Budget 2016 Proposals on Excise, Customs & Service Tax LawsCA Manindarmanindar@sbsandco.com by

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Changes in Central Excise Law

OutlineRationalization of CessKey Changes in Central Excise TariffExpansion of LevyEndorsing brand Make in IndiaRSP Based ValuationLegislative changesEase of Doing Business

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Rationalization of CessesClean Energy Cess:Renamed as Clean Environment CessCurrently levied at on coal, ignite, peat at Rs. 200 per tonne extractedIncreased to Rs. 400 per tonne effective from 01.03.2016 Oil Industries Development Cess changed from Rs. 4500 PMT to 20% ad volarem.4

5Infrastructure Cess:Levied at 4% on motor vehicles to finance infra projectsConcessional rates notified for low end vehicles:1% on Petrol, LPG and CNG driven vehicles (Length 4000mm & CC 1200cc) 2.5% on Diesel driven vehicles (Length 4000mm & CC 1500cc)Exemption to ambulances, taxis, three wheeled vehicles, electric vehicles and cars for PHEffective from 01.03.2016. No CENVAT Credit

Rationalisation of Cesses

6Mineral water including aerated waters with added sugar is increased from 18% to 21%RMC manufactured at site for construction expln. insertedUndertaken at any premises made available under the contract.Used exclusively in construction at siteExcise duty on rubber sheets & resin rubber sheets for soles and heels (40082910) is being reduced from 12.5% to 6%.Excise duty on aluminium foil containers increased 2%/6% to 2%/12.5%Excise duty on Shafts/sleeves/chamber/Imepller /washer/electric motor used in manufacture of centrifugal pump is reduced from 12.5% to 6%Key Changes in Tariff

7ED on parts of railway/tramway locomotives or rolling stock covered under chapter 8607 are reduced to 6%ED on refrigerated container (86090000) is reduced from 12.5% to 6%Exemption for battery pack/charger, AC or DC motor and controller used in manufacture of electric vehicle is extended without time limit.

Key Changes in Tariff

8Excise duty on Panmasala (21069020)BED increased from 16% to 19%Corresponding duty increase under Compounded Levy scheme

Key Changes in Central Excise Tariff

Expansion of LevyExcise Duty on Articles of Jewellery:Effective from 01.03.2016 on all types of Jewellery except plain silver Jewellery.2% (without Credit on inputs and CG) or 12.5% with CENVAT CreditHigher threshold limit of 6 Crs/12Crs applicableOption of Centralized RegistrationRecords for State VAT/Bureau of Indian Standards sufficeSimple return if duty paid at 2%Job workers are exempt as Principle Manufacturer obligated to comply9

Expansion of LevyReady Made Garments:Branded Goods with RSP > 10002% (without CENVAT Credit)12.5% (with CENVAT) CottonNil (without CENVAT)6% (with CENVAT) Other goodsNil (without CENVAT)12.5% (with CENVAT)Tariff value increased from 30% of RSP to 60%10

11Endorsing the brand Make in India

12Endorsing the brand Make in India

13Footwear (chapter 24) abatement increased from 25% to 30%Goods notified for RSP:Aluminium foil of thickness not exceeding 0.2mm (Chap 7607) 25%Smart watches under sub-heading 851762 35%Accessories of motor vehicles, fork lifts, bulldozers etc 30%Paper soap/detergents 3401 and 3402 30%

RSP Based Valuation

14Mere act of issuing a notification is sufficient to make it effective. (Sec 5A)Param Industries Ltd & Otrs vs. UOI, 2015-TIOL-140-SC-CusNo need to publish and offer for sale.Power of Board to issue orders, instructions or directions extended (Sec 37B)Time limit for recovery of duty extended from one year to two yearsIt is also extended under Service tax from 18 months to 30 months.UOI vs. Uttam Steel Ltd Retroactive.

