The Union Budget, 2014 presented by the Finance Minister today is promising on building consumer’s confidence, investor’s confidence & overall confidence and taken several steps to improve fiscal situation and boost growth of Indian economy to 7-8% in coming years. The Roadmap made for fiscal consolidation in the next 3 years is inspiring on reduced fiscal deficit at 4.1% of GDP in 2014-15, 3.6% in 2015-16 and 3% in 2016-17.
Further, the focus on rural infrastructure, agriculture infrastructure, urban infrastructure, manufacturing revival, tourism, education, banking and finance and foreign direct investments would go a long way to rejuvenate the economic growth, going forward. Focus on GST implementation and discussions with State Governments are also encouraging.
HIGHLIGHTS OF CHANGES IN INDIRECT TAXES:
We are presenting you detailed analyses of changes made in Indirect Taxes viz. Service Tax, Excise and Customs vide the Union Budget, 2014.
UNION BUDGET 2014: CHANGES IN SERVICE TAX:
After the introduction of the Negative List based Service tax regime in July, 2012, the emphasis has been to ensure stability and continuity. The main focus in service tax at the present juncture is to widen the tax base and enhance compliance.
The changes being made by amendments in Notifications and Rules can be categorized into two broad categories based on when they would come into effect: (i) changes which will have immediate effect; and (ii) changes which are proposed to be given effect to only from 1st October, so as to coincide with the Service Tax Return cycle.
As far as statutory amendments are concerned, they would come into effect only from the date on which the Bill receives the assent of the President.
A. Changes In Chapter V of the Finance Act, 1994 (Will Come Into Force When the Finance Bill (No.2), 2014 is enacted):-
I. Changes in relation to the Negative list:-
II. Other Important Changes in the Finance Act, 1994:-
1. Variable Rates of Interest for Delayed Payment of Service Tax Prescribed By Notification No. 12/2014-ST Dated 11-7-2014:-
|Extent of delay||Simple interest rate per annum|
|Up to six months||18%|
|More than six months and up to one year||18%for first six months and 24%for the period of delay beyond six months.|
|More than one year||18% for first six months, 24% for second six months and 30% for the period of delay beyond one year|
This new interest rate regime will become operational from October 1, 2014 up to which the rate of interest of 18%, as presently applicable, will continue to apply.
E.g. Assume a case, where service tax became due, say, on the 6th of July, 2012 and the assessee pays the dues on 6th of December, 2014. In such a case, the interest to be charged would be as below:
(i) 18% simple interest upto September, 30th, 2014.
(ii) For the period from 1st October, 2014 to 6th December, 2014, the rate of interest will be 30% since the period of delay is beyond one year.
As specified in the proviso to section 75, three per cent concession on the applicable rate of interest will continue to be available to the small service providers, whose value of taxable services provided in a financial year does not exceed Sixty lakh rupees during any of the financial years covered by the notice or during the last preceding financial year, as the case may be.
2. Changes in Advance Ruling Under Section 96A(b)(iii) of The Finance Act, 1994 Vide Notification No. 15/2014-ST Dated 11-7-2014 (Effective From July 11, 2014):-
3. Other Changes :
♣ Changes in Section 67A of the Finance Act, 1994:
Section 67A is amended enabling Government to prescribe rules for determination of rate of exchange for calculation of taxable value in respect of certain services. Rules will be prescribed in due course, after the Bill receives the assent.
♣ Changes in Section 73 of the Finance Act, 1994:
Section 73 is amended providing time limits for completion of adjudication already existing in Central Excise which are to be followed, as far as possible.
♣ Changes in Section 80 of the Finance Act, 1994:-
Section 80 is amended excluding reference of first proviso to Section 78 wherein power was granted to waive the 50% penalty imposable in cases where Service tax has not been levied, not paid or short levied or short paid on account of suppression of facts or wilful misstatement but details of transactions are available in the specified record. The said power has now been removed.
♣ Changes in Section 82 of the Finance Act, 1994:-
Section 82(1) is amended along with Section 12F(1) of the Central Excise Act 1944, whereby the Joint Commissioner or Additional Commissioner or any other officer notified by the Board can authorize any Central Excise Officer to search and seize.
♣ Changes in Section 86(6A) of the Finance Act, 1994:-
Section 86(6A) is amended to provide that every application made before the Appellate Tribunal in an appeal for rectification of mistake or for any other purpose or for restoration of an appeal or an application only shall be accompanied by a fee of five hundred rupees. However, earlier the appeal for grant of stay was also to be accompanied by a fee of five hundred rupees.
