White Paper June 12

Udyog Software (India) Ltd (www.udyogsoftware.com) Phone: 022-67993535, Email: [email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information

without appropriate professional advice after a thorough examination of the particular situation. Page 1

The Finance Bill 2012 staggered the proposed changes to be effective from four different dates:

Immediately, under the Provisional Collection of Taxes Act;

from 1 April 2012;

from the date on which the Finance Bill received the assent of the President; or

from the notified date (1 July 2012).

The first two categories had come into effect as scheduled. On 28 May 2012 the Finance Bill

received the assent of the President and became the Finance Act 2012. The changes that have come

into effect with this event, on 28 May 2012, are summarised below.

Customs

Customs Act

„Airport‟ to include „air freight station‟

The definition of „customs airport‟ in section 2(10)

of the Customs Act 1962 has been changed.

„Customs airport‟ will now include „air freight

station‟. Section 7(aa) has been amended to give the

CBEC powers to appoint a place as an „air freight

station‟ (in addition to powers to appoint a place as

inland container depot).

Recovery of duty from original scrip holder in fraud

cases

A new section 28AAA has been inserted into the

Customs Act, to enable recovery of duty from the

original holder of an instrument (duty exemption or

remission scrip) that was obtained by fraudulent

means. In other words, if an exporter was found to

have obtained, say, a DEPB scrip, by means of

collusion or wilful misstatement of suppression of

facts, then import duties related to use of that scrip

by a transferee can be demanded from this original

holder. (This is without prejudice to demand under

section 28 against the importer who used the scrip.)

The section is applicable to use of a scrip after 28

May 2012, even if it was obtained before that date.

UDYOG WHITEPAPER JUNE-2012 Finance Act 2012: changes that have come into effect on 28 May

By Radha Arun, Consultant to Udyog Software

http://www.udyogsoftware.com/

mailto:[email protected]




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Section 28BA of the Customs Act is amended to make it applicable to recovery of duty under this

new section 28AAA. Thereby, property can be provisionally attached to protect duty during the

pendency of proceedings under section 28AAA.

Class of importers who must pay duty electronically to be notified

Section 47 of the Customs Act has been amended by inserting a new proviso, which empowers the

central government to notify a class of importers who must pay the duty electronically.

Changes in provisions of arrest and imprisonment

Section 104 of the Customs Act has been amended to provide that offences involving prohibited

goods or evasion or attempted evasion of duty of over Rs 50 lakhs will be cognizable. All offences

will be bailable. (Prohibited goods are defined in the Customs Act as those goods the import or

export of which is subject to any prohibition under any law. A conditional permission is also a

prohibition if the conditions are not satisfied.)

Adjudication powers of DC / AC and Superintendent / Appraiser enhanced

Section 122 of the Customs Act has been amended to raise the adjudication powers of an Assistant /

Deputy Commissioner of Customs to cover cases where the value of goods liable to confiscation is

upto Rs 5 lakh. The powers of a gazetted officer of customs lower in rank to an Assistant

Commissioner have been raised to cover cases where the value of goods liable to confiscation is upto

Rs 50 thousand.

Courier will be approved mode of service of order etc

Section 153 of the Customs Act provides for modes of service of order, notice, or summons. Till now

service was to be done in the first instance by tendering it personally or by registered post,

acknowledgment due, failing which it may be served by pasting on the notice board of the customs

office. Now the service in the first instance can be by tendering it or by sending it by registered post

(AD) or by a courier service approved by the

Commissioner of Customs.

Exemption from additional duty of customs for foreign

going vessels

Foreign going vessels coming into India have been

exempted retrospectively from 1 March 2011 to 16

March 2012 from the additional duty of customs

leviable on them.

Customs Tariff Act

Safeguard duty on imports from China: conditions

modified

Section 8C of the Customs Tariff Act 1975 has been

amended by changing the proviso to sub-section (5) to

align it with the Transitional Product Specific

Safeguard Mechanism under Chinese Accession

Protocol.






Other tariff changes

The other changes in the tariff proposed in the Finance Bill come into effect now. These are

contained in the Third Schedule to the Finance Act. The increase in export duty on chromium ore

and concentrates from Rs 3000 per tonne to 30% of value also comes into effect now.

Excise

Definition of inter-connected undertakings

The definition of „inter-connected undertakings‟ as under the erstwhile Monopolies & Restrictive

Trade Practices Act 1969 has been incorporated into the Central Excise Act, section 4(3)(b),

Explanation (i).

