KPMG IN INDIA

Budget 2008 Highlights

TA X
Foreword

The Indian economy has moved decisively to a higher growth phase. Till a few
years ago, there was still a debate among informed observers about whether the
economy had moved above the 5 to 6 percent average growth seen since the
1980s. There is now no doubt that the economy has moved to a higher growth
trajectory, with growth in Gross Domestic Product (GDP) at market prices
exceeding 8 percent every year since 2003-04. The projected economic growth
rate of 8.7 percent for 2007-08 is in line with this trend. The drivers of growth
continue to be services and manufacturing, which are estimated to grow at 10.7
percent and 9.4 percent, respectively.

The Indian growth story, in recent times, has been an absorbing and inspiring tale.
The Indian economy—thanks to the Government’s policies, India’s demographic
profile as well as globalisation—is poised to record another year of high growth.
Inclusive growth however, encompassing the weaker sections of society, remains
a challenging task.

The Economic Survey presented before the Parliament on 28 February 2008 has
identified the following as important priorities:
a) Achieving double digit growth through additional reforms
b) Controlling of inflation, managing liquidity arising from the surge of capital
inflows and coping with appreciating rupee through fiscal/policy measures, and
c) Achieving better Balance of Payments by keeping the current account deficit in
check.

Against this backdrop, the Finance Minister, P. Chidambaram presented the

Budget 2008 before the Indian Parliament on 29 February 2008. As per the
Budgeted figures, the fiscal deficit is estimated at 3.1 percent of the GDP (as
compared to 3.3 percent for the previous year) and the revenue deficit is
estimated at 1.4 percent (as compared to 1.5 percent for the previous year). The
FM is confident that he will meet his target of annual reduction of 0.5 percent in
the revenue deficit. However, because of the conscious shift in expenditure on
health, education and the social sectors, the government may need one more
year to eliminate the revenue deficit completely.
The Budget brings in relief to small and marginal farmers by introducing a scheme
of debt waiver and debt relief. Infrastructure sector is the top priority for the
Finance Minister and the Budget has made significant allocations towards
improving the infrastructure of the country. Power, roads and irrigation are some
which are considered as highly important for the development of the country and
the economy as a whole.

The summary that follows highlights the salient features of the Finance Bill 2008,
in terms of direct and indirect taxes. Unless otherwise indicated, the proposed
amendments relating to direct taxes will apply from assessment year 2009-10 and
the tariff amendments relating to Central Excise and Customs Duties will apply
from 1 March 2008.
Table of Contents

Direct Tax 1
Corporate Tax 1

Personal Tax 4

Fringe Benefit Tax 5

Other Tax Provisions 6

Indirect Tax 11
Service Tax 11

Customs Duty 15

Central Excise 17

Central Sales Tax 19

Goods and Services Tax 19

 1

Direct Tax

Corporate Tax

• There are no changes in the tax rates, surcharge and education cess.

• Expenses for outsourcing research and development to an eligible approved

scientific research company will qualify for weighted deduction of one and
one-fourth times. However, the company rendering such services will not be
eligible to claim weighted deduction.

• Deduction for specified preliminary expenses, which are incurred after the
commencement of business for an extension of an undertaking or setting-up
of a new unit also made available to service sector over a period of five years.

• Payment or aggregate of payments made to a person in a day, otherwise than

by an account payee cheque or account payee bank draft, in excess of INR
20,000 will be chargeable to tax.

• Where a taxpayer was exempt from tax in earlier years preceding the year
when his income is chargeable to tax, written down value of the asset in such
year will be the actual cost of the asset less depreciation provided in the books
of account in earlier years. For this purpose, revaluation of asset and
depreciation thereon has to be ignored. The said amendment will
retrospectively apply from assessment year 2003-04.

• Conversion of Foreign Convertible Exchangeable Bonds (FCEBs) into shares or

debentures of any company will not be treated as transfer for the purpose of
capital gains. The cost of acquisition of such shares or debentures will be price
at which FCEBs were acquired. These amendments will apply retrospectively
from the assessment year 2008-09.

• Tax benefits will not be available to an undertaking engaged in refining of

mineral oil if it begins refining after 31 March 2009.

• Tax holiday extended to undertaking engaged in operating and maintaining

new hospital located anywhere in India, other than an excluded area, for a
consecutive period of five years, subject to fulfillment of certain conditions.

