APAO Union Budget Proposal for Year 2016 -...

APAO Union Budget Proposal for Year 2016

a)

Clarificatory amendment

in Section 80 IA with regard

to Upgrading existing

infrastructure

APAO Union Budget Proposal for Year 2016- 17

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DIRECT TAX

Income tax

amendment

regard

Government has substituted present Section 80IA by

the Finance Act 1999 with effect from 1.4.2000 in lieu of

earlier Section 80 IA by the Finance Act 1991. The

purpose of substituting the section was to give a flip to

industrial undertakings and enterprises engaged in

infrastructure development such as airport

power and water supply etc.

Infrastructure development is pre requisite for the

growth and development of any country. Infrastructure

development is achievable in two ways i.e.to build

altogether new infrastructure or to convert the existing

structure by upgrading it for enhancing the existing

capacity. It goes without saying that whether it is new

infrastructure or an upgradation both entails huge

Capex investment and human efforts.

The fiscal benefit available to new infrastructure is

very much clear in the section in the present form.

However suitable clarity is required in the case of

upgrading the existing set up as to whether the section

extends to that as well.

Hence, it is requested that government make

suitable amendment in the section so as to make it

amply clear that the up-gradation of the existing

infrastructure be also eligible for the benefit of Sec

80IA, so that there is no ambiguity with regard to claim

of Sec 80 IA.

Government has substituted present Section 80IA by

Finance Act 1999 with effect from 1.4.2000 in lieu of

earlier Section 80 IA by the Finance Act 1991. The

purpose of substituting the section was to give a flip to

industrial undertakings and enterprises engaged in

infrastructure development such as airport, highways,

Infrastructure development is pre requisite for the

growth and development of any country. Infrastructure

in two ways i.e.to build

altogether new infrastructure or to convert the existing

enhancing the existing

capacity. It goes without saying that whether it is new

upgradation both entails huge

ment and human efforts.

The fiscal benefit available to new infrastructure is

very much clear in the section in the present form.

However suitable clarity is required in the case of

upgrading the existing set up as to whether the section

Hence, it is requested that government make

suitable amendment in the section so as to make it

gradation of the existing

eligible for the benefit of Sec

y with regard to claim


b)

Support services

airport to be termed

infrastructure

c)

Conditions of section 80

regarding agreement with

statutory authority be given

a wider interpretation


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of

termed as

In the airport sector of infrastructure, there are

many ancillary/support services required which are

very essential for smooth functioning

example fuel facility, parking, cargo, ground handling

etc. One cannot even imagine any airport in absence

of these facilities as these are life line services for

airport. The industry needs support, assurance and

clarity on whether all the relevant functions& ancillary

functions/revenue streams which have nexus for

smooth functioning of the airport (

operator has directly performed these functions or by

a concessionaire (third party operator) who is granted

Service Provider Rights) because ultimately the

operator is responsible for smooth functioning of these

important functions at the airport.

In the absence of clear definition of Airport under

the present Sec of 80 IA, it leaves an ambiguity

whether these services enjoy benefit of Sec 80 IA or

not.

Hence it is requested that clarification & assurance

about eligibility of all relevant activities for tax holiday

under Section 801A of the Income Tax Act should be

extended to all support service as well.

Conditions of section 80-IA

regarding agreement with

statutory authority be given

Concession Agreements signed by the Airport Operator

with downstream Concessionaire providing Cargo/

Farm/ Ground Handling infrastructure & s

treated at par with the Agreement signed with

Government and accordingly benefit of 80IA should be

provided to the downstream concessionaire.

In the airport sector of infrastructure, there are

many ancillary/support services required which are

very essential for smooth functioning of airports. For

example fuel facility, parking, cargo, ground handling

etc. One cannot even imagine any airport in absence

ife line services for

he industry needs support, assurance and

e relevant functions& ancillary

functions/revenue streams which have nexus for

whether the airport

operator has directly performed these functions or by

a concessionaire (third party operator) who is granted

because ultimately the

operator is responsible for smooth functioning of these

In the absence of clear definition of Airport under

the present Sec of 80 IA, it leaves an ambiguity

ces enjoy benefit of Sec 80 IA or

Hence it is requested that clarification & assurance

about eligibility of all relevant activities for tax holiday

under Section 801A of the Income Tax Act should be

extended to all support service as well.

Concession Agreements signed by the Airport Operator

with downstream Concessionaire providing Cargo/ Fuel

Ground Handling infrastructure & services to be

treated at par with the Agreement signed with

and accordingly benefit of 80IA should be

provided to the downstream concessionaire.


d)

Minimum Alternate Tax

115JB

e)

Tax free bonds u/s 80CCF


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u/s

The government has introduced the concept of MAT

on all the companies. Infrastructure companies have

long gestation period as they are highly capital

intensive.

Hence it is requested that MAT should not be

applicable on such infrastructure companies

Alternatively, if outright exemption is not

infrastructure projects like airport should at the least

have concessional MAT rate of 5% of book profits

instead of merit rate of 21.34%.

80CCF

In the Finance Act 2012, the deduction under

section 80 CCF has been done away with. Previously

in budget 2011, various government undertakings were

allowed to issue tax free bonds of 30,000 crores in year

2012 to give boost to infrastructure development in

railways, power, housing and highways development.

It is recommended that the deduction should be

restored.

Further the scope of infrastructure should be

expanded to cover Airport also. In addition to existing

issuers, private infrastructure companies should also be

allowed to issue such tax free bonds for various

infrastructure activities. Allowing such benefit

enable them to source money from cost effective

funds as already these companies are under the grip

of mounting debt at high costs. There could be a

question on protection of investor

would be unsecured loans of private infrastructu

companies. To mitigate this risk, the government may

propose minimum credit rating to be eligible to issue

such bonds or any other condition which the

government may deem fit for issuance of such bonds.

The government has introduced the concept of MAT

all the companies. Infrastructure companies have

long gestation period as they are highly capital

Hence it is requested that MAT should not be

applicable on such infrastructure companies.

