India Budget Impact Indirect Taxes. CA Smita Bhandari. 19 July 2014

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1 India Budget Impact Indirect Taxes CA Smita Bhandari 19 July 2014

2 Indirect tax proposals Page 2 ICAI Budget 2014

3 Goods & Service Tax Introduction of GST part of the manifesto of the new Government. The Finance Minister committed to seeking solutions this year for implementing legislative scheme for enabling introduction of GST. No timeline committed for introduction of GST. All Budget changes directed towards implementation of GST soon! Page 3 ICAI Budget 2014

4 Service Tax Key Service tax proposal under the Finance Budget : Effective service tax rate unchanged at 12.36% Time limit for payment of value of service under reverse charge reduced to 3 months from date of invoice (earlier 6 months). Where payment is not made within the said period, point of taxation would be the following day on which the 3 months expires A transition rule inserted new time limit to apply to invoices issued wef 1 Oct 2014 In case of local reverse charge: Liability of service receiver on renting of motor vehicles (on non-abated value), increased to 50% of the total service tax payable Director services received by body corporates, also subject to reverse charge Customs notified exchange rates for determination of taxable value in case of imports to no longer be applied. Separate Rules to be prescribed in this regard Electronic payment of service tax made mandatory for all assesses Page 4 ICAI Budget 2014

5 Service Tax Key Service tax amendment relating to assessments: Increase in interest rates for delayed payment of service tax: Extent of Delay Upto period of 6 months More than 6 months & upto 1 year More than 1 year Simple Interest Rate per annum (pa) 18% pa 18% pa for the first 6 months & 24% pa for delay beyond 6 months 18% pa for the first 6 months; 24% pa for the period beyond 6 months; & Upto 1 year & 30% for any period beyond 1 year Page 5 ICAI Budget 2014

6 Service Tax Key Service tax amendment relating to assessments (contd): Mandatory requirement to make pre-deposit for filing appeals before Commissioner (Appeals) and CESTAT aligned with the Excise laws, as under: Pre-deposit of 7.5% of the service tax demanded or penalty imposed or both at first stage of appeal Pre-deposit of 10% of the service tax demanded or penalty imposed or both at second stage of appeal The above is subject to a maximum ceiling of INR 10 crores Penalty waiver (under Section 80) not available in cases where extended period of limitation of 5 years is involved Advance ruling is now an option extended to resident private limited companies In case of transfer of business/ change in ownership, etc, authorities empowered to recover dues of the predecessor from the assets of the successor purchased from the predecessor Page 6 ICAI Budget 2014

7 Cenvat Credit Significant limitation introduced on time for claiming credit on input and input services - to be availed within six months from the date of invoice Requirement to pay invoice value relaxed for claim of Cenvat credits: For full reverse charge credit can be claimed immediately on payment of service tax irrespective of payment of invoice value For partial reverse charge - credit shall continue to be available upon payment of service tax and value of services Exporters entitled to re-avail cenvat credit reversed on account of non-receipt of export consideration within the prescribed time line, if such export consideration is received within 1 year of such prescribed time line Large Taxpayer Units no longer eligible for inter-unit credit transfer Input Service Distributor mechanism clarified Page 7 ICAI Budget 2014

8 Exemption for SEZ Unit/ Developer Rationalisation of procedures for claiming exemption/ refund of service tax on input services for SEZ units and developers: Timeline of 15 days prescribed binding service tax authorities to issue authorization of Form A-2 Exemption available from date of issue of Form A-1 by the SEZ authorities Relaxation given to service providers to grant exemption up to 3 months of provision of service of receipt of Form A-2 from SEZ unit/ developer Clarity on services used for authorised operations of SEZ unit/ developer - invoice requirement and use for furtherance of authorised operations Requirement of service tax registration of service provider for reverse charge liability done away with Page 8 ICAI Budget 2014

9 Financial services Service tax Definition of intermediary under Place of Provision of Services Rules, 2012 ( POPS Rules ) widened to include broker/ agent for supply of goods. Therefore, commission agent of goods (which includes securities) taxable based on place of location of service provider wef 1 October 2014 Exemption provided Life micro insurance products approved by Insurance Regulatory & Development Authority, having a maximum coverage of INR 50,000, under the mega exemption notification Domestic reverse charge extended to cover services provided by a recovery agent to a banking company, financial institution, or a non-banking financial company Page 9 ICAI Budget 2014

