Indirect Taxation- Budget 2011 Hiregange

7/31/2019 Indirect Taxation- Budget 2011 Hiregange

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S UCCESS THRU ETHICS Madhukar N Hiregange FCA

Madhukar N Hiregange FCAIndirect Taxation- Budget 2011


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COVERAGE TODAY

CustomsCentral Excise

Service Tax TariffService Tax ProceduresIdeal Budget ComponentsFM objectivesHow it is in Reality?Empower Your EnvironmentQ/A after each segment

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CUSTOMS

Major Reform Self Assessment- Avoidsdemurrage, corruption- legalised dacoity, fastturnaround for exporters/ domestic players, avoiddependence on intermediaries [ CHA]- finallyreduced transaction cost.

Rationalization of rates- BCD of 2 & 3 % to 2.5%.

Peak rate held Good for country

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CENTRAL EXCISE

Major Reform- 130 items mainly consumer goods innet @ 1% without cenvat credit benefit. [ icai-articles section]Out of above 76 items @5% with cenvat creditAre all eligible for initial 150 Lakhs limit?

- Only specified items [ see list]- Branded Goods of Others NO unless OEM or

located in rural area- Previous year manufactured goods exceeds Rs. 400

lakhs [ traded or exported goods not to beconsidered]

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SSI EXEMPTION

- Job work unless exempted [ valued at sellers priceor if captively consumed by buyer then atCOP+10% ]

- Manufactured/ Job work goods removed at full rateof duty not to be reckonedIf eligible then declaration on reaching 90 lakhs ofvalue of clearances

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BRANDED TEXTILE GOODS

Excise duty at 10% applicable to ready-madebranded Garments and made-up articles of textilesRule4(1A) Central Excise Rules: pay duty andcomply with Central Excise procedure by theperson for whom the goods are manufactured by

job-workersAlternatively job worker registers & discharges dutyCC Rules, 2004 amended to enable merchantmanufacturers to avail of credit of duty paid oninputs, input services and capital goodsSSI exemption can be availed

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REGISTRATION + OTHERS

Registration applied if not eligible for SSI exemptionimmediately [ 1 st march over??}Examine the possibility of passing on duty cost tobuyerExamine the quantum of credit available?Exercise and intimate the optionPay the duty by 5 th / 6 th every month

File the returns monthly/ quarterly [ SSI}

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DISCLOSURES

Intimate the records maintained, methods ofaccounting, process of manufacture, streams ofincome, option taken, doubtful issues.- Ensuredated acknowledgement.Follow meticulous movement recording andreconciliationBranded Garments Option to job worker todischarge the duty and comply.

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WITHDRAWAL OF EXEMPTIONS

About 130 exemption entries withdrawn(Notfnno.1/2011)Including cases of Nil Tariff rates

A duty of 1% ad valorem imposed on these itemsThe condition that no credit of the duty paid oninput and input services.Rate for items hitherto Nil rate (by tariff) fixed at 5%ad valorem

Remaining items where tariff rate is not Nil-a rate of5% (without any condition)(Notfn 2/2011-CE)

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INITIATIVE FOR REDUCED LITIGATION

No appeal by Govt below stated figures

No demand even if mistake observed by audit

party- rectified.

Settlement Commission

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CENVAT CREDIT RULES 2004

Exempted goods amended -Includes goods where option exercised by themanufacturer to pay duty at concessional rate of1% on 130 specified entries.exempted services amended.Includes services for which service provider optedfor exemption on part of the value

Exempted service includes trading activity

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CENVAT CREDIT CAPITAL GOODS

Scope Expanded-capital goods as defined at rule2(A)outside factory of manufacture of final products foruse in captive generation of power in factoryThis could lead to credits on windmills, turbines,hydel power stations

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EXCLUSIONS

Any goods used for the construction of a buildingor a civil structure or laying of foundationor making of structure for support of capital goods

have been excluded.Capital goods except when used as parts andcomponents in manufacture of final products andalso does not include the motor vehicles

Goods used primarily for personal use orconsumption of any employee.

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CENVAT CREDIT INPUT S ERVICES

Excludes few services such as architect, port, airport , other port, commercial or industrialconstruction, works contract service andconstruction of residential complex used inconstruction of building or civil structure or layingfoundation or making support structure of capitalgoodsExcludes services such as rent a cab, general

insurance, authorised service station and supply oftangible goods unless used by service providersallowed to take Cenvat credit of duty paid on capitalgoods

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Excludes services of outdoor catering, beautytreatment, health service, cosmetic surgery,membership of club, etc when used primarily forpersonal use/consumption by employee

Question the very purpose of cenvat credit beingto avoid the cascading effect of multi point levy hasbeen defeated.

Example of coercion by the bureaucracy. Almost10k+ cases would now be revisited???

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COMMON CREDIT

The heading of the rule changed as Obligation of amanufacturer or producer of final products and aprovider of taxable serviceCenvat credit benefit would not be allowed oninputs or input services used in or in relation to manufacture of exempted goods or for provision ofexempted service (Rule6(1))The sub rule 2 provides for separate records forreceipt, consumption an inventory of inputs and thereceipt and use of input services usedin or in relation to manufacture of

exempted/dutiable- goods & Output and exempted

services

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COMMON CREDIT

the provider of output service providing exemptedservice to pay 5% on the value of exempted serviceand avail the Cenvat credit fully(Rule6(3))

a new option to maintain separate accounts for thereceipt, consumption and inventory of inputs &

and pay an amount as determined under sub-rule(3A) in respect of only input services (rule 6(3A)

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COMMON CREDIT

The value of trading (exempted service) consideredfor availment of proportionate credit [ sales- pur]

Banking and financial services -50% of the creditavailed

Services relating to life insurance or managementof ULIPs -20% of credit availed

Rule 6(5) omitted

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SERVICE TAX-NEW SERVICES

Restaurant Service- provided by a restaurantServing of food & beverages (including alcohol) toany person

Air conditioned Restaurant Licensed to serve LiquorAbatement of 70%Hotel Accommodation

Accommodation for a continuous period less than 3

monthsA hotel, inn, guest house, club or campsiteDeclared Tariff >Rs 1000 per day50% abatement

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HEALTH SERVICE- EXTENSIONPRESENT

All services-including diagnostic servicesThe service provider -Clinical EstablishmentCentral AC & >25 beds at any time in FY.

