IDT K&S - Technical Analysis of Union Budget from an Indirect Tax Perspective. July 2014

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1 IDT K&S - Technical Analysis of Union Budget from an Indirect Tax Perspective

2 Contents Goods and Services Tax (GST) Budget amendments under the Indirect Tax (IDT) levies: Service Tax Customs Central Excise CENVAT Credit Miscellaneous Tax Litigation Tax Administration Procedural Amendments Special Economic Zones (SEZ) Export Oriented Units (EOU) Likely Next Steps / Awaiting Action Page 2 IDT K&S - Technical Analysis of Union Budget

3 GST Page 3 IDT K&S - Technical Analysis of Union Budget

4 GST Announcements Neither a framework nor any timeline announced for implementation of GST, however Budget does confirm the Government s commitment to GST FM iterated that debate regarding introduction of GST must come to an end FM urged States that a consensus amongst them should be reached by the end of this year to resolve issues such as: Adequate compensation across all States Tax jurisdictions Post this, an approval of legislative scheme (i.e. GST bill) should be enabled Recently released Economic Survey for FY : Envisages a single-rate GST; and Discusses implementation of a Central GST - being recommended as the first step towards the GST Page 4 IDT K&S - Technical Analysis of Union Budget

5 Service Tax Page 5 IDT K&S - Technical Analysis of Union Budget

6 Key Service Tax Changes Effective Service tax rate remains unchanged at 12.36% Negative list pruned to exclude the following services: Sale of space or time on mobiles / online advertisement; Print media advertisement however continues to remain exempt Radio taxis or cabs Mandatory pre-deposit of 7.5% / 10% depending on the stage of appeal introduced w.e.f. 1 October 2014 Variable Interest rates for default in payment of Service tax introduced w.e.f. from 1 October Ranging from 18% - 30% depending upon extent of delay in payment Scope of definition of Intermediary widened to include Intermediary of goods in Place of Provision of Service Rules, 2012 [Detailed discussion follows in coming slides] Page 6 IDT K&S - Technical Analysis of Union Budget

7 Effective Dates Effective dates: Statutory amendments will come into effect on the date the Finance Bill receives the President s assent Certain other amendments proposed for widening the tax base will come into effect on a date to be notified after the Finance Bill receives the assent of the President The changes being made by amendments in Notifications and Rules can be categorized in two broad categories as: Changes which will have immediate effect; and Changes that are proposed to be given effect to only from 1 October 2014, so as to coincide with the Service tax Return period cycle Page 7 IDT K&S - Technical Analysis of Union Budget

8 Review of Negative List of Services Page 8 IDT K&S - Technical Analysis of Union Budget

9 Review of Negative List of Services Enumerated services to be removed from the negative list of services: Sale of space for advertisements on the internet, mobile media, bill boards, outof-home media, theatres, conveyances, buildings, cell phones, automated teller machines, tickets, commercial publications, aerial advertising etc However, sale of space for advertisements in print media will continue to be in the negative list. Print media has now been defined to include books and newspapers Radio taxis or radio cabs, whether or not air-conditioned. Definition of radio taxi included in the Mega Exemption Notification The abatement presently available to rent-a-cab service would also be made available to radio taxi service, to bring them at par These changes shall come into effect from a date to be notified later, after the Finance Bill receives the assent of the President Page 9 IDT K&S - Technical Analysis of Union Budget

10 Review of Exemptions Page 10 IDT K&S - Technical Analysis of Union Budget

11 Passenger Transportation Presently, service of passenger transportation by a contract carriage other than for the purposes of tourism, conducted tour, charter or hire is exempted from Service tax [Sl.No.23 (b)] The scope of services is being reduced by withdrawing the exemption 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 Service tax will be charged at an abated value of 40% of the amount charged from service receiver; therefore, effective tax will be 4.944% Services by non-air conditioned contract carriages for purposes other than tourism, conducted tour, charter or hire continue to be exempted This will come into effect from 11 Page 11 IDT K&S - Technical Analysis of Union Budget

12 Clinical Trials Earlier, 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 (DCGI), was exempted. This exemption has been withdrawn now A representation had been made by FICCI in its pre-budget memo that this entry should be amended so that the Service tax exemption is applicable to the clinical trial process which is approved by the DCGI, as there is no mechanism in place for approving a clinical research organization per se by the DCGI This will come into effect from 11 Page 12 IDT K&S - Technical Analysis of Union Budget

13 Education Earlier, the Mega Exemption Notification covered the services received by an educational institution by way of: Auxiliary educational services or; Renting of immovable property However, in order to bring clarity, the earlier concept of Auxiliary educational services has been omitted and a list of exempt services provided to educational institutions have been enumerated as follows: Transportation of students, faculty and staff of the eligible educational institution; Catering services including any mid-day meals scheme sponsored by the Government; Security or cleaning or house-keeping services in such educational institution; Services relating to admission to such institutions or conducting of examinations Page 13 IDT K&S - Technical Analysis of Union Budget

14 Education (Contd.) Further, the term Educational Institution is now being defined in the Mega Exemption Notification as institutions providing educational services as specified in the Negative List Also, as a rationalization measure, exemption hitherto available to services provided by way of renting of immovable property to educational institutions stands withdrawn This will come into effect from 11 Page 14 IDT K&S - Technical Analysis of Union Budget

