2013 Key Changes in Indirect Taxes I N D I A N

"After the government takes enough to balance the budget, the taxpayer has the job of budgeting the balance” “A budget tells us what we can't afford, but it doesn't keep us from buying it”

Topics Covered 1.Service Tax 2.Central Excise 3.Customs 4.GST

Amendments in Service Tax A.Legislative changes B.Exemptions C.Abatement D.Voluntary Compliance Encouragement Scheme, 2013 (VCES) E.CENVAT Credit F.Other Amendments

Amendments in Service Tax Changes in Negative list of services- (w.e.f. date of enactment of Fin. Bill) a)Education Related service – Education as pert of approved vocational education course Courses. Definition of ‘approved vocational education course’ to include course approved by the State Council of Vocational Training (in addition to National Council). Excluded course run by an institute affiliated to National Skill Development Corporation. b) “Any Process amounting to manufacture or production of goods” (Specified as clause (f) of Negative List) to also include processes on which excise duties are leviable under the Medicinal and Toilet Preparations (Excise Duties) Act, c) Services relating to Agriculture - Scope enhanced by substituting word ‘seed testing’ with ‘testing’ to include all kind of testing in relation to agriculture or agricultural produce like soil testing, animal feed testing etc.

Amendments in Service Tax Legislative Changes (w.e.f. date of enactment of Fin. Bill) i) Penalty u/s 77 for failure to take registration restricted to a maximum of Rs.10,000/- (At present it is Rs. 10,000/- or 200/- per day whichever is higher) ii) Penalty u/s 78A (New Section) – Penalty on the director, manager, secretary or other specified official of a company who is knowingly involved in contraventions under Service tax law such as evasion/default in payment of Service tax, issuance of fake invoices, etc. - up to Rs. 1 Lac. iii) Appellate Tribunal can admit an appeal or memorandum of cross objection after the expiry of relevant period in case of assessee’s appeal also. iv) The provisions of section 73 are being modified that if the grounds for invoking extended period (up to 5 years) are not sustained in appeal then in such case the Central Excise officer will be able to determine the demand for the shorter period of eighteen months.

Amendments in Service Tax v) Section 89 is being amended to provide prosecution - vi)Sec Powers given to Commissioner of Central Excise to authorize any officer (not below the rank of a Superintendent) to arrest a person where amount of Service tax exceeds 50 lacs has been collected and filed to pay to C.Govt. beyond period of 6 months from it became due. This offence has been made Cognizable. Legislative Changes (w.e.f. date of enactment of Fin. Bill) Type of OffenceProsecution provision a)Knowingly evade payment of service tax; b)Avails and utilises credit of tax without actual receipt of taxable service c)Maintains false books of accounts or false to supply information or supply false information. where the amount exceeds Rs. 50 lakh, punishment shall be for a term which may extend to three years, but shall not, in any case, be less than six months. Collects any amount as service tax but fails to pay the amount so collected to the credit of C.Govt., beyond a period of 6 months Where the amount of non-payment exceeds Rs. 50 lakh, punishment shall be imprisonment for a term which may extend upto seven years but not less than six months. In other case the punishment shall be imprisonment for a term which may extend to one year.

Amendments in Service Tax Changes in mega exemption notification (effective from 1 April 2013) 21. Services provided by a GTA, by way of transport in a goods carriage of,- (a) agricultural produce; (b) goods, where gross amount charged for the transportation of goods on a consignment transported in a single carriage does not exceed 1500/-; (c) goods, where gross amount charged for transportation of all such goods for a single consignee does not exceed 750/-; (d) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; (e) chemical fertilizer and oilcakes; (f) newspaper or magazines registered with the Registrar of Newspapers; (g) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or (h) defence or military equipments.

