Refunds Under Service Tax Law ICAI 07.12

Your efforts may fail, but never fail to make an effort

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Refunds under Service Tax Law(CPE Study Circle meeting at Bangalore Branch of SIRC on 07.12.2011)G.LAKSHMINARAYAN. B.COM, ACA(LLB) GMR GROUP Corporate Legal & Indirect Taxation [email protected] Mob:9880423839

Refunds Under Service Tax Law Coverage: Refund of Unutilized CENVAT credit Rebate of Excise Duty on inputs and service tax paid on input services used in export of Taxable Services Rebate of Service Tax paid on Export of Taxable Services Exemption or refunds to SEZ units or its Developers Other refunds Case laws for rescue

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REFUNDS UNDER SERVICETAX LAWObjective

To understand about What is Refund/Rebate Eligibility and Right to claim the refunds/rebates Various situations entitling the refunds/rebates

Refund of Un utilized CENAVT CreditRebate Under Notification No.12/2005 Rebate Under Notification No.11/2005 SEZ

Conditions to be fulfilled for claiming refund/rebate Forms to be used Time limit to claim the refunds/rebates Information to be provided to the authorities Various kinds of allegations/reasons by Department to reject the

refund/rebate claimsOther refunds

How to reply to the show cause notices

REFUNDS UNDER SERVICETAX LAWObjective

What is Rebate/Refund: Rebate/refund will arise only when duty is paid - (PUNJAB KHAND UDYOG LIMITEDVERSUS COLLECTOR OF C. EX., CHANDIGARH- 93 ELT 813 )


Refund in a taxing statute is to be made not on the ground of compensation for loss or damage sustained by a tax-payer but on the principle of restoration to the tax-payer of what had been collected from him without justification of law. It is nothing but `restitution or `compensation. - (MAFATLAL INDUSTRIES LTD. Versus UNION OF INDIA-89 ELT 247 SC) Refund of tax means returning to the assessee what had been taken or received from him unlawfully - (Webster Comprehensive Dictionary, International Edition1984)

Others

Refund includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;- (Section 11B of Central Excise Act 1944)

Notification No.05/2006 CE.NT Dt.14.3.06Eligibility Criteria:Objective

Input or input services used in Final product cleared for export under bond or letter of undertaking Or Intermediate products cleared for export 0r Output service is exported And CENVAT credit on such inputs/input services is not possible to be adjusted towards payment of duty of excise on any final product cleared for home consumption or for export on payment of duty; or service tax on output service,


Then Refund of un-utilized CENVAT credit (subject to conditions, limitations, safeguards)

Others

Notification No.05/2006 CE.NT Dt.14.3.06Conditions/safeguards/limitations:Objective

No rebate under Export of services Rules is claimed No Drawback claimed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, Final product cleared for export under bond or letter of undertaking No unjust enrichment accrued to the claimant Export of goods or taxable services should be in accordance with CER or Export of Services Rules, 2005 Claim once in a quarter If Export turnover is more than 50% of Total turnover or claim is by EOU- claim may be made once in a calendar month Application should be in form A To the AC/DC in whose jurisdiction the factory is situated along with bill of export/Shipping Bill or the registered premises of service provider from which the output services are exported Along with Copy of invoices/Bill of export/shipping bill and FIRC


Others

Notification No.05/2006 CE.NT Dt.14.3.06CertificationObjective

Certificate from a Statutory Auditor or Tax Auditor if the refund claim exceeds Rs.5 Lakhs in a quarter


Certificate by the BOD or a partner or proprietor if the refund is less than Rs.5Lakhs in a quarter Time Limit to claim refund: Within one year from the date of export. What is the date of export? Limitations: The refund of un-utilized input service credit will be restricted to the extent of the ratio of export turnover to the total turnover for the given period to which the claim relates i.e. Maximum refund = Total CENVAT credit taken on input services during the given period ( Export turnover Total turnover).

Others

Notification No.05/2006 CE.NT Dt.14.3.06Documentation:Objective

Application in FORM A Registration Certificate FIRC Copies CENVAT Credit details Copies of Export Invoice/s Copies of Input service invoices and Inputs purchase invoices Copies of agreement with overseas clients/customers Copy of ST-3 Write up on services exported Declaration that Duty Drawback is not availed under Customs and Central Excise


Duty Drawback Rules 1995 or Rebate of service tax under EOS Rules, 2005Others

Write-up on relation between the input services and the export services

Notification No.05/2006 CE.NT Dt.14.3.06Recent Developments:Objective

Draft Circular seeking suggestions from the stake holders to simplify and clarify the eligibility criteria's for refund of un-utilized CENVAT. The draft circular was


open for the suggestions or feedback from the stake holders till 30.11.2011

Others

Notification No.05/2006 CE.NT Dt.14.3.06Questions:Objective

Whether the inputs/input services should be used exclusively for export of services? Whether CENVAT on Capital goods is eligible for refund ? Where do you refer to understand the term Export of Services? Whether the registration of the premises of the service provider is necessary before Exporting the Output Services What is the maximum Time limit to sanction the refund claim What is Total Turnover?


