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'Service tax exemptions to be cut to 10 categories from July'
June, 12th 2012

We want to know if the notifications exempting certain services from service tax will hold good even after the passage of the Budget through Parliament and the coming into force of the new service tax regime based on a negative list. 

With the passage of the Finance Bill through Parliament and ascent of the President, the Finance Act, 2012 has been enacted on 28th May 2012. The said Act says that certain sections will come into effect on a date to be notified by the Central Government. Accordingly, the Government has issued notifications bringing various sections into force on various dates. Most of the major changes relating to service tax (especially, taxation of all services, other than those covered under a negative list) will come into force from 1st July 2012. Most of the 88 exemptions in effect at present will continue till 30th June 2012 but by 1st July 2012 will be either rescinded, being no more needed, or modified in some manner, or merged in a mega notification, leaving the final tally of exemptions to just 10.

We refer to Para 8.4 of the Foreign Trade Policy (according to revised edition of 5th June 2012). It shows the benefits available to different categories of supplies as mentioned in Para 8.2 of FTP. There is no mention about supplies for modernisation/renovation of power plants or for expansion of power plants. We have already contracted for such supplies on the basis of existing Policy. If the benefits are denied now, we will be put to loss. Is there any way out?

Your position is similar to that of many suppliers to non-mega power projects, whose deemed export benefits were also abruptly withdrawn. You may represent to the Director General of Foreign Trade through the Ministry for Power to extend deemed export benefits for supplies that are effected in accordance with contracts that were finalised before the change in the Policy. You may also approach your customers (that is, the main contractors or project owners) and try to re-negotiate the contracts.

According to the re-written Para 8.4.4 of the FTP, refund of Terminal Excise Duty (TED) will be available only for supplies against Advance Release Order (ARO) or Back to Back Letter of Credit. Does it mean that supplies against invalidation letter will not be eligible for TED refund?
The DGFT Policy Circular no. 09/2009 dated 1.10.2009 considers precisely the same query and says that that the purpose of Invalidation letter/ARO is to facilitate duty neutralisation or inputs procured from the domestic market, in lieu of duty free imports allowed under the authorisation. Accordingly, it is clarified that against invalidation letter, the supplier can avail Advance Authorisation for Intermediate supplies and TED refund (wherever Excise exemption is not available against such supplies). You may claim TED refund on the basis of the above circular. The DGFT should, however, amend the FTP giving effect to the above circular or withdraw that circular and end unnecessary confusion.

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