Drawback rates to include service tax on inputs

The new duty drawback rates for the current fiscal will incorporate the incidence of service tax for the first time.

A committee, appointed by the revenue department to finalise the drawback rates for 2006-07, has favoured a composite drawback rate which would include the incidence of service tax.

The committee headed by Saumitra Choudhary, chief economic advisor at ICRA, is expected to submit its report to the ministry next week and the new drawback rates for 2006-07 may be notified by 15 June.

Drawback refers to the refund given to exporters on taxes like excise, Customs and service tax (from this year) levied on inputs in the manufacture of export products.

"The drawback rate will be a single composite rate. It will incorporate the burden of service tax on inputs. There will be no separate break-up of the service tax," a source said.

Since the Budget this year has announced a countervailing duty of 4 per cent on goods which are exempt from excise duty, exporters using inputs under this category will benefit by getting a higher drawback.

"However, the overall drawback rates will be marginally lower on account of the lowering of Customs and excise duty," sources said adding that some more items will be included under the new drawback schedule.

The commerce and industry ministry had in its Foreign Trade Policy in April, 2006 announced that incidence of fringe benefit tax (FBT) and service tax would be refunded for exporters. The finance ministry has since clarified that FBT cannot be refunded as it does not affect the exporter.

Other members of the drawback committee include T R Rustagi, former joint secretary in the tax research unit of the finance ministry and S B Mohapatra, former textile secretary.