Others

The amount of taxes you pay depends, to some extent, on how much petrol you buy.

Notification No.12/2005 ST dated 19.04.2005Eligibility Criteria:Objective

Excisable Inputs or Input services are used in providing Taxable Export


Services Need not be wholly used in providing them Such Taxable services are exported to any country

Other than Nepal/Bhutan Payment for such export is received in CFC Conditions and Limitations: The duty, rebate of which has been claimed, has been paid on the inputs The service tax and cess, rebate of which has been claimed, have been paid on the input services No CENVAT credit has been availed on inputs and input services on which rebate has been claimed; and If the above conditions are not fulfilled or the services are not really exported the rebated claimed shall be recovered along with interest

Others

Notification No.12/2005 ST dated 19.04.2005Objective

Prior Declaration: File a declaration with the jurisdictional AC or DC with the details of output services envisaged to be exported with, Description, quantity, value, rate of duty and the amount of duty payable on inputs actually required to be used in providing taxable service to be exported;


Description, value and the amount of service tax and cess payable on input services actually required to be used in providing taxable service to be exported. (Tentative Values )

Verification of the declaration by the AC/DC for the correctness. If necessary call for any information or samples of inputs and accept the declaration if satisfied

Presentation of claim: Filed within 1 year from the date of Export of Services

Others



Documentation: Application in Form ASTR-2 CENVAT Invoices Copies of Export Invoice FIRC Copies Registration Certificate Input service / inputs details Declaration stating the output services are exported Copies of Input service invoices and Inputs purchase invoices

Copies of agreement with the overseas clients/customers Copy of Form ST-3 Write up on services exported

Others



Questions: ? Whether prior declaration is mandatory? ? Whether rebate can be claimed on service tax paid on capital goods used for Export of services ? Whether actual receipt of Convertible Foreign Exchange is mandatory ? Whether the rebate is of service tax paid on the input services or CENVAT credit in relation to input services

Any more ???? please

Others

while fine is a tax for doing something wrong, a tax is a fine for doing something right.



Eligibility: Taxable services are exported Exported with payment of service tax

What is refunded: Service tax and Cess paid on taxable service exported

Procedure: Claim filed with the AC/DC FIRC Copies are obtained from the Banker and filed along with the claim Proof for payment of service tax on exports

Others

Notification No.11/2005 ST dated 19.04.2005DocumentationObjective


Application in form ASTR-1 Export Invoices copies FIRC Copies Registration Certificate Input service inputs details

Declaration stating that the taxable services are exported Copies of Input service invoices and Inputs purchase invoices Copies of agreement with the clients/customers Copy of Form ST-3 Write up on services exported Declaration copy

Others

Notification No.11/2005 ST dated 19.04.2005Questions:

Objective


The best way to predict the future is to invent it

Others

Exemptions/Refunds to SEZ Unit or DeveloperRelevant Notifications issued under Service Tax

Objective

Notification No.

Period

Area

Exemption


4/2004-STdated 31.3.2004 9/2009-ST dated 31.3.2009 15/2009-ST dated 20.5.2009

31.3.2004 to 18.5.2009 31.3.2009 to 19.5.2009 w.e.f. 20.5.2009 onwards

Within SEZ Inside or outside SEZ Inside SEZ

General Via Refund route Unconditional Exemption

15/2009-ST dated 20.5.200915/2009-ST dated 20.5.2009 17/2011-ST dated 1.3.201 17/2011-ST dated 1.3.2011

w.e.f. 20.5.2009 onwardsw.e.f. 20.5.2009 onwards w.e.f. 1.3.2011onwards w.e.f. 1.3.2011onwards

Outside SEZPartly inside/outside SEZ Wholly consumed inside SEZ Partly inside, partly DTA or Common

Via Refund routeVia Refund route Fully exempt Via refund route(prorata)

Others

Exemptions/Refunds to SEZ Unit or DeveloperObjective


Eligibility Criteria: Taxable services received by SEZ developer/unit for the authorized operations in SEZ Benefits: By way of full Exemption from charging of service tax by the service provider By way of refund of service tax paid Essential requisitions for availing full exemption The SEZ does not have any operations other than SEZ operations or Has other operations also but the subject services are wholly consumed within SEZ List of services approved by the Approval committee and certificate issued by DC/ADC of SEZ(Application should be made to the DC of SEZ) If SEZ does not have any operations other than SEZ operations, then a Declaration to that effect with the details of services required for operations and the name of the service providers Note: Has an option to pay service tax without availing the exemption. Why?

