The Pharmaceuticals Export Promotion Council of India (Pharmexcil) has demanded the union finance ministry to reinstate the tax exemption allowed to services provided by commission agents located outside India, which has been withdrawn by the union finance ministry recently.

In its notification issued on June 20 this year, the union finance ministry had deleted serial number two of an earlier notification dated July 7, 2009, pertaining to the distributor's commission paid to the commission agent located outside India who causes sale of goods exported by the exporter. As per serial number two of the notification dated July 7, 2009, tax exemption was allowed to service provided by a commission agent located outside India and engaged under a contract or agreement or any other document by the exporter in India, to act on behalf of the exporter, to cause sale of goods exported by him.

The conditions for this exemption were that the exporter shall declare the amount of commission paid or payable to the commission agent in the shipping bill or bill of export, as the case may be; and 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.

Seeking the union commerce ministry's urgent intervention in the matter, Pharmexcil's panel chief for Foreign Trade, DGFT, Direct & Indirect Taxes, D B Mody said that the exporters are perturbed about this retrograde notification of the finance ministry and fear that it will have far reaching implications on the exports.

Mody, in his letter to the union commerce secretary, said that it is a normal trade practice that distributor's commission has to be remitted to the agent abroad who is booking the business pushing the exporter's product so that the exports go up.

Exporters in pharmaceutical industry face a peculiar problem, whereas at input stage exporters pay excise duty at the rate of 12 per cent and on clearance of formulations they are paying at the rate of six per cent. Over and above there is Cenvat credit for the service tax paid to the various service providers. This results in accumulation of Cenvat Credit and money lying with the government and the exporters are losing interest leading to increase in cost of production and thereby exporter's competitiveness gets affected, Mody said.

“You are requested to bring to the attention of MOF (DOR) that inadvertently the serial no. 2 of the Notification .no.18/2009 has been omitted in the Notification  no.31/2012 and it should be reinstated without any further delay,” Mody in his letter to the commerce secretary said.