BUDGET REFORMS

Transcription

1 2014 BUDGET REFORMS CA. KEVIN SHAH KEVIN SHAH & CO. [CHARTERED ACCOUNTANTS] 12/07/2014

2 Page 2 of 40 Table of Contents ABOUT THE COMPANY. 4 AMENDMENTS UNDER FINANCE BILL 2014 I. SERVICE TAX 1. Tax rates 5 2. Negative list 2.1 Selling of space for advertisements Radio Taxis Exemption structure 3.1 Healthcare related exemptions Education related exemption Hotel and Tourism related exemptions Logistics and transport related exemptions Government related exemptions Other Exemptions Retrospective Exemption Abatement mechanism Reverse charge mechanism Valuation mechanism Point of taxation Cross border transactions/place of Provision Rules SEZ provisions Other legislative and Procedural aspects.. 20

3 Page 3 of 40 II. Cenvat Credit 1. Clarity w.r.t to the term place of removal Time Limit for availment of Cenvat Credit Re-credit of cenvat credit on account of non-receipt of export proceeds Manner of distribution of cenvat credit 27 III. Central Excise Amendments in Valuation Mechanism Amendments in Abatement structure Changes in the tax rates and exemptions.. 31 IV. Customs Changes in the duty rates and exemptions Baggage Rules V. Changes in the provisions relation Adjudication/Appellate authorities 36 VI. ANNEXURE I 38 VII. ANNEXURE II 40

4 Page 4 of 40 ABOUT THE COMPANY: Kevin Shah & Co is a boutique indirect tax firm which specializes in the field of indirect taxes. It is being headed by CA. Kevin Shah who has a wide variety of experience in the field of Service Tax, Cenvat Credit, Central Excise and Customs. The firm caters to leading players of the industries like Pharma, Infrastructure, Hospitality, Power, Educational etc. Further, currently associated with a leading CA firm Batliboi & Purohit wherein they jointly carry out assignments in relation to indirect taxes. Further, the proprietor is a regular speaker at various forums like WIRC, NACEN, CA study circles, corporates etc. Further, regularly writes editorials for forums like Taxindialone.com, Service Tax Review

5 Page 5 of 40 I. SERVICE TAX 1. Tax Rates: 1.1. There is no change in the basic rate 1 of service tax. Further, there are no changes in the rates of cess too. Hence the consolidated rate of service tax is 12.36%. 2. Negative List: The concept of negative list based taxation was introduced from Accordingly, the items listed under the said list were excluded 2 from the levy of service tax Selling of space for advertisements: Services provided by way of sale of space for advertisement other than the advertisements by broadcast of radio and television 3 was excluded from the levy of service tax. However, with a view to broaden the tax base, new levy have been further introduced on segments like advertisements in internet websites, out-of-home media, on screen films in theaters, bill boards, conveyances, buildings, cell phones, Automated teller machines, commercial publications, aerial advertising etc. 1 12% as per Section 66B of the Finance Act, As per Section 66B of the Finance Act, Clause (g) of Section 66D of the Finance Act, 1994

6 Page 6 of Only sale of space for advertisement on print media is excluded from the levy of service tax. Further, the term print media 4 has been defined which states that only sale of space for advertisement in books and newspapers are excluded from the levy of service tax. Such a change will be effective after the Finance (No.2) Bill, 2014 receives the assent of the President Radio Taxis Services provided by way of metered cabs, radio taxis and auto rickshaws were excluded from the levy of service tax. However, service tax is proposed to be levied on the services provided by way of radio taxis To that effect, the relevant entry 5 in the negative list is being proposed to be amended accordingly and also the definition of metered cab 6 is being proposed to be amended wherein radio taxi is being categorically excluded and the term radio taxi is being defined 7 accordingly Further, it has been clarified that the abatement which is presently available to rent-a-cab services would also be made available to radio taxi service, to bring them par. 4 Clause 39(a) to be introduced under Section 65B of the Finance Act, Sub clause (vi) to clause (0) of Section 66D of the Finance Act, Section 65B(32) of the Finance Act, (d)(za) of Notification 6/2014 dated

7 Page 7 of To conclude, service tax on radio service would be made applicable from the date, after the Finance (No.2) Bill, 2014 receives the assent of the President and also the service provider can take the benefit of abatement. 3. Exemption Structure 3.1. Healthcare related exemptions: Services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation was exempted in Finance Bill, 2014 (No.1) vide relevant notification 8. Further, in this budget, exemption is even granted to services provided by operators of the common bio-medical waste treatment facility to a clinical establishment by way of treatment of disposal of bio-medical waste or the processes incidental thereto. Thus, the entire chain with respect to the treatment of the disposal of bio-medical waste is being exempted from payment of service tax Further, exemption to services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies on human participants by a clinical research organization approved to conduct clinical trials by the Drug Controller General of India is being withdrawn; the same would become taxable with immediate effect. 8 Notification 4/2014 dated Entry 2B is being inserted under Notification 25/2012 vide Notification 6/2014 dated

