EXPORT BENEFITS UNDER SERVICE TAX CA. MANINDAR KAKARLA

EXPORT BENEFITS UNDER SERVICE TAX CA. MANINDAR KAKARLA

2 Objective: Objective & Coverage To recall various benefits to exporter of goods & services. The conditions/procedures to be complied with. Intricacies involved & their present legal position. Benefits available to exporters: Refund under Rule 5 of CCR, 2004. Exemption for GTA services under RCM to exporter of goods. Exemption for services of foreign commission agents under RCM to exporter of goods. Rebate to exporter of goods for specified services used in relation to export. Rebate to exporter of services on inputs and input services.

3 Refund vis-à-vis Rebate Often the terms are interchangeably used. Refund is for tax that has been overpaid or incorrectly paid under a taxing statute or regulation. A rebate is for tax properly paid and is subsequently returned to a business or individual under a rebate provision.

4 Refund under CENVAT Scheme Benefit is cash refund of accumulated unutilized CENVAT Cr. Governing Provisions Rule 5 of the CENVAT Credit Rules, 2004 Notification 27/2012-CE(NT) Rule 5 of CENVAT Credit Rules, 2004 Applicable to manufacturer as well as service provider. Refund is of credit accumulated on inputs & input services Subject to procedure, safeguards, conditions & limitations. Max. Refund is determined as per the formula Refund = & Net CENVAT Credit Total Turnover

5 Other Conditions No Customs Drawback. Continuing No rebate under Central Excise and Service Tax. Export of service shall be as per Rule 6A of STR, 1994. Conditions to be satisfied under Rule 6A: The provider of service located in taxable territory. The recipient is located outside India. Service is not specified in negative list. POP of service is outside India. Payment for service is received in CFE. Provider & receiver are not mere establishments of one entity in different countries.

Continuing 6 Relevant Key Terms Net CENVAT Cr: Total Cr availed minus amount reversed under Rule 3(5c). Export turnover of goods Value of final and intermediate products. Cleared for export during the relevant period. Total Turnover means sum total value of All excisable goods cleared during the relevant period includes dutiable, exempted and exported goods. Export turnover of services and value of other services. Inputs removed as such.

7 Continuing Export turnover of Services Payments received during relevant period for export Add advances received during relevant period for export. Less advances received for which provision of services is not completed during relevant period. All receipts during relevant period excluding advances for which service provision is not yet completed. Example: 1. Payments received during relevant period- Rs. 8 cr 2. Out of which, work w.r.t 2cr is completed in previous period. 3. Advances received during the relevant period- Rs. 10 cr. 4. Out of which, work is completed w.r.t. Rs. 4cr only by end of the period.

8 Continuing Conditions under Notification 27/2012-CE Not more than one refund claim in a quarter Separate refund claims can be made for goods and services. Value of all services other than exports shall be based on POTR. Refund shall be limited to the lower of the CENVAT bal. lying- at the end of quarter for which refund claim is being made or at the time of filing of refund claim. Refund claimed amount shall be debited to the CENVAT A/c Difference b/w amount claimed & amount sanctioned may be taken back

9 Procedure Continuing Application in Form A to AC/DC. Filed within time limit specified in Section 11B. Certificate from Statutory or other Auditor in Annex I on correctness of refund claim w.r.t services export.

10 General Grounds for Rejection Services exported are taxable but exempted services. Filing of claim after time limit U/s 11B. Applicability of Unjust enrichment principle Service is not an export service No proof that service is actually provided and exported. Inputs/ Services received are ineligible for CENVAT Cr not an input service, no nexus with output service, no proof of payment to ISP is submitted. No clarity on FIRCs about the nature of receipts. Adhoc receipt of payments. Claim of Common CENVAT Credit. Defects in documentation. Clearances/Supplies to SEZ. Export turnover does not match with ST-3 returns, balance sheets.

11 Applicability of Time Limit Section 11B provides for time limit of one year. Moreover it is applicable only refund of excise duty & interest. First School of Thought Rule 5 refund is a cash incentive for exporters. Section 11B not applicable. Difficult to give effect to Section 11B in the absence of relevant date. Second School of Thought Sec 11B is not applicable but time limit is specified by Notfn. Relevant date is nothing but date of export. Rule 5 empowers CG to provide for safeguards, conditions, limitations.

12 Date of Export of Service Previously, Rule 7 of the POTR determines point of taxation for exports. W.e.f. 01.07.2012, export services are outside the scope of levy under Section 66B. Now rule 6A of STR determines whether a service is exported or not. The foremost requirement is receipt of consideration in CFE. Rule 5 says that Export Turnover of Services does not include advances for which service provision is not completed. Service is exported from the date Of receipt of consideration after completion of service. Where consideration is received in advance, date of completion of service. Claim filed was re-submitted for defects Date on initial submission shall be the date of filing of claim.

