Partiality in amending Notifications – Notification 12/2005 ST leaves gap

By Vijay Kumar

When you allow rebate of Secondary and Higher Education Cess paid on input services used for export of services, don't you allow the SHE cess paid on inputs used? Logically, yes. But incomplete amendment to Notification No. 12/2005-ST has resulted in denying the refund of SHE cess on inputs used for providing the taxable services exported.

Notification 12/2005-ST dated 19.4.2005 prescribes the procedures for grant of rebate of duty/service tax paid on the inputs/input services used for export of services. As per the explanations 1 and 2 to this notification,

Explanation 1.- “service tax and cess” for the purposes of this notification means,-

(a) service tax leviable under section 66 of the Finance Act, 1994; and

(b) education cess on taxable service levied under section 91 read with section 95 of the Finance (No. 2) Act, 2004 (23 of 2004).

Explanation 2.- “duty” for the purposes of this notification means, duties of excise leviable under the following enactments, namely :-

(a) the Central Excise Act, 1944 (1 of 1944);

(b) the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957);

(c) the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978);

(d) National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), as amended by section 169 of the Finance Act, 2003 (32 of 2003), section 3 of the Finance Act, 2004 (13 of 2004) and further amended by clause 123 of the Finance Bill, 2005, which clause has the force of law by virtue of the declaration made under the Provisional Collection of Taxes Act, 1931 (16 of 1931);

(e) special excise duty collected under a Finance Act;

(f) additional duty of excise as levied under section 157 of the Finance Act, 2003 (32 of 2003);

(g) Education Cess on excisable goods as levied under section 91 read with section 93 of the Finance (No. 2) Act, 2004 (23 of 2004); and

(h) the additional duty of excise leviable under clause 85 of the Finance Bill, 2005, which has the force of law by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931 (16 of 1931).

With the levy of SHE Cess on goods and Services vide Finance Act 2007, this notification has been amended vide Notification No 22/2007 ST dated 12.5.2007 and the following has been added after (a) and (b) to the explanation 1:

“(c) Secondary and Higher Education Cess on taxable services levied under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007).”

But they forgot to make the same amendment to Explanation 2 and as a result, the SHE cess paid on the inputs is not covered under the duty and the same is being denied while granting rebate.

But, why did this happen in the first place? If we examine, it leads to an interesting discovery. Actually there are two Notifications 11/2005 ST which grants rebate of service tax paid on the services exported and 12/2005 ST which grants rebate of duty/service tax paid on the input/input services used in export of services. After the levy of SHE Cess, both these notifications have been amended in a similar manner by adding SHE Cess on services in explanation relating to service tax vide Notifications 21/2007 ST and 22/2007 ST respectively, both dated 12.5.2007 and in this copy paste confusion, no one must have bothered to see explanation 2 in Notification 12/2005 which also required an amendment to include SHE Cess on goods.

Maybe the Board can do it now, to avoid litigation.