8 Page 8 of Education related exemption: Post , all the services including renting of immovable property in relation to education provided by or to educational institution were exempted from the payment of service tax. The gamut of such services was explained through the concept of auxiliary educational services. The said term was very wide as it included any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge enhancement activity, whether for the students or the faculty, services relating to admission to such institution, conduct of examination, catering for the students under any midday meals scheme sponsored by Government, or transportation of students, faculty or staff of such institution etc. There was no clarity over the above mentioned term and serious conceptual doubts were raised with respect to the said term Thus, the said term along with the provision of renting services were vented and more clear and specific mandate was enumerated with respect to the claiming of the exemption under education related services. Accordingly, the following services received by eligible educational institutions are exempted from service tax: (i) (ii) (iii) (iv) Transportation of students, faculty and staff of the eligible educational institution Catering service including any mid-meals scheme sponsored by the Government Security or cleaning or house-keeping services in such educational institution Services relating to admission to such institution or conduct of examination.

9 Page 9 of 40 Further, for this purpose of this exemption, the term educational institution means an institution providing services specified in the negative list Further, it may be noted that the scope of exemption remains the same as earlier in the case of services provided by eligible educational institutions. However, in the case of services received by the eligible educational institutions, exemptions will be available only in respect of the services specified as above Hotel and Tourism related exemptions: Post , services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent were exempted from payment of service tax. There was an ambiguity with respect to the use of the word commercial in the entry as to whether dharamshalas, ashram or any such entity which offer accommodation would be covered therein. To remove any ambiguity, the word commercial is being omitted. Thus, it may be noted that this exemption, upto the specified threshold level, is available to any entity providing service by way of accommodation, including dharamshalas or ashram or such other entities. 10 Clause (l) of section 66D of the Finance Act, 1994

10 Page 10 of Post introduction of negative based taxation and place of provision rules, there was a lot of ambiguity with respect to the provision of services by an Indian tourism company to the foreign nationalist with respect tours wholly conducted outside India. To boost such ventures and to bring foreign inflows into the Indian system services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India is being exempted from payment of service tax Logistics and transport related exemptions: Post , service of passenger transportation by a contract carriage other than for the purposes of tourism, conducted tour, charter or hire, is exempt from service tax. The scope of exemption is being reduced in respect of air conditioned contract carriages. As a result, any service provided for transport of passenger by air-conditioned contract carriage including which are used for point to point travel, will attract service tax, with immediate effect. The benefits of abatements can be claimed as per the rules crafted for rent-a-cab service (explained in detail under abatement section) Services by non-air conditioned contract carriages for purpose other than tourism, conducted tour, charter or hire continue to be exempted.

11 Page 11 of Transportation of chemical fertilizer, organic manure, oil cakes, ginned cotton or baled cotton by rail or vessel or road from one place in India to another is exempted from payment of service tax Further, services provided by way of loading, unloading, packing, storing or warehousing of rice, baled cotton or ginned cotton is exempted from payment of service tax Government related exemptions: Post , services provided by way of any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation to Government, local authority or governmental authority where exempted from payment of service tax The phrase any activity in relation to any function ordinarily entrusted to a municipality was a subject matter of interpretation which had numerous answers leading to nothing but confusion. Therefore, the entire clause has been amended to state that any service provided to Government, local authority or governmental authority by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation is exempted from payment of service tax.

12 Page 12 of Thus, the exemption would now be very strict and would not be extendable to other services such as consultancy, designing etc. not directly connected with these specified services Other Exemptions Insurance: Services in respect of life insurance business for selected schemes were exempted from payment of service tax w.e.f Further, life micro-insurance as approved by the Insurance Regulatory and Development Authority, having maximum amount of cover of fifty thousand rupees is exempted from payment of service tax Reserve Bank of India The service of management of foreign exchange reserves, if received from outside India, by RBI then the same would be exempted from payment of service tax Retrospective Exemption: Service provided by Employees State Insurance Corporation (ESIC) during the period prior to to be exempted from service tax. 11 Notification 49/2012 dated

