JULY 04, 2009

Export of goods - Refund of Taxable services

By V S Mahapadi

VIDE notification no.41/2007–S.T. dated 6.10.2007, the Central government has allowed exemption by way of refund to the various taxable services used in connection with the export of goods by the manufacturer/merchant exporters.

The exemption under this notification is allowed by way of refund of service tax paid on the said services. The exporter is required to file a quarterly refund claim along with necessary documents within six months from the end of quarter with the jurisdictional Assistant Commissioner of Central Excise. The provisions of Rule 5 of the Cenvat Credit Rules, 2004 regarding refund of input service credit as well as Section 11B of the Central Excise Act, 1944 are not made applicable for the obvious reason that the said services are not treated as input service inasmuch as these services are utilized subsequent to clearance of the goods from the ‘place of removal' and which do not fall within the ambit of the definition of ‘input service' appearing in rule 2(l) of the Cenvat Credit Rules, 2004.

In terms of paragraph 8.2 of the Board Circular no.97/8/2007–ST dt. 23.08.2007, Cenvat credit of service tax paid on the goods transport service used for transport of goods from place of removal up to the place at destination (such as port) is available if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition as under Section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place.

Incidentally, the said Circular was issued when the definition of “input service” as given under Rule 2(l) of the Cenvat Credit Rules, 2004 included the taxable services availed “from the place of removal” whereas as per definition in vogue [w.e.f 01.04.2008, notification 10/2008-CE(N.T) refers] the cenvat credit of input services up to the place of removal is only admissible.

The said Circular is still in force and it would be advisable to amend the same accordingly.

However, it is felt that since the underlying idea is to make exports tax free, it would be prudent to treat the aforesaid ‘services' as “Input Services” as far as export of goods is concerned. Once, the same are treated as ‘Input Services” then the provisions of Rule 5 of the Cenvat Credit Rules, 2004 regarding refund of input service credit as well as Section 11B of the Central Excise Act, 1944 would become applicable. Alternatively, a provision parallel to the provisions of Rule 18 of the Central Excise Rules, 2002 regarding grant of rebate of service tax paid on such taxable services used in the manufacture or clearance of such goods may be introduced in the service tax law with suitable conditions to either enable the manufacturer exporter to have quick relief by way of cenvat credit of the same or by way of cash refund of such input services.