15 Services Provided by Municipality For greater clarity, the exemption in respect of services provided to Government or local authority or governmental authority [in entry at Sl.No.25], has been made more specific Services by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation will continue to remain exempted but the exemption would not be extended to other services such as consultancy, designing, etc., i.e. those services not directly connected with these specified services This will come into effect from 11 Page 15 IDT K&S - Technical Analysis of Union Budget

16 New Exemptions Exemptions extended to the following services: Services provided by Common Bio-medical Waste Treatment Facility operators by way of treatment or disposal of bio-medical waste or processes incidental thereto, to a clinical establishment Services provided under all life micro-insurance schemes approved by IRDA, where sum assured does not exceed INR 50,000 Services provided by way of transport of organic manure by vessel, rail or road Services provided by way of loading, unloading, packing, storage or warehousing, transport by vessel, rail or road, of cotton, ginned or bale Services provided by Indian tour operators to foreign tourists for a tour outside India Services received by RBI from outside India, in relation to management of foreign exchange reserves This will come into effect from 11 Page 16 IDT K&S - Technical Analysis of Union Budget

17 Exemptions (w.e.f. enactment of the Finance Bill) Exemption granted to services provided by ESIC during the period prior to 1 July 2012, by way of insertion of a new Section 100 in the Finance Act, 1994 The Service tax authorities had raised a Service tax demand of INR 7,300 crores (for the period prior to 1 July 2012) on the ESIC scheme by taking a view that it is a general insurance business. The services provided by ESIC were exempted from 1 July 2012 vide the Mega exemption notification. This retrospective amendment would set aside the demand raised Page 17 IDT K&S - Technical Analysis of Union Budget

18 Service Tax Rules, 1994 (STR) Page 18 IDT K&S - Technical Analysis of Union Budget

19 Amendments in STR Scope of full reverse charge mechanism expanded to include the following: Services of recovery agents to financial institutions, banks etc. Services provided by bank recovery agents, NBFCs and financial institutions has been brought under the reverse charge mechanism by amendment of the definition of person liable to pay tax under Rule 2(1)(d) of the STR Services provided by director to company or a body corporate: Services provided by director to company or a body corporate has been brought under the reverse charge mechanism. Earlier, only services provided by directors to a company were subject to reverse charge with companies paying 100% Service tax as a service recipient. With this amendment, even body corporates shall be liable to pay 100% Service tax These amendments shall come into effect from 11 Page 19 IDT K&S - Technical Analysis of Union Budget

20 Service Tax (Determination of Value) Rules, Works Contract Page 20 IDT K&S - Technical Analysis of Union Budget

21 Service Tax Valuation in case of Works Contract Services In Rule 2A of the Service tax (Determination of Value) Rules, 2006, categories* B and C of works contracts are merged into one single category, with percentage of service portion as 70% This change will come into effect from 1 October, 2014 Such rationalization by way of merger of categories has been made to avoid disputes of classification between these two categories Accordingly, maintenance, repair, completion and finishing services such as glazing, plastering, floor or wall tiling or installation of electrical fittings of immovable property would be eligible only for 30% abatement as compared to the erstwhile abatement of 40% q q * Category B pertains to works contract for maintenance, repair, re-conditioning, restoration or servicing of any goods * Category C is a residuary category and includes works contracts other than Category A (Original Works) and Category B Page 21 IDT K&S - Technical Analysis of Union Budget

22 Measures for Compliance Enhancement Page 22 IDT K&S - Technical Analysis of Union Budget

23 Variable Interest Rates Interest rates varying with the extent of delay have been introduced to encourage prompt payment of Service tax Change in rate of interest on delayed payment of Service tax will be effective from 1 October The rate of interest of 18%, as currently applicable, will continue to apply upto 1 October 2014 in the following manner: Extent of Delay Upto 6 months 18% More than 6 months and upto 1 year Simple Interest Rate p.a. 18% for first 6 months, and 24% for the period of delay beyond 6 months More than 1 year 18% for first 6 months, 24% for the next 6 months, and 30% for the period of delay beyond one year The 3% concession on the applicable rate of interest will continue to be available to the small service providers Page 23 IDT K&S - Technical Analysis of Union Budget

24 Variable Interest Rates (Contd.) K&S Comments: Although the variable interest rates seem to have been introduced for targeting the intentional defaulters in Service tax payment, it would also affect the tax payers in case of a genuine delay in tax payment. Clarifications should be brought out in this regard Representations have already been made against the variable rates of interest in genuinely disputed cases The rate of interest on delayed refunds should also be increased accordingly Page 24 IDT K&S - Technical Analysis of Union Budget

25 Legislative Changes Page 25 IDT K&S - Technical Analysis of Union Budget

26 Mandatory Pre-deposit Provisions Mandatory pre-deposit introduced for filling Appeals before first level / second level By inserting an altogether a new section in place of an old one, this amendment seeks to insert the provisions with respect to mandatory pre-deposit for filing an appeal before appellate authorities Section 83 of the Finance Act, 1994 made applicable via Section 35F of Central Excise Act, 1944 has been substituted to introduce an entirely new procedure for appellate proceedings before the Commissioner (Appeals) and Tribunal. Assessees will now be required to make a mandatory pre-deposit for filing of appeal, which will be as follows: Percentage of Duty Demanded or Penalty Imposed or Both Pre-Deposit Payment Level 7.5% First Stage - Before the Commissioner (Appeals) or the Tribunal 10% Second Stage - Appeal before the Tribunal Total pre-deposit under this Section is subject to a ceiling of INR 10 Crore Page 26 IDT K&S - Technical Analysis of Union Budget

