BUDGET 2017-18 AND INDIRECT TAXES

[Dr. Sanjiv Agarwal]

Union Budget 2017-18 proposals have been presented under the following ten distinct themes to foster the socio-economic agenda:

• Farmers : for whom we have committed to double the income in 5 years;
• Rural Population : providing employment and basic infrastructure;
• Youth : energising them through education, skills and jobs;
• Poor and the Underprivileged : strengthening the systems of social security, health care and affordable housing;
• Infrastructure: for efficiency, productivity and quality of life;
• Financial Sector : growth and stability through stronger institutions;
• Digital Economy : for speed, accountability and transparency;
• Public Service : effective governance and efficient service delivery through people’s participation;
• Prudent Fiscal Management : to ensure optimal deployment of resources and preserve fiscal stability; and
• Tax Administration : honouring the honest.

The tax proposals, both direct and indirect, are aimed at the following major reform areas:

• Measures for Promoting Affordable Housing and Real Estate Sector
• Measures for Stimulating Growth
• Promoting Digital Economy
• Transparency in Electoral Funding
• Ease of Doing Business
• Personal Income-Tax
• Goods and Services Tax
• RAPID(Revenue, Accountability, Probity, Information and Digitalisation)

‘Key Highlights of Union Budget 2017-18’ relating to Economic Reforms

• GDP to grow @ 6.75 – 7.5 percent in 2017-18
• Tax to GDP ratio too low
• Inflation brought under control. CPI-based inflation declined from 6% in July 2016 to 3.4% in December, 2016.
• India’s Current Account Deficit declined from about 1% of GDP last year to 0.3% of GDP in the first half of 2016-17.
• FDI grew 36% in H1 2016-17 over H1 2015-16, despite 5% reduction in global FDI inflows.
•  Foreign exchange reserves have reached 361 billion US Dollars as on 20th January, 2017.
• India has become the sixth largest manufacturing country in the world
• India is expected to be one of the fastest growing major economies in 2017

‘Key Highlights of Union Budget 2017-18’ relating to Indirect Tax

Customs Duty

No major changes have been proposed in customs law (except changes in duty structure).

Excise Duty

• Miniaturised POS card reader for m-POS (other than mobile phones or tablet computers), micro ATM standards version 1.5.1, Finger Print Readers / Scanners and Iris Scanners and on their parts and components for manufacture of such devices to be exempt from BCD, Excise/CV duty and SAD.

• Notification No.12/2012-Central Excise dated 17.03.2012 [S.No.128, which prescribed a concessional excise duty of 1% subject to certain conditions] is being amended so as to exclude goods falling under heading 3101 from the purview of the said entry.

• Excise duty is being exempted on Catalyst [3815 90 00] and Resin [3909 40 90] for use in the manufacture of cast components of Wind Operated Electricity Generator subject to actual user condition. The exemption from excise duty will be valid till 30th June, 2017.

• Nil excise duty, on waste and scrap of precious metals or metals clad with precious metals, arising in course of manufacture of goods, is being made subject to condition that no credit of input or input services or capital goods has been availed by manufacturers of such goods.

• Nil excise duty, on strips, wires, sheets, plates and foils of silver, is being made subject to condition that no credit of input or input services or capital goods has been availed by manufacturers of such goods.

• Nil excise duty, on Silver coins of purity 99.9% above, bearing a brand name, is being made subject to condition that no credit of input or input services or capital goods has been availed by manufacturers of such goods.

• Point of Sale [POS] devices and all goods for manufacture of POS devices subject to actual user condition were exempted from central excise / CV duty Vide Notification No.35/2016-Central Excise, dated 28th November, 2016. These exemptions which are valid till 31st March 2017 are being extended up to 30.06.2017.

Service Tax

1. Clause (f) of Negative List (Section 66 D) has been omitted, which provides as under:

“services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption”

2. The definition of ‘process amounting to manufacture’ [Section 65B (40)] has been omitted from the Finance Act, 1994 and same is being incorporated in the Notification No. 25/2012-ST dated 20.06.2012, i.e., general exemption.

3. The definition of ‘Authority’[ Clause (d) of section 96A of the Finance Act, 1994] is being amended to provide as:

‘Authority’ mean the Authority for Advance Ruling as constituted under section 28E of the Customs Act, 1962.