Section 9 amended: from one lakh to three lakhs

Under section 9 of the Central Excise Act, imprisonment of upto seven years, with a minimum of six

months, was provided if the evasion of excise duty was over Rs one lakh: this threshold has now

been raised to Rs three lakhs. Below this threshold, the maximum term is three years, and no

minimum is mandated.

Limitation: period of stay excluded only if service of notice is stayed

In computing limitation for a demand of duty under section 11A, the period during which there was a

stay on the payment of duty was excluded hitherto. This is changed by amending sub-section (8) of

section 11A, to exclude the period of stay only if the service of notice is stayed.

11AC penalty: benefit of reduction only if paid within 30 days

Till now the benefit of reduced penalty equal to 25% of duty was available if the duty and interest

were paid within 30 days of the communication of the order. Now section 11AC of the Central

Excise Act has been amended in clause (c), to make the reduced penalty applicable only if the

penalty too is paid within thirty days.

Searches under the Central Excise Act: Commissioner has powers of Magistrate

Section 12F of the Central Excise Act makes the provisions of the Criminal Procedure Code






applicable to search and seizure under the Act. This has been amended to the extent that the

Commissioner of Central Excise is given the powers of a Magistrate for the purpose.

Beneficial retrospective amendment to notification 1/2010-CE

Notification 1/2010-CE exempts certain goods produced by new units in Jammu & Kashmir or units

in the state that have undertaken substantial expansion, for a period of ten year period from the date

of commencement of commercial production. This has been amended retrospectively to provide that

for units that have undertaken substantial expansion, the ten year period will be counted from the

date on which they commence commercial production from the expanded capacity.

Certain tobacco items brought into purview of deemed manufacture provisions

The Third Schedule to the Central Excise Act has been amended by inserting tariff items 2402 20 10

and 2402 20 90, so that these items will be covered under section 2(f)(iii) of the Central Excise Act.

The effect is that packing and repacking in a unit container, labelling or relabeling of containers

including declaration or alteration of retail sale price on them, or adoption of any other treatment to

render the goods marketable to the consumer, will be deemed to be manufacture.

Changes in tariff nomenclature and duties

The changes in the central excise tariff, including revision of tariff rates from 10% to 12% and from

4% to 6% shall take effect now. (Effective rates were already revised by notification.) In chapter 85 a

chapter note has been inserted to the effect that the processes of matching, batching and charging of

lithium ion batteries or the making of battery packs will amount to manufacture. Certain changes

have been made in chapter 74 to 76, 78 and 79 consequent to revised ISRI code of classification.

Other tariff changes have been made by amending the Finance Acts of previous years.

Retrospective amendment to chapter 54, and validation of demands

In chapter 54, a new chapter note 1A is inserted to provide that man-made fibre such as polyester

staple fibre and polyester filament yarn manufactured from plastic and plastic waste including PET

bottles shall be classified as textile material under chapter 54 or 55 as the case may be, with

retrospective effect from 29 June 2010. Action taken to recover excise duty from that date onwards is

also validated. One month is given to assessees to pay the duty, after which interest at 24% will also

be payable. Cenvat credit will be available.






Service tax

The major changes proposed in service tax, which are linked with the negative list approach, will

come into effect from 1 July 2012. The changes that have come into effect with the Presidential

assent are as follows.

Rate of tax, value and exchange rate applicable to services

A new section 67A has been inserted into the Finance Act 1994 to provide that the rate of service

tax, value of service and rate of exchange shall be as applicable or in force at the time when the

taxable service has been provided or agreed to be provided.

Reverse charge

Section 68 has been amended to enable the central government to notify services in respect of which

the person as notified will pay the service tax to the extent notified. (Notification 15/2012-ST has

been issued under this, providing for partial reverse charge for manpower recruitment and works

contract services, but it will come into effect from a date to be notified.)

Special audit for valuation and Cenvat credit

A new section 72A has been inserted, to provide for

special audit in service tax. It provides that if the

Commissioner doubts the valuation of taxable

service or the extent of Cenvat credit taken, or if the

assessee has operations spread over more than one

service tax jurisdiction, the Commissioner may

appoint a cost accountant or chartered accountant to

audit the accounts of that assessee for a period that

he may specify.

Limitation for demand extended to 18 months

The normal period of limitation for demands of

service tax has been increased from one year to 18

months by amending section 73 of the Finance Act

1994. The period is calculated from the „relevant

date‟, which is the date on which periodical return

for the period was filed or was due to be filed.

