Union Budget 2015: Key Changes in Indirect Taxes

[Bimal jain]

Dear Professional Colleague,

Union Budget 2015: Key Changes in Indirect Taxes

Amidst huge expectations, the Hon’ble Finance Minister Shri. Arun Jaitley presented the first full-year Budget of the Hon’ble Prime Minister Shri. Narendra Modi's Government on February 28, 2015, Saturday in the backdrop of easing inflation and interest rates but continued growth challenges which the Government needs to address.

While considering Goods and Service Tax (“GST”) as a ‘game changing reform’, Shri. Arun Jaitley said that ‘GST will put in place a state-of-the-art indirect tax system by 1st April, 2016’.

We are sharing with you the key highlights of the Union Budget 2015 in the arena of Indirect Taxes:

PART A: UNDER THE SERVICE TAX:

• Hike in Service tax rates:

• Service tax rate has been increased from 12% plus Education Cesses to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the new Service tax rate. The revised rate shall come into effect from a date to be notified;

• Review of the Negative List:

• Service tax to be levied on the services provided by way of access to amusement facility such as rides, bowling alleys, amusement arcades, water parks, theme parks, etc;
• Service tax to be levied on services by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts and award functions, if the amount charged for admission is more than ₹ 500. Services by way of admission to exhibition of the cinematographic film, circus, dance, or theatrical performances including drama, ballets or recognized sporting events shall continue to be exempt;
• Service tax to be levied on services by way of carrying out any processes as job work for production or manufacture of alcoholic liquor for human consumption;
• An enabling provision is being made to exclude all services provided by the Government or Local Authority to a business entity from the Negative List. Once this amendment is given effect to, all services provided by the Government to business entities, unless specifically exempt, shall become taxable.

• Review of General Exemptions:

• Exemption presently available on specified services of construction, repair of civil structures, etc. when provided to Government shall be restricted only to:

1. a historical monument, archaeological site;
2. canal, dam or other irrigation work;
3. pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal

• Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn;
• Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto ₹ 1,00,000 per performance (except brand ambassador);
• Exemption to transportation of ‘food stuff’ by rail, or vessels or road will be limited to transportation of food grains including rice and pulses, flours, milk and salt only. Transportation of agricultural produce is separately exempt which would continue;
• Exemptions are being withdrawn on the following services:

1. services provided by a mutual fund agent to a mutual fund or assets management company;
2. distributor to a mutual fund or AMC; and;
3. selling or marketing agent of lottery ticket to a distributor of lottery.

• Exemption is being withdrawn on the following services:

1. Departmentally run public telephone;
2. Guaranteed public telephone operating only local calls;
3. Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued.

• Existing exemption notification for services provided by a commission agent located outside India to an exporter located in India is being rescinded, as this notification has become redundant in view of the amendments made in law in the previous budget, whereby services provided by such agents have been excluded from the tax net.

• Relief measures under Service tax:

• Services of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables are being exempted;
• Life insurance services provided by way of Varishtha Pension Bima Yojna is being exempted;
• Services provided by way of exhibition of movie by the exhibitor/theatre owner to the distributor or association of persons consisting of exhibitor as one of it’s member is being exempted;
• All ambulance services provided to patients are being exempted;
• Services provided by way of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve is being exempted;
• Transport of goods for export by road from the factory to a Land Customs Station (LCS) is being exempted.

• Changes in the Finance Act, 1994 (“the Finance Act”)

• Definition of the term ‘Government’ is being incorporated in the Finance Act to resolve interpretational issues as regards the scope of this term in the context of the Negative List and Service tax exemptions;
• Definition of the term ‘Service’ provided under Section 65B(44) of the Finance Act has been amended to specifically state the intention of legislature to levy Service tax on:

1. chit fund foremen by way of conducting a chit; and;
2. distributor or selling agent of lottery, as appointed or authorized by the organizing State for promoting, marketing, distributing, selling, or assisting the State in any other way for organizing and conducting a lottery.

• It is being specifically prescribed in the Finance Act that value of a taxable service shall include any reimbursable cost or expenditure incurred and charged by the service provider to make legal position clear and avoid disputes;
• Section 66F of the Finance Act prescribes that unless otherwise specified, reference to a service shall not include reference to any input service used for providing such service. An illustration is being incorporated in the said Section to exemplify the scope of the stated provision.

• Rationalization of abatement:

• A uniform abatement is being prescribed for transport by rail, road and vessel to bring parity in these sectors. Service tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of Cenvat credit on inputs, capital goods and input services. Presently, tax is payable on 30% of the value in case of rail transport, 25% in case of road transport and 40% in case of transport by vessels;
• The abatement for executive (business/ first class) air travel, wherein the service element is higher, is being reduced from 60% to 40%. Consequently, Service tax would be payable on 60% of the value of fare for business class;
• Abatement is being withdrawn on chit fund service.

