Entries from January 2010 ↓

Problems faced by exporters in availing refund of excess credit

Circular No. 120/01/2010-ST


Government of India

Ministry of Finance

Department of Revenue

(Tax Research Unit)


New Delhi dated the 19th January, 2010.


All Chief Commissioners of Central Excise,

All Chief Commissioners of Customs,

All Chief Commissioners of Customs &Central Excise,

Director General of Service Tax,

All Commissioners of Service Tax,

Commissioner (Service Tax), CBEC.


Subject:  Problems faced by exporters in availing refund of excess credit – regarding

CENVAT Credit Rules, 2004 permit taking of credit of inputs and input services which are used for providing output services or output goods.   In order to zero-rate the exports, Rule 5 of CENVAT Credit Rules, 2004 provides that such accumulated credit can be refunded to the exporter subject to stipulated conditions. Notification No. 5/2006-CE (NT) dated 14.03.2006 provides the conditions, safeguards and limitations for obtaining refund of such credit.

2.         It has been represented by the exporters of services (mainly the call centres or the BPOs) that they are facing difficulties in getting refund under the said notification.  In order to ascertain the causes for such delay a number of meetings were held with the refund sanctioning authorities.  During these meetings the officers pointed out the following legal/procedural impediments partly responsible for such delays:

(a)     The major reason causing delay in granting refunds as well as rejecting the claims is that as per the wordings of the notification, refund is permitted of duties/taxes paid only on such inputs/input services which are either used in the manufacture of export goods or used in providing the output services exported.  As against this, the phrases used in the CENVAT Credit Rules permit credit of services used “whether directly or indirectly, in or in relation to the manufacture of final product” or “for providing output service”.   The field formations tend to take the view that for eligibility of refund, the nexus between inputs or input services and the final goods/services has to be closer and more direct than that is required for taking credit.  Many refund claims are being rejected on this ground.

(b)     Even if a nexus is considered acceptable, the officers processing the refund claims find it difficult to co-relate goods or services covered under a particular invoice with a specific consignment of export goods or specific instance of export of service.

(c)     As per the notification, the claims are to be filed quarterly.  For large exporters, the procurement of inputs/input services in a quarter is substantial resulting in each refund claim being accompanied with hundreds of invoices.  Verification of these documents with corroborative documents showing exports (such as export invoices, bank certificates, shipping bills) consumes a long time;

(d)     Though the notification prescribes that refund claims should be filed quarterly in a financial year, it is not clear whether the refund is eligible only of that credit which is accumulated during the said quarter or the accumulated credit of the past period can also be refunded; and

(e)     In certain cases, the invoices accompanying the refund claim are incomplete in as much as either the description of service or its classification is not mentioned.  In some cases, even the name of the receiver of the inputs/input services is also not mentioned.

3.         The matter has been examined.  At the outset it is necessary to understand that the entire purpose of Notification No. 5/2006-CX (NT) is to refund the accumulated input credit to exporters and zero-rate the exports.  Accumulated credit and delayed sanction of refund causes cash flow problems for the exporters.   Therefore, the sanctioning authorities are directed to dispose of the refund claims expeditiously based on the following clarifications to the issues raised in paragraph 2 above.

3.1       Use of different phrases in rules and notification [para 2(a)]:

3.1.1   The primary objection indicated by the field formations is that the language of Notification No. 5/2006-CX (NT) permits refund only for such services that are used in providing output services.  In other words, the view being taken is that to be eligible for refund, input services should be directly used in the output service exported.   As regards the extent of nexus between the inputs/input services and the export goods/services, it must be borne in mind that the purpose is to refund the credit that has already been taken. There cannot be different yardsticks for establishing the nexus for taking of credit and for refund of credit.  Even if different phrases are used under different rules of CENVAT Credit Rules, they have to be construed in a harmonious manner.  To elaborate, the definition of input services for manufacturer of goods, as given in Rule 2 (l) (ii) of CENVAT Credit Rules, 2004, includes within its ambit all services used “in or in relation to the manufacture of final products” and includes services used “directly or indirectly”. Similarly Rule 2 (l) (i) of CENVAT Credit Rules also gives wide scope to the input services for provider of output services by including in its ambit services “used….for providing an output service”.   Similar is the case for inputs.

