INDIRECT TAX PROPOSALS IN UNION BUDGET – 2018

[Dr. Sanjiv Agarwal]

Finance Minister presented this Government's fifth and last full Budget before 2019 elections on 1^st February, 2018 amid subdued economic growth, challenging fiscal situation and farm distress. This is also the first Budget under the GST regime, though there is nothing on GST in this Budget. What makes it all the more important is the upcoming elections in eight states this year and the General Election next year, all of which put tough demands on it. This Budget hints at various populist measures reflecting upon election mode and as a preparedness to kick start the election campaign.

The Goods and Services Tax (GST) collections for December 2017 show an increase, but despite this there are concerns that the tepid collections since July could pose a problem on the fiscal deficit front. However, a closer look at the numbers shows that these fears are misplaced. The Centre’s tax collection, as per the CGA (Controller General of Accounts), appears to be on track to achieving the Budget estimates for 2017-18. There are, however, many trouble spots in the new regime. Budget 2018-19 projects a total of 23% revenue from GST aggregating to ₹ 743900 crore comprising of CGST, IGST and Compensation Cess. In current fiscal of 2017-18, it is estimated to be ₹ 4,44,631 crore (9 months). Estimate of total Service Tax collection in 2017-18 has been revised to 79,507 crore (3 months).

The Budget's main focus has been socio - economic growth with agriculture, infrastructure, health and education at centre stage. The thrust of reforms for economic development also revolves around 'make in India', dispute resolution and 'ease of doing business' initiatives. Central indirect taxes now comprise of only two major taxes – customs duty and Goods and Service Tax (GST) and is a relatively simpler tax regime.

The Budget only contains provisions for Customs and GST related provisions are expected to be legislated separately after clearance from GST Council. However, most of the executive changes are being done through Notifications.

General

• Name of Central Board of Excise and Customs is being changed to Central Board of Indirect Taxes and Customs with consequential amendments in the following Acts: -

(i) The Central Boards of Revenue Act, 1963 (54 of 1963)

(ii) The Customs Act, 1962 (52 of 1962)

(iii) The Central Goods and Services Tax Act, 2017 (12 of 2017)

• Following enactments have been repealed:
  • Additional duty of Customs on Motor Spirit commonly known as Petrol is being abolished by repealing section 103 of the Finance Act, 1998.
  • Additional duty of Excise on Motor Spirit commonly known as Petrol is being abolished by repealing section 111 of the Finance Act, 1998.
  • Additional duty of Customs on High Speed Diesel oil is being abolished by repealing section 116 of the Finance Act, 1999.
  • Additional duty of Excise on High Speed Diesel oil is being abolished by repealing section 133 of the Finance Act, 1999.
  • Education Cess on imported goods is being abolished by omitting Chapter VI of the Finance Act (No.2), 2004.
  • Secondary and Higher Education Cess on imported goods is being abolished by omitting Chapter VI of the Finance Act, 2007.

Customs

Custom duty rates have been increased to provide level playing field for Indian companies vis-a-vis import of such goods changes have also been made for trade facilitation. The major highlights are :

• Proposed reduction in Customs duty on inputs and raw materials like mineral fuels, metals, renewable energy etc. to reduce costs.

• Changes in Customs and Excise / CV duty to address the problem of duty inversions in certain sectors such as, chemicals & petrochemicals, textiles, metals,  automobiles, renewable energy etc.

• Changes in Customs duty to provide adequate protection to domestic industry in Food processing and Electronics / Hardware.

• Promotion of cashless transactions and promote domestic manufacturing of devices used thereof.

• Where an order for refund under section 27(2) is modified in any appeal and the amount of refund so determined is less than the amount refunded, the excess amount so refunded shall be recovered along with interest at the rate fixed by the Central Government under section 28AA, from the date of refund up to the date of recovery.

• The definition of advance ruling has been amended as under:

"Advance ruling means a written decision on any of the questions referred to in section 28H raised by the applicant in his application in respect of any goods prior to its importation or exportation"

• Time frame for issuance of ruling by an advance ruling authority has been reduced from six months to three months.
• Pre-consultation notice is to be issued before initiating any proceedings under Customs not involving collusion, willful mis-statement, suppression etc.
• The proper officer may carry out the audit of assessment of imported goods or export goods or of an auditee under Custom Act either in his office or in the premises of the auditee in such manner as may be prescribed. For the purposes of this section, 'auditee' means a person who is subject to an audit under this section and includes an importer or exporter or custodian approved under section 45 or licensee of a warehouse and any other person concerned directly or indirectly in clearing, forwarding, stocking, carrying, selling or purchasing of imported goods or export goods or dutiable goods.

Service Tax

Though Service Tax is now no longer leviable, there are few provisions to provide for retrospective exemption in three cases vide clause Nos. 103, 104 and 105 of the Finance Bill, 2018. There relate to Special provision for exemption from service tax in certain cases relating to life insurance services provided by Naval Group Insurance Fund to personnel of Coast Guard, retrospectively; Special provision for exemption from service tax in certain cases relating to services provided or agreed to be provided by Goods and Services Tax Network, retrospectively; and Special provision for retrospective exemption from service tax on Government’s share of profit petroleum. Otherwise there are changes in Customs only.

• Special provision for retrospective exemption from service tax in certain cases relating to life insurance services provided by Naval Group Insurance Fund to personnel of Coast Guard during the period commencing from the 10th day of September, 2004 and ending with the 30th day of June, 2017 (both days inclusive).
• Special provision for retrospective exemption from service tax in certain cases relating to services provided or agreed to be provided by Goods and Services Tax Network during the period commencing from the 28th day of March, 2013 and ending with the 30th day of June, 2017 (both days inclusive)
• Special provision for retrospective exemption from service tax on Government’s share of profit petroleum during the period commencing from the 1st day of April, 2016 and ending with the 30th day of June, 2017 (both days inclusive).

Note : an application for the claim of refund of service tax in relation to above provisions shall be made within a period of six months from the date on which the Finance Bill, 2018 receives the assent of the President

It is hoped that a series of structural reforms proposed will propel India among the fastest growing economies of the world. Country is firmly on course to achieve over 8% growth as manufacturing, services and exports back on good growth path.

The Budget does not contain GST proposals and it is likely that GST enactments may be amended after recommendations of GST Council in second phase of Budget session in March, 2018.