Presenting the Budget this year, the finance minister admitted that disbursement of the taxes that go into the export of services had been an irritant for long. He announced a scheme to simplify refunds without voluminous documentation or verification, covering manufacturers, too.
The necessary amendments to Rule 5 of the Cenvat Credit Rules (CCR) were issued through notification 18/2012-CE(NT) dated March 17 and the amended Rule 5 took effect on April 1. The notification prescribing safeguards, conditions, procedures and limitations is yet to be issued.
A letter, DOF No 334/1/2012-TRU dated March 16, issued by the joint secretary (tax research unit) of the Central Board of Excise and Customs (CBEC), explaining the various changes made on Budget Day, said in introductory remarks that “no more will an exporter be asked whether an input service has been used in export to claim a Cenvat refund”. Elaborating later that “a simplified scheme for refunds is being introduced by substituting Rule 5 of Cenvat Credit Rules, 2004. The new scheme does not require the kind of correlation needed now between exports and input services used in such exports. Duties or taxes paid on any goods or services that qualify as inputs or input services will be entitled to a refund in the ratio of the export turnover to total turnover. The notification prescribing the detailed manner and safeguards will be issued by the policy wing shortly.”
The amended Rule 5 is a significant improvement over the earlier dispensation. The provision for refund of unutilised Cenvat credit is available not only for service providers that export services without payment of service tax but also for manufacturers who export without payment of duty under bond or letter of undertaking. As a incentive, such refunds are also admissible for taxes on taxable services that have been exempted. Significantly, the amended Rule allows refund even against clearance of intermediate products for export against bond. Second, the new dispensation prescribes a formula for grant of maximum refund and defines various elements in the formula rather clearly. Third, it does not put any condition that refund will be available only when a manufacturer or service provider is not in a position to utilise the credit in any other manner.
Getting refund of unutilised credit has long been vexatious. Based on recommendations of the Economic Advisory Council to the Prime Minister, the CBEC had prepared a scheme to refund 80 per cent of the amount due, based on the refund and rebate claims filed by the exporters within 15 days of filing claims, subject to final settlement within the next 30 days. It simply did not work because the CBEC could not make its field officers obey the instructions. Rule 5 of CCR and the related notification, 5/2006-CE(NT) dated March 14, 2006, have been repeatedly amended to facilitate refunds but exporters have not been able to get these quickly.
The new dispensation, once again, raises hopes that refund of unutilised Cenvat credit will be granted quickly. The CBEC should quickly issue the necessary notification and instructions, and institute suitable mechanisms to ensure its field formations follow the instructions for quick refunds.