New costing norms for service tax, excise likely

The government proposes to come out with standard input and output norms for service tax and excise.

Official sources said such norms form the benchmark of costing, which helps in working out the price of inputs required for manufacturing or producing a certain quantity of output. This is important, since most business entities or companies claim refund or get Cenvat (central value added tax) credit for the value of inputs used in producing the output.

This benchmark for valuation or norm is currently available for the Customs and is applicable for importers and exporters, not for domestic manufacturers. Business entities get credit in the form of duty entitlements or drawback facility for the monetary value of inputs used in producing the goods for exports. This standard input and output norm is framed by the Director General of Foreign Trade (DGFT) for exporters and importers for various items.

At present, these norms are not available for either central excise or service tax. In its recommendations to the Union finance ministry, the Central Board of Excise and Customs (CBEC) has suggested standard input and output norms for service tax and excise. Official sources said since the norms for excise are part of the process of formulating a Goods and Services Tax, these might not be notified in the coming Budget. Hence, decision to frame such a standard was expected only for service tax in this Budget.

Since most provisions on indirect taxes become applicable with immediate effect, such norms, if announced, can have huge revenue implications. Not only for future claims, credits or refunds sought by businesses but also for the current financial year, ending March 31.

Currently, the service tax or excise departments pay refund claims or Cenvat credit or credit against service tax arbitrarily, and based on the subjective decision of the officer on a case-to-case basis. “Basically a manufacturer or producer has to be given any amount he asks for, since we do not have the benchmark,” said an official source.

In the Customs, for availing any duty benefit or claims, the department refers to the standard input and output norms specified by DGFT for a particular item and then decides on the amount. If the claim it seeks is above the amount specified in the norms, the department sticks to the norm and gives only the amount specified, explained an official.

Thus, they added, such norms would help in checking revenue slippage, in the form of credits and refunds against excise duty or service tax.

REALIGNING GUIDELINES

# The benchmark for valuation or norm is currently available for the Customs and is applicable for importers and exporters, not for domestic manufacturers

# Business entities get credit in the form of duty entitlements or drawback facility for the monetary value of inputs used in producing the goods for exports

# At present, the service tax or excise departments pay refund claims or Cenvat credit or credit against service tax arbitrarily, and based on the subjective decision of the officer on a case-to-case basis

# In its recommendations to the finance ministry, CBEC has suggested standard input and output norms for service tax and excise