Describing the recent Service Tax Refund Notification on Foreign Commission Agents (FCAs) issued by the Finance Ministry as bureaucratese at its worst, Mr Rakesh Shah, Chairman of Engineering Export Promotion Council (EEPC), said here that it goes not only against the RBI guidelines but also against the Departments own notification issued in 2002.

Mr Shah said the April 1, 2008 Notification has allowed refund on the service tax paid to foreign commission agents to the extent of only 2 per cent of the f.o.b. value of exports, when the RBI guidelines allow FCAs to be paid up to 12.5 per cent of f.o.b. value of exports.

He said the Department of Revenue by its own circular issued in 2002 had clarified that for those exporters availing of export benefits, the foreign agency commission would be 12.5 per cent.

He said it was surprising that the April 1, 2008 Notification has set a limit of only 2 per cent of f.o.b. value of exports for foreign commission agents payment to be refundable.

The 2 per cent f.o.b. limit is hardly acceptable in these times and will not in any way benefit exporters.

Pointing out that the principal notification with regard to the 16 services that come under the purview of service tax refund was issued on October 6, 2007, Mr Shah observed that this notification had a further restrictive provision which states that the refund claim has to be filed on a quarterly basis, within 60 days from the end of the relevant quarter during which the said goods have been exported.

He said most exporters pay commission to their respective foreign agents only after realisation of export proceeds. The period allowed for export proceeds realisation by RBI is 180 days for exporters and 360 days for status holders. According to him, if exporters have to claim service tax refund within a period of 90 days as ordained by the October 7, 2007 Notification, it would further add to the fund squeeze that small and medium exporters were now facing, confronted by the rupee appreciation and sharp increase in raw material prices.

Mr Shah said he has already represented the above anomalies to the Finance Minister and Commerce Minister, requesting that the service tax refund limit on foreign commission agents be increased to 12.5 per cent of f.o.b. value from the allowed 2 per cent.