Board takes a serious note of delay in processing refund claims of exporters of goods and services – Adopts Legislative route to provide relief – Circular blushes into a notification
HOW did Jesus convert water into wine? Alexander Pope said, “water saw its master and blushed into wine”. Even such a miracle cannot solve problems in Service Tax. What no Central Excise Officer can tolerate, in this otherwise perfect world, is REFUNDS. Whatever the Board says, the field is not prepared to give refunds.
Board had received innumerable representations that refund of accumulated CENVAT credit to the exporters of services and other service providers like call centres and BPOs were getting delayed and most of them are ultimately getting rejected in the field formations for the following reasons:
(i) On account of difference in perception/interpretation between the department and the export of services as to whether their actives fall under the purview of ‘export of service at all';
(ii) Difference in wordings used in Notification No. 5/2006-CE (NT) dated March 14, 2006, issued under Rule 5 of CENVAT Credit Rules, 2004 as regards the definitions of terms such as ‘inputs'/ ‘input services'
(iii) The procedural requirements prescribed under the notification and illustrations given therein were causing difficulties both in terms of delays and filing of incorrect/incomplete refund forms.
After discussions with the departmental officers and the trade, as an immediate solution, Circular No. 120/01/2010-ST dated 19th January, 2010 was issued for expediting refunds.
For a faster and fair settlement of refund claims, the Ministry/CBEC has effected certain changes in Notification No. 5/2006-CE (NT), both retrospectively and prospectively, so as to strengthen the legal backing to the said Circular. Certain changes are made retrospectively so that pending cases are also covered, while some changes are made prospectively to aim at assisting the Departmental officers in faster processing of refund claims.
The retrospective amendments are contained in clause 73 of the Finance Bill, 2010 while the prospective changes are contained in Notification No.7/2010-CE (NT) dated February 27, 2010.
The salient features of these changes are as follows:-
Retrospective changes effected from 14.03.2006:
1) The words “in relation to” have been added in main condition (a) of the Notification.
So the amended condition (a) will read as follows:
(a) input or input service used in or in relation to the manufacture of final product which is cleared for export under bond or letter of undertaking;
2) The word “in' contained in main condition (b) of the said Notification has been replaced with “for”.
The amended condition (b) will read as follows:
(b) input or input service used for providing output service which has been exported without payment of service tax, subject to safeguards, conditions and limitations, set out in the Appendix to this notification.
The above changes are proposed to be made to ensure that the provisions of the said refund Notification and the CENVAT Credit Rules, 2004 are aligned so that refund is granted on all goods or services on which CENVAT can be claimed by the exporter of goods or services.
Further, the illustration given in condition 5 of the Appendix to the Notification has been deleted. This deletion would ensure that the refund of CENVAT Credit which has been availed in the period prior to the quarter/ period for which the refund has been claimed is also eligible for refund. The refund claims should be calculated only on the basis of the ratio of export turnover to the total turnover of the claimant.
Thus, if the CENVAT Credit available to the exporter at the end of the quarter, or month, as the case may be, is Rs. 1 crore, and the ratio of export turnover to the total turnover during the quarter is 50%, then Rs. 50 lakh should be refunded to the exporter.
The essence of the above retrospective changes is that refund shall be available for all goods, or input services, on which CENVAT Credit is permissible and should be processed accordingly. Further, refund of CENVAT Credit should not be linked to CENVAT Credit taken in a particular period only.
Prospective changes:
The conditions A and B given in the Form A annexed to the Notification are deleted, and the details required for quantifying the CENVAT Credit eligible for refund are to be furnished by the claimant in a table which has been prescribed in clause DD of Form A annexed to the Notification.
The contents of the table should be certified by a person authorized by the Board of Directors (in the case of a limited company) or the proprietor/partner (in case of firms/partnerships) if the amount of refund claimed is less than Rs.5 lakh in a quarter. In case the refund claim is in excess of Rs.5 lakh, the declaration should also be certified by the Chartered Accountant who audits the annual accounts of the exporter for the purposes of Companies Act, 1956 (1 of 1956) or the Income Tax Act, 1961 (43 of 1961), as the case may be. This verification is aimed at reducing the checking of voluminous records which is required to be done by the officers processing the refund claims and ensure faster processing of refund claims.
Also, the words ‘in relation to' and ‘for' are introduced in the Annexure to the Notification to align it with the amendments made in the main conditions of the Notification.
Board's noble intentions are truly commendable. However, it remains to be seen if the field formations will show any respect to these amendments and the legislative intent behind these amendments and process and sanction the refund claims within a stipulated time frame, preferably within one month of these changes becoming law (i.e. one month from the date of enactment of Finance Bill, 2010).
Ironically, Rule 5 of the CENVAT Credit Rules, 2004 reads as follows:
Where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,
(i) duty of excise on any final product cleared for home consumption or for export on payment of duty; or
(ii) service tax on output service,
and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification
And in its wisdom, the Board has somehow felt that it would be sufficient if legal backing is given to the Circular by a retrospective amendment to a Notification issued under the Rule but not the Rule itself. Let us hope that the Rule also gets a proper alignment to the Notification and the Annexure to the said Notification.
D.O.F. No.334/1/2010-TRU Dated 26th February 2010 (Paragraph 8 read with Annexure C thereof)