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  • Service Tax Refund For Exporters

    Just like income tax, where there are deductions and exemptions of any investment/expenditure from taxation and refund on the excess tax paid, service tax also consists of expenses that can either be claimed for rebate or refund. A refund is when you get a reimbursement from the government of the amount you spent as service tax on various products and services that were exported by you, and rebate is when you get a discount on the service tax amount you spent on the export.

    Union Budget 2018

    Refunds & Rebates Available:

    Exporters are eligible to avail the following incentives and discounts:

    • Duty Drawback to counterbalance Customs, Central Excise Duty and Service Tax paid on inputs/inputs services used to manufacture export goods;
    • Rebate of Central Excise duty paid on exported goods under Rule 18 of the Central Excise Rules, 2002;
    • Rebate on goods allowed clearance for export under bond under Rule 19 of the Central Excise Rules, 2002;
    • Refund of Central Value Added Tax (CENVAT) credit of inputs or input services to:
      • a manufacturer who clears a final product or an intermediate product for export without paying duty under bond or letter of undertaking,
      • a service provider who provides an output service exported without paying Service Tax, under Rule 5 of CENVAT Credit Rules, 2004;
    • Complete discount of duty paid on excisable inputs or Service Tax and cess paid on all input services used in providing service exported under Rule 6A of Service Tax Rules, 1994;
    • Rebate of service tax paid on taxable services received by an exporter and used for export of goods;
    • Duty-free entitlement for import based on export performance for manufacturers of textile and leather garments registered with their respective Export Promotion Council – such manufacturers can import some specified items (to be used for manufacturing garments for export) without paying duty of value up to 5% of the Free On Board (FOB) value of textile garments or 3% of the FOB value of leather garments, exported in the previous fiscal year. Similar incentives also exist for exporters of handicrafts, handlooms, cotton and man-made textile, and leather products such as footwear, among others.
    • Exporters coming under the purview of the Director General of Foreign Trade (DGFT), Department of Commerce, can avail duty exemption schemes such as Advance Authorisation/Duty Free Import Authorisations and Export Promotion Capital Goods (EPCG) and incentivisation schemes such as Merchandise Export from India Scheme and Service/Export from India Schemes.
    • Holders of Vishesh Krishi and Gram Udyog Yojana (VKGUY), Focus Product Scheme (FPS) and Focus Market Scheme (FMS) scrip can pay the service tax on taxable services received by them by debiting in scrip.
    • Along with reimbursement/rebate on service tax, the exporter can also claim Swachh Bharat Cess and Krishi Kalyan Cess refunds.

    Eligibility Criteria For Claiming Service Tax Refund:

    Persons or companies involved in export of goods and services from India to another country can claim refund on the service tax paid by them in the process of manufacturing and exporting any product or service. For an exporter to avail this refund, s/he has to conform to all the following 6 conditions presented under Rule 6A of Service Tax Rules, 1994. These rules are:

    • The service provider should be located in a taxable region;
    • The recipient of the service should be located outside India;
    • The service should not be listed in the negative services under Section 66D of the Service Tax Rules;
    • The place where the service is provided should be outside India;
    • The payment is received by the service provider in convertible foreign exchange, or is received in foreign currency by the bank of the exporter and is converted into Indian Rupees;
    • The provider of service and recipient of service should be run/owned by different persons as per explanation 3(b) to Section 65B(44).

    This means that for you to be able to claim a service tax refund, you need to located in a taxable region, you should receive payment for your services in foreign currency that can be converted to Indian Rupees, and your service should not be a “negative service”. The recipient of the service should be located outside India and owned by someone other than the company/person who is selling these services. Knowledge and information exporters such as ITO and ITES companies functioning from software technology parks and special economic zones are also eligible to apply for reimbursements and discounts on service tax payments made by them during the process of exporting their services.