13 Page 13 of Abatement mechanism: 4.1. As discussed supra that rendition of service of transportation of passengers by air-conditioned contract carriages is taxable w.e.f , the abatement with respect to the same is also being followed. Hence, the taxable portion of such service shall be 40% with the condition that Cenvat credit of inputs or capital goods or input services has not been taken. The said benefit would also be extended to radio taxi from such date as the Central Government mat notify For the person availing the benefit of abatement under renting of motor cab the provisions w.r.t. the condition of availment of the benefit of abatement is as under From 1 st October, 2014, cenvat credit of renting of a motor cab is allowed if such services are received from a person engaged in the similar line of business i.e. subcontractor providing services of renting of motor cab to the main contractor The whole of the cenvat credit has been allowed with respect to input services of renting of any motor cab, received from a person who is paying service tax on 40% of the value of services. Further, the availment of cenvat credit would be restricted to 40% of the credit of the input services of renting of any motor cab if service tax is paid or payable on full value of services i.e. without claiming abatement Taxable portion in respect of transport of goods by vessel is being reduced to 40% from the present 50%. Thus, effective rate would be 4.944%.

14 Page 14 of Tour operator service providers are also being allowed to avail cenvat credit on the input service of another tour operator, which are used for providing the output service. This is being provided to avoid cascading effect of taxes The condition for availing abatement in case of GTA service is being amended with immediate effect to clarify that the condition for non-availment of credit is required to be satisfied by the service providers only. Service recipient will not be required to establish satisfaction of this condition by the service provider. 5. Reverse charge mechanism: 5.1. Reverse charge mechanism has been introduced on service provided or agreed to be provided by recovery agent to a banking company or a financial institution or a non-banking finance company wherein the said service recipient i.e. banking company or a financial institution or a non-banking finance company is liable for 100% payment of service tax Post , reverse charge mechanism was introduced on services provided by director to a company wherein the company the service recipient was made liable to 100% payment of service tax on provision of such services by the director of a company i.e. service provider.

15 Page 15 of 40 Other things remaining same, the said provision has been amended broadened to include the services provided by the director of a body corporate to the company or the body corporate In respect of renting of motor vehicle, where the service provider does not take abatement the portion of service tax payable by the service provider and service receiver will be modified as 50% each Valuation mechanism: 6.1. Post , the Service tax (Determination of value) Rules, 2006 (i.e. valuation rules) were amended 13 wherein different mechanisms relating to valuing of the services provided by way of works contract services were laid down and the same is enumerated as under Option A: Separate material and labour portion and charge full service tax on labour portion Option B: Material and labour portion inseparable then following methods should be followed: a) In case of original works : 40% of value should be taxable b) In case of maintenance or repair or reconditioning or restoration or servicing of any goods : 70% of the value should be taxable c) In case not covered under (a) & (b) above, including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, 12 Effective from Notification 10/2014 dated Vide notification 24/2012 dated

16 Page 16 of 40 installation of electrical fittings of an immovable property: 60% of the value should be taxable 6.2. Post introduction of the said rules, there were lot of problems with respect to the adoption of the appropriate methods under different circumstances. In order to vent out the litigation under the said zone the valuation options under (b) and (c) is being merged so as to state that for providing the services getting qualified under clause (b) and (c) mentioned supra, service tax is payable on 70% of the value. 7. Point of taxation: 7.1. The first Proviso to rule 7 of the Point of Taxation Rules (POTR) is being amended to provide that point of taxation in respect of reverse charge will be the a. Payment date or whichever is earlier b. First succeeding day after a period of three months from the date of invoice. This amendment will apply only to invoices issued after 1st October, 2014.

17 Page 17 of Further, a transition rule 14 is being prescribed (new rule 10 of POTR) which is explained as under Sr.No Condition Point of Taxation 1 a). Invoice issued before and b). payment received within 6 months of the date of invoice Date of payment a). Invoice issued before and POTR as per Rule 3: b).payment received after 6 months of the date of invoice Date of invoice 3 a) Invoice issued after and b)payment received prior to POTR as per Rule 3: 1) Date of invoice or; 2) Date of payment (whichever is earlier) 8. Cross border transactions/place of Provision Rules: 8.1. The definition of intermediary has been amended to bring under its gamut arrangement or facilitation of services with respect to supply of goods between two or more persons. Thus, all the commission agents who are selling goods on behalf of their foreign principals and facilitating them with increased revenues which constituted an export of service according to various judicial precedents 15 and no service tax was payable, will now be taxable. 14 Rule 10 of the Point of Taxation Rules, 2011 inserted vide Notification 13/2014 dated Em Jay Engineers vs. CCE 2010 (20) S.T.R. 821 (Tri. - Mumbai) ; Blue Star Ltd vs. CCE 2008 (11) S.T.R. 23 (Tri. - Bang.); Mapal India Pvt Ltd vs. CCE 2011 (22) S.T.R 454 (Tri. Bang)