• Tax holiday extended to undertaking engaged in the business of hotel located

in specified districts having a World Heritage Site for a consecutive period of
five years, subject to fulfillment of certain conditions.
 2

• Rate of tax increased from 10 percent to 15 percent on short term capital

gains arising from the transfer of equity shares in a company, or units of an
equity oriented fund, where such transfer is chargeable to securities
transaction tax.

• ’Book profit’ to be increased by deferred tax and provision thereof: Dividend

Distribution Tax (DDT); tax on distributed income to unit holders; interest
chargeable under income-tax law; surcharge levied by Central Acts; education
cess on income-tax; and secondary and higher education cess on income-tax,
if debited to profit and loss account, for the purpose of Minimum Alternate Tax
(MAT). The said amendment will retrospectively apply from assessment year
2001-02.

• Domestic company will not have to pay DDT on dividend distributed to its
shareholders to the extent of dividend received from its subsidiary if:
- subsidiary has paid DDT on such dividend received and
- such domestic company is not a subsidiary of any other company
A company would be subsidary of another company if such company holds
more than half in nominal value of equity share capital of the company.

• A new tax called Commodities Transaction Tax (CTT) is introduced. It is to be

levied on transaction of purchase or sale in a recognised association of :
- option in goods
- option in commodity derivative or
- any other commodity derivative.

CTT is proposed to be levied at the rate given in table below:

Taxable commodities Value of taxable Rate of tax Payable by

transaction commodities applicable
transaction
Sale of an option in goods Option Premium 0.017 percent Seller
or an option in commodity
derivative
Sale of an option in goods Settlement price 0.125 percent Purchaser
or an option in commodity
derivative, where option
is exercised
Sale of any other Sale price 0.017 percent Seller
commodity derivative
 3

The provisions with regards to collection and recovery of CTT, furnishing of

returns, assessment procedure, chargeability of interest, levy of penalty, filing
of appeal, etc. have also been provided.

The Central Government will notify a date for levy of CTT.

CTT would be eligible for tax deduction provided income from taxable
Commodities transactions is included under the head profits and gains of
business and profession.

• Currently, Security Transaction Tax (STT) is payable by the seller at the rate of
0.017 percent on sale of derivatives in a recognized stock exchange.

The revised STT rates on sale of derivates are tabulated below:

Taxable securities Value of taxable Rate of tax Payable by

transaction securities applicable
transaction
Sale of an option in Option Premium 0.017 percent Seller
securities

Sale of an option in Settlement price 0.125 percent Purchaser

securities, where
option is exercised

Sale of futures in Sale price 0.017 percent Seller

securities

The above amendment will apply from 1 June 2008.

STT would be eligible for tax deduction provided income from taxable
securities transactions is included under the head profits and gains of business
and profession. Consequently, tax rebate for STT is withdrawn.

• The Finance Act, 2006 had introduced an additional condition for the provident
funds to receive or retain recognition. The fund of an establishment to which
the specified provisions of the Employees’ Provident Fund and Miscellaneous
Provisions Act, 1952, (EPF Act) applied and which was also exempt there
under could avail/continue with the recognition. The recognition granted to
existing funds was to be withdrawn if such funds did not satisfy the additional
condition on or before 31 March 2007.
 4

The time limit for complying with the new condition for an existing fund of an
establishment was extended to 31 March 2008. This time limit has been
further extended to 31 March 2009. All the new funds of an establishment
would also be required to satisfy conditions for recognition. It has also been
clarified that the additional conditions will not apply to existing recognized
funds which have been exempted from the operation of the EPF Act by the
Central Government.

Personal Tax

• There are no changes in the personal tax rates

• Basic exemption limit increased from INR 110,000 to INR 150,000. Income tax
slabs altered. The comparative slabs are as under:

Current Slabs (INR) Proposed Slabs (INR) Rate of tax

Up to 110,000 Up to 150,000 Nil

110,001–150,000 150,001 – 300,000 10 %

150,001–250,000 300,001 – 500,000 20 %

250,001 and above 500,001 and above 30 %

• Basic exemption limit for resident women below 65 years of age increased
from INR 145,000 to INR 180,000.

• Basic exemption limit for resident individuals aged 65 years or more increased
from INR 195,000 to INR 225,000.

• Rate of tax increased from 10 percent to 15 percent on short term capital

gains arising from the transfer of equity shares in a company, or units of an
equity oriented fund, where such transfer is chargeable to securities
transaction tax.

