TIOL-DDT 1309 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p align="justify"><font size="3"><strong><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 1309 </font></strong><font face="Verdana, Arial, Helvetica, sans-serif"><strong></strong></font></font><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif"><strong><br> 02.03.2010 <br> Tuesday </strong></font></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>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 </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>HOW</strong> 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. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(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'; </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(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' </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(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. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The salient features of these changes are as follows:- </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Retrospective changes effected from 14.03.2006: </strong></font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1) The words “in relation to” have been added in main condition (a) of the Notification. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So the amended condition (a) will read as follows: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(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; </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2) The word “in' contained in main condition (b) of the said Notification has been replaced with “for”. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The amended condition (b) will read as follows: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(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. </em></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Prospective changes: </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p> <blockquote> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>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). </strong></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Ironically, Rule 5 of the CENVAT Credit Rules, 2004 reads as follows: </strong></font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>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, </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(i) duty of excise on any final product cleared for home consumption or for export on payment of duty; or </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(ii) service tax on output service, </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>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 </em></font></p> </blockquote> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>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. </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/union_budget/ub2010-11/cen/dojstru1.pdf" target="_blank">D.O.F. No.334/1/2010-TRU Dated 26th February 2010</a> </strong>(Paragraph 8 read with Annexure C thereof) </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Did you Notice? </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WE </strong>suggested in <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=10263" target="_blank">DDT 1282 - 20.01.2010</a> </strong> ( after the refund circular) that: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 <font color="#FF6633"><strong>CREDIT TAKEN DURING THE QUARTER</strong></font>. 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” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board wants the field formations to <strong><font color="#FF6633">view</font> </strong>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? </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Now they removed these illustrations A and B...and the JS TRU letter says: </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The illustration given in condition 5 of the Appendix to the Notification has been deleted. This ensures that 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 the 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 to total turnover during the quarter is 50%, then Rs. 50 lakh should be refunded to the exporter. The essence of the changes is that refund shall be available for all goods, or input services, on which CENVAT is permissible and should be processed accordingly. Further, refund of CENVAT should not be linked to CENVAT taken in a particular period only. </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Is it <em>Import Services </em> or <em>Input Services </em>? in Amendment to Notification No. 5/2006-CE(NT) </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHILE</strong> the noble intentions with which the amendments were brought into Notification No. 5/2006-CE (NT) are widely welcomed by the Trade and Industry, it appears that t he amendment itself was made in haste. Take a look at this clause in the amending Notification 07/2010-CE (NT): </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(iii) the portion beginning with the brackets and letter “(A)” and ending with the brackets, letter and words “(b) Output Services-”, and portion beginning with the brackets and letter (B) and ending with the brackets, letter and words “(b) <strong><font color="#FF6633">Import Services</font> </strong>” shall be omitted; </em></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The only problem is however much you search in the notification, you will not find<font color="#FF6633"> <strong><em>Import Services </em></strong></font></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Actually, instead of "(b) Import Services", it should have been "(b) Input Services". Though this lapse is not significant and does not impact the outcome of the proposed amendments, nevertheless the amending notification requires another amendment to set the record straight. </font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2010/exnt10_07.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Notification No. 7/2010- CX . ( N.T. ), Dated: February 27, 2010 </strong></font></a></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Blot in Budget Notifications </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHILE</strong> amending the opening paragraph (amongst other contents) of Notification 21/2002-Cus by Notification No. 21/2010-Cus dated February 27, 2010, after clause (iaf), clause (iag) is inserted. This clause (iag) reads as follows: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“(iag) the goods specified against serial No. 345A of the said Table on or after the 1st day of April, 2013.” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, the said Notification already has a clause (iag) which was inserted vide an amending Notification No. 118/2009-Cus dated October 14, 2009 which reads as follows: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“(iag) the goods specified against S.No. 22AC of the said Table on or after the 1st day of October, 2010.” </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br> Now what happens to the first ( iag )? Or the second one? </font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2010/ctariff10_021.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Notification No. 21/2010-CUSTOMS, Dated : February 27, 2010 </strong></font></a></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Great Job Done! Congrats Revenue Bureaucrats</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHILE</strong> we found it so difficult to find out mistakes and criticise the budget provisions, it must be understood that for the hardworking selfless babus of North Block, it must have been a herculean task, keeping track of so many notifications and other provisions of laws and amending them suitably and unlike in the field, these officers are not assisted by an army of assistants or the best of infrastructure. It is really marvellous that we still have such dedicated officers who are not bothered about perks and privileges of office but are willing to carry mighty loads like Atlas. I shudder to think what would happen if these Atlases shrug. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In such a situation, it is but only natural that mistakes do creep in – we only hope that these giants have the strength to admit mistakes and correct them. </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com </a></font></p> </body> </html>