While the Refund Notification has been in existence for more than three years, the Service tax department has been somewhat slow in processing the refund claims, on account of various procedural grounds. One of the primary issues of contention in this regard has been proof of nexus between the input services used and the output services exported.Not only a substantial amount of claim value was being denied by the authorities on the said ground, show cause notices were also being issued, demanding refunds already sanctioned in the past years, basis the same.
The Ministry of Finance has now come out with a Circular (Circular No. :120/01/2010- ST., Dated: January 19, 2010) on this issue, specifying, inter alia, that the purpose of this scheme is to grant refund of credit already taken. The Cenvat Credit Rules, 2004 and the Refund Notification have to be read harmoniously to determine nexus between the input services used and output services exported.
As per the Circular, the test that can be applied to check the nexus is as follows:
“In case the absence of such input/ input service adversely impacts the quality and efficiency of the provision of service exported, it should be considered as eligible input or input service.”
Specifically, in case of BPO/ call centre services, the circular clarifies that renting, maintenance, telephone, outdoor catering, rent-a-cab, manpower supply services etc. are some of the input services that would qualify for refund. However, activities like event management such as company sponsored dinners/picnic/tours, flower arrangement, mandap keeper, rest houses, services which can be called as recreational or used for beautification of premises etc. would prima facie not qualify for the said purpose, unless adequate justification in this regard is provided.
Other clarifications provided in the Circular are as under:
- In order to prove one to one co-relation between inputs/ input services and output services, the following would suffice:
– In case the amount of refund claim is less than INR 0.5 million in a quarter – self certified declaration by an authorised person in the Company/ Firm
– In other cases – declaration certified by Auditors as specified under the Companies Act, 1956/ Income Tax Act, 1961
- Unclaimed refund of past period should be allowed in subsequent quarters, subject to the maximum limit prescribed under the Refund Notification
- In case of incomplete invoices, so long as nature of services, tax paid thereon and other details as required under Rule 4(a) of the Service tax Rules, 1994 are mentioned, refund should be allowed
The circular also mentions that with this clarification in place, the Board would expect all claims to be cleared within 30 days of their receipt.
Our Comments:- The above clarification, if implemented in letter and spirit, should now not only help in quicker verification of refund claims but should also help resolving the pending disputes which businesses are facing with respect to their existing claims.
