1 st March 2013 Analysis of Budget Proposals

1 st March, 2013 Analysis of Budget Proposals - 2013 By Vikram Nankani Chairman, Indirect Tax Committee and Partner, ELP

INDIRECT TAXES 2

Service Tax 3 3

BIG POINTS l POSITIVES: Voluntary Compliance Encouragement Scheme. n No Change in the rate of Service Tax. n Tax Reform Administration Commission proposed- a non-adversarial tax administration. n l NEGATIVES: CENVAT Credit Scheme untouched. n GST- No deadline proposed for implementation. n Section 4 of Excise Act not amended : Commissioner of Central Excise Vs. Fiat India Pvt. Ltd. , (2012 (283) ELT 161). n 4

No. of taxing entries 5

Service Tax - amendments l “Voluntary Compliance Encouragement Scheme” proposed One time scheme for truthful declaration of Service Tax dues n Available for dues payable for the period 1 st October 2007 to 31 st December 2012 n On payment of tax dues, immunity from penalty, interest and any proceedings n v n No matter covered under declaration to be reopened in any proceedings before any authority or Court Eligibility criteria: v Not applicable to person who has filed Returns and disclosed liability but has not paid the disclosed amount or part thereof v No notice or order of determination has been issued on or before 1 st March 2013 4 Scheme not available for subsequent period where notice / order issued for earlier period v Where inquiry / investigation has been initiated and is pending as on 1 st March 2013, the designated authority reject the declaration for reasons recorded in writing - provision is unclear-is the word ‘shall’ to be read as may- discretionary? 6

Service Tax - amendments n Payment of declared tax dues v v Remaining 50% on or before 30 th June 2014 v n 50% on or before 31 st December 2013 Option to pay along with interest on or before 31 st December 2014 4 Interest applicable for the period from 1 st July 2014 Commissioner empowered to issue Show Cause Notice where he has reasons to believe that declaration made was “substantially false” v Show Cause Notice to be on par with Show Cause Notice under S. 73 or S. 73 A v Commissioner cannot issue Show Cause Notice after expiry of one year No subsequent refund of tax dues paid as per the declaration will be available. n Sub Section 2 A inserted in Section 73 n v It is proposed that in case of fraud, collusion, wilful misstatement , suppression of facts or contravention of any provisions with an intent to evade payment of tax has not been established, the Central Excise Officer shall determine the service tax payable as if the notice was issued for offences for which a period of 18 months applies. 7

Negative List of Services Modification in Scope of Services l Scope of services by way of education as a part of an ‘approved vocational education course’ proposed to be modified Courses run by institutes/ centres affiliated to ‘State Council for Vocational Training’ to be included n Courses run by institutes affiliated to the National Skill Development Corporation to be omitted n l Testing services relating to agricultural products also proposed to be covered under Negative list 8

Service Tax - amendments l Mega Exemption Notification modified n Exemption provided to Educational Institutions modified v v n The words ‘provided to or by’ has been replaced with ‘provided to’. Services by Education Institutions will be liable to tax which are in relation to auxiliary educational services or renting of immovable property Exemption on Copyrights v n Exemption provided to Restaurants v n The exemption of Service Tax on temporary transfer or permitting the use or enjoyment of a copyright has been limited to cinematograph films for exhibition in a cinema hall or cinema theatre The exemption to restaurants not having Air Conditioning facility Exemption on transportation by rail or a vessel v Exemption has been withdrawn on services in relation to transportation by rail or a vessel of specified petroleum and petroleum products, postal mail or mail bags and household effects 9

Service Tax - amendments n Exemption on transportation by Goods Carriage v n Exemption on vehicle parking to general public v n Exemption has been extended to agricultural produce, specified food stuffs, chemical fertilizers and oil cakes, specified newspaper or magazines, relief material and defence or military equipment This entry has been deleted Exemption to Service provided to Government v Exemption on repair or maintenance of aircraft has been omitted l Notification 26/ 2012 dated June 20, 2012 n Abatement for construction of complex, buildings, civil structure intended for sale prior to issuance of completion certificate is revised as under: v For Residential Unit having a carpet area upto 2000 Sq ft or where the amount charged is less than Rs. 1 Crore – 75% v For others – 70% v Effective Rate- 3. 075 % and 3. 69 %. 10

