| 1. The Government seems to have perfected the art | | | | Thus, the so-called ‘exemption’ to some |
| of making a show of giving exemptions, without | | | | services provided to GTA seems to be a pseudo |
| actually giving any exemption. Either impractical | | | | exemption. |
| conditions are prescribed for exemptions or | | | | 3. Section 93 of the Finance Act, 1994 empowers |
| procedure is made so clumsy and costly that often it | | | | the Central Government to grant exemption from |
| is economical to forget those exemptions. One | | | | service tax by issuing a Notification. This section is |
| wonders whether this is deliberately done or babus in | | | | being used to make provision for refund of service |
| North Block are miles away from ground realities or | | | | tax paid on certain input services. Thus, it is a novel |
| whether bureaucrats are fooling the political bosses. | | | | bureaucratic idea of ‘exemption by way of |
| Hollowness of some of these so called | | | | refund’. |
| ‘exemptions’ are discussed in this article. | | | | In respect of certain specified services used for |
| 2. The Government has fully exempted certain | | | | export of goods, an exporter can claim refund of |
| taxable services from , service tax provided to a | | | | service tax paid on such services, under Notification |
| Goods Transport Agency (GTA), vide Notification No. | | | | No. 41/2007-ST, dated October 6, 2007. Giving direct |
| 1/2009-ST, dated January 5, 2009. It appears that | | | | exemption is much simpler than making complicated |
| the exemption is granted due to strike by truck | | | | provisions for first paying service tax and then |
| operators demanding exemption from taxes. The | | | | claiming refund. It certainly increases ‘transaction |
| specified services which have been exempted if | | | | cost’ - both official and unofficial. |
| provided to GTA, are as follows— | | | | It is not that ‘exemption by way of refund’ |
| (i) Clearing and forwarding agent | | | | is a standard policy and that such direct exemptions |
| service [section 65(105)(j)]; | | | | are not given at all. For example, Cargo handling |
| (ii) Manpower recruitment or supply | | | | services relating to exports are exempted under the |
| service [section 65(105)(k)]; | | | | definition itself. It is easily possible to extend similar |
| (iii) Cargo handling service [section | | | | exemption to other export related services. |
| 65(105)(zr)]; | | | | In case of service of commission agent, GTA |
| (iv) Storage and warehousing service | | | | services and testing services availed abroad, the |
| [section 65(105)(zza)]; | | | | service receiver himself is liable to make payment of |
| (v) Business auxiliary service [section | | | | service tax. Thus, he has to make payment by |
| 65(105)(zzb)]; | | | | GAR-7 challan and then apply and wait for refund. |
| (vi) Packaging activity service [section | | | | Why straightaway exemption is not granted at least |
| 65(105)(zzzf)]; | | | | in these cases? |
| (vii) Business support service [section | | | | One to one correlation between payment of ST and |
| 65(105)(zzzq)]; and | | | | invoice is difficult in many cases, difficulty noted but |
| (viii) Supply of tangible goods service | | | | no reply - CBE&C has issued certain clarifications, |
| [section 65(105)(zzzzj)] [This was exempt with | | | | vide Circular No. 106/9/2008-ST, dated December 11, |
| effect from June 29, 2008 itself vide Notification No. | | | | 2008. Difficulty of exporter that one to one |
| 29/2008-ST]. | | | | correlation between payment of ST and invoice is |
| The exemption is subject to condition that service | | | | difficult in many cases, has been noted in the circular, |
| provider, should mention the name and address of | | | | but no clarification has been issued on this point at all. |
| the goods transport agency and also the name and | | | | Refund provisions clash with ‘revenue |
| date of the consignment note, by whatever name | | | | targets’ - The revenue authority who has |
| called, issued on his behalf. | | | | ‘revenue target’ is also the authority to |
| Many of the aforesaid services like manpower | | | | grant refunds. Thus, granting refund directly hits his |
| recruitment services, business support services and | | | | ‘revenue target’. ‘Saving skin’ is |
| supply of tangible goods services are general in | | | | also an important reason for not granting any refund. |
| nature and mostly are not related to any particular | | | | No wonder, he is keen to find some excuse for not |
| consignment note. Thus, linking those services with | | | | granting refund. ‘Speed money’ is relevant |
| any particular consignment note is impossible. Even in | | | | only when he is in mood to grant refund. |
| case of other services like C&F Agent service, | | | | What is ground reality - Very few refund claims have |
| Cargo handling service, Storage and warehousing | | | | been passed so far. Either the refund claim is just |
| service and Packaging activity services, these are | | | | kept pending or it is rejected on some flimsy |
| often provided on continuous and periodical basis and | | | | grounds. |
| linking each service to a particular consignment note | | | | 4. The novel idea of ‘exemption by way of |
| may be extremely difficult, if not impossible. | | | | refund’ was first thought of in case of refund of |
| There was no such impractical condition in earlier | | | | special CVD at 4 per cent. This special CVD is |
| Notification No. 29/2008-ST, dated June 29, 2008, | | | | perceived as in lieu of sales tax. |
| which had provided exemption to ‘Supply of | | | | Here also, simple procedure would be to grant |
| tangible goods service’ provided to GTA. It may | | | | exemption subject to bond/bank guarantee for |
| be noted that this exemption notification was | | | | providing required documents within prescribed time. |
| specifically issued to grant exemption to truck | | | | Instead of that, refund procedure has been |
| operators who give their motor vehicles to others on | | | | prescribed requiring tremendous paper work and |
| hire basis. Now, this exemption has become illusory in | | | | increasing ‘transaction costs’ manifold. |
| view of impractical condition prescribed in new | | | | Interestingly, this exemption notification is optional. A |
| Notification No. 1/2009-ST. | | | | trader can always pass on the benefit of 4 per cent |
| Further, the service provider must also be providing | | | | special CVD to his customers if he is registered with |
| other services which are taxable. In such case, if he | | | | excise as a dealer. |
| is availing Cenvat credit of service tax paid on | | | | However, in many cases, department is insisting that |
| common input services, he may end up by paying 8 | | | | the dealer cannot pass on the credit through invoice |
| per cent ‘amount’ on such exempt services | | | | and must make a claim of refund only, though the |
| under rule 6(3)(i) of the Cenvat Credit Rules, 2004 or | | | | exemption notification nowhere says so. Thus, the |
| try to comply with clumsy and complicated provisions | | | | exemption notification has become yet another tool |
| of proportionate reversal under rule 6(3)(ii). | | | | in hands of department to harass assessees. |