World economy over last few years has been very sluggish and more so Indian economy. The impact on Indian economy could be witnessed in the form of declining exports from India. This requires stimulus from government in one way or another.
One way of reducing burden of tax on export has been to grant refund of service tax under Notification No. 41/2012-ST on services used in relation to export of goods outside India. The refund was allowed in relation to taxable services used beyond the place of removal for export of goods. The intention was to grant refund of tax paid on servicesused in the course of export of goods from the factory or any premises to port/airport.
The exporters were enjoying refund ofon various services used in the course of export such as terminal handling charges, transportation charges (road/rail), storage,warehousing, bank charges on realization of export proceeds, CHA charges,survey charges, insurance, documents charges etc.
In February 2015, circular no.999/6/2015-CX was issued by department clarifying that in the case of exports, the place of removal is the portor the airport from where the goods are finally exported. This clarification virtually put an end to the refund benefit as once the port is treated as place ofremoval, no major expenses are incurred beyond this point on which service tax is payable. Majority of expenses incurred between factories to port were held ineligible for refund.
Refund claims have been disallowed and show cause notices were issued.
This has directly resulted in increasing the cost of export for merchant exporter as well as manufacturer exporters (who were not claiming refund under Rule 5 of CCR) as the taxes which could not be claimed as refund were factored in the cost of production of goods and thus was resulting in violation of stated policy of government that only goods and services should be exported outside country not the taxes associated with them.
Realizing the problem being faced by exporters, the Board has issued Notification No. 1/2016 amending the notification no. 41/2012-ST by substituting “place of removal”with“factory or any other place or premises of production or manufacture of the said goods” effective from 3rd February, 2016.
The impact of said amendment would be allowing refund of service tax paid on various expenses incurred by exporter beyond factory/warehouse like Transportation of goods by road/rail/vessel/air, Customs House Agency charges, Container Freight Station charges (cargo handling, storage, warehousing and similar other expenses), Freight and Forwarding expenses, Customs documentation charges, Transit insurance, Bank charges on realization of consideration from foreign importer and Similar other expenses incurred pertaining to export of goods from India to outside India would broadly be eligible under amended notification.
Further, Notification No. 41/2012-ST also grants option for claiming refund based on fixed percentage of FOB value of export (ranging from 0.04% to 0.20% of FOB). These rateswere fixed when rate of service tax was 12.36% but have not been revised at the time of enhancing rate of service tax to 14%. Now these rates have also been revised by this notification and increased to 0.05% to 0.23?pending upon the nature of products being exported.
Conclusion:In the end of year 2015, government had announced scheme to facilitate speedy disbursement of refund to exporters under Rule 5 of the Cenvat Credit Rules, 2004. In the same direction, it is welcome step taken by government to avoid disputesand extending the legitimate benefit to exporters so that there cost may come down. This could certainly be said in the direction of “ease of doing business” policy propounded by Government of India. The government could have made it better by giving benefit of refund retrospective so that all pending dispute could have been settled. For any query, contact us at [email protected] or [email protected].