    Specified Taxable Services:

    As per Notification No. 52/2011, the services that are taxable are:

    • Service provided to an exporter by an insurer, including a reinsurer carrying on general insurance business in relation to insurance of the goods for export
    • Service provided by a port or any person authorised by the port in respect of the export of goods
    • Service provided by a technical testing and analysis agency for the goods for export
    • Service provided by a technical inspection and certification agency on export goods
    • Service provided by other port or any person authorised by that port in respect for export of goods
    • Service provided for transport of export goods from inland container depot to the port of export
    • Service provided to an exporter for transport of export goods directly from the place of removal, to inland container depot or port or airport from where the goods are exported
    • Special cleaning services such as disinfecting, exterminating, sterilising or fumigating of containers used for export of goods
    • Service provided for storage and warehousing of export goods
    • Service provided by a courier agency to an exporter over transportation of time-sensitive documents, goods or articles related relating to export to a place outside India
    • Service provided by a custom house agent in relation to export goods exported by the exporter
    • Service provided in relation to collection of export bills
    • Service provided for export letters of credit such as advising commission, advising amendment, confirmation charges
    • Service of purchase or sale of foreign currency, including money conversion provided to an exporter for export goods
    • Service of supply of tangible goods for use, without transferring right of possession and effective control of the goods, provided for goods exported
    • Service provided by a clearing and forwarding agent on the export goods
    • Payment of terminal handling charges over export goods
    • Service provided for transport of export goods through national waterway, inland water and coastal shipping
    • Service provided by airports authority or any other person at any airport for the export of said goods.

    As per the above list, this includes but is not limited to:

    • Agency Charge
    • Terminal Handling Charges
    • Container Re-positioning Charges
    • Bill of Lading Charges
    • Transportation
    • Stuffing Charges
    • Lashing Charges
    • Export Remittance Bank Collection Charges
    • Fumigation Charges
    • Loading and Unloading Charges
    • ENS Filling
    • Seal Charges
    • Storage Charges
    • Survey Charges
    • Ground Rent Charges
    • Wharfage Charges
    • Labour Charges

    Discount on service tax is applicable to input services availed by the exporter beyond the premises of production or manufacture of the goods. An exporter of goods can claim 100% refund of service tax paid on export of services used by him for manufacturing the export goods.

    Notification No. 52/2011 also outlines the format of Form A-1, declaration and Form A-2.

    Conditions On Claiming Service Tax Refund:

    The first step towards claiming refund on service tax is to determine whether the service you export falls under the ambit of Rule 6A. Once that is established, you need to comply with the conditions set by the government through Notification No. 39/2012 – Service Tax. The notification specifies the conditions under which an exporter would “be granted rebate of the whole of the duty paid on excisable inputs or the whole of the service tax and cess paid on all input services used in providing the service exported in terms of Rule 6A, to any country other than Nepal and Bhutan”. The conditions outlined in the notification are as follows:

    • The supplier should have received the duties applicable on the inputs for which a reimbursement has been claimed;
    • The provider of service should have received service tax and cess on the input services, for which a refund has been claimed;
    • If the person himself is liable to pay for any input services, the service tax and cess should have been paid to the Union Government;
    • The total amount of refund of duty, service tax and cess admissible should be more than Rs.1,000;
    • CENVAT credit should not have been claimed and availed on inputs and input services on which the exporter is claiming a refund.

    So in short, a refund cannot be claimed if: a) CENVAT credit has been claimed on the input services, b) the duty, service tax or cess has not been paid, or c) the service for which a refund is sought has not been exported. If you claim a refund despite not fulfilling even one of the above conditions, then the government is liable to recover the refunded amount with interest as per the provisions of Sections 73 and 75 of the Finance Act, 1994.

    Self-adjustment of Service Tax:

    Before you claim service tax refunds, you need to do a self-adjustment of service tax in comparison with the future tax liability. Only if such an adjustment is not possible, the exporter can claim service tax refund in cash from the government. For self-adjustment of service tax, the following conditions need to be met:

    • The additional service tax should not have been paid because of “interpretation of law, taxability, classification, or valuation of any exemption notification”.
    • If you have paid excess service tax due to delayed receipt of payment details, the adjustment can be made without any cap.
    • Up to Rs. 1 lakh of service tax can be adjusted for a given month or quarter if the above condition are not in play.
    • The Superintendent of customs/service tax department should be made aware of the adjustments before claiming it, within 15 days of the adjustment.