Amendments in Service Tax Changes in mega exemption notification (effective from 1 April 2013) Exemptions withdrawn: Air-conditioned restaurants who do not have license to serve liquor. Auxiliary education services and renting of immovable property service provided by an educational institution. Temporary transfer or permitting the use or enjoyment of the copyright of a cinematograph film, other than for exhibition in a cinema hall or cinema theatre. Transportation of petroleum/ petroleum products, postal mail/ mail bags and household effects by rail or vessel.

Amendments in Service Tax Changes in mega exemption notification (effective from 1 April 2013) Exemptions withdrawn: Services related to parking of vehicles for the general public. Services provided to Government, a local authority or a governmental authority, by way of repair or maintenance of aircraft. Service provided by an entity registered u/s 12AA of Income Tax Act, 1961 by way of Charitable activities- The definition of “charitable activities” is being changed by deleting the portion listed in sub-clause (v) of clause (k). Thus benefit upto 25 lacs will not be available for service by way of advancement of “any other object of general public utility”. However the threshold exemption will continue to be available upto Rs. 10 lakh.

Amendments in Service Tax Changes in Abatement in Construction Service (w.e.f ) Description of service % Taxable Conditions 12. Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority,- (i) for residential unit having carpet area upto 2000 sq. feet or where the amount charged is less than Rs. 1 crore; (ii) for other than the (i) above (i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004; (ii) The value of land is included in the amount charged from the service receiver.

Whether ‘or’ should be read as ‘and’ i.e. in a conjunctive manner or as ‘or’ i.e. in a disjunctive manner? A residential unit having carpet area of say 1500 sq. ft but costing Rs. 3 crore A residential unit with carpet area of 2500 sq. ft but having value of less than Rs. 1 crore. So called ‘high end constructions’ will continue to get abatement of 75%. If this really the F.M. intended? Reduced abatement of 70% will cover following- (a) commercial units irrespective of size or value. (b) residential units having carpet area of more than 2000 sq. ft and value of more than Rs. 1 crore. Abatement for construction-

Amendments in Service Tax Ch.-VI : Voluntary Compliance Encouragement Scheme, 2013 (VCES) a)The scheme can be availed of by non-filers or stop-filers or persons who have not made a truthful declaration in their return. However it will not be available to person who has disclosed his liability in return but has not paid S.Tax. Also not available to persons against whom any inquiry or investigation is pending by the issue of search warrant or summon or requiring production of accounts/documents Or where an audit has been initiated and pending as on b)The defaulter will be required to make a truthful declaration of all his pending tax dues (from October 1, 2007 to December 31, 2012) and pay at least half of tax before December 31, 2013; remaining half to be paid by: (i) June 30, 2014 without interest; or (ii) By December 31, 2014 with interest from July 1, 2014 onwards.

Amendments in Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) c)On furnishing of details of full payment of declared tax dues and interest, the designated authority shall issue an ‘acknowledgement of discharge’. d) On payment of tax dues the declarant will get immunity from interest (as specified), penalties and other proceedings; e) Any amount paid under this scheme is not refundable. f) No matter shall be reopened after issuance of ‘acknowledgement of discharge’ except when the declaration made is substantially false. The scheme will come into force when the Finance Bill is enacted. It is clarified that the tax-payers will need to settle their dues for the period after December 31, 2012 under the present law.

CENVAT Credit w.e.f If the manufacturer of goods or the provider of output service fails to pay the amount payable under rule 3 sub rule (5) (reversal of duty on removal of capital goods and input from factory), (5A) (reversal of duty when capital goods are removed after being used as scrap), and (5B) (reversal of CENVAT credit on written off of input or capital goods) of CENVAT Credit Rules, it shall be recovered, in the manner as provided in rule 14 of CENVAT Credit Rules, 2004 as if credit wrongly taken.

