UNION BUDGET 2016 KEY INDIRECT TAX PROPOSALS

BS & Co LLPChartered Accountants

Pune

Key Highlights No specific time line on Goods and Service Tax No Change in median rate of Basic Customs, Excise duty and Services tax Introduction of new cess - Krishi Kalyan Cess @ 0.5% on all taxable services (w.e.f 1 June

2016) and the credit of the same is available Rationalization of interest rate in respect of Customs, Central Excise and Service Tax* @

15% p.a. and *24% p.a. incase of service tax collected but not deposited to Government Revamp of Rule 6 (reversal of CENVAT credit on account of exempted activities) and Rule

7 (Input Service Distributor) of the Cenvat Credit Rules Capital goods – goods value upto Rs 10,000/- per piece are covered in inputs Annual Return under service tax and central excise subject to specified annual turnover Provision for revision of return under Central Excise Indirect Tax Dispute Resolution Scheme, 2016 to minimize litigation 11 additional benches of CESTAT

GOODS AND SERVICE TAX

Goods and Service Tax

Finance Minister has not setout any time frame for implementation of GST FM has not made any statement/remark on GST except following:

The Government shall also endeavour to continue with the ongoing reform programme and ensure the passage of the Constitutional amendments to enable the implementation of the Goods and Service Tax, the passage of Insolvency and Bankruptcy law and other important reform measures which are pending before the Parliament.

However Government has introduced certain provisions to align existing provisions with GST

SERVICE TAX

14%Service Tax

14.5%ST + SBC

15%ST + SBC + KKC

Service Tax – Legislative Changes

Definition of ‘Service’ has proposed to amend to include any activity carried out by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner, of the State Government as per the provisions of the Lotteries (Regulation) Act, 1998

Declared Service- Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is being declared as a service

Section 93A of the Finance Act, 1994 is proposed to be amended so as to allow rebate by way of notification as well as Rules

The power to arrest under the Act is proposed to be restricted only to situations where the assessee has collected tax but not deposited it with the Central Government, and the amount of such tax is more than Rs 2 crores from existing limit of Rs 50 Lacs

The benefit of quarterly payment of Service Tax and facility of payment of Service Tax on receipt basis – extended to One Person Company and HUF

Service Tax – Exemptions (Withdrawal)

Sr No

Discerption Effective date

1 • a senior advocate to an advocate or partnership firm of advocates

providing legal service; and• a person represented on an arbitral tribunal to an arbitral

tribunal

1 April 2016

2 Services - construction, erection, commissioning or installation of original works pertaining to monorail or metro

1 March 2016

3 Transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway

1 April 2016

Service Tax – Exemptions (Granted)

Sr No

Discerption Effective date

1 Services by way of construction etc. in respect of-(i) housing projects under Housing For All (HFA) (Urban)

Mission/Pradhan Mantri Awas Yojana (PMAY)(ii) low cost houses up to a carpet area of 60 square meters in a

housing project under “Affordable housing in Partnership” component of PMAY

(iii) low cost houses up to a carpet area of 60 square meters in a housing project under any housing scheme of the State Government

1 March 2016

2 The service of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India

1 April 2016

3 Services provided by Employees’ Provident Fund Organisation (EPFO)

1 April 2016

Service Tax – Exemptions (Granted)

Sr No

Discerption Effective date

4 Services provided by IRDA, SEBI 1 April 20165 The rate of Service Tax on single premium annuity (insurance)

policies is being reduced from 3.5% to 1.4% of the premium, in cases where the amount allocated for investment, or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service

1 April 2016

6 The services of general insurance business provided under ‘Niramaya’ Health Insurance scheme

1 April 2016

7 Services provided by National Centre for Cold Chain Development under Department of Agriculture, Cooperation and Farmer’s Welfare, Government of India, by way of knowledge dissemination

1 April 2016

8 Services provided by Biotechnology Industry Research Assistance Council

1 April 2016

9 Services provided by way of skill/vocational training by training partners under Deen Dayal Upadhyay Grameen Kaushalya Yojana

1 April 2016

Service Tax – Exemptions (Granted)Sr No

Discerption Effective date

10 Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship

1 April 2016

11 The threshold exemption to services provided by a performing artist in folk or classical art forms of music, dance or theatre is being enhanced from Rs 1 lakh to Rs 1.5 lakh charged per event

1 April 2016

12 Service by stage carriage other than air conditioned stage carriage

1 June 2016

13 Services provided by the Indian Institutes of Management (IIM) by way of 2 year full time Post Graduate Programme in Management (PGPM) (other than executive development programme), Integrated Programme in Management and Fellowship Programme in Management (FPM)

1 March 2016

14 Construction services provided to the Government, a local authority or a governmental authority, in respect of construction of govt. schools,hospitals etc. (during the period from the 1st July, 2012 to 29th January, 2014 with consequential refund subject to unjust enrichment)

