29thFeb 2016

Budget 2016 Tax

Highlights
Goods and Services Tax (GST)
In light of the much anticipated implementation of Goods and Services Tax in India, Budget 2016 has
failed to place any perceptible way forward regarding the implementation thereof. The Union Finance
Minister (FM) does mention the benefits that can be bestowed on the Indian economy by earlier
implementation of GST, his speech only mentioned that the Government is moving on various fronts for
GST implementation from next year.
Following are the key highlights of major tax proposals as put forth by FM in Budget 2016

Service Tax
Rate of service tax and new cess (effective from 01-06-2016)

Service tax rate is maintained at 14%;

A new cess namely KrishiKAlyanCess has been imposed on all taxable service @0.5%. This cess
will be cenvatable and can be used against the output krishikalyancess only

Education under negative list of services (effective from date of enactment)

Existing entry relating to services by basic education is being deleted;

However present existing exclusion to elementary education is continued by way of exemption
under Mega Exemption Notification;

Transportation of passengers under negative list of services (effective 01-06-2016)

Transportation of passengers by stage carriage is deleted;

Transportation services provided by air conditioned stage carriages will be taxed after the
abatement of 60%

Transportation of goods under negative list of services (effective 01-06-2016)

Transportation of goods by vessel or aircraft from outside India to India is proposed to be deleted;
However, exemption has been granted to transportation of goods by aircraft from outside India to
India. Thus, the service tax will be payable on transportation of goods from outside India to India
through vessel;

Service tax so paid will not form part of assessable value for customs purposes.

Assignment by Government of right to use radio frequency (effective enactment of Bill)

A new service has been added to declared service to provide that the assignment by Government
of any rights to use radio frequency is declared service;
This amendment will again open the new avenue for protracted tax ligations and double taxation

Point of Taxation of Services (effective enactment of Bill)

Section 67A has been amended to empower the Government regarding the point in time for
taxation of services;
Consequential changes are made in Point of Taxation Rules, 2011

Extended normal period of limitation (effective enactment of Bill)

Government has proposed to increase the normal period of limitation from existing 18 months to
30 months

Rationalization of interest provisions (effective enactment of Bill)

Erstwhile graded rate of interest based on period of default has been done away with;
Flat 15% interest is payable in normal cases. However, in case of tax collected but not paid, the
interest rate will be 24%

Refunds allowed in view of withdrawn exemption in 2015 (effective enactment of Bill)

Refund allowed in case of service tax paid on services provided to Governmental authorities as
mentioned under Article 243W of the Constitution of India;
Similarly the refunds are allowed in case of services provided to Government etc. by in relation to
certain specified services. The refund is allowable only in relation to contracts entered into prior
to 01-03-2015

Withdrawal of Exemptions (w.e.f. 01-04-2016)

Service tax imposed on services provided by senior advocate to advocate or partnership firm od
advocates;
Service tax imposed on person represented on an arbitral tribunal to arbitral tribunal;
Exemption withdrawn on transportation of passengers by ropeway, cable car or aerial tramway.

Withdrawal of Exemptions (w.e.f. 01-03-2016)

Exemption withdrawn in relation to construction, erection etc. of original work pertaining to

metro or monorail for the contracts entered into after 01-03-2016;

New Exemptions (w.e.f. 01-04-2016)

Services of life insurance business provided by way of annuity under the NPS regulated by PFRDA;
Services provided by SEBI;
Services provided by EPFO;
Services provided by BIRAC approved biotechnology incubators to the incubates;

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Indirect Tax Newsletter

Threshold exemption limit of consideration charged for services provided by a performing artist in
folk or classical art forms of music, dance or theatre, is being increased from existing Rs 1 lakh to
Rs 1.5 lakh per performance;
Services by way of construction, erection, etc., of original works pertaining to low cost houses up
to a carpet area of 60 sq.m per house in a housing project approved by the competent authority;
Services provided by IIMs for specified courses;

New Exemptions (w.e.f. 01-06-2016)

