Wednesday, July 27, 2011

Revised and simplified procedures for refund of service tax for exporters

Circular No. 120/01/2010-ST

Government of India
Ministry of Finance
Department of Revenue
(Tax Research Unit)

New Delhi dated the 19th January, 2010.


            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.


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 faciewould 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)

Details of goods/services exported on which refund of input credit is claimed


Details of shipping bill/ Bill
of export/export documents etc.

Details of input credit on which refund claimed

Date of export order
Goods/ service exported
Invoice No., date and Amount
Name of service provider/ supplier of goods
Service tax/
Excise Regn. No. of service provider/ supplier of goods
Details of service/
 provided with classifi-
cation under FA 1994/

Service tax/
duty payable
Date and details of payment made to service provider



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

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

Tuesday, July 26, 2011

we need to know the complete process follow chart to avail the 4% additional duty refund from Custom or excise department. :: Answer it on Economictimes QnA

we need to know the complete process follow chart to avail the 4% additional duty refund from Custom or excise department. :: Answer it on Economictimes QnA

Special valuation for related party by SVB

Circular No. 11. /2001-CUS23rd February 2001
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

Sub : Valuation (Customs) – Cases handled by Special Valuation Branch of the Custom Houses – Review of instructions
        The existing instructions and the procedures observed in the various Custom Houses in regard to cases taken up by the Special Valuation Branch of the Custom Houses have been reviewed by the Board and the following instructions are issued in modification of the earlier Circular No. 1/98-Cus, dated 1.1.98:-
(a)The ‘Special Valuation Branch’ (SVB, for short) as an institution specialising in investigation of transactions involving special relationships and certain special features having bearing on value of import goods should be continued. SVBs would continue to be located only at four major Custom Houses, i.e., Chennai, Calcutta, Delhi and Mumbai and any decision taken in respect of a particular case in any of these major Custom Houses shall be followed by all other Custom Houses/formations.
(b)The Special Valuation Branch of that major Custom House, (out of the 4 mentioned earlier) which is located proximate to the Head or Corporate Office of the importer (having special relationships etc. with the suppliers), would handle the investigation into valuation of such importer. Wherever in the declaration prescribed under the Customs Valuation (Determination of Price of imported goods), Rules, 1988 (hereinafter referred to as "Valuation Rules, 1988"), the importer has himself made an averment that the transactions are between related persons in accordance with Rule 2(2) of the Valuation Rules, 1988, and there is a, prima facie, justification for further enquiry, the concerned case of import may be referred to the SVB of the concerned Custom House, where a separate case file should be opened and a registration number assigned to the case. Similar reference to SVB to look into valuation on account of special relationship could be ordered by Commissioner concerned where though not disclosed by the importer, such relationship comes to light on any intelligence or while enquiring into transactions of any importer with a particular supplier.
(c)It will be deemed that a, prima facie, case exists for investigation by the SVB where the importer is not able to provide evidence to the effect that the price has not been influenced by the relationship or where the importer is not able to demonstrate that the price for the said goods closely approximates to one of the following values ascertained at or about the same time –
(i)the transaction value of identical goods, or of similar goods, in respect of sales to unrelated buyers in India;
(ii)the deductive value for identical goods or similar goods; and
(iii)the computed value for identical or similar goods.
2.    Apart from investigation of special relationship case, SVB will also handle more complicated cases of additions to declared transaction value as stipulated under Rule 9 of the Valuation Rules. No reference to SVB would be necessary where any additions are sought to be made under Clauses (a) and (b) of Rule 9(1). Where, however, the additions sought to be made are considered to be in the nature of ‘royalty and licence fee’ under Rule 9 (1)(c), or where the value of any part of proceeds of any subsequent resale, disposal or use of imported goods accrues to the seller [i.e. Rule (9)(1)(d)] or where any other payments are made or are contemplated to be made in future by buyer to seller as a condition of sale of imported goods etc., [i.e. Rule 9(1)(e)], the case may be referred to the SVB after following the provisional assessment procedure.
3.    All cases to be registered in the SVB for special investigation shall be with the specific approval of the concerned Commissioner of Customs. Without the approval of the Commissioner, no case should be referred to the SVB.
4.    Where the imports requiring investigation by SVB are noticed in a Custom House or Customs formation other than Chennai, Calcutta, Delhi, or Mumbai Custom House, all the relevant records should be forwarded to the SVB of the concerned Custom House which would take up the investigation of the case, after following the provisional assessment procedure. The Custom House which would be undertaking the investigation will be determined in terms of paragraph 1(b) above.
5.    There should be greater co-ordination amongst the SVBs of the four Custom Houses which undertake investigations in case where special relations between the importer and supplier exist or in cases referred to in paragraph 2 above. The information available, showing special relationship in respect of a supplier and importer, under investigation in any SVB needs to be shared amongst the four Custom Houses on a regular basis. Once a case is registered by the SVB of one of the 4 Custom Houses, detailed information regarding the same alongwith PAN No. of the importer should be furnished to the Directorate of Valuation for maintaining a Central Registry. The Directorate of Valuation will also circulate such details through the monthly Valuation Bulletins to all Custom Houses, so that imports effected at any Custom House in such cases under investigation by SVB are undertaken provisionally and interests of revenue are safeguarded.
6.    The procedure so far being adopted for registration and subsequent investigation of the cases may continue to be followed. The requirement of furnishing information and the formats of the sample questionnaire, as also the list of the documents required to be submitted have since been reviewed and a consolidated questionnaire along with list of documents has been prepared (Annex- A). This should be issued by the assessing group, dealing with particular imports, to the importer soon after it is decided (with Commissioner's concurrence as mentioned earlier) to refer the case to a SVB. Any importer to whom the questionnaire is issued should be instructed to furnish the reply to the referring Custom House as well as to the SVB of the concerned major Custom House, within 30 days of receipt of the questionnaire. The questionnaire should be issued by the Custom House referring the case to the SVB.
7.    Upon receipt of reply to the questionnaire within the prescribed time limit, the SVB will decide within 7 days whether the importer has replied to the questionnaire substantively. Otherwise, immediate further information not furnished will be sought before taking step for finalisation of investigation.
8.    Board is very keen that decision to make reference to SVB and advancing all assessments of particular importer for goods from particular suppliers to be undertaken on provisional basis, should be made after very careful consideration and good deal of circumspection. It would be imperative for the concerned Commissioner of Customs to critically examine the issues involved and decide whether it merits detailed enquiries by SVB and adoption of the provisional assessment procedure. In each and every case, the decision would be taken at his level before provisional assessment is ordered and matter referred to SVB. There would be however no need to obtain Commissioner's approval for imports made under different bills of entry, in a particular case, once the case has been registered with the SVB.
9.    The amount of extra duty deposit presently kept at 1% will be continued. Board has however decided that if the importer does not furnish complete reply to the questionnaire within 30 days, of receipt of the 'Questionnaire' by the importer, the extra duty deposit will be increased to 5% till the date of receipt of reply by the Department. It should therefore be impressed upon the concerned importers (in the public notice that is issued) to ensure timely replies being sent to the Questionnaire to avoid any higher deposit being insisted.
10.    Furthermore, where provisional assessment is being resorted to, the investigation and finalisation of the assessment must be completed within four months from the date of reply. If no decision is taken within 4 months, the extra duty deposit should be discontinued and the concerned Deputy Commissioner/Assistant Commissioner will be held responsible for inexplicable delay in finalisation.
11.    It has been reported that the Declaration forms prescribed for valuation purposes are being filled up in a very casual manner by the importers leaving many columns blank. All the assessing officers must be directed to ensure correct filling up of these forms including reference to the relevant B/E before they allow individual clearances after provisional assessment. (The declaration form is being revised to include details of the ports/ICDs through which the imports will be effected).

