Between You & Me: Excise Department Refuses To Make Payments, Saying It Is The Service Tax Dept That Had Collected The Taxes

While the finance ministry has allowed exporters to get refunds for taxes paid on 16 services over the past 10 months, the lack of clarity on which department would give the reimbursements has prevented the process from taking off. Not a single exporter has been able to claim refund till date. The problem, apparently, is that while the reimbursal notification identifies the excise department for making the payments, excise is in no mood to oblige as it is the service tax department which is collecting the taxes. The service tax department, on the other hand, cannot make the payments as the official notification does not say so.

The commerce department has taken up the issue with the finance ministry and hopes it would be resolved soon. We are sure that the issue will be sorted out soon, an official said.

According to Delhi Exporters Association president S P Agarwal, his association has spoken to both CBEC chairman P C Jha and commerce secretary G K Pillai on the issue. We certainly hope a correction is made in the notification without delay as we cannot claim any refund till it then, he said. The government collects 12% tax on services.

Another change which the commerce department has sought is removal of a clause inserted in the notification for refund of tax on services rendered by foreign agents. The clause puts a limit on the amount which exporters can claim as refund. The notification says that the refund would be based on either the actual amount of service tax paid or 2% of the service tax on f.o.b., whichever is lesser.

Since, exporters of products such as textiles and pharmaceuticals pay about 10%- 15% commission to foreign agents, a 12.5% service tax charged on the commission works out to be around 1.8% of the value of exports. On the other hand, 2% of the service tax on f.o.b, amounts to only 0.25% of the value of exports.

Senior officials in the commerce department said that finmin has agreed to refund full service tax on commission to foreign agents once exporters submit the relevant documents and numbers. We have asked export promotion councils to submit the data. The problem, hopefully, would be taken care of, the official said.

The 16 services on which exporters are to be given refunds include port services, transport of goods by road and railways, general insurance, technical testing & analysis, storage & warehousing, business exhibition services and specialised cleaning services. There are about a dozen more services which the commerce department wants to be included in the exemption list.