The Institute of Chartered Accountants of India, New Delhi

BUDGET HIGHLIGHTS 2012-13

INDIRECT TAXES

SERVICE TAX

1. The rate of service tax to be increased from 10% to 12%. Works contract composition rate increased from 4 % to 4.8%.

2. The term “service” defined with certain inclusions and exclusions.

3. Negative list of services

 Proposal to introduce negative list approach to taxation of services will enhance the share of service tax in the total tax revenue manifolds. The services specified in the negative list shall remain outside the service tax purview. This approach brings almost all the services under the tax net barring 17 heads of service listed in the negative list. Negative list includes most of the services provided by Government for local authority, services provided by Reserve Bank of India, foreign diplomatic missions located in India, cultivation services, trading of goods, betting, gambling, approved vocational educational education, etc.

 Certain specified services including health care services, services by religious persons and sports persons, educational services are to be exempted. Surprisingly, the residential complex is defined as one with more than 1 dwelling unit which may require revisiting.

 To support the negative list approach to taxation of services, Place of Supply Rules are proposed to be placed in public domain for stakeholders’ comments. These rules are to determine the location where a service shall be deemed to be provided.

4. Procedures under Central Excise and service tax harmonized by introduction of common registration and return forms for both excise and service tax, Special audit in service tax, Revision Application Authority and Settlement Commission provisions to be made applicable in service tax.

5. Point of Taxation Rules, 2011

 Date of payment is being defined.

 A new residual rule inserted to ascertain the point of taxation in cases where the same cannot be ascertained by the rules prescribed.

 Definition of continuous supply of service to be amended to capture the entire dimension of the concept. Small service providers [ less than 50 lakh per year] being individuals/ partnership firms could discharge the tax on receipt basis.

6. Service Tax Rules, 1994

 The time period for issuance of invoice to be increased from 14 days to 30 days.

For banks and financial institutions providing banking and other financial services, period to be increased to 45 days.

 Rule 6(4A) amended to allow unlimited amount of permissible adjustments.

7. Under reverse charge mechanism few more services to be covered. Further in 3 services, both service provider and receiver would be liable to pay.

8. Retrospective amendments to reduce existing litigation with regard to infrastructural services being non commercial in nature.

The service tax broad basing along with the increase in the rates would lead to estimated Rs.30,000 crores of additional revenue.

CENTRAL EXCISE

1. Enhancement of Standard rate of excise duty from 10% to 12%, concessional rate of duty from 5% to 6% and lower rate of duty from 1% to 2%.

2. Officers of audit, cost accountants and chartered accountants appointed under section 14A and 14AA to be empowered to prescribe the time limit within which the units being audited will produce the documents.

3. Section 12F relating to search and seizure and section 13 dealing with the power to arrest to be aligned with the provisions of the Customs Act.

4. Section 9A to be amended to provide that all offences punishable with imprisonment of three years or more under section 9, shall be cognizable.

5. Expansion of deemed manufacture to bring more traders into the excise net in regard to cigarettes, branding of jewelry, cutting/ printing of aluminum foils and match and charging batteries.

6. Section 9 amended to provide that the cases of evasion in which the duty exceeds Rs. 30 lakh would be punishable with a term of imprisonment extending to seven years and with fine. Earlier this amount was Rs. 1 lakh.

7. Section 11AC to be amended to provide that benefit of reduced penalty would be available only if the reduced penalty is also paid along with the duty and interest within specified 30 days.

8. CENVAT Credit Rules, 2004

 Rule 10A to be inserted to permit transfer of unutilized credit of SAD lying in balance at the end of each quarter to another factory of the manufacturer.

 Rule 5 to be substituted to simplify the procedure for refund of unutilized credit on the account of exports.

 Credit to be allowed on motor vehicles restrictively.

 Rule 4(1) and 4(2) is being amended to allow a service provider to take credit of inputs or capital goods as soon as the goods are delivered to him, subject to specified conditions.

The measures could lead to estimated additional revenue of Rs.20,000 crores.

CUSTOMS

1. Peak rate of customs duty of 10% to be restored.

2. Definition of customs airport to be amended to include the air freight stations also.

3. Central Board of Excise and Customs to be empowered to appoint air freight stations for unloading of import cargo and loading of export cargo as in the case of Inland Container Depots.

4. New section 28AA to be inserted to provide for recovery of duties from the persons to whom the instrument was issued without prejudice to any action that may be taken against the importer.

5. Central Government may, by notification in the official gazette, specify the class or classes of importers who shall pay customs duty electronically.

6. Section 122 to be amended to enhance the monetary limits for adjudication of cases involving confiscation of goods and imposition of penalty from Rs. 2 lakh to Rs. 5 lakh for Deputy/Assistant Commissioners and from Rs. 10,000 to Rs. 50,000 for Gazetted Office lower in rank to Assistant/Deputy Commissioner.

7. Section 138 dealing with the summary trial of offences to be amended to exclude the offences punishable with the term of imprisonment of three years or more under section 135 as such offences are proposed to be cognizable.

8. Section 8C of the Customs Tariff Act, 1975 to be amended to provide that safeguard duty on imports from China may continue if Central Government is of the opinion that such articles continue to be imported into India so as to cause or threaten to cause market disruption to domestic industry even though the latter has taken the measures to adjust to such disruption.

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