Legislative ChangesNov14 10th Dec14 9th Dec15July15 10th Aug15 9th Aug16

15Relaxation of requirement to attest transporters copy when invoices are electronically issued.Withdrawal of the requirement to file following returnsAnnual Financial Information Statement (ER-4)Annual Installed Capacity Statement (ER-7)Information relating to Principal Inputs(ER-5 & 6)Revise Return facility is extendedReduction in rate of interest from 18% to 15%Single Registration for two or more premisesChartered Engineers Certificate for claiming rebate on inputs used for exportsEase of doing business

Annual Return

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Changes in Service Tax

17Krishi Kalyan CessGovernment ServicesTransport of goods by vesselArrest & Imprisonment Provisions tonned downRelaxation of personal penaltyChanges in abatement

Outline

18Levied under Clause 158To promote initiatives to improve agricultureOn all or any of the taxable services at 0.5%Effective from 01.06.2015Clarified that credit is available

Krishi Kalyan Cess

19Present Position: only support services of government are taxableRest all services are covered under negative listProposed Position:All services of Government to business entities are taxableEffective from 01.04.2016RCM is applicableImpact is on Licenses, Statutory fee, Permissions

Government Services

20Current Position:Transport of goods by an aircraft or vessel from a place outside India to the customs clearance in IndiaSetback with Current Position:POP is the destination of goods. Goods sent outside India are not taxable as POP is outside India.Goods brought to India are not taxable as they are covered under Negative listNo credit on input services No export benefits as mostly the services are undertaken to customers in India in rupees.Transport of goods by Vessel

21Proposed Position omitted from Negative ListConsequential Amendments:Services of an aircraft up to customs station of clearance in India are exempted (entry 53)Clarified under CCR, 2004 that Services of a vessel to a place outside India are not exempted services.ImpactTaxability of aircraft services remains the sameTransportation by vessel to India Taxable {for Foreign Vessel RCM Applicable}Transportation by vessel from India Not Taxable {Indian co need not reverse CENVAT Credit}Transport of Goods by Vessel

22Arrest and Imprisonment Toned downNature of ContraventionPresent PositionProposed PositionImprisonmentArrestImprisonmentArrestKnowingly evades the payment of service tax3Y (ST>50L)Non-Cognizable & bailable3Y (ST>2 Cr)No ArrestAvails and utilises credit without receipt of goods/servicesMaintains false books of accounts or supplies false informationCollects service tax but fails to deposit beyond six months7Y (ST>50L)Cognizable & Non-bailable7Y (ST>2 Cr)Cognizable & Non-bailable

Effective from the date of enactment

23Current PositionSection 78A imposes penalty up to one lakh rupees On directors, managers, secretary or any other officerOn specified contraventions Proposed Position No such penalty is invokable ifST, Interest and penalty upto 15% within 30 days of SCN In cases of fraud, collusion etcST & Interest paid within 30 days of SCN In other cases

Relaxation of Personal penalty

24ParticularsPresent PositionProposed PositionTransport of goods by rail30% is taxableCredit not allowedrail other than Indian railways 40% taxableCredit on input services is allowed

Transport of Passengers by railCredit is not allowedCredit on input services is allowedGoods Transport Agency30% is taxableTransport of household articles 40% is taxableOthers 30% is taxable

Services provided by a foreman of a chit100% is taxable without CENVAT 70% is taxable without CENVAT creditServices of a Stage CarriageNot taxable40% is taxable with no CENVAT creditTransport of goods in a vessel30% is taxable without CENVAT30% is taxable with CENVAT on input servicesRent a cab services40% is taxableNo CENVAT except rent a cab servicesClarified that amount charged shall include free supplies (fuel)

Changes in Abatement

25ParticularsPresent PositionProposed PositionServices by a tour operatorArranging accommodation 10% is taxablePackage tour 25% is taxableOther services 40% is taxableOnly credit of tour operator services allowed

Arranging accommodation taxable at 10%Other services including package tour 30% is taxableOnly credit of tour operator services allowedConstruction of Residential complex25% is taxable30% is taxable if value of flats is more than 1Cr or Carpet area is 2000 & aboveCredit on inputs not allowed30% is taxable for all types of flatsCredit on inputs not allowed

Changes in AbatementEffective from 01.04.2016

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Changes in CENVAT Credit Rules, 2004

27Changes in definitionsRestrictions in utlisation of CENVAT CreditManner of utilisation of CENVAT CreditRevamp of Rule 6

Outline

28Changes in the definition of Capital Goods:Wagons of sub-heading 860692 are defined to be capital goodsCredit allowable for equipment/appliance used in factory officeCredit allowable on capital goods used outside factory for pumping of water for captive useDefinition of Exempted Service amended to exclude transport of goods by vessel. Changes in definitions