Alternatively, if outright exemption is not granted,

projects like airport should at the least

have concessional MAT rate of 5% of book profits

Finance Act 2012, the deduction under

has been done away with. Previously

in budget 2011, various government undertakings were

allowed to issue tax free bonds of 30,000 crores in year

2012 to give boost to infrastructure development in

railways, power, housing and highways development.

ecommended that the deduction should be

Further the scope of infrastructure should be

expanded to cover Airport also. In addition to existing

issuers, private infrastructure companies should also be

allowed to issue such tax free bonds for various

infrastructure activities. Allowing such benefit would

enable them to source money from cost effective

funds as already these companies are under the grip

of mounting debt at high costs. There could be a

investor’s money as these

would be unsecured loans of private infrastructure

companies. To mitigate this risk, the government may

propose minimum credit rating to be eligible to issue

such bonds or any other condition which the

government may deem fit for issuance of such bonds.


f)

Reintroduction of Section

10 (23G)


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Tax deduction under section 80 CCF

in infrastructure bonds should be made applicable for

all years and should not be renewed on a year

basis by the Finance Act each year. Also, the

investment limit and the deduction allowable should

be increased from Rs. 20,000 to Rs.

individuals / HUE.

While the infrastructure sector needs a boost,

individual investors also look at being eligible to claim

tax deductions made in infrastructure sector. These

should be promoted to allow benefits to the

infrastructure sector as also to the investors and which

eventually lead to overall development and growth of

the economy. This will also attract larger household

savings to the infrastructure sector.

Section

Section 10(23G) was omitted by Finance Act 2006, with

effect from 1.4.2007.This section was enacted to

exempt income by way of dividends other than

dividend referred to in Sec 115 O, interest or long term

capital gains of an infrastructural capital funds o

infrastructural capital company etc. by way of shares

or long term finance in any enterprise or undertaking

engaged in the business referred to in sub section 4 of

sec 80IA or Sub Sec 3 of Sec80IAB or housing project

referred to in sub section 10 of 80IB or a hotel project or

a hospital project duly approved by the central

government. However this will be subject to payment

of MAT. This section was very encouraging for the

investor as it gives incentive to invest the money in

infrastructure projects. It is recommended that this

section be restored back and the income of

Infrastructure Company should also be exempted from

payment of MAT.

Tax deduction under section 80 CCF for investment

in infrastructure bonds should be made applicable for

all years and should not be renewed on a year-to-year

basis by the Finance Act each year. Also, the

investment limit and the deduction allowable should

be increased from Rs. 20,000 to Rs. 50,000 for

While the infrastructure sector needs a boost,

individual investors also look at being eligible to claim

tax deductions made in infrastructure sector. These

should be promoted to allow benefits to the

infrastructure sector as also to the investors and which

eventually lead to overall development and growth of

the economy. This will also attract larger household

Section 10(23G) was omitted by Finance Act 2006, with

effect from 1.4.2007.This section was enacted to

ividends other than

dividend referred to in Sec 115 O, interest or long term

capital gains of an infrastructural capital funds or an

infrastructural capital company etc. by way of shares

or long term finance in any enterprise or undertaking

engaged in the business referred to in sub section 4 of

sec 80IA or Sub Sec 3 of Sec80IAB or housing project

0IB or a hotel project or

a hospital project duly approved by the central

government. However this will be subject to payment

of MAT. This section was very encouraging for the

investor as it gives incentive to invest the money in

t is recommended that this

section be restored back and the income of

Infrastructure Company should also be exempted from


g)

Exemption from levy of

Income tax under Section

10 AA for service rendered

to Domestic Airlines

Operator and consider

that as an export.

h)

Allowing companies to

issue Infrastructure Bonds

bonds

Issued by infrastructure

companies should also

qualified under section

54EC of the Act

i)

No applicability of

without PAN – section

206AA


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Exemption from levy of

Income tax under Section

10 AA for service rendered

to Domestic Airlines

consider

Currently out of approx 400 civil A

majority of them fly to the Middle E

and European countries for availing mandatory MRO

services and pay out in valuable foreign currency

or Pound or Euro). This results in huge foreign exchange

outflow from the Indian economy. By

these domestic airline customer to avail MRO services

here at India the country will be saving precious

foreign exchange every year besides also

of earning valuable foreign currency from various

international airline customers. This

foreign currency from flowing out of the country

indirectly tantamount to export of services and hence

the same needs to be exempted f

under Section 10AA of the Income Tax Act.

to

Bonds-

infrastructure

also be

section

With a view to accelerate the growth in

sector, which is very vital for the economic

development of the country, bonds issued by

infrastructure companies should also be qualified

under section 54EC of the Act. Presently bonds issued

by few organizations like NHAI and REC only are

qualified under section 54EC of the Act for making

investment so as to claim exemption from capital

gains.

TDS

section

It is recommended that a clause should be

inserted to provide that the requirement of PAN would

not be applicable to non-residents in respect of

specified cases.

A new section 206AA was introduced in the

Finance Act, 2009, under which a penal rate of TDS

has been made applicable with effect from 1.4.2010

@20% or higher rate if prescribed, in cases where PAN

is not available.

civil Aircrafts in India,

East and other Asian

and European countries for availing mandatory MRO

services and pay out in valuable foreign currency (USD

in huge foreign exchange

outflow from the Indian economy. By enabling all

to avail MRO services

here at India the country will be saving precious

foreign exchange every year besides also the potential

earning valuable foreign currency from various

This saving of valuable

out of the country

to export of services and hence

the same needs to be exempted from income tax

under Section 10AA of the Income Tax Act.

With a view to accelerate the growth in infrastructure

sector, which is very vital for the economic

development of the country, bonds issued by

infrastructure companies should also be qualified

under section 54EC of the Act. Presently bonds issued

by few organizations like NHAI and REC only are

qualified under section 54EC of the Act for making

investment so as to claim exemption from capital

It is recommended that a clause should be

the requirement of PAN would

residents in respect of

A new section 206AA was introduced in the

Finance Act, 2009, under which a penal rate of TDS

has been made applicable with effect from 1.4.2010

higher rate if prescribed, in cases where PAN


j)

Disallowance of

expenditure incurred in

relation to income not

includible in total income

u/s 14A of the Act


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Disallowance of

expenditure incurred in

relation to income not

includible in total income

As per the existing provisions of section 14A of

the Act, no deduction shall be allowed in respect of

expenditure incurred by a taxpayer in relation to

income which does not form part of total income

under the Act. Further, section 14A of the Act states

that the provisions of this section shall also apply in

cases where an assessee claims that no expenditure

has been incurred by him in relation to income which

does not form part of the total income under the Act.

In this regard, a method has been prescribed under

rule 8D of the Income Tax Rules, to calculate the

amount of disallowance for the purpose of section 14A

of the Act. Rule 8D has created genuine hardships for

taxpayers, as the calculations basis under rule 8D is

arbitrary. In many cases, disallowance calculated as

per rule 8D method exceeds the amount of tota

exempted income earned during the year. This is

because of:

• Firstly, the interest expense, which does not form

part of exempted income, is disallowed.

• Secondly, while working out the half percentage

of the average investments, all the investments in

shares/ mutual funds are considered.

• Thirdly, this income does not demarcate

between investments that have generated or

not generated income during the year.

• Lastly, no distinction has been made for

companies earning dividend income due to

holding strategic investments in group

companies and very little expenditure is

attributable to earn such dividend income.

It is suggested that:

• Only those expenses which are directly related to

earnings of exempt income should be

disallowed.

• Further, the overall maximum limit of expenses to

As per the existing provisions of section 14A of

deduction shall be allowed in respect of

expenditure incurred by a taxpayer in relation to

income which does not form part of total income

under the Act. Further, section 14A of the Act states

that the provisions of this section shall also apply in

here an assessee claims that no expenditure

has been incurred by him in relation to income which

does not form part of the total income under the Act.

In this regard, a method has been prescribed under

rule 8D of the Income Tax Rules, to calculate the

nt of disallowance for the purpose of section 14A

of the Act. Rule 8D has created genuine hardships for

taxpayers, as the calculations basis under rule 8D is

arbitrary. In many cases, disallowance calculated as

per rule 8D method exceeds the amount of total

exempted income earned during the year. This is

Firstly, the interest expense, which does not form

part of exempted income, is disallowed.

Secondly, while working out the half percentage

of the average investments, all the investments in

res/ mutual funds are considered.

Thirdly, this income does not demarcate

between investments that have generated or

not generated income during the year.

Lastly, no distinction has been made for

companies earning dividend income due to

nvestments in group

companies and very little expenditure is

attributable to earn such dividend income.

Only those expenses which are directly related to

earnings of exempt income should be

Further, the overall maximum limit of expenses to


k)

Amalgamation

l)

Abolition of MAT and DDT

(Dividend Distribution Tax)

on SEZ units


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be disallowed should not exceed the tax

payable on exempted income earned.

Overall maximum limit of expense to be disallowed in

case of dividend income earned from holding

strategic investment in group comp

capped.

i. Section 72A of the Act, which deals with

treatment of unabsorbed losses and unabsorbed

depreciation, in case of amalgamation, is

restrictive in its application. Presently benefits of

section 72A are available only to company

owning industrial undertaking o

or a banking company. Due to this restriction,

other sectors are not eligible for benefits in the

form of loss from one company to another.

It is suggested that sectorial restrictions u/s 72A

may be removed and provisions of this

made applicable for all the sectors.

ii. Presently MAT u/s 115JAA cannot be carried

forward by the amalgamated company.

The Income Tax Act needs to be amended so as to

allow carry forward of MAT credit in the hands of

amalgamated company for the re

years.

Abolition of MAT and DDT

(Dividend Distribution Tax)

Finance Act 2011 has levied MAT and DDT on SEZ

units. Already SEZ units are being surrendered owing to

procedural wrangles and SEZ developers are

notifying the same. This levy is a further blow for SEZ.

Consequently, it should be abolished.

be disallowed should not exceed the tax

payable on exempted income earned.

Overall maximum limit of expense to be disallowed in

case of dividend income earned from holding

strategic investment in group companies should be

Section 72A of the Act, which deals with

treatment of unabsorbed losses and unabsorbed

depreciation, in case of amalgamation, is

restrictive in its application. Presently benefits of

section 72A are available only to company

owning industrial undertaking or a ship or a hotel

or a banking company. Due to this restriction,

are not eligible for benefits in the

form of loss from one company to another.

It is suggested that sectorial restrictions u/s 72A

may be removed and provisions of this section be

made applicable for all the sectors.

Presently MAT u/s 115JAA cannot be carried

forward by the amalgamated company.

The Income Tax Act needs to be amended so as to

allow carry forward of MAT credit in the hands of

amalgamated company for the remaining number of

Finance Act 2011 has levied MAT and DDT on SEZ

units. Already SEZ units are being surrendered owing to

procedural wrangles and SEZ developers are de-

notifying the same. This levy is a further blow for SEZ.

Consequently, it should be abolished.


m) Lowering of Income Tax

rate as promised under

Income Tax Act, 1961 to be

implemented.

n) Simplification of rules and

procedure for obtaining

Concessional TDS

Certificate for deduction of

tax on income under Sec

197 of the Income Tax Act.


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owering of Income Tax

e as promised under

Income Tax Act, 1961 to be

In Budget 2015, the Finance minister has committed

lowering of basic rate of corporate tax to 25 per cent

from 30 per cent in four years which needs to be

implemented right from the Financial Year 2016

onwards with a view to provide some liquidity in the

hands of Indian Corporate to invest the surplus funds

towards expansion of the industry.

Simplification of rules and

procedure for obtaining

Certificate for deduction of

tax on income under Sec

197 of the Income Tax Act.

As per the current provisions, we need to provide

data of customer-wise break-up of each revenue

stream while applying for Nil / Concessional TDS on

income under Sec 197 of the Income Tax Act.

Since, the sector is covered under tax holiday U/Sec

80IA and most of us are paying only MAT tax. Under

the circumstances, TDS at merit rate on our revenues

will invariably result in huge refund claims.