Repeat demands need no show cause notice

A further amendment in section 73 provides that for

repeat demands on the same issue for subsequent

periods, a statement of the amount due will suffice

and serve as a notice.

Renting of immovable property: waiver of penalty

A new section 80A has been inserted, to provide for

waiver of penalty if service tax on renting of

immovable property as on 6 March 2012 is paid in






full with interest within a period of six months from the date of Presidential assent to the Finance

Act. As the Presidential assent was given on 28 May, the deadline for payment in order to avail

waiver of penalty is 27 November 2012.

Appeal period reduced

Service tax appeals to the Commissioner (Appeals) were till now required to be filed within three

months of receipt of the order. This was in contrast to excise and customs, where the period of appeal

to the said functionary was two months. Now section 85 of the Finance Act 1994 stands amended, to

reduce the appeal period to two months in service tax also. Condonation of delay of one month

continues to be applicable. This reduced appeal period is applicable to orders passed after 28 May

2012.

Appeal period to Tribunal extended for departmental appeals

Section 86 has been amended to provide an extended period of limitation of four months for the

department to file appeal before the Tribunal. This period of four months is counted from the date of

receipt of order by the Committee of Chief Commissioners or Committee of Commissioners. The

extended period will apply to all orders passed after 28 May 2012.

Prosecution provisions made less rigorous

Section 89 had provided for imprisonment for, inter alia, provision of service without invoice or

receipt of service without invoice in cases where recipient is liable to pay the service tax. This

draconian provision has been amended to introduce an element of mens rea, by replacing the clause

with one that provides for imprisonment for a person who “knowingly evades the payment of service

tax”.

Rebate extended to services used in removal or export of goods

Rebate of service tax was earlier available for services used in the manufacture or processing of

export goods; now section 93A has been amended to provide for rebate of service tax paid on

“manufacture or processing or removal or export” of the export goods.

Rules to be applicable to non-taxable services also for certain purposes

A new section 93B has been inserted in the Finance Act 1994, to provide that rules made under

section 94 will also be applicable to services other than taxable services in so far as they are relevant

for the determination of any tax liability, refund, credit of service tax or duties paid on inputs or input

services or for carrying out the provisions of chapter V of the Finance Act 1994.

Amendments in power to make rules

The government has been empowered to make rules for compounding of cases and settlement of

cases. (The rules have already been issued under this provision.)

Power to issue orders for removal of difficulties

Section 95 has been amended to empower the central government to issue orders to make provisions

for removing difficulties that may arise in the context of the new service tax provisions.

Advance rulings to cover admissibility of input credit

Section 96C(e), which provided for advance rulings on admissibility of service tax credit, has been

amended to provide for advance rulings on admissibility of credit of duty or tax.






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Retrospective exemption for repair of roads and of non-commercial government buildings

Two new sections, 97 and 98, have been added to Chapter V of the Finance Act 1994, to provide

retrospective exemption for road repair (section 97) and repair of non-commercial government

buildings (section 98). Road repair is exempted for the period 16 June 2005 to 26 July 2009.

Management, maintenance and repair of non-commercial government buildings is exempted from 16

June 2005 till the date on which the new section 66B comes into force. Refund will be paid to those

who have paid the service tax, upon application being made within six months from 28 May 2012.

Retrospective exemption for club or association service in relation to effluent and solid waste

treatment services

Notification 42/2011-ST dated 25 July 2011 exempted club or association services provided by a

group of dyeing units in relation to a common facility set up for treatment and recycling of effluents

and solid waste discharged by dyeing units, with financial assistance from the central or state

government. This notification has been given retrospective effect from 16 June 2005.

Retrospective zero rating of services supplied to unit in SEZ or developer of SEZ

Rule 6 (6A) in the Cenvat Credit Rules 2004 waives reversal of credit if the services are supplied to a

unit in SEZ or a developer of SEZ. This rule had been inserted into the said Rules on 1.3.2011. Now

it has been given retrospective effect from 10 February 2006.

Option to reverse credit on the basis of formula made available retrospectively for input services

The Finance Act 2010 had made the benefit of sub-rule (3A) in the Cenvat Credit Rules

retrospectively available to settle pending disputes, so that reversal of credit would be an option in

the case of exempted goods and services. By what seems to be a drafting error, the relevant section

(section 73 of the Finance Act 2010) refers only to inputs. It has been retrospectively amended to

cover input services also with effect from 8 May 2010.

Certain typos / drafting errors have also been rectified.




Documents

White Paper June 12