1st March, 2013
Analysis of Budget Proposals - 2013
By Vikram Nankani
Chairman, Indirect Tax Committee
and
Partner,ELP
INDIRECT TAXES
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Service Tax
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BIG POINTS
 POSITIVES:
Voluntary Compliance Encouragement Scheme.
 No Change in the rate of Service Tax.
 Tax Reform Administration Commission proposed- a non-adversarial tax
administration.

 NEGATIVES:
CENVAT Credit Scheme untouched.
 GST- No deadline proposed for implementation.
 Section 4 of Excise Act not amended : Commissioner of Central Excise Vs. Fiat
India Pvt. Ltd. , (2012 (283) ELT 161).

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No. of taxing entries
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Service Tax - amendments
 “Voluntary Compliance Encouragement Scheme” proposed
One time scheme for truthful declaration of Service Tax dues
 Available for dues payable for the period 1st October 2007 to 31st December
2012
 On payment of tax dues, immunity from penalty, interest and any proceedings



No matter covered under declaration to be reopened in any proceedings before any
authority or Court
Eligibility criteria:

Not applicable to person who has filed Returns and disclosed liability but has not
paid the disclosed amount or part thereof

No notice or order of determination has been issued on or before 1st March 2013
 Scheme not available for subsequent period where notice / order issued for earlier period

Where inquiry / investigation has been initiated and is pending as on 1st March
2013, the designated authority reject the declaration for reasons recorded in
writing- provision is unclear-is the word ‘shall’ to be read as may- discretionary?
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Service Tax - amendments

Payment of declared tax dues

50% on or before 31st December 2013

Remaining 50% on or before 30th June 2014

Option to pay along with interest on or before 31st December 2014
 Interest applicable for the period from 1st July 2014

Commissioner empowered to issue Show Cause Notice where he has reasons
to believe that declaration made was “substantially false”

Show Cause Notice to be on par with Show Cause Notice under S. 73 or S.73A

Commissioner cannot issue Show Cause Notice after expiry of one year
No subsequent refund of tax dues paid as per the declaration will be available.
 Sub Section 2A inserted in Section 73


It is proposed that in case of fraud, collusion, wilful misstatement ,suppression of
facts or contravention of any provisions with an intent to evade payment of tax has
not been established, the Central Excise Officer shall determine the service tax
payable as if the notice was issued for offences for which a period of 18 months
applies.
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Negative List of Services
Modification in Scope of Services
 Scope of services by way of education as a part of an ‘approved vocational
education course’ proposed to be modified
Courses run by institutes/ centres affiliated to ‘State Council for Vocational
Training’ to be included
 Courses run by institutes affiliated to the National Skill Development
Corporation to be omitted

 Testing services relating to agricultural products also proposed to be
covered under Negative list
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Service Tax - amendments
 Mega Exemption Notification modified


Exemption provided to Educational Institutions modified

The words ‘provided to or by’ has been replaced with ‘provided to’.

Services by Education Institutions will be liable to tax which are in relation to
auxiliary educational services or renting of immovable property
Exemption on Copyrights


Exemption provided to Restaurants


The exemption of Service Tax on temporary transfer or permitting the use or
enjoyment of a copyright has been limited to cinematograph films for exhibition in
a cinema hall or cinema theatre
The exemption to restaurants not having Air Conditioning facility
Exemption on transportation by rail or a vessel

Exemption has been withdrawn on services in relation to transportation by rail or a
vessel of specified petroleum and petroleum products, postal mail or mail bags and
household effects
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Service Tax - amendments

Exemption on transportation by Goods Carriage


Exemption on vehicle parking to general public


Exemption has been extended to agricultural produce, specified food stuffs,
chemical fertilizers and oil cakes, specified newspaper or magazines, relief material
and defence or military equipment
This entry has been deleted
Exemption to Service provided to Government

Exemption on repair or maintenance of aircraft has been omitted
 Notification 26/ 2012 dated June 20, 2012

Abatement for construction of complex, buildings, civil structure intended for
sale prior to issuance of completion certificate is revised as under:

For Residential Unit having a carpet area upto 2000 Sq ft or where the amount
charged is less than Rs. 1 Crore – 75%

For others – 70%

Effective Rate- 3.075 % and 3.69 %.
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CENVAT Credit
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CENVAT Credit - amendments
 Explanation inserted in Rule 3

