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MAKING SHOW OF GIVING EXEMPTION WITHOUT GIVING ANY EXEMPTION
By: V.S. DATEY, Thu Apr 23rd, 2009
1. The Government seems to have perfected the art of making a show of giving exemptions, without actually giving any exemption. Either impractical conditions are prescribed for exemptions or procedure is made so clumsy and costly that often it is economical to forget those exemptions. One wonders whether this is deliberately done or babus in North Block are miles away from ground realities or whether bureaucrats are fooling the political bosses. Hollowness of some of these so called ‘exemptions’ are discussed in this article.
2. The Government has fully exempted certain taxable services from , service tax provided to a Goods Transport Agency (GTA), vide Notification No. 1/2009-ST, dated January 5, 2009. It appears that the exemption is granted due to strike by truck operators demanding exemption from taxes. The specified services which have been exempted if provided to GTA, are as follows—
(i) Clearing and forwarding agent service [section 65(105)(j)];
(ii) Manpower recruitment or supply service [section 65(105)(k)];
(iii) Cargo handling service [section 65(105)(zr)];
(iv) Storage and warehousing service [section 65(105)(zza)];
(v) Business auxiliary service [section 65(105)(zzb)];
(vi) Packaging activity service [section 65(105)(zzzf)];
(vii) Business support service [section 65(105)(zzzq)]; and
(viii) Supply of tangible goods service [section 65(105)(zzzzj)] [This was exempt with effect from June 29, 2008 itself vide Notification No. 29/2008-ST].
The exemption is subject to condition that service provider, should mention the name and address of the goods transport agency and also the name and date of the consignment note, by whatever name called, issued on his behalf.
Many of the aforesaid services like manpower recruitment services, business support services and supply of tangible goods services are general in nature and mostly are not related to any particular consignment note. Thus, linking those services with any particular consignment note is impossible. Even in case of other services like C&F Agent service, Cargo handling service, Storage and warehousing service and Packaging activity services, these are often provided on continuous and periodical basis and linking each service to a particular consignment note may be extremely difficult, if not impossible.
There was no such impractical condition in earlier Notification No. 29/2008-ST, dated June 29, 2008, which had provided exemption to ‘Supply of tangible goods service’ provided to GTA. It may be noted that this exemption notification was specifically issued to grant exemption to truck operators who give their motor vehicles to others on hire basis. Now, this exemption has become illusory in view of impractical condition prescribed in new Notification No. 1/2009-ST.
Further, the service provider must also be providing other services which are taxable. In such case, if he is availing Cenvat credit of service tax paid on common input services, he may end up by paying 8 per cent ‘amount’ on such exempt services under rule 6(3)(i) of the Cenvat Credit Rules, 2004 or try to comply with clumsy and complicated provisions of proportionate reversal under rule 6(3)(ii).
Thus, the so-called ‘exemption’ to some services provided to GTA seems to be a pseudo exemption.
3. Section 93 of the Finance Act, 1994 empowers the Central Government to grant exemption from service tax by issuing a Notification. This section is being used to make provision for refund of service tax paid on certain input services. Thus, it is a novel bureaucratic idea of ‘exemption by way of refund’.
In respect of certain specified services used for export of goods, an exporter can claim refund of service tax paid on such services, under Notification No. 41/2007-ST, dated October 6, 2007. Giving direct exemption is much simpler than making complicated provisions for first paying service tax and then claiming refund. It certainly increases ‘transaction cost’ - both official and unofficial.
It is not that ‘exemption by way of refund’ is a standard policy and that such direct exemptions are not given at all. For example, Cargo handling services relating to exports are exempted under the definition itself. It is easily possible to extend similar exemption to other export related services.
In case of service of commission agent, GTA services and testing services availed abroad, the service receiver himself is liable to make payment of service tax. Thus, he has to make payment by GAR-7 challan and then apply and wait for refund. Why straightaway exemption is not granted at least in these cases?
One to one correlation between payment of ST and invoice is difficult in many cases, difficulty noted but no reply - CBE&C has issued certain clarifications, vide Circular No. 106/9/2008-ST, dated December 11, 2008. Difficulty of exporter that one to one correlation between payment of ST and invoice is difficult in many cases, has been noted in the circular, but no clarification has been issued on this point at all.
Refund provisions clash with ‘revenue targets’ - The revenue authority who has ‘revenue target’ is also the authority to grant refunds. Thus, granting refund directly hits his ‘revenue target’. ‘Saving skin’ is also an important reason for not granting any refund. No wonder, he is keen to find some excuse for not granting refund. ‘Speed money’ is relevant only when he is in mood to grant refund.
What is ground reality - Very few refund claims have been passed so far. Either the refund claim is just kept pending or it is rejected on some flimsy grounds.
4. The novel idea of ‘exemption by way of refund’ was first thought of in case of refund of special CVD at 4 per cent. This special CVD is perceived as in lieu of sales tax.
Here also, simple procedure would be to grant exemption subject to bond/bank guarantee for providing required documents within prescribed time. Instead of that, refund procedure has been prescribed requiring tremendous paper work and increasing ‘transaction costs’ manifold.
Interestingly, this exemption notification is optional. A trader can always pass on the benefit of 4 per cent special CVD to his customers if he is registered with excise as a dealer.
However, in many cases, department is insisting that the dealer cannot pass on the credit through invoice and must make a claim of refund only, though the exemption notification nowhere says so. Thus, the exemption notification has become yet another tool in hands of department to harass assessees.
Taxmann
V.S. DATEY
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New Delhi
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