Transportation of goods by aircraft from place outside India to the custom station of clearance in
India;
Transportation of passengers by stage carriage other than air conditioned stage carriage;

Abatements (w.e.f. 01-04-2016)

Abatement of 90% not available in cases where the invoice, bill or challan issued by the tour
operator, in relation to a tour, only includes the service charges for arranging or booking
accommodation for any person and does not include the cost of such accommodation;
Concept of package tour has been done away with;
Abatement in respect of foreman of chit-fund has been reintroduced after the Supreme Court
struck down the earlier similar abatement;
Abatement in relation to Goods Transport Agency has been bifurcated in two cases: one when
transportation of household equipment 40% and other than household 70%;
Input credit on input services allowed in relation to transportation of goods and passengers by rail,
transportation of goods in a vessel;
Abatement in respect of renting of motor cab is restricted subject to condition that cost of fuel
should be included in the consideration charged for providing renting of motor-cab services for
availing the abatement;
Uniform abatement has been prescribed on construction of complex without bifurcating into the
carpet area of the construction;

Reverse charge (w.e.f. 01-04-2016)

Services provided by mutual fund agents/distributor to a mutual fund or asset management

company are taken out from reverse charge;

Service Tax Rules (w.e.f. 01-04-2016)

Benefits of quarterly tax payment and payment of service tax on receipt basis extended to One
Person Company (OPC) whose aggregate value of services provided is up to Rs. 50 lakh in the
previous financial year;
Reduced service tax rate of 1.4% has been prescribed in cases where the amount allocated for
investment or savings on behalf of policy holder is not intimated to the policy holder at the time of
providing of services;
Annual return to be filed by specific persons in accordance with a notification to be issued

CENVAT CREDIT
Definitions (w.e.f. 01-04-2016)

Definition of capital goods amended to provide for:

o Availability of credit even if the goods are used in office;
o Availability of credit if the goods are used for pumping of water;
Definition of exempted service amended to provide for non inclusion of export services and
services provided by vessel for transportation of goods from India to outside India;
Definition of input amended to provide for inclusion of al capital goods having value uptoRs.
10,000/-;
Definition of input amended to include an outsourced manufacturing unit;

Changes to Rule 6 (w.e.f. 01-04-2016)

Rule 6 has been completely changed by making it more clear and in accordance with the recent
judgments;
Banking companies etc. are now given an option to either follow the proportionate method /
prescribed percentage or existing 50% credit;
Erstwhile interest rate of 24% reduced to 15% in case of adjustment on 30th June of subsequent
month;
Assessee is allowed to pay the prescribed % of exempted goods / services even if it initially
reversed the proportionate credit;
No Credit on capital goods used exclusively in manufacturing exempted goods be allowed for a
period of 2 years from the date of commencement of commercial production;
No reversal required by the service provider transporting the goods in vessel from India to outside
India

Changes to ISD (w.e.f. 01-04-2016)

ISD allowed to transfer the credit even to Outsourced manufacturing unit;

Provision changed to the effect that:
o Credit attributable to unit will be transferred to that unit only;
o Credit attributable to more than one unit will be transferred to those units only;
o Credit attributable to all the units will be transferred on pro rata basis;
Outsourced units to utilize this distributed credit only for payment of duty on goods manufactured
for such ISD;

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Indirect Tax Newsletter

Disallowance of CENVAT credit (w.e.f. 01-04-2016)

Disallowance of CENVAT credit on FIFO basis under Rule 14 has been abolished

Filing of annual return (w.e.f. 01-04-2016)

Manufacturer and service providers are required to file annual return by 30th November of
succeeding year in the prescribed format to be notified by a notification

Other Changes (w.e.f. 01-04-2016)

CENVAT credit is allowable to principle manufacturer of the tools and jogs sent to job worker even
if these are directly sent to job workers premises;
Commissioner order for directly clearing the goods from job worker premises, which was
previously valid for 1 year is not valid for 3 years;
Credit in relation to right to use any natural resource to be available over the period for which the
right was assigned. However, in case the right is transferred in between full credit will be
allowable upto the maximum of service tax payable by the assignor;
New Rule 7B inserted to provide for distribution of inputs with credit by the centralized warehouse
to its multiple manufacturing units

Other Changes (w.e.f. 01-03-2016)

Infrastructure cess cannot be paid using the credit;

Refund under Rule 5 to be filed with 1 year from:
o Receipt of forex if provision of services complete before the receipt of such payment;
o Date of issue of invoice if payment is received in advance.