18 Page 18 of Further, on the positive side with respect to the commissions paid to foreign agents for canvassing and procuring of orders was taxable according to the erstwhile rules. Also the availment of cenvat credit with respect to the tax paid on such commission under reverse charge was highly disputed with diverse views from various High Courts 16. Such litigation would have its way, as from now onwards, with respect to the above mentioned rules no service tax will be payable on commission paid to foreign agents and thus the question of availment of cenvat credit does not arises Rule 9(d) of the POPR has been amended to exclude services of hiring of vessels (excluding yachts) and aircraft from its purview, and therefore the same shall fall under the general rule i.e. location of recipient Further, Rule 4 of the POPR stated that condition of performance based determination of tax will not be applicable under circumstances where services are provided in respect of goods that are temporarily imported into India for repairs, reconditioning or reengineering for re-export. The said rule has been amended to cover and been narrowed down to include only a condition that the performance based exemption would only be applicable under circumstances where 16 CCE vs. Ambika Overseas 2012 (25) S.T.R. 348 (P & H) credit was allowed CCEx. Vs. Cadila Healthcare Ltd 2013 (30) S.T.R. 3 (Guj.) credit was disallowed

19 Page 19 of 40 goods are temporarily imported into India for repair and are exported after the repairs without being put to use in the taxable territory All the amendments under PPSR shall be effective from October 1, SEZ Provisions: 9.1. The Central Excise Officer would issue Form A-2, within 15 days from the date of receipt of Form A Exemption would be available from the date when list of service on which SEZ is entitled to upfront exemption is endorsed by the authorized officer of SEZ in Form A-1, provided Form A-1 is furnished to the jurisdictional Central Excise Officer within fifteen days of its verification. If furnished later, exemption would be available from the date on which Form A-1 is so furnished Pending issuance of Form A-2, exemption will be available subject to condition that authorization issued by the Central Excise officer will be furnished to service provider within a period of three months from provision of service As regards services covered under reverse charge, the requirement of furnishing service tax registration number of service provider shall be dispensed with.

20 Page 20 of A service shall be treated as exclusively used for SEZ operations if the recipient of service is a SEZ unit or developer, invoice is in the name of such unit/developer and the service is used exclusively for furtherance of authorized operations in the SEZ. 10. Other legislative as well as procedural aspects: E-payment: E-payment of service tax is mandatory w.e.f Rules to be prescribed for rate of exchange : As per explanation to Section 67A, rate of exchange means the rate of exchange referred to in the explanation to section 14 of the Customs Act, However, it is proposed to introduce rules in service tax for determining rate of exchange. Time limit prescribed for completion of adjudications: Under Section 73 of the Act, sub section 4B has been introduced which requires the central excise officer to determine the amount payable as per the table below:

21 Page 21 of 40 Issuance of Notice Time Limit for such issuance of Notice Time to determine the amount Notice issued under 73(1) 18 months 6 months Notice issued under proviso to 5 years 1 year section 73(1) [in case of fraud, suppression etc] or sub section 4A [in case of audit, investigation etc] Strict conditions for waiver of penalty: If service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded on account of fraud, suppression etc then penalty is leviable in addition to tax and interest which shall be equal to the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded. However, where true and complete details of the transactions are available in the specified records, penalty shall be reduced to 50% of the service tax so not levied or paid or short-levied or short-paid or erroneously refunded However, it is proposed that the benefit of section 80 (1) should be withdrawn for proviso to section 78 of the Finance Act, Accordingly, the benefit of waiver of penalty for offences covered under first proviso to section 78 would not be available.

22 Page 22 of 40 Power to conduct search: Under the current provisions 17, the power of search has been restricted to Joint Commissioner of Central Excise. Under the finance bill, it has been proposed that such powers would also be given to Additional Commissioner of Central Excise or such other Central Excise Officer. Waiver of Stay Application fees If the stay application is filed before Appellate Tribunal then the said stay application was always accompanied with a statutory prescribed fee 18 of Rs. 500/- wherein every appellant use to make a demand draft in favor of THE ASSISTANT REGISTRAR CESTAT.. Henceforth after the budget getting enacted, such fees will not be required to be paid with every stay application. Interest payments: If the service tax is not deposited to the credit of the Central Government within the due dates stipulated under the relevant provision 19 then, the said person is liable for payment of interest along with tax for such period of delay. The rate prescribed for payment of interest was as under: 17 Section 82 of the Finance Act, Section 86(6A) of the Finance Act, Rule 6 of the Service Tax Rules, 1994

