In hisBudget Speech Mr. FM has said:

1     Services received by exporters from goods transport agents and commission agents, where the liability to pay service tax is ab initio on the exporter, would be exempted from service tax. Thus, there would be no need for the exporter to first pay the tax and later claim refund. [See Para No. 130 of Speech]

Extracts from Explanatory Notes:

2     Under notification No.18/2009-ST dated 07.07.2009, two taxable services, namely, `transport of goods by road' and `commission paid to foreign agents' have been exempted from the levy of service tax, if the exporter is liable to pay service tax on reverse charge basis. The present cap of 10% on commission agency charges has been retained, and the exporter will have to pay service tax on the amount of commission which is in excess of 10%. [See Sub-Para (a) of Para (iv) of Part C of the Notes]

Extracts from New Notification:

3     The exemption shall be limited to one per cent of the free on board value of export goods for which the said service has been used. [See Para (2) of Entry in Column no. 4 against Sr. No. 2 of the Table of the Notification no. 18/2009] [New Notification]

Extracts from Old Notification:

4     Refund of service tax shall be restricted to actual amount of service tax paid or service tax calculated on ten per cent of FOB value of export goods, whichever is less. [See Para (iv) of Entry in column No. 4 against Sr. No. 15 of the Table of the Notification No. 41/2007] [Superseded Notification as amended]

From the above analysis it is clear that some where is a mistake.  The intention of the legislatures is to keep the exemption limit equal to 10% of the FOB value in case of commission paid to foreign commission agent, but notification limits this exemption upto to 1% only.  

This mistake may be inadvertent but serious in nature. A suitable corrigendum is required without loss of time.

 

Exemption limit inconsistency between budget announcements and notification restricts exporter relief on commission paid to foreign agents. An inconsistency in Notification No.18/2009 ST narrows the service tax exemption for services on which exporters are liable under the reverse charge mechanism by fixing a lower percentage of FOB value, contrary to the Budget speech and explanatory notes which preserve the prior cap tied to FOB value; a corrigendum is needed to align the notification with legislative intent and restore the intended exemption parameter for exporter commission payments.