Significant Budget Highlights - 2016-17 Indirect Tax

EXCISE

Amendments made effective immediately

The Clean Energy cess is to be renamed as Clean Environment cess. The effective rate of Clean Energy cess proposed to be increased from Rs.200 per tonne to Rs.400 per tonne. Infrastructure cess is to be levied on motor vehicles under heading 8703 subject to certain exceptions. Further, this cess is not CENVATABLE and CENVAT credit cannot be utilized for its payment.

Amendments to be effective from the date on which Finance Bill receives the assent of the President Amendments in the Central Excise Act, 1944

Requirement of publishing and offering for sale any notification issued, by the Directorate of Publicity and Public Relations of CBEC under section 5A proposed to be done away with.  The time-limit for issuance of show cause notice under section 11A for recovery of service tax not levied/paid/short levied/short paid/erroneously refunded, for non-fraud cases is proposed to be enhanced by 1 year, i.e. from 1 year to 2 years.  It is proposed to empower the Board under section 37B to issue orders, instructions and directions for the implementation of any other provision of the Central Excise Act, 1944.

Amendments effective from 01.04.2016

Amendments in the CENVAT Credit Rules, 2004

The CENVAT Credit Rules, 2004 have been simplified and rationalized with an endeavor to improve CENVAT credit flow, reduce the compliance burden and associated litigations, predominantly those relating to apportionment of credit between exempted and non-exempted final products/services. Primary amendments include:  Banks and other financial institutions are to be allowed to reverse credit in respect of exempted services, on actual basis also, in addition to the option of 50% reversal. Inputs and input services used in an activity which is not a ‘service’ under the Finance Act, 1994also to attract reversal provisions under rule 6. CENVAT credit of service tax paid on amount charged for assignment by Government or any other person of a natural resource available, over such period of time as the period for which the rights have been assigned.

Amendments in the Central Excise Rules, 2002

The Central Excise Rules, 2002 are proposed to be amended as follows:

(a) Reduction of the number of returns to be filed by a central excise assessee above a specified threshold to 13, that is, 1 annual return and 12 monthly returns. The said annual return is also required to be filed by the service tax assessees above a specified threshold. Thus, now three service tax returns need to be filed instead of two.

(b) Like under service tax, the facility of revision of return to be available under central excise also.

(c) Manual attestation of copy of invoice, meant for transporter, is not required in cases where invoices are digitally signed.

(d) In case of finalization of provisional assessment, the interest will be chargeable from the original date of payment of duty.

SERVICE TAX

Amendments effective from 01.03.2016

Exemption withdrawn

Exemption with respect to construction, erection, commissioning or installation of original works pertaining to monorail or metro in respect of contracts entered into on/after 01.03.2016, has been withdrawn.

New Exemptions

Following services have been exempted:

Services by way of construction, erection, commissioning, etc. in respect of:

a) housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY)

b) low cost houses up to a carpet area of 60 m2 in a housing project under “Affordable housing in Partnership” component of PMAY

c) low cost houses up to a carpet area of 60 m2 in a housing project under any housing scheme of the State Government.

Services provided by the Indian Institutes of Management (IIM) to their students, by way of the specified educational programmes.

Other Amendments

CENVAT credit is being allowed to service providers providing services by way of transportation of goods by a vessel from India to abroad  Rule 5 of the Point of Taxation Rules, 2011 has been amended so as to clarify that this rule shall apply mutatis mutandis in case of new levy on services and new levy or tax shall be payable on all the cases other than specified in said rule.

Information Technology Software (IT Software) on media bearing RSP is exempted from service tax provided central excise duty is paid on RSP in accordance with section 4A of the Central Excise Act.

Further, IT Software recorded on media which is “NOT FOR RETAIL SALE” is exempted from so much of the Central Excise duty/CVD as is equivalent to the duty payable on the portion of the value of such IT Software recorded on the said media, which is leviable to service tax. In such cases, manufacturer/importer would therefore be required to pay Central Excise duty/CVD only on that portion of value representing the value of the medium on which it is recorded along with freight and insurance. Thus, levy of excise duty and service tax is mutually exclusive.