27 Mandatory Pre-deposit Provisions Mandatory pre-deposit introduced for filling Appeals before first level / second level (Contd.) Discretionary powers of CESTAT and Commissioner (Appeals) for grant of stay of pre-deposit have been replaced Further, it is also provided that, this amendment will not be applicable for stay application and appeals pending before any appellate authority prior to the commencement of this Finance Bill Page 27 IDT K&S - Technical Analysis of Union Budget

28 Mandatory Pre-deposit Provisions K&S Comments - The provisions of a fixed pre-deposit intended to be introduced are similar to provisions under various State VAT legislations. The TRU Circular states that in a second appeal, the additional payment would be of another 10% Though an attempt has been made to reduce the pressure on appellate authorities for deciding stay applications, following points need consideration Being a prospective change, the fate of the earlier cases remains unanswered Industry will have apprehensions regarding blockage of working capital in case of arbitrary adjudications Will adjudications completed prior to the effective date of this amendment be covered? There is no provision of refund with interest, in case decision of the case comes in the favour of tax payer? Time limits for disposal of appeals based on merit should be prescribed The Government should reconsider application of pre-deposit for penalty Page 28 IDT K&S - Technical Analysis of Union Budget

29 Amendments to the Finance Act, 1994 Time limits prescribed for completion of adjudication within 6 months or one year from the date of issuance of show cause notice to the extent possible, similar to the provisions in Central Excise 50% penalty imposable in cases where Service tax has not been levied, not paid or short levied or short paid on account of suppression of facts or wilful misstatement even if the assessee proves that there was reasonable cause for such failure by way of details of such transactions being available in specified records. Earlier, in such cases no penalty was imposable if reasonable cause was shown for such failure Providing power to Joint Commissioner or Additional Commissioner or any other officer notified by CBEC to authorize any Central Excise Officer to undertake search and seizure, along the lines of the Central Excise provisions Page 29 IDT K&S - Technical Analysis of Union Budget

30 Amendments to the Finance Act, 1994 Introduction of powers to recover dues of a predecessor from the assets of a successor which are purchased from the predecessor Providing powers to the Government to make rules for specified activities such as book keeping, restriction of CENVAT credit, issuance of supplemental instructions The above amendments shall come into effect from the date of assent of the Finance Bill by the President Rules are proposed to be prescribed for determination of rate of exchange for calculation of taxable value in respect of certain services. This amendment has been proposed in view of requests from the trade and industry to delink the conversion from the notified Customs rates of exchange as at present. This amendment shall come into effect from a date to be notified after the Finance Bill receives assent of the President Page 30 IDT K&S - Technical Analysis of Union Budget

31 Place of Provision of Services Rules, 2012 (PoPS Rules) Page 31 IDT K&S - Technical Analysis of Union Budget

32 PoPS Rules Amendments Performance based services as envisaged in Rule 4 (a) have been amended to provide that repair services shall be excluded from applicability of Rule 4(a) if the goods imported for repair are exported after repair without being put to any use other than that which is required for such repair. The provision for prescribing conditions in case of determination of PoPS Rules of temporarily imported goods is omitted It has been clarified that the exclusion will not apply to goods that arrive in the taxable territory in the usual course of business and are subject to repair while such goods remain in the taxable territory, Illustration: Any repairs provided in the taxable territory to containers arriving in India in the course of international trade in goods will be governed by Rule 4 of the PoPS Rules These amendments shall come into effect from 11 Page 32 IDT K&S - Technical Analysis of Union Budget

33 Place of Provision Rules Amendments The definition of Intermediary is amended to include the intermediary of goods in its scope Accordingly, with effect from 1 October 2014, an intermediary of goods, such as a commission agent or consignment agent shall be covered under Rule 9(c) of the PoPS Rules Earlier, stock broking services were not covered under Rule 9 of the PoPS Rules, as all securities, including shares, derivatives qualify as goods With this amendment in the definition of "intermediary", even stock broking services would be covered under Rule 9, wherein the place of provision of service will be the location of the service provider i.e. intermediary The issue of determination of place of provision of intermediaries procuring EPC contracts, which involves a supply of goods as well as services, needs to be examined in light of the amended definition Issues in case of applicability of Rule 9 for intermediaries in respect of electronically downloaded software may be resolved by this amendment This amendment shall come into effect from 11 Page 33 IDT K&S - Technical Analysis of Union Budget

34 Place of Provision Amendments (Contd.) Rule 9 of Place of Provisions Rules provides that the place of provision of specified services shall be the location of the service provider in case of certain specified services. Service consisting of hiring of means of transport, upto a period of one month was one of the specified services. This Rule has been amended to provide as follows: Service consisting of hiring of Vessels (excluding yachts) and Aircraft is excluded from Rule 9 (d) Accordingly, hiring of vessels, or aircraft, irrespective of whether short term or long term, will be covered by the general rule, that is, the place of location of the service receiver. Hiring of yachts would however continue to be covered by Rule 9 (d) This amendment shall come into effect from 11 Page 34 IDT K&S - Technical Analysis of Union Budget