Others

Exemptions/Refunds to SEZ Unit or DeveloperObjective


What is wholly consumed in SEZ Category I Taxable Services in relation to Immovable property situated within SEZ (First category services mentioned in EOS Rules)Category II

Taxable services wholly performed within SEZ (Second category mentioned in EOS Rules, 2005)Category III

Other taxable services (Third category services mentioned in EOS Rules) if the SEZ does not have any business other than SEZ operations Declaration by the wholly SEZ is mandatory to that effect

By way of refund if not wholly consumed in SEZ Of service tax paid on the services used fully for SEZ operations Of service tax paid on the common services - Partial refund If not wholly consumed

Others

Exemptions/Refunds to SEZ Unit or DeveloperConditions to be fulfilled for refund: Approval of services required for operations in SEZ The services are used for authorized operations in SEZ The payment for the input services along with the service tax has been made Should not avail the CENVAT credit on such input services Maintain proper records Refund should be claimed only under this exemption except in the case of wholly consumed services

Objective


Time limit : 1 year form the date of actual payment of service tax

Refund claim DocumentationIn Form A-2 Copy of certified Form A-1(Copy of the list of services required for authorized operations as certified by the approval committee.) Invoice Certificate from a Statutory Auditor Declaration that The input services are used for operations in SEZ Proper accounts maintained and produced before sanctioning authority on demand

Others

Exemptions/Refunds to SEZ Unit or DeveloperRefund claim Procedure: Unit in SEZ or developer of SEZ should pay service tax on specified services consumed in SEZ File refund claim to Assistant or Deputy Commissioner of Central Excise having jurisdiction over SEZ or registered office or head office of said developer or unit, as the case may be. Refund claim should be made in Form A-2. Form A-2 is used for both cases- wholly consumed services and refund for specified services by giving proper details Refund should be of service tax paid on specified services- used in the manufacture of final products exported from SEZ - used in providing output services exported from SEZ.

Objective


Others

Exemptions/Refunds to SEZ Unit or DeveloperMaximum Time to grant refund Notification is silent. However, Circular F.N0.341/15/2007 TRU Dated 17.4.2008 should be made applicable

Objective


Other requisitions Amount of Turnover in Table C should be verified and certified as true by the Statutory Auditor of SEZ unit. Based on Form A-3, after verification a service tax code number will be allotted within seven days of the receipt of declaration.

Others

Refunds to SEZ Unit or DeveloperObjective


Questions: Under what circumstances SEZ developer needs to claim only refund on duties/service tax paid instead of exemption? What is the procedure to be followed by SEZ developer/SEZ unit to obtain exemption certificate? Whether refund claim filed by SEZ developer/Unit can be rejected by the authority, If yes, under what situations?

Whether service tax exemption is by way of refund only?Whether sub-contractors providing services to a contractor appointed by Unit of SEZ are eligible for service tax refund or exemption?

Others

Refunds to SEZ Unit or DeveloperObjective


Any more ???????

Others

Other refundsScenario:Objective


Mistaken Service tax payments Excess payment of Service tax Issuance of credit note and claim of refund due to excess payment Wrong classification and payment of service tax

Unjust Enrichment:

Unless disproved by the assessee, the refund would be credited to the consumers Welfare fund (Corporation Bank Vs.Saraswathi Abharanasala 2009 19 VST 84 SC)

Claim ProcedureApplication can be in a plain paper Along with the relevant documents substantiating the claim If rejected on time limit grounds-File a writ petition

Other Refunds

Other refundsUnjust Enrichment:Objective

UOI vs. Ltd AIR 1989 Bom 183 HC . Introduced w.e.f 20.09.1991 in CEAQuestions:


Who can claim the refund? Assessee who paid the duty or the buyer who borne the duty Whether refund claim valid even if the claim is not made in proper format?