Since the sector is very capital intensive, block

working capital in the form of Refund of TDS on

income for almost 2 years is a severe financial

hardship.

Further, since the nature of income is dynamic and

dependent on the choice of passengers of preferring

airlines, estimation of aviation income

level (airlines) for UDF/ PSF and other income pose a

genuine practical difficulty.

Hence, we seek special provisions to our sector

(Similar to provisions for Non-residents) so that we can

provide only revenue-wise break down thereby

relaxing customer-wise break down. Currently,

certain certificates are underutilised and certain

others have surpassed the estimated threshold.

Relaxation of customer-wise break up will be very

beneficial in eliminating situation of blocking of

working capital in the form of excess TDS over tax

liability.

In Budget 2015, the Finance minister has committed

basic rate of corporate tax to 25 per cent

from 30 per cent in four years which needs to be

implemented right from the Financial Year 2016-17

onwards with a view to provide some liquidity in the

hands of Indian Corporate to invest the surplus funds

As per the current provisions, we need to provide

up of each revenue

stream while applying for Nil / Concessional TDS on

income under Sec 197 of the Income Tax Act.

Since, the sector is covered under tax holiday U/Sec

80IA and most of us are paying only MAT tax. Under

the circumstances, TDS at merit rate on our revenues

will invariably result in huge refund claims.

Since the sector is very capital intensive, blocking of

working capital in the form of Refund of TDS on

income for almost 2 years is a severe financial

Further, since the nature of income is dynamic and

dependent on the choice of passengers of preferring

airlines, estimation of aviation income at customer-

level (airlines) for UDF/ PSF and other income pose a

Hence, we seek special provisions to our sector

residents) so that we can

wise break down thereby

wise break down. Currently,

certain certificates are underutilised and certain

others have surpassed the estimated threshold.

wise break up will be very

beneficial in eliminating situation of blocking of

the form of excess TDS over tax


a)

Allowance of bad debts in

service tax

b)

Exemption from service tax on

supply of water and electricity

within an airport


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INDIRECT TAX

Service Tax

in

Finance Act 2011 introduced Point of Taxation

Rules 2011 that makes it mandatory for service

provider to pay the service

invoicing or payment received, whichever is earlier.

Further if invoice is not raised within 30 days from the

date of completion of service, then point of taxation

will be the date of completion of service.

Many times service providers are not able to

collect the amount from the recipient including the

service tax which requires to be written off as bad

debt.

CBEC vide para 11 (ii) of Circular No 341/34/2010

dated 31-03-2011 states that adjustment of service tax

paid on bad debts are not available while

discharging service tax on output service.

CBEC should make amendment in law and

other regulations made thereunder so as to provide

relief to service provider in case of bad debts through

adjustment or refund.


electricity

In the erstwhile provisions of service tax there was

an exemption from levy of service tax on services by

way of supply of water and electricity when provided

within an airport vide notification no. 31/2010 dt 22

Jun-10. However similar exemption is not available in

the newly introduced negative list approach of

taxing the services.

It is requested to kindly provide similar exemption

from levy of service tax in the negative list approach

of taxing the services by way of supply of water and

Electricity within an Airport.

Finance Act 2011 introduced Point of Taxation

Rules 2011 that makes it mandatory for service

provider to pay the service tax at the time of

invoicing or payment received, whichever is earlier.

Further if invoice is not raised within 30 days from the

date of completion of service, then point of taxation

will be the date of completion of service.

oviders are not able to

collect the amount from the recipient including the

service tax which requires to be written off as bad

CBEC vide para 11 (ii) of Circular No 341/34/2010

2011 states that adjustment of service tax

ad debts are not available while

discharging service tax on output service.

CBEC should make amendment in law and

other regulations made thereunder so as to provide

relief to service provider in case of bad debts through

In the erstwhile provisions of service tax there was

an exemption from levy of service tax on services by

way of supply of water and electricity when provided

within an airport vide notification no. 31/2010 dt 22-

10. However similar exemption is not available in

the newly introduced negative list approach of

It is requested to kindly provide similar exemption

tax in the negative list approach

of taxing the services by way of supply of water and


c)

MRO Services to be

exempted from Service Tax

inclusion in negative list

d)

Airport Development Fee

Exempted from Service Tax


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be

Tax by

Maintenance Repairs and

services is crucial and mandatory for the smooth

running and upkeep of aircrafts.

Besides the small exemption available today, it is

desirable to exempt the MRO services as a whole

from imposition of service tax in order to promote

industry in India. MRO services needs to be included

in the negative list of services which are not taxable.

MRO Business has a huge potential to attract foreign

investments and earn precious foreign exchange

and at same time save outflow of foreign ex

from India and for promoting the upcoming MRO

business which has just begun to grow in

MRO services require high level engineering and

technical set up and advanced IT systems which are

available in India. This has the potential of bei

developed as a hub for international airline

customers and earn valuable foreign currency This

saving of valuable foreign currency from flowing out

of the country indirectly tantamounts to export of

services and hence the same needs to be exempted

from income tax under Section 10AA of the Income

Tax Act.

Fee to be

Tax

Since Development fee is tax or cess in nature which

is an important source of funding for specified

purposes as enlisted under the terms of section 22A

of the Airport Authority of India, 1994 (also held by

the Hon’ble Supreme Court in case of

Online Forum vs UOI ) and therefore levy of tax on tax

is unjustified, which should be clarified by way of a

suitable clarification.

Maintenance Repairs and Operations(MRO)

services is crucial and mandatory for the smooth

running and upkeep of aircrafts.

Besides the small exemption available today, it is

desirable to exempt the MRO services as a whole

from imposition of service tax in order to promote the

industry in India. MRO services needs to be included

in the negative list of services which are not taxable.

MRO Business has a huge potential to attract foreign

investments and earn precious foreign exchange

and at same time save outflow of foreign exchange

from India and for promoting the upcoming MRO

business which has just begun to grow in India.

