Budget changes in indirect tax

SERVICE TAX:

1. No Change in rate of Service Tax.

2. Krishi Kalyan Cess, at the rate of 0.5% of value of taxable service imposed, with effect from 01.06.2016.

3. Definition of Negative list pruned by removing from the list (a) Education Services (b) Transportation of passengers by state carriage (c) Transportation of goods from a place outside India to India.

The changes shall make these services taxable in due course. Presently the exemption for educational services is being proposed to be retained through exemption notification.

4. Sale of right to use radio frequency spectrum is declared a service liable to Service Tax.

5. Limitation period for recovery of Service Tax being increased from 18 months to 30 months.

6. Interest rate on late payment of taxes is being rationalized to 15% except in cases where service tax is collected but not paid.

7. Monetary limit for prosecution is being raised to 2 crores from present limit of 50 lakhs.

8. Certain exemptions, related to infrastructure, which were earlier withdrawn is being restored with retrospective effect.

9. Media with recorded Information Technology Software which is not required to bear RSP, is being exempted from so much of the Central Excise duty/CVD as is equivalent to the duty payable on the portion of the value of such Information Technology Software recorded on the said media, which is leviable to service tax.

10. Following exemptions are being withdrawn:

(a) Services provided by senior advocates (w.e.f  01.04.2016).

(b) Service provided to a person for being represented before arbitral tribunal (w.e.f. 01.04.2016).

(c) Transportation of passenger service provided by ropeway, cable car or aerial tramway (w.e.f 01.04.2016).

(d) Exemption to construction, erection, commissioning or installation of original works pertaining to monorail or metro is being withdrawn with respect to contracts entered into on or after 01.03.2016.

11. Services by way of construction, erection, etc., of original works pertaining to low cost houses up to a carpet area of 60 sq.m per house in a housing project approved by the competent authority under the “Affordable housing in partnership” component of PMAY or any housing scheme of a State Government are being exempted from service tax.

12. At present, two rates of abatement have been prescribed for services of construction of complex, building, civil structure, or a part thereof,- (a) 75% of the amount charged in case of a residential unit having carpet area of less than 2000 square feet and costing less than Rs 1 crore, and (b) 70% of the amount charged in case of other than (a) above, both subject to fulfilment of certain conditions prescribed therein. A uniform abatement at the rate of 70% is now being prescribed for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions.

13. Interest rates on delayed payment of duty/tax across all indirect taxes is proposed to be made uniform at 15%, except in case of service tax collected but not deposited with the Central Government, in which case the rate of interest will be 24% from the date on which the service tax payment became due.

14. Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in respect of cases pending before Commissioner (Appeals), the assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is being introduced. In such cases the proceedings against the assessee will be closed and he will also get immunity from prosecution. However, this scheme will not apply in certain specified type of cases.

15. Service tax assessees above a certain threshold will also be required to file an annual return. This change shall come into effect from1st April, 2016.

CENTRAL EXCISE:

1. Excise duty of 2% (without CENVAT credit) or 12.5% (with CENVAT credit) is being levied on readymade garments and made up articles of textiles falling under Chapters 61, 62 and 63 (heading Nos. 6301 to 6308) of the Central Excise Tariff except those falling under 6309 and 6310 of retail sale price (RSP) of Rs.1000 and above when they bear or are sold under a brand name.

2. Excise duty of 1% (without CENVAT credit) or 12.5% (with CENVAT credit) is being levied on articles of jewellery [excluding silver jewellery, other than studded with diamonds/other precious stones] with a higher threshold exemption upto Rs. 6 crore in a year and eligibility limit of 12 crore. Thus, a jewellery manufacturer will be eligible for exemption from excise duty on first clearances upto Rs. 6 Crore during a financial year, if his aggregate domestic clearances during preceding financial year were less than Rs. 12 crore. The SSI exemption for the month of March, 2016 for jewellery manufacturers will be Rs.50 lakh.

3. Basic Excise Duty is being increased on pan masala [2106 90 20] from 16% to 19%.

4. Excise duty on “waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured” falling under Chapter sub-heading 2202 10 is being increased from 18% to 21%.

5. Excise duty on tobacco products are being increased.

6. Basic Excise Duty is being increased on unmanufactured tobacco, and jarda scented tobacco, gutkha and chewing tobacco.

7. The Basic Excise Duty rate on aviation turbine fuel [ATF] [2710 19 20] is being increased from 8% to 14%.

8. The Schedule Rate of Clean Energy Cess, levied on coal, lignite and peat, is being increased from Rs.300 per tonne to Rs.400 per tonne.

9. Retail Sale Price based assessment of excise duty on all goods falling under heading 3401 and 3402 with an abatement of 30%.

10. Ready Mix Concrete [3824 50 10] manufactured at the site of construction for use in construction work at such site is being fully exempted from excise duty.

11. Wrist wearable devices (commonly known as „smart watches‟) [8517 62] are being notified for the purposes of RSP based assessment of excise duty with an abatement of 35%.

12. Excise duty exemption is being withdrawn on charger/adapter, battery and wired headsets/speakers for use in manufacture of mobile handsets including cellular phones. Excise duty of „2% without CENVAT credit / 12.5% with CENVAT credit‟ is being prescribed for charger/adapter, battery and wired headsets/speakers, for manufacture of mobile handsets including cellular phone, subject to actual user condition.

13. Excise duty of 4% without CENVAT credit / 12.5% with CENVAT credit is being prescribed for Consumer Premise Equipments (CPEs) like routers, modem, set top boxes, reception antenna, CCTV, IP camera etc.

14. Basic Excise duty on all railway/tramway locomotives, railway or tramway track fixtures, refrigerated containers is being reduced to 6%.

15. An Infrastructure Cess, as a duty of excise, is being imposed on motor vehicles falling under heading 8703. It is 1% on Petrol/LPG/CNG driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1200cc; 2.5% on Diesel driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1500cc and 4% on all categories of motor vehicles. Three wheeled vehicles, Electrically operated vehicles, Hybrid vehicles, Hydrogen vehicles based on fuel cell technology, Motor vehicles which after clearance have been registered for use solely as taxi, Cars for physically handicapped persons(subject to prescribed conditions), and Motor vehicles cleared as ambulances or registered for use solely as ambulance(subject to prescribed conditions) has been exempted from this Infrastructure cess.

Cenvat Credit Rules are being amended to provide that CENVAT credit cannot be utilised for payment of this Infrastructure Cess. Further, no credit of this Cess would be available under the Cenvat Credit Rules, 2004.

16. A doubt has been raised with reference to the area based excise duty exemption for the North Eastern Region including Sikkim vide notification No.20/2007-CE dated 25.04.2007, as to whether an industrial unit which is presently availing of the said excise duty exemption, again undertakes substantial expansion by not less than 25% before 31.03.2017 and satisfies the conditions as stipulated under Para 5 and Para 6 of the said notification, will again be eligible for excise duty exemption from such expanded capacity with effect from the date commencement of commercial production for a further period of 10 years. It is clarified that in absence of a provision to the contrary, the area based excise duty exemption presently available to the North Eastern States including Sikkim vide notification No.20/2007-CE dated 25.04.2007 [for which the sunset clause is 31.03.2017] will be available to an existing unit on second substantial expansion as well, provided that the concerned unit commences commercial production from such expanded capacity not later than 31.03.2017.

Rajesh Kumar
Advocate