JULY 12, 2014

By: Somesh Arora, Former Commissioner of Customs and Excise, Advocate. (Amicus Rarus)

The maiden budget of Shri Arun Jaitley and Modi Government has turned out to be on expected lines. There were aspirations to meet after land slide victory and promises to keep even though the available resources made the whole exercise a tight rope dancing. In an effort to deliver on most of the election promises, the details indicate that atleast a token of allocations have been made on all the fronts. A simple reform like raising of qualifying limit of Salary/ wages from Rs. 6,500/- to a higher level under Provident Fund Act, considering that even the minimum wage is above Rs. 7,000/- in most of the states, was not carried out earlier due to inertia in decision making. Finally it has got raised to Rs. 15,000/-. The manufacturing and infrastructure sector has again started getting all the attention. Will this mark the comeback of high growth of industrial output for India? - Only future will provide the answer.

The detailed budget speech probably the longest in last 20 years had elaborate accounts of allocations running up to even tens of Crores on the down side. While this indicated that budget exercise had taken care of even the remotest corners of India and had something of a consolation to offer to them, it also made the speech little boring devoid as it was of any customary poetry. But that should not take away the credit from the P.M. and his F.M. for presenting a budget which will provide impetus to infra sector, power sector with particular emphasis on solar energy, defence sector and manufacturing sector. The budget can be hailed as Entrepreneur friendly, FDI friendly and Middle class friendly. While the promises may take long to eventually deliver, atleast the first step has been taken. Retaining of MNREGA may be a smart move to blunt the criticism of Opposition. Budget seems to be giving all the handle to entrepreneurs to grow, while retaining the hard core task of regulation, governance and infra development to the Government, but that too, through PPP model. If still growth is not realized, then entrepreneurs have nothing but themselves to blame.

Cheer Factors:

Customs:

- Basic Customs Duty on fatty acids, crude palm stearin, RBD and other palm stearin and specified industrial grade crude oils is being reduced from 7.5% to Nil for manufacture of soaps and oelochemicals subject to actual user condition.- Soap , soap everywhere but no water to bathe.

- Basic Customs Duty on denatured ethyl alcohol is being reduced from 7.5% to 5%.- new fuel to choke less of our lungs .

- Full exemption from basic customs duty is being granted to de-oiled soya extract, groundnut oil cake/oil cake meal, sunflower oil cake/oil cake meal, canola oil cake/oil cake meal, mustard oil cake/oil cake meal, rice bran/rice bran oil cake and palm kernel cake, up to 31.12.2014 - Tide over food inflation temporarily- short duration achhe din.

- Basic Customs Duty on steel grade dolomite and steel grade limestone is being reduced from 5% to 2.5% - steel industry should cheer and not crumble like rusted iron .

- The BCD on anthracite coal and other coal is being reduced from 5% to 2.5%. The CVD on Anthracite coal, Coking coal and other Coal is being reduced from 6% to 2% - Coal without mining and scams.

- Basic Customs Duty on crude naphthalene is being reduced from 10% to 5% - Petro brings memory of Amabani only.

- Basic Customs Duty on raw materials for manufacture of spandex yarn viz. Diphenylmethane 4,4 di-isocyanate (MDI) and Polytetramethylene ether glycol (PT MEG) is being reduced from 5% to Nil- Ahmedabad and Surat Conquer

- Full exemption from Basic Customs Duty is being provided on specified raw materials used in the manufacture of solar backsheet and EVA sheet for use in manufacture of solar PV cells or modules- it is Sunshine all the way. Future Indian roof tops will only be of solar panel. Litigation will be more on Dhoop Chori .

- Specified goods imported for use in the manufacture of textile garments for export are fully exempt from BCD and CVD subject to the condition that the manufacturer produces an entitlement certificate from the Apparel Export Promotion Council - Meet the Thailand challenge, Indian Garment exporters .

- The BCD on ships imported for breaking up is being reduced from 5% to 2.5%- Expect old ship jam in Jamnagar.

- Full exemption from Special Additional Duty (SAD) is being provided on specified inputs (PVC sheet & Ribbon) used in the manufacture of smart cards- better to use smart card as your visiting card .

