Service Tax benifits to IT, ITES

Government has announced a new simplified procedure to resolve the long-pending issue that has caused much hardship to the industry.

The Central Board of Excise and Customs, the apex indirect taxes body, on Tuesday issued a circular directing its field officials to issue pending service tax refunds within 30 days, and also relaxed certain norms for issue of such refunds.

The circular puts to rest the ambiguity over definition of services used as "inputs" by technology and BPO companies. Service tax paid on inputs, such as transportation of staff, telecom facilities, software maintenance and up-grades, provision of food to employees working in 24x7 environment, hiring recruitment agencies and other related services, would be eligible for refund. The IT-BPO sector employs over two million workers.

The primary issue of dispute has been the proof of linkage between the input services used and the output services exported. Not only was a substantial amount of claim value being denied by the authorities on the said ground, but show cause-notices were also being issued, demanding refunds already sanctioned in the past years, causing hardship to the industry. "In case, absence of an input service adversely impacts the quality and efficiency of the provision of service exported, it should be considered as eligible input service," the circular said. However, industry argues that the circular can only resolve the issue if it is implemented in letter and spirit by the field.