The Hindu Business Line : Revision of approval norm for service exports likely

FIRST, the good news for trade and industry: The Finance Ministry has agreed to review the stipulation that requires trade and industry to get approval from the Revenue Department before exporting services.

The approval is necessary if the industry has to avail itself of credit on inputs used in the export of services. Exporters of services are now required to declare the inputs used in the export of services.

"Industry's suggestion on this matter would be looked into. We will see what can be done without jeopardising the interests of the revenue," a senior Finance Ministry official said. The industry has been contending that the Finance Ministry can adopt a procedure of post-export scrutiny rather than insisting on approval for export of services. "The requirement for approval is somewhat impractical, because in services, you can't wait till the approval comes. Otherwise, you lose business. If there is no approval, then you can't claim credit on the inputs. The other option would be to go ahead and do the business and forget the credit on the tax paid on inputs.

The Government's intent is to give credit for inputs," an industry official said.

Now for the not-so-palatable news: The Finance Ministry has clarified that Cenvat (Central value-added tax) credit cannot be claimed on the service tax paid on advance payments till the services are actually rendered. After the Budget, service tax is applicable on all advance payments towards taxable services.

The industry now wants credit on the service tax paid on advance payments to be allowed as soon as the service tax has been paid, irrespective of when the services are rendered. "In case of service tax on advance payments, credit on service tax paid can be claimed only when the services are received by the person making the advance payment," a senior Finance Ministry official said. The Finance Act, 2005 mandated that service tax is payable on payments made as an advance for rendering services. This stipulation is, however, yet to be brought into force and would become applicable from a date to be notified by the Union Government.

The Government had, in the recent Budget, enlarged the scope of `taxable services' to include `services to be provided.' It also stipulated that payments received `before, during or after' the provision of taxable services would form part of the gross amount for charging service tax.

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