New Government, new hopes: Excise & Service tax law needs to be MODIfied

[Pradeep Jain]

Introduction:-

Whole country witnessed historic win of BJP lead NDA in recently concluded general elections. New government in the leadership of Mr. Narendra Modi is all set to prove its mettle of governance. With oath taking ceremony on 26.05.2014 and announcement of cabinet ministries, now Citizens of India have huge expectation on this newly formed Government to fulfill its promises which they made in various election campaigns.

Last 5 years have been a very rough period for the country as inflation was all time high and growth had been stagnant. The shooting prices of consumer goods increased the plight of a common man. Moreover the corruption charges on the last government ministers made the general public getting anti to the government. As the development and change in government polices is need of the hour therefore there are huge hopes and aspirations on hon’ble Prime Minister Mr. Narendra Modi. As the caption goes ‘HUM MODI JI KO LANE WALE HAIN ACHE DIN ANE WALE HAIN’, people are waiting for these good days to arrive soon.

As changes in various spheres of the economic matters is now a necessity there are some procedural provisions in case of Central excise and service tax which needs to be amended or removed. These unnecessary procedural requirements are consuming most of the time of manufacturers and service tax assesses.  If these are removed then he can do some productive work.  This work by new Government will clearly send the message that the new Government intends to reduce paper work and some major changes needed to be brought in the case of Indirect Taxes have been discussed below:-

• Leviability of Education Cess:-  Education cess under Section 91 read with Section 93 of the Finance Act, 2004 and Secondary and Higher Secondary education cess (hereinafter referred to as S & H cess) leviable under Section 136 read with Section 138 of the Finance Act, 2007 is currently being levied at the rate of 2 percent and 1 percent respectively at the amount of tax charged. As per the laws of Excise, Custom and Service Tax there is requirement to show both the amounts separately after the amount of tax or duty. The manufacturer for the purpose of the credit shows the same in RG-23A Part-II and RG-23C part-II separately. Same way service provider has to show both the amounts separately in service tax credit register. Same way both excise returns and challan as well as service tax returns and challan requires to show the amounts separately in different column. This exercise as such does not hold any utility and is done merely because of statutory provisions. Instead of this it can be done that a collective amount of tax can be charged from the manufacturer or service provider and can be segregated at the government’s end. The segregation can be done by reverse calculation mechanism. This shall reduce this procedural exercise at manufacturer or provider’s end.

• Revenue figures:- Revenue figures are nothing but the details of production, clearance of finished goods and duty paid through PLA and Cenvat credit. This is being asked on every first day of month by range authorities from each and every assessee. If it is holiday or the manufacturer is busy in any work then also these are to be provided to the department. They will approach each and every manufacturer to submit these details. Even the PLA will be paid afterwards i.e by 5th of every month, but then also tentative figures should be provided.  They have to be submitted to department on 10^th of every month for the previous month. Submission of these revenue figures does not hold any valid reason as the same details are submitted by assessee by way of returns online. To maintain the records department can check them online too. This submission just wastage of valuable time of both the assessee as well as department.  Moreover there is no legal provision to submit these figures still department asks to submit them. Hence government shall direct to stop the department for not to collect any such detail and check them online where the details are present in more precise and systematic manner. Moreover, there will not be much delay if the figures are available by 10th instead of first day of month. 

We have heard that these figures are compiled at each division level and then at commissionerate level and then communicated to CBEC. The purpose of this big exercise every month is not understandable.

• Reverse Charge Mechanism (RCM):- With the introduction of negative list era from 1.7.2012; service tax law has undergone drastic changes. One major change has been in the reverse charge mechanism. Prior to 1.7.2012, there was concept of only complete reverse charge, while post negative list era, there are two types of reverse charge – complete and partial.  Under full reverse charge, 100 percent service tax is payable by the recipient of service and under partial reverse charge, prescribed part of service tax is payable by the service provider and remaining part is payable by the service recipient.

With the introduction of partial reverse charge mechanism registration is required to be taken by both the service provider and service receiver. There are many such assessees who have to take registration just because of falling under this reverse charge mechanism. For example in case of goods transport agency transporter and GTA service recipient both have to take registration under the service tax. This is due to the fact that the transporters has to pay the service tax when the person paying the freight is individual or HUF. But in all other cases, service recipient are paying service tax. When the transporter is already registered and paying service for few transactions then he can charge and pay for all the transactions.

Some service recipient is registered just because goods are either being transported by them or being received by them. This has led them to maintain the separate records for the same as well as keep the consignment notes/ bilties in a proper file. There is whole lot of ambiguity in the same as at times transporter charges complete 12 percent from the receiver which leads to double deposition of tax from the service receiver. This is practically being done in many of the cases covered under partial reverse charge. All this is complicating the law for the assessee and revenue. Due to this, in order to ascertain the correctness of tax payment, both the records of service provider and service recipient are to be simultaneously checked. Merely by checking records of one party, the correctness of service tax payment cannot be assured. The situation becomes much complicated when both the parties fall under different jurisdictions.