MRO services require high level engineering and

technical set up and advanced IT systems which are

available in India. This has the potential of being

developed as a hub for international airline

customers and earn valuable foreign currency This

saving of valuable foreign currency from flowing out

of the country indirectly tantamounts to export of

services and hence the same needs to be exempted

income tax under Section 10AA of the Income

tax or cess in nature which

is an important source of funding for specified

purposes as enlisted under the terms of section 22A

of the Airport Authority of India, 1994 (also held by

the Hon’ble Supreme Court in case of Consumer

erefore levy of tax on tax

is unjustified, which should be clarified by way of a


e)

Taxability of Service portion & VAT

in execution of Annual

Maintenance Contract (AMC

f)

The government has

withdrawn service tax

exemption provided to

construction of Greenfield

airports. This exemption needs

to be restored

g)

Show cause notice needs to be

mandatorily served while

enforcing recovery of service

tax dues of the Assessee

including from any other third

party from whom money is due

or may become due.

h)

Exemption from levy of service

tax for services rendered from

the SEZ unit


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Taxability of Service portion & VAT

in execution of Annual

Contract (AMC).

The total exemption from Service tax may be

required on such transactions (AMC / CMC at the

airport) as these are also works contract services

though, they are not in the nature of original works.

It is recommended that notification No. 24/2012

Service Tax should be amended to state if VAT is p

on the goods component (even on value after

availing deemed labour deduction),

should be payable only on the balance amount.

The government has

service tax

exemption provided to

reenfield

exemption needs

This will make construction of new airports

more expensive.

Exemption should be made available to

encourage infrastructure development by private

entities. This exemption needs to be restored.

cause notice needs to be

mandatorily served while

enforcing recovery of service

tax dues of the Assessee

including from any other third

party from whom money is due

Partial or whole service tax shall be recovered

along with interest thereon in any of the modes

specified in section 87, without service of notice

under subsection (1).

Existing provisions requires serving of a show cause

notice to the assessee wherein he

chance to explain as to why the tax has not been

paid by him.

Exemption from levy of service

tax for services rendered from

Section 26(e) grants exemption to units in DTA

from service tax under Chapter V of the

Act, 1994 on taxable services provided to a

developer or unit to carry on the authorized

operations in a SEZ.

There is no specific provision in SEZ Act for

exemption from levy of service tax for services

The total exemption from Service tax may be

required on such transactions (AMC / CMC at the

airport) as these are also works contract services

though, they are not in the nature of original works.

It is recommended that notification No. 24/2012-

Service Tax should be amended to state if VAT is paid

on the goods component (even on value after

availing deemed labour deduction), service tax

balance amount.

This will make construction of new airports

Exemption should be made available to

encourage infrastructure development by private

This exemption needs to be restored.

Partial or whole service tax shall be recovered

along with interest thereon in any of the modes

without service of notice

Existing provisions requires serving of a show cause

wherein he is given a

chance to explain as to why the tax has not been

Section 26(e) grants exemption to units in DTA

from service tax under Chapter V of the Finance

Act, 1994 on taxable services provided to a

developer or unit to carry on the authorized

There is no specific provision in SEZ Act for

exemption from levy of service tax for services


i)

Interest for delayed payment

of Service Tax to be relaxed.


of 22

rendered by an SEZ unit to an Unit i

Area (DTA). Whereas Section 26 of the SEZ Act lists

the various exemption, drawbacks and concessions

to the entities in the SEZ. Section 26(e) grants

exemption to units in DTA from service tax under

Chapter V of the Finance Act, 1994 on t

services provided to a developer or unit to carry on

the authorized operations in a SEZ. If Section 26

exempts DTA service providers rendering service to

Developer/Unit, there is all the more reasons for

exemption from service tax to service provide

located within SEZ rendering service wholly within or

from SEZ. Else the basic purpose of establishing the

SEZ unit will be defeated.

nterest for delayed payment

to be relaxed.

Vide Notification No 12/2014

rate of interest to be charged on delayed

payment of service tax has been enhanced w.e.f.

1.10.2014, with reference to the period of delay.

Thus, longer the delay period, higher would be the

rate of interest payable (Maximum @30%).

However it may be noted that instances where

payment of service tax was delayed due to

genuine reasons/ difficulty in relation to

interpretation of statues/facts are involved,

to any reason such as non-receipt thereof from

the service recipients such as Government

the above notification tends to be extremely harsh

and against natural justice.

rendered by an SEZ unit to an Unit in Domestic Tariff

Area (DTA). Whereas Section 26 of the SEZ Act lists

the various exemption, drawbacks and concessions

to the entities in the SEZ. Section 26(e) grants

exemption to units in DTA from service tax under

Chapter V of the Finance Act, 1994 on taxable

services provided to a developer or unit to carry on

the authorized operations in a SEZ. If Section 26

exempts DTA service providers rendering service to

Developer/Unit, there is all the more reasons for

exemption from service tax to service provider

located within SEZ rendering service wholly within or

from SEZ. Else the basic purpose of establishing the

Notification No 12/2014-ST dated 11.7.2014,

rate of interest to be charged on delayed

payment of service tax has been enhanced w.e.f.

1.10.2014, with reference to the period of delay.

Thus, longer the delay period, higher would be the

rate of interest payable (Maximum @30%).

noted that instances where

payment of service tax was delayed due to

genuine reasons/ difficulty in relation to

interpretation of statues/facts are involved, or due

receipt thereof from

the service recipients such as Government Parties,

the above notification tends to be extremely harsh


j)

Increase the Threshold limits

under Service Tax Law to

be enhanced to 25 Lakhs.

k)

Cenvat credit in relation to

construction activities for

original works in building

airport assets and also

estate, hotel and associated

infrastructure activities to be

restored to Airports.


of 22

ncrease the Threshold limits

under Service Tax Law to

be enhanced to 25 Lakhs.

