The Budget 2016, even if it is not going to be a populist one, it should emerge at least as a transforming budget to pave the way of GST much closer than the last year.

AMLEGALS has the following expectations from the budget 2016:

1. Relaxations In Tax Liability for Startups

If we cherish for “Make in India” then it is the startups which have to be boosted.

We wish for some relaxations either in taxation limits, deferred liability to pay tax, reduced tax rates to make them stand before they contribute in the process of “Make in India”.

2. Reform in Cenvat Credit Rules

The GST era will not recognize the concept of availing of Cenvat credit with respect to manufacture in terms of Section 2(f) of CEA, 1944. Hence, it is the right time to make the trade comfortable with suitable reforms in existing Cenvat Credit Rules, 2004. Further, such an exercise will also prevent the breaking of chain in input tax credit system.

Even, sometime back the Central Government had hinted that even if GST Bill is not passed and implemented, then too some suitable changes shall be incorporated to extend the benefit to the trade.

3. Litigation Reforms Via Pre Deposit

The litigation process in indirect tax appeals i.e. service tax, excise & customs has to be reformed.

It is pertinent to note that a tax appeal contesting demand of evasion of excise duty, service tax or customs duty cannot be placed at par with an appeal contesting settled issues and/or interpretational issues.

Though right to an appeal is a right created by statute, and putting a condition for being heard is also legislative, but mandatory pre-deposit at the rate of 7.5% and/or 10% as applicable at different forums, under Section 35F of Central Excise Act, 1944, Section 129E of Customs Act, 1962 & Section 83 of the Finance Act, 1994 cannot be a right way to treat bona fide appellants.

4. Service Tax Rate To Increase

AMLEGALS in last budget also anticipated that the rate of service tax will increase and in this year also we anticipate an increase in rate so as to be at parity with the upcoming GST rate which shall be around 17-18%.

Hence, in this budget, the service tax rate may increase by 1 % or so.

5. Interest rates for default/delay in payment of Service tax

There is an imperative need to address the rate of interest which is payable where service tax could not be paid. The interest should be to recover loss to the revenue and not again should act as a penal provision for which separate penalty provisions exists in service tax.

At present the interest is payable, under Section 75 of the Finance Act, 1994, up to the rate of 36% annually ultimately making it to be 3% per month which is very high. It should be at par the rate at which the revenue pays an interest while making refund of service tax and/or should be 18% maximum.

The rate should be decided keeping in mind the small service providers and irrespective of delay period, which should not be at a higher rate.

6. No Time Limit for availing CENVAT Credit

If CENVAT is to avoid cascading effect of double taxation then putting a restriction of time limit of one year results in elimination of the pious intention of the legislation to avoid double taxation.

Hence, the Rule 4(1) of CENVAT Credit Rules, 2004 may be amended to eliminate the stipulated time limit of one year for availing credit and allow the Assessee to avail CENVAT credit without any time restriction.

7. Payment of tax in reverse charge mechanism by utilizing credit

As per the Rule 3 (4) of Cenvat Credit Rules, 2004 credit can be utilized by a manufacturer & a service provider to pay service tax on cleared goods & output services only.

Therefore, the availed Cenvat credit cannot be utilized to pay service tax under reverse charge mechanism. Whereas, this cannot be a situation under GST regime and hence, there is an imperative need to address this issue.

Even otherwise, the payment of service tax under reverse charge mechanism is a “revenue neutral exercise”, the service recipient especially exporters should be allowed to use the credit to pay tax under reverse charge mechanism along with appropriate mechanism to re-credit the same for effecting cost compliance and lesser cash outflow.

8. Fast Track Redressal in Litigation

The disputes and issues where matters had already been settled by the Supreme Court or high courts of India will be given priority in listing and disposal of litigation on fast track basis .

It is also being anticipated that a time frame will be fixed for completion of adjudication process, in order to expedite the disposal of old cases .

This is a much expected change since in GST era , the reduction and disposal of old litigation will be the top priority .

These measures will be also adopted to implement the Government’s intention to push the motto of ease of doing business in India.

(Anandodaya Mishra , Founder Advocate , AMLEGALS – The author is a leading advocate who handles cases in various High Courts & Tribunals of India. He can be contacted on anand@amlegals.com .For more, please refer www.amlegals.com and also https://in.linkedin.com/in/anandodaya-mishra-advocate-81a61785 )

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