• Changes in the Service Tax Rules, 1994:

• In respect of any service provided under aggregator model, the aggregator is being made liable to pay Service tax if the service is provided using the brand name of aggregator in any manner;
• Consequent to the upward revision in Service tax rate, the composition rate on specified services, namely, life insurance service, services of air travel agent, money changing service provided by banks or authorized dealers, and service provided by lottery distributor and selling agent, is proposed to be revised proportionately.

• Changes in Reverse charge mechanism:

• Manpower supply and security services when provided by individual, HUF, partnership firm to a body corporate are being brought to full reverse charge as a simplification measure. Presently, these are taxed under partial reverse charge mechanism;
• Services provided by mutual fund agents, mutual fund distributors and lottery agents are being brought under reverse charge consequent to withdrawal of exemption on such services.

PART B: UNDER THE CENTRAL EXCISE

• Excise Duty structure on certain goods is being restructured as follows:

• Wafers for use in the manufacture of integrated circuit (IC) modules for smart cards from 12% to 6%;
• Inputs for use in the manufacture of LED drivers and MCPCB for LED lights, fixtures and LED lamps from 12% to 6%;
• Mobiles handsets, including cellular phones from 1% without Cenvat credit or 6% with Cenvat credit to 1% without Cenvat credit or 12.5% with Cenvat credit. NCCD of 1% on mobile handsets including cellular phones remains unchanged;
• Tablet computers from 12% to 2% without Cenvat credit or 12.5% with Cenvat credit;
• Specified raw materials [battery, titanium, palladium wire, eutectic wire, silicone resins and rubbers, solder paste, reed switch, diodes, transistors, capacitors, controllers, coils (steel), tubing (silicone)] for use in the manufacture of pacemakers to Nil;
• Pig iron SG grade and Ferro-silicon-magnesium for use in the manufacture of cast components of wind operated electricity generators to Nil, subject to certification by MNRE;
• Solar water heater and system from 12% to Nil without Cenvat credit or 12.5% with Cenvat credit;
• Round copper wire and tin alloys for use in the manufacture of Solar PV ribbon for manufacture of solar PV cells to Nil subject to certification by Department of Electronics and Information Technology (DeitY).

• Reduction in number of levies:

• Education Cess and Secondary and Higher Education Cess leviable on excisable goods are being subsumed in Basic Excise duty. Consequently, Education Cess and Secondary and Higher Education Cess leviable on excisable goods are being fully exempted;
• The standard ad valorem rate of Basic Excise Duty is being increased from 12% to 12.5% and specific rates of Basic Excise Duty on petrol, diesel, cement, cigarettes and other tobacco products (other than biris) are being suitably changed. However, the total incidence of various duties of excise on petrol and diesel remains unchanged;
• Other Basic Excise duty rates (ad valorem as well as specific) with a few exceptions are not being changed. Customs Education Cesses will continue to be levied on imported goods.

• Changes in valuation of the goods for the purposes of levy of Excise Duty:

• All goods falling under Chapter sub-heading 2101 20, including iced tea has been notified under Section 4A of the Central Excise Act, 1944 (“the Excise Act”) for the purpose of assessment of Central Excise Duty with reference to the Retail Sale Price with an abatement of 30%. Such goods are also being included in the Third Schedule to the Excise Act;
• Goods, such as lemonade and other beverages, have also been notified under Section 4A of the Excise Act for the purpose of assessment of Central Excise duty with reference to the Retail Sale Price with an abatement of 35%. Such goods are also being included in the Third Schedule to the Excise Act.

• Broadening the Tax Base:

• Excise Duty of 2% without Cenvat credit or 6% with Cenvat credit has been levied on condensed milk put up in unit containers. It has also been notified under Section 4A of the Excise Act for the purpose of valuation with reference to the Retail Sale Price with an abatement of 30%;
• Excise Duty of 2% without Cenvat credit or 6% with Cenvat credit has been levied on peanut butter.

• Relief measures under the Central Excise:

• Full exemption from Excise Duty is being extended to captively consumed intermediate compound coming into existence during the manufacture of Agarbattis. Agarbattis attract Nil Excise Duty.