Tuesday, March 08, 2011

After current Budget , Refund claim can be filed after one year

Earlier limit for filing refund claim under section 27 of Customs Act is increased from Six months  to one year.

Customs should issue assessing order indicating the excess duty refundable

There is  a Public Notice  issued  by Chennai Customs House  for provisional  assessment and refund of duty ,if any. Reproduced below.



                                        PUBLIC NOTICE NO. 45 /2004

Sub:- Refunds Settlement – reg.

Attention of all Importers, Exporters, CHAs and the trade are invited to the procedure of filing refund claims in the case of Provisional assessments.  It has come to notice that the refund claims are being filed with AC/DC(Refund) for refund of duty on the import consignments which are assessed provisionally by the Group under Sec.18 of Customs Act, 1962. In the case of provisional assessments, the refund of duty arises only after final assessment is made.  Explanation II of Section 27(1) of the Customs Act, 1962 provides that
“Where any duty is paid provisionally under Section 18, the limitation of one year or six months, as the case may be, shall be computed from the date of adjustment of duty after the final assessment there”.  
In other words, the final duty is computed only at the time of final assessment of P.D. cases.    It is therefore advised to file refund claim with AC/DC(Refunds) only after finalisation of provisional assessments and issue of proper orders by the Assessing Groups indicating the excess duty refundable.
All concerned are, therefore, directed to ensure that all Refund Claims are filed with AC/DC(Refund) only after finalisation of the provisional assessment and relevant orders are issued by the Appraising Groups.  Refund claims relating to cases involving provisional assessments shall not be entertained directly in Refund Section.

S.Misc.9/2004-Refund                                                                                                                         (B.S.V. MURTHY)
Custom House,                                                                                                            COMMISSIONER OF CUSTOMS
Chennai.                                                                                                                                                         EXPORTS

Dated: 10.3.2004.