Change
in Service Tax Refund Scheme

Prepared
By:  

CA Pradeep Jain

And Sukhvinder Kaur, LLB[FYIC]

The scheme of refund of service tax paid on
specified services which were utilised for export of goods was given effect in
2007 vide Notification No. 41/2007-ST dated 06.10.2007. The exemption was
granted by way of refund. However, announcing the grant of exemption and actual
granting of refund of service tax paid proved to be two different scenarios.
The exporter claiming refund of service tax was not granted refund claim on
various issues. Like for Port services, the ground taken for rejecting the
refund was that the Authorisation from the Port Authorities was not obtained by
the service provider providing Port and other port services. The issue that a
particular service would fall under the Port services was also disputed. For
example the Terminal Handling Charges and Repo charges were alleged to be not
falling under the Port services.

The refund claim of services provided by
Customs House Agent services was being rejected on the various grounds. The
refund was not granted if exporters invoice no and date was not mentioned in
the service provider’s invoice.  That the
licence number of the CHA was not mentioned on the invoice of the CHA.

For fumigation (specialized cleaning
services) the refund claim was being denied on the ground that the exporter had
not produced a written agreement with the buyer for carrying out the cleaning
activity of export cargo.

Service tax paid on Insurance service
availed regarding export goods was being denied on the ground that the  document issued by the insurer for payment of
insurance premium was not specific to the export goods. These are only few of
the grounds for denying refund claim. These issues were not the conditions
which the claimant-exporter were not fulfilling intentionally. But these were
technical issues which were existing and could not be addressed.

Thereafter, to remove the anomalies
existing in Refund scheme contained in Notification No. 41/2007-ST, the Government
had introduced an improved scheme vide Notification No. 17/2009-ST dated
07.07.2009. The said Notification removed certain anomalies existing in
Notification No. 41/2007-ST but gave birth to new issues. We have written a
series of articles titled “Johnny and service tax refund- Part-I” to bring
about the problems faced by the exporters.

The refund claims under Notification No.
17/2009-ST were being denied on newer grounds. The use of the word that no
refund claim less than Rs. 500/- will be entertained was interpreted by the
Department to the effect that the each invoice/shipping bill was to be treated
as an individual refund claim instead of the entire refund claim filed for one
consignment/period.

Another issue was that the documents were
not certified in the manner provided in the Notification. It was being insisted
that the certification was to be done on the original invoice and if done
afterwards, was not accepted. The refund claim of service tax paid on CHA
services was being denied on the ground that the CHA licences numbers were not
present in the invoices or the CHA was not holding valid licences. The refund
of Terminal handling charges was denied saying that it is claimed under port
charges. Instead it should be claimed under that category only. But there was
no category like Terminal handling charges in the service tax. In nutshell the
refund was not provided to the exporters. We once again continued with article
series “Johnny and service tax refund- Part-II” to highlight the problems of
exporters. Further, it was demanded through series of representation from all
associations that the straight forward exemption should be granted in place of
exemption by way of refund.

Now, in the Budget 2011-12, the Finance
Minister has proposed to introduce a scheme for the refund of service tax paid
on specified services used in export of goods on the lines of drawback of
duties in a far more simplified and expeditious manner. This has been proposed
to reduce the considerable difficulties in the sanction of refunds.

This may reduce the difficulties faced by
the exporter in claiming refund. The technical issues may be redressed and
fewer conditions would be required to be fulfilled. Thus, this is a welcome
step on behalf of the Government which will help the exporters.

The Government has not agreed to demands of
exporters of straight forward refund but has allowed the refund only. But it
should be formulated in such a way that the exporters get the refund and it is
not stuck up again as in old schemes. Hope for the best.

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