Exports under GST are defined as goods or services sent from our country to another country against monetary consideration and realization of foreign exchange earnings. These are referred to as zero rated supplies. The issue emerging is related to refund of input tax credit in case of Business process outsourcing {BPO} industries.
Principally, taxes on exports are refunded and this industry has previously enjoyed the benefits. But now as per a ruling held by Maharashtra appellate authority for advance ruling (AAAR) , back office support services were not covered under the ambit of export of service. It was explained as the services are in the nature of facilitation of service between overseas companies and customers and thus to be categorized as intermediary services liable to GST@ 18%. There is not enough clarity as under the previous tax regime it was held has contrary i.e. covered under exports.
Tax officials are denying of refunds and the whole industry is affected as it leads to blockage of working capital, cash flow issues, competitiveness and unnecessary disputes with the officials.
Due to the fundamental issue of classification, no export benefits are being awarded to these industries. Also, IT and ITeS service providers have come under the same fundamental dilemma struggling to get the refunds and other export benefits.
