Budget 2014 – Synopsis of Indirect Tax Proposals

TG Team 28 Jul 2014 2,922 Views 0 comment Print Service Tax | Featured

CA Vishal Lahoti

Indirect Tax

GST – No timeline announced for implementation of GST

o Finance Minister suggested to resolve all pending issues with States related to GST in the course of this year

o However, failed to proposed dates or process for GST implementation

No change in general rates of tax for Customs, Excise and Service tax

Various measures taken to boost domestic manufacturing including areas such as chemicals and petrochemicals, electronic items, solar energy, wind energy, bio-gas plants, ship breaking, food processing and packaging,

To broaden service tax base, few additional services brought within the ambit

The scheme of Advance Ruling in indirect taxes to be expanded to cover resident private limited companies

Customs and Central Excise Acts to be amended to expedite the process of disposal of appeals

24X7 customs clearance facility extended to 13 more airports in respect of all export goods and to 14 more sea ports in respect of specified import and export goods to facilitate cargo clearance

Proposed to implement an ‘Indian Customs Single Window Project’ to facilitate trade. Under this, importers and exporters would lodge their clearance documents at a single point only. Required permissions, if any, from other regulatory agencies would be obtained online without the trader having to approach these agencies. This would reduce interface with Governmental agencies, dwell time and the cost of doing business

Tax proposals on the indirect taxes side are estimated to yield INR 7,525 crore

Service tax

Amendment impacting Negative List: (Changes to be effective from enactment of Finance Bill)

Exemption of Service tax on Advertisement now restricted only to print media, all others areas, not covered earlier, now subjected to service tax

o Print Media to include Books and News Paper as defined under Press and Registration Books Act, 1867 but does not include business directories, yellow pages and trade catalogues primarily meant for commercial purposes

o Proposed to extend levy to other areas such as mobile advertising, internet websites, out of home media, on film screen in theatres, bill boards, conveyances, buildings, cell phones, automated teller machines, tickets, commercial publications, aerial advertising,

Services of Radio taxi now subjected to service tax (abatement available as in line with Rent A Cab Operator Services)

Amendment related to Mega Exemptions:(to be effective from 11 July, 2014)

(Notification no. 25/2012 Service Tax dated 20 June 2012)

Earlier Exemption now Withdrawn

Air Conditioned contract carriage earlier exempted now subjected to service tax levy

o Abatement of 40 percent available on service amount subject to CENVAT Credit on inputs, capital goods and input services has not been availed

Technical testing of newly developed drugs including vaccines and herbal remedies on human participants by approved Clinical Research Organisation brought under service tax net

Earlier exemption of service provided by way of renting of immovable property to Educational Institute now stands withdrawn

Services provided to Government, Local authority or government authority now confined to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation

o Exemption not extendable to other services such as consultancy, designing not related to above specified services

Now, any services provided by hotels, Inn, guest house, club or campsite, by whatever name called, having a declared tariff of One thousand per day or equivalent

o Earlier services by way of renting was covered

o The word “commercial” deleted to include dharmashalas, ashram or any other entity within the ambit

Exemption Rationalised

To bring clarity the inclusive definition of Auxiliary Education Services now restricted to specified list

o Transportation of students, faculty and staff of the eligible educational institution;

o Catering service including any mid-day meals scheme sponsored by the Government;

o Security or cleaning or house-keeping services in such educational institution(new addition);

o Services relating to admission to such institution or conduct of examination.

Exemption granted

Services provided by common biomedical waste treatment facilities related to safe disposal of medical and clinical wastes or process incidental thereto

All life micro-insurance schemes approved by IRDA where sum assured does not exceed INR 50,000

Transport of organic manure by vessel, rail or road

Services by way of loading, unloading, packing, storage or warehousing, transport by vessel, rail or road of cotton, ginned or baled

Services received by RBI from outside India in relation to management of foreign exchange reserves

Services provided by tour operators to a foreign tourist in relation to a tour conducted outside India

Abatement related proposals

(Notification no. 26/2012 Service Tax dated 20 June 2012)

Services of Goods Transport Agency in relation to transportation of Goods (Serial No. 7)

o clarified that condition of non-availment of CENVAT Credit to be satisfied by Service provider(with effect from 11 July 2014)

Service of transportation of passenger by air-conditioned contract carriages (New Entry at Serial no. 9A) (with effect from 11 July 2014)

o Abatement of 60 percent available and 40 percent of service portion taxable

o CENVAT Credit on inputs, capital goods and input services not available

Motor Vehicle designed to carry any passenger now changed to “motorcab” (Serial No. 9) (with effect from 1 October 2014)

o CENVAT credit aligned to allow the credit of input service availed from person engaged in in similar line of activity i.e. renting of motor cab

o Full CENVAT credit if input service provider paying service tax at 40 percent value

o CENVAT Credit restricted to 40 percent if input service provider paying service tax at full rate

Transport of goods in Vessel – abatement increased from 50 percent to 60 percent (Serial no 10)

o Service tax to be levied on 40 percent – effective service tax rate to be 4.944 percent from earlier rate of 6.18 percent(with effect from 1 October 2014)

