Detailed changes related to service tax in Budget

Government of India Ministry of Finance Department of Revenue Tax Research Unit

D.O.F.No.334/8/2016-TRU

Dear Principal Chief Commissioner / Chief Commissioner / Principal Commissioner,

The Finance Minister has introduced the Finance Bill, 2016 in Lok Sabha today, i.e., 29th February, 2016. Changes in Customs and Central Excise law and rates of duty have been proposed through the Finance Bill, 2016. 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:

Unless otherwise stated, all changes in rates of duty take effect from the midnight of 29th February / 1st March, 2016. A declaration has been made under the Provisional Collection of Taxes Act, 1931 in respect of clauses 138 (i), 142 (i), 143 (i), 159, 231 and 232 of the Finance Bill, 2016 so that changes proposed therein take effect from the midnight of 29th February / 1st

March, 2016. The remaining legislative changes would come into effect only upon the enactment of the Finance Bill, 2016. These dates may be carefully noted.

2. Important changes in respect of Customs and Central Excise duty and legislative changes are contained in the four Annexes appended to this letter:

1. Annex I contains Chapter wise changes relating to Customs;
2. Annex II contains Chapter wise changes relating to Central Excise;
3. Annex III contains the clarifications being issued on certain matters relating to Customs and Central Excise.
4. Annex IV provides a bird‟s eye view of legislative changes proposed in the Finance Bill, 2016.

2.1  The Annexes provide a summary of the changes made and should not be used in any quasi-judicial or judicial proceedings, where only the relevant legal texts need to be referred to.

2.2  I would also like to bring to your notice that it is quite likely that a commodity may be covered under more than one notification attracting different rates of duties. In such cases, as per various judicial pronouncements on the subject, the benefit of lower rate of duty cannot be denied to the assessee provided he fulfils the conditions prescribed, if any, for such lower rate.

3.  There are two important changes in the Central Excise side, which I would like to bring to your special attention:

3.1.1 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. This optional levy would apply to such readymade garments and made up articles of textiles regardless of the composition of the garment / article. However, in respect of readymade garments and made up articles of textiles other than those mentioned above, the optional levy  of "Nil (without CENVAT credit) or 6% (with CENVAT credit)‟ in case of garments / articles of cotton, not containing any other textile material and „Nil (without CENVAT credit) or 12.5% (with CENVAT credit)‟ in case of garments / articles of other composition, as the case may be, shall continue. The tariff value for readymade garments and made up articles of textile is also being increased from 30% to 60% which shall apply to all goods mentioned in the notification No.20/2001-CentralExcise (N.T.) dated 30.04.2001. It may be noted that the new levy is similar to the levy of mandatory excise duty of 10% on readymade garments and made up articles of textiles [goods falling under Chapters 61, 62 and 63 (heading Nos. 63.01 to 63.08)] when they bear or are sold under a brand name, which was introduced in the Budget 2011-12, except that: