Analysis of key changes in Excise & Custom Duty: Budget 2016

CA Bimal Jain

UNION BUDGET 2016: CHANGES IN EXCISE AND CUSTOMS:

Changes in Customs and Central Excise law and rates of duty have been proposed through the Finance Bill, 2016 (Clauses 113 to 138 for Customs and Clauses 139 to 144 for Central Excise). In order to prescribe effective rates of duty and to carry out changes in the Rules made under the respective Acts, the following notifications are being issued:

Unless otherwise stated, all changes in rates of duty take effect from the midnight of 29^th February / 1^st March, 2016. A declaration has been made under the Provisional Collection of Taxes Act, 1931 in respect of clauses 138 (i), 142 (i), 143 (i), 159, 231 and 232 of the Finance Bill, 2016 so that changes proposed therein take effect from the midnight of 29^th February / 1^st March, 2016. The remaining legislative changes would come into effect only upon the enactment of the Finance Bill, 2016. These dates may be carefully noted.

UNDER EXCISE:

• Excise Duty levied on Certain goods:
• Exemption on articles of Jewellery [excluding silver jewellery, other than studded with diamonds or other precious stones namely, ruby, emerald and sapphire] withdrawn with a higher threshold exemption upto Rs. 6 crore in a financial year subject to the eligibility limit of Rs. 12 crore in the preceding financial year, along with simplified compliance procedure, from Nil to 1% (without Input Tax Credit [“ITC”] or 12.5% (ITC). Thus, a jewellery manufacturer will be eligible for exemption from Excise duty on first clearances upto Rs. 6 Crore during a financial year, if his aggregate domestic clearances during preceding financial year were less than Rs. 12 crore.
• Branded readymade garments and made up articles of textiles of retail sale price of Rs. 1000 or more changed from Nil (without ITC) or 6%/ 12.5% (with ITC) to 2% (without ITC) or 12.5% (with ITC).
• Increase in Excise Duty rate on certain goods:
• Excise Duty on various tobacco products increased by 10% to 15% other than beedi raised, to discourage consumption of tobacco and tobacco products.
• Domestically manufactured charger/adapter, battery and wired headsets/speakers for supply to mobile phone manufacturers as original equipment manufacturer, increased from Nil to 2% [without Input Tax Credit (“ITC”)] or 12.5% [with ITC].
• Routers, broadband Modems, Set-top boxes for gaining access to internet, set top boxes for TV, digital video recorder (DVR)/network video recorder (NVR), CCTV camera/IP camera, lithium ion battery [other than those for mobile handsets] from 12.5% to 4% [without ITC] or 12.5% [with ITC].
• Decrease in Excise Duty rate on certain goods:
• Exemption from levy of Excise duty provided to improved chulhas (including smokeless chulhas) capable of burning wood, agrowaste, cowdung, briquettes and coal has been withdrawn.
• Electric motor, shafts, sleeve, chamber, impeller, washer required for the manufacture of centrifugal pump reduced from 12.5% to 6% where more than 50% of such pumps are used in agriculture.
• Refrigerated containers reduced from 12.5% to 6%.
• Micronutrients [covered under S. No. 1(f) of Schedule 1 Part (A) of the Fertilizer Control Order, 1985 and manufactured by the manufacturers which are registered under the Fertilizer Control Order, 1985] reduced from 12.5% to 6%.
• Physical mixture of fertilizers, made out of chemical fertilizers on which duty of Excise has been paid, by Co-operative Societies, holding certificate of manufacture for mixture of fertilizers under the Fertilizer Control Order, 1985, for supply to the members of such Co- operative Societies, exempted from 1% (without Input Tax Credit) or 6% (with Input Tax Credit) to Nil.
• Excise Duty on Solar lamp exempt from 12.5% to Nil.
• Inputs, parts and components, subparts for manufacture of charger/adapter, battery and wired headsets/speakers of mobile phone, subject to actual user condition, from 12.5%/ Nil to Nil.
• Parts and components, subparts for manufacture of Routers, broadband Modems, Set-top boxes for gaining access to internet, set top boxes for TV, digital video recorder (DVR)/network video recorder (NVR), CCTV camera/IP camera, lithium ion battery [other than those for mobile handsets] from 12.5% to Nil.
• Specified Notifications relating to area based exemptions has been amended to deny the said exemption to the certain specified Industrial Units.
• Relief measures under the Central Excise:
• Excise duty exemption, presently available to Concrete Mix manufactured at site for use in construction work at such site extended to Ready Mix Concrete manufactured at the site of construction for use in construction work.
• Mutual exclusiveness of levy of Excise duty and Service Tax on information technology software [in respect of Software recorded on media “NOT FOR RETAIL SALE”] has been ensured by exempting from Excise duty only that portion of the transaction value on which Service tax is paid, with effect from 01.03.2016.
• Exemption from levy of Excise duty has been extended to the power generation projects based on municipal and urban waste without subject to any conditions specified for initial setting up of a project for the generation of power or generation of compressed bio-gas (Bio-CNG) using non-conventional materials.
• Amendment in the Central Excise Act, 1944
• Section 5A of the Central Excise Act, 1944 (“the Excise Act”) has been amended to omit the requirement of publishing and offering for sale any notification issued, by the Directorate of Publicity and Public Relations of CBEC.
• Section 11A of the Excise Act has been amended to increase the period of limitation from one year to two years in cases not involving fraud, suppression of facts, willful mis-statement, etc.
• Section 37B of the Excise Act has been amended to empower the Board for implementation of any other provision of the said Act in addition to the power to issue orders, instructions and directions.
• The Third Schedule has been amended to:

a) make some editorial changes, consequent to 2017 Harmonized System of Nomenclature.

b) include therein:

1) All goods falling under heading 3401 and 3402;

2) Aluminium foils of a thickness not exceeding 0.2 mm;

3) Wrist wearable devices (commonly known as „smart watches‟); and

4) Accessories of motor vehicle.

However, the amendment at b) will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931.

• Amendment in the Central Excise Rules, 2002
• In case of finalization of provisional assessment, the interest will be chargeable from the original date of payment of duty.
• Reduced the number of returns to be filed by a Central Excise Assessee above a certain threshold from 27 to 13, that is, one annual and 12 monthly returns. Monthly returns are already being e-filed. The CBEC will provide for e-filing of annual return also. This annual return will have to be filed by Service Tax Assessees also, above a certain threshold, taking total number of returns to three in a year for them.
• Extended the facility for revision of return, hitherto available to a Service Tax Assessees only, to manufacturers also.
• Provided that in cases where invoices are digitally signed, the manual attestation of copy of invoice, meant for transporter, is done away with.
• Miscellaneous
• Procedures have been prescribed for obtaining Centralized Excise Registration in terms of Rule 9 of the Central Excise Rules, 2002 for the specified manufacturers of articles of jewellery.
• Exemption from the procedures of physical verification of premises for providing registration has been granted to the specified manufacturers of articles of jewellery.
• The Notification No. 9/2012-Central Excise (N.T.) dated 17.03.2012, fixing the tariff value in respect to articles of jewellery (other than silver jewellery) has been rescinded.
• Instructions are being issued to Chief Commissioners of Central Excise to file application to Courts to withdraw prosecution in cases involving duty of less than Rs. five lakh and pending for more than fifteen years.
• The existing Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2001 are substituted with the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2016, to simplify the rules, including allowing duty exemptions to importer/manufacturer based on self-declaration instead of obtaining permissions from the Central Excise Authorities.
• Oil Industries Development Cess:

The Oil Industry (Development) Act, 1974 has been amended to reduce the rate of Oil Industries Development Cess, on domestically produced crude oil, from Rs. 4500 PMT to 20% ad valorem. The amendment in the said Act will be effective from the date of assent to the Finance Bill, 2016. Till the enactment of the Finance Bill, 2016, Notification prescribing 20% effective rate of Oil Industries Development Cess will be issued by Ministry of Petroleum & Natural Gas.

