Union Budget 2016-17 was presented today amidst high hopes of rationalization and simplification of indirect tax regime and laying down defined roadmap for introduction of the single largest indirect tax reform in India – Goods & Services Tax (‘GST’). While government scored well on rationalization of tax regime with focus on strengthening the dispute resolution mechanism, silence on roadmap to GST is a manifestation of continued political gridlock on the subject.
Hon’ble Finance Minister has announced setting up of 11 new CESTAT benches so as to reduce the burden of existing benches and facilitate faster disposal of pending cases. Further, an ‘Indirect tax Dispute Resolution Scheme, 2016’ has been introduced in order to close the pending proceedings before Commissioner (Appeals). The Scheme provides an option to the taxpayer to settle and conclude all proceedings by paying tax/ duty, interest and penalty at 25 percent of the tax/ duty amount. Another major amendment includes rationalization of interest rates at 15 percent across all indirect taxes viz; customs, excise duty and service tax. These amendments are welcome steps towards faster and efficient resolution of pending tax litigations.
The Government has also moved ahead with amendments to the CENVAT credit rules with an aim to improve the credit flows and reduce compliance burden. Key changes include broad basing of credit on office equipment and appliances, facilitating transfer of credit to outsourced manufacturers through input service distributor mechanism and enabling manufacturers with multiple manufacturing units to avail credit of inputs received in a common warehouse for distributing to individual manufacturing units. In addition, regime of apportionment of credit between taxable and exempted services has been liberalized; and, longstanding disputes with respect to reversal of credit on inputs and input services used exclusively for taxable activities have also been resolved by specifically excluding the credit with respect to these from the common pool of credit.
Aligned with the Government’s express intent of ease of doing of business and reducing compliance requirement, announcement has been made for introduction of Indian Customs Single Window Project (‘Single Window Scheme’) at major customs ports and airports from beginning of next financial year. This Scheme aims at reducing the cost of doing business by integrating regulatory requirements of several agencies on one common platform. With an intent to support the ‘Make in India’ initiative, customs duty deferral scheme has been introduced for notified categories of importers and exporters which will help in improvement of cash flows for the manufacturers in India, however it is likely to be implemented with suitable checks and balances so as to not allow any misuse of the deferral facility. Details are yet to be announced on the customs duty deferral scheme. Excise compliances have also been simplified by reducing the number of returns from 27 to 13 (one annual and 12 monthly returns) and introducing the facility for revision of returns. All these initiatives are designed to facilitate trade, enhance transparency and reduce compliance costs to taxpayers.
All in all, the emphasis is clearly on addressing the challenges of the past and ushering in an era of simplified self-regulation focused tax compliance regime.
However as any budget making exercise in the diverse context of India and current economic conditions which is facing the global head winds, it is expected that government has the need to mobilize additional tax revenues so as to be able to walk the path of fiscal prudence. It is in that spirit that a few new cesses viz; krishi kalyan cess, infrastructure cess have been introduced while service tax has become applicable on right to use and trading of spectrum and freight charges on import of goods into India through the ocean freight. Increased facilitation also triggers the need to strengthen the audit machinery and the Government has responded to this need by extending the period of limitation under excise, customs and service tax laws in cases not involving fraud, suppression of facts, willful mis-statement, etc. This will allow the government sufficient time to audit the records and thus get the right to recover the duties without resorting to the much abused provisions of invoking the willful suppression even in cases where facts do not support the charge.
The world would keenly watch the developments on GST as a key validation of Government ability and resolve to deliver on its key promise of making India a unified, single market from indirect tax perspective. Success to deliver on the GST promise could be the defining moment for the Government and the industry, but the wait for the moment is not yet over.
Author is leader, Indirect Tax, BMR & Associates LLP