Johnny and Service Tax Refund (Series-II) Part VI: - “Self Certification - An Inflexible Condition”

[Pradeep Jain]

By: -   CA. Pradeep Jain

Mayank Palgauta

Visit us at: www.capradeepjain.com

In continuation of previous articles, elaborating the difficulties in getting the refund claim under different conditions, we in this article are unveiling the problems existing in the Service tax refund mechanism under condition of Certification of Self Certification. This complete scenario is being elaborated with the means of humorous poems and conversation between Johnny (an assessee) and his father but the main motive is to bring out the problems faced by exporters.

Johnny and Jill went up the hill, to get the refund orderJohnny came back with a lack And Jill came hopeless after.

Presently, assesses are claiming refund orders under various services as specified under Notification No. 17/2009-ST and are experiencing vast intricacies in getting such refund orders. The refunds claimed by the assessees as against their exports are their Rights but are being refused by the departmental authorities on various arguments which are of no significance and worth less. Such reasons on which the department is refusing the refund claims on the said services are being written out hereunder as follows: -

Johnny-Johnny!  Yes papa!

Got the refund?

No Papa,

Telling lies?

No Papa,

What's the reason?

This papa: -

Johnny says:  I went to the department to get the refund for the various services availed by me in relation to export of goods, but department said: -

Johnny-Johnny go away,Come again another day.Your refund order has following Flay: -

The documents/ invoices issued by the service provider are not duly certified in terms of Paragraph 2 (i) & (j) of the Notification No. 17/2009- ST and thus the refund is not sustainable.

Johnny's View: 

In this respect it is submitted by us that the Paragraph (i) of the said notification is reproduced below-

(i) where -

(A) the total amount of refund sought under a claim is upto 0.25% of the total declared free on board value of export;

(B) the exporter is registered with Export Promotion Council sponsored by the Ministry of Commerce or the Ministry of Textiles;

(C) subject to the provisions of (A) and (B) above, each document specified in clause (b) and in column (4) of the said Table shall be enclosed with the claim;

(D) invoice, bill or challan, or any other document issued in the name of the exporter, showing payment for such service availed and the service tax payable shall be submitted in original after being certified in the manner specified in sub-clauses (E) and (F);

(E) the exporter is a proprietorship concern or partnership firm, the documents enclosed with the claim shall be certified by the exporter himself and where the exporter is a limited company, the documents enclosed with the claim shall be certified by the person authorized by the Board of Directors;

(F) the documents enclosed with the claim shall contain a certificate from the exporter or the authorized person to the effect that specified service, to which the document pertains, has been received, the service tax payable thereon has been paid and the specified service has been used for export of goods under the shipping bill number;

If the sub clauses of the clause (i) are taken one by one, our refund claim is less than 0.25% of the FOB value. The (C) point says that subject to point (A) and (B) all the conditions in clause (b) and in column (4) of the said Table shall be enclosed with the claim should be satisfying. According to the table we have submitted all the documents and fulfilled all the conditions specified. It is further submitted that in the columns of the table given in Form-A1 the assessee has to give detail of each and every invoice issued by service provider with corresponding shipping bill no. and date, Bill of lading no. with date, description of goods exported, quantity of goods exported, FOB value etc. In our case we have given full description as required in the table. This shows that the particular service is relating to a particular shipping bill/Bill of lading. Therefore the fact is clear that all the specified services are used in the export. Further in the column no. 17 of the same table requires the detail of "Total amount of Service Tax Paid" in which we have mentioned the amount of service tax paid by us and same is claimed as refund. So the word PAID written in the column no. 17 also clears the fact that whatever written in that column is already PAID. Further the substantial conditions viz. export of goods, use of services in export of goods, payment of service tax etc. have been fulfilled by us for the purpose of refund claim of service tax. But due to unintentional error the certification was missed in the invoices. This is rectifiable error and we are ready to rectify the same. But as the original invoices is already submitted to your good office (i.e. the department) so they enclosed the certification letter in which it is certified by the authorized signatory that,

"We certify that all the services that were mentioned in the invoices submitted with the refund claim has been received by us, that we have paid the value of the services and the service tax thereon and the said taxable services have been fully utilized in export of goods covered under the shipping bill as filed in the refund claim"

Thus, it is clear from this certification that we were certifying the services which were relating to the export goods. Further the certification letter also contained that the amount on the corresponding invoices had been paid. There was no such intention to make this type of error as there is no any benefit to us on non giving the certification. Further this is a procedural mistake which should be condoned as the substantial conditions i.e. export of goods, use of service in export, payment of service tax etc. were already fulfilled by us.

