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Budget Highlights - Important Indirect Tax Proposals Changes common to service tax, excise and customs

Budget Highlights - Important Indirect Tax Proposals

Changes common to service tax, excise and customs

Pre-deposit of disputed taxes / duties pending appeal Pre-deposit of 7.5% of the disputed duties / taxes at the first appeal and 10% of the disputed duties at the second appeal will be mandatory in customs, excise and service tax, from October 2014. The computation will be based on the duties / taxes / penalties demanded and will not include interests. The deposit will be a pre-condition of entertaining the appeal. The change will not apply to appeals that are already filed.

Cenvat credit to be taken within 6 months of document A time limit of six months is being introduced for taking Cenvat credit. This will be counted from the date of issue of the document on the basis of which credit is taken. The change will apply for documents issued from 1 October 2014.

LTU: No transfer of credit The facility of transfer of Cenvat credit from one unit of an LTU to another has been withdrawn.

Advance ruling Advance rulings in customs, excise and service tax will be available to resident private limited companies also.

Settlement Commission: scope expanded The Settlement Commission is being empowered to hear cases in which returns have not been filed. Cases of baggage declaration, bill of export, and label / declaration covering courier consignments are also being covered in the expanded scope of the Commission.

Tribunal: threshold for admission raised At present the CESTAT can, in its discretion, reject appeals that involve an amount of Rs 50000 or less. This threshold is being raised to Rs 2 lakh.

Compulsory e-payment E-payment has been made compulsory in central excise and service tax.

Service tax

Interest rates in increasing slabs Interest on unpaid service tax is currently simple interest @ 18% per annum. This will remain the case for the first six months of non-payment. After that it will increase to 24% for the next six months, and 30% for delay beyond one year.

Exchange rates to be de-linked from customs Currently the currency exchange rates notified for customs are applicable for service tax also. This will be de-linked, and new rules will be notified for the purpose of working out the rupee value of services for service tax.

Reverse charge mechanism Changes in the reverse charge mechanism:

Body corporate has to pay service tax on service received from a Director.

Banks, financial institutions and NBFC will have to pay service tax on recovery agent service.

Rent-a-cab service provider and recipient will pay 50-50 of the service tax if the provider has not availed abatement.

The condition of full payment of service value before taking Cenvat credit is being removed in the case of full reverse charge. It will remain applicable for partial reverse charge.

Negative list / exemptions / service categories modified

Renting of immovable property to educational institutions being made taxable.

The word ‘commercial’ has been deleted from the description of the taxable service of rentals of lodgings, to make it clear that this covers dharamshala, ashram and other such entities also.

The two categories of works contracts ‘B’ and ‘C’ under Rule 2A of the valuation rules will be merged from October, with 70% of the total value being taxable.

Service tax is extended to radio taxis.

Service tax is extended to sale of space or time for advertisement on internet, cell phones, ATMs, commercial publications, bill boards, buildings tickets, etc. However print media advertisement is still in the negative list.

Passenger transportation from point to point in air conditioned contract carriages is now taxable; the effective rate of tax is 4.94% of value.

Clinical trial on human beings is now taxable.

Definition of ‘intermediary’ in the Place of Provision Rules has been expanded to include an intermediary for goods: place of provision of service is the location of the intermediary.

‘Service consumed in SEZ’ clarified for the purpose of exemption.

Central excise

Excise duty on cigarettes and other tobacco products increased.

‘Place of removal’ has been defined for the purposes of Cenvat credit.

In case of default of payment of excise duty, the assessee will himself have to pay 1% of the duty per month till payment.

It is clarified by amendment that transaction value will apply even in cases of sale below cost where there is no additional consideration flowing back.

Exemptions for agricultural processing and packaging industries, solar power industry, and others.


Free baggage allowance increased to Rs 45000.

Coal tariff restructured to reduce litigation on rates of duty. Now all non-agglomerated coal will be taxable at 2.5% BCD and 2% CVD. This includes steam coal and bituminous coal.

Export duty on bauxite doubled, to 20%.

Exemptions for imports for solar power industry, biogas industry, petrochemicals, spandex yarn, methyl alcohol and others.

Basic customs duty fully exempted on e-book readers.

Basic customs duty reduced on ships imported for breaking up.