29Changes in the definition of Input:Inputs used for pumping of water are includedAll capital goods having value upto Rs 10000 per piece are includedChange in definition of Input Service Distributor to facilitate credit distribution to Outsourced Manufacturing Units

Changes in definitions

30Inputs/Capital Goods sent to Job WorkerAt present, Credit of Jigs, fixtures, moulds, dies sent to job worker are allowed. Now tools are addedAC/DC are allowed to extend permission to sell finished goods from Job workers premises from one year to three year.Credit of ST paid on assignment or subsequent transfers of natural resources:Allowed to be over a period of right to use.In the year of transfer, balance credit not exceeding the ST amount on consideration is allowed.If assignment is on monthly or annual payments, credit is allowed in the FY in which they are paid.

Restrictions in Utilisation of CENVAT Credit

31Credit distribution is permitted to OMUs (Job Worker + Contract Mfr.)Rationalisation of rules relating to distributionCredit of Input service relating to few units but not all units shall be distributed among those units.Credits shall be distributed among the operational units only.Concept of Dealer extended to warehouse storing inputs (Rule 7B)Manner of Distribution of Credit

32Maintenance of separate books of accounts Otherwise, three options available for reversal of CENVAT Credit6% of the value of exempted goods & 7% on exempted servicesAmount determined under Rule 3ASeparate books for inputs and reversal for input services on the basis of Rule 3A.Rule 3A (Reversal on Formula basis)Option to be exercised by prior intimation in writingProvisional reversal every month based on previous FY turnover. No such requirement for startupsFinal reversal by 30th June of next FY. Delay attracts interest at 24%Formula is to be applied on total credit

Revamp of Rule 6 of CCR, 2004Current Position

33Maintenance of separate books of accounts taken awayTwo options available for reversal of CENVAT Credit6% of the value of exempted goods & 7% on exempted services. Maximum recovery shall be limited to total creditAmount determined under Rule 3ARule 3A (Reversal on Formula basis)Option to be exercised by prior intimation in writing. Despite such failure, Adjudicating officer may allow this option Provisional reversal every monthly based on previous FY turnover. Delay attracts interest at 15%Final reversal by 30th June of next FY. Delay attracts interest at 15%Formula is to be applied on common creditRevamp of Rule 6 of CCR, 2004Proposed Position

34Misery under Proposed positions:Start-ups require to reverse provisionally 50% of common creditExempted service includes the list of activities excluded in definition of ServiceAccumulated Credit gets lapsed if assesse is exclusively engaged in providing exempted services or manufacture of exempted goods

Revamp of Rule 6 of CCR, 2004

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Changes in Customs Law

36Key changes in TariffWarehousing provisionsMiscellaneous changesOutline

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Changes in Customs TariffAmendments Affecting Rates of DutyFromToNatural latex rubber made balloons 10%20%Primary Aluminium5%7.5%Zinc Alloys5%7.5%Imitation Jewellery10%15%Industrial Solar Water heater7.5%10%Capital goods and parts thereof falling under chapter 84,85 and 90Tariff rate of 211 specified lines is increased from 7.5% to 10% On 96 specified tariff lines, the effective rate is increased from 7.5% to 10%

38Concept of declaring warehousing stations is done away.Physical control over warehoused goods is withdrawnConcept of special warehousing is introduced:To retain physical control on notified goods.CG is given power to notify the class of goodsConsequential amendments of precautionary nature:Power to grant license is conferred with CC/PC in place of AC/DC.Detailed procedure prescribed for cancellation of licenses.Warehousing bond amount increased to thrice the amount of duty assessed.Facility of drawing samples from warehouse without duty payment is withdrawnWarehousing of Goods

39Time limit to recover duties increased from one year to 24 monthsFacility of deferred payment of customs duties to certain class of importers and exporters as may be specified.Single Window clearance with Integrated Declaration effective from 01.04.2016

Miscellaneous changes

40Notified under chapter XI of Finance Bill, 2016Applicable to appeals pending before Commissioner (Appeals) as on 01.03.2016Declaration shall be made by 31st December, 2016Upon acknowledgment of declaration, the tax dues, interest and penalty up to 25% shall be paid within next 15 days.Scheme is not for following cases;Order appealed against is out of search and seizureProsecution has been initated before 01.06.2016Order passed in respect of narcotic drugs and other prohibited goodsAny detention order is passed under Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974

Indirect Tax Dispute Resolution Scheme

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