Budget 2017 - A quick look at ST exemptions and CCR, 2004
FEBRUARY 02, 2017
By Prabhat Ranjan, CA
THE Govt of India has departed from the colonial-era tradition of presenting the Union Budget on the last working day of February and has presented the Budget 2017 on 1st Feb itself.
The Finance Minister,presented his 4th Union Budget on 1st Feb' 2017 along with the Railway Budget for the first time in history of Independent India.
This article analyses the Budgetary proposals in relation to Service tax and CENVAT Credit provisions.
A. Widening the Exemptions
Sr. No.
Key Changes
Analysis
Existing Effective Rate
Proposed Effective Rate
Effective date
1
IIM services to even "Non-Residential" students is exempted
The exemption vide S. No. 9B of notification No. 25/2012-ST dated 20.06.2012, is being amended so as to omit the word "residential" appearing in the notification. The exemption remains the same in all other respects.
15%
NIL
2nd Feb, 2017
2
Life insurance services to Army, Navy Air-force exempted
Services provided or agreed to be provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government
15%
NIL
2nd Feb, 2017
3
Service tax exempted retrospectively on above service of Life Insurance
Analysis:
Exemption from Service tax provided on the life insurance services provided by the Army, Naval and Air Force Group Insurance Funds to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government. is being made effective from 10th day of September, 2004, the date from when the services of life insurance became taxable
-
-
10th Sept, 2004
(i.e. date from when the services of life insurance became taxable)
4
Development charges / Salami exempted retrospectively
Analysis:
Post introduction of exemption notification No. 41/2016-ST dated 22.09.2016 which exempted one time upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable for grant of long-term lease of industrial plots (30 years or more) by State Government industrial development corporations/ undertakings to industrial units.
The ambiguity arose for the past period from 01.06.2007 till 22.09.2016 i.e. the date from which service of "renting of Immovable Property" became taxable.
The Govt. has removed the ambiguity and made the exemption effective right from 01.06.2007. Welcome move to settle the disputes.
15%
NIL
1st June, 2007
5
Valuation rule retrospectively amended to exclude Land value
Analysis:
Rule 2A of valuation Rules amended to exclude value of land while calculating value of works contract services. Wherever, value of land is not identifiable, the value shall be considered as 25% or 30% as applicable (instead of 40%).
4.5%
4.5%
1st July, 2010
B. Legislative Changes
Sr. No.
Key heading
Analysis
Existing Effective Rate
Proposed Effective Rate
Effective date
1
Manufacturing process becomes exempted services
"Services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption", loses its place from Negative List Entry and finds its new place in exemption notification No. 25/2012- ST dated 20th June,2012.
Analysis:
This would result in inclusion of Service fee into the Exempted Turnover for the purpose of calculating your CENVAT eligibility ratio under Rule 6(3) of CCR, 2004 which will effectively reduce your eligibility.
NIL
NIL
From the date of President's Assent.
2
R&D Cess abolished
Analysis:
R&D Cess is payable @ 5% on the value of service fee paid / payable against import of technology. To avoid double payment of taxes, Service tax law provides for an exemption through N. No. 14/2012-ST dated 17.03.2012. Accordingly, currently 10% of Service tax is paid and 5% R&D Cess is paid on such type of payments. Going forward, complete 15% Service tax will be payable as R&D Cess itself is repealed.
5%
NIL
From the date of President's Assent.
3
Advance Ruling becomes Costlier
Section 96C (3) is amended to increase the advance ruling application fee from Rs. 2,500/- to 10,000/-.
Analysis
This is doneon the similar lines of the Income Tax Act.
-
-
From the date of President's Assent.
4
Advance Ruling delivery time liberalised for Authorities
Section 96D (6) is being amended to extend the existing time limit of 90 days to 6 months by which time the Authority shall pronounce its ruling.
Analysis
This is doneon the similar lines of the Income Tax Act.
-
-
From the date of President's Assent.
5
Advance Ruling authorities of CBEC and Income Tax shake hands
A new section 96HA is being inserted to facilitate transfer of pending applications from CBEC's Advance Ruling Authorities (ARA) to Income-tax's ARA.
Analysis
This is done to expedite the process of delivery. The application can be transferred from the same very stage at which such proceedings stand as on date of this Section's applicability.
From the date of President's Assent.
C. CENVAT CREDIT RULES, 2004
CENVAT Credit has always seen multi fold amendments in its provisions and this Budget is no exception. Following are some key changes effective from 2nd Feb, 2017:
1. Amendment in Rule 6(3) and Rule 6(3A) - Interest or Discount value not deductible for Banks and NBFCs - An Analysis:
Explanation-I (e) applicable to sub-rule 3 and 3A of Rule 6 of CENVAT Credit Rules, 2004 is being amended to exclude Banks, Financial Institutions including NBFCs engaged in providing services by way of extending deposits, loans or advances from its ambit.
It has been provided in the said explanation that value for the purpose of reversal of common input tax credit taken on inputs and input services used in providing taxable and exempted services, shall not include the value of service by way of extending deposits, loans or advances against consideration in the form of interest or discount.
While the above amendment is effective from 2nd Feb, 2017, there is no clarity for the period April 2016 till 1 st Feb, 2017. If this is not clarified then the sectors concerned have to pass through a cumbersome exercise of reconciliation.
2. Amendment in Rule 10, i.e. Specific approval process introduced within time-bound manner
Analysis:
Transfer of CENVAT Credit is allowed in case of transfer of business on account of change in ownership, transfer of factory, sale, merger, amalgamation etc. subject to the condition that stock of inputs as such or in process or the capital goods is transferred along with the business and is duly accounted to the satisfaction of the concerned DC / AC.
Effective 2nd Feb, 2017 a new sub-rule 4 is being inserted in Rule 10 of CENVAT Credit Rules, so as to provide that transfer of CENVAT Credit by the jurisdictional DC/AC of Central Excise, shall be allowed within 3 months from the date of receipt of application from the manufacturer or service provider in the above regard.
Last but not the least, although the Trade and Industry was keen to hear from the Finance Minister the concrete developments along with fixed timeliness on GST roll-out, the same did not happen.
Perhaps, we will have to wait for another day before the magical date of 1st July 2017 arrives!
(The author is a Chartered Accountant & Company Secretary and works with a leading Pharma company.The views expressed are strictly personal.)
(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)
Sub: Budget 2017 - A quick look at ST exemptions and CCR, 2004
Sir, i appreciating the good info provided.
(1) At A(5) it is stated that 'Wherever, value of land is not identifiable, the value shall be considered as 25% or 30% as applicable (instead of 40%). Under 2A(ii), are there again two options available like one by reducing land value (if available) from gross amount and pay ST on the 40% of the balance amount and second option to pay ST on 25%/30% of the gross value (inclusive of land value) in tune with sl.12 of 26/2012-ST.
(2) At B(1) it is mentioned that 'This would result in inclusion of Service fee into the Exempted Turnover for the purpose of calculating your CENVAT eligibility ratio under Rule 6(3) of CCR, 2004 which will effectively reduce your eligibility'. I think both services exempted under ME and services listed under Sec 66D are exempted services only. Then how it alters the liability under Rule 6(3).
Thanking you Sir,
Mallikarjun Reddy.C
Posted by mallikarjun reddy c
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