ANALYSIS OF INDIRECT TAX PROPOSALS IN BUDGET · PDF filetreatment facility to a clinical...

ANALYSIS OF INDIRECT TAX

PROPOSALS IN BUDGET 2014

© Economic Laws Practice 2014

Key issues Pre-Budget

2© Economic Laws Practice 2014

Definitive path and time lines for GST

Retrospective amendments

Adoption of DTC

Dealing with culture of Tax Terrorism

Measures to catalyse the manufacturing sector

Measures to enthuse domestic and foreign investment

Curtailing the exponential growth of tax litigation

INDIRECT TAXES

3

Service tax –Negative List


Negative list to exclude “online and mobile advertising” Earlier list covered selling of space or time slot for advertisement

other than advertisement broadcast by radio or televisionNew levy extends to advertisements in internet websites, out-of-home media, on film screen in theatres, bill boards, conveyances,buildings, cell phones, Automated Teller Machines, tickets,commercial publications, aerial advertising, etc.Sale of space for advertisements in print media, would continue tobe in the negative list and hence remain excluded from service tax

Negative list modified to exclude Radio Taxis Abetment scheme similar to rent a cab made available to radio taxis Definition of ‘Radio taxi’ introduced to include radio cab having two

way radio communication and GPS/GPRS enabled tracking

Service Tax - Exemptions


Exemption Notification 25/2012-ST dated 20.06.2012, extended to include: Services provided by operators of the common bio-medical waste

treatment facility to a clinical establishment by way of treatment ordisposal of bio-medical waste or the processes incidental thereto;

Scope of exemption of services provided by education institutionclarified by omitting ‘auxiliary educational service’ and specifyingservices to include transport of students, catering service, security-house keeping service and admission related service;

Transport of goods by rail or vessel or services by goods transportagency involving organic manure and cotton (ginned/baled);

Services of Life micro insurance approved by IRDA having maximumcover of Rs.50,000

Services by way of loading, unloading packing, storage or warehousingextended to cotton;

Services received by the RBI, from outside India in relation tomanagement of foreign exchange reserves;

Services provided by a tour operator to a foreign tourist in relation toa tour conducted wholly outside India

Service Tax - Exemptions


Exemption Notification 25/2012-ST dated 20.06.2012, amended toexclude: Services by way of technical testing or analysis for newly developed drugs; Services provided by way of renting of immovable property to educational

institutions Service of transport of passengers by contract carriage restricted to non

air conditioned contract carriages Rationalization of services provided to Government, a local authority or a

governmental authority

Service Tax – Other Legislative Changes


Interest rates for delay beyond six months increased slab wise(effective October 2014)

Sr. No Period of Delay Rate of Simple Interest

1 Upto 6 months 18%

2 > 6 months – 1 year 18% - 1st 6 months24% - > 6 months

3 > 1 year 18% - 1st 6 months24% - 6 months - 1 year30% - > 1 year

Service Tax Rules


Addition to persons liable to pay service tax

Banking company, financial institution or a NBFC receiving servicesfrom recovery agents

Body corporate receiving services from a directorEarlier it was only applicable to Companies

Corresponding changes made in the reverse charge

Change in reverse charge notification in case of rent a cab wheretax being paid on non-abated value \ From 60% - 40% amended to 50% by each This change is applicable from 1st October 2014

Point of Taxation Rules


In respect of cases where Service tax is to be paid by the receiver,the point of taxation will be

the date of payment, or the day after 3 months from the date of invoice, whichever is earlier

The above change is effective for invoices issued after 1st October2014.

For invoices before 1st October but no payments made (interim period)new Rule inserted (Rule 10)

Invoice issued before 1st October 2014 but payments not made:Situation 1 – if payment made within 6 months, date of paymentSituation 2 – if payment is not made within 6 months, then accrual basis

Place of Provision of Services Rules

Definition of “intermediary” changed to include intermediaries forgoods as well

Earlier, this applied only to intermediaries for services Incase of services provided by “intermediaries”, the place of provision

of services is the location of service provider

Provision for prescribing conditions for determining place ofprovision for repair services on temporarily imported goods forrepairs omitted

Services of hiring of vessels (excluding yachts) and Aircraft isexcluded from Rule 9, and will therefore fall under the general rulei.e. location of recipient.

Above changes effective from 1st October 2014


Service Tax Valuation Rules


Differentiation between works contract for repair and maintenanceof any goods (value of services - 70% of value ) and the residualcategory (value of services – 60% of value) removed and service taxto be paid on 70% on any works contracts other than originalworks.

This change is applicable from 1st October 2014

CENVAT Credit Amendments


CENVAT credit of input and input services can now be taken only within a periodof 6 months from the date of issue of invoice/ challan/ other specifieddocument The amendment is prospective in nature, and may not have a bearing on

transactions till date

Definition of term ‘place of removal’, which is relevant for “input service” hasbeen introduced Definition is identical to that in Section 4 of the Central Excise Act This amendment would eliminate interpretational issues arising in context

of the definition of ‘input service’

This amendment overcomes the divergence of the views between KarnatakaHigh Court, Gujarat, Punjab and Haryana High Courts and the conflicting viewtaken by the Karnataka High Court on the question of credit in respect ofoutward transportation

In cases where a service provider receives the value of services after thespecified or extended period allowed by RBI but within one year from suchperiod shall be entitle to credit previously paid in terms of Rule 6

CENVAT Credit Amendments


CENVAT credit in respect of input services received from vendors whereservice tax is payable under reverse charge mechanism has been givendifferential treatment as under:

A Large Taxpayer Unit is disallowed from transferring CENVAT creditfrom one of its manufacturing unit to another prospectively This amendment is restricted to credit arising in relation to a

manufacturing unit and not premises engaged in rendition of service.