35 Point of Taxation Rules, 2011 Page 35 IDT K&S - Technical Analysis of Union Budget

36 Point of Taxation for Reverse Charge Transactions Rule 7 of the Point of Taxation Rules deals with the point of taxation in case of reverse charge transactions. The first proviso to Rule 7 has been amended to provide that point of taxation in respect of reverse charge will be the payment date or the first day that occurs immediately after a period of three months from the date of invoice, whichever is earlier Earlier where payment was not made within 6 months, the point of taxation was determined on accrual basis This amendment will apply only to invoices issued after 1 October, 2014 A transition rule has been inserted in the POT Rules for transactions under reverse charge, for the determination of point of taxation where the invoice has been issued prior to 1 October 2014, but payment has not been made In such a case, the point of taxation shall be the date of payment if the payment is made within 6 months, else the date of invoice Page 36 IDT K&S - Technical Analysis of Union Budget

37 Abatements Page 37 IDT K&S - Technical Analysis of Union Budget

38 Abatements Services of a Goods Transport Agency (GTA) Abatement for GTA services was available on the condition that CENVAT credit on inputs and capital goods used for providing the service should not be taken. It has been clarified now, by way of an amendment, that the condition for nonavailment of credit is required to be satisfied by service providers only. Service recipient will not be required to establish satisfaction of this condition by service provider Services of transportation of passengers by contract carriages Abatement of 60% provided for service of transportation of passengers by airconditioned contract carriages, with the condition that CENVAT credit of inputs, capital goods or input services has not been taken Page 38 IDT K&S - Technical Analysis of Union Budget

39 Abatements (Contd.) Renting of motor vehicles (Rent-a-cab) The condition for abatement in case of renting of motor vehicles service has been amended with effect from 1 October 2014, to allow the credit of input service of renting of a motor cab if such services are received from a person engaged in the similar line of business i.e. A sub-contractor providing services of renting of motor cab to the main contractor The whole of the CENVAT credit has been allowed with respect to input service of renting of any motor cab, received from a person who is paying Service tax on 40% of the value of services The CENVAT credit eligibility will be restricted to 40% of the credit of the input service of renting of any motor cab if Service tax is paid or payable on full value of the services i.e. no abatement is availed Partial Reverse charge mechanism In renting of motor vehicle, where the service provider does not avail of the abatement, both service provider and service recipient shall be liable to pay 50% of the Service tax each. (w.e.f. 1 October 2014) Page 39 IDT K&S - Technical Analysis of Union Budget

40 Abatements (Contd.) Tour operator services 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 taxable service which were inadmissible, to avoid cascading of taxes (effective from 1 October 2014) Transport of Goods by vessel Decrease in effective Service tax rate on transport of goods by vessel from 6.18% to 4.94% due to increased abatement Page 40 IDT K&S - Technical Analysis of Union Budget

41 Advance Rulings Page 41 IDT K&S - Technical Analysis of Union Budget

42 Advance Rulings Benefit of Advance Ruling extended to Resident Private Limited companies Finance Minister has extended the benefit of Advance Ruling in Indirect Taxes to the resident private limited companies Earlier, the benefit was only available to non-resident setting up joint venture with resident / non-resident, resident setting up joint venture with non-resident, wholly owned Indian subsidiary of foreign company, joint venture in India, resident public limited company Notification No. 15/2014-Service Tax (NT) dated 11 is issued by Department of Revenue in this regard The term Private Limited company would have the meaning assigned to it in Section 2(68) of Companies Act, 2013 and the term Resident will have the meaning assigned to it in Section 2(42) of Income Tax Act, 1961 K&S Comments - It will reduce the litigation at adjudication as well as appellate stages and quick resolution can be obtained by these companies in cases of peculiar transactions involving interpretation and other aspects of Indirect Taxes Page 42 IDT K&S - Technical Analysis of Union Budget

43 Customs Page 43 IDT K&S - Technical Analysis of Union Budget

44 Changes in Customs Page 44 IDT K&S - Technical Analysis of Union Budget

45 Key Customs Amendments Basic Customs Duty rate remains 10% Mandatory pre-deposit introduced for filling an appeal before first level / second level appellate levels Benefits of Advance Ruling extended to resident private limited companies Measures taken for the benefit of road construction projects Tariff rates reduced on machinery and equipment used for utilisation of renewable energy resources [Detailed discussion follows in coming slides] Page 45 IDT K&S - Technical Analysis of Union Budget

46 Effective Dates Effective dates: Statutory amendments will come into effect on the date the Finance Bill receives the President s assent Retrospective amendments shall have the force of law only upon the enactment of the Finance (No.2) Bill, 2014 but with effect from the date indicated in the relevant clause Tariff and Non-Tariff Notifications These notifications will be effective from the midnight of 10 /11 Page 46 IDT K&S - Technical Analysis of Union Budget

47 Key Customs Legislative Amendments Mandatory pre-deposit introduced for filling Appeals before first level / second level (Section 129E) By inserting an altogether a new section in place of an old one, this amendment seeks to insert the provisions with respect to mandatory pre-deposit for filing an appeal before appellate authorities Percentage of Duty Demanded or Penalty Imposed or Both Pre-Deposit Payment Level 7.5% First Stage - Before the Commissioner (Appeals) or the Tribunal 10% Second Stage - Appeal before the Tribunal Total pre-deposit under this Section is subject to a ceiling of INR 10 Crore Page 47 IDT K&S - Technical Analysis of Union Budget