♣ Changes in Section 87 of the Finance Act, 1994:-
Section 87 is amended by incorporating power to recover dues of a predecessor from the assets of a successor purchased from the predecessor on the same line as it is provided under Section 11 of the Central Excise Act, 1944.
♣ Changes in Section 94 of the Finance Act, 1994:-
Section 94 is amended to obtain the power to make Rules on the following:-
(a) Imposition on assessees the duty of furnishing information, keeping records and making returns and specify the manner in which they shall be verified.
(b) For withdrawal of facilities or imposition of restrictions including restrictions on utilization of Cenvat credit on service provider or exporter, to check evasion of duty or misuse of Cenvat credit.
(c) To issue instructions in supplemental or incidental matters.
♣ Changes in Section 95 of the Finance Act, 1994:-
After sub-section (1J), the sub-section (1K) has been inserted in Section 95 providing that if any difficulty arises in giving effect to Section 106 of the Finance Act, 2014 related to amendments made by the said Act, the Central Government may, by an order, not later than one year from the date on which the Finance Bill, 2014 passes remove the difficulty.
♣ Insertion of New Section 100 of the Finance Act, 1994:-
Section 100 has been inserted stating that no Service tax shall be levied or collected in respect of taxable services provided by the Employees’ State Insurance Corporation set up under the Employees’ State Insurance Act, 1948 during the period prior to the July 1, 2012.
4. The Central Excise provisions made applicable to Service tax vide Section 83 of the Finance Act, 1994 is being amended to prescribe that the provisions of following Sections of the Central Excise Act shall apply, mutatis mutandis, to Service tax:-
a) 7.5% of the duty demanded or penalty imposed or both for filing of appeal before the Commissioner(Appeals) or the Tribunal at the first stage; and
b) 10% of the duty demanded or penalty imposed or both for filing second stage appeal before the Tribunal. The amount of pre-deposit payable would be subject to a ceiling of Rs 10 Crore. All pending appeals/stay application would be governed by the statutory provisions prevailing at the time of filing such stay applications/appeals. This new provisions would, mutatis mutandis, apply to Service Tax.
Further, for the purposes of this exemption, “educational institution” is being defined in the exemption Notification No. 25/2012-ST Dated. 20-6-2012 as institutions providing educational services specified in the negative list.
Furthermore, the exemption hitherto available to services provided by way of renting of immovable property to educational institutions stands withdrawn.
C. Changes in the Service Tax Rules, 1994 Vide Notification No. 9/2014-ST Dated. 11-7-2014 (Effective From 11-7-2014 Unless Otherwise Stated):-
D. Changes in Reverse Charge Mechanism Vide Notification No. 30/2012-ST Dated 20-6-2012, duly amended by Notification No. 10/2014-ST Dated 11-7-2014 (Effective From 11-7-2014 Unless Otherwise Stated):-
E. Changes in the Service Tax (Determination of Value) Rules, 2006 Vide Notification No. 11/2014-ST Dated 11-7-2014 to amend Service Portion in Works Contract (Effective From 1-10-2014):-
“(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent of the total amount charged for the works contract;
(C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property, service tax shall be payable on sixty per cent of the total amount charged for the works contract;”
F. Changes in the Point of Taxation Rules, 2011 (“The POT Rules”) Vide Notification No. 13/2014-ST Dated 11-7-2014, by amending Point of Taxation in respect of Reverse Charge (Effective From 1-10-2014):-
“10. Notwithstanding anything contained in the first proviso to rule 7, if the invoice in respect of a service, for which point of taxation is determinable under rule 7 has been issued before the 1st day of October, 2014 but payment has not been made as on the said day, the point of taxation shall,–
(a) if payment is made within a period of six months of the date of invoice, be the date on which payment is made;
(b) if payment is not made within a period of six months of the date of invoice, be determined as if rule 7 and this rule do not exist.”
