Relevance of relevant date for refund under Rule 5 for export of services
IN terms of Rule 5 of the CENVAT Credit Rules, 2004 if any input or input service is used in the manufacture of final product and cleared for export or used in providing output service which is exported, the manufacturer/service provider shall utilize the CENVAT credit in r/o the inputs or input services so used for payment of excise duty on any final products cleared for home consumption or for export or service tax on output service as the case may be.
In case if such utilization (adjustment as per the Rule) is not possible the manufacturer or service provider shall be allowed refund of such unutilized CENVAT credit if any lying in the books subject to the conditions/safeguards prescribed in terms of Notification No. 5/2006 CE (NT) dated March 14, 2006 as amended. One of the essential conditions prescribed is the applicability of time limit as per s. 11B of the Central Excise Act, 1944 for filing of such refund claims. The relevant date for the purpose of reckoning the time limit of one year is defined in terms of clause B to Explanation under s. 11B of the Act.
According to this clause the ‘Relevant date' means
(a) In the case of goods exported out of India where a refund of excise duty paid is available in respect of the goods themselves or, as the case may be, the excisable materials used in the manufacture of such goods,-
(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or
(ii) if the goods are exported by land, the date on which such goods pass the frontier, or
(iii) if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India …………
This definition of ‘Relevant date' under s. 11B does not mention anything with regard to export of services. So, in the absence of a specific definition what could be regarded as the ‘relevant date'?
Is it the date of rendering the service or the date of invoice or the date of realization of export proceeds or the date of receipt of advance (which is also deemed as taxable - but exempted by virtue of it being export) that could be regarded as the ‘relevant date'?
As it is, the refund claims under Rule 5 are hard to come by for the service providers in spite of the repeated clarifications and directions issued by the CBEC for speedy sanction/disposal of refund claims. But in the absence of any clarity in the provisions with regard to relevant date for export of services the assessees are hard put to satisfy the authorities on this aspect.
It is learnt that nearly six hundred Crores of rupees of refund under Rule 5 on export services is pending and the responsive Board has asked daily reports from the field on refund status. Instead of merely asking for the reports, the Board could try process a sample claim to learn the complexities involved and iron out the creases and come up with a specific clarification in this regard to dispel any doubts in the minds of the refund sanctioning authorities, in the interim and bring in suitable amendments to s. 11B at the appropriate time (next budget).
It appears till today, there is no clarity on the above issue. Adding to the confusion, in 2011, Point of Taxation Rules, 2011 were notified, prescribing that the point of taxation in respect of export of services is the date of receipt of payment.
Now, there are three possible dates for processing refund claim filed under Rule 5 by a service exporter:
1. Date of receipt of payment
2. Date of invoice
3. Date of rendering the service
Recently, the Commissioner (Appeals), Pune III had to decide this ticklish issue. The appellant had received advance for exporting the service and export took place later. Department rejected part of the claim on the ground that it was filed beyond one year from the date of receipt of advance, which is a point of taxation as per Rule 7 of POT Rules, 2011.
The Commissioner (Appeals) allowed the appeal of the exporter by holding that:
On Sec 11 B:
Even though there is no clause given under Explanation (B) under Section 11B which categorically defines `relevant date' for the purpose of claiming refund of accumulated CENVAT credit, however clause (a) as quoted above, is most akin. I am therefore inclined to accept the same as applicable in the present case, in view of the fact that the present refund of accumulated CENVAT credit has arisen only on account of exports.
On Rule 7 of POT Rules, 2011:
I find that the above Rule defines the Point of Taxation in respect of export of services as the date on which payment is received. However I have also noticed that this Rule is not applicable wherein payment is not received within the period specified by the RBI. Further, the present case is of refund of input service CENVAT credit accumulated on account of exports and the said Rule 7 of Point of Taxation Rules does not refer to either Section 11B of the Act or Rule 5 of CENVAT Credit Rules/Notification No. 05/2006-CE(NT) under which the present refund claim of accumulated CENVAT credit has been filed. Further, Point of Taxation Rules, 2011 were made in exercise of powers conferred under clause (a) and clause (hhh) of sub-section (2) of Section 94 of the Act. The said clauses do not deal with export of services and hence POT Rules, 2011 are not made under clauses, which deal with export of services.
Provisions of Rule 7 of Point of Taxation Rules, 2011 have been amended vide Notification No.4/2012-ST dated 17.03.2012 and the reference to the date on which payment is received for export of service has been deleted from the said Rule. Thus, the confusion on account of Rule 7 of Point of Taxation Rules, 2011 (which came into effect on 01.04.2011) about the date of export of services with respect to refund of accumulated CENVAT credit was neither there prior to 01.04.2011 nor it is there after 01.04.2012 (when Rule 7 of PoT Rules was amended). Thus the application of Rule 7 of Point of Taxation Rules in respect of refund of accumulated CENVAT credit with respect to time bar aspect is not correct.
Conclusion:
The question of refund of accumulated CENVAT credit will arise only when export of services is completed by way of issuance of invoice as well as receipt of export proceeds. Unless services are provided for export & invoice is issued, it cannot be said that the service provider has accumulated CENVAT credit& for the same reason refund under Notification No. 05/2006 CE(N.T.) can be given only when both the conditions are fulfilled.
Thus for filing of the Application in Form `A' under Notification No. 5/2006CE(NT) before the expiry of the period of one year specified under Section 11B of the Act, the time limit has to take into account with respect to the completion of both - receipt of export proceeds (payment) as well as issuance of invoice. In the present case, the invoices were issued during the period July to September 2011 and refund application was filed on 27.07.2012. Thus I hold that the same was within the period of one year specified in Section 11B of the Act.
Even the above conclusion does not solve the problem completely. What if the claim is within one year if we take the date of receipt of payment and is beyond one year if we take the date of issue of invoice? Whether refund is admissible or not? To put an end to such disputes, why can't the Board issue a clarification on this important issue?