48 Key Customs Legislative Amendments (Contd.) Mandatory pre-deposit for filing an Appeal (Section 129E) Discretionary powers of CESTAT and Commissioner (Appeals) for grant of stay of pre-deposit have been replaced Further, it is also provided that, this amendment will not be applicable for stay application and appeals pending before any appellate authority prior to the commencement of this Finance Bill Page 48 IDT K&S - Technical Analysis of Union Budget

49 Key Customs Legislative Amendments (Contd.) K&S Comments - The provisions of a fixed pre-deposit intended to be introduced are similar to provisions under various State VAT legislations. The TRU Circular states that in a second appeal, the additional payment would be of another 10% Though an attempt has been made to reduce the pressure on appellate authorities for deciding stay applications, following points need consideration Being a prospective change, the fate of the earlier cases remains unanswered Industry will have apprehensions regarding blockage of working capital in case of arbitrary adjudications Will adjudications completed prior to the effective date of this amendment be covered? There is no provision of refund with interest, in case decision of the case comes in the favour of tax payer? Time limits for disposal of appeals based on merit should be prescribed The Government should reconsider application of pre-deposit for penalty Page 49 IDT K&S - Technical Analysis of Union Budget

50 Key Customs Legislative Amendments (Contd.) Provisos dealing with time limit for disposal of stay application deleted consequent to insertion of mandatory provisions of predeposit for filing an appeal (Section 129B) Section 129B (2A) has been amended whereby first, second and third proviso of this sub-section, dealing with powers of Tribunal of granting stay with a overall cap of 365 days, are deleted to make the section in line with newly substituted Section 129E Revised Section 129E deals with payment of pre-deposit as a pre-condition of making an appeal before appellate authorities Page 50 IDT K&S - Technical Analysis of Union Budget

51 Key Customs Legislative Amendments (Contd.) Benefit of Advance Ruling extended to Resident Private Limited companies Finance Minister has extended the benefit of Advance Ruling in Indirect Taxes to the resident private limited companies Earlier, the benefit was only available to non-resident setting up joint venture with resident / non-resident, resident setting up joint venture with non-resident, wholly owned Indian subsidiary of foreign company, joint venture in India, resident public limited company Notification No. 51/2014-Customs (NT) dated 11 is issued by Department of Revenue in this regard The term Private Limited company would have the meaning assigned to it in Section 2(68) of Companies Act, 2013 and the term Resident will have the meaning assigned to it in Section 2(42) of Income Tax Act, 1961 K&S Comments - It will reduce the litigation at adjudication as well as appellate stages and quick resolution can be obtained by these companies in cases of peculiar transactions involving interpretation and other aspects of Indirect Taxes Page 51 IDT K&S - Technical Analysis of Union Budget

52 Key Changes in Customs Tariff Act, 1975 Safeguard Duty - Section 8(B) Amendment is made for levying of safeguard duty on inputs / raw materials imported by an 100% EOU or a unit located in SEZ and cleared into DTA as such or are used in the manufacture of final products and cleared into DTA It is pertinent to note here that free trade zones are omitted from the explanation Safeguard duty on such clearances has been imposed with a view to prevent injury to domestic industry in order to make such clearances at par with imports Page 52 IDT K&S - Technical Analysis of Union Budget

53 Important Customs Clarifications Relief to Road Construction projects Earlier, Road construction machinery imported duty free needed to be used exclusively for the road construction purposes and could not be sold or otherwise disposed of before 5 years from its importation. Now it is clarified that this machinery can be sold within 5 years of importation, subject to payment of customs duty on depreciated value Earlier, only lead constituent of the consortium was allowed to import goods duty free. However, it is now clarified that individual constituents named in the contract of consortium can also import goods without payment of duty. It will incentivize the import by the members of consortium in case of road construction projects The condition of taking certification from Ministry of Road Transport (or NHAI) for importing specified goods required for road construction, without payment of duty has now been withdrawn K&S Comments These clarifications come as an impetus to the infrastructure industry as these measures will resolve the capital blockage problem as well as cheaper import of capital goods for road construction and time saving procedure for the same Page 53 IDT K&S - Technical Analysis of Union Budget

54 Import Duty Tariff Changes Page 54 IDT K&S - Technical Analysis of Union Budget

55 Customs Tariff Rate Changes Industry Items From Reason Basic Customs Duty (BCD) From To Agriculture / Agriculture Processing / Plantation Sector Chemicals / Petrochemicals De-oiled soya extract, ground nut oil cake/oil cake meal, sunflower oil cake/oil cake meal, mustard oil cake/oil cake meal, rice bran/rice bran oil cake and palm kernel cake, (exemption upto ) 15% Nil Industry will get boost and imports will be cheaper Reformate 10% 2.5% Encourage new investment and capacity addition Propane, Ethane, Ethylene, Propylene, Butadiene and ortho-xylene 5% 2.5% --do-- Page 55 IDT K&S - Technical Analysis of Union Budget

56 Customs Tariff Rate Changes (Contd.) Industry Items From Reason BCD From To Chemicals / Petrochemicals Denatured ethyl alcohol, methyl alcohol 7.5% 5% Encourage new investment and capacity addition Crude Naphthalene 10% 5% --do-- Fatty acids, crude palm stearin, RBD and other palm stearin and specified industrial grade crude oils 7.5% Nil --do-- Crude Glycerine 12.5% 7.5% --do-- Crude Glycerine, used for soap manufacture 12% Nil --do-- Page 56 IDT K&S - Technical Analysis of Union Budget