Diagnostic Services

By clinical establishment+ aid of lab/medicalequipmentThe service provider is any entity independent/part ofclinical establishment.

DoctorThe diagnosis, treatment or care for illness, disease,injury, deformity, abnormality or pregnancy.Doctor, not employee of the clinical establishmentThe service provided in clinical establishment.

Exclusion: Government or a local authority.

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ST- E XPANSION

Clubs & Association:To include services provided to members as well asothers

Exemption for the membership fee of associationrepresenting the industry or commerce- from16.06.2005 to 31.03.2008(both inclusive) Section96JRefund within 6 months can be gotten

Life Insurance Business:Any service in relation to life insurance businessEarlier only risk cover

Business Support Services: Administrative

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RESTRICTIVE CREDITS

Sub Contractors opting to pay ST on gross amountafter availing credit on inputs as well. Maincontractor availing abatement under Not 12/2003 orComposition- able to avail the credit indirectly ininputsService Tax Paid on: Input ServicesErection, commissioning, installation; commercial orindustrial construction; construction of complexserviceNotfn. 1/2011-ST- limited to 40%

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EXEMPTIONS

Construction/completion services of newResidential Complex Jawahar Nehru Nationalurban Revival, Rajiv Avaas YoganaExhibitor Outside India-service by organiser ofbusiness exhibition.Transportation from Outside India to O/I-byAircraft/Road/RailGeneral Insurance Business Rastriya SwasthiyaBima Yogana

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EXEMPTIONS

Works Contract within wholly within the AirportWorks Contract provided wholly withinThe port or other port, for construction, repair,alteration and renovation of wharves, quays, docks,stages, jetties, piers and railways25%a ppilcable -75 % Abatement- service providedfor transport of:

Coastal goods;Goods through national waterway; orGoods through inland water.

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P OINT OF TAXATION- R ULES

Accrual Concept 20% more revenue in 2011-12, movetowards GST

Taxable Event Providing Service; Receipt of Advance-postponing billing risky

Credits also on accrual basisWhat about professionals accounting on cash basis, whatabout accounting standards on revenue recognition, whatabout the fact that services cannot be taken back unlikegoods. What about the huge discounts which have to begiven? What about the bad debts?

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WHAT CAN BE DONE ?

Billing for the current year to be completed fully toavoid unnecessary billing next year, even ifaccounting on cash basis.Individual representation thru known electedmembersAssociations to take up stronglyICAI representationGroundsCash basis of accounting as receipt unsureRevenue Recognition AS9Service cannot to taken back

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INTEREST & PENALTY

Earlier 13 % increased to 18%-For delayed paymentFor amounts collected in excess- Notfn. 15/2011

For SP below Rs.60 lakhs [payt period 90 daysfrom order date} limited to 15%.Increased to Rs.20,000/- For late filing of returnsUnaccounted transactions-mandatory 100% penalty

Penalty u/s 78 waived only where transactionscaptured in records

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OTHER INITIATIVES

Exporters of services drawback scheme when??85,000 Crores outstanding!!!!!- promissory estoppelapplicable?? EOSR 2005

SEZ Exemption-provided and wholly consumedwithin SEZSEZ Special Refund Scheme-authorized operationsSpecified Services listed in Rule3(1)(i)/(ii)Export ofService Rules & Other servicesService providers to SEZ No need to reverseinputs/ capital goods/ input services?

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IDEAL BUDGET

Simple = Understood by a literate person, by some of STauthority, at least by a man of commerce, certainly by anadvisor, without doubt by a specialised advocate/ CA.

Fair = Economically challenged safeguarded and othersequally applicable, no different interpretation in differentstates, divisions, range, Audit parties; drafted considering

stakeholders concerns/ suggestions; law exposed beforeimplementation ; rules fair; enough time to comply

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IDEAL BUDGET

Certain = No changes frequently, at leastfundamental direction, not upsetting judicialprecedents, anterioirity a part of law or at least onlyprospective application and no retrospectivity

Transparent= Game plan known in advance,budget exercise involved, Integrity of FM/ CBECbuilt, no secrecy, tax payer can plan hisinvestments, direction

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IDEAL BUDGET

Used as tool to Steer the Economy: Lower rates,remove multiplicity of taxes and rates, protect localmanufacturing/ agriculture, build world classinfrastructure, be transparent on own expenditure

Maker Checker principle: Law to be laid down byparliament, administered by the executive. Thisdivide is not evident anymore.

Good Governance: Accountability of the executive,no corruption, no inordinate delays, no frivolousdemands

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IDEAL AS P ER FMModerate Taxation

Simple ST law?, Changes every year based onTribunal/ Higher judgments? Taxing saletransactions also?

Easy for Tax Collector??? Whom are we serving

Medium term objectives: Maintain growth, Inclusivemethodology, Governance emphasis.

Action important not rhetoric's

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Ive failed over and over and over again in my life,

and thats why I succeed. - Michael Jordan

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QUESTIONS ??MHIREGANGE @GMAIL.COM

Have an Empowered 2011

Documents

Indirect Taxation- Budget 2011 Hiregange