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Tax refunds for exporters rarely come forth


TNC Rajagopalan  |  New Delhi 

The Central Board of Excise and Customs (CBEC) has asked the field formations to grant to certain categories of exporters refund of 80 per cent of service tax on services related to export of goods within 15 days of the application and balance within further 30 days.

While unveiling the Foreign Trade Policy 2004-09, the commerce minister had said that ‘neutralising incidence of all levies and duties on inputs used in export products, based on the fundamental principle that duties and levies should not be exported’ is an essential strategy for export growth. However, it was in March, 2006, that the finance ministry laid down a procedure to claim refund of unutilised Cenvat Credit on account of exports that included tax on input services. In April 2006, the CBEC asked 80 per cent of Cenvat Credit refund to be sanctioned to select categories of exporters within 15 days.

In July 2006, the finance ministry decided to take into account in the All Industry Rates of Duty Drawback, the incidence of service tax paid on taxable services which are used as input services in the manufacturing or processing of export goods. For this purpose, the Customs and Central Excise Duties Drawback Rules, 1995 were suitably amended in July, 2006.

The demand of the exporters to exempt the service tax on services used for export of goods was partially met in October 2007 (Notification no. 41/2007-ST dated 6.10.2007). The exemption, that initially covered 7 services, operated by way of refund of services and prescribed the form, documentation, procedures and conditions for claiming the refund. In due course, more services were covered under the notification, the latest (S.No. 19 added on December 7, 2008) being the services rendered by Customs House Agents. For allowing refund of tax on services rendered by commission agents abroad, the commission limit was also raised from 2 per cent of the Free On Board (FOB) value of exports to 10 per cent.

However, the exporters were finding it difficult to get the refund. So, the CBEC issued clarifications on May 12, 2008, resolving the procedural difficulties that were being faced by the merchant exporters and exporters having multi location offices. The notification was also amended granting more time to file refund claim and on December 11, 2008 (Circular no. 106/09/2008), the CBEC clarified the procedures for units not registered with Central Excise and the documents required to show payment of service tax.

Responding to difficulties expressed at the ground level, the CBEC has now directed that 80 per cent of the refund claim must be granted within 15 days to all exporters having export turnover of more than Rs 5 crore in the current or preceding financial year, public sector undertakings, recognised export/trading houses, manufacturer-exporters registered with Central Excise exporting since two years with minimum exports of Rs 1 crore in the previous year and exporters registered under service tax or central excise laws, who have paid central excise duty and/or service tax amounting to Rs 1 crore or more during the preceding financial year and all Export Oriented Units.

Ideally, the CBEC instructions should cheer the trade but no matter what the instructions, the refunds rarely come forth. The time limits operate from the date of filing complete application. The field formations seldom accept an application as complete. CBEC should rather let exporters not pay tax than pay tax and claim refund.

First Published: Mon, December 22 2008. 00:00 IST