10 Media & Entertainment, Telecom Service tax Negative list pruned - only sale of space for print media is excluded from the ambit of service tax Entry No. 66D(g) as on date Entry No. 66D(g) post enactment of Finance Bill Selling of space or time slots for Selling of space for advertisements other than advertisements in print media; advertisements broadcast by radio or television The new levy of service tax would further extend to advertisements on internet websites, out-of-home media, on film screen in theatres, billboards, conveyances, buildings, cell phones, Automated Teller Machines, tickets, commercial publications, aerial advertising, etc Page 10 ICAI Budget 2014

11 Media & Entertainment, Telecom Customs Basic Customs Duty ( BCD ) on specified telecommunication products (such as VoIP equipment, optical transport equipment, career ethernet switch, IP radios, etc.) not covered under the Information Technology Agreement has been increased from Nil to 10%. Exemption from levy of Education Cess & Secondary and Higher Education Cess on Countervailing duty ( CVD ) payable on import of mobile handsets, Line telephony sets and line videophones, telephone answering machine has been withdrawn Central Excise Rate of excise duty on SIM cards raised to 12% (from earlier 2% without Cenvat credit and 6% with Cenvat credits) Page 11 ICAI Budget 2014

12 Logistics & Supply Chain Management Service tax Exemption provided to services by way of loading, unloading, packing, storage or warehousing, transport by vessel, rail or road, of cotton, ginned or bale and organic manure. Increase in abatement for transport of goods in vessel (costal movement) to 60%, reducing effective service tax rate to 4.944%. The place of provision under the POPS Rule for hiring of vessels (excluding yachts) and aircrafts (irrespective of the period of hire) to be determined based on the location of the service recipient (as against earlier location of service provider) Restriction on availment of credit in relation to GTA service amended to clarify that such restriction is applicable only to a service provider Page 12 ICAI Budget 2014

13 Logistics & Supply Chain Management Customs Amendment made to allow filing of a bill of entry prior to filing of import report for imports through land route Clarification on aircraft engines and parts thereof being eligible for duty exemption when imported for servicing, repair or maintenance of aircrafts used for scheduled operations. Proposal to implement an Indian Customs Single Window Project to facilitate trade. Proposal for developing SEZs at Kandla and JNPT, detailed roadmap expected. Proposal for extending 24 x 7 custom clearance facility to 13 more airports and to 14 more sea ports. Page 13 ICAI Budget 2014

14 Logistics & Supply Chain Management Central Excise Packing, repacking, labelling or relabeling on specified goods such as wireless data modem cards with PCMCIA or USB or PCI express ports, packaged or canned software, cellular phones and radio trunking terminals would be considered as deemed manufacture; Penalty of 1% per month to be levied in case duty declared as per return is not paid within one month from the due date. Page 14 ICAI Budget 2014

15 Health Care Service tax Service tax exemption on services by way of clinical trials of newly developed drugs (including vaccines and herbal medicines) on human participants, has been withdrawn Customs Full exemption from customs duty is being provided for HIV/ AIDS drugs and diagnostic kits imported under National AIDS Control Programme funded by the Global Fund to Fight AIDS, TB and Malaria Refund of full customs duty paid at the time of import of scientific and technical instruments, apparatus, etc. by public funded and other research institutions, subject to certain conditions including submission of a certificate of registration from the Department of Scientific & Industrial Research CVD exemption on portable X-ray machines withdrawn Page 15 ICAI Budget 2014

16 Health Care Central Excise Full exemption from excise duty is being provided for HIV/ AIDS drugs and diagnostic kits imported under National AIDS Control Programme funded by the Global Fund to Fight AIDS, TB and Malaria Page 16 ICAI Budget 2014

17 Education Service tax Exemption from service tax on services procured by an educational institution restricted to: transportation of students or staff, catering including mid-day meal schemes security, cleaning or housekeeping services; services relating to admission or conduct of examination Accordingly, the current exemption availed on procurement of services other than aforesaid specified service will henceforth not be available (eg. renting of immovable property services) Service tax exemption would be available to all services provided by educational institution to students, faculty and staff; Page 17 ICAI Budget 2014

18 Education Central Excise Withdrawal of Excise duty of 2% (without cenvat) on writing and printing paper for printing of educational textbook. Accordingly, the writing and printing paper for printing of educational textbook would be subject to excise duty of 6% with cenvat benefit Page 18 ICAI Budget 2014