- Basic Customs Duty is being reduced from 10% to 5% on forged steel rings used in the manufacture of bearings of wind operated electricity generators- Making Netherland of India.

- Full exemption from Basic Customs Duty is being granted to pre-forms of precious and semi-precious stones- Come cheaper uncut, go dear cut .

- Litigation to be reduced through enlarging scope of Advance Ruling Authority, Settlement Commission and reduction in Stay applications- There may be initial litigation on how to interpret automatic stay provision though.

- The duty free entitlement for import of trimmings & embellishments and other goods used by the readymade textile garment sector for manufacture of garments for export is being increased from 3% to 5%.

- 24X7 customs clearance facility extended to 13 more airports in respect of all export goods and to 14 more sea ports in respect of specified import and export goods to facilitate cargo clearance- Day or night and Sun or rain, a custom officer has to work and deliver always.

- ‘Indian Customs Single Window Project' to facilitate trade, to be implemented- no more carrying of stamps and B/Es by C.H.A.s

Central Excise:

- Excise duty on Branded Petrol is being reduced from Rs.7.50 per litre to Rs. 2.35 per litre- When Central Excise looses, others tend to gain. How long that others will be the consumers?

- Full exemption from excise duty is being provided to specified raw materials used in the manufacture of backsheet and EVA sheet for manufacture of solar photovoltaic cells or modules- Sun reaches Union budget of India also.

- Full exemption from excise duty is being provided to DDT manufactured by Hindustan Insecticides Limited for supply to the National Vector Borne Diseases Control Programme (NVBDCP) of the Ministry of Health & Family Welfare- Is the Mosquito still scared of DDT?

- Full exemption from excise duty is being provided on plastic materials reprocessed out of the scrap or waste and cleared into the DTA by an EOU- Which part of Mother India will bear pollution?

- Full exemption from excise duty is being provided for security threads and security fibre supplied to Security Paper Mill, Hoshangabad and Bank Note Paper Mill India Private Limited (BNPMIPL), Mysore- Hope Pakistan will not remove excise duty( sorry GST there now) on these products .

- Full exemption from excise duty is being provided on solar tempered glass used in the manufacture of solar photovoltaic cells or modules, solar power generating equipment or systems and flat plate solar collectors.- India may soon need to have solar holdiay on a cloudy day. Like we have ‘system down' holidays in banks.

- Excise duty is being reduced from 12% to Nil on forged steel rings used in the manufacture of bearings of wind operated electricity generators. ( CVD also goes on imports) .

- Full exemption from excise duty is being provided to reverse osmosis (RO) membrane element for water filtration or purification equipment (other than household type filter) - Ganga will one day flow through R.O.

Service –tax :

- Provision of Services Rules to be amended and tax incidence to be reduced on transport of goods through coastal vessels to promote Indian Shipping industry. ( Captains of these ships cannot afford a wife at every port)

- Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India to be taken out of the tax net (point of litigation- wholly conducted)

- CENVAT credit for services of rent-a-cab and tour operators to be allowed to promote tourism.

- Service tax exempted on loading, unloading, storage, warehousing and transportation of cotton, whether ginned or baled.

- Services provided by the Employees' State Insurance Corporation for the period prior to 1st July 2012 exempted, from service tax. ( E.P.F.O case likely to get confirmed )

- Exemption available for specified micro insurance schemes expanded to cover all life micro-insurance schemes where the sum assured does not exceed Rs. 50, 000 per life insured.

- For safe disposal of medical and clinical wastes, services provided by common biomedical waste treatment facilities exempted.

Income-tax :

- Personal Income-tax exemption limit raised by Rs. 50,000/- that is, from Rs. 2 lakh to 2.5 lakh in the case of individual taxpayers, below the age of 60 years. Exemption limit raised from Rs. 2.5 lakh to Rs. 3 lakh in case of senior citizens.- Those who do not want to pay tax can now stop at Rs. 2.49 lacs instead of Rs. 1.99 lacs. More GDP and per capita income in the offing.

- Investment limit under section 80C of the Income-tax Act raised from Rs. 1 lakh to Rs. 1.5 Lakh- Save more for the rainy day, so that other multiply on your savings or dupe you of it.

