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New service tax refund system soon for software exports: CBEC
May, 21st 2012

The Central Board of Excise and Custom (CBEC) is set to issue a new methodology to ease refund of service tax for software exports.

Meanwhile, the Board is also readying the introduction of a negative list for service tax from July 1, 2012.

The Chairman, CBEC, Mr. S.K. Goel, told Business Line, The new mechanism will give the method for calculation.

Since software sales are happening in domestic as well as international markets, proportionate value (domestic sales and export sales) will be determined for inputs. On the basis of this, we will facilitate refunds of service tax.

According to industry estimates, service tax accounts for almost three per cent of total costs for software.

This is considered to be high considering competitiveness in the international market.

Industry says that since refund is getting delayed, it is better to provide a simplified mechanism similar to Cenvat, whereby, exemption will be provided to exporters in the proportion of their exports to total sales.

Meanwhile, the Finance Ministry still feels simplifying refund is a better idea.

With this intention, the Department of Revenue explained in a post budget Demi Official (D.O.) letter that, A simplified scheme for refund is being introduced substituting the entire rule 5 of CCR 2004.

The new scheme does not require the kind of correlation that is needed at present between exports and input services used in such export.

Duties or taxes paid on any goods or services that qualify as input or input services will be entitled to be refunded in the ratio of export turnover to total turnover.


Meanwhile, with the Finance Bill passed in both Houses of the Parliament and awaiting the Presidential assent, the Indirect Tax Department is giving final shape to the procedures. The negative list of services clearly says that any service not mentioned in such a list or in the list of exemption will be taxable.

Mr Goel claimed that the Centre has taken the States' concerns in the mind while preparing the final list.

For example, the definition of work contract has been expanded to include repair, maintenance, renovation or alteration of any movable or immovable property.

Similarly, entry to entertainment events and access to amusement facility would not attract service tax.

This clearly means that any one will not have to pay service tax, if he is buying a cinema ticket. This was one of the apprehensions of the states.

Mr Goel also explained that any one collecting service tax more than as prescribed under rate of abatements will face problem once his turnover is assessed.

For example a restaurant can charge service tax only on the 40 per cent of the bill amount.

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