Explanation clarifies that in respect of default under sub-rule (5), (5A) and (5B)
of Rule 3, recovery of duty to be covered under Rule 14 of the CENVAT Credit
Rules
Rule 14 deals with recovery of CENVAT credit wrongly taken and utilized or
erroneously refunded
 Now, Rule 14 would be applicable even for recovery of duty on goods cleared ‘as
such’ or after being used or pursuant to write off in books of accounts

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Central Excise Duty
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Central Excise – legislative amendments
 Expansion in scope of Advance Ruling proceedings
 Definition of ‘activity’ being expanded to enable an existing manufacturer to
seek advance ruling when he starts a new line of business
 Notifications issued to make “Resident public limited companies” eligible for
seeking advance ruling on Central Excise and Service Tax matters which was
earlier allowed only in Customs matters
 Advance ruling can now be sought for admissibility of the credit of Service Tax
paid on input services also
 Certain offences to be cognizable and non-bailable
 Section 9A of the Excise Act is proposed to be amended to make the following
offences as cognizable and non-bailable


Offence relating to excisable goods and involving evasion of duty or contravention
of provisions pertaining to utilization of Credit, where the duty leviable thereon
under this Act exceeds fifty lakh rupees
This amendment is to overcome the judgment of the Hon’ble Supreme Court in the
case of Om Prakash vs Union of India [2011 (272) E.L.T. 321 (S.C.)], which held that
the offences under the Excise Act are non-cognizable and bailable 14
Central Excise – legislative amendments
 Section 11 of the Excise Act proposed to be amended to enable recovery
from a person holding money for or on account of the defaulter (Garnishee
proceedings )
 Proposed ceiling of 365 days up to which the Tribunal can grant stay of
recoveries
Stay shall stand vacated beyond 365 days even if the disposal of the Appeal is
pending for no fault of the assessee
 This amendment ignores the decision of the Hon’ble Supreme Court in the
case of Commissioner of Central Excise Vs. Kumar Cotton Mills Pvt. Ltd. [ 2005
(180) E.L.T. 434 (S.C.)]

 Monetary limit for matters heard and disposed by Single Bench of the
Tribunal increased from Rs.10 lakh to Rs.50 lakh
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Central Excise – Rate changes
 Excise duty rates
 Standard rate of 12% remains intact
 Duty on Mobile handsets including cellular phones having retail sale price of
more than Rs. 2000 increased from 1% to 6%
 Duty on SUVs (including utility vehicles falling under CTH 8703) and engine
capacity >1500 cc increased from 27% to 30%
 Duty on marble slabs and tiles increased from Rs 30 per square meter to Rs 60
per square meter
 Duty on chassis of diesel motor vehicles for the transport of goods (falling
under 8706 00 42) reduced from 14% to 13%
 Reinstating the optional Excise duty regime for branded garments prior to
Budget 2011 – i.e. Nil
Zero excise duty route available in addition to the CENVAT route
 To cover cotton and man made sector (Spun Yarn at Yarn , Fabric and Garment
Stage
 12 % excise duty on man made Fibre, Full exemption in case of cotton
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
 Branded medicaments of Ayurveda, Unani, Siddha, Homeopathy or Bio-
Customs Duty
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Customs – legislative amendments
 Expansion in scope of Advance Ruling proceedings
 Definition of ‘activity’ being expanded to enable an existing importer or
exporter to seek advance ruling when he starts a new line of business
 Certain offences to be cognizable and non-bailable
 Section 104 of the Customs Act is proposed to be amended to make the
following offences as cognizable and non-bailable
 Offence relating to evasion of duty, import of prohibited goods, availment of
drawback where the amount exceeds fifty lakh rupees
 Section 47 has been amended to provide that any importer who fails to pay
duty within “two days” from the date on which bill of entry is returned to
him for payment of duty is liable to pay interest

Earlier the period for payment of duty was five days excluding holidays and the
same has now been amended to two days excluding holidays .
 Section 49 – Period for storage of imported goods in warehouse pending
clearance

Goods can be stored up to a period of 30 days. Extension of 30 days can be
18 given at a
time by the Commissioner.
Customs – legislative amendments
 Section 142 of the Customs Act proposed to be amended to enable recovery
from a person holding money for or on account of the defaulter (Garnishee
proceedings )