G. Changes In Notification No. 12/2013-ST Dated 1-7-2013 relating To Exemption From Service Tax To SEZ Units or the Developer Vide Notification No. 7/2014-ST Dated 11-7-2014 (Effective From 11-7-2014):-
H. Changes In Abatement Notification No. 26/2012,Service Tax Dated- 20.06.2012 Vide Notification No. 8/2014-ST Dated 11-7-2014 (Effective From 11-7-2014 Unless Otherwise Stated):-
I. Changes in Place of Provision of Services Rules, 2012 (“The POP Rules”) Vide Notification No. 14/2014-ST Dated 11-7-2014 (Effective From 1-10-2014):-
j. Changes In Cenvat Credit Rules, 2004 Vide Notification No. 21/2014-Central Excise (N.T.) Dated. 11-7-2014 (Effective From 11-7-2014):-
♠ Definition provided of ‘Place of Removal’: A new sub-rule (qa) is being inserted in Rule 2 to introduce the definition of “place of removal.
“(qa) “place of removal” means-
(i) a factory or any other place or premises of production or manufacture of the excisable goods;
(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;
(iii) 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;”
♠ Time limit for availment of Cenvat Credit: Rule 4(1) (for input credit) and Rule 4(7) (for input service credit) are being amended in order to fix a time limit of six months for availment of the CENVAT Credit. In case of service tax paid under full reverse charge, the condition of payment of invoice value to the service provider for availing credit of input services is being withdrawn. However, the said change is not applicable in respect of partial reverse charge.
♠ Re-credit of Cenvat Credit on non receipt of export proceeds: Re-credit of CENVAT credit reversed on account of non-receipt of export proceeds within the specified period or extended period, to be allowed, if export proceeds are received within one year from the period so specified or extended period. This can be done on the basis of documents evidencing receipt of export proceeds [Refer the newly inserted proviso to Rule 6(8)].
♠ Input Service Distributor: Rule 7 of the CENVAT Credit Rules, 2004, provides for the manner of distribution of common input service credit by the Input Service Distributor. This was amended vide notification No. 05/2014-CE (N.T.) amending, inter-alia, Rule 7(d), to provide for distribution of common input service credit among all units in their turnover ratio of the relevant period.
Some interpretational issues were raised regarding the amendment such as:
(i) due to the use of the term “such unit” in Rule 7(d), the distribution of the credit would be restricted to only those units where the services are used, and
(ii) the credit available for distribution would also get reduced by the proportion of the turnover of those units where the services are not used.
Please refer clarification provided vide Circular No. 178/04/2014-ST, dated 10.7.2014 illustrating the effect of the amendment carried out vide Notification No. 05/2014-CE (N.T.). It clarifies 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.
♠ Rule 12A is being amended so as to disallow transfer of credit by a large taxpayer from one unit to another.
UNION BUDGET 2014: CHANGES IN EXCISE AND CUSTOMS:
Changes in Customs and Central Excise law and rates of duty have been proposed through the Finance (No.2) Bill, 2014 (Clauses 72 to 87 for Customs and Clauses 88 to 105, 107 and 110 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:
|Tariff||No.11/2014-Customs to No.25/2014-Customs||July 11, 2014|
|Non-Tariff||No.50/2014-Customs(NT)and No.51/2014-Customs (NT)||July 11, 2014|
|Tariff||No.8/2014-CE to No.20/2014-CE||July 11, 2014|
|Non-Tariff||No.17/2014-CE (NT)to No.22/2014-CE (NT)||July 11, 2014|
Unless otherwise stated, all changes in rates of duty take effect from the midnight of 10th/11th July, 2014. A declaration has been made under the Provisional Collection of Taxes Act, 1931 in respect of clauses 86, 87 [(1) and (9)(ii)], 104, 105(1), 107, and 110 of the Finance (No.2) Bill, 2014 so that changes proposed therein also take effect from the midnight of 10th/11th July, 2014.
The remaining legislative changes would come into effect only upon the enactment of the Finance (No.2) Bill, 2014. Retrospective amendments in the provisions of law or Notification issued under the respective Acts shall have the force of law only upon the enactment of the Finance (No.2) Bill, 2014 but with effect from the date indicated in the relevant clause or Schedule. These dates may be carefully noted.
Changes under the Central Excise Act, 1944 (“The Excise Act”) and the Excise Tariff Act, 1985 (“The Excise Tariff”)
I. Change in Rate of Excise duty or Exemption provided:-
II. Amendments in the Central Excise Rules, 2002:–
(Please Refer Notification No.4/2002-Central Excise (NT) dated 1st March, 2002 as amended vide Notification No.19/2014-Central Excise dated 11th July, 2014)
III. Amendments in the Central Excise Valuation Rules, 2004:-
The Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 is being amended so as to provide that in cases where excisable goods are sold at a price below the manufacturing cost and profit and there is no additional consideration flowing from the buyer to the assessee directly or from a third person on behalf of the buyer, value for the assessment of duty shall be deemed to be the transaction value.