The definition of ‘Authority’ [Clause (E) of section 28 of the Customs Act, 1962] is being amended to provide as:

“Authority” to mean the Authority for Advance Ruling as constituted under section 245-O of the Income-tax Act, 1961.

4. Section 96B relating to vacancies not to invalidate proceedings is being omitted in view of the provisions provided under section 245P of the Income-tax Act, 1961 provides that

‘No proceeding before, or pronouncement of advance ruling by the Authority for Advance Ruling would be invalidated on the ground merely due to any vacancy or defect in the constitution of the Authority.’

5. The application fee for seeking advance ruling is to be increased from rupees two thousand five hundred(Rs 2500/-) to rupees ten thousand(Rs.10,000/-) on the lines of the Income Tax Act.( Section 96C(3) of the Finance Act, 1994)

6. The existing time limit is to be extending from ninety days (90 days) to six months (6 Months) by which time the Authority shall pronounce its ruling, on the lines of the Income Tax Act. ( Section 96D(6) of the Finance Act, 1994)

7. A new section 96HA is being inserted so as to provide for transferring the pending applications before the Authority for Advance Rulings (Central Excise, Customs and Service Tax) to the Authority constituted under section 245-O of the Income-tax Act from the stage at which such proceedings stood as on the date on which the Finance Bill, 2017 receives the assent of the President.
8. The exemption from service tax under notification No. 14/2012-ST would be not available to a taxable service involving import of technology on which Research and Development Cess is not payable. Full service tax along with cesses (Swachh Bharat Cess and Krishi Kalyan Cess) would be applicable to such taxable service.( W.e.f. the enactment of the Finance Bill, 2017)

1. Service tax exemption to taxable services provided or agreed to be provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government, is being made effective from 10th day of September, 2004, the date from when the services of life insurance became taxable.

10. Research and Development Cess Act, 1986 is proposed to be repealed

11. Benefit of the exemption notification No. 41/2016-ST dated 22.09.2016 is being extended with effect from 1.6.2007, the date when the services of renting of immovable property became taxable. notification No. 41/2016-ST dated 22.09.2016,

‘exempts one time upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable for grant of long-term lease of industrial plots (30 years or more) by State Government industrial development corporations/ undertakings to industrial units was exempted.’

• Rule 2 A of Service Tax (Determination of Value) Rules, 2006 is being amended with effect from 01.07.2010 so as to make it clear that value of service portion in execution of works contract involving transfer of goods and land or undivided share of land, as the case may be, shall not include value of property in such land or undivided share of land.

13. Insertion/amendment of entries in the Notification No. 25/2012-ST, dated 20.06.2012 to provide exemption from service tax. Entries are:

• Services provided or agreed to be provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government.(New entry at S. No. 26D of notification No. 25/2012-ST)

• The exemption vide S. No. 9B of notification No. 25/2012-ST dated 20.06.2012, is being amended so as to omit the word “residential” appearing in the notification. The exemption remains the same in all other respects. (Amendment in S. No. 9B of Notification No. 25/2012-ST)

• Under the Regional Connectivity Scheme (RCS), exemption from service tax is being provided in respect of the amount of viability gap funding (VGF) payable to the selected airline operator for the services of transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a Regional Connectivity Scheme (RCS) airport, for a period of one year from the date of commencement of operations of the Regional Connectivity Scheme (RCS) as notified by Ministry of Civil Aviation. (New entry at S. No. 23A of notification No. 25/2012-ST)

Cenvat Credit Rules, 2004

• Explanation-I (e) applicable to sub-rule 3 and 3A of Rule 6 of CENVAT Credit Rules, 2004 is being amended so as to exclude banks and financial institutions including NBFCs engaged in providing services by way of extending deposits, loans or advances from its ambit. It has been provided in the said explanation that value for the purpose of reversal of common input tax credit taken on inputs and input services used in providing taxable and exempted services, shall not include the value of service by way of extending deposits, loans or advances against consideration in the form of interest or discount. (Amended by Notification No. 04/2017-C.E.(NT), dated 2nd February, 2017)

• A new sub-rule 4 is being inserted in Rule 10 of CENVAT Credit Rules, so as to provide that transfer of CENVAT Credit by the jurisdictional Dy./Assistant Commissioner of Central Excise, shall be allowed within 3 months from the date of receipt of application from the manufacturer or service provider in this regard, subject to the fulfillment of the conditions prescribed under Rule 10 (3).(Inserted by notification No. 04/2017-C.E.(NT), dated 2nd February, 2017)