Circular
No. 120/01/2010-ST
F.No.354/268/2009-TRU
Government
of India
Ministry
of Finance
Department
of Revenue
(Tax
Research Unit)
*****
New
Delhi dated the 19th January, 2010.
To
All Chief Commissioners of Central
Excise,
All Chief Commissioners of Customs,
All Chief Commissioners of Customs
&Central Excise,
Director General of Service Tax,
All Commissioners of Service Tax,
Commissioner (Service Tax), CBEC.
Madam/Sir,
Subject: Problems faced by exporters in availing refund
of excess credit – regarding
CENVAT Credit Rules, 2004 permit
taking of credit of inputs and input services which are used for providing
output services or output goods. In
order to zero-rate the exports, Rule 5 of CENVAT Credit Rules, 2004 provides
that such accumulated credit can be refunded to the exporter subject to
stipulated conditions. Notification No. 5/2006-CE (NT) dated 14.03.2006
provides the conditions, safeguards and limitations for obtaining refund of
such credit.
2. It has been represented by the
exporters of services (mainly the call centres or the BPOs) that they are
facing difficulties in getting refund under the said notification. In order to ascertain the causes for such delay
a number of meetings were held with the refund sanctioning authorities. During these meetings the officers pointed
out the following legal/procedural impediments partly responsible for such
delays:
(a)
The
major reason causing delay in granting refunds as well as rejecting the claims
is that as per the wordings of the notification, refund is permitted of
duties/taxes paid only on such inputs/input services which are either used in the manufacture of export goods or used in providing the output services exported. As against this, the phrases used in the
CENVAT Credit Rules permit credit of services used “whether directly or indirectly, in or in relation to the manufacture of
final product” or “for providing
output service”. The field
formations tend to take the view that for eligibility of refund, the nexus
between inputs or input services and the final goods/services has to be closer
and more direct than that is required for taking credit. Many refund claims are being rejected on this
ground.
(b)
Even
if a nexus is considered acceptable, the officers processing the refund claims
find it difficult to co-relate goods or services covered under a particular
invoice with a specific consignment of export goods or specific instance of
export of service.
(c)
As
per the notification, the claims are to be filed quarterly. For large exporters, the procurement of
inputs/input services in a quarter is substantial resulting in each refund
claim being accompanied with hundreds of invoices. Verification of these documents with
corroborative documents showing exports (such as export invoices, bank
certificates, shipping bills) consumes a long time;
(d)
Though
the notification prescribes that refund claims should be filed quarterly in a
financial year, it is not clear whether the refund is eligible only of that
credit which is accumulated during the said quarter or the accumulated credit
of the past period can also be refunded; and
(e)
In
certain cases, the invoices accompanying the refund claim are incomplete in as
much as either the description of service or its classification is not
mentioned. In some cases, even the name
of the receiver of the inputs/input services is also not mentioned.
3. The matter has been examined. At the outset it is necessary to understand
that the entire purpose of Notification No. 5/2006-CX (NT) is to refund the
accumulated input credit to exporters and zero-rate the exports. Accumulated credit and delayed sanction of
refund causes cash flow problems for the exporters. Therefore, the sanctioning authorities are
directed to dispose of the refund claims expeditiously based on the following
clarifications to the issues raised in paragraph 2 above.
3.1 Use of different phrases in rules and
notification [para 2(a)]:
3.1.1 The primary objection indicated by the field
formations is that the language of Notification No. 5/2006-CX (NT) permits
refund only for such services that are used in providing output services. In other words, the view being taken is that
to be eligible for refund, input services should be directly used in the output
service exported. As regards the extent
of nexus between the inputs/input services and the export goods/services, it
must be borne in mind that the purpose is to refund the credit that has already
been taken. There cannot be different
yardsticks for establishing the nexus for taking of credit and for refund of
credit. Even if different phrases are
used under different rules of CENVAT Credit Rules, they have to be construed in
a harmonious manner. To elaborate, the
definition of input services for manufacturer of goods, as given in Rule 2 (l)
(ii) of CENVAT Credit Rules, 2004, includes within its ambit all services used
“in or in relation to the manufacture of
final products” and includes services used “directly or indirectly”.
Similarly Rule 2 (l) (i) of CENVAT Credit Rules also gives wide scope to
the input services for provider of output services by including in its ambit
services “used....for providing an output
service”. Similar is the case for
inputs.
3.1.2 Therefore, the phrase, “used in” mentioned in
Notification No. 5/2006-CX (NT) to show the nexus also needs to be interpreted
in a harmonious manner. The following
test can be used to see whether sufficient nexus exists. In case the absence of such input/input
service adversely impacts the quality and efficiency of the provision of
service exported, it should be considered as eligible input or input
service. In the case of BPOs/call
centres, the services directly relatable to their export business are renting
of premises; right to use software; maintenance and repair of equipment;
telecommunication facilities; etc.
Further, in the instant example, services like outdoor catering or
rent-a-cab for pick-up and dropping of its employees to office would also be
eligible for credit on account of the fact that these offices run on 24 x 7
basis and transportation and provision of food to the employees are necessary
pre-requisites which the employer has to provide to its employees to ensure
that output service is provided efficiently.
Similarly, since BPOs/call centres require a large manpower, service tax
paid on manpower recruitment agency would also be eligible both for taking the
credit and the refund thereof. On the
other hand, activities like event management, such as company-sponsored
dinners/picnics/tours, flower arrangements, mandap keepers, hydrant sprinkler
systems (that is, services which can be called as recreational or used for
beautification of premises), rest houses etc. prima facie would not appear to impact the efficiency in providing the
output services, unless adequate justification is shown regarding their need.
