FEBRUARY 08, 2016

By S Sivakumar, LL.B., FCA, FCS, ACSI, MBA, Advocate and R Vaidyanathan, M.Com., M Phil, Consultant

ONE of the very disturbing recent developments in terms of the claims filed by exporters of services, for claiming refund of unutilized cenvat credit of the service tax paid on input services, is the one involving submission of original documents. As a standard requirement, the Show Cause Notices issued to services exporters require originals of FIRCs, export invoices and input invoices to be submitted. When we enquired with the concerned Asst/Deputy Commissioners in some cases, we were informed that the original documents would have to be filed for processing of refund claims, in terms of Notification No, 27/2012-CE(NT) dated 18-6-2012.

On a re-reading of this important Notification, we found that in Para 3, the requirement of filing of certified copies of bank realization certificates being filed, is clearly mentioned. When this was pointed out, the response of the Departmental officers was that, since there is no mention of certified copies of export invoices and input invoices being allowed to be filed in the said Notification, the services exporter would have to necessarily file the original invoices.

On further study, we came across a very useful Circular No. 112/06/2009-ST dated 12-3-2009, in which, in Sl.No. VI, the following query has been clarified:

Even this circular does not seem to be of much help, as the Departmental officers handling refunds are of the firm view that, the said circular, having been issued in the context of Notification No. 41/2007-ST dated 6-10-2007 cannot be treated as clarifying issues arising of Notification No. 27/2012-CE(NT). Only a fresh clarification from the Board can help exporters, who are suffering from the unreasonable demands of the Department.

Be that as it may…… in recent show cause notices issued to services exporters, we have found allegations that the refund claimants have not demonstrated any use or correlation or nexus of the input services vis-à-vis the output services. In our view, in the case of services which are intangible by their very nature, it would be impossible for the exporter to demonstrate the nexus, except to request the concerned Asst/Deputy Commissioner to relocate himself/herself to the exporter's premises.

Yet another recent requirement of the show cause notice demands the exporter to prove that the export transaction fulfils the requirements of Rule 6A(1)(f) of the Service Tax Rules, 1994. In some cases, the Department insists on submission of the copies of incorporation certificates of, the exporter's overseas clients. As is known, Rule 6A(1)(f) of the said Rules states that the provision of any service shall be treated as export of service when the provider of service and recipient of service are not merely establishments of a distinct person in accordance with Explanation 3 to Section 65B(44) of the Finance Act, 1994. As per clause (b) of the said explanation, an establishment of a person in the taxable territory and any of this other establishment in a non-taxable territory shall be treated as establishments of different persons.

We feel that most of the Departmental officers adjudicating refund claims are not able to understand the language used in Rule 6A of the Service Tax Rules, 1994 read with Explanation 3(b) of Section 65B(44) of the Finance Act, 1994, in terms of which, the transaction involving rendering of service to one's own overseas branch (which is not a separate establishment) would not be treated as export of service. The facts related to the exporters' overseas customers can easily be ascertained on the basis of copies of invoices, service agreements and FIRCs and, therefore, to insist on copies of incorporation certificates of the overseas clients, would be totally unwarranted, in our view.

Finally…..… the show cause notices also require the exporter to file declarations from the land owners that the service tax collected (from the exporters) have been duly paid to the Department, within the due dates. This requirement is in the context of considering the refund of the service tax paid by the exporter, on renting services. In many cases, we have found that the landlords/Developers would have utilized cenvat credit for discharge of their service tax liability and in these cases, getting declarations from the landlords/Developers becomes very difficult. The decisions from even the Apex Court that the recipient of service cannot be denied credit on account of non-payment of the service tax by the service provider, obviously, fails to cut ice with our super Babus in the Department.

Before concluding…….

We operate out of Bangalore, India's IT capital, from where, a significant portion of India's services exports happen. We have found that, the show cause notices issued by different Asst/Deputy Commissioners vary widely & thus exhibit a lack of a fundamental approach to the refund granting process. Repeated notifications and circulars issued by the Board have not resulted in any improvement at the ground level. We find that, even in cases involving remand of the claims by the Appellate Authority, services exporters are not spared the agony of harassment by the lower officials.

Since it takes years for appeals to be heard by the Appellate Commissioners, it is not uncommon to come across cases where the original files are said to be misplaced, forcing the hapless exporter to start it, all over, again.

It is not known what the department seeks to achieve by this recalcitrant obstructionist attitude, except of course, derive a sadistic pleasure!

Nonetheless, we are optimistic that things may change for the better in the days to come.