Whether time limit is mandatory? Yes, unless the duty recovered unconstitutionally Anam Electrical Mfg co. 90 ELT 260 (SC) 1997

Other Refunds

Certain case laws for rescueObjective

Natraj & Venkat Associates Vs.ACST 2010 26 STT 232 Mad HC & KVR Constructions Vs.CCE (2010) 25 VST 525 Kar HC: No time limit if amount paid is not taxAlcatel Modi Networks Vs.CCE 12 STT 240( 2008) P&H HC Time Limit not applicable when duty is paid under protest-


Opel Alloys Vs.CCE ( 2010) 249 ELT 408 Amount deposited during investigation is deemed to be paid under protest. Time limit is not applicable

Whether certificate from a CA is sufficient to prove the non passing of the duty burden? Mixed judgments

Other Refunds


Shankara Ramachandra Auctioneers 2010 (26) STT 421 (CESTAT SMB) Refundable amount showing as Current Asset in the books of account ( mixed judgments) CCE Vs.SCB 2006(6 STT 338 CESTAT BLR - affirmed by Kar HC Refund of service tax if paid on billed amount and collected less from the customer/client Bharat Heavy Electricals Vs. CCE 2010 (253) ELT 339 When tax paid twice by mistake No unjust enrichment


GTN Engineering (I) Ltd-Guj HC -2010 (259) E.L.T. 625 (Tri. - Chennai) Time limit is not applicable for claiming refund under Rule 5 of CENVAT Credit Rules Philco Exports Vs.CCE (2009) 234 ELT 568 Month to month relation of inputs is not required

Other Refunds



CCE, Ludhiana Vs. Bharat Box Factory Ltd -2007 (218) E.L.T. 355 (P & H) Vardhaman Industreis Ltd Vs.Commissioner 2011 (SC) 267 ELT A025 Whether duty paid at the time of clearance of goods and collected from customers can be refunded if post clearance transaction is made through credit note?YesRatio: No case of unjust enrichment arising from the case. Assessee did not receive higher duty amount or price from the buyers and no amount of duty was passed on to the customersCommissioner of Service Tax, Bangalore Vs Shiva Analyticals (I) Ltd 2009 (14) S.T.R. 301 (Kar.) Due to non rendering of the service, the respondent issued credit notes towards refund of service tax refund granted earlier was asked to be repaid by the commissioner on grounds of unjust enrichment Refund granted Ratio: Since the respondent issued credit notes towards refund of service tax, the refund order passed by the original authority is legal and proper

Other Refunds



IN RE: I. SEVA SYSTEMS PVT. LIMITED 7 STR 242 (Commissioner Appeals BLR) Although, exempted from payment of service tax, the call center service is still a taxable service inasmuch as it is not eliminated from the list under clause (105) of Section 65 of the Act and hence eligible for rebate under the Notification No. 12/2005-S.T., dated 19-4-2005 which does not restrict grant of rebate to any exempted output service Further, as regard to the verification of the documents relating to proof of export/realization of foreign exchange, the same could have been verified by writing to the bankers instead of rejecting the claim on purely procedural matters

KVR Constructions Vs.CCE Kar HC 17 STR 006 Service tax paid on non- taxable services by mistake. Payment of service tax on non taxable services is deemed to be a deposit made Relied on: M/s. Motorla India Pvt. Ltd. v. CCE, Bangalore-III in the Honble High Court of Karnataka, 2006 (206) E.L.T. 90 (Kar.).

Other Refunds

Certain case laws for rescueJyoti Overseas Pvt Ltd Vs.CCE Jaipur CESTAT Delhi Fact: Exempted goods were exported. Refund rejectedObjective

Refund grantedRefund of Un utilized CENAVT CreditRebate Under Notification No.12/2005 Rebate Under Notification No.11/2005 SEZ

Ratio: Rule 6(6) of CCR Rules provides that proviso to Rule 6(1) shall not apply to a case of exported goods removed without payment of duty cleared for export under bond Rule 5 of the CCR provide for refund of un utilized CENVAT when input or input service is used in the manufacture of final product which is cleared for export under bond The goods were cleared under bond, though it was not required as the goods were exempt. But still they fall under Rule 6(6). Relied on Repro India Ltd Mumbai HC

Other Refunds

Open forRefund of Un utilized CENAVT Credit Rebate Under Notification No.12/2005

Rebate Under Notificat ion No.11/2 005

SEZ

Other Refunds

Avoidance of taxes is the only intellectual pursuit that still carries rewardThe views expressed and the information provided in this presentation are of general nature and not intended to address the circumstances of any particular individual or entity. The content, symbols or the photos used in this presentation are only for the purpose of explaining the subject without any commercial benefit out of them and does not amount to any infringement nor used with such intention. The above content should neither be regarded as comprehensive nor sufficient for making decisions. No one should act on the information or views provided in this presentation without appropriate professional advise from the author of the presentation. It should be noted that no assurance is given for any loss arising from any actions taken or to be taken or not taken by anyone based on this publication. This is meant for private circulation only

Refunds Under Service Tax Law ICAI 07.12

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Refunds Under Service Tax Law ICAI 07.12