Prepared By: CA Pradeep Jain, CA Preeti Parihar and Sukhvinder Kaur LLB[FYIC]
The Budget 2012-13 will be announced on March 16, 2012 by the Finance Minister Pranab Mukherjee. There are a lot of expectations from Budget as the economy of the country is not yet stable and after effects of recession can still be felt. The European Union economic crisis is also having a negative effect on the Indian economy.
Only some major changes effected will bring desired relief to the Trade and Industry. Also, many of the anomalies or shortcomings of existing provisions, if removed will be great help to the harried assessee in complying with them. Our expectations relating to indirect taxes are being enumerated here under:
Excise duty on Branded Garments: –
Central Excise duty was imposed on the Branded garments by the Finance Act, 2011. However, no duty was imposed on the Textile sector. Thus, the duty levied on the Branded garments became non-viable as the Garment industry is purchasing non-excisable material and paying 10.3% duty on their finished goods.
The Cenvat credit facility on inputs is not available to them. Also, the levy of duty on branded garments have led to heavy losses as people were less willing to pay more for branded garments. Hence, excise duty imposed on the Garments should be removed.
Refund of Difference between Duty Rate on Inputs and finished goods: –
In cases where duty on the inputs is 10% but on the finished goods made out of these inputs is half i.e. 5%, this leads to accumulation of Cenvat credit which remains unutilized. In the case of difference between VAT on input and VAT on finished goods, the refund of differential VAT amount is given to the assessee.
Similar provision is desired in the Excise also, and the cash payment/refund should be allowed of difference between the excise duty on input and on finished goods.
Non-imposition of excise duty on Additional Commodities: –
The Government is planning to bring more commodities under Excise net. The Government Revenue Target set up has already been met for this fiscal year.
Our suggestion is that additional commodities should not be brought under Excise net as the impact of recession in European market has not reduced. The Government should allow increase of purchasing power of the assessee. The Indian Government should follow the example of Chinese Government which has reduced taxes to increase the purchasing power to their traders/manufacturers.
More features on ACES online facility: –
The allowing of filing of electronic returns as well as use of registration facilities on ACES website has considerably reduced the physical interaction between the Department and the assessee. However, at grass root level, still a lot is left to be desired.
Right now, only Central Excise and service tax returns can only be filed through ACES. This facility should be extended to filing of Annexure-19 (Proof of Export); online intimations etc. This will serve as one more non-monetary incentive for the exporters.
AG Audit of Private Assessee’s : –
The Auditor General has not been empowered under the Central Excise Act to conduct the audit of Private assessees. Even then AG Audits are being conducted and the assessees are being harassed as a lot of time, money and resources are utilized for the same.
AG Audit of private assessee’s should not be allowed. A specific and clear provision should be enacted in this regard.
Increase in Threshold Limit of Service Tax: –
At present, under service tax, threshold limit of Rs. 10 lakhs in a year is allowed to the service provider, whereas to a manufacturer, the SSI exemption allowed is of 1.5 crores. And whereas, nearly 57% of India GDP comes from service sector and is still increasing. Looking to the increasing scope of service sector, the threshold limit should be increased and should be brought at par with the SSI exemption under Excise.
Another issue for which clarification should be issued is that whether the threshold exemption is available after claiming abatement or before claiming abatement. This clarification will prevent a lot of litigation on this issue.
Threshold Exemption in line with Point of Taxation Rules, 2011: –
The Point of Taxation Rules, 2011 have introduced payment of service tax on accrual basis instead of receipt basis. However, the Threshold exemption is still being granted on billed basis. It is being expected that the threshold exemption will be granted on the same lines as the Point of Taxation rules i.e. on accrual basis. However, if this is done, its significance will reduce. The service sector is mostly subject to the negotiations. It is a matter of fact that the realizations are on the lower side while billing is always of higher amount. Further, the realization is also slow as compared to business. If the threshold exemption is also aligned to Point of Taxation rules, 2011, i.e. it is counted on the accrual basis, more no. of people will come under the service tax net, though their receipts are not so. For eg. a person raises the following bills and corresponding receipts as follows:-
|Financial year||Billed Amount||Receipts|
|2011-12||11 lacs||9.5 lacs|
|2012-13||12 lacs||11 lacs|
|2013-14||10.5 lacs||9 lacs|
Thus, if the billing is taken as the basis, the above person will not get the benefit of threshold exemption in any of the three subsequent years. On the other hand, if it is kept on receipt basis only, he will get the benefit of this notification in two years.
