Govt owes rs 3,500 cr to it/bpo companies in service tax ref

Devadas K S (One life one Dream) (3525 Points)

12 August 2011  

Govt owes Rs 3,500 crore to IT/BPO companies like Infosys, Mphasis, Wipro, in service tax refunds


The IT/BPO sector says the government owes the industry over Rs 3,500 crore in service tax refunds for the past three years. 

With the amount continuing to grow, the matter is now being taken up by industry bodies Nasscom and the Confederation of Indian Industry (CII). 

Since 2008, companies have been paying a 10.3% service tax on input services like rentals, leases, telecom links, repairs and maintenance, canteen services, HR audits, CA charges, management consulting, couriers, and transportation. Export-oriented units (EOUs) are allowed a refund of service tax paid on these input services that directly/indirectly support their output services like exports of software/services . Such refunds are a common practice, and are done to ensure that exports are globally competitive. But the refunds have not happened. 

Infosys Technologies is said to be owed Rs 530 crore,Mphasis Rs 250 crore and Wipro Rs 200 crore. 

Mphasis says that in the last quarter it submitted 30 box files, each box file comprising of 500 individual invoices, so a total of 15,000 invoices. But the tax authorities rejected the entire lot. Ganesh Murthy, CFO, Mphasis, said, "They are rejecting refund on frivolous grounds. They say the documentation is not sufficient , the invoices are not issued in the right format or there is no direct co-relation between input services and output services." 

V Balakrishnan, CFO, Infosys Technologies, said the department is looking for one-to-one correlation between input and output services , which will never be the case considering the nature of the services consumed locally and exported. 

"In a manufacturing scenario such co-relation may be possible but not in software exports,'' he said. Some input services are clearly linked to output while some are not. 

"The trouble is that there are no guidelines on what kind of input services are eligible for refund against export of software/services," said K R Girish, senior partner in law firm BSR & Co. 

Suresh Senapaty, CFO, Wipro Technologies, said too many rejections were leading to litigation. "Issues are pending in appeal," he said. 

Some suspect that there is a diktat from the top bosses in the tax department not to be generous with refunds. Now trade bodies are also lobbying to get the refund. Som Mittal, president, Nasscom, said the department of indirect taxes is expected to issue documentation guidelines to facilitate quick refunds. 
K Ramesh, director, CII, Karnataka, said the chamber had taken a delegation to meet the chairman of indirect taxes and a quick resolution of the issue is expected.