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Confusion over service tax
April, 21st 2007
Annual Supplement To Foreign Trade Policy: The Day After 
 
A day after the Annual Supplement to the Foreign Trade Policy 2004-09 was unveiled, confusion prevailed over a key pronouncement related to service-tax benefits for the Indian exporters. 
 
At a CII discussion today, Commerce Secretary Gopal K Pillai said service-tax exemption was only for goods export and not for the services sector. 
 
The trade policy specifies that for all goods and services exported from India, services received, rendered abroad, wherever possible, shall be exempted from service tax. 
 
The policy also provides for remission of service tax paid on goods and services which are exported from units in the domestic tariff area, export zones and software technology parks, among others. 
 
The move to exempt service tax on exports had been welcomed by some service sector companies, in the belief that they stood to benefit too. 
 
A finance ministry official expressed surprise over the service tax-related announcement in the policy. Goods are already exempt. We also have a scheme for exports of services. The principle of not exporting taxes is already upheld, he said. 
 
The commerce ministry should tell us what the export-related services that are taxed are and the nexus (the transaction trail for them). In any case, none of this can be implemented without a notification. 
 
Tax expert S Madhavan, leader, indirect tax practice, PricewaterhouseCoopers said the announcement was essentially a statement of intent, which needs further consultations. 
 
The ministry is attempting to bring in a scheme similar to the drawback... to add on what already exists. Exports of goods have always been exempt and the benefit is taken... through drawbacks or excise exemptions. The scheme for exports of services is a year-and-half old. Refunds under this scheme will begin in a week. 
 
A Directorate General of Foreign Trade (DGFT) official said the word services should not have been used in the foreign trade policy in the context of exports from India. This has led to some confusion, especially as the annual supplement document uses a slightly different language. 
 
The DGFT official added the department was of the opinion that for most services to the services sector, no service tax is payable. 
 
Hence a decision was taken to not to extend the benefits to them. But it seems that many services, which service sector companies receive for their exports, are being charged service tax. Hence, we have asked for a list of services which they receive and on which they are paying service tax, the official added. 
 
A notification will be issued regarding this, but it would take time, as a process has to be followed, he said.
 
 
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