Currently the threshold limit of Rs 10 lacs under

service tax law seems to be very low which

involves cumbersome compliance issue there

under. Further, the liability of service recipient

arises under Reverse charge mechanism even in a

case where the service provider doesn’t have to

pay tax since his income within the threshol

as noted above. The said limit has to be

enhanced to a minimum of Rs 25 lacs to synch

with the implementation of GST law and remove

the lacunae indicated above.

envat credit in relation to

construction activities for

original works in building

airport assets and also real

associated

to be

The Central Government had extended support

to construction and expansion of Infrastructures

including that of Airport by specifically allowing

CENVAT Credit of construction and works contract

services performed at Airport Sector by giving

exception to exclusion part given in input service

definition under Rule 2(I) of CENVAT Rules till July

01,2012. However, upon introduction of Negative

List Regime the classification of taxable services

became redundant, the exemption granted to

specified services including that of Airport service

(zzm) of clause (105) of section 65 of the Finance

Act, 1994 was withdrawn prompting unavailability

of CENVAT credit from input services.

However, the original works such as (a) all new

constructions; (b) all types of a

alterations to abandoned or damaged structures

on land that are required to make them workable;

(c) erection , commissioning or installation of plant

and machinery or equipments are structures,

whether prefabricated or otherwise was exempted

vide ST No.-25/2012 dated 20.06.2012. Hence

change in input service definition had no major

Currently the threshold limit of Rs 10 lacs under

to be very low which

involves cumbersome compliance issue there

under. Further, the liability of service recipient

arises under Reverse charge mechanism even in a

case where the service provider doesn’t have to

pay tax since his income within the threshold limit

as noted above. The said limit has to be

enhanced to a minimum of Rs 25 lacs to synch

with the implementation of GST law and remove

the lacunae indicated above.

The Central Government had extended support

to construction and expansion of Infrastructures

including that of Airport by specifically allowing

CENVAT Credit of construction and works contract

services performed at Airport Sector by giving

clusion part given in input service

definition under Rule 2(I) of CENVAT Rules till July

01,2012. However, upon introduction of Negative

List Regime the classification of taxable services

became redundant, the exemption granted to

ing that of Airport service

(zzm) of clause (105) of section 65 of the Finance

Act, 1994 was withdrawn prompting unavailability

of CENVAT credit from input services.

However, the original works such as (a) all new

constructions; (b) all types of addition and

alterations to abandoned or damaged structures

on land that are required to make them workable;

(c) erection , commissioning or installation of plant

and machinery or equipments are structures,

whether prefabricated or otherwise was exempted

25/2012 dated 20.06.2012. Hence

change in input service definition had no major



of 22

impact for Airport sector at that time.

But aforesaid exemption granted under Serial No

14 stands withdrawn vide Notification No 06/2015 ST

dated March 01, 2015 effective from April 01, 2015

onwards affecting the development of Airport

infrastructures assets which is very important for

growth of the economy.

In this regard, APAO has already made a specific

representation in May 2015 before the Honourable

Finance Minister vide letter No. APAO/ MoF/2015

dated 22nd May 2015 (Refer Annexure

a relief of :

a. either total restoration of exemption from

service tax carried out at Airports

or

b. admissibility of CENVAT credit of the Service Tax paid for

all services relating to construction and works contract in

Airport

We, therefore, earnestly request that CENVAT

credits arising out of inputs and input services be

granted to construction of Airport assets,

Also, the associated infrastructure

Real Estate Sectors require the same relief from levy

of service tax or eligibility for total input credit so

that the cost of development of overall airport

infrastructure does not go up and maintain the

character of thrust sector



granted to construction of Airport assets, Hotels and

Real Estate Sectors despite specific restoration of

the erstwhile Exemption granted to Airport assets.

impact for Airport sector at that time.

said exemption granted under Serial No

14 stands withdrawn vide Notification No 06/2015 ST

15 effective from April 01, 2015

onwards affecting the development of Airport

infrastructures assets which is very important for

already made a specific

before the Honourable

ance Minister vide letter No. APAO/ MoF/2015-16

Refer Annexure - II ) seeking

either total restoration of exemption from

service tax carried out at Airports

admissibility of CENVAT credit of the Service Tax paid for

all services relating to construction and works contract in



o construction of Airport assets,

Also, the associated infrastructure like Hotels and

Real Estate Sectors require the same relief from levy

for total input credit so

that the cost of development of overall airport

infrastructure does not go up and maintain the

equest that CENVAT

arising out of inputs and input services be

ted to construction of Airport assets, Hotels and

Real Estate Sectors despite specific restoration of

the erstwhile Exemption granted to Airport assets.


l)

Utilization of education cesses

paid should be allowed for

adjustment against Service Tax

post June 2015. Notification to

this effect need to be issued.

m)


services rendered by CISF to

airports


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Utilization of education cesses

paid should be allowed for

adjustment against Service Tax

. Notification to

this effect need to be issued.

The rate of Service tax has been increased

from 12.36% to flat 14% effective from June 1, 2015.

However, the existing balance of Education

Cesses paid were not available as set

basic service tax liability since there were no

Education cess liability arises post June 01,2015.

After these changes there is no clarity so far

issued by the Department about the unutilized

balance of Education cess and Higher education

cess as to whether the cess would be lapsed or

can be adjusted in the major

service tax liability.

However, the CBEC vide

12/2015-Central Excise (N.T.) dated April 30,

has amended the Cenvat Credit Rules, 2004 to

allow use of Credit of Education Cess (EC) and

Secondary and Higher Education Cess (SHEC)

paid on inputs or capital goods received in the

factory of manufacture of final product can be

utilized for payment of Excise Duty. We therefore

request that similar notification be issued for

service provider also.


services rendered by CISF to

Presently service tax is charged on services

provided by CISF to airports, which is resulting into

increase in cost to the aviation industry. Full

exemption of service tax on all services rendered

by CISF at the airports should be provided by

including the same in the negative list.

*********

The rate of Service tax has been increased

from 12.36% to flat 14% effective from June 1, 2015.

However, the existing balance of Education

Cesses paid were not available as set-off against

basic service tax liability since there were no

bility arises post June 01,2015.

After these changes there is no clarity so far

issued by the Department about the unutilized

balance of Education cess and Higher education

cess as to whether the cess would be lapsed or

can be adjusted in the major head of Basic

However, the CBEC vide Notification No.

