Vikram S. Nankani (Sr. Adv.)

Contents

Customs

Central Excise

Service Tax

CENVAT Credit

Indirect Tax Dispute Resolution Scheme, 2016

Central Sales Tax

Customs

• Definition of “Warehouse” amended to include a “Special Warehouse”– “special warehouse” to be licensed in terms of newly introduced

Section 58A for certain class of goods

• Licensing of warehouses to be done only by Principal Commissioner /Commissioner of Customs

• Warehousing Bond amount fixed at three times duty amount– Additional security, if required

• Requirement of permission for depositing goods in warehouse

• Provision for Physical control omitted– Conditions of ‘control’ will be be governed under licensing provisions

Amendments to Customs Act, 1962 (Warehousing)…

• Time limit for warehousing proposed to be omitted– Benefit extended to EHTP and STPs, along with 100% EOUs

– For use in any unit, other than above, period of 1 year prescribed

• Provisions for fixing Rent omitted– Now rent will be subject to market determination

• Permission to manufacture / carry out other operations– To be granted by Principal Commissioner / Commissioner

– Provision for fees for supervising manufacturing activities omitted

• Right of the owner to take sample of goods without entry for home consumption and without payment of duty is proposed to be omitted

…Amendments to Customs Act, 1962 (Warehousing)

• Section 47 and Section 51 of Customs Act, 1962 amended– To provide for deferred payment of Customs Duties for certain class of

importer / exporter with proven track record

• Omission of Section 8C of Customs Tariff Act, 195– Transitional Safeguard Mechanism as an Emergency Trade Remedial

Measure (Special provision against China lifted)

– Safeguard measures only under Section 8B will survive

• Consequential amendments carried out in various notifications

Other Amendments

• Distinction of passengers staying abroad for less than or more than 3 days done away with

• A slab system of duty free allowance introduced for person transferring residence to India

• Customs Baggage Declaration Regulations, 2013 amended– Declaration required only if person has anything to declare or is

carrying prohibited goods

New Baggage Rules of 2016

Countries Indian Resident, Foreignerresiding in India, Tourist of India Origin

Tourist of Foreign Origin

Other than Nepal,Bhutan, Myanmar

Rs. 50,000 Rs.15,000

Nepal, BhutanMyanmar

Rs. 15000

• Manufacturer will no longer be required to obtain a specific registration from the jurisdictional Central Excise Officer, to claim exemption under the aforesaid Rules– Self-declaration will be sufficient setting out details of

• Excisable goods to be produced and nature of imported goods

• Time limit for re-export of untilised or defective goods under these Rules– reduced from 6 months to 3 months

Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods)

Rules, 2016

• Condition of “offered for sale” in relation to Notifications omitted– To overcome Union of India vs. Param Industries Ltd. [2015 (321) ELT

192] which held that Notification not effective until offered for sale

• Normal period of limitation extended up to two years– Additionally, the phrase “duties not levied or short-levied” substituted

with “duties not levied or not paid or short-levied or short-paid”

• Interest @ 15%

Common Amendments to Customs & Central Excise

Central Excise

• All goods under CETH 3401 (soap) and 3402 (organic surface active agents), respectively

• All goods falling under CETH 7607 i.e. aluminium foil of thickness not exceeding 0.2 mm

• All goods falling under CETH 8517 62 i.e. wrist wearable devices (smart watches)

• “accessories” of vehicles in addition to the existing “parts, components and assemblies”

• glazed tiles, in addition to vitrified tiles, whether polished or not [effective w.e.f. 01.01.2017]

New Inclusions to list of goods under Third Schedule:“Deemed Manufacture” [Section 2(f)(iii)]

• Interest on amounts paid / payable under provisional assessment, which is not paid, to be computed from due date and not from the date of passing of final assessment order

– Delay in Final Assessment to cost assessee

• Provision for filing Revised Excise Returns (monthly / annual) within a month from the date of the original return

– Consequential amendment to the phrase “relevant date” for recovery

• Omission of requirement of providing self attested copies of digitally signed duplicate invoices, by the manufacturer to a transporter, for the purpose of transportation of goods