(Please refer Notification No.45/2000-Central Excise (NT) dated 30th June, 2000 as amended vide Notification No.20/2014-Central Excise dated 11th July, 2014)
IV. Authority for Advance Rulings:-
The Scheme of Advance Ruling is also being extended to Resident Private Limited Companies. (Please refer Notification No.18/2014-Central Excise (N.T.))
V. Unit Quantity Codes:-
The Schedules to the Customs and Central Excise Tariffs are being amended in respect of selected goods to match the Unit Quantity Codes prescribed therein with the ones that are actually used in trade and commerce. This would facilitate trade and improve data quality and compliance.
Changes under the Customs Act, 1962 (“The Customs Act”) and the Customs Tariff Act, 1975 (“The Customs Tariff”)
I. Change in Rate of Customs duty or Exemption provided:-
II. Authority for Advance Rulings:-
Budget (2014-15) Notifications Service Tax dated 11.07.2014
|6/2014-ST dated 11thJuly, 2014||Seeks to amend notification No. 25/2012- Service Tax, datedthe 20th June, 2012, so as to amend certain existing entries granting exemption on specified services and inserting new entries for granting exemption from service tax on specified services|
|7/2014-ST dated 11thJuly, 2014||Seeks to amend notification No.12/2013-ST dated 1st July,2013, relating to exemption from service tax to SEZ Units or the Developer.|
|8/2014-ST dated 11th July, 2014||Seeks to amend notification No. 26/2012- Service Tax, dated20th June, 2012, so as to make necessary amendments in the specified entries prescribing taxable portion and the conditions for availing the exemption therein.|
|9/2014-ST dated 11thJuly, 2014||Seeks to amend the Service Tax Rules,1994 so as to prescribe,-(i) the person liable to pay service tax for certain specified services and(ii) mandatory e-payment of service tax for all the assessees, with effect from 1st October,2014.|
|10/2014-ST dated11th July, 2014||Seeks to amend the notification No.30/2012-ST dated 20thJune,2012, so as to prescribe, the extent of service tax payable by the service provider and the recipient of service, for certain specified services.|
|11/2014-ST dated11th July, 2014||Seeks to amend the Service Tax (Determination of Value)Rules, 2006 so as to prescribe the percentage of service portion in respect of works contracts, other than original works contract.|
|12/2014-ST dated11th July, 2014||Seeks to notify the interest rate applicable in cases of delayedpayment of service tax for the purposes of section 75 of theFinance Act, 1994.|
|8||13/2014-ST dated11th July, 2014||Seeks to amend the Point of Taxation Rules, 2011, to prescribethe point of taxation for the services on which person liable to pay service tax is the recipient.|
|9||14/2014-ST dated11th July, 2014||Seeks to amend the Place of Provision of Services Rule, 2012,to prescribe or modify the place of provision of services for certain specified services.|
|10||15/2014-ST dated11th July, 2014||Seeks to specify the class of persons for the purposes ofsection 96A of the Finance Act,1994|
Budget (2014-15) Notifications Central Excise Tariff dated11.07.2014
|8/2014-CE||Seeks to amend notification No. 1/2011-CE, dated March 1,2011 so as to make necessary changes in the specified entries therein.|
|9/2014-CE||Seeks to amend notification No. 2/2011-CE, dated March 1,2011 so as to make necessary changes in the specified entries therein.|
|10/2014-CE||Seeks to amend notification No. 64/95-CE, dated March 16,1995 so as to provide full exemption from excise duty to goods supplied to NTRO.|
|11/2014-CE||Seeks to amend notification No. 108/95-CE, dated August 28, 1995 so as to allow transfer/sale of goods procured prior to 1.3.2008 for use in projects financed by the UN or an international organization.|
|12/2014-CE||Seeks to amend notification No. 12/2012-CE, dated March 17,2012 so as to make necessary changes in the specified entries therein.|
|13/2014-CE||Seeks to exempt from excise duty goods required for the NationalAIDS Control Programme funded by GFATM|
|14/2014-CE||Seeks to amend notification No. 33/2005-CE, dated September 8, 2005 so as to provide for full exemption from excise duty on machinery required for setting up of compressed biogas plant (Bio-CNG).|