3.1.2   Therefore, the phrase, “used in” mentioned in Notification No. 5/2006-CX (NT) to show the nexus also needs to be interpreted in a harmonious manner.   The following test can be used to see whether sufficient nexus exists.  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.   In the case of BPOs/call centres, the services directly relatable to their export business are renting of premises; right to use software; maintenance and repair of equipment; telecommunication facilities; etc.   Further, in the instant example, services like outdoor catering or rent-a-cab for pick-up and dropping of its employees to office would also be eligible for credit on account of the fact that these offices run on 24 x 7 basis and transportation and provision of food to the employees are necessary pre-requisites which the employer has to provide to its employees to ensure that output service is provided efficiently. Similarly, since BPOs/call centres require a large manpower, service tax paid on manpower recruitment agency would also be eligible both for taking the credit and the refund thereof.  On the other hand, activities like event management, such as company-sponsored dinners/picnics/tours, flower arrangements, mandap keepers, hydrant sprinkler systems (that is, services which can be called as recreational or used for beautification of premises), rest houses etc. prima facie would not appear to impact the efficiency in providing the output services, unless adequate justification is shown regarding their need.

3.2       One-to-one co-relation between inputs and outputs and scrutiny of voluminous record [para 2(b) & (c) above]:

3.2.1   Similar problem of co-relation and scrutiny of large number of documents was being faced in another scheme [Notification No. 41/2007-ST dated 06.10.2007] which grants refund of service tax paid on services used by an exporter after the goods have been removed from the factory.  In Budget 2009, the scheme was simplified by making a provision of self-certification [Notification No. 17/2009-ST] whereunder an exporter or his Chartered Accountant is required to certify the invoices about the co-relation and the nexus between the inputs/input services and the exports.  The exporters are also advised to provide a duly certified list of invoices.  The departmental officers are only required to make a basic scrutiny of the documents and, if found in order, sanction the refund within one month.  The reports from the field show that this has improved the process of grant of refund considerably.  It has, therefore, been decided that similar scheme should be followed for refund of CENVAT credit under notification No. 5/2006-CE (NT).  The procedure prescribed herein should be followed in all cases including the pending claims with immediate effect.

3.2.2   Procedure: The exporter should, alongwith the refund claim, file a declaration containing the following details:

(Rs. in lakh)

Details of goods/services exported on which refund of input credit is claimed



Details of shipping bill/ Bill

of export/export documents etc.

Details of input credit on which refund claimed

(1) (2) (3)
No. Date Date of export order Goods/ service exported Invoice No., date and Amount Name of service provider/ supplier of goods Service tax/


Excise Regn. No. of service provider/ supplier of goods

Details of service/


provided with classifi-

cation under FA 1994/




Service tax/



duty payable

Date and details of payment made to service provider
Documents attached to evidence the

amount of service tax paid

Total export during the period for which refund is claimed Total domestic clearances during the period for which refund is claimed Total amount of input credit claimed as refund
(4) (5) (6) (7)

The declaration should be certified by a person authorized by the Board of Directors (in the case of a limited company) or the proprietor/partner (in case of firms/partnerships) if the amount of refund claimed is less than Rs.5 lakh in a quarter.  In case the refund claim is in excess of Rs.5 lakh, the declaration should also be certified by the Chartered Accountant who audits the annual accounts of the exporter for the purposes of Companies Act, 1956 (1 of 1956) or the Income Tax Act, 1961 (43 of 1961), as the case may be.

The Assistant or Deputy Commissioner may, after verification of the fact that the input credit has been correctly claimed, sanction the refund on the basis of the declaration.  In case there is a doubt about the correctness of the claim of CENVAT credit on any service, the undisputed amount may be refunded and the balance claim may be decided after following the dispute settlement process.

3.3        Quarterly refund claims [para 2(d) above]:

As regards the quarterly filing of refund claims and its applicability, since no bar is provided in the notification, there should not be any objection in allowing refund of credit of the past period in subsequent quarters.  It is possible that during certain quarters, there may not be any exports and therefore the exporter does not file any claim.  However, he receives inputs/input services during this period.  To illustrate, an exporter may avail of Rs.1 crore as input credit in the April – June quarter.  However, no exports may be made in this quarter, so no refund is claimed.  The input credit is thus carried over to the July-September quarter, when exports of Rs.50 lakh and domestic clearances of Rs.25 lakh are made.  The exporter should be permitted a refund of Rs.66 lakh (as his export turnover is 66% of the total turnover in the quarter) from the Cenvat credit of Rs.1 crore availed in April-June quarter.  The illustration prescribed under para 5 of the Appendix to the notification should be viewed in this light.  However, in case of service providers exporting 100% of their services, such disputes should not arise and refund of CENVAT credit, irrespective of when he has taken the credit, should be granted if otherwise in order.    Such exporters may be asked to file a declaration to the effect that they are exporting 100% of their services, and, only if it is noticed subsequently that the exporter had provided services domestically, the proportional refund to such extent can be demanded from him.