Tour Operator Services – CENVAT Credit allowed for input services availed from another tour operator (Serial No 11)(with effect from 1 October 2014)

Amendment in Notification for Reverse Charge Mechanism

(Notification no. 30/2012 Service Tax dated 20 June 2012)

Recovery agent now covered(with effect from 11 July, 2014)

o Banking company or financial institutions or a NBFC liable to pay 100 percent of service tax on services provided by recovery agent

Director of a Body Corporate now also liable to service tax under reverse charge mechanism (earlier only director of a company was covered) (with effect from 11 July, 2014)

Renting of motor vehicle, where the service provider does not take abatement, the portion of service tax payable by the service provider and service receiver will be modified as 50 percent each from earlier (60 percent and 40 percent respectively)(with effect from 1 October, 2014)

CENVAT Credit Provisions

Rule 4(7) of CENVAT Credit Rules 2004 amended – The condition of payment of invoice value to service provider for the purpose of availing CENVAT Credit deleted. Now,CENVAT credit can be availed even without making payment of invoice value to service provider (effective from 11 July 2014)

o In case where whole of service tax is liable to be paid by the recipient of service, credit will be allowed only after service tax is paid

o However, the said change not applicable for CENVAT credit to avail under partial reverse charge mechanism

CENVAT Credit provision to treat services as exempted where export proceeds not received within the specified period or extended period and accordingly, CENVAT credit needs to be reversed proportionately (effective from 11 July 2014)

o However, the said reversed CENVAT credit would be allowed, if export proceeds are received within one year from the period so specified or extended period

CENVAT Credit needs to be availed in the books of accounts within 6 months from the date of invoice(effective from 1 September 2014)

Rule 7 of the CENVAT Credit Rules, 2004, provides for the manner of distribution of common input service credit by the Input Service Distributor

o Some interpretational issues were raised for amendment made by Notification No. 5/2014 – CE (NT) dated 24 February, 2014

o Now, clarified that the amended Rule 7 allows distribution of input service credit to all units (which are operational in the current year) in the ratio of their turnover of the previous year/previous quarter as the case may be

Special Economic Zone

Certain changes are made to Notification No. 12/2013 – ST dated 1 July 2013:

o Central Excise Officer would issue authorization in Form A-2, within fifteen working days from the date of receipt of Form A-1

o Authorization will have validity from the date on which Form A-1 is verified by the Specified Officer of SEZ

o SEZ Units or the Developer can claim avail upfront exemption pending issuance of Form A-2, on the basis of Form A-1 subject to the condition that the SEZ Units or the Developer provides the authorization in Form A-2 (issued by the Central Excise Officer) within 3 months from the date of receipt of specified services

o Services covered under full reverse charge, it is being provided that there would be no requirement of furnishing service tax registration number of service provider

o Service shall be treated as exclusively used for SEZ operations if the recipient of service is SEZ unit or developer, invoice is in the name of such unit/developer and the service is used exclusively for furtherance of authorized operations in SEZ

o For claiming the refund benefit or availing the upfront exemption, the jurisdictional Deputy Commissioner / Assistant Commissioner of Central Excise would be the authority with whom SEZ Units or the Developers are registered for taking upfront exemption or for the purposes of Chapter V of the Finance Act, 1994.

Other proposed Amendment

Service tax Valuation Rules – Rule 2A of Service Tax (Determination of Value) Rules, 2006, category “B‟ and “C‟ of works contracts are proposed to be merged into one single category, with percentage of service portion as 70% (to be effective from 1 October, 2014)

Exchange rates as applicable under Customs Act – now to be delinked – Rules to be notified(Change to be effective from enactment of Finance Bill)

Now E-payment of service tax is made mandatory, exception only if granted by Deputy / Assistant Commissioner (to be effective from 1 October, 2014)

For allowing government to collect service tax promptly, it is being proposed to introduce interest rates which would vary depending upon the extent of delay.

New Interest rates proposed are (to be effective from 1 October, 2014):

Extent of delay	Simple interest rate per annum
Up to six months	18 percent
More than six months and upto one year	18 percent for first six months and 24 percent for the period of delay beyond six months
More than one year	18 percent for first six months, 24 percent for second six months, and 30 percent for the period of delay beyond one year

(Please note in case of small service provider, 3 percent concession on the rate of interest will be available as provided under Section 75 of the Finance Act, 1994)

Definition of ‘Intermediary’ amended to include the intermediary of goods – Hence services provided by commission agent or consignment agent to get covered under Rule 9 of the Place of Provision of Service Rules (earlier covered under Rule 4 or Rule 3 of Place of Provision of Services Rules) (effective from 1 October, 2014)

Point of taxation in respect of reverse charge will be the payment date, or first day that occurs immediately after a period of three months from the date of invoice, whichever is earlier. (to be effective from 1 October, 2014)

o Earlier the point of taxation in respect of reverse charge was date of payment subject to the condition that the payment for the said service was made within 6 months from the date of invoice raised. If the payment was not made within 6 months the point of taxation was the date of invoice raised

Now, mandatory pre-deposit introduced for filing appeals (subject to ceiling of 10 crores):

o 7.5 percent for filing first stage appeal (before Commissioner (Appeals) or Tribunal).

o 10 percent for filing second stage appeal (before Tribunal)

Resident private limited company eligible to make an application for Advance Ruling (effective from 11 July, 2014)

Section 5A(2) of Central Excise Act (applicable to service tax also) provides that Explanation inserted in a notification at any time within one year of issue of notification for clarifying the scope or applicability thereof shall have effect from the date of issue of such notification.