• There are no other changes in the tax rates, surcharge and education cess.
 5

• Transfer of capital asset by a senior citizen in a transaction of reverse mortgage

under a scheme made and notified by the Central Government would not be
regarded as a transfer and would not attract capital gains tax.

Any amount received as a loan either in lump sum or in installments under

such scheme would be exempt from income tax.

The said amendments will apply from assessment year 2008-09.

• Investments made as a five year time deposits in an account under the Post
Office Time Deposit Rules, 1981 and in an account under the Senior Citizen
Savings Scheme Rules, 2004 are eligible for deduction under section 80C
within the overall ceiling limit of INR 100,000.

Amount withdrawn (including accrued interest to the extent not previously

taxed) from such deposits before the expiry of five years from the date of
deposit, would be taxable in the financial year of withdrawal.

If such amount is received by the nominee or legal heir of the individual on the
death of such individual, the amount so received by such nominee or legal heir
shall not be liable to tax. However, the interest included in such amount which
has not been previously taxed, shall be liable to tax.

This amendment will apply from assessment year 2008-09.

• Additional deduction will be allowed to an individual up to INR 15,000 for

payment (through any mode other than cash) of health insurance premium of
parents (whether dependent or not). In cases where either of the parents is a
senior citizen, an additional deduction would be allowed up to INR 20,000. The
deduction of upto INR 15,000 with respect to the payment of health insurance
premium of self, spouse and dependent children continues.

Fringe Benefit Tax (FBT)

• Any expenditure incurred on or payment through non-transferable pre-paid

electronic meal card usable only at eating joints or outlets is excluded from
levy of FBT.

• Any expenditure incurred on or payment made for following purposes to be

excluded from the category of ’employee welfare’ for the purpose of valuation
of fringe benefits:
- crèche facility for the children of the employee;
- sponsoring a sportsman being an employee; and
- organising sports events for employees.
 6

• Any expenditure on or payment made for maintenance of any accommodation

in the nature of a guest house shall be excluded from the levy of FBT.

• The valuation of expenditure on or payment for festival celebrations to be

reduced from 50 percent to 20 percent.

• It has been clarified that fringe benefits will include securities offered under an
employee stock option plan or scheme where the employee stock options
have been granted. This amendment will apply from assessment year 2008-09.

• FBT recovered by the employer from the employees with respect to allotment/
transfer of specified security or sweat equity shares shall be deemed to be tax
paid by such an employee. The deeming provisions shall apply only to the
extent to which the amount of recovery relates to the value of fringe benefits
provided to such employee.

The employee shall not be entitled to any refund or credit out of such deemed
payment of tax against tax on any other income or any other tax liability in
India.

The said amendments will apply from assessment year 2008-09.

Other Tax Provisions

• Dematerialisation of tax deducted at source (TDS)/ tax collected at source

(TCS certificates (i.e. non-requirement of furnishing TDS/ TCS certificates) has
been deferred till 1 April 2010.

• Authority has been granted to the Central Board of Direct Taxes (CBDT) to
frame rules detailing the procedure for giving credit to tax payers for any
TDS/TCS.

• Clarificatory amendment introduced to provide that a person failing to deduct

tax would also be deemed to be an assessee in default. Currently, the tax
payer is treated to be in default where on withholding, he does not deposit the
tax in time. The amendment is to be effective retrospectively from 1 June
2003.

• Tax would not be required to be withheld from interest payable on securities

issued by a company in dematerialised form and listed on a recognised stock
exchange in accordance with Securities Contracts (Regulations) Act, 1956. The
amendment is to be effective from 1 June 2008.
 7

• Association of persons and body of individuals, required to deduct tax on sums

payable to contractors and sub-contractors from 1 June 2008.

• Payments made to non-residents require furnishing of a chartered accountant

certificate and an undertaking by the payer confirming appropriate withholding
of taxes for remittance. The payer would now also be required to file
necessary information relating to such payments in a manner and form to be
prescribed by CBDT. The amendment is to be effective from 1 April 2008.

• Due date for filing of corporate tax returns and income-tax returns of persons
either whose accounts are required to be audited or is a working Partner of a
Firm whose accounts are required to be audited has been advanced to 30
September instead of 31 October. Consequently, the relevant due date for
filing a FBT return, transfer pricing report and other supporting documents
would also stand advanced to 30 September. The amendment is to be
effective from 1 April 2008. Similar amendment made under the Wealth-tax
Act.