• Penalty proceedings w.r.t. Co-noticees deemed to be concluded if the proceeding against person liable to pay duty is concluded – Section 11 AC read with Rule 26 of the Rules

Central Excise Rules, 1994

• Condition of rebate being subject to ‘market price’ amended– Now subject to Indian market price

– To overcome decision of Hon’ble Delhi High Court in Dr. Reddy’s Laboratories vs. Union of India [2014 (309) ELT (423)]

• Time limit for filing rebate claim is being introduced– Linked to time limit for filing refund under Section 11AB

– To overcome decision of Hon’ble Punjab & Haryana High Court in JSL

– Lifestyle Limited vs. Union of India [2015 (326) ELT (265)]

• Deputy / Assistant Commissioner not required to verify the correctness of the ratio of the input and output – a Chartered Engineer’s certificate in this regard is to be provided

– However, the correctness of the Declaration, may be verified

Rebate under Rule 18

• Exemption from registration and consequential physical verification of multiple premises/factories – Manufacturer/producers of jewellery having centralised billing and

accounting

• Amendment to Notification No. 36/2001-C.E. (N.T.) dated 26.06.2001– Benefit of single registration for two or more premises of same factory

separate by a public road, railway line, canal is now subject to following conditions

• the two or more premises of the same factory are located within the jurisdiction of a Range Superintendent; and

• the manufacturing process is interlinked; and

• the units are not operating under any area based exemption notifications

Other Key Amendments ...

• Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2016– Manufacturer will no longer be required to make an additional

application to the Assistant / Deputy Commissioner of Central Excise, to claim exemption under the aforesaid Rules

• Self-declaration will be sufficient

...Other Key Amendments

• Levy re-introduced on branded readymade garments– Excise duty @2%(without CENVAT Credit) and @12.5% (with CENVAT

Credit)

Levied on specified readymade garments falling under Chapter 61,62 and 63 with RSP above Rs 1000/-

– Abatement reduced from 70% to 40%

– Various procedural clarifications issued to facilitate discharge of liability by the brand owner

– Recognizing the seasonality of these products, exemption granted in relation to goods returned at the end of the season (upto 10%)

• Levy introduced on gems and jewellery sector– Excise duty @1%(without CENVAT Credit) and @12.5% (with CENVAT

Credit), other than sliver jewellery

– Threshold exemption upto 6 crores / year however, if turnover exceeds 12 crores, the threshold exemption not applicable subsequently

Key Rate Changes

• A new levy namely on the motor vehicles falling under Chapter Heading 8703 of CETA at the rates specified below:

Infrastructure Cess

Nil Rate 1% 2.5% 4%

1. Three wheeled vehicles,2. Electrically operated vehicles,3. Hybrid vehicles,4. Hydrogen vehicles based on fuel celltechnology,5. Motor vehicles which after clearancehave been registered for use solely astaxi (subject to prescribed conditions),6. Cars for physically handicappedpersons(subject to prescribedconditions), and7. Motor vehicles cleared as ambulances orregistered for use solely as ambulance(subject to prescribed conditions)

Petrol/LPG/CNG drivenmotor vehicles oflength not exceeding4m andengine capacity notexceeding 1200cc

Diesel driven motorvehicles of length notexceeding 4m andengine capacity notexceeding 1500cc

All categories ofmotor vehiclesother than thoselisted –EleventhSchedule of theFinance Bill, 2016

Service Tax

• Amended to provide that Service Tax is payable on activities in relation to promotion, marketing, organizing, selling of lottery, facilitating in organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998, carried out by a lottery distributor or selling agent on behalf of the State Government.– Explanation 2, sub-clause (ii)(a) to the definition of ‘service’ under

Section 65B(44) is proposed to be substituted to state that this activity will not tantamount to a ‘transaction in money or actionable claim’, which is excluded from the levy of Service Tax.

