. Said Prateek Jain, executive director, KPMG: This should not only help in quicker processing of pending claims but should also help resolve the disputes that businesses are facing...the key will, however, lie in speedy implementation on the ground.

Nasscom had been lobbying with the government to resolve this for over a year and, in a June 2009 notification, the government had said that 80% of the refunds will be paid immediately and the balance after investigation.
Som Mittal, president, Nasscom, said: Couple of thousands of crore of refund have been pending for a long time and the clarification will benefit the whole industry.

However, no refund were made at that time. It is very good that pending issues with regard to inputs and related grievances have been addressed. Now we hope the implementation of the order will be streamlined, Mr Mittal added. The CBEC has also allowed for self-certification of bills.

The procedure on self certification of data by the service exporter will help the authorities in disposing off pending claims and will benefit both the exporters and the authorities, said Anita Rastogi, senior manager, PwC. Partial grant of claim pertaining to undisputed portion is a good move and comes as a blessing for the BPO sector, she added.  

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