Section 87 of the Finance Act amended to provides for power to recover dues of a predecessor from the assets of a successor purchased from the predecessor

Central Excise

Important Amendments

Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 has been amended to consider transactional value of such goods which are sold at price less than manufacturing cost and profit, if

o Price is not the sole consideration for sale of such excisable goods

o No additional consideration is flowing directly or indirectly from the buyer to such assesse

(to be effective from 11 July, 2014)

CENVAT Credit Rules

Place of removal defined under CENVAT Credit Rules, 2004.

o The definition is identical to definition provided under Section 4 of Central Excise Act, 1994

Definition of Place of removal is defined as to “place of removal means:
- a factory or any other place or premises of production or manufacture of the excisable goods;
- a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;
- a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory,

from where such goods are removed”

Rule 4(7) of CENVAT Credit Rules 2004 amended – The condition of payment of invoice value to service provider for the purpose of availing CENVAT Credit deleted. Now,CENVAT credit can be availed even without making payment of invoice value to service provider (effective from 11 July 2014)

o In case where whole of service tax is liable to be paid by the recipient of service, credit will be allowed only after service tax is paid

o However, the said change not applicable for CENVAT credit to avail under partial reverse charge mechanism

CENVAT Credit needs to be availed in the books of accounts within 6 months from the date of invoice (effective from 1 September 2014)

Large Tax payer unit now cannot transfer CENVAT credit from one Manufacturing unit to another (effective from 11 July, 2014)

Others provisions

Resident private limited company eligible to make an application for Advance Ruling (effective from 11 July, 2014)

Now E-payment of Excise duty is made mandatory, exception only if granted by Deputy / Assistant Commissioner (to be effective from 1 October, 2014)

Now proposed that in case of delay in payment of Excise Duty, the assesse is liable to pay penalty at the rate of one percent on such unpaid duty amount for each month or part thereof (to be effective from 1 October, 2014)

Section 35B is proposed to be amended to increase the monetary limit for exercise of discretionary powers of the Tribunal to refuse admission of appeal, from INR 50,000 to INR 2,00,000

Section 35C is proposed to be deleted to do away with the provisions in relation to the validity period of Stay Orders

Now, mandatory pre-deposit introduced for filing appeals (subject to ceiling of 10 crores):

o 7.5 percent for filing first stage appeal (before Commissioner (Appeals) or Tribunal).

o 10 percent for filing second stage appeal (before Tribunal)

Goods Supplied in case of International Competitive Bidding

o Benefit now stands extended to a sub-contractor for manufacture and supply of goods for on and behalf of main contractor

Customs

Important Amendment proposed

Section 15 of Customs Act is proposed to be amended to also cover a ‘vehicle’, in addition to an aircraft, as regards the determination of rate of duty and tariff valuation for imports in cases where the Bill of Entry is filed prior to the filing of Import Report

Section 46(3) of Customs Act is proposed to be amended to permit that a Bill of Entry may be presented before filing of manifest / import report for a vessel / aircraft which is expected to arrive within thirty days from the date of presentation

Section 129A of Customs Act is proposed to be amended to increase the limit for exercise of discretionary powers of the Tribunal to refuse admission of appeal, from INR 50,000 to INR 2,00,000

Section 129B of Customs Act is proposed to be amended to delete the provisions in relation to validity period of Stay Orders

Now, mandatory pre-deposit introduced for filing appeals (subject to ceiling of 10 crores):

o 7.5 percent for filing first stage appeal (before Commissioner (Appeals) or Tribunal).

o 10 percent for filing second stage appeal (before Tribunal)

Section 8B of the Customs Tariff Act has been amended so as to provide for levy of Safeguard Duty on inputs / raw materials imported by an 100% Export Oriented Unit (‘EOU’) or a unit located in an SEZ and cleared into the DTA as such, or are used in the manufacture of final products and cleared into the DTA

The Baggage Rules, 1988 have been amended to:

o raise the free baggage allowance from INR 35,000 to INR 45,000 for all passengers of and above 10 years of age and returning after a stay abroad of more than three days;

o raise the free baggage allowance from INR 15,000 to INR 17,500 for all passengers of and above 10 years of age and returning after a stay abroad of less than three days and for all passengers up to 10 years of age and returning after a stay abroad of more than three days ;

o reduce the duty free allowance of cigarettes from 200 gms to 100 gms, of cigars from 50 gms to 25 gms and of tobacco from 250 gms to 125 gms