Excise Duty (Non-Tariff)

Time limit of 1 year of normal period of limitation has been extended to 2 years;
15% interest is payable for non-payment of duty;
Central Excise Rules 2002 are amended:
o to reduce the number of return from existing 27 to 13 (i.e. 12 monthly and 1 annual);
o to provide the facility to revising the return;
o to provide that manual attestation is not required for digitally signed invoices;
o to provide that in case of finalization of provisional assessment, interest is payable from
the original date of duty and not from the date of finalization.

Excise Duty (Tariff)

(w.e.f. date of enactment)

(w.e.f. 01-03-2016)

Median rate of excise duty maintained at 12.5%;

Duty on cigarettes and other tobacco products increased in range of 10% to 15%;
Duty on ready-made garments increased;
In case of certain items, the erstwhile lower rate of 6% with credit is increased to 12.5% with
credit;
To give boost to made in India, excise duty reduced on certain items such as solar lamp,
refrigerated continiers etc.;
Incentives given to MRO for repairing the aircrafts by slashing the duty to nil and removing the
restrictive conditions;

Excise Duty (Tariff)

(w.e.f. 01-03-2016)

New cess namely Infrastructure Cess is levied on specified motor vehicles;

Excise duty exemption granted on the software covered under Legal Metrology Act on the value
equivalent to value on which service tax is payable;

Customs Duty (Non-Tariff)

Time limit of 1 year of normal period of limitation has been extended to 2 years;
Deferred payment of custom duty to be allowed to certain importers and exporters to be
specified;
New class of warehouse to be prescribed which will be under physical control of authorities and
will store specific goods;
Warehousing provisions are amended to enhance the bond value from existing double to thrice the
amount of duty;
Time line during which the goods are allowed to be remained in warehouse amended;
Warehousing provisions are further amended to allow the owner of warehoused goods to deal with
the goods for inspection, sale, dealing for preventing loss or deterioration or sorting of goods;
Provision relating to payment of rent and warehouse charges deleted;
15% interest is payable for non-payment of duty

Customs Duty (Tariff)

(w.e.f. date of enactment)

(w.e.f. 01-03-2016)

Median rate of custom duty maintained at 10%;

Custom duty increased on specific capital goods from 7.5% to 10%;
Custom duty exempted and 1 year usage condition deleted for MROs for import of tools and kits;
Custom duty imposed on direct import by Defence of certain goods by Government of India or
State Governent(w.e.f. 01-04-2016);
CVD exempted on capital goods, spares, raw material etc, used by ocean going vessel;
Custom duty exemption for import of engines for hybrid electric vehicles;

Indirect Tax Dispute Resolution Scheme

(w.e.f. 01-06-2016)

Government has formulated a scheme in lines with earlier VCES scheme under service tax;
The scheme will cover the Excise Duty, Custom Duty and Service Tax disputes pending before
Commissioner (Appeals);
The scheme will cover all the declarations made till 31-12-2016;
The applicant needs to pay the tax/duty, interest along with 25% of the applicable penalty within
15 days of the declaration with an intimation with proof of payment to the authorities with in next
7 days. The authorities will issue a discharge order within 15 days of receipt of such proof;

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Central Sales Tax

Indirect Tax Newsletter

(w.e.f. Date of enactment)

In accordance with a recent judgment, the Government has introduced an explanation in the
Central Sales Tax Act, 1956 to clarify in case of transportation of goods from one State to another.
In case of mixing the gases through a common carrier by introducing it in pipeline in one State for
taking it out in another State, such sales will be treated as inter-state sales.

JGarg IDTServices
Pankaj Goel
+91 9811335365
Pankaj@jgarg.com

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