The indirect tax proposals in the Budget talk tough and are far from populist. This is understandable given that general elections are still far off and this is the only way the finance minister can mop up additional revenue for his various investment proposals. The general rates of service tax, customs and central excise have however not been tinkered with.
Time limit for recovery of indirect taxes: Beware bonafide importers and manufacturers, now the customs and excise can go after you for recovery of dues up to two years, even though you have committed no fraud, suppression, willful mis-statement etc (earlier the limitation was one year only). As regards service providers, the department can issue show cause notices for recovery of service tax dues up to 30 months from the relevant date. Earlier it was 18 months.
Restructuring of powers of the CBEC: Central Board of Excise and Customs is now empowered to frame regulations for allowing transit of certain goods and conveyances without payment of customs duty. It is also being empowered to implement the Central Excise Act in addition to its present job of issuing orders, instructions and directions.
Tax Values/Rates (Excise & Customs): For certain specified products like aerated waters, footwear and cosmetics notified for MRP-based assessment, excise duty is determined based on the declared MRP of the product after allowing abatement of a fixed percentage for deducting applicable taxes. Now all kinds of soaps and washing products, whether machine-made or hand-made falling under chapter 3401 and 3402 (with abatement of 30%), aluminium foils of thickness not exceeding 0.2 mm (abatement of 25%), smart watches (abatement of 35%) and accessories of motor vehicles(abatement of 30%) would be covered under MRP-based excise assessment.
Balloons made of natural latex have been made dearer by increasing customs duty. Similarly excise duty on ready-made garments has been increased. Children expecting new clothes this Holi may not be amused.
Disposable containers made of aluminium foil will attract higher excise duty. Import of imitation jewellery will also be expensive now. Similarly both import and local manufacturing of precious metals and jewellery will attract higher taxes.
Import of metals like primary aluminium and zinc will become a little more expensive and imports of iron ore fines and lumps with iron content below 58% and chromium ores and concentrates of all kinds have been fully exempted.
Green India: Industrial solar water heaters will attract a little higher customs duty, so much so for Green India. There is a move, however, to save our forests by exempting import of wood chips for manufacture of paper. Similarly import duty on pulp of wood for manufacture of sanitary pads, napkins & tampons is also reduced, though marginally. Engines for hybrid electric vehicles have been exempt and even CVD is fixed @ 6%. Solar lamps are exempt from excise duty. Parts for manufacture of rotor blades for wind operated electricity generators would attract lower excise.
Industries have a reason to be a little sour over increase of customs duty on capital goods and their parts.
There is yet another dole to warehouses and logistic service providers. They will pay lower customs /excise duty on cold chains and refrigerated containers.
Mineral fuels and mineral oils like coal, lignite, coke etc. and chemicals and petrochemicals like hydrocarbons, ethanol etc., have lowered customs duties now. Oil exploration equipments are fully exempt. No wonder share prices of ONGC and other oil exploration companies have suddenly swelled.
Now, import of technology in the form of plans, drawings and designs will attract 10% customs duty as against nil earlier.
Specified textile fibres and yarns have got import duty reduction benefit.
Customs duty has been increased on e-readers and their parts. Machinery for LCD and semiconductor wafer fabrication units have been exempted. Exemption has been withdrawn on chargers / adapters, battery and wired headsets / speakers for manufacture of mobile phones, but at the same time parts for these have been exempt from both customs and excise. Exemption to magnetic heads, ceramic / magnetic cartridges and stylus, antennas, EHT cables, level meters, level indicators, tuning indicators, peak level meters, battery meters, VC meters, specified telecom equipment etc. have been withdrawn. Lower excise duty (without cenvat) on routers, broadband modems, set-top boxes for internet / TV, digital video recorders, network video recorders, CCTV cameras, IP cameras, lithium ion battery etc. Raw material for manufacturing these items have however been exempt. It seems the government has now identified the mobile phone and telecom industries for milking duties.
Golfers watch out. Golf cars will now have a duty of 60% as against 10% earlier. The government has deduced there is money in golfers' pockets.