19 Infrastructure & Power Service tax Effective service tax rate on works contracts involving maintenance, repair, completion and finishing services, is increased from 7.42% to 8.65%. Effective service tax rate on coastal transportation of goods has been reduced from 6.18% to 4.944%. Exemption on services provided to government, local authority or governmental authority restricted only to water supply, public health, sanitation conservancy, solid waste management For, hiring of vessels, or aircraft up to a period of one month, the place of provision of services has been changed from 'location of service provider' to 'location of service recipient' thereby removing the anomaly on service tax applicability on hiring of vessels and aircrafts. Page 19 ICAI Budget 2014

20 Infrastructure & Power Alignment of BCD on various coal types Exemptions/ concessions to renewable energy sector: 5% BCD on machinery, equipment etc. required for setting up of solar energy production projects and compressed biogas plants (bio-cng) Exemption from BCD for specific goods used in manufacture of solar backsheet and EVA sheet or solar PV cells/ modules SAD exempt on import of all machinery and equipment for setting up of solar energy production plant BCD reduced from 10% to 5% and full excise duty exemption on forged steel rings used in manufacture of bearings of wind operated electricity generators. Special Additional Customs Duty ( SAD ) exemption on raw materials used in manufacture of wind operated electricity generators. For availing customs duty exemption on goods required for construction of roads, certification requirement from regulatory authorities has been removed. Page 20 ICAI Budget 2014

21 Infrastructure & Power Following clarifications/ rationalisations have been made: Aircraft engines and parts are eligible for customs duty exemption when imported for servicing, repair or maintenance of aircrafts used for scheduled operations subject to conditions. Road construction machinery imported duty free can be sold within 5 years subject to payment of customs duty on depreciated value and that individual constituents of the consortium whose names appear in the contract can import goods duty free. Customs duty exemption is available on all materials in any form and articles conforming to aeronautical specification and accompanied with relevant certificate. For availing customs duty exemption on goods required for construction of roads, certification requirement from regulatory authorities has been removed. Page 21 ICAI Budget 2014

22 Infrastructure & Power Central Excise Exemptions/ concessions to renewable energy sectors: Excise exemption extended to machine / components required for initial setting up of project for compressed bio gas (Bio - CNG) Exemption to machines / parts related to manufacture of solar voltaic cells and setting up of solar energy production projects Exemption to parts consumed within the factory of production for the manufacture of goods to be used for generating solar / wind energy Clean energy cess on coal increased from INR 50 per tonne to INR 100 per tonne Clarification issued to provide that Excise exemption on supplies against International Competitive Bidding also available to sub-contractors Page 22 ICAI Budget 2014

23 Manufacturing Central Excise Amendment introduced in the Central Excise Valuation Rules to overcome the impact of Supreme Court s FIAT Judgment regarding valuation of manufactured goods sold at a loss. Explanation inserted in Rule 6 of the Central Excise Valuation Rules: 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 goods shall be deemed to be the transaction value Per the said amendment, even if the goods are sold at a loss, if there is no additional flow back from the buyer, the price charged by the manufacturer would remain to be the transaction value for the purpose of computing Excise duty Page 23 ICAI Budget 2014

24 Service Tax Proposals: Assessments Key assessment related amendments (cont d): An amendment has been proposed under Section 73 of the Finance Act, 1994, to prescribe time limits for completion of adjudications by the authorities, similar to existing provision under the Central Excise Act, 1944: Adjudications to be completed within six months in cases where limitation is of 18 months as per Section 73(1) [where normal period of limitation is applicable] Adjudications to be completed within one year where the extended period of limitation of 5 years is invoked The above time limits are to be followed by the Authorities as far as possible Page 24 ICAI Budget 2014 Budget Connect+

25 Service Tax Proposals: Assessments Section 83 of Finance Act, 1994 has been proposed to be amended to make the following provisions of the Central Excise Act, 1944 applicable to Service Tax: Section 5A(2) which provides that insertion of explanation in notifications/orders within one year from the date of such notification/ order shall have the effect as if it had always been part of the notification Section 15A which provides that the assessees or specified authority (such as VAT / Sales Tax authorities, Income Tax authorities, State Electricity Board, Registrar of Companies etc.) will be required to submit an information return in prescribed format to an authority / agency as well as Section 15B which provides for penalty for noncompliance of Section 15A The objective of this provision is to enable exchange of information between relevant authorities in order to identify tax evaders or recover confirmed dues The authorities will also be empowered to issue a notice for submission of information within a period of 90 days In case the required information is not submitted, a penalty may be imposed at the rate of INR 100 per day for which the failure to furnish the information continues. Page 25 ICAI Budget 2014 Budget Connect+

26 Q&A Page 26 ICAI Budget 2014