Amendments effective from 01.04.2016

Exemptions withdrawn

With a view to broaden the tax base, following exemptions are to be withdrawn:

Services provided by-

(i) a senior advocate to an advocate or partnership firm of advocates providing legal service; and

(ii) a person represented on an arbitral tribunal to an arbitral tribunal. Service tax would be payable under forward charge on such services. Transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway

New Exemptions

Exemption has been provided with respect to the following services:

Services of life insurance business provided by way of annuity under the National Pension System. Services provided by SEBI by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market. Services provided by Employee Provident Fund Organization (EPFO) to employees. Services provided by Biotechnology incubators approved by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to the incubates. Services provided by National Centre for Cold Chain Development by way of knowledge dissemination. Services provided by Insurance Regulatory and Development Authority (IRDA) of India. Services of general insurance business provided under Niramaya Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability in collaboration with private/public insurance companies. Services provided by way of skill/vocational training by Deen Dayal Upadhyay Grameen Kaushalya Yojana training partners. Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship.

Amendments in existing exemptions

Hitherto, service tax payable on a performance in folk or classical art forms of music/ dance/ theatre is exempt provided the consideration therefore exceeds Rs. 1,00,000. This limit has been increased to Rs. 1,50,000.

Rationalization of abatements alongwith the conditions for availing such abatements

Abatement at the existing rate of 70% will continue to be available on transport of passengers and goods by rail and on transport of goods by vessel, with the CENVAT credit of input services now to be allowed [presently, the credit of input services is not allowed with the abatement being claimed].

A lower rate of abatement of 60% for transport of goods in containers by rail by any person other than Indian railway, with the CENVAT credit of input services being allowed. Uniform rate of abatement of 70% on services by way of construction of residential complex, building, civil structure, or a part thereof, irrespective of the carpet area of the units and amount charged for such units. Abatement on services by a tour operator in respect of a tour only for the purpose of arranging or booking accommodation for any person, retained at the existing rate of 90%. However, abatement in respect of any other tour is rationalized from 75% and 60% to 70%.

A lower rate of abatement of 60% on shifting of used household goods by a Goods Transport Agency (GTA) without CENVAT credit on inputs, input services and capital goods. Abatement of 70% on services of a foreman to a chit fund restored, without CENVAT credit on inputs, input services and capital goods.

Amendments in Service Tax Rules, 1994

Rule 6 of the Service Tax Rules, 1994 to be amended to extend the benefit of quarterly payment of service tax to One Person Company (OPC) whose aggregate value of services provided is up to Rs. 50 lakh in the previous financial year and an HUF. Further, payment of service tax on receipt basis is also extended to such OPC. With respect to services provided by mutual fund agents/distributor to a mutual fund or asset management company, service tax to be payable under forward charge provisions, i.e. service provider to be liable to pay service tax. Rule 6(7A) of the Service Tax Rules, 1994 to be amended to provide that an insurer carrying on life insurance business to have an option to pay tax at 1.4% of the total premium charged on single premium annuity (insurance) policies, in cases where the amount allocated for investment/savings on behalf of policy holder is not intimated to such policy holder at the time of providing of service. With effect from 01.04.2016, any service (and not only support services) provided by Government or local authorities to business entities are leviable to service tax. Consequently, service tax would be payable on any (and not only support services) service by the service recipient on reverse charge basis from said date.

Amendments to be effective from the date on which Finance Bill, 2015 receives the

assent of the President

Finance Act, 2015 had inserted Explanation 2 to the definition of “service” under section 65B(44) of the Finance Act, 1994 to specifically state that service tax is leviable on activities undertaken by lottery distributors and selling agents, in relation to lotteries.

The said explanation is proposed to be amended to clarify that it is the activity in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner, of the State Government as per the provisions of the Lotteries (Regulation) Act, 1998, carried out by a lottery distributor/selling agent, which is leviable to service tax.  The Negative List entry under section 66D(l) covering ‘educational services is proposed to be omitted. The said benefit would continue by way of exemption under mega exemption Notification No. 25/2012 ST dated 20.06.2012. Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is proposed to be declared as a service. Section 67A is proposed to be amended to obtain specific rule making powers in respect of Point of Taxation Rules, 2011. The time-limit for issuance of show cause notice under section 73, for recovery of service tax not levied/paid/short- levied/short paid/erroneously refunded, for non fraud cases is proposed to be enhanced by 1 year, i.e. from 18 months to 30 months.