Definition of Service

• New Inclusion– Assignment by the Government of the right to use the radio-frequency

spectrum and subsequent transfers thereof

• On August 12, 2015, the Union Cabinet gave its approval to the guidelines on spectrum sharing, arising from the recommendations of TRAI

• In the decision of Bharti Airtel Ltd v. State of Karnataka [2012 (25) S.T.R. 514 (Kar.)], it was held that Artificially Created Light Energy (form of energy / wave) used by telecom service providers as carrier for data or information in optical fibre cable broadband line does not constitute goods and is liable to Service Tax

– It is not marketable and does not satisfy the test of delivery and consumption

Declared Service

• Normal period of Limitation extended up to 30 months

• Penalty proceedings under Section 78A against co-noticeeswill be deemed to be concluded in cases where main demand and penalty proceedings have been concluded under Section 76 or Section 78

• Krishi Kalyan Cess of @ 0.5% on all taxable services with effect from 01..06.2016– Krishi Kalyan Cess is Cenvatable

– The aggregate service tax rate w.e.f. 01.06.2016 would be 15% (including Swacch Bharat Cess)

Other Legislative Changes

• Monetary limit for punishment proposed to be enhanced to Rs. 2 crore– Effect: Bailable Offences, except those where amount collected

exceeds Rs. 2 crores but not paid. Such offences are cognizable and non-bailable

• The power to arrest to be restricted to situations where taxpayer has collected but not deposited tax which is more than Rs. 2 crore– Section 90 r/w Section 91

Prosecution and Arrest

Rationalisation of Interest Rates

Delayed Payment Existing Proposed

Service Tax 18% - Up to 6 months24% - 6 months to 1 year30% - After 1 year

15%24% where tax is collected but not deposited

For assesses with taxable value during preceding year/years covered by the notice is less than Rs. 60 Lakh, the rate of interest on delayed payment of service tax will be 12%

Service Tax Abatement Rates

Changes Existing Proposed

The abatement rate in respect of services by way of construction of residential complex, building, civil structure, or a part thereof, is being rationalized at 70% by merging the two existing rates (70% for high end flats and 75% for low end flats).

3.5%/4.2%

4.2%

The abatement rate in respect of services by a tour operator in relation to packaged tour (defined where tour operator provides to the service recipient transportation, accommodation, food etc) and other than packaged tour is being rationalized at 70%.

3.5%/ 5.6% of amount charged

4.2% of amount charged

Credit of input services is being allowed on transport of passengers by rail at the existing rate of abatement of 70%.

4.2%Without

credit

4.2%With input

service credit

Credit of input services is being allowed on transport of goods, other than in containers, by rail at the existing rate of abatement of 70%.

4.2%Without

credit

4.2%With input

service credit

The abatement rate on services of a foreman to a chit fund is being rationalised at the rate of 30%, without CENVAT credit on inputs, input services and capital goods.

14% 9.8%

Credit of input services is being allowed on transport of goods in containers by rail at a reduced abatement rate of 60%.

4.2%Without

credit

5.6%With input

service credit

Service Tax Exemptions ...

Changes Existing Proposed

Exemption to construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 1st March 2016 being withdrawn, with effect from 01.03.2016.

NIL 5.6%

Service Tax on services in respect of several construction / housing related Central and State Government schemes

5.6% NIL

Service Tax on service of life insurance business provided by way of annuity underthe National Pension System regulated by Pension Fund Regulatory and Development Authority (PFRDA) being exempted, with effect from 01.04.2016

3.5 NIL

Composition rate of service tax on single premium annuity (insurance) policies being reduced from 3.5% to 1.4% of the premium charged, with effect from 01.04.2016.

3.5% 1.4%

Service Tax on the services of general insurance business provided under ‘Niramaya’ Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability being exempted, with effect from 01.04.2016.

14% NIL

Services provided by mutual fund agent/distributor to a mutual fund or asset management company being taxed under forward charge, with effect from 01.04.2016

14% 14%

... Service Tax Exemptions

Changes Existing Proposed

Service tax on services provided by them by way of transportation of goods by a vessel from outside India up to the customs station in India being imposed, with effect from 1st June, 2016. (RCM in case of foreign shipping lines)

NIL 14%

Exemptions being restored , with effect from 01.04.2015, in relation to contracts which had been entered into prior to 01.03.2015 for services of:a) construction provided to the Government, a local authority or a governmental authority, in respect of construction of govt. schools, hospitals etc.b) construction of ports, airports.

