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Vision 2012 : Old wine, New bottle
04 January, 2012 Ahmedabad :
Vision 2012 : Old wine, New bottle

You have to learn the art of not giving something and still pretend to give a lot, from none other than the CBEC. A notification which runs more than a dozen pages, ends up giving nothing. Tax laws all over the world are based on two golden principles viz., the law should be just and compliance easy. In India both these principles are given a bye while formulating any law. The law makers feel that easier the compliance of any law the greater is the chances of default and vice-a-versa. The makers of law operate on the cardinal principle that if the law provides for return of any benefit to the general public, the quantum of benefit should be inversely proportional to the ease and speed at which such benefit can be availed. If a simplified procedure is proposed to be put in place which provides for a faster and easier manner in availing the benefit, the full quantum of the benefit need not be extended.

The need to provide for refund of service tax paid on input services to exporters was felt by the Central Government as late as in the year 2007. The scheme was first formulated vide Notification No. 41/2007-S.T., dated 06.10.2007. The said notification has seen many amendments and was finally superseded by Notification No. 17/2009-S.T., dated 07.07.2009. CBEC have also done their bit by clarifying on various related issues to ease the process of granting refund of Service Tax, but have not been able to root out all the causes of confusion. These circulars issued by CBEC have time and again emphasized that the Central Government is committed to help the exporters by providing easy and fast refund of Service tax paid on input services used in export of dutiable goods or taxable output services, but have cut a sorry figure by being silent spectators to the gross insubordination of its field formations by their failure to implement such clarifications in letter and spirit. The viewing of refund claims by the field formations in narrow compass has also resulted in multiplication of litigations and has also prompted the appellate formations to step in and provide welcome relief to the exporters.

Having realized that all schemes, procedures and clarifications meant to deliver easier and faster refunds to the exporters have come to naught, the Board by issue of Circular No. 149/18/2011 dated 16.12.2011 had recently come up with a simplified scheme for electronic refund of service tax to exporters on the lines of duty drawback. This scheme provided an option to exporters to avail electronic refund based on the ‘schedule of rates’ through ICES system from the Customs authorities or for routing refund from Central Excise/Service Tax formations on the basis of documents. It was clarified in the circular that the schedule of rates for availing electronic refund will be notified shortly.

Recently, Notification No. 52/2011-S.T., dated 30.12.2011, which was issued superseding the earlier Notification No. 17/2009-S.T., dated 07.07.2009 to provide the option of electronic refund or routine refund to the exporters, clarifies that in case of electronic refund based on schedule of rates, service tax paid on the specified services eligible as refund under this exemption shall be calculated by applying the rate specified for goods of a class or description, in the Schedule, as a percentage of the FOB value of the said goods. For this purpose the exporter needs to register his Central Excise Registration Number or Service Tax Code along with bank account number with the customs and the refund shall be credited directly to the bank account of the exporter. The refund is granted based on % of FOB value and it ranges from 0.03% of FOB value to 0.20% of FOB value, but no clarity is available how such percentages have been determined. In many cases the notification provides a very negligible % of FOB for calculation of the refund amount, that the exporters is left high and dry and have no option but to resort to the age old method of claiming refund before the Central Excise/Service Tax authorities based on his documents. As the thumb rule goes, the input services cost contribution in cases of exports vary between 5-10% of the CIF value. Thus by simple arithmetic, the service tax factor should be to the tune of 0.5 to 1.5 %, however the one offered by the government in the instant notification is peanuts when compared to the actual.

The notification provides for a second alternative of claiming refund from the Central Excise/Service Tax authorities. Under this process the exporter shall file a claim for refund of service tax paid on the specified service to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of manufacture. With the introduction of the schedule of rates, the exporters have to swallow the bitter truth that there is no respite for them in the new scheme. They have to either settle for a lesser refund against the Service Tax paid on input services used for export by opting for the electronic refund route or go through the tedious procedure of manual refund and get entangled in rejections and litigations. It seems the Central Government lacks benevolence when extending support to their foreign exchange earners. This schedule of rates is nothing but a show of lack of will power of the Central Government to match their intentions with actions and seems to convey the message that they want to be on the winning side in either situations. This is nothing but old wine in new bottle, since the exporters, from their experience in the past, are aware of the perils associated with never ending procedure.

Courtesy: From the desk of Monish Bhalla, Founder, www.servicetaxonline.com
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