3.4       Incomplete invoices [para 2(e) above]:

In case of incomplete invoices, the department should take a liberal view in view of various judicial pronouncements by Courts.  It had earlier been prescribed in circular No.106/09/2008-ST dated 11.12.2008 that the invoices/challans/bills should be complete in all respect.  This circular was issued with reference to notification No.41/2007 dated 06.10.2007 as specific services eligible for refund under the notification has been specified.  Thus, a stricter requirement exists under the said notification for ascertaining the actual service which has been used in the export of goods.  In the case of refund under Rule 5, (i) so far as the nature of the service which has been received by the exporter can be ascertained; (ii) tax paid therein is clearly mentioned; and (iii) other details as required under rule 4(a) are mentioned, the refund should be allowed if the input service has a nexus with the service/goods exported as discussed earlier.  In any case, the suggested Chartered Accountant’s certificate should clearly bring out the nature of the service and this will assist the officer in taking a decision.

4.         The instructions contained in this circular should be implemented with immediate effect and the pending claims may be disposed of accordingly.   It is expected that with the clarifications provided and liberalization of procedure, most of the impediments to smooth and expeditious disposal of exporters’ claims for refund of accumulated credit would be removed.   The Board, therefore, expects that the concerned refund sanctioning authorities should decide all claims of exporters within 30 days of their receipt as has been prescribed in notification No. 17/2009-ST.  Any lapse in this regard would be viewed seriously.    In case of any doubt, an immediate reference may be made to the Board.

Yours faithfully,

(Roopam Kapoor)

Officer on Special Duty (TRU)

Tel: 23095590

TDS on Salary during the year 2009-2010 circular

NEW DELHI, dated the 11th January,2010


Please download circular from below link

Circular on TDS on Salary

Tax Treatment of Goods sent to other States ubder Maharastra VAT


Trade Cir.No.-2T of 2010, Date: 11/01/2010

Sub: Tax Treatment of Goods sent to other States.

This office had issued above referred Trade Circulars explaining scope of section 6A of CST Act, 1956. In the Trade Circular dated 20th February 2007, a view had been taken that section 6A of CST Act, 1956 deals only with transactions between principal and agent and that it applies in those cases where the movement of goods is to the place of business of the dealer himself in another state or to his agent or his principal in another state. It was viewed that section 6A does not deal with transactions which are on a principal to principal basis. Hence, the non-sale transactions like job work which are transactions from principal to principal basis were viewed to be out of purview of section 6A of CST Act, 1956 and not retiring F Forms.

2. Thereafter, the Allahabad High Court delivered a Judgement dated 17th August, 2007 in the case of M/s Ambica Steels Ltd. V/s the State of Uttar Pradesh. The issue before the Court was whether the petitioner is required to submit the declaration in Form F in respect of the transaction of job work performed by it. The High Court decided that it would be necessary to furnish declarations in Form F in such instances. In view of this Judgement, it was decided to issue F Forms to the dealers in Maharashtra who received goods for job work or as goods return. This aspect has been elaborated in Trade Circular 5T of 2009 dated 29th January 2009.

3. The decision of Allahabad Hicdi Court in M/s Ambica Steels Ltd was challenged before the Hon’ble Supreme Court. In the brief order passed by the Hon’ble Supreme Court (24 VST 356) in this case, it is stated that the dealer agreed to produce the retired declarations. Hon’ble Supreme Court has not done away with the need of mandatory F Forms applicable to such transactions as job work which was outcome of the Allahabad High Court decision. In view of this, the decision of the Allahabad High Court in case of M/s. Ambica Steel Ltd. (12 VST 216) stands and following instructions are issued.

