E&Y Analysis: Indirect Taxes

CUSTOMS DUTY

IT/Electronic Industry
Duty has been exempted on specified parts of set-top boxes and specified raw materials for use in the IT/electronic hardware industry.

Duty on specified raw materials and inputs for use of IT/ electronic hardware industry reduced from 10/7.5 per cent to nil on end-use basis.

Duty on convergence products reduced from 10 per cent to 5 per cent.

Pharmaceuticals
Duty on specified life-saving drugs and bulk drugs used to make such drugs reduced from 10 per cent to 5 per cent with nil CVD.

Duty on specified raw materials for manufacture of ELISA kits reduced from 10/7.5 per cent to 5 per cent.

Fertilisers
Duty reduced from 5 per cent to 2 per cent on crude and unrefined sulphur.

Duty unified at 5 per cent on phosphoric acid irrespective of use.

Duty exemption on naphtha for use in the manufacture of polymers withdrawn, so Customs duty would be payable at 5 per cent.

Steel
Duty on steel melting scrap and aluminum scrap reduced from 5 per cent to nil.

Project Imports
Duty on project imports reduced from 7.5 per cent to 5 per cent. Special CVD of 4 per cent to be imposed on projects in the power sector other than mega power projects.

Sports Goods
Duty reduced from 7.5 per cent to 5 per cent on specified sports machinery for making sports goods.

Duty on specified raw materials for manufacture of sports goods for exports has been reduced from 10 per cent to nil, up to 3 per cent of FOB (freight on board) exports in the preceding year.

Gems and Jewellery
Duty reduced on rough cubic zirconia from 5 per cent to nil.

Duty reduced from 10 per cent to 5 per cent on polished cubic zirconia and rough coral.

Chrome Ore
Export duty rate on chrome ore increased from Rs 2,000 per metric tonne to Rs 3,000 per metric tonne.

Other duty movements
Duty on helicopter simulators cut from 10 per cent to nil.

Duty on specified raw materials for tyre industry reduced from 10 per cent to 5 per cent.

Duty on cigars, cheroots and cigarillos increased from 30 per cent to 60 per cent.

Concessional duty of 5 per cent provided on polymer long-rod insulators has been restricted to polymer long-rod insulators of 765-KV rating.

Miscellaneous
The period for re-export of leased equipment and machinery imported for temporary use increased from 12 months to 18 months. The slab rates of duty applicable have now been provided on a quarterly basis as against the half-yearly basis earlier.

The rates of drawback in respect of goods used after import have been aligned with the rates prescribed for duty payable on leased equipment and machinery imported for temporary use depending on the period of retention in India. The maximum period of retention for admissibility of drawback has been reduced from 36 months to 18 months.

The central government can recover the excess amount collected by a person as duty together with interest in respect of exempt or non-taxable goods.

Interest will be paid if pre-deposit is not refunded within three months from the date of communication of a favourable order.

All Customs officials have been empowered to issue summons.

EXCISE DUTY

Rate of duty
Central rate of excise duty (Cenvat) has been reduced from 16 per cent to 14 per cent.

Automobile
Duty has been reduced on: Small cars from 16 per cent to 12 per cent; hybrid cars from 24 per cent to 14 per cent; electric cars from 8 per cent to nil; specified parts of electric cars from 16 per cent to nil on end-use basis; buses and other vehicles for transport of more than 13 persons from 16 per cent to 12 per cent and on the chassis of such vehicles from "16 per cent + Rs. 10,000 to '12 per cent + Rs. 10,000"; two wheelers and passenger three-wheelers (up to seven people) from 16 per cent to 12 per cent.

Food processing
Duty fully exempted on: Packaged coconut water; paws, mudi (puffed rice) and the like; milk containing edible nuts; tea/ coffee pre-mixes; specified refrigeration equipment for installation of a cold storage, cold room or refrigerated vehicle on end-use basis

Duty has been reduced from 16 per cent to 8 per cent on: Muesli, corn flakes and similar breakfast cereals; sharbats; packaging material like open-top sanitary (OTS) cans, aseptic packaging paper, aseptic bags

Paper and paper products
Duty reduced from 12 per cent to 8 per cent on writing paper, printing paper and packaging paper.

Duty has been fully exempted on paper and paper products manufactured from non-conventional raw material up to clearance of 3,500 metric tonnes in a year from a unit. For units making clearances beyond 3,500 metric tonnes per year, the excise duty has been reduced from 12 per cent to 8 per cent.

Cigarettes
The duty rates on non-filter cigarettes have been enhanced to bring them on a par with filter cigarettes of corresponding length.

Petroleum
Duty rates on unbranded motor spirits and high speed diesel have been converted from "ad valorem + specified rate" to pure "specified rate".

Cement
Duty has been increased on cement clinkers from Rs 350 per tonne to Rs 450 per tonne. Duty has been revised on bulk cement from existing Rs 400 per tonne to 14 per cent or Rs 400 per tonne, whichever is higher.

EOU, STP, EHTP
The rate of duty applicable to clearances of goods to domestic tariff area from export-oriented units, software technology parks, electronic hardware technology parks etc has been revised from "25 per cent of the basic Customs duty + excise duty payable on like goods" to "50 per cent of the basic Customs duty + excise duty payable on like goods".