CENVAT Credit 11 11

CENVAT Credit - amendments l Explanation inserted in Rule 3 n Explanation clarifies that in respect of default under sub-rule (5), (5 A) and (5 B) of Rule 3, recovery of duty to be covered under Rule 14 of the CENVAT Credit Rules Rule 14 deals with recovery of CENVAT credit wrongly taken and utilized or erroneously refunded v Now, Rule 14 would be applicable even for recovery of duty on goods cleared ‘as such’ or after being used or pursuant to write off in books of accounts v 12

Central Excise Duty 13 13

Central Excise – legislative amendments l Expansion in scope of Advance Ruling proceedings n Definition of ‘activity’ being expanded to enable an existing manufacturer to seek advance ruling when he starts a new line of business n Notifications issued to make “Resident public limited companies” eligible for seeking advance ruling on Central Excise and Service Tax matters which was earlier allowed only in Customs matters n Advance ruling can now be sought for admissibility of the credit of Service Tax paid on input services also l Certain offences to be cognizable and non-bailable n Section 9 A of the Excise Act is proposed to be amended to make the following offences as cognizable and non-bailable Offence relating to excisable goods and involving evasion of duty or contravention of provisions pertaining to utilization of Credit, where the duty leviable thereon under this Act exceeds fifty lakh rupees v This amendment is to overcome the judgment of the Hon’ble Supreme Court in the case of Om Prakash vs Union of India [2011 (272) E. L. T. 321 (S. C. )], which held that the offences under the Excise Act are non-cognizable and bailable 14 v

Central Excise – legislative amendments l Section 11 of the Excise Act proposed to be amended to enable recovery from a person holding money for or on account of the defaulter (Garnishee proceedings ) l Proposed ceiling of 365 days up to which the Tribunal can grant stay of recoveries Stay shall stand vacated beyond 365 days even if the disposal of the Appeal is pending for no fault of the assessee n This amendment ignores the decision of the Hon’ble Supreme Court in the case of Commissioner of Central Excise Vs. Kumar Cotton Mills Pvt. Ltd. [ 2005 (180) E. L. T. 434 (S. C. )] n l Monetary limit for matters heard and disposed by Single Bench of the Tribunal increased from Rs. 10 lakh to Rs. 50 lakh 15

Central Excise – Rate changes l Excise duty rates n Standard rate of 12% remains intact n Duty on Mobile handsets including cellular phones having retail sale price of more than Rs. 2000 increased from 1% to 6% n Duty on SUVs (including utility vehicles falling under CTH 8703) and engine capacity >1500 cc increased from 27% to 30% n Duty on marble slabs and tiles increased from Rs 30 per square meter to Rs 60 per square meter n Duty on chassis of diesel motor vehicles for the transport of goods (falling under 8706 00 42) reduced from 14% to 13% l Reinstating the optional Excise duty regime for branded garments prior to Budget 2011 – i. e. Nil Zero excise duty route available in addition to the CENVAT route n To cover cotton and man made sector (Spun Yarn at Yarn , Fabric and Garment Stage n 12 % excise duty on made Fibre, Full exemption in case of cotton 16 n l Branded medicaments of Ayurveda, Unani, Siddha, Homeopathy or Bio-

Customs Duty 17 17

Customs – legislative amendments l Expansion in scope of Advance Ruling proceedings n Definition of ‘activity’ being expanded to enable an existing importer or exporter to seek advance ruling when he starts a new line of business l Certain offences to be cognizable and non-bailable n Section 104 of the Customs Act is proposed to be amended to make the following offences as cognizable and non-bailable n Offence relating to evasion of duty, import of prohibited goods, availment of drawback where the amount exceeds fifty lakh rupees l Section 47 has been amended to provide that any importer who fails to pay duty within “two days” from the date on which bill of entry is returned to him for payment of duty is liable to pay interest n Earlier the period for payment of duty was five days excluding holidays and the same has now been amended to two days excluding holidays. l Section 49 – Period for storage of imported goods in warehouse pending clearance n Goods can be stored up to a period of 30 days. Extension of 30 days can be given at a 18 time by the Commissioner.