This amendment seeks to overcome the Judgment of the Delhi High Court in the case of
Anita Grover Vs. Commissioner of Central Excise, (2012-TIOL-1049-HC-DEL-CUS)
 Proposed ceiling of 365 days up to which the Tribunal can grant stay of
recoveries

Stay shall stand vacated beyond 365 days even if the disposal of the Appeal is
pending for no fault of the assessee
 Monetary limit for matters heard and disposed by Single Bench of the
Tribunal increased from Rs.10 lakh to Rs.50 lakh
 Amendment to Baggage Rules:

Vide Notification No. 25/2013-Cus. (N.T.) dt. March 1, 2013, jewellery up to an aggregate
value of Rs. 50,000 [hitherto Rs. 10,000] by a gentleman passenger and up to Rs.
1,00,000 [hitherto Rs. 20,000] for a lady passenger has been prescribed as importable
duty free.
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Customs
 Steam Coal and Bituminous Coal BCD- 2% for both- No retrospective change.
 Earlier it was 1% and 11% respectively.
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Power of arrest
Offence
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Cognizable / Bailable
Specific offences (in
excess of Rs. 50
lakhs)
Cognizable and
non-bailable
• Arrest only upon authority of Commissioner of Central Excise
• Must be taken before a Magistrate without unnecessary delay
Others
Non-cognizable and
bailable
• Arrest only upon authority of Commissioner of Central Excise
• AC/DC to have same powers as an officer in charge of a police
station under Section 436 of the CrPC for the purpose of
releasing an arrested person on bail
Specified offences of
more than Rs.50
lakhs
Cognizable and
non-bailable
• Arrest only upon authority of Commissioner of Central Excise
• Inform such person of the grounds of arrest and produce him
before a magistrate 24 hours
Specified offences of
less than Rs.50 lakhs
Non-cognizable and
bailable
• Arrest only upon authority of Commissioner of Central Excise
• AC/DC to have same powers as an officer in charge of a police
station under Section 436 of the CrPC for the purpose of
releasing an arrested person on bail
Specified offences of
more than Rs.50
lakhs
Cognizable and
non-bailable
• Power to arrest any person if there is reason to believe that
such person is liable to punishment under the Act/Rules, with
prior approval of the Commissioner of Central Excise
Specified offences of
less than Rs.50 lakhs
Non-cognizable and
bailable
T
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Power of arrest
Power of arrest
 Power of arrest already provided for under Section 104 of the Customs Act
 Specification of cognizable / non-cognizable and bailable / non-bailable
offences vide 2012 amendments
 Equivalent provisions now introduced under the Finance Act for the first
time
Previously, position in law governed by Om Prakash vs. Union of India [2011TIOL-95-SC-CX-LB] which held that all offences under the Excise Act were noncognizable and bailable, given the deeming effect under Section 9A(1) of the
Excise Act to this effect
 Said Section 9A(1) of the Excise Act made applicable to Service Tax vide Section
83 of the Finance Act, 1994
 Now, offence of collection of Service Tax and non-payment of the same for a
period of 6 months made cognizable and non-bailable

 Similar amendment in respect of power of arrest proposed under Section 13
of the Excise Act vide Finance Bill, 2012, but not enacted in Finance Act,
2012
Goods and Service Tax (‘GST’)
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GST
 No definitive time line stated
 Statement of consensus between Centre and States
 GST law to be drafted by State Finance Ministers and GST Council
 Draft Bills on Constitutional Amendment and GST to be placed before the
House in next few months
 Recent progress with consensus between Centre and States on the
following:

Compensation for phasing out CST agreed at Rs. 34,000 for three years

Specific allocation made in the Budget for Rs. 9000 Cr. as first installment
Centre to suggest draft legislation to the States
 Flexibility available to States to join GST
 Centre to propose floor rate for tax with narrow band within which State will
retain right to vary SGST
 Contentious Dispute Settlement body to be dropped

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Signals of GST
Issue
2011
2012
2013
Emerging Position
Transition date
No date stated
Constitutional
amendments
Indication of Bill to be placed before
House in next few months
Draft GST law
State Finance Ministers and GST
Council to draft the law. Indication of
Bill
CST
No reduction in CST rate
CST compensation
CST compensation agreed at Rs.
34000 Cr. Specific Budget allocation
of Rs. 9000 Cr. Towards first
installment
Expanded scope of ST
Scope of 2 services under Negative
list expanded
IT Infrastructure /
Administrative structure
No further development
Political will
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Many States forming a consensus
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THANK YOU