Johnny says:  I went to the department next day again with the corrections and further supporting but department said: -

Johnny-Johnny go away,Come again another day.Your refund order has following more flay: -

Further the order of Adjudicating Authority has been passed saying that "certification is an important aspect of the scheme of Notification No. 17/2009-ST as it does away with submitting proof of payment."

Johnny's View:

In this regard we submit that the point A of the clause (i) of the paragraph 2 of the Notification says that-

the total amount of refund sought under a claim is upto 0.25% of the total declared free on board value of export;

The above point specifically say that the refund sought under a claim is upto 0.25 % of the total declared FOB value on export. So the above has made the point clear that 0.25 % has to be calculated considering the total amount sought in a refund claim. Therefore we have rightly calculated 0.25% on the total amount they have claimed in the refund. Here the total amount is the total of all the shipping bills that are claimed in the refund.

It is further submitted that if the substantial conditions of the notification has been fulfilled so the refund of service tax should not be denied merely because of procedural lapses as it has been held in the case of

COMMISSIONER OF CENTRAL EXCISE, VAPI Versus UNIMARK REMEDIES LTD.(2008 -TMI - 34416 - CESTAT, AHMEDABAD)

SRI VENKATA BALAJI JUTE (P) LTD. Versus COMMR. OF C. EX., VISAKHAPATNAM (2009 -TMI - 76368 - CESTAT, BANGALORE)

Further the invoice issued by the service provider is having the main details which confirm the tax-paid character of the invoice, the refund should be allowed. Also in the case of "Bajaj Tempo Ltd. versus Commissioner of C. Ex., and Customs, Pune (1998 -TMI - 79017 - CEGAT, MUMBAI) ", hon'ble Tribunal has allowed credit in case where there were certain technical discrepancies/insufficient information in the invoice. It has been held by the hon'ble Tribunal that the credit is not deniable for the sake of technical or procedural objections when the substantive conditions, i.e. duty paid character of inputs, use in the manufacture of final products and clearance of final product on payment of duty is clearly established. Going by the same analogy, in the instant case, since the prime conditions - the export of the goods, availment of specified service in course of export and payment of service tax invoice are not in dispute; therefore, relying the ratio of above cited decision, the refund of service tax should be allowed to us.

Johnny says:  I went to the department next day again with the further submission with decided case laws but department rejected saying: -

Johnny-Johnny go away,

You won't get refund anyway.It has following more flay: -

Since the condition of "self certification" on the invoices is clear-cut mentioned in the said notification thus the strict compliance of the same should be done by the claimant. The invoices must be accompanied with such certification and this will be done only by authorized person of the establishment and in case of a company, the board resolution in which such person is authorized for dealing with service tax transactions should also be submitted with refund claim. Even a nexus between such services used and export goods must be established by the claimant for getting refund. 

Johnny's view: -

It is submitted by us that earlier in the notification no. 41/2007 dated 6.10.2007, a lot of conditions involved for getting the refund of service tax paid on specified services. Thus, the scheme simplified procedure of filing of refund claim under self certification was introduced. The Finance minister in his budget speech has said in clause 130 as under:-

"130. It is an international practice to zero-rate exports. To achieve this objective, a scheme was announced in 2007, granting refund of service tax paid on certain taxable services used after the clearance of export goods from the factory.  For some time now, the exporting community has been expressing dissatisfaction over the difficulties faced in obtaining such refunds. Several procedural simplifications attempted in the past have also not yielded satisfactory results. The solution seems to lie in placing greater trust on the claims filed by the exporters.  Keeping this in view, I propose to make the following changes in the scheme:

Services received by exporters from goods transport agents and commission agents, where the liability to pay service tax is ab initio on the exporter, would be exempted from service tax.  Thus, there would be no need for the exporter to first pay the tax and later claim refund.