57 Customs Tariff Rate Changes (Contd.) Industry Items From Reason BCD From To Energy Sector Coking coal Nil 2.5% Rationalisation of inverted duty structure Steam and bituminous coal 2% 2.5% --do-- Anthracite and other coal 5% 2.5% --do-- Metallurgical coal Nil 2.5% --do-- Textile Sector Raw material for manufacture of spandex yarn 5% Nil Imports of raw material cheaper now, thereby boosting manufacture Page 57 IDT K&S - Technical Analysis of Union Budget

58 Customs Tariff Rate Changes (Contd.) Industry Items Rate Movement Reason Metals Stainless steel flat products Ships imported for breaking up From BCD To 5% 7.5% Impetus to domestic industry, Capacity utilisation 5% 2.% Rationalisation of tax structure with that of melting scrap of iron or steel Coal tar pitch 10% 5% Boost manufacturing and resolving of inverted duty structure Battery waste and Battery scrap Steel grade limestone and steel grade dolomite 10% 5% Boost manufacturing and resolving of inverted duty structure 5% 2.5% Boost manufacturing Page 58 IDT K&S - Technical Analysis of Union Budget

59 Customs Tariff Rate Changes (Contd.) Industry Items Rate Movement Reason Precious metals Electronics / Hardware From BCD Half cut or broken diamonds Nil 2.5% Rationalisation of inverted duty structure Cut and polished diamonds and coloured gemstones Pre-forms of precious and semiprecious stones LCD and LED TV panels of below 19 inches Specified parts of LCD and LED panels for TVs Colour picture tubes for manufacture of cathod ray TVs To 2% 2.5% --do-- 2% Nil Encouraging exports 10% Nil Encouraging domestic production 10%/7.5 % Nil --do-- 10% Nil Cheaper and affordable TVs Page 59 IDT K&S - Technical Analysis of Union Budget

60 Customs Tariff Rate Changes (Contd.) Industry Items Rate Movement Reason From BCD To Renewable Energy E-book readers 7.5% Nil Cheaper imports for fulfilling demand Specified telecommunication equipment not covered under Information Technology agreement Forged steel rings used in the manufacture of bearings of wind operated electricity generators Nil 10% Boost domestic production and reduce dependence on imports 10% 5% Promoting wind energy Page 60 IDT K&S - Technical Analysis of Union Budget

61 Customs Tariff Rate Changes (Contd.) Industry Items Rate Movement Reason BCD From To Renewable Energy Machinery, equipment, etc. required for setting up of solar energy production projects Specified raw material used in manufacture of solar backsheet and EVA sheet Flat copper wire used in the manufacture of PV ribbons for solar PV cells/modules 10% 5% Maximizing the utilization of solar power 10% Nil --do-- 10% Nil --do-- Machinery, equipment, etc. for setting up of compressed biogas plant (Bio-CNG) 10% 5% Promoting use of natural resources Page 61 IDT K&S - Technical Analysis of Union Budget

62 Customs Tariff Rate Changes (Contd.) Industry Items Rate Movement Reason Health Security and Strategic purposes HIV/AIDS drugs and diagnostic kits imported under NACP funded by GFATM Goods imported by National Technical Research Organisation From BCD To 10% Nil Cheaper medication to the patients suffering from decease 10% Nil Cheaper imports for Defence machinery production Security fibre, security threads and M- feature imported by BNPMIPL 10% Nil --do-- Page 62 IDT K&S - Technical Analysis of Union Budget

63 Customs Tariff Rate Changes (Contd.) Industry Items Rate Movement Reason From BCD To Other Industries Raw materials required for manufacture of security threads and security fibre Polystyrene (other than moulding powder) Electrolysers and spare parts required by caustic soda or caustic potash units and membranes and their spare parts Other spares (other than membranes and parts thereof) 10% Nil Cheaper notes 1.15% 7.5% 5% 2.5% 7.5% 2.5% Page 63 IDT K&S - Technical Analysis of Union Budget

64 Customs Tariff Rate Changes (Contd.) Industry Items Rate Movement Reason Additional Duty of Customs (CVD) From To Energy Sector Anthracite coal, coking coal and other coal 6% 2% Rationalization of Duty structure and cheaper imports Textile Sector Specified goods imported for use in the manufacture of textile garments for exports, on production of entitlement certificate from ISEPC 12% Nil Boost to manufacture of textile products Page 64 IDT K&S - Technical Analysis of Union Budget

65 Customs Tariff Rate Changes (Contd.) Industry Items Rate Movement Reason CVD Security and Strategic Purposes Raw materials required for manufacture of security threads and security fibre From To 12% Nil Cheap import for manufacture of bank notes CVD Exemption withdrawn Electronics Portable X-ray machine / system Nil 12% Education Cess and SHE Cess levied on Electronics Imported electronic products Nil 3% Page 65 IDT K&S - Technical Analysis of Union Budget

66 Customs Tariff Rate Changes (Contd.) Industry Items Rate Movement Reason Electronics Renewable Energy All inputs / components used in manufacture of PC(laptops/desktops) and tablet computers Specific inputs (PVC Sheets and Ribbon) used in the manufacture of smart cards Parts and components required for the manufacture of wind operated electricity generators Special Additional Duty of Customs (SAD) From To 4% Nil Will boost domestic production and fulfill growing demand 4% Nil Will boost domestic production 4% Nil To promote usage of wind energy and boost domestic production Page 66 IDT K&S - Technical Analysis of Union Budget

