The commerce ministry on Tuesday said the 12.36% service tax exemption on exports in the annual supplement to the Foreign Trade Policy (FTP) announced last week had the consent of Prime Minister Manmohan Singh.

The commerce ministry had denied the announcement was made unilaterally, as suggested by the finance ministry. No Foreign Trade Policy can be announced without the approval of the Prime Minister. The Prime Minister had approved the service tax waiver two days before the announcement, a commerce ministry official said. The issue was also discussed with the finance ministry several times, the official said, adding, since Parliament session was on, a copy of the policy was placed before the speaker before it was announced on April 19.
 
Asked whether his ministry was against the service tax exemption, finance minister P Chidambaram said, I do not want to comment on the issue.

After the announcement, sources said the finance and commerce ministries were likely to hold further talks before taking a final decision. The decision to provide service tax exemption to exports was made without taking into account the revenue implications.

Earlier, reported before the announcement of the FTP that the finance ministry was unwilling to give up over Rs650 crore of revenue it expects to earn from taxing exports. The commerce ministry has, however, ruled out any financial implications of exempting exports from service tax, referring to it as only a notional loss. There is no question of revenue losses from service tax exemption as it is not a payment but a refund procedure. All levies will be remitted to exporters, commerce and industry minister Kamal Nath had said. The commerce ministry has also sent a list of export-related services, including use of overseas agents for getting export orders, haulage charges incurred overseas, printing brochures for global exhibitions and availing warehousing facilities abroad to the finance ministry.