4. The Trade Circular 16T of 2007 dated 20th February 2007 and Trade Circular 5T of 2009 dated 29th January 2009 are hereby withdrawn. F forms are mandatory for all transactions of inter state transfers (not by way of sale) including job work and goods return. Declarations in Form F will be issued to the dealers to comply with this view.

5. This Circular cannot be made use of for legal interpretation of the provisions of law, as it is clarificatory in nature. If any member of the trade has any doubt, he may refer the matter to this office for further clarification.

6. You are requested to bring the contents of this circular to the notice of all the members of your Association.

Yours faithfully,

(Sanjay Bhatia) Commissioner of Sales Tax, Maharashtra State, Mumbai

Ref: 1. Trade Circular 16T of 2007 dated 20th February 2007. 2. Trade Circular 5T of 2009 dated 29th January 2009.

VAT Rate 4 % to 5% in Delhi w.e.f. 13-01-2010


(As passed by the Legislative Assembly of the National Capital Territory of Delhi on the 16th December,2009)

(Date of Approval -1st January, 2010)

Published in Notification Dated 6-1-2010 [F.14(16)/LA-2009/LJ/10/LC LAW/1]

An Act to further amend the Delhi Value Added Tax Act, 2004

BE it enacted by the Legislative Assembly of the National Capital Territory of Delhi in the Sixtieth Year of the Republic of India as follows:—

1. Short title, extent and commencement.—(l) This Act may be called the Delhi Value Added Tax (Amendment) Act, 2009.

(2) It extends to the whole of the National Capital Territory of Delhi.

(3) It shall come into force on such date as the Government may, by notification in the Official Gazette, appoint.

2. Amendment of Section 4.- Inthe Delhi Value Added Tax Act, 2004 (Delhi Act 3 of 2005)(hereinafter referred to as “the principal Act”), in Section 4, in sub-section (1),for clause (b), the following clause shall be substituted, namely:-

‘(b) in respect of goods specified in the Third Schedule, at the rate of five paise in the rupee:

Provided that tax shall be paid at the rate of four paise in the rupee of the taxable turnover of the dealer pertaining to declared goods, as defined from time to time in the Central Sales Tax Act, 1956(74 of 1956);”.

3. Amendment of Section 9.—In the principal Act, in Section 9,—

(a) in sub-section (1), for the words “where the purchase arises”, the words “to the extent of proportion of the goods which have been put to sale” shall be substituted

(b) in sub-section (2), after clause (f), the following clause shall be inserted, namely:—

“(g) to the dealers or class of dealers unless the tax paid by the purchasing dealer has actually been deposited by the selling dealer with the Government or has been lawfully adjusted against output tax liability and correctly reflected in the return filed for the respective tax period.”

4. Amendment of Section 10.—In the principal Act, in Section 10, after sub-section (4), the following sub-section shall be inserted, namely:-

“(5) Where the goods which have been purchased by a dealer are sold at a price lower than the price at which it was purchased by the dealer, the tax credit on such purchases shall be reduced proportionately in the tax period during which the goods are sold.

Explanation—The tax credit claimed on a particular purchase shall not exceed the amount of tax payable on its sale.”

5. Amendment of Section 74.—In the principal Act, in Section 74, in sub-section (10), for the Word “five”, the word “six” shall be substituted.

6. Amendment of Section 74A.—In the principal Act, in Section 74A, after sub-section (4), the following sub-section shall be Inserted, namely

“(5) Notwithstanding anything contained in any judgment, decree or order of any court, the provisions of this section shall be deemed to have come into effect with effect from the 1st April, 2005.”

7. Substitution of new section for Section 103.—In the principal Act, for Section 103, the following section shall be substituted, namely

“103. Power to amend Schedules.—(1) If the Government is of opinion that it is expedient in the interest of general public so to do, it may, by notification in the Official Gazette, add to, or omit from, or otherwise amend, the First, the Second, the Third, the Fourth, the Fifth, the Sixth, or the Seventh Schedules, either retrospectively or prospectively, and thereupon the said Schedules shall be deemed to have been amended accordingly.

Provided that no such amendment shall be made retrospectively if it would have the effect of prejudicially affecting the interests of a dealer.

(2) The Commissioner may, on the recommendation of the Ministry of External Affairs, Government of India, if he is of opinion that it is expedient in the interest of general public so to do, by a notification in the Official Gazette, add to, or omit from, or otherwise amend, the Sixth Schedule.””