• Two-stage assessment of returns re-introduced. Initial stage assessment

would require computerised processing (without any human interface) which
would make adjustments for any arithmetical error or incorrect claims based
on information apparent in the return. The amendment is to be effective from 1
April 2008.

• An assessment order which is subject matter of an appeal can be reopened for

assessing / reassessing any income which is believed to have escaped
assessment other than those matters involved in the appeal. The amendment
is to be effective from 1 April 2008. Similar amendment made under the
Wealth-tax Act.

• The tax officer has been empowered to extend the period of furnishing of
special audit report under Section 142(2A). The amendment is to be effective
from 1 April 2008.

• Non-service of notice or service of notice in an inappropriate manner would

not be considered as valid grounds for objecting to any proceedings of
assessment or reassessment if the tax payer appears in such proceedings or
co-operated in any enquiry related to such proceedings. The amendment is to
be effective from 1 April 2008. Similar amendment made under the Wealth-
tax Act.
 8

• Notice for scrutiny assessment to be served on the tax payer within a period of
6 months from the end of the financial year in which the return is furnished
instead of 12 months from the end of the month of filing return under the
existing provision. The amendment is to be effective from 1 April 2008.

• Retrospective amendment introduced with effect from 1 April 1989 stating

that a direction in the assessment order initiating penalty proceedings would
tantamount to satisfaction of the tax officer for initiating such proceedings.
Similar amendment made under the Wealth-tax Act.

• Where any notice or other document is required to be issued, served or given

by the Revenue authorities, it shall be deemed to have been authenticated if
the name and office of a designated Revenue authority is printed, stamped or
otherwise written thereon. The amendment is to be effective from 1 June
2008.

• Amendments have been made to provide that if Revenue authorities do not

file an appeal in a given case, then on the similar issue of law for another tax
payer or another assessment year, the appeal of Revenue cannot be dismissed
on the basis that the issue in dispute is not challenged in some previous
judgment. The amendment is to be effective retrospectively from 1 April 1999.

• Clarificatory explanation introduced to provide that in case of a re-assessment

proceeding, the Joint Commissioner, Commissioner or the Chief
Commissioner, as the case may be, is only required to be satisfied with
respect to the reasons for re-opening and not required to issue such notice.
The amendment is to be effective retrospectively from 1 October 1998
Similar amendment made under the Wealth-tax Act.

• In the course of search proceedings, it is presumed that books of account,

other documents, etc., found in the possession or control of any person in the
course of a search belong to the tax payer. It is proposed to extend this
presumption to documents, assets, etc. which have been delivered to the
requisitioning officer in the course of such proceedings. The above
amendments have been introduced with retrospective effect from 1 October
1975 and extended to a survey operation with retrospective effect from 1 June
2002 Similar amendment made under the Wealth-tax Act.
 9

• Under the current provisions, where search proceedings are initiated, all the
pending assessments or reassessment proceeding, if any, are abated and
assessment of the six preceding years is undertaken separately. Amendments
have been made to clarify that where such proceedings or an order passed
thereunder has been annulled in any appeal or other legal proceeding, the
abated assessment or reassessment, as mentioned above, shall stand revived.
However, if such order of annulment is set aside, the revival of abatement of
assessment or reassessment shall cease to have effect. The amendment has
been introduced with retrospective effect from 1 June 2003.

Further, in such case, the time limit for completion of assessment or

reassessment shall be one year from the end of the month in which the
abated assessment revives or within the period already specified under the
Act, whichever is later. The period commencing from the date of annulment of
a proceeding or order of assessment or reassessment till the date of the
receipt of the order setting aside the order of such annulments, shall be
excluded in computing the period of limitation.

• Entities established for charitable purpose are generally exempt from tax.
Entities were considered as established for charitable purposes if they
provided relief to the poor, education, medical relief or were engaged in
advancement of any other object of general public utility. Entities engaged in
advancement of any other object of general public utility will not be considered
as charitable if it undertakes any trade or business or services in such relation
for a consideration.

• The Income tax Appellate Tribunal cannot grant stay of demand for a period
exceeding 365 days in aggregate even if the delay in disposing of the
substantive appeal pending before the ITAT is not attributable to the tax payer.
This provision is proposed to be effective from 1 October 2008.

• Banking Transaction Tax levied at 0.1 percent on ’taxable banking transaction’ is

withdrawn. The provision would be effective 1 April 2009.
 10

Rationalising the settlement scheme

• Amendments have been made to enable a tax payer to apply to the

Commissioner for granting immunity from penalty and prosecution in case the
application before the Settlement Commission has been abated.