- Deduction limit on account of interest on loan in respect of self occupied house property raised from “1.5 lakh to 2 lakh”.- Government will share some burden of yours, when that builder fails to deliver once in a life time flat of Yours.

- Conducive tax regime to Infrastructure Investment Trusts and Real Estate Investment- Itne se inka kya hoga?

- Investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs. 25 crore in any year in new plant and machinery. The benefit to be available for three years i.e. for investments upto 31.03.2017.

- 10 year tax holiday extended to the undertakings which begin generation, distribution and transmission of power by 31.03.2017- some power to powerless .

-  Income arising to foreign portfolio investors from transaction in securities to be treated as capital gains- Atithi devo bhav.

-  Concessional rate of 15 percent on foreign dividends without any sunset date to be Continued- the sun never sets, when dividend is from the west.

-  The eligible date of borrowing in foreign currency extended from 30.06.2015 to 30.06.2017 for a concessional tax rate of 5 percent on interest payments- Reducing the LIBOR pains.

-  Tax incentive extended to all types of bonds instead of only infrastructure bonds- Bonds to become attractive like James Bond.

-  Introduction of a “Roll Back” provision in the Advanced Pricing Agreement (APA) scheme so that an APA entered into for future transactions is also applicable to international transactions undertaken in previous four years in specified circumstances.- If I have to understand every tax law, then what for are the Big Fours there .

-  Introduction of range concept for determination of arm's length price in transfer pricing regulations. To allow use of multiple year data for comparability analysis under transfer pricing- More difficult for Department to prove not at arm's length case.

-  To remove tax arbitrage, rate of tax on long term capital gains increased from 10 percent to 20 percent on transfer of units of Mutual Funds, other than equity oriented funds - C.As need to explore some new trick now .

-  Income and dividend distribution tax to be levied on gross amount instead of amount paid net of taxes - Simple Arithmetic to transfer portion of your dividend to tax authorities by cum-tax mechanism .

-  In case of non deduction of tax on payments, 30% of such payments will be disallowed instead of 100 percent. - getting your TDS certificate will become more difficult in short.

-  Government to review the DTC in its present shape and take a view in the whole Matter- Yeh review kab tak chalega? Will any Astrologer tell?

-  60 more Ayakar Seva Kendras to be opened during the current financial year to promote excellence in service delivery- SEVA word se bahut dar lagta hai sahib.

Tear Factors:

Customs:

- Export duty on bauxite is being increased from 10% to 20%.( Keep Bauxite on Indian soil only)

- The BCD on Coking coal is being increased from NIL to 2.5% and on steam coal and bituminous coal from 2% to 2.5%. Basic Customs Duty on metallurgical coke is being increased from Nil to 2.5%.

- Basic Customs Duty on Polystyrene (other than moulding powder) is being increased from 1.15% to 7.5%

- The exemption from education cess and secondary and higher education (SHE) cess leviable on CVD is being withdrawn on certain electronic goods

- Back to multiple cess days.

-  Basic Customs Duty on half-cut or broken diamonds is being increased from NIL to 2.5% and on cut & polished diamonds including lab-grown diamonds and colored gemstones from 2% to 2.5%.

Central Excise:

- Basic Excise Duty is being increased from 12% to 16% on pan masala, from 50% to 55% on unmanufactured tobacco and from 60% to 70% on jarda scented tobacco, gutkha and chewing tobacco.( Banned Gutkha to become expensive)

Service tax;

- To broaden the tax base in Service Tax, sale of space or time for advertisements in broadcast media, extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media however would remain excluded from service tax. Service provided by radio-taxis brought under service tax.

- Services by air-conditioned contract carriages and technical testing of newly developed drugs on human participants brought under service tax.

-  Shylock`s interest of upto 30 percent for delay in paying service tax.- If you collect and do not pay, your period of arrest will ensure that once you come out your home, car and assets will all vanish.

Litigation factor: Requirement of payment of 7.5 percent (Ist Appeal stage) and 10 percent( IInd stage appeal) or Ist Appeal at CESTAT stage of duty or penalty or both, irrespective of whether the case is of Clandestine Removal or legal interpretation. Time to get all 100 crores notices from the department. If you do not get RUDs or Cross examination you may still have to shell out a hefty sum to get the case back. While interest above is missing the `or' later can be dangerous.