2013 Indirect Taxes Budget Proposals – a critique

2013 Indirect Taxes Budget Proposals – a critique

Bar & Bench

The indirect tax proposals in the budget seem to be well orchestrated towards the ensuing general elections. The general rates of service tax, customs and central excise have not been tinkered by the finance minister.

Srinivas Kotni, Managing Partner at Lexport discusses certain key indirect tax proposals announced in the Union Budget 2013-14.

The indirect tax proposals in the budget seem to be well orchestrated towards the ensuing general elections. The general rates of service tax, customs and central excise have not been tinkered by the finance minister.

Apartment owners going for high end dwelling units will have to pay more service tax, as the taxable portion of their investment has been enhanced to 30% from the existing 25%. Residential units upto 2000 square feet or costing less than Rs. 1 crore have been spared though.

Another interesting service tax measure is the amnesty scheme. Under this scheme, there is a proposal for waiver of interest, penalty and prosecution against those who have not (i) got themselves registered or (ii) stopped filing their returns or (iii) have not disclosed correct tax liability during the period from October 2007 to December 2012, provided they pay off their service tax dues and follow the procedure.

There is also a proposal to extend advance ruling coverage to domestic public limited companies. Advance ruling was hitherto covering only instrumentalities of foreign companies in India.

Those who are looking forward for a good time with their friends can now relax and have their glass of beer albeit without air-conditioning or heating. The earlier condition regarding liquor license is being omitted. All restaurants with air-conditioning in any part of their premises, during any time of the year, will however pay service tax, irrespective of whether they serve liquor or not.

Schools, colleges and educational institutions that were enjoying service tax exemption on their income from renting immovable property have unwelcome news, as their exemption has been withdrawn. Same is the fate of parking lots.

Cinema halls and theatres must be a happy lot, as temporary transfer of copyright relating to the films they are playing, continue to be exempted from service tax. However, those streaming the films on the web or distributing the films in CD’s/DVD’s etc., will however have to shell out service tax for copyright.

Agricultural testing laboratories involved in various agro related testing of  soil, animal feed, samples from plants and animals etc., will be happy to note that the negative list which hitherto covered only seed testing has been opened to include them as well.

Commissioners of service tax can now ask their superintendent colleagues to arrest those persons who collect service tax from their clients but fail to deposit such collected service tax with the government. Prosecution and imprisonment provisions have  generally been made very stringent in case of all indirect taxes.

On the customs side, IPR owners of designs and geographical indications have reason to rejoice as government can now prohibit import or export of goods to protect their rights. Earlier, only trade mark and patent right owners enjoyed such protection.

Those who want to warehouse imported goods have to now knock at the doors of the commissioner every 30 days for extending the warehousing. The automation of international trade is also being taken forward logically. Now importers and exporters are required to file their manifests only electronically.

Indians have always  been great lovers of gold.  There is always an inexplicable attraction. The entire social, cultural and financial milieu of India is gold centric. This has been from time immemorial. The finance minister has kept this sentiment in mind while enhancing the limit on import of jewellery in baggage by Indians returning home from abroad.

Electric and hybrid vehicles have also been kept in the reckoning for various fiscal incentives in this budget. For instance, Lithium Ion automotive battery, meant for Lithium Ion battery packs for further manufacture of hybrid and electric vehicles are being exempted from customs duties. Similarly, the period of exemption for specified parts of electric and hybrid vehicles is being extended upto 2015.

Instrumentalities of foreign companies in India can now enjoy advance ruling benefits even for new businesses of import or export, which are proposed by an existing player. Similarly on the central excise side, new production and manufacturing operations will be covered for advance ruling, which are proposed by existing manufacturers.

Now aircrafts and ships can land at places other than authorized ports and airports. However, one needs to cross the bureaucratic waters in the board for this.

An ingenious way has been devised to debar authorized representatives [professionals and custom house agents (who would henceforth be known as “customs brokers”)] from practicing before any customs authorities, once they are  convicted for any service tax offence or violation. This is a clear signal to the professionals, to first pay up their Service Tax, if they want to represent their clients before custom authorities.

Value of money has dropped by leaps and bounds. The testimony for the same is that appeals involving amounts up to Rs. 50 lakh can be heard by a single member of the Appellate Tribunal. This is a fivefold jump from the existing limits.

Another very significant development is with respect to revenue collection.  The authorities (both customs and excise) can now recover their dues from any person (other than the defaulter). They merely have to get an inkling of a mortgage, secured loan, insurance policy, judgment debtor etc. of a defaulter and serve a notice on the other person. If payment is not made by such other person inspite of the notice, he will instead be designated as a defaulter.

Young guns driving powerful toys (exceeding 3000 cc for petrol and 2500 cc for diesel) around the town will have to now shell 100% Customs Duty on imports and higher price for their cigarettes as well. The hard working dads have something to worry about. Same is the case  with parents importing yachts and other vessels for the pleasure and sport of their offspring. By its various direct and indirect tax proposals, the budget has made it clear that, the super rich of India will be taxed heavily not only on their conspicuous consumption but also on their income through additional surcharge and higher rates. So if you are rich in India, you can look forward to more contribution to the Indian economy.

Happy days are back again for the readymade garment industry. All tax planning and infrastructure put in place by the top brands of the country after the last budget can now be scrapped.

Departmental field formations must be a relaxed lot as now they can demand their dues with a one page statement, for all subsequent periods after a proper demand notice is issued.

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