|15/2014-CE||Seeks to amend notification No. 15/2010-CE, dated the February 27, 2010 so as to provide for exemption of excise duty on machineries required for initial setting up of solar energy production projects.|
|16/2014-CE||Seeks to amend Notification No. 42/2008-CE, dated July 1,2008 so as to prescribe new rate of duty to Pan Masala and Gutkha.|
|17/2014-CE||Seeks to amend Notification No. 16/2010-CE, dated February 27, 2010 so as to prescribe new rate of duty to unmanufactured tobacco and chewing tobacco.|
|18/2014-CE||Seeks to amend Notification No. 23/2003-CE, dated March 31,2003 so as to avoid double levy of cess on DTA clearances 100% EOUs.|
|19/2014-CE||Seeks to amend Notification No. 67/1995-CE, dated March 16,1995 so as to exempt intermediate goods manufactured and consumed captively for further manufacture of matches.|
|20/2014-CE||Seeks to rescind Notification No. 03/2010-CE, dated June 22,2010 so as to increase rate of Clean Energy Cess.|
Budget (2014-15) Notifications Central Excise (Non-Tariff) dated 11.07.2014
|17/2014-CE (NT)||Seeks to amend Notification No. 49/2008-CE (NT), datedDecember 24, 2008.|
|18/2014-CE (NT)||Seeks to specify class of persons for the purposes of section23A of the Central Excise Act, 1944.|
|19/2014-CE (NT)||Seeks to amend Central Excise Rules, 2002|
|20/2014-CE (NT)||Seeks to amend Central Excise Valuation Rules, 2008|
|21/2014-CE (NT)||Seeks to amend Cenvat Credit Rules, 2004|
|22/2014-CE (NT)||Seeks to amend Pan Masala Packing Machines (CapacityDetermination and Collection of Duty) Rules, 2008|
Budget (2014-15) Notifications Customs Tariff dated 11.07.2014
|11/2014-Customs||Seeks to amend notification No. 24/2005-Customs dated March 1,2005 so as to levy BCD @ 10% on specified telecommunication products not covered under the ITA.|
|12/2014- Customs||Seeks to amend notification No. 12/2012-Customs, dated March 17, 2012 so as to make necessary changes in the specified entries therein.|
|13/2014-Customs||Seeks to amend notification No. 81/2005-Customs, dated September 8, 2005 so as to reduce BCD to 5% on machinery required for setting up of compressed bio-gas (Bio-CNG) projects.|
|14/2014-Customs||Seeks to amend notification No. 01/2011-Customs, dated January 6, 2011 so as to reduce BCD to 5% and CVD to Nil on machinery for initial setting up of solar energy production projects.|
|15/2014- Customs||Seeks to amend notification No. 27/2011 Customs, dated March 1, 2011 so as to increase the export duty on Bauxite from 10%to 20%.|
|16/2014- Customs||Seeks to amend notification No. 09/2012 Customs, dated March 9, 2012 so as to increase the variation levels in respect of re- import of cut and polished diamonds.|
|17/2014- Customs||Seeks to amend notification No. 10/2008 Customs, dated January 15, 2008 so as to delete tariff item 3903 19 90 in respect of|
|18/2014-Customs||Seeks to amend notification No. 13/2012 Customs, dated March 17, 2012 so as to provide for levy of education cess on CVDportion of customs duty leviable on imported IT products.|
|19/2014-Customs||Seeks to amend notification No. 14/2012 Customs, dated March 17, 2012 so as to provide for levy of secondary and higher education cess on CVD portion of customs duty leviable on imported IT products.|
|20/2014- Customs||Seeks to amend notification No. 39/96-Customs, dated July 23,1996 so as to omit the words ‘Portable X-ray machine/system’ andto provide exemption for goods imported by NTRO.|
|21/2014- Customs||Seeks to amend notification No. 21/2012 Customs, dated March 17, 2012 so as to make necessary changes in the specified entries therein.|
|22/2014- Customs||Seeks to amend notification No. 84/97-Customs, dated November 11, 1997 so as to allow transfer/sale/re-export goods imported prior to 1.3.2008 for use in projects financed by the UN or an international organization.|
Budget (2014-15) Notifications Customs (Non-Tariff) dated 11.07.2014
|50/2014-Customs(NT)||Seeks to amend notification No. 30/98-Customs (NT) dated June 2,1998 so as to amend Baggage Rules, 1998.|
|51/2014-Customs(NT)||Seeks to specify class of persons for the purposes of section 28E ofthe Customs Act, 1962.|
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: email@example.com)