ANALYSIS OF INDIRECT TAX
PROPOSALS IN BUDGET 2014
July 10, 2014
© Economic Laws Practice 2014
Key issues Pre-Budget
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Definitive path and time lines for GST
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Retrospective amendments
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Adoption of DTC
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Dealing with culture of Tax Terrorism
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Measures to catalyse the manufacturing sector
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Measures to enthuse domestic and foreign investment
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Curtailing the exponential growth of tax litigation
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INDIRECT TAXES
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Service tax –Negative List
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Negative list to exclude “online and mobile advertising”
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Earlier list covered selling of space or time slot for advertisement
other than advertisement broadcast by radio or television
 New levy extends to advertisements in internet websites, out-ofhome 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 to
be in the negative list and hence remain excluded from service tax
Negative list modified to exclude Radio Taxis
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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
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Service Tax - Exemptions
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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 or
disposal of bio-medical waste or the processes incidental thereto;
 Scope of exemption of services provided by education institution
clarified by omitting ‘auxiliary educational service’ and specifying
services to include transport of students, catering service, securityhouse keeping service and admission related service;
 Transport of goods by rail or vessel or services by goods transport
agency involving organic manure and cotton (ginned/baled);
 Services of Life micro insurance approved by IRDA having maximum
cover of Rs.50,000
 Services by way of loading, unloading packing, storage or warehousing
extended to cotton;
 Services received by the RBI, from outside India in relation to
management of foreign exchange reserves;
 Services provided by a tour operator to a foreign tourist in relation to
a tour conducted wholly outside India
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Service Tax - Exemptions
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Exemption
exclude:
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Notification
25/2012-ST dated
20.06.2012,
amended
to
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
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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 months
24% - > 6 months
3
> 1 year
18% - 1st 6 months
24% - 6 months - 1 year
30% - > 1 year
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Service Tax Rules
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Addition to persons liable to pay service tax
Banking company, financial institution or a NBFC receiving services
from recovery agents
 Body corporate receiving services from a director
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Earlier it was only applicable to Companies
Corresponding changes made in the reverse charge
Change in reverse charge notification in case of rent a cab where
tax being paid on non-abated value
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\
From 60% - 40% amended to 50% by each
This change is applicable from 1 st October 2014
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Point of Taxation Rules
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In respect of cases where Service tax is to be paid by the receiver,
the point of taxation will be
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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 1 st October
2014.
For invoices before 1 st October but no payments made (interim period)
new Rule inserted (Rule 10)
 Invoice issued before 1 st October 2014 but payments not made:



Situation 1 – if payment made within 6 months, date of payment
Situation 2 – if payment is not made within 6 months, then accrual basis
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Place of Provision of
Services Rules
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Definition of “intermediary” changed to include intermediaries for
goods as well
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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 of
provision for repair services on temporarily imported goods for
repairs omitted
Services of hiring of vessels (excluding yachts) and Aircraft is
excluded from Rule 9, and will therefore fall under the general rule
i.e. location of recipient.
Above changes effective from 1st October 2014
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Service Tax Valuation
Rules

Differentiation between works contract for repair and maintenance
of any goods (value of services - 70% of value ) and the residual
category (value of services – 60% of value) removed and service tax
to be paid on 70% on any works contracts other than original
works.

This change is applicable from 1 st October 2014
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CENVAT Credit
Amendments
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CENVAT credit of input and input services can now be taken only
within a period of 6 months from the date of issue of invoice/
challan/ other specified document
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Definition of term ‘place of removal’, which is relevant for “input
service” has been introduced
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The amendment is prospective in nature, and may not have a bearing
on transactions till date
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’
In cases where a service provider receives the value of services
after the specified or extended period allowed by RBI but within
one year from such period shall be entitle to credit previously paid
in terms of Rule 6
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CENVAT Credit
Amendments

CENVAT credit in respect of input services received from vendors where
service tax is payable under reverse charge mechanism has been given
differential treatment as under:
Scenario
In cases where 100% of the service tax
liability is to be paid by the service
recipient
In case the service tax liability is partially
to be paid by the service recipient

