Refunds worth Rs 37,383 crore stuck at service tax department

The service tax department is sitting on Rs 37,387 tax refunds to exporters. Industry officials allege that the department is resorting to delaying tactics in order not to let go off the revenues by hook or crook.

Up to November, the service tax refund of Rs 37,387 crore has been stuck with the authorities, with nearly 90% of refund requests either rejected by the department on grounds of inadequate paperwork or waiting for approval.

According to service tax refund rules, the department grants rebate/refund of tax paid on input taxable services, which are used for providing any taxable services. The rebate -- by returning the money paid on inputs for exporting services -- is meant to incentivise exporters. However, such benefits are not functional on ground, a tax expert said.

"Delays in refunds are mostly because of lack of required documents that are essential to claim refunds," a senior tax official told dna.

"It is advisable to file the claim within the time limit, which is one year from date of export," he said.

Sources said the claimants are mostly IT and software companies, whose revenues are mostly from exports that are entitled to service tax exemption. dna has learnt that software exporter/companies pays up to 5% of their total revenues on service tax every year. The pending refunds are good as receivables on companies book of accounts, and hence badly affect the working capital of the company.

Amit Sarkar, national leader (indirect taxes) at Grant Thronton, said, "If the government delays the refund, it would liable to pay only 6% interest, but if taxpayers delay payment of service tax they are charged interest at the rate of 18%."

On June 30, 2012, the government has notified that no claim would remain pending for more than three months otherwise the government would liable to pay interest by 6%.

However, in the case of taxpayers rules are stringent with interest rate of 18% being slapped if one is unable to pay up to one year, and beyond that it rises to 24%, and then 30% in case of the delay is more than two years.

The official said once Goods and Services Taxes (GST) gets implemented, exporters might have to file separate claims for refund of taxes paid to central government and state government. If the service provider located outside India and service receiver is in a taxable territory then it is treated as import of service, and service tax has to be paid on it. However, in a vice-versa situation, the said transaction is not an export of services.

The refund mechanism for service tax is cumbersome and time consuming, and blocks the working capital of exporters. Hence, service tax should be exempted for exports, the Federation of India Export Organisation recently recommended to the finance ministry under its pre-Budget consultation.