REFUND OF SERVICE TAX ON EXPENSES INCURRED BEYOND FACTORY GATE
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 services used in the course of export of goods from the factory or any premises to port/airport. The exporters were enjoying refund of on 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 port or 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 of removal, 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 Service Tax 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 expenses incurred post factory gate which hitherto were considered ineligible for refund.
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 disputes and extending the legitimate benefit to exporters so that there cost may come down. This could be said certainly in the direction of “ease of doing business” policy propounded by Government of India.