Further, the partial reverse charge has much complicated the procedure. Both the service provider and service recipient has to get registered with the department and file returns. What is need of two registrations? The department needs revenue or the number of assessees. This unproductive registration is taking most of time of assessee and this should be avoided.

To overcome this problem, 100 percent service tax can be collected at the service provider’s end which will save service receivers from the ambit of service tax and revenue can also keep the proper check on collection of proper amount of tax. Reverse charge mechanism should only be levied on import of service and not on any other service.

• Bill book as per Rule 11Central Excise (No.2) Rules, 2001 before making use of the invoice book, the serial numbers of the same shall be intimated to the Superintendent of Central Excise having jurisdiction over the factory of the assessee.

This provision is merely a formality and of no utility neither to revenue and neither to assessee. There is no financial effect if this provision if this provision is removed as every month in ER-1 return assessee mentions the serial number of sales invoice from where department can easily cross tally about the invoices. Hence intimation for changing the invoice book is not at all required. This is to be physically filed in the range office. When the system of pre-authentication by department was changed, there was objection by the department. To satisfy their objections, this new system of pre-authentication by manufacturer and intimation of invoice book was introduced. The requirement of pre-authentication has been dispensed with but this intimation of serial number before starting of invoice book is continued. This does not serve any purpose and this unnecessary work should not be deleted from statue book.

• Payment of tax due by March 31:- As per rule 8 of Central Excise Rules, 2002 the duty on the goods removed from the factory or the warehouse during a month shall be paid by the 6th day of the following month, if the duty is paid electronically through internet banking and by the 5th day of the following month, in any other case; Provided that in case of goods removed during the month of March, the duty shall be paid by the 31st day of March. Likewise Rule 6 of Service Tax Rules, 1994; the service tax shall be paid to the Central Government,-

(i) By the 6th day of the month, if the duty is deposited electronically through internet banking; and

(ii) By the 5th day of the month, in any other case, immediately following the calendar month in which the service is deemed to be provided

Provided also that the service tax on the service deemed to be provided in the month of March, or the quarter ending in March, as the case may be, shall be paid to the credit of the Central Government by the 31^stday of March of the calendar year.

The proviso for making of payment of duty till 31^st march creates lot of hustle amongst the assessee as extracting the exact amount of duty/service tax to be paid with at the month end is not possible. Moreover banks are also kept opened for the complete day. Thousands of assessees are keeping themselves busy in calculations to deposit the tax by due date. Assessees as a result have to submit either in various challans. Most of assessees have to stop the transactions in last days of March. This is due to the fact that more transactions are entered then one more challans is to be submitted. This futile exercise deviates them from doing productive work in year end.

The author of this article tried to know about the reason from the departmental officers about this provision then it was unofficially told that the amount deposited till March 31 will be counted in this year budget. If this is the reason then a simple provision should be made by the Government that the amount deposited by 5th April will be taken in revenue of last year budget. This simple amendment will not harass lakhs of service tax and Central Excise Assesses and they will utilise their time in productive work.

• Export intimations:-procedure of export as notified under Notification No.42/2001-Central Excise (N.T.) is still the manual process and requires a lot of paperwork. This procedure is very time consuming and at times causes delay in exports. The exporter opting for self sealing procedure has to intimate to the department 24 hours in advance of export. Thereafter, the triplicate and quadruplicate copy of ARE-1 is to be submitted to the department within 24 hours of export. This is very cumbersome procedure. Even the intimation in advance is not accepted through mail also. For export for Saturday, Sunday and Monday, exporter has to intimate on Friday itself. Nobody accepts the letter on Saturday and Sunday. Moreover, the fax will also be off on these days. So, the exporter cannot intimate through fax or mail.

The purpose of such intimation is that the department can check the export consignments on random basis. But the department is normally not checking the same. But the exporter doing export on regular basis have almost the consignment on each day and it can be checked at any time. Even the custom department is also checking these consignments stuffed under self sealing basis on specified percentage basis. Hence checking by Central Excise department of these consignments does not sound very well. Hence the requirement of this intimation should be dispensed with.

As the last decade has seen major shift from manual to online work which have touched central excise department. However, the export procedures are still the old ones. They should be made easier by removing the procedural formalities and making them computerized. Even the intimation should be accepted on mail. Furthermore the department should accept such initmation on holidays so that export work is not held up.

• Provisions related to export of services:- With the introduction of service tax by way of negative list, the provisions related to export of services have been revived. The new conditions for determining the export of services are laid down in the rule 6A of the Service Tax Rules, 1994 read with Place of provision of services rules, 2012. There are certain lacunas in these rules which have created problems in several prominent service sectors which yield huge amount of foreign currency. The existing legal provisions related to export of services do not render certain services as export of services even though these services are being provided by Indian service providers to the foreign service recipients against the foreign exchange. These services include the services like foreign travel agents’ services, tour operator services, etc. The issue has been on fire since past few months and even writ has been filed with Delhi high court on the issue. The corrective measures should be taken soon in order to save the eminent service sector yielding a significant amount of foreign exchange.