23 Page 23 of 40 Sr.No Particulars Rate of Interest 1 For turnover less than Rs. 60,00,000/- in FY/preceding FY 15% 2 For turnover more than Rs. 60,00,000/- in FY/preceding FY 18% From 1 st October, 2014, the above mentioned rates were modified and accordingly the following rates have to be considered for calculating interest: Sr.No Particulars Rate of Interest (%) [For turnover less than Rs. 60,00,000/- in FY/preceding FY] Rate of Interest (%) [For turnover more than Rs. 60,00,000/- in FY/preceding FY] 1 Upto 6 months months upto 1 year More than one year Power to recover dues of a predecessor from a successor: As per the said provision, where any person (hereinafter referred to as predecessor) from where the service tax or other sums of any kind is recoverable or due, transfers or otherwise disposes of his business or trade in whole or part, or effects any change in the ownership thereof. In consequence of which he is succeeded in such business or trade by any other person then all goods, in the custody or possession of the person so succeeding may also be attached and sold by officer after obtaining the written approval of the Commissioner for the purposes of recovering such service tax or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change.

24 Page 24 of 40 Applicability of the provisions of Central Excise to that of Service Tax: The following sections of Central Excise shall also be applicable in case of service tax. We have explained the sections as follows: Section 5A(2):This section prescribes that any explanation inserted in a notification or special order at any time within one year of issue of notification or order, for clarifying the scope or applicability thereof, shall have effect from the date of issue of such notification or order Section 15 A: This new section is being inserted in the Central Excise Act to stipulate that third party sources shall furnish periodic information, as specified, in the manner as may be prescribed Section 15B: This new section is being inserted in the Central Excise Act to prescribe that failure to provide information under section 15A of the Act would attract penalty as specified

25 Page 25 of 40 II. CENVAT CREDIT: 1. Clarity w.r.t to the term place of removal : a. Cenvat credit of service tax paid on services used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal is available. However, the dispute with respect what is considered to be as the place of removal was a subject matter of litigation and the issue was simmering. There were divergent views of the respective High Courts 20 with respect to the availment of cenvat credit. To make a way through it, the definition of place of removal was being introduced 21 which states that 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. Thus, pursuant to the said definition, cenvat credit would be allowed after adhering the guidelines as prescribed above. 20 CCE vs. M/s. Vesuvious India Ltd 2013 TIOL 1038 HC- KOL Credit disallowed ; ABB Ltd & Ors 2011 TIOL 395 HC- KAR Credit allowed 21 Notification 21/2014 C.E. (N.T.), dated

26 Page 26 of Time Limit for availment of Cenvat Credit: a. Cenvat credit should be availed within 6 months from the date of the issue of the invoice. Thus, the settled law that there is no time limit for availment of cenvat credit is now being amended to provide with some timeline. b. Presently, cenvat credit is allowed on reverse charge mechanism on payment basis. However, taking into consideration the above mentioned rule the manner of availment of cenvat credit w.r.t payments on reverse charge mechanism have changed and in case of service 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, there is no change in respect of partial reverse charge 3. Re-credit of cenvat credit on account of non-receipt of export proceeds: a. As per the recent amendments, if the services provided outside India fails to qualify as an export due to the condition of non receipt of foreign convertible exchange within the stipulated time as specified under the provision then that person was liable for reversal of cenvat credit in terms of Rule 6(3) instead of the erstwhile rule of payment of service tax on such services.

27 Page 27 of 40 b. With the time limit for availment of cenvat credit coming into picture the said provision has also been adequately amended so that the exporter does not face loss of the cenvat credit on account of late receipt of foreign convertible exchange that beyond the stipulated guidelines as prescribed under the service tax regime. Accordingly, 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 i.e. FIRC copies. 4. Manner of distribution of Cenvat Credit: a. 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 22 the relevant rule, 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 22 Notification 05/2014 CE (N.T.) dated

28 Page 28 of 40 (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. b. These issues were clarified by the instant circular 23 wherein the effects of the amendment carried out vide notification No. 05/2014-CE (N.T.) was illustrated and a roadmap of clarity was being displayed in the said front. 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. 23 Circular No. 178/04/2014-ST, dated

