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Providers of services to clients abroad must pay service tax
August, 06th 2013

Can a manufacturer sell/remove some of his inputs "as such" after adding a margin, bypassing the pro-rata excise duties? Will the answer differ if the material is removed to a related party engaged in the same line of manufacture?

As per Rule 3(5) of the Cenvat Credit Rules, 2004, when inputs on which Cenvat Credit has been taken are removed as such from the factory, you must pay an amount equal to the Credit availed in respect of such inputs and such removal must be made under cover of a Central Excise invoice. But such payment is not necessary where any inputs are removed for providing free warranty for final products. The situation is the same when you remove the inputs "as such" to a related party.

We are a manufacturer-exporter having an export obligation against capital goods imported under the EPCG licence. When we took the EPCG licence, we mentioned HS code of 100 per cent cotton yarns as the export product, as we wanted to manufacture and export that product. However, after setting up the plant, we manufactured cotton-based blended yarn which has a different HS code using the same machines. So, we applied to DGFT and our licence was amended to include cotton-based blended yarns also, but DGFT had delayed the amendment. In the intervening period, the Customs allowed us to export cotton-based blended yarn only if we did not mention the EPCG licence number on the shipping bill. Can we now approach Customs/DGFT to consider such exports towards meeting the EPCG obligation?

You may approach the EPCG Committee at the DGFT headquarters with the facts of the case and suitable evidence. I am hopeful that the committee will consider your case favourably.

We have supplied certain goods to a World Bank-aided project on payment of excise duty. Are we eligible for getting back the excise duty from DGFT?

Supplies to World Bank-funded projects are eligible for deemed export benefits if the supply is against International Competitive Bidding (ICB). For all supplies against ICB, refund of terminal excise duty is not available [Para 8.3 (c) of FTP]. You may avail of excise duty exemption available at S.No.336 of notification 12/2012-CE dated 17.3.2013, or under notification 108/95-CE dated 28.8.1995.

We provide engineering services to a firm in the US. We asked an engineer based in the US to interact with our customer for certain analysis and to submit a report to the customer. Are we required to pay service tax on the payment that we make to the engineer, even though his service is provided in the US?

Reading Rule 2(f) and Rule 9(c) of Place of Provision of Services Rules, 2012, the engineer is an 'intermediary' who facilitates provision of a service (the 'main' service) by you (the service provider) to your customer (the service reliever) and in such cases, your location is the place of provision of services. The engineer provides service to you and so, you have to discharge your service tax liability, under the reverse charge mechanism.

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