MRP-based levy
Abatement for goods taxable on MRP basis revised
Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008, are being issued to provide the manner of determination of the retail sale price where the same is not declared on the packages, is tampered with, is altered or is obliterated.

Cenvat Credit
Following options available to a manufacturer using common inputs for manufacture of dutiable as well as exempted goods and opting not to maintain separate accounts: Either reverse the credit attributable to the inputs used in the manufacture of exempted goods; or pay 10 per cent amount of the value of the exempted goods.

Miscellaneous
Definition of "goods" amended to the effect that anything which is capable of being bought and sold will be deemed to be marketable for excise duty purposes.

The central government has been empowered to charge duty on the basis of capacity of production for notified goods.

Interest will be paid if pre-deposit is not refunded within a period of three months from the date of communication of a favourable order.

The central government can recover the excess amount collected by a person as duty together with interest in respect of exempt or non-taxable goods.

Rebate of duty paid on excisable goods cleared for exports is now available with retrospective effect.

Notes of certain chapters in the Central Excise Tariff amended to align the definition of processes amounting to manufacture with the definition of manufacture

General SSI exemption has been extended on HDPE/ PP tapes consumed captively in the manufacture of sacks/bags.

Process of lamination or of lacquering shall also amount to manufacture in addition to the process of metallization.

SERVICE TAX

Threshold limit
The annual threshold limit of service tax exemption for small scale service providers increased from Rs 8 lakh to Rs 10 lakh.

New taxable services proposed to be introduced:

Services in relation to information technology software.

Services in relation to management of investments under unit-linked insurance plan (ULIP) schemes.

Services by a recognised stock exchange in relation to securities.

Services by an association (commodity exchange) in relation to sale or purchase of any goods/forward contracts.

Services by a processing and clearing house in relation to processing clearing and settlement of transactions in securities, goods or forward contracts.

Services in relation to supply of tangible goods without transferring its right of possession and effective control.

Services provided in relation to Internet telecommunication.

Scope expanded:
Banking and other financial services as well as foreign exchange broker services to include the activity of purchase or sale of foreign currency, including money changing.

Cargo handling services to include packing with transportation of cargo or goods (with or without one or more services like loading, unloading, unpacking).

Technical testing and analysis service and technical inspection and certification service to include services provided in relation to information technology software.

Tour operator services to include service provided in relation to a journey from one place to another in a contract carriage vehicle. However, service tax not applicable on the services provided to an educational body (other than a commercial training or a coaching centre).

Exclusion of "computer software engineering consultancy" from consulting engineer service to be omitted. Accordingly, services provided by a consulting engineer in relation to advice, consultancy or technical assistance in both computer hardware engineering and computer software engineering will be classifiable under this category.

Clarifications
Service provided in relation to promotion or marketing of games of chance organised, conducted or promoted by the client taxable under business auxiliary services.

Permitting the use of space in an immovable property taxable under renting of immovable property services, irrespective of the transfer of possession or control of the immovable property.

The word "properties" in management, maintenance or repair services to include information technology software.

Exemptions
Exemption to services in relation to booking of an accommodation in a hotel located in India by a person located outside India for overseas customer.

Service tax payable on 25 per cent of the gross amount of freight, unconditionally, in case of a goods transport agency services. Consequently, no Cenvat credit shall be allowed to the transporter.

Rules
Service tax can be paid in advance and adjusted subsequently against the service tax liability.

Existing monetary limit for self-adjustment of excess service tax payment increased from Rs 50,000 to Rs 1,00,000 in the case of assessee not having centralised registration.

Time limit for rectification of mistakes and filing of revised return increased from 60 days to 90 days.

Officials can reduce or waive penalty for delayed filing of return where the gross amount of the service tax payable is nil

Export and Import of Services
Export rules have been amended to provide that "management, maintenance or repair services", "technical testing and analysis services" and "technical inspection and certification service" provided remotely through Internet or any electronic network, including a computer network, or any means in relation to goods or material or any immovable property situated outside India, will be treated as export.

Similarly, the above services provided remotely in relation to goods or material or any immovable property situated in India will be treated as import of services and subject to service tax under the reverse charge mechanism.

Works Contract Service
The composition rate prescribed for payment of service tax under works contract service has been increased to 4 per cent of the total value of the contract from the existing rate of 2 per cent.

CENVAT Credit Rules
The requirement to reverse the input credit for capital goods if they are removed from the premises of the service provider for more than 180 days has been removed.

Where inputs are used for providing both taxable and exempt services, taxpayers can determine the amount of the credit on the basis of ratio of taxable revenues to total revenues without having to maintain separate accounts. Alternatively, they can claim credit for all such inputs by paying tax equal to 8 per cent of the value of exempted services.

Miscellaneous
For valuation of services in case of a transaction with an "associated enterprise", any amount credited or debited to any account in the books of account of the service provider or recipient (in the case of import of services) would be treated as the "gross amount charged" towards the services.

Board to frame a scheme for filing of service tax returns through "service tax return preparer".

A scheme for resolution of disputes related to service tax arrears pending as on March 1, 2008, and involving an amount not exceeding Rs. 25,000, is being introduced. The scheme is valid from July 1, 2008 to September 30, 2008.