67 Export Duty Tariff Changes Page 67 IDT K&S - Technical Analysis of Union Budget

68 Rate movement With a view to conserve the natural resources and give impetus to domestic utilization of the same, Export duty on Bauxite is increased from 10% to 20% Page 68 IDT K&S - Technical Analysis of Union Budget

69 Baggage Rules Page 69 IDT K&S - Technical Analysis of Union Budget

70 Increase in Baggage Rules Duty free baggage allowance of passengers is increased as follows Details Passengers above 10 years and returning after 3 days Passengers above 10 years and returning within 3 days or less Passengers upto 10 years and returning after 3 days Amounts increased from INR 35,000 to INR 45,000 INR 15,000 to INR 17,500 INR 15,000 to INR 17,500 Page 70 IDT K&S - Technical Analysis of Union Budget

71 Tax Administration Amendments in Customs Page 71 IDT K&S - Technical Analysis of Union Budget

72 Procedural Amendments Provisions amended to include import of goods by vehicle, for deciding rate of duty and tariff valuation (Section 15) Earlier, date of entry of vessel or aircraft containing imported goods was deemed to be the date for presentation of bill entry(even if it is presented earlier) and accordingly, rate of duty and tariff valuation on such imported goods used to be decided After the amendment, along-with vessel and aircraft, vehicle by which goods are imported by land route are also included for the above provision Retrospective exemption from duty granted to extraction of mineral oils from Continental Shelf and Exclusive Economic Zone (Section 25) Amendment has been made in respect of mineral oils (including petroleum and natural gas) extracted from Continental Shelf of India or Exclusive Economic Zone of India before 7 February 2002, whereby whole of Customs duty leviable thereon shall be retrospectively exempted No suit in relation to levy of Customs duty on such extraction of mineral oils can now be maintained or continued in any court or Tribunal However, at the same time, refund of duties paid earlier on such mineral oils will not be paid to assessee Page 72 IDT K&S - Technical Analysis of Union Budget

73 Procedural Amendments (Contd.) Changes in provisions of filing bill of entry for entry of goods on importation (Section 46) Section 46(3) is amended with a substituted proviso which allows to file the Bill of Entry prior to filing of Import Report / Manifest, if the goods are expected to arrive within 30 days from the date of such presentation of bill of entry Change in the name of Settlement Commission (Section 127A) In pursuance of amendment in 2012, whereby, scope of Customs and Central Excise Settlement Commission was enlarged to hear Service tax matters as well, an amendment is brought in Section 127A which now renames the commission as Customs, Central Excise and Service tax Settlement Commission Page 73 IDT K&S - Technical Analysis of Union Budget

74 Procedural Amendments (Contd.) Scope of Settlement Commission enlarged (Section 127B) Previously, Settlement Commission (Commission) could take up cases for hearing where applicant has filed bill of entry or a shipping bill, in case of import or export of goods and a show cause notice is issued by proper officer in respect of the same Now, with the amendment in the first proviso to sub-section (1), the Commission can also hear the cases where applicant has made a baggage declaration, label or a declaration accompanying the goods imported or exported through post courier, provided a show cause notice is issued in respect of the same By amending the proviso, the scope of the Commission has been enlarged to entertain more number of application for settlement Further, sub-section (2) is deleted, so that the applicant, whose dutiable goods, books of accounts or sale proceeds of goods have been seized, can make an application before Commission immediately, without waiting for 180 days from date of such seizure, as was previously required Page 74 IDT K&S - Technical Analysis of Union Budget

75 Procedural Amendments (Contd.) Bar of subsequent application on Settlement Commission (Section 127L) This section refers to bar on subsequent application for settlement in certain cases where penalty has been imposed on the applicant on the ground of concealment of his duty liability. Explanation to clause (i) in sub-section (1) has been added to clarify that the concealment of duty as referred in this clause is concealment made from Officer of Customs Power of CESTAT to refuse admission of appeal enlarged (Section 129A) Section 129A is amended whereby the discretionary power of CESTAT to refuse admission of appeal has been increased from the existing limit of INR 50,000 to INR 2,00,000 Page 75 IDT K&S - Technical Analysis of Union Budget

76 Procedural Amendments (Contd.) Power given to CESTAT to condone delay in review of certain orders (Section 129D) By inserting a proviso in sub-section (3) of this section, CBEC has been vested with powers to condone delay in review of orders by Committee of Chief Commissioners and Commissioners of Customs by a further period of 30 days Amendment in provisions related to cases where appeal is not to be filed (Section 131BA) Earlier, only Tribunal or Court were allowed to consider the circumstances under which the appeal, application, revision or reference was not filed by the Commissioner of Customs, in pursuance of orders or instructions issued by the CBEC. By this amendment, the powers have been extended to Commissioner (Appeals). Page 76 IDT K&S - Technical Analysis of Union Budget

77 Procedural Amendments (Contd.) Import of LPG, Liquefied Butane, etc. by oil PSUs for supply to Non- Domestic Exempted category (NDEC) customers, exempted for a limited period Liquefied propane and Butane mixture, Liquefied Propane, Liquefied Butane and Liquefied Petroleum Gas (LPG) imported by the Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited, for supply to NDEC customers is fully exempted so as to treat NDEC customers, such as hospitals, government canteens, BSF / CISF mess, etc. at par with domestic customers for the purposes of supply of LPG Notification issued under 25(1) of Customs Act, bearing number G.S.R. 185(E) dated the 17 March 2012 amended retrospectively with effect from 8 February 2013 and up to 10. Page 77 IDT K&S - Technical Analysis of Union Budget

