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MoF, commerce dept clash on tax refund to exporters
February, 02nd 2009

The finance and commerce ministries have locked horns yet again on the issue of reimbursement of service tax to exporters. The
commerce ministry has demanded details of all clearances made so far by the tax authorities after exporters complained that finance ministry has cleared less than 5% of refund claims and rejected the rest for flimsy grounds.

A commerce department official told ET exporters had complained that even though the finance ministry allowed service tax
reimbursement on paper, very little was actually being refunded as the rules for making claims were ambiguous and unrealistic. We have asked the finance ministry to give us details of the claims made and the refunds given. Wherever we find that claims have been rejected on unrealistic grounds, we are going to contest that, the official said.

The finance ministry has allowed exporters to claim refunds on 19 services. It also recently amended a rule that prevented exporters claiming duty drawback (refund of taxes on inputs) from claiming service tax refund. However, exporters say there were so many problem areas in the rules that they were discouraged from filing claims. To my knowledge, about 26 cases were filed for drawback. Of these, only one actually got refund and that too was restricted to 40% of the claim amount filed for, Federation of Indian Export Organisations director general Ajay Sahai said.

The procedure for filing refunds is unclear as there is lack of clarity about where to claim refunds in case a company had a factory located at one place and branch offices at another, Mr Sahai said.

A stress on linkage between service availed and exports made was also making things difficult for exporters, as for a number of services it was very difficult to directly link it to exports. For instance, for payment made to customs house agents, it is not possible for one to conclusively prove that it was for exports and not for imports.

One has to understand that service is a non-tangible and cannot be treated like goods, Mr Sahai added. Another rule slowing down refund claims was the finance ministrys insistence that refunds would be made only after proof of realisation of exports was given. Exporters claim often there was a time lag between shipments and payments. It was unfair to keep exporters hanging till they realise payment, they argue.

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