    Documents Required To Claim Service Tax Refund:

    The following documents are required for claiming service tax refund from the Central Board of Excise and Customs (CBEC):

    • Refund application in Form A-1 for an exporter registered under Central Excise Act, 1944
    • A declaration in Form A-2 for an exporter not registered under Central Excise Act, 1944
    • For each taxable service specified in column (3) of the Table in Notification No. 17/2009 – ST dated July 7, 2009, the exporter has to enclose all the documents (in original) specified in the corresponding entry in column (4) of the same table and Form A-1 with the claim of refund.
    • Invoice, bill or challan, or any other document issued in the name of the exporter, which shows the payment for the service (on which refund is claimed) and the service tax payable, has to be certified and submitted in original.
      • If the exporter is a proprietorship or partnership firm, the documents can be self-certified by the exporter;
      • If the exporter is a limited company, the documents enclosed can be certified by an authorised person in the Board of Directors;
      • If the amount of refund is more than 0.25% of the declared Free on Board (FOB) of export, the documents should be certified by the chartered accountant who audits the annual accounts of the exporter;
    • A certificate from the exporter confirming that the specified service has been received, the service tax payable on it has been paid and the specified service has been used for export of goods under the shipping bill.
    • Declaration that the given details are correct and binding

    For refund of accumulated CENVAT credit for export of services, the following documents are required:

    • Refund application in Form A
    • Copy of relevant shipping bills or bills of export certified by the Customs Officer confirming the export of the goods
    • Copy of invoices issued by the input service providers
    • Copy of invoices for services exported
    • Certificate from the bank of realisation of export proceeds
    • Relevant extracts of the records maintained under the Central Excise Rules, CENVAT credit rules or service tax rules, in original. These should prove that CENVAT credit has been taken and utilised to pay excise duty or service tax, and verify the balance unutilised credit.
    • Statement of input invoices with details of service tax payment and the amount claimed
    • The Table given in Notification 07/2010-CE (NT) dated February 27, 2010, duly certified by a person authorised by the Board of Directors or the proprietor or a partner if the amount of refund claimed is less than Rs.5 lakh. The Table should also be verified by the Chartered Accountant who audits the annual accounts of the exporter if the amount of refund claimed is more than Rs.5 lakh.
    • Declaration that the given details are correct and binding

    Mandatory Prior Declaration:

    As per Notification No. 39/2012 of Service Tax dated June 20, 2012, prior declaration of value, description, and quantity of input services and output service has to be filed before exporting the services. Though this is merely a procedural requirement, if prior declaration is not filed, refund/rebate claims could be rejected. The declaration has to be filed after estimating the actual services to be provided or received, along with description and quantity of input services and output services. This may prove to be a difficult endeavour as determining the services required for the service sector are not as defined as those in the manufacturing sector.

    Ways to Claim Service Tax Refund:

    An exporter can claim service tax refund/rebate in 2 ways:

    1. Automatic/Online claim: As per Notification No. 41/2012-Service Tax, an exporter needs to make a declaration in the electronic shipping bill or bill of export confirming:
      1. That rebate of service tax paid on the specified services is claimed as a percentage of the declared FOB value of the goods, on the basis of rate specified in the Schedule of rates;
      2. That no more rebate would be claimed on the specified services, even if the rebate obtained is less than the service tax paid;
      3. That conditions of the above notification have been fulfilled.

      Once this declaration is furnished to the Customs/Service Tax offices, an exporter can apply for refund/rebate through the Indian Customs EDI System (ICES) portal. The ICES automatically calculates the refund/rebate due to the exporter. The exporter should have a bank account and a central excise registration/service tax code number registered with the ICES to be able to avail e-refund.

    2. Physical claim: If the service tax paid by the exporter is higher than the specified percentage, a refund claim needs to be physically filed at the Central Excise/Service Tax offices.

      Once an e-refund is claimed, filing for paper-based refund is not allowed, and if a double claim is made, it will be considered as tax fraud. The service provider from who the exporter has purchased the services cannot claim a refund or rebate. The rebate or refund has to be claimed within 1 year from the date of export of the goods in question, as per Section 11B of the Central Excise Act, 1944. It would be best to file it within 6 to 9 months to avoid any confusion on the commencing date. The minimum rebate amount available to an exporter is Rs.500.