Impact
CENVAT credit can be availed after
payment of Service tax by the service
recipient, without payment of value of
service
CENVAT credit can be availed after
payment of value of services and
Service tax by the service recipient.
A Large Taxpayer Unit is disallowed from transferring CENVAT credit
from 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.
© Economic Laws Practice 2014
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Central Excise & Customs –
Legislative Changes
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All references to Chief Commissioner / Commissioner may also include a
reference to the Principal Chief Commissioner
 Various
powers and functions of the Chief Commissioner/
Commissioner under the acts will also be exercisable by the Principal
Chief Commissioner
Intention to reduce litigation
 Mandatory fixed pre-deposit for filing appeals before Commissioner
(Appeals) and Tribunal
 7.5% of the duty demanded or penalty imposed or both for
Commissioner (Appeals) or Tribunal at the first stage
 10% of the duty demanded or penalty imposed or both for filing
second stage appeal before the Tribunal
 Pre-deposit is subject to a ceiling of Rs. 10 crore
 Consequent to the above, there will be no Stay hearing
 All issues on extension of stay and consequent recoveries go away
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Central Excise & Customs –
Legislative Changes
Commissioner (Appeals) permitted to take into consideration a
particular order cited as a precedent decision having not been
appealed against for reasons of low amount
 Expansion in scope of cases which can be taken up by Settlement
Commission:
 Customs: Cases where a Bill of Export, Baggage Declaration, Label
or Declaration accompanying the goods effected through Post or
Courier have been filed
 Excise: where the assesse has not filed a return under Excise
 Concealment of particulars of duty liability from the Customs/ Excise
officer (and not from the Settlement Commission) is a bar on making a
subsequent application to the Settlement Commission
 Discretionary powers of the Tribunal to refuse admission of appeal
increased from Rs.50,000 to Rs.2 lakh.
 Committee in relation to filing of Department appeals before Tribunal
can be constituted by an order of the CBEC, and would not require a
notification published in the Official Gazette
Scheme of Advance Ruling extended to resident private limited companies
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© Economic Laws Practice 2014
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Central Excise – Other
Changes
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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 of
Companies etc in order to identify tax evaders or recover confirmed
dues
 Penalty may be imposed on failure to provide the information
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Clarification under Section 35L that that determination of disputes
relating to taxability or excisability of goods is covered under the
term “determination of any question having a relation to rate of
duty”

The proposed amendment is as per the line of decisions including
Commissioner of Service Tax vs. Ernst And Young Pvt Ltd [2014-TIOL263-HC-DEL-ST] and Commissioner of Service Tax vs. Delhi Gymkhana
Club Ltd. [2009 (16) STR 129]
© Economic Laws Practice 2014
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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 goods
are sold below cost and profit
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
Provided that no other additional consideration flows from buyer
directly or indirectly
Overcomes the Supreme Court verdict in the case of Commissioner
of 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 to
Excise duty on cost plus reasonable mark-up, even though no
additional money consideration is received from buyer
© Economic Laws Practice 2014
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ANALYSIS OF INDIRECT
BUDGET 2014
TAX
PROPOSALS
IN
ANALYSIS
ANALYSIS OF
OF INDIRECT
INDIRECT TAX
TAX
PROPOSALS
PROPOSALSIN
INBUDGET
BUDGET2014
2014
Goods and services tax (GST)
© Economic Laws Practice 2014
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GST
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GST part of the manifesto of the newly elected Government and
flagged as priority; however no concrete path paved in Budget
FM expressed hope to find a solution to GST in a year and approve
legislative 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 phased
introduction by way of CenGST, no mention in Budget
© Economic Laws Practice 2014
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Steps towards
implementation of GST
Constitutional
Amendment
Revenue Share
States / Centre
CST Phase Out
GST – Parliamentary
Process
Step 1 – Lok Sabha
Majority of total membership and
Not less than 2/3 of majority of members present and
voting
Step 2 – Rajya Sabha
To be passed by 2/3 majority
Step 3 – Ratification by States
Bill required to be ratified by the Legislatures of not less than one-half of the
States
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