• Infrastructure Cess:

Infrastructure Cess levied on motor vehicles, of heading 8703, as under:

• Petrol/LPG/CNG driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1200cc at 1%;
• Diesel driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1500cc at 2.5%;
• Other higher engine capacity and SUVs and bigger sedans at 4%;

Exemption provided to three wheeled vehicles, Electrically operated vehicles, Hybrid vehicles, Hydrogen vehicles based on fuel cell technology, Motor vehicles which after clearance have been registered for use solely as taxi, Cars for physically handicapped persons and Motor vehicles cleared as ambulances or registered for use solely as ambulance;

Further, no credit of Infrastructure Cess will be allowed, and credit of no other Duty can be allowed to pay Infrastructure Cess.

However, the said Infrastructure Cess will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931.

• Clean Energy Cess:

The Clean Energy Cess has been renamed as Clean Environment Cess. Also, the Tenth Schedule to the Finance Act, 2010 dealing with Clean Energy Cess has been amended to increase the Scheduled rate of Clean Energy Cess from Rs. 300 per tonne to Rs. 400 per tonne. However, the effective rate of Clean Energy Cess has been increased from Rs. 200 per tonne to Rs. 400 per tonne.

The increase in Clean Energy Cess will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931.

Summarization of Notification Nos. 5 to 18/2016-Central Excise dated 01.03.2016

Summarization of Notification Nos. 5 to 21/2016-Central Excise (N.T.), dated 01.03.2016

Summarization of Notification Nos. 1 and 2/2016-CEC and Notification No.1/2016-Infrastructure Cess all dated 01.03.2016

UNDER CUSTOMS:

Following amendment are being made in the Customs Act, 1962 (“the Customs Act”) and the Customs Tariff Act, 1975 (“the Customs Tariff Act”) are as under:

• Reduction in Customs duty on certain goods:
• Refrigerated containers from 10% to 5%;
• Mineral fuels and Mineral oils:
• Coal; briquettes, ovoids and similar solid fuels manufactured from coal from 2.5%/10% to 2.5%
• Lignite, whether or not agglomerated, excluding jet from 10% to 2.5%
• Peat (including peat litter), whether or not agglomerated from 10% to 2.5%
• Coke and semi-coke of coal, of lignite or of peat, whether or not agglomerated; retort carbon from 5%/10% to 5%
• Coal gas, water gas, producer gas and similar gases, other than petroleum gases and other gaseous hydrocarbons from 10% to 5%
• Tar distilled from coal, from lignite or from peat and other mineral tars, whether or not dehydrated or partially distilled, including reconstituted tars from 10% to 5%
• Oils and other products of the distillation of high temperature coal tar similar products in which the weight of the aromatic constituents exceeds that of the non-aromatic constituents from 2.5%/5%/10% to 2.5%
• Pitch and pitch coke, obtained from coal tar or from other mineral tars from 5%/10% to 5%
• Chemicals & Petrochemicals:
• All acyclic hydrocarbons and all cyclic hydrocarbons [other than para- xylene which attracts Nil Basic Customs Duty and styrene which attracts 2% Basic Customs Duty] from 5%/2.5% to 2.5%
• Denatured ethyl alcohol (Ethanol), from 5% to 2.5%, subject to actual user condition
• Electrolysers, membranes and their parts required by caustic soda/ potash unit using membrane cell technology exempted from 2.5% to Nil
• Wood in chips or particles for manufacture of paper, paperboard and news print from 5% to Nil;
• Textiles:
• Specified fibres and yarns from 5% to 2.5%
• Import of specified fabrics [for manufacture of textile garments for export] of value equivalent to 1% of FOB value of exports in the preceding financial year exempted from Applicable Rate to Nil, subject to the specified conditions
• Electronics/ Hardware:
• Polypropylene granules/resins for the manufacture of capacitor grade plastic films from 7.5% to Nil
• Parts of E-readers from Applicable Rate to 5%
• Magnetron of capacity of 1 KW to 1.5 KW for use in manufacture of domestic microwave ovens, subject to actual user condition, from 10% to Nil.
• Specified capital goods and inputs for use in manufacture of Micro fuses, Sub-miniature fuses, Resettable fuses and Thermal fuses from Applicable Rate to Nil;
• Neodymium Magnet (before Magnetization) and Magnet Resin (Strontium Ferrite compound/before formed, before magnetization) for manufacture of BLDC motors, from Applicable Rate to 2.5%, subject to actual user condition;
• Increase in Customs Duty on certain goods:
• Natural latex rubber made balloons from 10% to 20%;
• Imitation jewellery from 10% to 15%;
• Metals:
• Primary aluminium from 5% to 7.5%
• Other aluminium products from 7.5% to 10%
• Zinc alloys from 5% to 7.5%
• Industrial solar water heater from 7.5% to 10%;
• Full exemption on solar tempered glass/solar tempered (anti-reflective coated) glass withdrawn and 5% concessional Basic Customs Duty imposed, subject to actual user conditions;
• Plans, drawings and designs from Nil to 10%;
• Electronics/Hardware:
• E-Readers from Nil to 7.5%
• Preform of silica for manufacture of telecom grade optical fibre /cables from Nil to 10%;
• Exemption on magnetic – Heads (all types), Ceramic/Magnetic cartridges and stylus, Antennas, EHT cables, Level meters/level indicators/ tuning indicators/ peak level meters/ battery meter/VC meters/Tape counters, Tone arms, Electron guns withdrawn, from Nil to Applicable Rate of Basic Customs Duty;
• Specified telecommunication equipment [Soft switches and Voice over Internet Protocol (VoIP) equipment namely VoIP phones, media gateways, gateway Product/Switch (POTP/POTS), Optical controllers and session border controllers, Optical Transport equipment; combination of one / more of Packet Optical Transport Network(OTN) products, and IP Radios, Carrier Ethernet Switch, Packet Transport Node (PTN) products, Multiprotocol Label Switching- Transport Profile (MPLS-TP) products, Multiple Input / Multiple Output (MIMO) and Long Term Evolution (LTE) Products on which 10% BCD was imposed in 2014-15 Budget] being excluded from the purview of the other exemption also, now taxable from Nil to 10%;
• Reduction in Special Additional Duty (“SAD”) on certain goods:
• Orthoxylene, from 4% to 2%, for the manufacture of phthalic anhydride subject to actual user condition;
• Exemption from SAD withdrawn fully or in some cases, imposed reduced SAD on certain goods:
• Populated PCBs for manufacture of personal computers (laptop or desktop) from Nil to 4%;
• Populated PCBs of mobile phone/tablet computer withdrawn. Concessional SAD on populated PCBs for manufacture of mobile phone/tablet computer imposed from Nil to 2%;
• Miscellaneous:
• Concessional Basic Customs Duty as presently available under project imports for cold storage, cold room (including for farm level pre-cooling) also extended for ‘cold chain including pre-cooling unit, pack houses, sorting and grading lines and ripening chambers’ from 10% to 5%;
• Machinery, electrical equipment, instrument and parts thereof (except populated PCBs) for semiconductor wafer fabrication/LCD fabrication units exempted from Applicable Rate of Basic Customs Duty and SAD at 4%;
• Machinery, electrical equipment, instrument and parts thereof (except populated PCBs) imported for Assembly, Test, Marking and Packaging of semiconductor chips (ATMP) exempted from Applicable Rate of Basic Customs Duty and SAD at 4%;
• The exemption from Basic Customs Duty, Countervailing Duty, SAD on charger/adapter, battery and wired headsets/speakers for manufacture of mobile phone is withdrawn, now Basic Customs Duty taxable at Applicable Rate, Countervailing Duty at 12.5% and SAD at 4% on it;
• Inputs, parts and components, subparts for manufacture of charger / adapter, battery and wired headsets /speakers, of mobile phone, subject to actual user condition exempted from Applicable Rate of Basic Customs Duty, Countervailing Duty and SAD;
• Parts and components, subparts for manufacture of Routers, broadband Modems, Set-top boxes for gaining access to internet, set top boxes for TV, digital video recorder (DVR)/network video recorder (NVR), CCTV camera/IP camera, lithium ion battery [other than those for mobile handsets] exempted from Applicable Rate of Basic Customs Duty, Countervailing Duty and SAD;
• Changes in the Customs provisions and Rules made there under

• Amendment in the Customs Tariff Act

• Amendment in the First Schedule to the Customs Tariff Act

• Summary of the Customs Tariff Notification:

• Summary of the Customs Non-Tariff Notification:

(Author can be reached at Email: bimaljain@hotmail.com)

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