13 Unjust Enrichment Principle Scenarios under which this contentions is raised. Taxes are included for cost plus markup billing. Taxes are expensed out. Refund under Rule 5 is a cash assistance to exporters. Not a regular refund in order to apply Section 11B In fact, as per sub-clause (c) of proviso to sec 11B(2) this principle does not apply for CENVAT Cr. refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act

14 Accumulated Cr vis-à-vis Unutilized Cr Previous Rule 5 allows refund of CENVAT Cr only when it is not possible to adjust for the ED/ST payable on domestic clearances/services. No such condition in the present Rule 5. Whether CENVAT Cr pertaining to exports can be used for payment of ED/ST on domestic supplies? Rule 3(4) does not provide for such restriction. Notification restricts the refund to lower of CENVAT balance at end of relevant period or on the date of claim.

15 Exempted Export Services Under Previous Scenario Input Service means any service used for providing an output service. {Rule 2(l) of CCR} Output Service means any taxable service excluding GTA. {Rule2(p)} Exempted Service means Taxable services which are exempt from whole of ST. Includes services on which no ST is leviable under Sec 66. A taxable service whose part of value is exempted on condition that no CENVAT Cr on inputs and input services shall not be taken. No Cr can be taken on inputs & input services exclusively used to provide exempted services under Rule 6(1) Mumbai tribunal held that refund is allowable even for export of exempted services also {Zenta Pvt Ltd vs. CCE, 2012(27)STR519 }

16 Under the Present Scenario Continuing Input Service means any service used for providing an output service. {Rule 2(l) of CCR} Output Service means all services provided by a SP located in taxable territory but does not include Negative list services. Services where whole of ST liability is payable by SR. {Rule2(p)} Exempted Service means a Taxable service which is exempted from whole of ST leviable. Service, on which no ST is leviable u/s 66B. A taxable service whose part of value is exempted on condition that no CENVAT Cr on inputs and input services shall not be taken. Does not include a service which is exported in terms of Rule 6A of STR, 1994. Rule 6(8) says that exempted service does not include export service.

17 Clearances/Supplies to SEZ Issue is whether the service provider can treat these services as export and claim refund under Rule 5? Divergent views expressed CCE vs. NBM Industries, 2013(29)STR208(Guj) CCE vs. Tiger Steel Engineering (India) Pvt. Ltd, 2010-TIOL-1983- Cestat-Mumbai/ Everest Industries Ltd vs. CCE, 2013(31)STR189(Tri-Del) Certainly not an export of service under present Rule 6A of STR, 1994.

18 Miscellaneous Issues Denial of claim for failure to obtain registration. Receipt of foreign exchange Nipuna Services Ltd vs. CCE, 2009(14)STR706(Tri-Bang) Interest U/s 11BB for delay in sanction of refund is applicable even for refund under Rule 5 CCE vs. Reliance Industries Ltd, 2010(259)ELT356(Guj)

19 Exemption to GTA Services Governed by Notification 31/2012-ST. Exemption is available to exporter on ST paid under RCM. Exemption is on GTA Services used for transport of goods: From CFS/ICD to Port/Airport for export. From place of removal to CFS/ICD/Port/Airport for export. Invoice/Consignment note shall be in the name of exporter indicating that SR is liable to pay ST under RCM. Procedure Inform AC/DC in form EXP1 before availing exemption. Registration with EPC/holder of IEC Registration under ST as Exporter is liable to pay ST under RCM Return in EXP2 for every six months within 15 days.

Exemption to Overseas Commission 20 Agent Services Governed by Notification 42/2012-ST. Services of commission agent located outside India for causing sale of goods under a contract or agreement with exporter. These are imported services. Exporter need not pay under RCM Conditions Declare the commission paid or payable in shipping bill or bill of export. If such commission is in excess of 10% of FOB value exemption is limited to ST payable on commission up to 10%. In such cases, the following documents are to be submitted Original documents showing actual commission paid. Contract with the Overseas Commission agent.