1 April 2015

Service Tax – Negative List

Specified educational services and the definition of ‘approved vocational education course’ are proposed to be omitted . However the same has been included in exemption list

‘Service of transportation of passengers, with or without accompanied belongings, by a stage carriage’ is being omitted (w.e.f 1 June 2016) However, stage carriage without air-conditioned facility exempted from service tax

Services by way of transportation of goods by an aircraft or Vessel from a place outside India up to the customs station of clearance in India (w.e.f 1 June 2016). However, exemption has been granted to transportation of goods by an aircraft

Service Tax – Abatements

Sr No

Discerption Effective Tax base

1 Transportation of Rail (Other than Transportation of goods in containers by rail by any person other than Indian Railways)

30%

2 Transportation of goods in containers by rail by any personother than Indian Railways

40%

3 Transportation of passengers with or without accompanied belonging by rail

30%

4 Services of goods transport agency in relation to transportation of goods other than used household goods

30%

5 Services of goods transport agency in relation to transportation of used household goods

40%

6 Services provided by a foreman of chit fund in relation to chit 70%7 Transportation of passengers with or without accompanied

belongings by a stage Carriage40%

Service Tax – Abatements

Sr No

Discerption Effective Tax base

8 Transportation of goods in a vessel 30%9 Services by a tour operator in relation to-

(i) a tour, only for the purpose of arranging or booking accommodationfor any person(ii) Tours other than above

10%

30%

10 Construction of a complex, building, civil structure or a partthereof, intended for sale to a buyer, wholly or partly except whereentire consideration is received after issuance of completioncertificate by the competent authority

30%

A condition mandating inclusion of cost of fuel in the consideration for availing abatement on the services by way of renting of motor-cab is being prescribed with effect from 1 April 2016.

Service Tax – Other Changes

Service tax on Information Technology Software on media bearing RSP is being exempted from Service Tax with effect from 1 March 2016 provided Central Excise duty is paid on RSP in accordance with Section 4A of the Central Excise Act

First time, TRU circular clarified that the levy of Central Excise duty/CVD and service tax will be mutually exclusive

The liability to pay service tax on any service provided by Government or a local authority to business entities shall be on the service recipient (w.e.f. 1 April 2016)

CUSTOMS AND CENTRAL EXCISE

Customs and Central Excise

The median rate of customs duty retained @ 10% No change in median rate Excise duty rate as well Provision for revision of Excise returns Annual Financial Information Statement for the preceding financial year, has been

substituted with the words Annual Returns. Further, Annual installed capacity return and ER-5 and ER-6 has been dispensed off. Effectively, the number of returns to be filed by a central excise assessee above a certain threshold from 27 to 13 (1 annual and 12 monthly return)

Annual return is also applicable to EOU Penalty for late filing of Annual return is Rs 100 per day subject to Maximum - Rs

20,000 Facility for single registration in case 2 or more units located within the same range

of superintendent subject to other conditions

Customs and Central Excise

In case of provisional assessment interest needs to be calculated from original due date and not from the 1st day of subsequent month in which final assessment completed

Claim for rebate of duty paid on all excisable goods will now be required to be submitted before the expiry of the time prescribed under Section 11B of the Central Excise Act

In respect of ‘media with recorded information technology software’, exemption from payment of Excise Duty is provided to the extent of taxable value on which Service Tax is leviable

Abolished 13 different cess and introduction of Infrastructure Cess on Motor Vehicle falling under 8703

Appointment of public warehouses and licensing of private warehouses are being substituted to provide for licensing by the Principal Commissioner of Customs/ Commissioner of Customs instead of AC/DC

Period for which goods may remain warehoused is proposed to be substituted to extend the period of warehousing to EOU, EHTP and STPs. The provisions relating to period of 5 years in respect of capital goods and 3 years in respect of goods other than capital goods is proposed to be done away with.

CENVAT CREDIT

CENVAT Credit

Amendment in Definition

Changes

Capital goods • Wagons falling under heading 860692 have been covered in capital goods

• The words “but does not include any equipment or appliance used in an office” has been omitted.

• Capital Goods used for pumping of water outside the factoryInput • All goods used for pumping of water covered with in ambit of

‘inputs’

• All capital goods which have a value upto Rs 10,000 per piece included in inputs

Input Service Distributor

• The scope of definition has been extended to an office of an ‘outsourced manufacturing unit’.