• Miscellaneous:

• Excise Duty on leather footwear (footwear with uppers made of leather of heading 4107 or 4112 to 4114) of Retail Sale Price of more than ₹ 1000 per pair from 12% to 6%;
• Excise Duty levied on the value of duty paid on rails for manufacture of railway or tramway track construction material is being exempted retrospectively for the period from March 17, 2012 to February 2, 2014, if no Cenvat credit of duty paid on such rails is availed;
• Excise Duty on cigarettes has been increased by 25% for cigarettes of length not exceeding 65 mm and by 15% for cigarettes of other lengths. Similar increases are proposed on cigars, cheroots and cigarillos;
• Maximum speed of packing machine is being specified as a factor relevant to production for determining Excise Duty payable under the Compounded Levy Scheme presently applicable to pan masala, gutkha and chewing tobacco. Accordingly, deemed production and duty payable per machine per month has been notified with reference to the speed range in which the maximum speed of a packing machine falls;
• The entry “waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured” in the Seventh Schedule to the Finance Act, 2005 related to levy of Additional Duty of Excise @ 5% is being omitted. Till the enactment of the Finance Bill, 2015, the said additional Duty of Excise of 5% leviable on such goods is being exempted. Simultaneously, the Basic Excise Duty on these goods has been increased from 12% to 18%;
• Excise duty on chassis for ambulances has been reduced from 24% to 12.5%;
• Excise duty structure for mobiles handsets including cellular phones is being changed from 1% without Cenvat credit or 6% with Cenvat credit to 1% without Cenvat credit or 12.5% with CENVAT credit;
• Excise duty structure of 2% without Cenvat credit or 12.5% with Cenvat credit is being prescribed for tablet computers.

PART C: UNDER THE CUSTOMS:

• Reduction in duty on certain inputs to address the problem of duty inversion:

• ‘Metal parts’ for use in the manufacture of electrical insulators;
• Ethylene-Propylene-non-conjugated-Diene Rubber (EPDM), Water blocking tape and Mica glass tape for use in the manufacture of insulated wires and cables;
• Magnetron upto 1 KW for use in the manufacture of microwave ovens;
• C- Block for Compressor, Over Load Protector (OLP) and Positive thermal co-efficient and Crank Shaft for compressor, for use in the manufacture of Refrigerator compressors;
• Zeolite, ceria zirconia compounds and cerium compounds for use in the manufacture of washcoats, which are further used in manufacture of catalytic converters;
• Anthraquinone for manufacture of hydrogen peroxide;
• Sulphuric acid for use in the manufacture of fertilizers;
• Parts and components of Digital Still Image Video Camera capable of recording video with minimum resolution of 800 x 600 pixels, at minimum 23 frames per second, for at least 30 minutes in a single sequence, using the maximum storage (including the expanded) capacity.

• Reduction in Basic Customs Duty to reduce the cost of raw materials:

• Ethylene dichloride (EDC), vinyl chloride monomer (VCM) and styrene monomer (SM) from 2.5% to 2%;
• Isoprene and Liquefied butanes from 5% to 2.5%;
• Butyl acrylate from 7.5% to 5%;
• Ulexite ore from 2.5% to Nil;
• Antimony metal, antimony waste and scrap from 5% to 2.5%;
• Specified components for use in the manufacture of specified CNC lathe machines and machining centres from 7.5% to 2.5%;
• Certain specified inputs for use in the manufacture of flexible medical video endoscopes from 5% to 2.5%;
• HDPE for use in the manufacture of telecommunication grade optical fibre cables from 7.5% to Nil;
• Black Light Unit Module for use in the manufacture of LCD/LED TV panels from 10% to Nil;
• Organic LED (OLED) TV panels from 10% to Nil;
• CVD and SAD are being fully exempted on specified raw materials [battery, titanium, palladium wire, eutectic wire, silicone resins and rubbers, solder paste, reed switch, diodes, transistors, capacitors, controllers, coils (steel), tubing (silicone)] for use in the manufacture of pacemakers;
• Evacuated Tubes with three layers of solar selective coating for use in the manufacture of solar water heater and system to Nil;
• Active Energy Controller (AEC) for use in the manufacture of Renewable Power System (RPS) Inverters to 5%, subject to certification by MNRE;
• Parts, components and accessories (falling under any Chapter) for use in the manufacture of tablet computers and their sub-parts for use in manufacture of parts, components and accessories are being fully exempted from BCD, CVD and SAD.

• Reduction in SAD to address the problem of Cenvat credit accumulation:

• All goods except populated PCBs, falling under any Chapter of the Customs Tariff Act, 1975 (“the Customs Tariff Act”), for use in manufacture of ITA bound goods from 4% to Nil;
• Naphtha, ethylene dichloride (EDC), vinyl chloride monomer (VCM) and styrene monomer (SM) for manufacture of excisable goods from 4% to 2%;
• Metal scrap of iron and steel, copper, brass and aluminium from 4% to 2%;
• Inputs for use in the manufacture of LED drivers and MCPCB for LED lights, fixtures and LED lamps from 4% to Nil.

