Decoding indirect taxes

Author : CA Pritam  Mahure

Few sectors which are not under excise net are proposed to come under the ambit of excise duty. Thus, in view of the Budget 2016 changes, in days to come ladies can expect jewellery to get costlier.

As per the Budget proposals, flats, jewelry, ready-made garments, mobiles, rope-way rides are likely to cost more. How? Let’s understand.

Service Tax
Services are likely to get costlier as a Krishi Kalyan cess (KKC) of 0.5 per cent will be applicable on all services from June 1. Due to levy of KKC the effective rate of service tax will be 15 per cent (14 per cent service rax + 0.50 per cent Swachh Bharat cess + 0.50 per cent KKC).

In the real estate sector, residential properties are expected to cost more as the service tax prescribed for specific residential units has been increased from 3.50 per cent to 4.20 per cent. This will increase the service tax amount on residential flats by 0.70 per cent (i.e. Rs 7,000 per 10 lakh).

During the coming summer holidays, in case you are planning to take a rope-way ride, say at Manali or Raigad, be ready to shell out 15 per cent more as the exemption to transport of passengers by rope-way, cable car or aerial tramway is proposed to be removed in this Budget.

As for performing folk artists, there is a relief proposed. The current threshold exemption limit of consideration charged for services provided by a performing artist in folk or classical art forms of music, dance or theatre, will be increased from Rs 1 lakh to Rs 1.5 lakh per performance.

In recent times, the use (or misuse) of the provision to arrest in service tax issues hogged the limelight thanks to the arrest of prominent website officials. As a relief, the provision to arrest in service tax law is proposed to be restricted only to situations where the taxpayer has collected tax amount more than Rs 2 crore but not deposited the same. This is a welcome move as currently collection and non-payment of service tax above only Rs 50 lakh attracts arrest provisions.

The current generic rate of excise, i.e. 12.50 per cent, has been maintained. However, few sectors which are not under excise net (specified readymade garments, jewellery, etc.) are proposed to come under the ambit of excise duty. Thus, in view of the Budget 2016 changes, in days to come ladies can expect jewellery to get costlier.

Customs legislation
The finance minister indicated that the invert duty structure for many sectors will be corrected. In line with this, the Budget has proposed to remove many exemptions on import of final products (such as imported charger/adapter, battery, etc.) and has granted exemption on the import of raw materials to ensure that the activity of manufacturing is carried out in India. This is a welcome move and will certainly benefit the “Make in India” initiative. Also, it is indicated that the Customs Act will be amended to allow deferred payment of customs duty for specified importers. This is a historic move likely to benefit compliant importers.

Rationalisation of interest rates
Interest rates on delayed payment of duty/tax across all indirect taxes is proposed to be made uniform at 15 per cent per annum, except in case of service tax collected (in which case the rate of interest will be 24 per cent).

Further, lower rate of interest of 12 per cent per annum is proposed for smaller assesses.

This rationalisation of interest rates coupled with reduction (from current 30 per cent per annum) is a welcome move and a much awaited respite for indirect taxpayers.

Pending litigations
Spiralling litigation has drawn a lot of attention as more than three lakh cases are pending at first appellate level itself. To address the pending litigation, the finance minister has indicated Indirect Tax Dispute Resolution Scheme wherein the assessee, after paying the duty, interest and penalty equivalent to 25 per cent of duty, can file a closure declaration. In addition, to address the backlog of cases it is proposed that there will be 11 new benches of tribunals.

Cenvat credit has witnessed major litigations in recent times. In this Budget, the finance minister has proposed to simplify the Cenvat Credit Rules, 2004 (CCR), through a number of amendments. This is expected to reduce a litigations on Cenvat credit.

The curious case of missing GST
Surprisingly, there was no discussion in the Budget speech on Goods and Services Tax except a passing remark that the “government shall also endeavour to continue with the ongoing reform programme and ensure the passage of constitutional amendments to enable the implementation of the GST…” In this Budget, the industry, which was expecting a detailed roadmap for GST, will certainly be disappointed. Thus, prima facie, the current Budget does not appear to be a “leap’’ year for GST.

CA Pritam Mahure writes regularly on taxation matters.


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