3.2 One-to-one co-relation between inputs
and outputs and scrutiny of voluminous record [para 2(b) & (c) above]:
3.2.1 Similar problem of co-relation and scrutiny of
large number of documents was being faced in another scheme [Notification No.
41/2007-ST dated 06.10.2007] which grants refund of service tax paid on
services used by an exporter after the goods have been removed from the
factory. In Budget 2009, the scheme was
simplified by making a provision of self-certification [Notification No.
17/2009-ST] whereunder an exporter or his Chartered Accountant is required to
certify the invoices about the co-relation and the nexus between the
inputs/input services and the exports.
The exporters are also advised to provide a duly certified list of
invoices. The departmental officers are
only required to make a basic scrutiny of the documents and, if found in order,
sanction the refund within one month.
The reports from the field show that this has improved the process of
grant of refund considerably. It has,
therefore, been decided that similar scheme should be followed for refund of
CENVAT credit under notification No. 5/2006-CE (NT). The procedure prescribed herein should be
followed in all cases including the pending claims with immediate
effect.
3.2.2 Procedure: The exporter should,
alongwith the refund claim, file a declaration containing the following
details:
(Rs.
in lakh)
|
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Details of goods/services exported on
which refund of input credit is claimed |
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|
S. No. |
Details of shipping bill/ Bill of
export/export documents etc. |
Details
of input credit on which refund claimed |
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|
(1) |
(2) |
(3) |
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|
No. |
Date |
Date
of export order |
Goods/
service exported |
Invoice
No., date and Amount |
Name
of service provider/ supplier of goods |
Service
tax/ Central
Excise
Regn. No. of service provider/ supplier of goods |
Details
of service/ goods provided with classifi- cation
under FA 1994/ Central
Excise
Tariff |
Service
tax/ Central Excise duty
payable |
Date
and details of payment made to service provider |
|
|
1. |
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|
2. |
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Documents attached to evidence
the amount of service tax paid |
Total export during the period
for which refund is claimed |
Total domestic clearances
during the period for which refund is claimed |
Total amount of input credit
claimed as refund |
|
(4) |
(5) |
(6) |
(7) |
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The
declaration should be certified by a person authorized by the Board of
Directors (in the case of a limited company) or the proprietor/partner (in case
of firms/partnerships) if the amount of refund claimed is less than Rs.5 lakh
in a quarter. In case the refund claim
is in excess of Rs.5 lakh, the declaration should also be certified by the
Chartered Accountant who audits the annual accounts of the exporter for the
purposes of Companies Act, 1956 (1 of 1956) or the Income Tax Act, 1961 (43 of
1961), as the case may be.
The
Assistant or Deputy Commissioner may, after verification of the fact that the
input credit has been correctly claimed, sanction the refund on the basis of
the declaration. In case there is a
doubt about the correctness of the claim of CENVAT credit on any service, the
undisputed amount may be refunded and the balance claim may be decided after
following the dispute settlement process.
3.3
Quarterly refund claims [para 2(d) above]:
As regards the quarterly filing of
refund claims and its applicability, since no bar is provided in the
notification, there should not be any objection in allowing refund of credit of
the past period in subsequent quarters.
It is possible that during certain quarters, there may not be any
exports and therefore the exporter does not file any claim. However, he receives inputs/input services
during this period. To illustrate, an
exporter may avail of Rs.1 crore as input credit in the April – June
quarter. However, no exports may be made
in this quarter, so no refund is claimed.
The input credit is thus carried over to the July-September quarter,
when exports of Rs.50 lakh and domestic clearances of Rs.25 lakh are made. The exporter should be permitted a refund of
Rs.66 lakh (as his export turnover is 66% of the total turnover in the quarter)
from the Cenvat credit of Rs.1 crore availed in April-June quarter. The illustration prescribed under para 5 of
the Appendix to the notification should be viewed in this light. However, in case of service providers
exporting 100% of their services, such disputes should not arise and refund of
CENVAT credit, irrespective of when he has taken the credit, should be granted
if otherwise in order. Such exporters
may be asked to file a declaration to the effect that they are exporting 100%
of their services, and, only if it is noticed subsequently that the exporter
had provided services domestically, the proportional refund to such extent can
be demanded from him.
3.4 Incomplete invoices [para 2(e) above]:
In case of incomplete invoices, the
department should take a liberal view in view of various judicial
pronouncements by Courts. It had earlier
been prescribed in circular No.106/09/2008-ST dated 11.12.2008 that the
invoices/challans/bills should be complete in all respect. This circular was issued with reference to
notification No.41/2007 dated 06.10.2007 as specific services eligible for
refund under the notification has been specified. Thus, a stricter requirement exists under the
said notification for ascertaining the actual service which has been used in
the export of goods. In the case of
refund under Rule 5, (i) so far as the nature of the service which has been
received by the exporter can be ascertained; (ii) tax paid therein is clearly
mentioned; and (iii) other details as required under rule 4(a) are mentioned,
the refund should be allowed if the input service has a nexus with the
service/goods exported as discussed earlier.
In any case, the suggested Chartered Accountant’s certificate should
clearly bring out the nature of the service and this will assist the officer in
taking a decision.
4. The instructions contained in this circular
should be implemented with immediate effect and the pending claims may be
disposed of accordingly. It is expected
that with the clarifications provided and liberalization of procedure, most of
the impediments to smooth and expeditious disposal of exporters’ claims for
refund of accumulated credit would be removed.
The Board, therefore, expects that the concerned refund sanctioning
authorities should decide all claims of exporters within 30 days of their receipt
as has been prescribed in notification No. 17/2009-ST. Any lapse in this regard would be viewed
seriously. In case of any doubt, an
immediate reference may be made to the Board.
Yours faithfully,
(Roopam Kapoor)
Officer on Special Duty (TRU)
Tel: 23095590