Central Excise (N.T.) dated April 30, 2015

has amended the Cenvat Credit Rules, 2004 to

allow use of Credit of Education Cess (EC) and

Secondary and Higher Education Cess (SHEC)

paid on inputs or capital goods received in the

factory of manufacture of final product can be

of Excise Duty. We therefore

request that similar notification be issued for

Presently service tax is charged on services

which is resulting into

increase in cost to the aviation industry. Full

exemption of service tax on all services rendered

by CISF at the airports should be provided by

including the same in the negative list.


a)

Concessional Customs Duty

Goods required for

development of Airports

Clarification under Project

Imports to allow benefit of

Project Import to all items

required for Airport

Development Projects.

Due to peak tariff rate of

custom duty, goods for Airport

development are imported at

higher rate which resulting

higher project cost. We request

that goods imported for

development of Airports should

be eligible for basis

concessional custom duty @ 5%.

b)

Exemption from Custom Duty

X-ray baggage inspection

system and parts thereof

other Airport security systems

Exemption from duties of

Customs on all Airport Security

systems including X-ray

baggage inspection system

and part

Thereof required by Airport

Operator upon certification of

MoCA.


of 22

CUSTOM DUTY

Duty on

for

Project

Imports to allow benefit of

Project Import to all items

Airport

Due to peak tariff rate of

goods for Airport

development are imported at

higher rate which resulting

higher project cost. We request

that goods imported for

development of Airports should

be eligible for basis

concessional custom duty @ 5%.

Under customs tariff vide Sl.No.232 of notification No.

21/2002 – Customs dated 1st March, 2002 a lower rate

of basic custom duty had been specified as

compared to peak tariff rate. However, subsequent

to reduction in peak tariff from 12.5% to 10% items

included under List 20 corresponding to Sl.No.232 of

the above notification were not allowed any

concessional rate of duty because Sl.No.232 was

deleted from the above Customs notification. This has

resulted into import of goods for Airport development

at peak tariff rate of Customs Duty

for development of Airports. We request the erstwhile

List 20 be expanded and goods imported for

development of Airports should be eligible for basic

concessional customs duty

@5%. The suggested list of goods

required for Airport development is enclosed as

Annexure- I .

Duty for

inspection

and

systems.

of

Customs on all Airport Security

ray

system

Airport

Operator upon certification of

Vide entry No.382 of notification 21/2002

dated 1st March, 2002 - X-ray baggage inspection

system and parts thereof are eligible for NIL basic

customs duty subject to fulfilment

of the notification. Condition 81 prescribes that import

should be by Government or its authorized person for

anti-smuggling or by CISF, Police Force, Central

Reserve Police Force, National Security Guard (NSG)

or Special Protection Group (SPG) for bomb

detection and disposal. Import of x

inspection system at Airports is for security purpose

and security is Sovereign function (Reserved Activity)

as per State Support Agreement (SSA) with Ministry of

Civil Aviation ( MoCA ) and import cost is met out of

Security Component of Passenger Service Fee.

l.No.232 of notification No.

Customs dated 1st March, 2002 a lower rate

of basic custom duty had been specified as

compared to peak tariff rate. However, subsequent

to reduction in peak tariff from 12.5% to 10% items

ponding to Sl.No.232 of

the above notification were not allowed any

concessional rate of duty because Sl.No.232 was

deleted from the above Customs notification. This has

resulted into import of goods for Airport development

uty for goods required

for development of Airports. We request the erstwhile

List 20 be expanded and goods imported for

ts should be eligible for basic

duty

goods

Airport development is enclosed as

Vide entry No.382 of notification 21/2002 – Customs

ray baggage inspection

system and parts thereof are eligible for NIL basic

ment of condition No.81

Condition 81 prescribes that import

should be by Government or its authorized person for

smuggling or by CISF, Police Force, Central

Reserve Police Force, National Security Guard (NSG)

or Special Protection Group (SPG) for bomb

Import of x-ray baggage

inspection system at Airports is for security purpose

y is Sovereign function (Reserved Activity)

as per State Support Agreement (SSA) with Ministry of

) and import cost is met out of

Security Component of Passenger Service Fee.



of 22

However, since import is not directly undertaken by

the above specified agencies but by respective

Airport operators, duty concession is not available

though money is being paid out of funds of

Government of India (GoI). Hence, this condition

needs to be amended to expand its scope to cover

other security systems also and to incorporate import

by respective Airport operators subject to certificate

from Government (MoCA). This concession should not

be limited to x-ray machines alone because there are

other machines, which are used for bomb detection

and disposal. Further, it should also include other

goods required for Airport security. Entry at Sl. No. 382

should be amended to “X-ray baggage inspection

system and other airport security systems and parts

thereof” (falling under chapter 84, 90 or any other

chapter).

List of such Security Systems are furnished below:

a) X-ray baggage inspection system and parts

thereof,

b) Explosive detectors,

c) Bomb/suspect luggage containment vessels/units.

d) Robots for handling of bombs or suspected

baggage,

e) Parameter security intrusion

and accessories

f) Access Control System

g) Hydraulic bollards,

h) Boom barriers

i) Cameras for CCTV.

All the above systems are bought as per

specifications laid down by Bureau of Civil Aviation

Security (BCAS), MoCA, and GoI.

However, since import is not directly undertaken by

ve specified agencies but by respective

Airport operators, duty concession is not available

though money is being paid out of funds of

Government of India (GoI). Hence, this condition

needs to be amended to expand its scope to cover

also and to incorporate import

by respective Airport operators subject to certificate

from Government (MoCA). This concession should not

ray machines alone because there are

other machines, which are used for bomb detection

rther, it should also include other

goods required for Airport security. Entry at Sl. No. 382

ray baggage inspection

system and other airport security systems and parts

thereof” (falling under chapter 84, 90 or any other

ist of such Security Systems are furnished below:

ray baggage inspection system and parts

c) Bomb/suspect luggage containment vessels/units.

d) Robots for handling of bombs or suspected

intrusion system

All the above systems are bought as per

specifications laid down by Bureau of Civil Aviation


c)

Free of duty Import of Spares &

Consumables by MRO operators


of 22

Import of Spares &

Consumables by MRO operators

All Materials like aircrafts spares and consumables has

to free of duty by MRO Operators. Presently there is a

free of duty of aircraft spares with a condition that the

same utilized within one year from the date of import

otherwise the same is taxable. Consumable are

taxable from the beginning.