Amendments in Central Excise Legislative Changes Changes in Rates of Duties

Legislative Changes (a)General- No change in Excise duty rates. (b)A statement containing details of excise duty not levied or short levied or short paid shall be deemed to constitute a service of notice where grounds relied for the subsequent period are the same as those relied in the earlier notice or notices (c)Service of Summons Etc. Section 37C provides that service of decision, order, summons, etc. may be made by registered post with acknowledgement due Now Section 37C amended to provide two additional modes of such service viz. Speed post with proof of delivery and Courier approved by the CBEC. Amendments in Central Excise

Legislative Changes d)Interest on refund in case of provisional assessment Rule 7(5) of the Central Excise Rules,2002 amended vide NN. 2/2013 dated to provide that in case of provisional assessment, interest on refund shall become due after expiry of three months from the date of receipt of such application and not from the first day of month for which such refund is determined. (e)Recovery proceedings may be invoked for recovery of cenvat credit On 'as such removal' of inputs or capital goods or on removal of capital goods after use (whether as capital goods or as waste or as scrap) or in case of partially or fully writien off any input or capital goods before being put to use, if duty becomes payable in accordance with the provisions of sub-rule (5), (SA) or (SB) of rule 3 of Cenvat Credit Rules respectively, it is clarified by an inserting an explanation under rule 3(SB) that the provisions relating to recovery can be invoked. Amendments in Central Excise

Major Changes in Central Excise Tariff Amendments in Central Excise Agriculture/Agro Processing/Plantation Sector Full exemption from excise duty on sabudana and also tapioca starch manufactured and captively. Full exemption from excise duty on henna powder or paste not mixed with any other ingredient. Automobiles Excise duty on SUV increased from 27 to 30% Excise duty on truck chassis reduced from 14 to 13% Metals Compunded levy on stainless steel'patta patti' increased from to per machine Aircrafts And Ships Full exemption from excise duty Health Branded Ayurvedic, Uninai, Siddha, Homeopathic or bio-chemic medicaments have been brought under MRP based assessment with abatement of 35% of MRP Electronics / Hardware Excise duty on mobile phones of retail sale price exceeding Rs is increased from 1% to 6%

Key Changes in Customs

Amendments in Customs General General Customs duty rates remain unchanged Thus, the general effective Customs duty rate continues to be percent (capital goods)/ percent (other goods). Baggage Rules are being amended to,- r aise the duty free allowance in respect of jewellery for an Indian passenger who as been residing abroad for over one year or a person who is transferring his residence to India from Rs.10,000 to Rs.50,000 in case of a gentleman passenger and from Rs.20,000 to Rs.1,00,000 in case of a lady passenger.

Legislative Changes CBEC may permit any vessel or aircraft to call or land at any place other than a customs port or customs airport. Import Manifest and Export Manifest shall be delivered electronically only. However, the Commissioner of Customs may allow any other manner if it is not feasible to be delivered electronically. Proposal to reduce interest free period for payment of Customs duty after return of Bill of Entry from 5 days to 2 days. Warehousing without warehousing (i.e. storage of imported goods, pending clearance in a public or private warehouse) is now permitted for 30 days only. For further period extension may be granted by the Commissioner of Customs. Amendments in Customs

Changes in Rates of Duties Amendments in Customs Agriculture/Agro Processing/Plantation Sector Basic customs duty on - dehulled oat grain is being reduced from 30% to 15%. - hazel nuts is being reduced from 30% to 10%. Export duty of 10% on de-oiled rice bran oil cake is being withdrawn Automobiles Basic customs duty on new passenger cars and other motor vehicles (high end cars) with CIF value more than US$ 40,000 and/or engine capacity exceeding 3000cc for petrol run vehicles and exceeding 2500 cc for diesel run vehicles is being increased from 75% to 100%. Basic customs duty on motor cycle with engine capacity of 800cc or more is being increased from 60% to 75%. Metals Export duty is being levied on ilmenite unprocessed at 10% and on ilmenite, upgraded at 5%. Export duty is being levied on bauxite at 10%. Basic customs duty is being reduced from 10% to 5% on stainless steel wire cloth stripe and from 7.5% to 5% on wash coat for use in the manufacture of catalytic convertors and their parts. Full exemption from export duty is being provided to galvanized steel sheets falling under certain sub-headings, retrospectively w.e.f

