Introduction: On February 26’ 2010, the Finance Minister Mr. Pranab Mukherjee will present the Union Budget in the Parliament. Everyone is awaiting the announcement of Budget to see that their interest has been taken care of. There is a lot of speculation about the Budget as everyone has expectations from the same. In this Article we are discussing the expectations of the Trade and Industry from Budget 2010-11 relating to the field of Indirect Taxation.
Refund of Service Tax on services relating to export of goods:
The Government had started giving the refund of service tax on services used in relation to export of goods vide Notification No. 41/2007-ST, dated 06.10.07. But many problems had also cropped up and the Department was denying the refund due to many discrepancies. Then the said Notification was replaced by Notification No. 17/2009-ST, dated 07.07.09. This Notification removed many of the problems. For example, the Department was denying credit on terminal handling charges on the ground that the same did not fall under the category of port services. Vide Notification No. 17/2009-ST, the terminal handling services has been prescribed as a specified service on which refund of service tax is admissible to the exporters.
Although many problems were solved by the Notification No. 17/2009-ST yet some of the problems still exist. There is condition in the notification that the original documents should be submitted along with the refund claim. The Department is insists that the Original documents should be produced with the refund claim. But the service tax provider raises the service tax invoice in only one copy unlike two copies of invoices prescribed in Rule 10 of Central Excise Rules. There is only one copy and that too is submitted in the department then exporter will not have any other copy available with him. These original documents are also required to be kept for Income Tax and VAT pursposes also. As such, the certified copies of invoices should be accepted. The retrospective amendment is required in this regard. If the department thinks that the exporter will take the refund claim twice then it can deface the invoices and return the same to the exporter as was done when the Modvat scheme was operational. There is no need to keep the original documents by the department. As such, it should be amended and the procedural hurdles should be eliminated so that the exporter can get the long awaited refund claims.
Merger of Education Cess and SHE Cess with Basic Excise Duty:
Every manufacturer or the service tax provider has to pay service tax, education cess and secondary and higher education cess separately. These have to charged in their invoice separately. They have to take the cenvat credit of these amounts separately. The amount to be paid is to be debited in these accounts separately. Moreover, these accounts have to be separately shown in ER-1 returns also. Every assessee has to do a lot of exercise in maintaining separate accounts for BED, Edu Cess and SHE Cess. They have to maintain separate columns in RG-1, PLA and RG 23 Part-II. Thus, to avoid lot of confusion, only one rate should be there which is inclusive of BED, Edu Cess and SHE Cess. There should be only one rate prescribed for Basic Excise duty (BED), Education cess (EC) and SHE Cess say 8.25% in place of 8%+2%+1% . The Government should do the entries only one entry in the end of year and transfer the respective amount in the respective funds. This will save a lot of energy which is wasted in such a meaningless affair. This can be utilized in the productive work. Even it will reduce the confusions in calculating the custom duty as well as duty payable by EOUs.
Levy of interest on unutilised Cenvat credit:
Rule 14 of the Cenvat Credit Rules, 2004 employs the language that interest shall be leviable if cenvat credit is wrongly/irregularly taken or utilised. The use of the words “taken or utilised” has led to a lot of problems for the assessee. In case the assessee has by mistake taken cenvat credit by making a credit entry in the RG 23 Part-II register but has not utilised the same, the Department insists that for mere entry in Cenvat credit account, the assessee is liable to pay interest.
The Hon’ble Punjab & Haryana High Court in the case of Commissioner of Central Excise, Delhi-III v/s Maruti Udyog Ltd [2007 (214) ELT 0173 (P&H)] have held that if the credit is only taken but not utilised, then no interest will be payable on the irregular availment of credit. It has been provided that the phrase “taken or utilised” in the Rule 14 is to be read as “taken and utilised”. However, the Board vide Circular No 897/17/2009-CX, dated 03/09/2009 has held that interest will be payable even when credit is taken irrespective of the fact that the same is utilised or not.
