Johnny and Service Tax Refund Part - VI

[Pradeep Jain]

                                                                            CA. Pradeep Jain

Siddharth Rutiya

Visit us at: www.capradeepjain.com

In this unbroken series of articles on the issues relating to the problems faced by exporters under refund claim mechanism we herein are unveiling the VI th part of the same. Herein we are uncovering the problems existing in the Service tax refund mechanism under Business Auxiliary Services provided by commission agent to cause sale of goods exported (Section 65[105][zzb]). The problems faced by the exporters are 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 order

Johnny came back with a lack

And Jill came hopeless after.

The assesses claiming refund orders under Business Auxiliary services to cause sale of goods exported are experiencing great problems in getting their refund orders passed on various departmental justifications that are argued by them. These unnecessary arguments are not only annoying and irritating the assessees but also deprives away the faith of assessees on the refund mechanism designed by the Government. 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 Business auxiliary service 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 refund under this service is allowed only if the Commission agent is located outside India and is engaged under a contract or agreement or any other document by the exporter in India, to act on behalf of the exporter, to cause sale of goods exported. However there was no agreement annexed with the refund claim and further the amount of commission paid or payable to the commission agent is not specified in the shipping bill. These are the pre conditions for availing the benefit of refund claim.

Johnny's View: 

This is just a means of requirement that can be neglected as it is a fact that if we are paying the commission on sales basis to a foreign agent for his services as regards the finding of foreign clients then definitely the service rendered by him are related to export of goods. Further, this is a set philosophy that no exporter will pay to a foreign agent for sales made within India and the service tax paid in relation to such commission is undoubtedly related to export of goods.

Further as regards the issue related to specifying the amount of commission paid or payable to the commission agent in the shipping bill is concerned, we submit that the amount of commission to be paid or already paid has already been specified in the shipping bill and the copy of the same is enclosed along with the refund claim. However, the said conditions are cleared but the department does not agree and is denying the claims.

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: -

The pre condition for grant of refund claim is that the Commission sought to be remitted should not be for exports of a canalized item, project exports, or exports financed under lines of credit extended by Government of India or EXIM Bank, or exports made by Indian partners towards equity participation in an overseas joint venture or wholly owned subsidiary. There was no evidence or documentary proof from the assessee's side to prove that such a condition is satisfied. Hence, the refund claim is subject to denial until assessee proves for the fulfillment of such condition.

Johnny's View:

We have clarified to the department that the exports made by us were not financed under lines of credit extended by Government of India or EXIM Bank. Further, there were no exports which were made by the Indian partners towards equity participation in an overseas joint venture or wholly owned subsidiary. Thus, the issues raised by the departmental officers were vague and futile.

Johnny says:  I went to the department next day again with the further corrections but department rejected saying: -

Johnny-Johnny go away,

You won't get refund anyway.

It has following more flay: -

One of the conditions for the Refund of service tax is that it shall be restricted to actual amount of service tax paid or service tax calculated on 2% of FOB value of export goods, whichever is less. Thus, the claim of refund of service tax will not be allowed as the same exceeds the maximum amount of refund i.e. 2% of FOB value.

Continuously, the documents evidencing actual payment of commission to the commission agent were not enclosed with the refund claim. Further, the invoices issued by the agent do not fulfill all the requirements specified under Rule 4A like category of service, Description of service, valid Invoice Number, Service tax rate, Service tax registration number and other alike things.

Johnny's view: -

The view taken by the department is incorrect. The amount of refund claim does not exceed the maximum amount allowed as per the conditions specified. The refund claim amount is within the limits of 2% of FOB value and as such the refunds are sought to be allowed.

At the last, the view taken by the Department as regards the documents evidencing payment of commission to commission agent is attached along with the refund claim and is also complying with most of the essential requirements of Rule 4A. It is opined that the department should adopt a liberal view in this regard, more to in the case of Rule 4A of Service tax rules requirements. Henceforth, the allegation of the department is futile for disallowance of refund claim.

Fruitless again & again;

Johnny now in grief and pain!

Refund order now a dream;

His efforts have downstream!

Via this article the sole endeavor is to picturize the problems faced by assesses in getting the refund order as against the Business Auxiliary services relating to the Commission on sales to Foreign agents. With this entertaining and rhythmical article we summarize that the present situation and mental state of assesses alleging refunds against export of goods is alike to the situation of Johnny as pointed out in the poem.

There are a number of services on which the refund is allowed. The assessee is facing difficulty in almost all of those services. Due to the large number of services we were not able to cover all the services in this article and hence we will be bringing further articles on the different services covered therein. Keep visiting for the next article……..