29 Page 29 of 40 III CENTRAL EXCISE: 1. Maximum Governance and Minimum Government, the said principles are clearly portrayed in this very budget. Accordingly, a new mechanism 24 has been introduced under the Central Excise Act, Under the said mechanism, every specified person such as an assessee, local authority, income tax department, sales tax department, banking company, registrar of companies who is responsible for maintenance of records shall furnish an information return in the prescribed manner to the authority prescribed by the Central Government. If the specified persons has defaulted or failed to so, then penalty 25 of Rs. 100/- per day is being levied till the time such default continues. 2. E-payment of central excise duties has been made mandatory 26 from AMENDMENTS IN VALUATION MECHANISM: 3. Recently the Supreme Court in the case of CCE, Mumbai vs. Fiat India (P) Ltd [2012 (283) E.L.T. 161 (S.C.)] has held that where products were sold at considerable losses for an unduly long period of time for the purpose of market penetration, the transaction value for the purpose of payment of excise duty = price recovered from the vendor + losses cannot be accepted for the purpose of levy of excise duty. The reason being that the loss suffered for a longer period of 24 Section 15A of the Central Excise Act, Section 15B of the Central Excise Act, Notification 19/2014 C.E. (NT) dated

30 Page 30 of 40 time is nothing but extra commercial consideration. Further, to justify the judgment board issued a circular 27 wherein it laid down steps for following the precedents established from the said judgment. 4. The issue was still scorching and, therefore, the Central Government found the Union Budget 2014, the apt moment to bring in an amendment 28, not to the section 4 of the CEA, but in Rule 6 of the Valuation Rules, 2000 and it goes thus "Provided that where price is not the sole consideration for sale of such excisable goods and they are sold by the assessee at a price less than manufacturing cost and profit, and no additional consideration is flowing directly or indirectly from the buyer to such assessee, the value of such goods shall be deemed to be the transaction value." So, in effect, even if the assessee sells the goods at a price less than the manufacturing cost and profit and no additional consideration is flowing directly or indirectly from the buyer to the assessee, then the value of such goods shall be deemed to be the transaction value. AMENDMENT IN ABATEMENT STRUCTURE: 5. The abatement 29 of 35% was specified for water filters functioning without electricity and replaceable kits thereof following under the relevant chapter heading However, the 27 Circular 979/03/2014-CX, dated: January 15, Notification 20/2014 CE (NT) dated Notification 11/2011-C.E. (N.T.), dated

31 Page 31 of 40 said benefit of abatement 30 is being extended to all those water filters functioning without electricity and replaceable kits which are not household type filters therefore falling under the chapter heading CHANGE IN RATE OF DUTIES AND EXEMPTION: 6. Basic excise duty on cigarettes and other products of tariff heading 2402 is being increased. The changes in total excise duty rates are summarized below. TARIFF ITEM DESCRIPTION (length in mm) Rs. per 1000 sticks (Existing Rate) Rs. per 1000 sticks (New Rate) Non filter not exceeding Non-filter exceeding 65 but not exceeding Filter not exceeding Filter exceeding 65 but not exceeding Filter exceeding 70 but not exceeding Filter exceeding 75 but not exceeding Tariff item Omitted Other The rate of Clean Energy Cess levied on coal, lignite and peat is being increased from Rs.50 per tonne to Rs. 100 per tonne Notification 17/2014 CE (NT) dated Notification 20/2014 C.E dated

32 Page 32 of Full exemption from excise duty 32 is being provided on plastic materials reprocessed out of the scrap or waste and cleared into the DTA by an EOU. This would bring EOU at par with domestic and SEZ Units. 9. Un-branded articles of precious metals are being exempted from excise duty retrospectively for the period to Full exemption from excise duty 33 is being provided to reverse osmosis (RO) membrane element for water filtration or purification equipment (other than household type filter). 11. Excise duty 34 on RO membrane element used in household type filters is being reduced from 12% / 10% to 6%. 12. Director (Electrical) is being authorized to issue the requisite certificate to enable Delhi Metro Rail Corporation to avail of Nil excise duty 35 benefit in respect of their Phase-1 and Phase-2 projects instead of Director (Rolling Stock, Electrical & Signaling) at present. 32 Notification 12/2014 C.E dated Notification 12/2014 C.E. dated Notification 12/2014 C.E dated Notification 12/2014 C.E. dated

33 Page 33 of Intermediate goods manufactured and consumed captively for further manufacture of matches is being fully exempted Education cess and secondary & higher education cess (customs component) is being exempted 37 on goods cleared by an EOU into the DTA. 15. Rule 8 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 is being amended with retrospective effect from to provide that where a manufacturer manufactures pouches of different RSPs on a single machine in a month, the duty liability for that month would be the duty applicable to the highest of the RSP so manufactured. This will align the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 with the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 with regard to manufacture of pouches of different RSPs on a single machine under the compounded levy scheme. 16. Other important changes with respect to change in rates for certain products are attached as Annexure I for ready reference. 36 Notification 19/2014 C.E. dated Notification 18/2014 C.E. dated

