SR



PRE-BUDGET MEMORANDUM 2014-15Policy Issues (A) Excise& Service TaxSR ISSUESUGGESTIONEXPLANATION01When announcement for implementation of GST was made, the government proposed to reduce the concessional rate of CST by 1% every year to bring it down to nil. However, after June’08 there is no reduction in the CST rate which is prevailing at 2% since then.In view of the fact that GST has been postponed again, it is imperative that Concessional rate of CST be reduced from 2% to 1% as committed t. should reduce the CST rate to 1% as committed earlier.02Goods & Services Tax (GST)Introduce GST across all statesShare the draft modalities & procedures now. Industry needs minimum 3 months for smooth transition.The following taxes should be Subsumed in GST:Road and Registration tax on vehicles (State Tax)Octroi (or any tax in lieu of Octroi) R&D Cess on import of technology (Central tax)GST should be introduced across the country as a single piece of legislation simultaneously. This would obviate any ambiguities both for the Govt. and the Industry and would enable a smooth transition.03Vacation of Stay orders beyond 365 days from the stay order – third proviso to Section 35C of the Central Excise Act, 1944It is suggested that the stay may be vacated only in the event that the assessee is responsible for any delay due to which the Tribunal is unable to pass a final order, post the stay order. Further, MoFshould form more benches and ensure the regular functioning of existing benches to fast-track the litigation process.It has been repeatedly held in various judicial pronouncements by the Supreme Court/High Court that no action can be initiated against the assessee if the Tribunal does not pass an order in situations where the assessee is not responsible. 04Cenvat credit on service taxSince the valuations are now completely aligned to the sale price of the principal manufacturer, it would be appropriate to extend the benefit of the service tax credits which accrue to the principal manufacturer on the same basis as “Input service Distributor” mechanism, which exists in respect of the services received by the Corporate offices of the manufacturers. In other words “Input Service Distributor” mechanism service not be limited to two offices of same “legal entity” but extended to “Principal Manufacturer” who outsources his manufacturing operations to another person (“Outsourced manufacturer”). In such case the “principal manufacturer” should be allowed to transfer the cenvat to the “Outsourced Manufacturer”The cenvat credit on service tax is allowed to the manufacturer or the service provider. In many cases, the principal manufacturer outsources the manufacturing activity to a job worker. In such case, the job worker is required to pay duty on the price at which the goods are sold by the principal manufacturers (either under Rule 10 A of the Central Excise Valuation Rules, 2000 or under Section 4A – MRP based assessment). In such cases, while the valuations (viz. determination of assessable value) are based on the sale price of the principal manufacturer, the benefits of the Cenvat is not extended in respect of service tax which is incurred on the services received by the principal manufacturer.By allowing such cenvat to the “Outsourced manufacturer” the cascading effect of taxes, would be avoided. This is also in alignment with proposed scheme of GST.05Judgment of the Hon’ble Supreme Court in the case of FIAT India Pvt. Ltd. – Request for intervention with legislative amendment/ to issue suitable instructions to field formations, to tide over the difficulties that are being faced by industry. This may please be considered appropriately by the excise authorities for necessary amendments so that normal business may be carried out without disruption. This would negate the principle of transaction value and would result in subjectivity in assessment and consequential uncertainty in tax liability and lead to a satiation where Duty will be collected always on higher value either of Cost of Production or Transaction Value, which is not the real intention of policy makers. 06.Distribution of Cenvat Credit under the Input Service Distribution (ISD) MechanismIt is suggested that Rule 7(d) of the Cenvat Credit Rules, 2004 be amended whereby the benefit of cenvat distribution is in alignment with the Cenvat Credit Rules, 2004.While ISD mechanism is for equitable distribution focenvat credit in respect of the units “using” the input service, the recent amendment introduced with effect from 1st April 2014, restricts the distribution of cenvat credit. This anomaly is required to be addressed to align it to the CCR, 2004.Industry Specific07Withdrawal of National Calamity Contingent Duty (NCCD)1% NCCD on vehicles should be withdrawnNCCD, if at all, should be imposed only on tobacco. Withdrawal of NCCD would be in alignment with a single rate of GST which is proposed.08Two rates of duty of Motor vehiclesOnly two rates of duties should for Motor Vehicles.Small cars/vehicles, Two-wheeler/Three wheeler/Goods vehicle/ chassis for motor vehicles/Passenger vehicle designed for carrying 10 or more persons should attract lower duty (8% as is the present rate)All other passenger vehicles (20%)This will be in alignment with the proposed GST Model, which proposes minimum tiers in tax structures amongst various goods. Further this would also give an impetus to the Motor Vehicle industry, which has shown de-growth in the last financial year.09Excise duty on Motor Vehicle ComponentsRate of duty should be 8%Since the rate of duty on Two wheeler/three wheeler/buses/goods carrier is 8%, continuing with the existing rate of duty of 12% would result in accumulation of cevant credit, which is anomalous.10Extension of exemption to all components used in Electric VehiclesIt is suggested that excise & customs duty exemption should be extended to all parts used in Electric Vehicles, which are procured locally or imported.Presently the benefit is available only to select parts, viz. Battery, AC/DC Motor & Motor Controller, which is resulting in additional cenvat credit, which cannot be utilized. This will also promote use of electric vehicles, in preference to vehicles using fossil fuels and save precious foreign exchange.11Imposition of 4% excise duty on Tractors.It is suggested that excise duty @ 4% ad val be imposed on the tractors used for agricultural purposes. Since the cenvatcredit available on the inputs and service tax credit would offset the excise levy of 4%, there would be no increase in the price of the tractors to the ultimate customer. This would also be in conformity with the policy of the Government, seeking to reduce the number of exemption under the GST structure, which would be implemented in the very near future. Tractors, which are used for agricultural purposes, have been exempted from payment of excise duty since 2004-05. Due to this exemption, nocenvat credit has been allowed on the inputs and service tax used in the manufacture of tractors. This has lead to lot of complications both for the Government and the industry, at the operational and legal levels. This also progressively reduces the exemption, which is in line with the thought of the Govt. to reduce exemptions, and be in alignment with the proposed GST.12.Exemption to parts transferred to Units of the same manufacturer for use in manufacture of TractorsIf imposition of Excise on Tractors is not acceptable for any reason, excise exemption may be extended to all parts transferred from one unit of the manufacturer to another unit of the same manufacturer.Presently the tractor manufacturer having more than one manufacturing unit is at a distinct disadvantage vis-à-vis a manufacturer who is engaged in the assembly operations in the single unit. In the case of latter, Notn. No. 12/2012 CE NTdt. 17.3.12, as amended, (sl. No. 340) provides for such exemption in respect of goods manufactured within the unit for manufacture of tractors. The exemption should not be denied merely because the manufacturer operates from two locations/Units.13Process of cutting/slitting of sheet metals amount to “manufacture”It is suggested that the process of cutting/slitting of sheet metals be considered as amounting to “manufacture” and hence leviable to excise dutyPresently this is causing enormous confusion & administrative hurdles where service centres operate for cutting & slitting of sheets and supply to the industry. This is in view of the fact that in some cases (like profile cutting) it is considered as manufacture and in other cases it is not considered as “manufacturing” leading to complexities/litigiation. ................
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