• Increase in Basic Customs Duty:

• Metallurgical coke from 2.5% to 5%;
• Tariff rate on iron and steel and articles of iron or steel, falling under Chapters 72 and 73 of the Customs Tariff, from 10% to 15%. However, there is no change in the existing effective rates of basic customs duty on these goods;
• Tariff rate on Commercial Vehicles from 10% to 40% and effective rate from 10% to 20%. However, customs duty on commercial vehicles in Completely Knocked Down (CKD) kits and electrically operated vehicles including those in CKD condition will continue to be at 10%.

• Relief measures under the Customs:

• Exemption to artificial heart (left ventricular assist device) from Basic Customs Duty of 5% and CVD.

• Miscellaneous:

• Export Duty on upgraded ilmenite is being reduced from 5% to 2.5%;
• Basic Customs Duty on Digital Still Image Video Camera capable of recording video with minimum resolution of 800 x 600 pixels, at minimum 23 frames per second, for at least 30 minutes in a single sequence, using the maximum storage (including the expanded) capacity is being reduced to Nil. Basic Customs Duty on parts and components of these cameras is also being reduced from 5% to Nil;
• Concessional Customs Duty structure of Nil Basic Customs Duty, 6% CVD and Nil SAD on specified parts of electrically operated vehicles and hybrid vehicles, presently available up to March 31, 2015, is being extended up to March 31, 2016.

PART D: UNDER THE CENVAT CREDIT RULES, 2004 (“THE CREDIT RULES”):

• The Credit Rules have been amended to allow Cenvat credit of Service tax paid under partial reverse charge by the service receiver without linking it to the payments of value of service to service provider as a trade facilitation measure.

PART E: ALLOCATION OF ADDITIONAL RESOURCES FOR INFRASTRUCTURE:

• The Scheduled rates of Additional Duty of Customs/ Excise levied on Petrol and High Speed Diesel Oil [commonly known as Road Cess] are being increased from ₹ 2 per litre to ₹ 8 per litre. The effective rates of Additional Duty of Customs/ Excise levied on Petrol and High Speed Diesel Oil [commonly known as Road Cess] are being increased from ₹ 2 per litre to ₹ 6 per litre. Simultaneously, Basic Excise Duty rates on Petrol and High Speed Diesel Oil (both branded and unbranded) are being reduced by ₹ 4 per litre. Basic Excise Duty rates on petrol and diesel are also being increased suitably so as to subsume Education Cess and Secondary and Higher Education Cess presently levied on them. Thus, the net decrease in Basic Excise Duty on branded petrol is ₹ 3.46 per litre, on unbranded petrol is ₹ 3.49 per litre, on branded diesel is ₹ 3.63 per litre and on unbranded diesel is ₹ 3.70 per litre. However, total incidence of Excise Duties on petrol and diesel remains unchanged.

PART F: SWACHH BHARAT INITIATIVES

• Under the Customs and the Central Excise:

• The Scheduled rate of Clean Energy Cess levied on coal, lignite and peat has been increased from ₹ 100 per tonne to ₹ 300 per tonne. The effective rate of Clean Energy Cess has been increased from ₹ 100 per tonne to ₹ 200 per tonne;
• Concessional Customs and Excise Duty rates on specified parts of Electrically Operated Vehicles and Hybrid Vehicles, presently available up to March 31, 2015, is being extended up to March 31, 2016;
• Excise Duty on sacks and bags of polymers of ethylene other than for industrial use is being increased from 12% to 15%.

• Under the Service tax:

• An enabling provision is being made to empower the Central Government to impose a Swachh Bharat Cess on all or certain taxable services at a rate of 2% on the value of such taxable services. The proceeds from this Cess would be utilized for Swachh Bharat initiatives. This Cess will be effective from a date to be notified;
• Service provided by a Common Effluent Treatment Plant operator for treatment of effluent is being exempted.

PART G: COMPLIANCE FACILITATION

• Online Central Excise/ Service Tax Registration within two working days;
• Time limit for taking Cenvat Credit on inputs and input services is being increased from six months to one year;
• Facility of direct dispatch of goods by registered dealer from seller to customer’s premises is being provided. Similar facility is also being allowed in respect of job-workers. Registered importer can also send goods directly to customer from the port of importation;
• Penalty provisions in Customs, Central Excise and Service Tax has been rationalized to encourage compliance and early dispute resolution;
• Central Excise/ Service Tax assessees are being allowed to issue digitally signed invoices and maintain other records electronically.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks and Best Regards,

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

Delhi:

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