CENVAT Credit

Amendment Changes

Rule 4(5)(b) • CENVAT Credit can be allowed on jigs, fixtures moulds and dies or tools sent to a job worker or another manufacturer without bringing the same to the premises

Rule 4(6) • The permission issued for clearance of goods from the job worker premises would remain valid for three year vis-à-vis earlier validity of one year

CENVAT Credit Amendment in Rule 6 – which deals with CENVAT credit with respect to exempted goods and

exempted services As per amended Rule, following 2 options were provided

Pay 6% of exempted goods cleared or 7% incase exempted services provided subject to a maximum of the total credit available in the account of the assessee at the end of the period to which the payment relates or

Pay an amount as determined under sub-rule (3A) (proportionately reversal based on the turnover)

As Rule 6(3A) Inputs/Services used exclusively for exempted goods/exempted services – credit not allowed

Inputs/Services used exclusively for non exempted goods/non exempted services – credit allowed entirely

Balance Credit (common credit) – shall be proportionately distributed based on turnover. Credit attributable to exempted goods/service needs to be reversed

CENVAT Credit

Rule 6(3A) needs to apply monthly on provisional basis based on previous year data and True-up needs be done on Annually on or before 30 June of next year

In case previous year data is not available, 50% of common credit needs to be reversed provisionally

Incase of option (ii) intimation in writing needs to be submitted with Excise authorities

Such option shall not be withdrawn during the remaining part of the financial year on the turnover

Manufacturer who exclusively manufactures exempted goods or a service provider who exclusively provides exempted services shall not be eligible for credit of any inputs and input services

CENVAT Credit No CENVAT Credit can be allowed on capital goods used exclusively for manufacturing of

exempt goods or exempted services for a period of two years from the date of commercial production or provision of services

CENVAT credit can be availed based on invoice issued by service provider for clearance of inputs or capital goods as such

Draconian provision with regard to utilization of CENVAT credit on FIFO basis has been deleted

Time limit for refund claim under Rule 5 of the CENVAT Credit Rules has been provided (service provider):

1 year from the date of receipt in convertible foreign exchange where the provision of services has been complete prior to receipt of payment; or

1 year from the date of issue of invoice, where payment for the service has been received in advance

CENVAT Credit - Input Service Distributor (ISD)

The scope of ISD has been widen and now ISD can distribute CENVAT Credit to outsourced manufacturing units also in addition to the own units

outsourced manufacturing unit has been defined as: “outsourced manufacturing unit means a job-worker who is liable to pay duty on the value determined under rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 on the goods manufactured for the input service distributor or a manufacturer who manufactures goods, for the input service distributor under a contract, bearing the brand name of such input service distributor and is liable to pay duty on the value determined under section 4A of the Excise Act.”

Credit of service tax paid on input services, available with the input service distributor, as on the 31 March, 2016, shall not be transferred to any outsourced manufacturing unit

Provisions of rule 6 shall not apply to the input service distributor

CENVAT Credit - Input Distributor (ID)

New provision introduced for distribution of credit on inputs by warehouse of manufacturer

A manufacturer having one or more factories, shall be allowed to take credit on inputs received under an invoice issued by a warehouse of the said manufacturer

The provisions of these rules or any other rules made under the Excise Act as applicable to a first stage dealer or a second stage dealer, shall, mutatis mutandis, apply to such warehouse of the manufacturer

COMMON PROVISIONS

Common Provisions

Act Existing time limit Revised time limitCustoms 1 Year 2 YearsCentral Excise 1 Year 2 YearsService Tax 18 Months 30 Months

Time limit for demand in case of no fraud, collusion, suppression etc. has been enhanced by 1 year and accordingly revised time limits are:

Rationalization of interest rates Act Existing Rate Revised Rate

Customs 18% p.a. 15% p.a.Central Excise 18% p.a. 15% p.a.Service Tax 18% p.a. to 30% p.a.* 15% p.a.

24 % p.a. in case of service tax collected but not deposited

INDIRECT TAX DISPUTE RESOLUTION SCHEME 2016

Indirect Tax Dispute Resolution Scheme 2016 Particulars Details

Eligibility Appeals pending before Commissioner (Appeals) as on 1 March 2016 in respect of Customs, Central Excise or Service Tax

Dates for filing of an application

From 1 June 2016 to 31 December 2016

Amount Payable

Basic Tax/duties in impugned order + applicable interest + 25% penalty

Relief Get immunity from prosecution and matter to be concluded and no matter relating to the impugned order shall be reopened

Scheme not applicable

• the impugned order is in respect of search and seizure proceeding; or• prosecution for any offence punishable under the Act has been instituted

before the 1st day of June, 2016; or• the impugned order is in respect of narcotic drugs or other prohibited

goods; or• impugned order is in respect of any offence punishable under the Indian

Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985 or the Prevention of Corruption Act, 1988; or

• any detention order has been passed under the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974.

CONTACT US

Office Address:Flat No 6, 3rd Floor, DSK Nishigandh,Bharat Kunj Society,Earandwane Pune - 38 +91 94 22 624 499

CA Mahesh Bandre+ 91 99 75 719 003mahesh@bsllp.in

CA Nilesh Saboo+91 99 23 595 077nilesh@bsllp.in

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