    Reasons For Denying Service Tax Refund:

    Refund claimed by exporters could be denied by the CBEC. Some of the reasons that may be cited for rejecting a refund claim are:

    • Discrepancy between Form ST-3 and Form A
    • Discrepancy between the refund claim certified by the Chartered Accountant and the one filed for
    • Declaration of veracity of the documents not in the format required
    • Letter-head of the company not used for the covering letter
    • Previous history of rejection
    • Signature on the forms not authorised by the department
    • Missing copies of invoices
    • Missing details on input services utilised
    • Copy of Appendix 22A (bank certificate of export realisation) not attached
    • Licence of Export Oriented Unit (EOU), Software Technology Parks of India (STPI) or Private Bonded Warehouse is not attached.
    • The service on which refund is claimed is already a service that gives the exporter a rebate.
    • It has been more than 1 year since the goods in question were exported.
    • Foreign exchange payment for the export was received by the domestic seller after 1 year.
    • Input services for which a refund/rebate is claimed is no longer considered an input service for export.

    Apart from these, there are likely to be a hundred trivial reasons under which the government could reject your service tax refund claim. To ensure maximum clarity and higher chance of refund approval, here are some tips:

    • Make sure that all the required and supporting documents are attached to the refund claim form.
    • Follow up regularly with the officer/s concerned.
    • If a show cause notice is served to you, reply promptly to it and seek an early hearing date to close the case as fast as possible.
    • If your refund or rebate is denied, and if you think your claim is valid, appeal promptly against the rejection.

    Implications On The Proposed GST Regime:

    Service tax refunds as of now are not very efficient in India. Even though the CBEC notified in November 2015 that 80% upfront refunds would be made within 5 days and the remaining 20% would be reimbursed after scrutinising the applications, there has been little progress in clearing pending dues. As of January 2016, service tax refunds worth Rs.37,387 crore is pending with the department. Around 90% of refund requests by exporters is either rejected on grounds of inadequate paperwork or is awaiting approval. A system created to incentivise exporters has, thus, turned counter-productive and cumbersome because of the massive pendency.

    If the proposed Goods and Service Tax (GST) system is launched in India, refunds are likely to be even more disorganised and counter-beneficial to the exporters. This is because under GST the country would have 2 sets of service tax levies – Central Government levy and State Government levy. In such a case, the boundaries and intersections between Central and State Government service tax payments will create more paperwork and running around for traders. An exporter will have to file separately for service tax refunds and rebates from the Central and State Governments.

    Under such a condition, along with GST, the government will also have to implement a prompt and convenient refund claim system. Computerisation of records and e-filing will have to be brought about and stringent timeframe for remitting refunds will have to be created for the Central Excise, Customs and Service Tax departments. The department will have to be held accountable with interest payment made compulsory in case of delays. The prior declaration of service tax for the service sector will have to be modified, relaxed or taken out to make it easier for exporters to claim refunds and discounts.

    Frequently Asked Questions:

    1. Is service tax refund only available to exporters of services?

      No. Both exporters of goods and services are liable to get rebates and refunds on service tax.

    2. If I have not filed my service tax returns, can I still claim refund?

      No. Just like Income Tax, you cannot file for refund or rebate on service tax paid towards export of goods unless you have filed your return.

    3. How can I make prior declaration of service tax to be utilised for my export if I am not sure of how many services I would be using?

      This is a tricky ground. It is best to consult a tax expert or chartered accountant for accurate calculations and further advice.

    4. Are there any exemptions to payment of service tax in the process of export?

      Yes. The following services are exempt from payment of service tax by an exporter:

      1. Services provided to an exporter for transport of export goods by a Goods Transport Agency in a goods carriage from any container freight station or inland container depot to the port or airport from where the goods are exported
      2. Services provided to an exporter for transport of the export goods by Goods Transport Agency in a goods carriage directly from their place of removal to any container freight station or inland container depot to the port or airport from where the goods are exported
    5. Do importers get service tax refund benefits like exporters?

      No. Service tax refunds are available mainly for exporters and domestic traders.

    6. My refund request for export of IT services to Bhutan was rejected. Why?

      As per Notification No. 39/2012 – Service Tax, rebates and refunds cannot be claimed for services exported to Nepal and Bhutan. This is one of the conditions of service tax, you cannot dispute it.

    7. Who will determine the refund that I am eligible for?

      The refund amount is decided by the ICES standard rates. In case the actual service tax paid is higher by 20% or more than the standard ICES rates, then refund will be based on the actual tax paid. 

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