Further, the peoples’ attitude towards service sector is still required to be matured and mostly the bills so raised are subject to huge discounts. Thus, keeping the accrual basis for threshold exemption will reduce its significance. This is also a major factor which is to be considered while deciding the issue.
Abatement vis-à-vis Cenvat Credit: –
For claiming abatement under Notification No. 01/2006-ST dated 01.03.2006, the condition imposed is that Cenvat credit cannot be availed or exemption under Notification No. 12/2003-ST. This has been done to avoid imposing service tax on cost materials or goods used during the course of providing service.
However, there is no need to deny the Cenvat credit of input services utilized in providing the service under abatement scheme. The reason behind this is that in such cases, the service provider is not able to take the Cenvat Credit of input services due to which their cost increases. The input service component gets included in their cost/assessable value. Hence, service tax is again levied on the input service tax component.
Raising of Demands for Older period at 10.3%: –
For older periods, the demand should be raised at the rate of 10.3% instead of 10% cenvat, 2% education cess and 1% she cess. The department should bifurcate the tax into excise duty and cesses instead of the assessee being harassed for the same.
Increase in SSI Exemption: –
SSI Exemption is granted under Notification No. 08/2003-CE dated 01.03.2003. At present exemption of Rs. 1.5 Crores is granted if home consumption of assessee in the previous financial year is less than Rs. 4 Crores. The time is correct for increase the small scale exemption as the cost of inputs, capital goods have gone up.
The World Bank has also recommended that SSI exemption is required to be increased to 6-7 Crores. It is submitted that the plant & machinery of Rs. 3 crores should be allowed to be retained by the SSI unit. Almost all of the Industry as well as Trade Associations are demanding increase in SSI exemption.
Proposed Negative list of Services: Exemption and Abatement issues: –
While presenting the Union budget, 2011; the Finance Minister proposed to bring drastic changes in the service tax through next budget. Right now, the service tax is levied on specified services which are well defined and exemptions thereon are also specified. However, it is proposed to bring a negative list of services which implies that other than the services mentioned in the said list, all the other services will be subject to service tax. A draft paper has already been issued for public debate.
As negative list of services is being proposed to be introduced, a detailed and thorough homework is required to be done before the same becomes a reality. At present, since there are specified no. of services, their classification has made the levy and collection of taxes easier. Further, when exemption and abatement rate is to be specified, the classification plays an important role.
The issue of Abatement allowed in the services and exemption from services tax granted to the services are required to be addressed properly. At present, the service which is taxable is defined and then exemptions created therein are specified. For instance, Goods Transport by Road service is taxable service however exemption is granted in case the case the consignment being sent is less than Rs. 1, 500/- or in case of individual case, the consignment is less than Rs. 750/-. However, under the negative list of services, there will be no taxable service of GTA defined as the category of services will not be in existence, then how the exemption under the negative list will be available. Similarly, abatement of 75% is allowed in GTA service, if the category of service will not be there then how the abatement will be granted.
Further, while giving the exemptions, the practice is to mention the category of services. For eg. – service tax refund as allowed under notification no. 17/2009-ST dated 7.7.2009, simply list of categories have been given and it is written that if these are used for export, service tax refund will be allowed on them. Further, only 2-3 conditions are mentioned in front of each classification subject to which the refund will be granted. However, in case of negative list, the no. of conditions will more, as the type of services included therein will have to be defined there only. In other words, the exemption notifications will be more elaborative and detailed one.
Thus, government is trying to bring almost all the services in the service tax net by one attempt only rather than including 4-5 services every year. However, in the proposed system, there will be only a negative list and all other services will be taxable provided they fall in the definition of “Service”. In such a case, how the levy and collection will be affected, is going to be a challenge for government. Thus, a thorough study of every aspect is required, before the implementation of Negative list of services is introduced.
Payment of service tax on import of service from Cenvat Account: –
From last few years, payment of service tax from Cenvat in case of reverse charge method has been on fire. The government amended the definition of output service and excluded the GTA service therefrom, which settled the issue in respect of GTA service. However, no such amendment has been made for other such services which are covered under reverse charge method. A number of decisions have been given in favour as well as in against of it. Even the high court has decided in favour of assessee that the service tax in case of import of service can be paid from Cenvat Credit. But department is still not accepting the same.
This controversy can be met only by making relevant amendment in the statutory provisions. Thus, government should specifically prescribe that the service tax in such cases can be paid from the Cenvat Credit where the Cenvat credit has been rightfully availed by an assessee.
These are only some of the expected changes, expectations of the people and suggestions thereupon regarding the Budget 2012. As usual everyone has an eagle’s watch on the upcoming budget and hoping that it will bring the simplicity in tax structure.