Export of Services - Refund of Credit - Streamlining process - Board issues Draft Circular
REPRESENTATIONS have been received both from the field and the trade regarding difficulties being faced in the determination of the input services, which are eligible for refund under Notification No. 05/2006. Resultantly, the issue has spawned delays and disputes, which has necessitated the issue of this clarification.
Board admits its ambiguity: The issue of eligibility of input services to refund under Notification No. 05/2006 has been addressed in Circular No. 120/01/2010-ST dated 19th January 2010 in paragraph 3.1. The criterion laid down in this paragraph for determining the eligibility states that “ in case the absence of such input/input service adversely impacts the quality and efficiency of the provision of service exported, it should be considered as eligible input or input service ”. This criterion has not been very useful as it is found to be too conceptual and not easily translatable into objective tests that could help in deciding actual cases. Thus, a need has been felt for further elaboration by the Board on this issue.
No export of taxes: Board loftily states, "the goods and services that are exported from the country should not be burdened with any excise or service taxation".
Principles to determine eligibility for refund: Board has summarised the method to be followed for determining eligibility to refund as:
++ Check that the service on which refund is claimed satisfies the definition of input service that is given in Rule 2 (l) of the CENVAT Credit Rules, 2004.
++ Next, service is eligible to refund unless facts of the case indicate that the benefit of the service has gone exclusively into domestic business with no spill over what-so-ever into export business.
++ The second principle mentioned at sub-para (2) above is to be given a strict construction. Disqualification on this account would be an exception rather than a rule and should be done only when there is unmistakable indication that the benefit of the service has not gone into export business what-so-ever.
++ The level at which a determination shall be made of whether the input service has gone exclusively into domestic business or not shall be at the level of the “input service invoice". The officer scrutinizing the claim will not disaggregate the invoice and extract elements from it and state that these elements have exclusively contributed to domestic business. If at the level of aggregation that is reflected in an invoice, a portion of the input service that is embodied in the invoice has contributed to exports, then the entire input service invoice shall be eligible for refund.
Keeping the above principles and statutory provisions in mind, as also after considering the feedback from the field formations on eligibility of input services, a list of input services that are eligible for grant of refund has been prepared. The list contains 68 services. The shoddy manner in which the Board drafted this circular is reflected in the fact that Sl. No. 27 in the list has no conditions or eligibility - it is just left blank!
The circular appears to have taken into account the amendments to the definition of input service in Budget 2011. But most of the refund claims stuck with the Department pertain to the earlier period. (Construction, rent a cab, works contract etc denied in tune with the amended definitions)
Suggestions can be sent to Board by 30.11.2011 at d.aron@nic.in