Interest rates on delayed payment of duty/tax across all indirect taxes are proposed to be made uniform at 15% p.a. However, under service tax, in case where any amount is collected as service tax but amount so collected is not paid to the credit of the Central Government on/before the date on which such payment becomes due, proposed interest rate is 24% p.a. Power to arrest under section 91 proposed to be restricted only in case where the tax payer has collected the tax of more than Rs 2 crore, but not deposited it to Government. The monetary limit for launching prosecution under section 89 proposed to be increased to Rs. 2 crore of the amount of service tax collected but not deposited to the credit of the Central Government beyond a period of 6 months from the date on which such payment becomes due.  Section 93A of the Finance Act, 1994 proposed to be amended so as to allow rebate by way of notification as well as rules.

Amendments to be effective from 01.06.2016

Krishi Kalyan Cess

It is proposed to levy a Krishi Kalyan Cess on ANY OR ALL the taxable services at the rate of 0.5% of the value of taxable services. It is important to note here that unlike Swachh Bharat Cess, service provider shall be allowed to utilize the CENVAT credit of Krishi Kalyan Cess paid on input services for payment of such cess on the output service provided by it.

Service tax proposed to be levied on transportation of passengers, with or without accompanied belongings, by a stage carriage by amending Negative List of services. However, transportation of passengers by non-air conditioned stage carriage are being exempted vide mega exemption notification.

 Service tax proposed to be levied on transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance by omitting the negative list entry to said effect. However, said services are being exempted vide mega exemption notification.

CUSTOMS

Section 2(43) has been amended so as to include Special Warehouse licensed under Section 58A for enabling storage of specific goods under physical control of the department, as control over the other types of warehouses would be only record based.

Section 25 is being amended so as to omit the requirement of publishing and offering for sale any notification issued, by the Directorate of Publicity and Public Relations of CBEC. For this purpose, it has been proposed to provide that every notification issued shall unless otherwise provided come into force on the date of its issue by the Central Government for publication in the official Gazette.

The period of limitation has been increased from one year to two years in case of bonafide error assessment. Amendments have been proposed in section 28, 47, 51 and 156 of the Customs Act to provide for deferred payment of customs duties for importers and exporters with proven track record. It will reduce the cargo release time and transaction cost of EXIM trade. The details changes in this regard would be prescribed by Rules.

The Principal Commissioner or Commissioner are proposed to be empowered to license a public and private warehouses in place of Deputy/Assistant Commissioner, subject to such conditions as may be prescribed. Further, they would also be empowered for licensing of special warehouse wherein dutiable goods may be deposited and be locked by the proper officer and no person would enter the warehouse or remove any goods there from without his permission. The bond amount for the warehousing bonds submitted by importers availing duty deferred warehousing has been increased to thrice the duty amount as against earlier requirement of twice the duty amount. In addition to furnishing of bond, security may also be required. In case of ownership of such goods being transferred to another person, the transferee would need to execute bond and security.

The provisions of Section 61 relating to period of warehousing has been extended to all goods used by Export Oriented Undertakings, Units under Electronic Hardware Technology Parks, Software Technology Parks, Ship Building Yards and other units manufacturing under bond. Additionally Principal Commissioners and Commissioners have been empowered to extend the warehousing period upto one year at a time.

Provisions relating to control over warehousing goods and payment of rent and warehousing charges are proposed to be done away with. Further, free samples from the warehouse can no longer be taken away.  The payment of fees to Customs for supervision of manufacturing facilities under Bond is no longer required.

Principal Commissioner or Commissioner of Customs empowered to license such activities.  As a step towards Make in India, the rates of customs and excise duty have been changed on certain inputs to reduce costs and improve competitiveness of domestic industry in sectors like Information technology hardware, capital goods, defence production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals, paper, paperboard & newsprint, Maintenance repair and overhauling [MRO] of aircrafts and ship repair.  Customs Single Window Project to be implemented at major ports and airports starting from beginning of next financial year. Increase in free baggage allowance for international passengers. New Simplified Baggage Rules, 2016 has been notified which would be effective from 1st April, 2016. Further Customs Baggage declaration regulation 2013 is also being amended so as to provide for custom declaration only for those passengers who carry dutiable and/or prohibited goods.  The rate of interest on delayed payment of duty has been revised to 15% from earlier rate of 18%.