5.6% of total

amount

NIL

Exemption from service tax being extended to services provided by way of construction, maintenance etc. of canal, dam or other irrigation works provided to bodies set up by Government, during the period from the 1st July, 2012 to 29th

January, 2014

5.6% of total

amount

NIL

Exemption on services provided by:-(i) a senior advocate to an advocate or partnership firm of advocates providing legal service; and(ii) a person represented on an arbitral tribunal to an arbitral tribunal,is being withdrawn w.e.f 01.04.2016 and Service Tax is levied in the hands of service provider.

NIL 14%

• Service Tax has been exempted w.e.f. March 01, 2016 on Information Technology Software if such software is:– Recorded on a media which is notified under Chapter 85 of the CETA;

– On which RSP is required to be declared;

– The value of the package of such media domestically procured or imported, has been determined under Section 4A of the CE Act;

– Excise Duty / CVD has been paid by the manufacturer / importer on RSP basis

– The service provider has to make a declaration on the invoice that no amount in excess of the declared RSP has been recovered from the customer

Exemption to Software

Reverse Charge Mechanism

Nature of Services Service Provider

ServiceRecipien

t

Services provided or agreed to be provided by a mutual fund agent or distributor, to a mutual fund or asset management company

100% NIL

Services provided or agreed to be provided by a selling or a marketing agent of lottery tickets in relation to a lottery in any manner to a lottery distributor or selling agent of theState Government under the provisions of the Lottery (Regulation) Act, 1998

NIL 100%

Services provided or agreed to be provided by a firm of advocates or an individual advocate other than senior advocate by way of legal services

NIL 100%

Services provided or agreed to be provided by Government or local authority excluding (1) renting of immovable property (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of Section 66D

NIL 100%

• Explanation 1 and 2 are added to Rule 5, which deals with payment of Service Tax on services taxed for the first time, to clarify that– This Rule shall also apply in case of new levies

– New levy / tax shall be payable on all cases except where the payment is received before such service/levy became taxable for the first time and where the invoice is issued either before or within fourteen days of the date when the service/levy becomes taxable for the first time.

Point of Taxation Rules

• Annual return has to be filed by 30th November (effective from April 1, 2016)– could be revised within one month from the date of its submission

– delayed filing subject to INR 100 per day; maximum of INR 20,000/-

Service Tax Rules

CENVAT Credit

• Capital Goods [Rule 2(a)]– Wagons falling under Sub-heading 860692 specifically mentioned

• To overcome the decision of the Hon’ble Tribunal in the case of Bulk Cements Corporation (India) Ltd. Vs. Commissioner of Central Excise [2013 (294) ELT 433 (Tri-Mum)]

– Restriction with regard to ‘the equipments and appliances used in an office’ removed

• Inputs [Rule 2(k)]– Capital goods which have a value upto Rs. 10,000/- per piece would be

considered as inputs

– amendment clarifies that goods used for the ‘pumping of water’ would be construed as inputs.

Definitions

• CENVAT Credit on Jigs, fixtures moulds and dies or tools sent to a job worker or another manufacturer would also be allowed where such goods are sent without bringing the same to the premises of the Assessee.

• CENVAT Credit of Service tax in respect of services provided by way of assignment of “right to use” any natural resources– To be availed as per STRAIGHT LINE METHOD.

– Full credit available in case such rights are further assigned to another person against a consideration

– In respect of annual or monthly user charges the, credit shall be allowed in the same financial year in which they are paid.

• Annual return to be furnished for each financial year by the 30th day of November of the succeeding year.

Availment and Utilisation

• Rule 6 of the CCR substituted to reduce certain ambiguities in relation to apportionment of credits between exempted and non-exempted goods/services

• Activities which do not constitute services are to be considered as exempted services for calculation of credit reversals – Aligned with existing provisions qua non-manufactured goods

• Two options available for reversal of credits viz. payment of 6/7 percent or reversal on proportionate basis– Payment of 6 / 7 percent on exempted goods / services - Subject to

upper ceiling of total credit available at the end of the period (contd.)

Reversal under Rule 6 ...