Changes in Rates of Duties Amendments in Customs Precious MetalsBasic customs duty is being reduced from 10% to 2% on pre-forms of precious and semi-precious stones. Capital Goods/Infrastructure Basic customs duty on steam coal is being increased from Nil to 2% and CVD from 1% to 2%. Basic customs duty on bituminous coal is being reduced from 5% to 2% and CVD from 6% to 2%. Basic customs duty is being reduced from 7.5% to 5% on 20 specified machinery for use in leather and footwear industry. Aircrafts & Ships Basic Customs Duty on yachts and motor boats is being increased from 10% to 25%. Time limit for consumption of imported goods by ship repair units is being extended from 3 months to 1 year. Time period for consumption/installation of parts and testing equipments imported for maintenance, repair and overhaul (MRO) of aircrafts by units engaged in such activities is being extended from 3 months to 1 year. Presently, the basic customs duty exemption is available to parts and testing equipments for maintenance, repair and overhaul of aircrafts. This exemption is now being extended to parts and testing equipments for maintenance, repair and overhaul of aircrafts and parts thereof.

Changes in Rates of Duties Amendments in Customs Environment Protection: Full exemption from basic customs duty is being provided to lithium ion automotive battery for manufacture of lithium ion battery packs for supply to the manufacturers of hybrid and electric vehicles. Time period of exemption (Nil BCD, CVD of 6% and Nil SAD) for the specified parts of electric and hybrid vehicles is being extended by 2 more years up to 31st March, Textiles: Basic customs duty on raw silk (not thrown), of all grades is being increased from 5% to 15%. Basic customs duty is being reduced from 7.5% to 5% on textile machinery & parts. Electronics/ Hardware Basic customs duty on Set Top Boxes for TV is being increased from 5% to 10%. Sports Body Full exemption from basic customs duty and additional customs duty is being provided to trophy imported by National Sports Federation recognized by the Department of Sports and Youth Affairs or any Sports Body registered under Societies Registration Act, in connection with any international tournament held in India.

Common Changes for Central Excise, Customs and Service Tax

a)If an appeal before CESTAT is not disposed of within 180 days from the date of the stay order, a CESTAT stay order can be extended for another 185 days. If appeal is not disposed of within the period of 365 days, the stay order shall, on the expiry of that period, stand vacated. b)Single Member bench of CESTAT may dispose of appeal involving amount up to Rs. 50 Lacs (earlier Rs. 10 Lacs). c)Provision for recovery proceedings for sums due to the Government extended to persons holding money on account of an assessee. Common Changes for Central Excise, Customs and Service Tax

Common Changes for Central Excise, Customs and Service Tax d) Proposal to provisionally attach of property in cases of non-payment of duty or short payment of duty due to collusion, willful mis-statement or suppression of facts. e) Certain offences have been made non-bailable {cognizable and non-bailable in case of Excise Act. E.g. evasion of duty (exceeding rupees 50 lacs in case of Customs Duty), contravention of provisions in relation to utilization of cenvat credit,import or export of goods notified under section 11,fraudulently availing drawback of an amount exceeding rupees 50 lacs, etc. f)Any import or export I production or manufacture, proposed to be undertaken will also be considered as 'Activity' for purpose of Advance Ruling. g)Central Government has specified 'Resident Public Limited Company' to be 'Applicant' for the purpose of obtaining advance ruling. The term is 'Resident’ "resident" shall have the same meaning as is assigned to it in clause (42) of section 2 of the Income-tax Act, 1961(43 of 1961) in so far as it applies to a company.

Goods and Services Tax Proposal to allocate Rs.9000 crores towards balance Central Sales Tax compensation to States Stress on the need to present draft Constitutional Amendment Bill and GST bill in Parliament but no indication of a timeline in this regard Appeal to State Finance Ministers to support the Government in the implementation of GST.