Hence, the Free of Duty is required for Import of

Spare and Consumables with no restrictions by MRO

Operators.

********

All Materials like aircrafts spares and consumables has

to free of duty by MRO Operators. Presently there is a

free of duty of aircraft spares with a condition that the

from the date of import

otherwise the same is taxable. Consumable are

Hence, the Free of Duty is required for Import of

Spare and Consumables with no restrictions by MRO


a)

Issue of “C” Form by Airport

Operators

b)

ATF as Declared Goods

Classification of “Aviation

Turbine Fuel (ATF)” as Declared

Goods to bring a uniform tariff

/Tax across India.


of 22

CENTRAL SALES TAX

Allow Airport sector to issue “C” form.

Though Airport sector is an important infrastructure

sector like telecom, electricity generation and

distribution, and mining, it is not included as one of the

eligible categories which can issue concessional Form

“C� because of which purchase of goods for Airport

development attracts higher Sales Tax resulting in

increased cost of project, which is not in public interest

as any increase in cost of project ultimately translates

into higher passenger fees. In view of th

sector should also be allowed to issue C Form and to

this extent Section 8(3)(b) of Central Sales Tax Act,

1956 may be suitably amended.

“Aviation

Turbine Fuel (ATF)” as Declared

uniform tariff

Aviation Turbine Fuel (ATF) may be classified as

“Declared Goods� category under CST Act with a

uniform application of Sales Tax rate all over the

country. This will facilitate emergenc

as “Hubs� and stabilize ATF prices across the country

which will lower tariffs for passengers.

********

Allow Airport sector to issue “C” form.

Though Airport sector is an important infrastructure

sector like telecom, electricity generation and

distribution, and mining, it is not included as one of the

ch can issue concessional Form

because of which purchase of goods for Airport

development attracts higher Sales Tax resulting in

increased cost of project, which is not in public interest

as any increase in cost of project ultimately translates

into higher passenger fees. In view of this, Airport

sector should also be allowed to issue C Form and to

this extent Section 8(3)(b) of Central Sales Tax Act,

uel (ATF) may be classified as

category under CST Act with a

uniform application of Sales Tax rate all over the

country. This will facilitate emergence of Indian Airports

e ATF prices across the country

which will lower tariffs for passengers.


a).

Change in Baggage

Rules

b.

Services rendered by MRO to be

eligible under SFIS / SEIS scheme


of 22

POLICY ISSUE

Baggage rules, 1998 permit, inter alia, duty free

of articles other than articles mentioned in

to the rules, to the extent of Rs.45

prohibits import of liquor or wine in excess

With depreciation of Rupee there is need to

allowance to at least Rs.60,000 from

duty free import of liquor may be allowed upto 3 ltrs. of

liquor and additional 2 ltrs. of wine

Services rendered by MRO to be

IS scheme

Services rendered by MRO (even to domestic airlines)

should be considered as deemed export and

eligible for SFIS / SEIS scheme.

**-**

Baggage rules, 1998 permit, inter alia, duty free import

of articles other than articles mentioned in Annexure 1

the rules, to the extent of Rs.45,000. Annexure 1

prohibits import of liquor or wine in excess of 2 ltrs.

With depreciation of Rupee there is need to increase

0,000 from Rs.45,000 and also

allowed upto 3 ltrs. of

Services rendered by MRO (even to domestic airlines)

deemed export and be


Annexure-I

Sl. No.

Tariff Code

1

Chapter 84 or any other chapter

2


3


4


5


6


7


8


9


10


11


12


13



of 22

I Goods required for Airport development

Code Particulars

Chapter 84 or any other chapter Navigational / Communication Aids


Airfield Crash Fire Tenders & other fire

fighting vehicles

Chapter 84 or any other chapter Elevated Transport Vehicle

Chapter 84 or any other chapter AC Plant of capacity more than 200 TR

Chapter 84 or any other chapter T-5 Triphosfor Tube

any other chapter Flight Inspection System (Ground & Air)


Runway Marking & Pavement testing

machine

Chapter 84 or any other chapter Baggage Conveyor (handling) system


Passenger Boarding bridges

(Aerobridges) along with associated

Visual Guidance Docking Systems

Chapter 84 or any other chapter HVAC & accessories

Chapter 84 or any other chapter Travelators / Escalators / Lifts

chapter Structural glazing (glass)

Chapter 94 or any other chapter Airport ground lighting

Navigational / Communication Aids

Tenders & other fire

Elevated Transport Vehicle

AC Plant of capacity more than 200 TR

Flight Inspection System (Ground & Air)

Runway Marking & Pavement testing

Baggage Conveyor (handling) system

bridges

(Aerobridges) along with associated

Visual Guidance Docking Systems

Travelators / Escalators / Lifts


14


15


16


17


18


19


20


21


22


23


24


25


26


27


28



of 22

Chapter 76 or any other chapter Aluminium (Roof sheeting)

Chapter 73 or any other chapter False ceiling

Chapter 57 or any other chapter Carpet

Chapter 94 or any other chapter Fire proof door

Chapter 94 or any other chapter Revolving door

Chapter 94 or any other chapter LED Light fittings

Chapter 94 or any other chapter Check in counters

other chapter Chillers


Ground Power Unit (frequency

convertor)

Chapter 94 or any other chapter Signages

Chapter 94 or any other chapter Chairs

Chapter 69 or any other chapter Vitrified tiles

Chapter 84 or any other chapter Runway Sweepers

Chapter 85 or any other chapter Variable speed drives

Chapter 85 or any other chapter LCD/ LED Flat Panels

Aluminium (Roof sheeting)

(frequency

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