– The industry wide concept of “common credit” formally introduced in the law for the first time to refer to credits left after attribution of credits exclusively related to - (a) exempted goods/services (b) non-exempted goods/services

• Interest rate towards failure of proportionate reversal reduced from existing 24 per cent to 15 per cent

• Banks and other financial institutions can reverse credit in respect of exempted services based on the following options– Reversal in terms of amended Rule 6(3) i.e. seven percent of value of

the exempted services or

– Proportionate reversal under Rule 6(3A) or

– Pay for every month an amount equal to 50% of the CENVAT Credit availed on inputs and input services in the month.

... Reversal under Rule 6 ...

• Discretionary powers with Central Excise Officer to permit proportionate reversal even after failure by the assessee to intimate regarding exercise of the option

• Where no final products manufactured / output service provided in preceding financial year– Ineligible common credit will be 50% of total ‘common credit’ pool

• No CENVAT credit allowed – Capital Goods – Where capital goods are used for manufacturing exempted goods or

providing exempted services for a period of two years, either (a) from the date of commencement of commercial production / provision of service, or (b) date of installation, whichever is later

• Restriction is not applicable in case of value or quantity based exemption

... Reversal under Rule 6

• Credit Distribution qua ‘Input Services’– Rule 7 dealing with distribution of credit on input services by an Input

service distributor (‘ISD’) is completely rewritten

• ISD can now distribute credit to ‘outsourced manufacturing units’ also in addition to ‘own manufacturing units’

– Overruled Hon’ble Tribunal’s decision in the case of Lotte India Corporation Ltd v. Commissioner of Central Excise, Pondicherry, [2014-TIOL-1090-CESTAT-MAD]

• ‘Outsourced manufacturing units’ includes - Job Worker paying excise duty under Rule 10A or person manufacturing goods bearing brand name of the ISD

• ‘Outsourced manufacturing units’ to maintain separate account of credits received from different ISDs

• Distribution of credit to continue on ‘pro-rata’ basis on the basis of turnover of units subject to certain restrictions

• Reversal of credits towards exempted goods / services shall apply to units availing the credits distributed by ISD and not to the ISD

Input Service Distribution under Rule 7

• Credit Distribution by a warehouse qua ‘Inputs’– Manufacturer with multiple manufacturing units may maintain a

common warehouse for inputs and distribute credits to the individual manufacturing units

– Manufacturing units can take credit on inputs received under the cover of invoice issued by the warehouse

Credit Distribution Mechanism for Goods under new Rule 7B

• Omission of Sub-clause (2) of Rule 14– FIFO mechanism for determination of credit utilisation in a month

done away with

– For determination of utilisation of CENVAT credit for a particular month

• Disputed credit will be mapped with the minimum balance of credit in the account of the assessee during the relevant month

• Restriction on Utilisation of CENVAT credit for payment of NCCD– Restriction was applicable to NCCD leviable on goods falling under

tariff headings 8517 12 10 and 8517 12 90

– Restriction is now made applicable to all goods, on which NCCD is leviable

Other Amendments

Indirect Tax Dispute Resolution Scheme, 2016

• Matter should be pending before Commissioner (Appeals) as on 01.03.2016;

• Window for declaration is 01.06.2016 to 31.12.2016;

• Declarant shall pay tax, interest, and penalty equivalent to 25% of penalty imposed in the impugned order;

• Immunity from prosecution

• Scheme not applicable in following cases:– Where impugned order is in respect of search and seizure

proceedings;

– Prosecution for any offence has been instituted before 01.06.2016

– Impugned order is in respect of narcotic or prohibited goods or offences punishable under Indian Penal Code (‘IPC’) etc.

Salient Features

Central Sales Tax

• sale of gas through a common carrier pipeline or other such transportation system, which involves commingling of gases, would be deemed to be an inter-State sale– Welcome move as VAT authorities in destination States were

demanding VAT on the basis of delivery/ ascertainment of the gas in the destination State

– amendment reinforces judgement of Hon’ble Allahabad High Court in Reliance Industries Limited vs. State of U.P. [2012-VIL-66-ALH]

• it was held that so long as the seller injects the gas into the pipeline in one State, and the buyer receives an equivalent quantity of the gas in another State, the transaction would qualify as an inter-State sale liable to CST

– However, appeal against the aforesaid judgement pending before Hon’ble Apex Court

Explanation to Section 3

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although I endeavor 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.