78 Other Amendments Textile Sector Duty free entitlement for import of trimmings and embellishments used by the readymade textile garment sector for manufacture of garments for export is increased from 3% to 5%, with a view to boost the exports of readymade garments Wire rolls are included in the list of goods required by handicraft manufacturerexporter, for giving exemption on imports of such manufacturer-exporters and boost the exports of handicraft industry Agriculture / Agriculture processing Description of the product sun dried dark seedless raisins in Notification No. 12/2012-Customs dated 17 March 2012, which attracts concessional Basic Customs Duty of 30%, is being changed to dark seedless raisins. Page 78 IDT K&S - Technical Analysis of Union Budget

79 Other Amendments (Contd.) Strategic purposes Refund will be allowed to the Public funded and other research institutions, of the customs duty paid by them on the import of: Scientific and technical instruments Apparatus and other items However, such institution will have to submit Certificate of Registration from the Department of Scientific and Industrial Research K&S Comments The research cost of these institutions will come down as the refunds of customs duties paid are allowed Page 79 IDT K&S - Technical Analysis of Union Budget

80 Clarifications issued in Customs Page 80 IDT K&S - Technical Analysis of Union Budget

81 Customs Clarifications (Contd.) Clarification has been issued stating that all imported materials and articles fulfilling aeronautical specifications and used in the manufacture of aircrafts for the Ministry of Defence are exempted from BCD and CVD [Exemption Notification No. 39/69-Customs dated ] Further, the clarification indicates that aircraft engines and their parts are exempted from payment of duty when imported for servicing, repairs or maintenance of aircrafts used for scheduled operations K&S Comments These clarifications result in lower cost of imports for strategic purposes such as Defence Page 81 IDT K&S - Technical Analysis of Union Budget

82 Customs Clarifications (Contd.) State governments are notified as sponsoring authority for metro rail project covered under Project Import Regulations, 1986 Plant and equipment imported for UN / International organization funded project, prior to 2008 are now being allowed to be transferred / sold / reexported from the project site K&S Comments Allowing of transferring, re-selling and re-exporting of plant and equipment will release the capital blocked in such machinery of the projects Page 82 IDT K&S - Technical Analysis of Union Budget

83 Central Excise Page 83 IDT K&S - Technical Analysis of Union Budget

84 Key Central Excise Amendments Before the Union Budget was announced, Central Excise duty concessions to capital goods, consumer durables and automobile sectors were extended beyond 30 June 2014 upto 31 December 2014 [Vide Notification No 6/2014-CE, dated 25 June 2014] The standard effective rate of Central Excise duty has remained the Mandatory pre-deposit of 7.5% / 10% depending on the stage of appeal introduced w.e.f. 1 October 2014 To negate the impact of the Supreme Court s ruling on FIAT, proviso inserted to amend Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (Valuation Rules) Duty exemption available w.r.t. supplies against International Competitive Bidding (ICB) extended even to subcontractors through clarificatory amendment [Detailed discussion follows in coming slides] Page 84 IDT K&S - Technical Analysis of Union Budget

85 Effective dates Effective dates: Statutory amendments will come into effect on the date the Finance Bill receives the President s assent Certain other amendments proposed for widening the tax base will come into effect on a date to be notified after the Finance Bill receives the assent of the President The changes being made by amendments in Notifications and Rules can be categorized in two broad categories as: Changes which will have immediate effect; and Changes that are proposed to be given effect to only from 1 October 2014 Page 85 IDT K&S - Technical Analysis of Union Budget

86 Changes in Central Excise Page 86 IDT K&S - Technical Analysis of Union Budget

87 Central Excise Legislative Amendments Taxability of goods in relation to rate of duty Section 35L of Central Excise Act, 1944 (CEA) is being amended so as to clarify that determination of disputes relating to taxability or excisability of goods is covered under the term Determination of any question having a relation to rate of duty and hence, an appeal against Tribunal order would lie before the Supreme Court and not before the High Court K&S Comments - This clarification is in line with various High Court rulings including the following cases: CST vs. Ernst & Young Pvt Ltd; (2014) 34 STR 3 (Del) The Royal Bank of Scotland NV vs. CCE, 2014-TIOL-621-HC-ALL-ST Page 87 IDT K&S - Technical Analysis of Union Budget

88 Central Excise Legislative Amendments (Contd.) Mandatory pre-deposit introduced for filling Appeals before first level / second level By inserting an altogether a new section in place of an old one, this amendment seeks to insert the provisions with respect to mandatory pre-deposit for filing an appeal before appellate authorities Section 35F of CEA has been substituted to introduce an entirely new procedure for appellate proceedings before the Commissioner (Appeals) and Tribunal. Assessees will now be required to make a mandatory pre-deposit for filing of appeal, which will be as follows: Percentage of Duty Demanded or Penalty Imposed or Both Pre-Deposit Payment Level 7.5% First Stage - Before the Commissioner (Appeals) or the Tribunal 10% Second Stage - Appeal before the Tribunal Total pre-deposit under this Section is subject to a ceiling of INR 10 Crore Page 88 IDT K&S - Technical Analysis of Union Budget