34 Page 34 of 40 IV. CUSTOMS: 1. Mandate has been provided under the said budget for determination of rate of duty and tariff valuation for imports through a vehicle in cases where the Bill of Entry is filed prior to the filing of Import Report (as the Manifest is called in case of imports by land). 2. The customs duties on mineral oils including petroleum & natural gas extracted or produced in the continental shelf of India or the exclusive economic zone of India shall not be recovered for the period prior to 7th February, The law has been amended to allow the filing of a Bill of Entry prior to the filing of Import Report (as the Manifest is called in case of imports by land) for imports through land route. 4. Representations have been received regarding the eligibility of aircraft engines and parts thereof for customs duty exemption 38. It is clarified that aircraft engines and parts thereof are eligible for customs duty exemption when imported for servicing, repair or maintenance of aircrafts used for scheduled operations subject to fulfillment of conditions specified therein 38 No.12/2012-Customs, dated 17th March, 2012

35 Page 35 of 40 CHANGES IN RATE OF DUTIES AND EXEMPTION: 5. Description of the product sun dried dark seedless raisins which attracts concessional Basic Customs Duty of 30% is being changed to dark seedless raisins Basic Customs Duty 40 on fatty acids, crude palm stearin, RBD and other palm stearin and specified industrial grade crude oils is being reduced from 7.5% to Nil for manufacture of soaps and oelochemicals subject to actual user condition. Further, duty is also being reduced on crude glycerine from 12.5% to 7.5% in general and from 12.5% to Nil for manufacture of soaps subject to actual user condition. 7. Further changes with respect to the changes in rates of basic customs duty with respect to different products is been summarized and is attached as Annexure II for ready reference. BAGGAGE RULES: 8. Baggage Rules are being amended 41 to, - (i) raise the free baggage allowance from Rs.35,000 to Rs.45,000. (ii) reduce the duty free allowance of cigarettes from 200 to 100, of cigars from 50 to 25 and of tobacco from 250 gms to 125 Gms. 39 Notification 12/2014 Cus dated Notification 12/2014 CUS dated Notification 50/2014 CUS (NT) dated

36 Page 36 of 40 V. OTHER COMMONS CHANGES WITH RESPECT TO ADJUDICATION AND APPEALS UNDER CUSTOMS, SERVICE TAX AND CENTRAL EXCISE: 1. The Customs Act, 1962 and Central Excise Act, 1944 is being amended so as to provide that a reference in that Act to a Chief Commissioner of Customs/Central Excise or a Commissioner of Customs/Central Excise may also include a reference to the Principal Chief Commissioner of Customs/Central Excise or the Principal Commissioner of Customs/Central Excise, as the case may be. It also seeks to provide for consequential amendments in the Act. 2. The discretionary powers of the Tribunal to refuse admission of appeal from the existing Rs.50,000 has been increased to Rs.2 lakh. 3. The Scheme of Advance Ruling is being extended to resident and resident Private Limited Companies. 4. A mandatory fixed pre-deposit of 7.5% of the duty demanded or penalty imposed or both for filing appeal with the Commissioner (Appeals) or the Tribunal at the first stage and another 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.

37 Page 37 of 40 Thank you for patient reading. Contact Us: KEVIN SHAH & Co 2 nd Floor, National Insurance Building, D.N. Road, Fort, Mumbai Phone: id: cashahkevin@gmail.com Kevin@bnpindia.in Disclaimer: Prepared by Kevin Shah & Co for clients and internal use only. This document summarizes the indirect tax proposals of the Union Budget 2014 as also certain other amendments. The information provided in this document is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein.

38 Page 38 of 40 ANNEXURE I: CHANGE IN DUTIES UNDER CENTRAL EXCISE TARIFF, ACT Sr.No Description of Goods Old Rate New Rate 1 Pan Masala 12% 16% Other manufactured Tobacco& Manufactured Tobacco 2 substitutes & other No change No change Petrol other than those intended for sale without a brand name. Rs.7.50 per litre Rs per litre The following goods for use in the manufacture of Ethylene Vinyl Acetate (EVA) sheets or back sheet for manufacture of solar photovoltaic cells or modules, namely:- (i) EVA resin; (ii) EVA master batch; (iii)poly Ethylene Terephthalate (PET) film; (iv) Poly Vinyl Fluoride(PVF); (v) Poly Vinyl Di-Fluoride (PVDF); (vi) Adhesive Resin; and (vii) Adhesive Hardener. 12% Nil Matches, in or in relation to the manufacture of which, any or all the processes of "frame filling", dipping of splints in the composition for match heads", pasting of labels on match boxes, veneers or cardboards" and "packaging are carried out with the aid of power. 6% Nil Dichloride Biphenyl Trichloroethane (DDT) mgf by Hindustan Insecticides Limited for supply to the National Vector Borne Diseases Control Programme for mosquito control of the Ministry of Health and Family Welfare 12% Nil 7 Ethylene vinyl acetate (EVA) sheets or back sheet for use in the manufacture of solar photovoltaic cells or modules 12% Nil 8 Gloves specially designed for use in sports 12% 2% 9 Writing or printing paper for printing of educational textbooks 2% 6% 10 Polyester staple fiber or polyester filament yarn, manufactured from plastic scrap or plastic waste including waste polyethylene terephthalate bottles Nil 6% 11 Polyester staple fiber or polyester filament yarn manufactured from plastic scrap or plastic waste including waste polyethylene terephthalate bottles 12% 2% 12 Footwear of retail sale price exceeding ` 500 but not exceeding ` 1,000 per pair 12% 6% 13 Solar tempered glass for use in the manufacture of solar photovoltaic cells or modules, solar power generating 12%/6% Nil