21 Continuing Exemption is not applicable for the following exports Procedure Canalised items Project exports Export financed under lines of credit extended by GOI or EXIM bank. Export made by Indian partner in a company with equity participation in an overseas JV or wholly owned subsidiary. Intimation to AC/DC in form EXP 3 before availing the exemption. Registration with EPC sponsored by MoC or MoT as the case may be. Hold IEC Number. Registered under Service Tax. Invoice should be in the name of exporter. Return in form EXP4 every six months within 15 days of completion Submit self certified copies of SP invoices and Original payment documents

Rebate to Exporter of Goods on Specified Services Notfn 41/2012-ST 22 Benefit is by way of refund of service tax paid on the following specified services For excisable goods Taxable services used beyond the place of removal. For other goods Taxable services used for export of goods. Rebate claim shall be On the basis of rates specified in the schedule to the notification. or On the basis of documents i.e. Actual basis Rebate shall not be claimed on actual basis unless the diff. b/w the two is 20% or more. No CENVAT Credit allowed on specified input services. No rebate to a unit or developer of SEZ. Procedure under para 2 applicable for refund on the basis of rates. Registration with Customs. Declaration in shipping bill or bill of export Rebate of ST paid on specified services is claimed as % of FOB Value of exports. No further claim is made under para 3 Conditions of the notification are fulfilled.

23 Continuing Amount will be calculated and credited to bank account. No claim can be filed where rebate is less than Rs. 50 per shipping bill. Procedure under Para 3 for rebate on actual basis Claim shall be of ST actually paid on the basis of duly certified documents. Exporter of goods alone can claim rebate. Rebate claim shall be in form A-1 within one year of export. Documents submitted shall be self certified by specified person. If claim is 0.5% of FOB Value, then original invoices, bills, challans issued in the name of exporter along with documents evidencing payment shall be submitted. In this case, certification of documents shall be from Statutory or Tax auditor. No claim can be filed where rebate is less than Rs. 500. Claim shall be sanctioned within one month. Receipt of Consideration in CFE with the time allowed. Otherwise it is deemed that refund is never allowed.

24 Rebate for Services Export Notfn 39/2012-ST Benefit is given for export services to any country other than Nepal & Bhutan under Rule 6A of STR, 1994. Benefit is by way of rebate ED & ST paid on inputs and input services respectively. For input services subject to RCM, exporters should have paid ST. Rebate amount should not be less than Rs. 1000 No CENVAT Credit is claimed on inputs and input services. Rebate allowed shall be recovered with interest Duty, tax or cess of which has been claimed has not been paid. The service for which rebate is claimed has not exported. CENVAT cr has also been claimed.

25 Continuing Procedure Filing of declaration specifying the service to be exported along with details of inputs and input services. Verification and acceptance of declaration. Presentation of claim for rebate after export with the following documents Invoices for inputs and input services Documentary evidence of payments and receipts. Declaration that service exported under Rule 6A.

26 Intricacies on Rebate Claim Time limit for rebate claim is applicable. No time limit in the notification. But Section 11B is applicable as it is refund of taxes lawfully paid. To file claim within time limit, the following are constraints Receipt of consideration for export services in CFE. Payment of duty and tax on all inputs and input services for which claim is made. Rebate is available even for export of exempted services. Rebate cannot be withheld for other liabilities. Rebate is not subject to the principle of unjust enrichment.

27 Continuing Requirement to file declaration before export Condition in notification must be cable of compliance. It is a procedural requirement non compliance of which is condonable for valid reasons. It is sufficient if the same is substantially complied where possible. Even if some services are not mentioned in declaration- it is only a technical lapse. Claim of interest on delayed sanction of rebate. Section 11BB is applicable vide Section 83 of FA, 1994. Interest payable @ 6% if there is a delay of more than 3 months. Interest is payable from the date of application of claim irrespective of litigation Ranbaxy Lab Ltd, 2012(27)193(SC)

Documentation 28 Refund Application in Prescribed Form. Relevant extract of CENVAT Register, invoice copies on which CENVAT Cr is claimed. Copies of bank statements during the relevant period highlighting all vendor payments on which CENVAT Cr is claimed and mapping the same from CENVAT Registrar. Evidence showing that services are exported. These include SOFTEX forms, Certifications from SPCs, Agreements, Invoice Copies. Evidence showing receipt of payment against services exported. A declaration that services are exported, conditions for refund/rebate are satisfied. Nexus Statement providing a brief description of the nature of each service received and its relation to export. Reconciliation of turnovers in B/S, ST3 returns with Refund Claim.

29 Issues Surrounding Documentation Credit/Refund on Xerox copies Judicial decisions involves irreconcilable dichotomy. Documents in the name of Head Office Documents in the name of another entity but on account of assesse.(cce vs. Chamundi Textiles (Silk Mills) Ltd,2012(26)STR498(Tri-Bang) FIRCs did not bear numbers of export invoices/ FIRCs contain nature of receipt as advances.

30 CA. Manindar Kakarla Partner e-mail: manindar@gphkca.com Ph: 97-00-734-609