Yet another clarification on Refund of CENVAT Credit – Board falls prey to nexus theory of field formations
IT is easier for a camel to pass through the eye of a needle than for an assessee to get refund from a revenue officer. In spite of repeated instructions and measures taken to dispose of the refund claims of service exporters (like sanctioning of refund of 80% of the refund claim within 15 days of filing the claim (Circular No. 828/5/2006-CX., dated 20-4-2006), obviously the directions did not yield the desired results and the refund claims of the service exporters are hard hit. So, a number of meetings were conducted by the Board to sort out the issues. During these meetings, many issues were raised by the officers, which are now clarified by the Board. The issues in brief are as under:
1. The major cause for rejecting the refund claims is, as per the wordings of the Notification 5/2006 CE(NT) dated 14.3.2006, refund is permitted of duties and taxes paid only on such inputs or input services USED in the manufacture of export goods or USED in providing the output services exported. However, the CENVAT Credit Rules allowed the credit on input services used “whether directly or indirectly, in or in relation to the manufacture of final product or for providing the output service”. So the field formations are taking a view that for refund, the inputs/ input services should have a close / direct nexus with the goods / services exported.
Board has now clarified that the phrases used in the CENVAT Credit rules and the Notification of refund should be construed in a harmonious manner and there cannot be different yardsticks for establishing nexus for taking credit and claiming refund of credit already taken.
Had the clarification stopped here, it would have been very nice. But the Board went a step ahead (or backward is more appropriate!) and clarified that:
The following test can be used to see whether sufficient nexus exists. In case the absence of such input/input service adversely impacts the quality and efficiency of provision of service exported, it should be considered as eligible input or input service. (e.g. in case of BPO or Call Centres, the eligible input services are renting of premises, right to use the software, rent-a-cab etc. However, the services like company sponsored dinners, picnics, mandap keepers, are only recreational and prima facie do not impact the efficiency unless adequate justification is shown.
The issue here is not whether a particular service is input service or not, but whether the CENVAT Credit to be refunded should necessarily pertain to the services exported. For e.g., I am a service provider with two output services, one service, say, A is rendered to the domestic clients on payment of service tax. The other service B is exported. I have a common CENVAT account and use the input service credit for payment of service tax and also claim refund. Now, the refund claim may also include the input services of service A which is rendered to the domestic clients, but the notification allows only the credit of input services used for export of services. Where is the one to one requirement for refund under Rule 5? Why should the Notification restrict the refund only to the input services used for export of services? Instead of clarifying this important aspect, Board went on to define what input service is and what is not for the output service exported. Even here also, in respect of services which the Board itself feels are recreational, the Board says prima facie do not impact the efficiency hence, they may not be input services. If recreation does not improve the efficiency, then what else can?
2. The officers expressed difficulty in scrutinizing voluminous documents such as input service invoices, export invoices, bank certificates etc, submitted with the claims.
It has been clarified that the self certification model introduced in Budget 2009 in respect of Notification 41/2007 ST has yielded goods results. So, similar procedure has been prescribed for the refunds under Notn 5/2006 CE(NT) also. As per this, the exporter has to file a declaration in the prescribed proforma, to be certified by a Chartered Accountant in case of claims of more than 5 lakhs. Based on this declaration and AFTER VERIFICATION OF THE FACT THAT THE INPUT CREDIT HAS BEEN CORRECTLY CLAIMED, the Assistant or Deputy Commissioner may sanction the refund.
In what way the declaration certified by the CA will help in faster disposal of the claims when the refund will be given only AFTER VERIFICATION of the credit by the AC/DC even after the declaration certified by CA? Why can't it be post sanction verification with an undertaking to pay back the refund sanctioned if any irregularities in credit are noticed later, which the service exporters would happily give?
3. Though the Notification prescribes that the refund claims should be filed on quarterly basis, it is not clear whether the refund is eligible only of that credit which is accumulated during the said quarter or the accumulated credit of the past period can also be refunded.
The Board clarifies with an illustration. If one crore is taken as credit in April to June quarter, but if there are no exports during this quarter, no refund is claimed. But in the next quarter( July to Sept), if the export turnover is Rs 50 lakhs and domestic clearance is Rs 25 lakhs, the exporter is entitled for refund of 66 lakhs.
Unfortunately, as per the illustration given in the Notification 5/2006, the refund claim is not the ACCUMULATED credit as clarified by the Board, but the refund of CREDIT TAKEN DURING THE QUARTER. The illustration given in the Notification says “Maximum refund = Total CENVAT credit taken on input services during the given period x export turnover ÷ Total turnover”
Board wants the field formations to view the illustration in the Notification in the light of the new illustration given in the circular. How can this be possible? Now the denominator, i.e total turnover in the above equation should be only for the quarter July to September or should it also include Apr-June quarter also in the example given by the Board? If the intention is to refund the ACCUMULATED credit as mentioned in the clarification, why can't simply refund the closing balance of the credit at the end of the quarter without any hassles?
4. It was pointed out that the invoices submitted with the claim are not complete in all respects as the description of the service or the classification is not mentioned.
It has been clarified that a liberal view should be taken in view of various judicial pronouncements. Refund should be allowed if the nature of service received can be ascertained, tax paid is mentioned, details required under Rule 4(a) are mentioned and IF THE INPUT SERVICE HAS NEXUS WITH THE SERVICE/GOODS EXPORTED.
What the officers did not tell the Board in the meeting:
Centralised registration is allowed under Service Tax. A call centre having branches at Noida, Bangalore, Chennai and Vizag files refund claim of all the services availed in all the Branches running into a few crores in Hyderabad, where the unit has centralised registration. Now what about the revenue target of Hyderabad? There are some shrewd officers who argue that the Centralised registration is only for payment of service tax, but for claiming refunds, the exporters have to file in the respective Commissionerates.
And why nobody raised another important question? As per Notification 5/2006, the refund claim has to be filed before the expiry of period specified under Section 11 B. But section 11 B does not define the relevant date for export of service. ( please also see “ Relevance of relevant date” in 24.03.2009 )
If the whole idea is to somehow reject the claims, why can't the Board simply say so and issue a secret letter (which we will carry) to the staff to reject all refund claims?
CBEC CIRCULAR NO 120/01/2010-ST., Dated: January 19, 2010