Export units can claim Cenvat refund

EXIM MATTERS

The exporters of services and export oriented units (EOU) can now claim refund of utilised Cenvat credit on account of exports without payment of excise duty or service tax. The government has amended Rule 5 of Cenvat Credit Rules, 2004, and also notified the procedures for claiming the refund.

The revised procedures (notification no.5/2006-CE (NT) dated March 14, 2006, are relevant for manufacturer exporters also. When manufacturers export goods under bond or undertaking, they do not pay duty on the exported goods.

Similarly, when service providers export, they do not pay service tax. They are, however, allowed to retain the Cenvat credit of the specified duties or taxes paid on the inputs or input services.

The rules allowed manufacturers to use unutilised credit on account of export under bond or undertaking towards payment of duty on final products cleared for home consumption or for payment of duty on final products cleared for export under a claim of rebate, or if that was not possible, claim a refund of the same.

Now, service providers have also been allowed to use the unutilised credit to either pay service tax on output service or claim a refund. They should take note that "output service which is exported" means the output service exported in accordance with the Export of Services Rules, 2005.

They have to submit proof of realisation of export proceeds besides other documents. The refund is not available if the manufactures claim drawback or rebate of duty or the service providers claim rebate of taxes under the relevant rules in respect of such taxes.

Also, the service providers cannot use the credit of the new 4% CVD for payment of service tax on any output service. The procedure requires submission of an application every quarter claiming the refund from the jurisdictional Assistant/Deputy Commissioner of Central Excise.

The application can be filed every month if the manufacturer or service provider exports an average of more than 50% in value terms in the previous quarter. Earlier, this facility was available only to manufacturers exporting more than 75% of production in value terms.

An interesting simplification in the new procedures is the prescription of a simple formula to arrive at the quantum of refund due. Whatever percentage the export turnover constitutes of the total turnover, that much percentage of the credit taken during the relevant period will be refunded.

It must be noted that "total turnover" includes clearance of exempted goods/services and export of bought out goods This is a remarkable simplification because too many disputes used to arise in quantifying the credit to be refunded. The application of new formula only requires the figures of export turnover, total turnover and amount of credit taken during the relevant period.

As usual, the government has put one restriction that can lead to denial of refund claims. The refund is allowed only in circumstances where a manufacturer or provider of output service is not in a position to utilise the input credit or input service credit allowed under rule 3 of the said rules against goods exported during the quarter or month to which the claim relates.

This restriction is enough to cause quite a bit of nuisance because it is not always possible to establish that the Cenvat credit cannot be used in any other manner.

email: tncr@sify.com