Customs – legislative amendments l Section 142 of the Customs Act proposed to be amended to enable recovery from a person holding money for or on account of the defaulter (Garnishee proceedings ) n This amendment seeks to overcome the Judgment of the Delhi High Court in the case of Anita Grover Vs. Commissioner of Central Excise, (2012 -TIOL-1049 -HC-DEL-CUS) l Proposed ceiling of 365 days up to which the Tribunal can grant stay of recoveries n Stay shall stand vacated beyond 365 days even if the disposal of the Appeal is pending for no fault of the assessee l Monetary limit for matters heard and disposed by Single Bench of the Tribunal increased from Rs. 10 lakh to Rs. 50 lakh l Amendment to Baggage Rules: n Vide Notification No. 25/2013 -Cus. (N. T. ) dt. March 1, 2013, jewellery up to an aggregate value of Rs. 50, 000 [hitherto Rs. 10, 000] by a gentleman passenger and up to Rs. 1, 000 [hitherto Rs. 20, 000] for a lady passenger has been prescribed as importable duty free. 19

Customs l Steam Coal and Bituminous Coaln BCD- 2% for both- No retrospective change. n Earlier it was 1% and 11% respectively. 20

Power of arrest Offence C U S T O M S S E R V I C E Cognizable / Bailable Specific offences (in excess of Rs. 50 lakhs) Cognizable and non- • Arrest only upon authority of Commissioner of Central Excise bailable • Must be taken before a Magistrate without unnecessary delay Others Non-cognizable and bailable Specified offences of more than Rs. 50 lakhs Cognizable and non- • Arrest only upon authority of Commissioner of Central Excise bailable • Inform such person of the grounds of arrest and produce him before a magistrate 24 hours Specified offences of less than Rs. 50 lakhs Non-cognizable and bailable Specified offences of more than Rs. 50 lakhs Cognizable and non- • Power to arrest any person if there is reason to believe that bailable such person is liable to punishment under the Act/Rules, with prior approval of the Commissioner of Central Excise Specified offences of less than Rs. 50 lakhs Non-cognizable and bailable T A X E X C I S E Power of arrest • Arrest only upon authority of Commissioner of Central Excise • AC/DC to have same powers as an officer in charge of a police station under Section 436 of the Cr. PC for the purpose of releasing an arrested person on bail

Power of arrest l Power of arrest already provided for under Section 104 of the Customs Act n Specification of cognizable / non-cognizable and bailable / non-bailable offences vide 2012 amendments l Equivalent provisions now introduced under the Finance Act for the first time Previously, position in law governed by Om Prakash vs. Union of India [2011 TIOL-95 -SC-CX-LB] which held that all offences under the Excise Act were noncognizable and bailable, given the deeming effect under Section 9 A(1) of the Excise Act to this effect n Said Section 9 A(1) of the Excise Act made applicable to Service Tax vide Section 83 of the Finance Act, 1994 n Now, offence of collection of Service Tax and non-payment of the same for a period of 6 months made cognizable and non-bailable n l Similar amendment in respect of power of arrest proposed under Section 13 of the Excise Act vide Finance Bill, 2012, but not enacted in Finance Act, 2012

Goods and Service Tax (‘GST’) 23

GST l No definitive time line stated l Statement of consensus between Centre and States l GST law to be drafted by State Finance Ministers and GST Council l Draft Bills on Constitutional Amendment and GST to be placed before the House in next few months l Recent progress with consensus between Centre and States on the following: n Compensation for phasing out CST agreed at Rs. 34, 000 for three years v Specific allocation made in the Budget for Rs. 9000 Cr. as first installment Centre to suggest draft legislation to the States n Flexibility available to States to join GST n Centre to propose floor rate for tax with narrow band within which State will retain right to vary SGST n Contentious Dispute Settlement body to be dropped n 24

Signals of GST Issue 2011 2012 2013 Emerging Position Transition date No date stated Constitutional amendments Indication of Bill to be placed before House in next few months Draft GST law State Finance Ministers and GST Council to draft the law. Indication of Bill CST No reduction in CST rate CST compensation agreed at Rs. 34000 Cr. Specific Budget allocation of Rs. 9000 Cr. Towards first installment Expanded scope of ST Scope of 2 services under Negative list expanded IT Infrastructure / Administrative structure No further development Political will 25 Many States forming a consensus 25

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