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Service tax clarifs to boost
February, 01st 2010

Exporters can claim refund of service tax paid on various services used indirectly to provide output services that are exported, the Central Board of Excise and Customs (CBEC) has clarified.

So far, departmental officers used to pass only the refund claims that had proven nexus or links between inputs or input services and the final goods or services.

But now, the department has clarified, exporters can claim refund of service tax paid even on services used indirectly for providing output services that are exported, or used in manufacture of goods exported. Any input service that helps in providing output services effectively can be said to have been utilised to provide output services, it has said.

The clarification is particularly beneficial for call centres and other business process outsourcing (BPO) units.

Since the BPOs are operational 24X7, transportation and provision of food to employees are necessary prerequisites the employer has to provide to its employees.

In a welcome development for such units, input services will now cover renting of premises, right to use software, maintenance and repair of equipment, telecommunication facilities, manpower recruitment agency, outdoor catering and rent-a-cab, etc.

The CBEC has also clarified on a number of other major issues:
n In certain cases, the department used to reject refund claims if it found it difficult to correlate goods or services under a particular invoice with a specific consignment of export goods or specific instance of export of service.

Now, in case the claim of refund in a quarter is less than Rs 5 lakh, the exporter will have to submit a self-certification to this effect. In case the refund claim is in excess of Rs 5 lakh, the declaration should also be certified by the chartered accountant who audits the annual accounts of the exporter for the purposes of Companies Act, 1956 (1 of 1956) or the Income Tax Act, 1961 (43 of 1961), as the case may be. The chartered accountant who has conducted the audit will have to certify the invoices about the correlation and the nexus between the inputs or input services and the exports.

This is a welcome initiative as it reduces the procedural delay considering the assessee will no longer need to correlate the input under a particular invoice with the output services or goods exported. The departmental officers are only required to make a basic scrutiny of the documents and, if found in order, sanction the refund within one month.

So far, it was not clear whether only the credit accumulated during a given quarter will be eligible for refund or whether the accumulated credit of the past period can also be considered.

The CBEC has now clarified that there should not be any objection in allowing refund of credit of the past period in subsequent quarters. It is possible that during a certain quarter there may not be any export and therefore the exporter does not file any claim.

However, he receives inputs or input services during this period and therefore he will file for a refund claim of that period in a subsequent period when there is an export and the same should be allowed to the exporter.

This clarification will bring a relief to exporters whose applications were rejected on the ground that the refund claim should have been made in the quarter during which the services were received.

In certain cases, the department was also rejecting refund claim on the ground that the invoices accompanying the refund claim were incomplete even if it was only a procedural lapse.

Now the CBEC has clarified that if the invoices contain
1) the name, address and the registration number of the person providing a taxable service;

2) the name and address of person receiving the taxable service;

3) description, classification and value of taxable service; and

4) service tax payable thereon, then it shall be construed as a complete invoice and refund claims should not be rejected on this ground.

Overall, these clarifications are a welcome move and will help exporters receive the refunds pending for a long time and mitigate the financial hardship caused due to pendency of refund cases.


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