Already the construction industry is in doldrums. On top of it, customs exemption to road construction machinery has been withdrawn. There is a small respite - ready mix concrete manufactured at site for construction is exempt from excise duty.
Defence as a sector for the very first time did not get the Finance Minister's ear. All exemptions from customs duties on specified defence equipment have been withdrawn.
Aircraft/ship repair hub: Airline companies, which are mostly in the red, have got a respite, as now they can import or domestically procure duty free, tools, tool kits for aircraft repair, maintenance and overhauling. Even the procedures have been simplified. Similar exemptions have been introduced for ship repair industry. Efforts are on to make India an aircraft and ship repair hub.
Thanks to Rahul Gandhi, braille paper is now exempt. During the Budget speech the FM graciously thanked the Opposition leader for his intervention on this anomaly. Specified equipments for dialysis and cancer treatment have also been exempt from both customs and excise duties.
Farmers who have always been at the receiving end due to increasing urbanization, have a small reason to smile. Excise duty on specified fertilizers has been reduced. Not only this, Krishi Kalyan Cess @ 0.5% is being levied on all taxable services w.e.f. 1st June 2016 to finance and promote government initiatives to improve agriculture.
Services provided by National Centre for Cold Chain Development under Department of agriculture, Cooperation and Farmer's Welfare have been fully exempt from Service Tax w.e.f. 1st April 2016. Footwear would be cheaper as excise duty has been rationalised on them and their specified raw material.
As a result of extensive digital penetration, archaic provisions under indirect tax laws for publication and sale of notifications have been done away with.
Entertainment has always been the sitting duck for taxation, regime after regime. Excise duty has been increased on soft drinks, mineral water and tobacco products including cigarettes. Similarly cashew nuts also have become dearer, as 5% duty has been imposed on cashew nuts with shell.
Excise duty is reduced on parts of railway and tramway locomotives and rolling stock, track fixtures and fittings and safety or traffic control equipment. Infrastructure cess on a graded scale is being levied on specified motor vehicles.
Relations with China: As a sign of improving trade relations with China, the power of central government to impose transitional product specific safeguard duty on consistent and continuous imports of any product in substantial quantities from China, causing market disruption in India, has been omitted.
Service Tax proposals: The Finance Minister has come out heavily against all his senior advocate colleagues and arbitrators by withdrawing service tax exemption hitherto available to them. Not only this, senior advocates and arbitrators will have to take registration and pay tax themselves as against reverse charge benefit available to other lawyers and law firms. This has been done in order to plug the anomaly wherein the amount charged by senior advocates was not getting taxed, since they are normally hired by lawyers and law firms, who are outside the ambit of service tax.
Costlier travel: Metro and monorail projects will be costlier due to withdrawal of service tax exemption on their construction, erection, commissioning and installation (for contracts entered after 1.3.2016 the levy would be 5.6%). This will obviously be passed on to commuters.
Travel by ropeway, cable car or aerial tramway will also become expensive due to 14% service tax, as its exemption has been withdrawn. This looks reasonable as such travel is generally leisure in nature and not essential. Similarly travel by air-conditioned stage carriage is also taxable at 5.6%.
The aam aadmi has a reason to feel somewhat happy as construction services of housing projects under the Housing for All (Urban) Mission, Pradhan Mantri Awas Yojana, low cost houses up to a carpet area of 60 square meters under the PMAY or under housing schemes of state governments are being exempt w.e.f. March 1, 2016.
Service of life insurance business provided by way of annuity under National Pension System, services provided by Employees Provident Fund Organisation to employees, services provided by IRDA, services provided by SEBI are fully exempted from service tax w.e.f. 1st April 2016. Service tax is reduced to 1.4% from 3.5% on single premium annuity insurance policies. Services of general insurance business provided under Nirmaya Health Insurance Scheme launched by National Trust for Welfare of Persons with Autism, Cerebral Palsy etc, are fully exempt from service tax.