In Budget 2010, the Board Circular should be withdrawn. If only an entry of the credit is made in the Cenvat Credit Account and the same is not utilised, then interest should not be demanded from the assessee. A mere taking of credit does not hurt the Government revenue. Real harm to the Government is caused when such irregular/wrongly taken credit is utilised. Thus, interest should be levied on utilisation of the credit only. Even the High court was of the same view. But the Board has started litigation once again. It will settle not before the High Court decision.
Option to choose Exemption, more beneficial to assessee:
In case there are two different options available with the assessee, then the assessee should have the option to choose the exemption scheme which is more beneficial to him. This right to opt for more beneficial exemption scheme is with the assessee has been recognized by the Judiciary through their many pronouncements. In the case of M/s Cipla Ltd v/s Commissioner of Customs, Chennai [2007 (218) ELT 547 (Tri-Chennai)] it was held as under: –
“Exemption – Option to choose – If two entries in an exemption notification are applicable to given goods, the assessee can legitimately claim under the more advantageous entry.”
However, the department does not recognize the availability of the option with the assessee. More often they do not agree with the option taken by the assessee and ask them to go for the option they have selected.
In the Budget, the amendment should come in the Rules itself and it should be clearly provided in the rules itself that the assessee has the option to choose the more beneficial exemption notification or entry in an exemption notification.
Withdrawal of Stimulus Package: The stimulus packages were introduced by the Government to uplift the economy should not be withdrawn in the Budget-2010. The first Stimulus Package was announced on 07.12.08, Second Stimulus Package was announced on 02.01.09 and the third stimulus package was introduced on 24.02.09. The industry has just come out of the recession and is finding its feet. In such a scenario, withdrawal of stimulus packages will be a blow to the recovering economy. Although every economist is talking about the same yet it may lead to recession again. The Government should withdraw the stimulus packages in a phased manner, this will give time to the economy in its recovered state to stabilize further. Moreover, the stimulus package is withdrawn then it will lead to inflation. The nation is already facing a severe inflation and goods are becoming costlier day by day. Withdrawal of stimulus package will add fuel to the fire. As such these should not be withdrawn. Even if it is compulsory to do so, seeing the shortfall in revenue, then it should be down in a phased manner.
Clarification on leviability of Service Tax on the builders: Whether service tax is leviable on the builders is not very clear. Although there is a Circular bearing No. 108/02/2009-ST dated 29.01.09 regarding the same, but the same is not very clear. It seems that there is still a sword hanging over the heads of the builders, which can fall at any time. This aspect needs to be better clarified or appropriate amendment should be made in the legal provisions.
Small Scale Exemption: Small Scale exemption has been granted to units having turnover less than 4 crores in the previous financial year vide Notification No. 8/2003-CE dated 01.03.03. The SSI units opting for such exemption are exempt from payment of excise duty upto Rs. 1.5 crores in the current financial year. As inflation is skyrocketing, its effect on the industry is heavy. Therefore in the present scenario, the SSI exemption limit should be increased to 5 crores. Similarly, the Small Scale exemption granted to the Service sector should also be increased from 10 lakhs. It has been demanded by the industry and service provider for a long time.
Empowerment of Settlement Commission: More power should be given to the Settlement Commission. Earlier they were given the power to deal with the clandestine removal cases. However, the provisions providing the power to the Settlement Commission was amended and they were prevented from dealing with the cases of clandestine removal. The power to deal with clandestine removal cases should be given back to the Settlement Commission. Otherwise there is no use of the Commission. Immunity from prosecution is needed more in such cases only. Therefore, the power should once again be given to the Settlement Commission so that the charm of settlement commission returns.
Conclusion: The expectations from Budget are a lot. This piece deals with the main expectation of Trade and Industry from the Budget mainly for indirect taxation. Budget should open new channels for enabling further growth of the industry and further strengthening of the Indian economy. The Government should ensure that the economy does not go into the recession again.
Authored by: CA. Pradeep Jain, Sukhvinder Kaur