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Rs 3,000 crore service tax refund stuck in red tape for indian tech companies
March, 06th 2013

Software companies are miffed that the government is dragging its feet on refunding at least Rs3,000 crore in service tax despite promises to do so. While on one hand the government has said it will crack down on tax dodgers, it is unwilling to return the money it owes to information technology companies, industry experts said. The money has been stuck with the tax authorities for at least three years for most companies, and sometimes up to nine years.

Large IT companies such as Tata Consultancy ServicesBSE 0.71 %, Infosys, WiproBSE 1.82 % and HCL TechnologiesBSE 1.10 % alone are awaiting someRs1,000 crore in refunds. "A majority of (refund) requests are either rejected by the department on grounds of inadequate paperwork, ineligibility or are simply lying on some table waiting for approval," said Pramod Banthia, executive director at audit and advisory PricewaterhouseCoopers. Tax consultants including Banthia believe that overall refunds pending with the service tax department for more than 3-4 years, would be at leastRs

5,000 crore with at least 60% belonging to the IT sector. IT services companies whose revenues are mostly from exports are entitled to service tax exemption thanks to government incentives to boost exports. These companies, however, still have to pay the tax and then claim a refund. The lack of clear definition of the legal provisions relating to the IT services sector has led to many rejections and avoidable litigation. The Department of Service tax did not reply to calls or emailed queries from ET.

The large IT companies including, TCSBSE 0.71 %, Infosys, Wipro and HCL Technologies declined to comment. Typically, IT services companies pay 4-5% of their total revenues on service tax every year. The pending refunds sit on companies' account book as receivables and impact the working capital of the company.

"In the past, I have dealt with almost 40 countries, given the vast operation of the business, but never came across a case where the company is denied a refund which it is legally entitled to," said TV Mohandas Pai, who served as chief financial officer at InfosysBSE 1.39 % between 1994 and 2006. Industry body Nasscom has been working with the government but progress has been hard to come by.

"Time and again, we have talked to the government representatives but, issues of service tax refund still exist and are creating a burden for the industry," said Bishakha Bhattacharya, director for government relations at Nasscom. "Tax authorities reject the entire application consisting of thousands of forms if they spot even one discrepancy." Last year, the commissionerate of service tax in New Delhi assured companies of faster resolution, raising hopes of quicker refunds.

The promise was that claims pending for more than one year as on June 30, 2012 would be resolved latest by the end of last year and that in future no claim would remain pending for more than three months.

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