Scenario Impact

In cases where 100% of the service tax liability is to be paid by the service recipient

CENVAT credit can be availed after payment of Service tax by the service recipient, without payment of value of service

In case the service tax liability is partially to be paid by the service recipient

CENVAT credit can be availed after payment of value of services and Service tax by the service recipient.

Central Excise & Customs –Legislative Changes

All references to Chief Commissioner / Commissioner may also include areference to the Principal Chief Commissioner Various powers and functions of the Chief Commissioner/

Commissioner under the acts will also be exercisable by the PrincipalChief Commissioner

Intention to reduce litigation Mandatory fixed pre-deposit for filing appeals before Commissioner

(Appeals) and Tribunal7.5% of the duty demanded or penalty imposed or both forCommissioner (Appeals) or Tribunal at the first stage10% of the duty demanded or penalty imposed or both for filingsecond stage appeal before the TribunalPre-deposit is subject to a ceiling of Rs. 10 crore

Consequent to the above, there will be no Stay hearingAll issues on extension of stay and consequent recoveries go away


Central Excise & Customs –Legislative Changes

Commissioner (Appeals) permitted to take into consideration aparticular order cited as a precedent decision having not beenappealed against for reasons of low amount

Expansion in scope of cases which can be taken up by SettlementCommission:

Customs: Cases where a Bill of Export, Baggage Declaration, Labelor Declaration accompanying the goods effected through Post orCourier have been filedExcise: where the assesse has not filed a return under Excise

Concealment of particulars of duty liability from the Customs/ Exciseofficer (and not from the Settlement Commission) is a bar on making asubsequent application to the Settlement Commission

Discretionary powers of the Tribunal to refuse admission of appealincreased from Rs.50,000 to Rs.2 lakh.

Committee in relation to filing of Department appeals before Tribunalcan be constituted by an order of the CBEC, and would not require anotification published in the Official Gazette

Scheme of Advance Ruling extended to resident private limited companies


Validity of condition of pre-deposit upheld under different laws

Har Devi Asnani Vs State of Rajasthan 2011 (14) SCC 160

Narayan Chandra Ghosh Vs UCO Bank 2011 (4) SCC 548

The Supreme Court, however, in another case has stayed the operation ofSub-Section (5) of Section 62 of Haryana VAT Act.

Appeal can be entertained without pre-deposit

Shyam Kishore Vs Municipal Corporation 1993 (1) SCC 22

Ranjit Impex Vs Deputy Commissioner 2013 (10) SCC 655


Central Excise – Other Changes

Key measure for sharing of information Provision to require submission of a return/ information to an

authority or agency, including by assessees, Income Tax Authorities,State Electricity Boards, VAT or Sales Tax Authorities, Registrar ofCompanies etc in order to identify tax evaders or recover confirmeddues

Penalty may be imposed on failure to provide the information

Clarification under Section 35L that that determination of disputesrelating to taxability or excisability of goods is covered under theterm “determination of any question having a relation to rate ofduty” The proposed amendment is as per the line of decisions including

Commissioner of Service Tax vs. Ernst And Young Pvt Ltd [2014-TIOL-263-HC-DEL-ST] and Commissioner of Service Tax vs. Delhi GymkhanaClub Ltd. [2009 (16) STR 129]


Central Excise Valuation –Amendment to overcome Fiat judgment


Amendment to Rule 6 of the Central Excise Valuation Rules –Transaction Value to be deemed as assessable value even if goodsare sold below cost and profit

Provided that no other additional consideration flows from buyerdirectly or indirectly

Overcomes the Supreme Court verdict in the case of Commissionerof Central Excise, Mumbai vs. Fiat India Pvt. Ltd. [2012 (283) E.L.T.161 (S.C.)], wherein it has been held that

Goods sold below cost price for market penetration to be liable toExcise duty on cost plus reasonable mark-up, even though noadditional money consideration is received from buyer


ANALYSIS OF INDIRECT TAX PROPOSALS IN

BUDGET 2014

ANALYSIS OF INDIRECT TAX

PROPOSALS IN BUDGET 2014ANALYSIS OF INDIRECT TAX

PROPOSALS IN BUDGET 2014Goods and services tax (GST)

GST


GST part of the manifesto of the newly elected Government andflagged as priority; however no concrete path paved in Budget

FM expressed hope to find a solution to GST in a year and approvelegislative scheme for its introduction GST to result into higher tax collection for Centre and States Ease in Tax administration and avoidance of harassment to

business Promise to crack a fair deal with States

Following areas identified as key to GST implementation

Compensation for phasing out CST

Outlining the State tax jurisdiction

While Economic Survey 2013-14 indicated possibility of phasedintroduction by way of CenGST, no mention in Budget

CST Phase Out

Revenue ShareStates / Centre

Constitutional Amendment

Steps towards implementation of GST

GST – Parliamentary Process


S t e p 1 – L o k S a b h aMajority of total membership and Not less than 2/3 of majority of members present and voting

S t e p 2 – R a j y a S a b h aTo be passed by 2/3 majority

S t e p 3 – R a t i f i c a t i o n b y S t a t e sBill required to be ratified by the Legislatures of not less than one-half of the States

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