Services provided by Biotech Industry Research Assistance Council to approved biotech incubators fully exempt from service tax. Services provided by way of skill / vocational training by training partners of Deen Dayal Upadhyay Grameen Kaushalya Yojana and assessing bodies empanelled by Ministry of Skill Development & Entrepreneurship are fully exempt from service tax.
Small service providers like One Person Company and HUF can pay service tax on quarterly basis. Further One Person Companies can pay service tax on receipt basis as against the existing accrual system for payment of tax.
Construction services provided to government or local authority for schools, hospitals, ports and airports have been retrospectively exempted w.e.f. 1.4.2015. The exemption was strangely withdrawn earlier. This is a welcome correction. Similarly retrospective exemption is being provided for 1.7.2012 to 29.1.2014 for services of construction, maintenance etc., of canals, dams or other irrigation works provided to government bodies. IIM MBA programmes are also being exempt from service tax.
Certain measures are being taken to reduce litigation and provide certainty in taxation. For example interest rates on delayed payments of service tax are being rationalised @15% (in case the taxable income is less than 60 lakhs in the previous year the rate of interest would be 12%) except in case of non-deposit of service tax already collected, for which interest would be charged at a staggering 24%.
In another rationalisation measure, time limit for cenvat (input tax credit) refund in case of export of services has been prescribed as 1 year from the date of receipt of payment in convertible forex or issue of invoice in case advance payment is received.
Assignment by the government of the right to use radio-frequency spectrum and subsequent transfers are declared as service.
Any activity carried out by a lottery distributor for promotion, marketing, organizing, selling of lottery or facilitating organization of lottery in any manner can attract service tax.
Service tax on IT software on CD's or other media bearing MRP is exempt from service tax w.e.f. 1st March 2016 provided excise duty is paid on the basis of MRP.
Rules are being amended to improve input credit flow, reduce compliance burden and associated litigation in respect of apportionment of cenvat credit between exempted and non-exempted final products and services. Manufacturers with multiple plants are being enabled to maintain common warehouse for inputs and distribute inputs and the cenvat credit to such factories. Input credit distribution is being enabled to job workers and contract manufacturers of the unit in certain circumstances.
Cenvat credit (input tax credit) is being allowed in respect of service tax paid on the amount charged by the government or any other person for assignment of a natural resource.
Now one can be arrested only for non-payment of service tax already collected (but not deposited with the department). This specific arrest provision is also applicable only if the amount involved is above Rs.2 crores. In other words the monetary limit for launching prosecution for service tax evasion is being increased to 2 crores from 50 lakhs.
Focus on warehousing and logistics:The finance minister in this budget has attempted to overhaul and reform the legal framework for warehousing under the customs law.
An interesting addition is a new class of “special warehouses” for enabling storage of specified goods, which will be under the physical control of the department. Control over public and private bonded warehouses would henceforth be record-based only. Further the concept of “warehousing stations” and the power of CBEC to declare places to be warehousing stations at which alone warehouses may be appointed/licensed have been now done away with. This shows the aggressive mind-set of the government to promote warehousing all around the country.
Henceforth for warehousing goods, triple duty bond is required to be executed instead of the existing double duty bond, to secure customs duties payable on removal of goods from the warehouse. Additionally it is proposed that importers will have to provide security to the department (eg. by way of bank guarantee).
As a fillip to export trade, the warehousing period has been extended for goods used by EOU/EHTP/STP and ship building and other manufacturing units in bond without limit (earlier 5 years for capital goods and 3 years for other goods), subject to yearly permission from Principal Commissioners / Commissioners.
Presently the customs department has been empowered to fix rent and warehousing charges through administrative action. In view of privatisation of services and free market determination of these commercial rates, the regulation of such fees has been done away with. Similarly the department would not charge any fees for allowing manufacturing in a bonded warehouse.
Specified class of importers / exporters can avail the facility of deferred payment of customs duties.
(Author Srinivas Kotni is Founder and Managing Partner of law firm LEXport. Views expressed here are personal and not that of CNN-IBN/ IBNLive)
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