By Order and in the Name of the Lt. Governor of the NationalCapitalTerritory of Delhi,


Please Find enclosed the notification for effective date of change of notification.


New procedure to open a Branch office in India by Foreign entity

Contributed by : CA. Sudha G. Bhushan (sudha@mukeshraj.com)

Establishment of Branch (BO) / Liaison Offices (LO) in India by Foreign Entities delegation of powers

Application for opening Branch office/liaison office to be routed through Authorised dealer

The application in form FNC by the foreign entity (other than those engaged in insurance and banking) for opening of BO / LO in India should be routed through a designated AD Category – I bank.

Documents with Form FNC:

1. Copy of the Certificate of Incorporation / Registration attested by the Notary Public in the country of registration

[If the original Certificate is in a language other than in English, the same may be translated into English and notarized as above and cross verified/attested by the Indian Embassy/ Consulate in the home country].

2.   Latest Audited Balance sheet of the applicant company.

[If the applicants’ home country laws/regulations do not insist on auditing of accounts, an Account Statement certified by a Certified Public Accountant (CPA) or any Registered Accounts Practitioner by any name, clearly showing the net worth may be submitted]

3. Bankers’ Report from the applicant’s banker in the host country / country of registration showing the number of years the applicant has had banking relations with that bank.

The designated AD Category – I bank is required to forward the application/s, along with the relevant documents and their comments / recommendations to Reserve Bank of India.

Unique Identification Number (UIN)

From February 01, 2010 a Unique Identification Number (UIN) will be allotted to both the existing as well as new BO / LOs. Consequent upon delegation of powers existing BO / LO will also have to necessarily approach the Reserve Bank through their designated AD Category -I bank for their requests/references.

Permanent Account Number (PAN)

The BOs / LOs shall obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up of their office in India and report the same in the Annual Activity Certificate.

Submission of Annual Activity Certificate

With effect from February 01, 2010, the Annual Activity Certificate as at the end of March 31 shall be submitted, on or before April 30, to the designated AD Category – I bank and a copy to the Directorate General of Income Tax (International Taxation), Drum Shape Building, I.P. Estate, New Delhi 110002, [at present BO/ LOs are required to submit Annual Activity Certificate from their Auditors to the Central Office / Regional Office of the Reserve Bank, certifying that the BO / LO has carried out only those activities which are approved by the Reserve Bank]

Extension of validity period of Liaison Offices

With effect from February 01, 2010 the designated AD Category – I bank may extend the validity period of LO/s for a period of 3 years from the date of expiry of the original approval / extension granted by the Reserve Bank.

Upon expiry of the validity period, these entities have to either close down or be converted into a Joint Venture (JV) / Wholly Owned Subsidiary (WOS), in conformity with the extant Foreign Direct Investment policy.

Closure of Branch / Liaison Office/s

With effect from February 01, 2010, the work related to closure of Branch / Liaison Offices, hitherto being done by the Reserve Bank (Central Office in the case of Branch Offices and Regional Office in the case of Liaison Offices), shall be handled by the designated AD Category – I bank.

Cases which are not covered under the delegated powers will continue to be referred to the Reserve Bank, by the designated AD Category – I bank.

Eligibility Criteria for Establishment of Branch / Liaison Office in India

An application from a foreign entity to establish Branch / Liaison Office in India is considered on the basis of two criteria viz: basic and additional:

Basic criteria

Reserve Bank Route — Principal business of the foreign entity falls under sectors where 100 per cent foreign direct investment (FDI) is permissible under the automatic route.

Government Route — Principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category are considered by the Reserve Bank, in consultation with the Government of India, Ministry of Finance.

Additional criteria

Track Record

  • For Branch Office — a profit making track record during the immediately preceding five financial years in the home country.
  • For Liaison Office — a profit making track record during the immediately preceding three financial years in the home country.

Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name].

  • For Branch Office — not less than USD 100,000 or its equivalent.
  • For Liaison Office — not less than USD 50,000 or its equivalent.

Applicants that do not satisfy the eligibility criteria and are subsidiaries of other companies may submit a Letter of Comfort from their parent company, subject to the condition that the parent company satisfies the eligibility criteria as prescribed.

Source: Source: -A. P. (DIR Series) Circular No. 23 /24