39 Page 39 of equipment or systems and flat plate solar collectors Forged steel rings for manufacture of special bearings for use in wind operated electricity generators 12% Nil Flat copper wire for use in the manufacture of Photovoltaic (PV) ribbon (tinned copper interconnect) for manufacture of solar photovoltaic cells or modules 12% Nil B The following goods used in processing and packaging of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat, namely:- (i) machinery for cleaning or drying bottles or other containers; (ii) machinery for filling, closing, sealing or labeling bottles, cans, boxes, bags or other containers; (iii) other packing or wrapping machinery; (iv) parts of machinery at (i) to(iii) 12%/10% 6% Presses, crushers & similar machinery used in the manufacture of wine, cider, fruit juices or similar beverages. 12%/10% 6% (i) machinery for the preparation of meat or poultry; (ii) machinery for preparation of fruits, nuts or vegetables; (iii) parts of machinery at (i) and (ii) 12%/10% 6% 19 Sewing machines other than those operated with electric motors, whether in-built or attachable to the body 12%/6% 2% 20 Recorded smart cards 2.00% 12% Smart Card, Enameled Wire, Other Enameled Wire, Waste 21 & Scrap. Nil 10% 22 LED (Light Emitting Diode) driver and MCPCB (Metal Core Printed Circuit Board) for use in manufacture of LED lights and fixtures or LED lamps 12%/10% 6% Security fiber and security threads for use in the mgf of security paper by Security Paper Mill, Hoshangabad and Bank Note Paper Mill India Private Limited, Mysore Not Applicable NIL Reverse Osmosis (RO) membrane element for water filtration or purification equipment (other than household type filters) based on reverse osmosis technology using thin film composite membrane (TFC) Not Applicable NIL Reverse Osmosis (RO) membrane element for household type filters 12%/10% 6% Parts consumed within the factory of production for the manufacture of goods specified in LIST 8 12% Nil

40 Page 40 of 40 ANNEXURE II: CHANGE IN DUTIES UNDER CUSTOMS TARIFF, ACT Sr.No Description of goods Old Rate New Rate 1 Denatured ethyl alcohol 7.50% 5% 2 Steel grade dolomite and steel grade limestone 5% 2.50% 3 Bauxite 10% 20% 4 Non-agglomerated coal Nil 2.50% 5 Coking coal Nil 2.50% 6 Anthracite coal and other coal 5% 2.50% 7 Anthracite coal, Coking coal and other coal 6% 2.00% 8 Crude naphthalene 10% 5% 9 Reformate and other goods 10% 2.50% 10 Coal tar pitch 10% 5% 11 Propane 5% 2.50% 12 Ethane and other goods 5% 2.50% 13 Ortho-xylene 5% 2.50% 14 Methyl alcoho 7.50% 5% 15 Raw materials for manufacture of spandex yarn viz. Diphenylmethane 4,4 di-isocyanate (MDI) and Polytetramethylene ether glycol (PT MEG) 5% NIL 16 Half-cut or broken diamonds NIL 2.50% 17 Cut & polished diamonds including lab-grown diamonds and colored gemstones 2% 2.50% 18 Stainless steel flat products 5% 7% 19 Forged steel rings used in the manufacture of bearings of wind operated electricity generators 10% 5% 20 E-Book readers 7.50% Nil 21 Battery waste and battery scrap 10% 5% 22 Electrolysers and their parts/spares required by caustic soda or caustic potash units and membranes and their parts/spares required by industrial plants based on membrane cell technology 5% 2.50% 23 LCD and LED TV panels of below 19 inches 10% NIL