The New Year gift from the finance ministry to exporters is an optional scheme to refund service tax on export related services electronically through the Customs. The gift from the commerce ministry is withdrawal of duty drawback benefit for deemed export supplies to non-mega power projects.
Refund of service tax on select services used for exports was first initiated in 2007. The scheme was refined in 2009, allowing exporters to not pay the tax at all for Goods Transport Agency Service and Commission Agent Service (up to specified limit) and allowing refund of tax paid on 18 specified services. However, thanks to difficulties in getting refunds, there were demands for a simpler scheme.
In response, the finance ministry has come up with a scheme to refund service tax at pre-determined rates through EDI that will help save transaction time and costs for exporters.
The new notification lists 288 export items and the rate of refund ranging from 0.03 per cent to 0.20 per cent of the FOB value that will be credited directly to exporters’ bank accounts, after the goods are cleared for exports. The exporters have to register with Customs the Central Excise registration number or Service Tax Code number and the bank account number.
Declarations will have to be made on the shipping bill. The new scheme is an alternative to the refund scheme and is not available if Cenvat Credit has been availed of the tax paid on specified services and for exports by Special Economic Zone (SEZ) units or developers. The scheme works the way the disbursement of All Industry Rates of drawback works and will greatly help small exporters through reduced documentation and quicker refunds.
Deemed export benefits to non-mega power projects has been a controversial matter, as many project authorities or contractors have been claiming the power plant to be goods and claiming duty paid on the equipment and construction material procured for setting up the project as duty drawback. The misuse was facilitated by an internal circular from the office of Director General of Foreign Trade. (For details, please see ‘DGFT must stop malpractice in drawback payments’ in Business Standard of 28.3.2011).
The Policy Interpretation Committee of the DGFT had decided in March last year that excise duty paid at the terminal stage of supply to non-mega power projects is not to be refunded as drawback. The DGFT woke up in the last week of December to issue a circular, denying drawback of duty paid on goods imported by contractors and sub-contractors and supplied to project authorities. The circular does the right thing but gives incorrect justification. The fact is that the project authorities are treating the entire power plant as goods supplied by contractors and treat the imported goods used for setting up the power plant as inputs.
The Commerce Ministry amended Para 8.4.4 of the Foreign Trade Policy so as to deny drawback of supplies to mega power projects altogether. However, advance authorisation will continue to be available for duty-free inputs for manufacture of goods supplied to non-mega power projects. The ministry must appreciate that duty drawback is only a mirror of duty exemption scheme and if inputs can be procured without duty, drawback of duty paid should not be an issue.