For other services received by exporters, the exemption would be operated through the existing refund mechanism based on self-certification of the documents where such refund is below 0.25 per cent of fob value and certification of documents by a Chartered Accountant for value of refund exceeding the above limit. 

Thus, it is clear from the above that the Hon'ble Finance Minister was of the view that the refund will be granted on the basis of self certification of the exporter. But we have seen that a number of conditions have been imposed and the refund is being granted by the department in the same way as was granted earlier in notification 41/2007. This was not the intention of the Finance minister. This is clear from his budget speech referred above.

Further, the same is clear from explanatory notes to budget 2009-10. The relevant para is reproduced below:-

(IV). Refund Scheme for Exporters:

Notification No.41/2007-ST dated 06.10.2007 provides for refund of service tax paid on services, which though not in the nature of input services, are relatable to export goods. The scheme is being revamped, to ensure speedier grant of refunds, to the exporters. The salient features of the new scheme, being notified under two notifications, No.17/2009-ST and No.18/2009-ST, both dated 07.07.2009, are as follows:

(a) Under notification No.18/2009-ST dated 07.07.2009, two taxable services, namely, `transport of goods by road' and `commission paid to foreign agents have been exempted from the levy of service tax, if the exporter is liable to pay service tax on reverse charge basis. The present cap of 10% on commission agency charges has been retained, and the exporter will have to pay service tax on the amount of commission which is in excess of 10%.

(b) Superseding notification No.41/2007-ST dated 06.10.2007, a revised refund scheme is being brought into effect under notification No.17/2009-ST dated 07.07.2009.The salient features of this scheme are:-

• 'Terminal handling charges' is being added in the list of eligible services.

• The time period for filing refund claim is being increased to one year from the date of export. The condition for filing refund claims once in a quarter is also being dispensed with. Now the exporter can file a refund claim anytime after export.

• A simplified format is being prescribed for filing refund claims.

• Many of the conditions that were imposed under the previous scheme have been deleted.

• Self certification is being introduced to ensure speedier sanction and disbursement of refunds. In case, where the total refund claim does not exceed 0.25% of the total f.o.b. value of the exports under a claim, a self-certification by the exporter on the invoice, bill or challan, to the effect that: (a) the eligible services have been received by the exporter;

(b) the service tax payable thereon has been reimbursed by the exporter, and (c) such services have been used for the export, would be sufficient. The refunds shall be granted within one month without any pre-audit.

• In cases, where the amount of refund claim exceeds 0.25% of the f.o.b. value of exports, the invoice, bill or challan submitted by the exporter should be certified by the Chartered Accountant, who audits his annual accounts. On the basis of such certification, the refund claim shall be sanctioned by the department within one month, without any pre-audit.

Thus, it is clear from explanatory notes also that the intention of the Government is clear that the refund will be granted on the basis of the certification but the department has not granted the refund on the basis of self certification. On the contrary, he has issued show cause notice and even incorporated various new conditions which were not there in the notification also. Such an approach of the department is totally erroneous and liable to be set aside. Such an approach has deprived the exporter of their legitimate rights.

Further, the TRU has also issued letter on this and asked the commissioners to implement this scheme in its spirit. It was told that the scheme is trust based and refund will be granted on self certification. But the department has not followed the same and issued the show cause notices to all the exporters. Not even a single Rupee has been given to the exporter working in Jodhpur.

Thus, the intention of the Government is to give the refund on self certification basis. But the department does not want to implement the same and issued show cause notice to all the exporters. They have also issued the various show cause notices.

Fruitless again & again;

Johnny now in grief and pain!

Refund order now a dream;

His efforts have downstream!

In this article our sole endeavor is to picturise the problems faced by assesses in getting the refund order as against the services specified in the said notification. To represent the whole situation and to make it somewhat rhythmatic we have graced the article with humorous poems.

We hope the series of articles depicted the tangible situations faced by exporters under different services.

We will be back with further new articles in this series, on various other current issues prevailing in the Service Tax regime. Your valuable comments and suggestions are welcomed on [email protected].