• No application for immunity can be made after the imposition of penalty or

prosecution, as the case may be.

• Immunity could be granted by the commissioner on satisfaction of certain

conditions and could be withdrawn if the tax payer fails to comply with such
conditions.

• These provisions will take effect from 1 April 2008. Similar amendment made
under the Wealth-tax Act.

• Separately, on abatement of the proceedings before the Settlement

Commission, the tax officer will have a minimum one year time limit for
completion of assessment, re-assessment or re-computation. This provision
will take retrospective effect from 1 June 2007. Similar amendment made
under the Wealth-tax Act.
 11

Indirect Tax

Service Tax

Rate of service tax

• No change in service tax rates.

• Works contract composition rate increased from 2 percent to 4 percent

(effective 1 March 2008).

Introduction of new taxable services (effective from a date to be notified

upon enactment of Finance Bill 2008):

• Management of investments by life insurers under Unit Linked Insurance Plan.

• Information technology software service for use in the course, or furtherance,

of business or commerce.

• Services provided by recognised stock exchange in relation to securities.

• Services provided by a recognised association or a registered association

(commodity exchange) in relation to sale or purchase of any goods or forward
contracts.

• Services provided by a processing and clearing house in relation to processing,

clearing and settlement of transactions in relation to securities, goods or
forward contracts.

• Supply of tangible goods without transferring right of possession and effective

control of such goods.

• Internet telephony service substituted by internet telecommunication service

and the scope of the said category expanded to include:
- Internet backbone services, including services by one internet service
provider to another
- Internet access services.

Expansion of scope of existing services (effective from a date to be notified
upon enactment of Finance Bill, 2008):
Service category
Banking and other financial service
Foreign exchange broker service
Business auxiliary service
Consulting engineer service
Cargo handling service
Technical testing and analysis service
Technical inspection and certification
service
Tour operator service
Clarification (by way of explanation) regarding scope of existing services:
Service category
Business auxiliary service
Management, Maintenance or Repair
Renting of immovable property
12
To include
Purchase or sale of foreign currency,
including money changing, by an
authorised dealer or an authorised
money changer
Information technology service
Computer software engineering
consultancy
Packing together with transportation of
cargo or goods with or without services
like loading, unloading, unpacking
Testing or analysis of information
technology software
Inspection, examination and certification
of information technology software
Journey from one place to another in a
contract carriage vehicle and not just a
tourist vehicle
Clarification
Includes service provided in relation to
promotion or marketing of games of
chance (including lottery), organised,
conducted or promoted by the client
‘Properties’ covered under the said
category to include information
technology software
Includes allowing or permitting the use
of space in an immovable property,
irrespective of whether transfer of
possession or control of such immovable
property takes place
 13

Exemptions from service tax (effective from 1 March, 2008):

• Service provided by a person located outside India in relation to booking of a
hotel in India for a person located outside India.

• Unconditional exemption of 75 percent of gross amount charged as freight, for

services provided in relation to transport of goods by a Goods Transport
Agency (GTA). Definition of ‘output service’ amended to specifically exclude
from its scope, the services provided by a GTA.

Amendments in provisions regarding export/ import of services (effective

from 1 March, 2008):
• The Export of Services Rules, 2005 have been amended to clarify that the
following services provided through internet or any electronic/ computer
network would be treated as export of services (irrespective of whether the
services are performed in India or outside India), if these services are rendered
in relation to goods or any immovable property, as the case may be, situated
outside India at the time of provision of service:
– Management, maintenance or repair
– Technical testing and analysis service
– Technical inspection and certification service.
Similar amendment made in Taxation of Services (provided from outside India
and received in India) Rules, 2006 (the Import Rules).

Valuation for transactions between ‘associated enterprises’ (effective from

enactment of Finance Bill, 2008):
• Transaction between ‘associated enterprises’ liable to tax even if no payment
is received and the taxable value is recognised as revenue/ expenditure in the
books of the person who is liable to pay service tax. In other words, service
tax in case of transaction between ‘associated enterprises’ to be paid on
receipt of payment or crediting/ debiting of the amount in the books of
accounts whichever is earlier.
 14

Amendments in Cenvat Credit Rules, 2004 (effective from 1 April, 2008):

• Removal of capital goods outside the premises of the service provider
permitted without any time restriction, provided the same are being used for
provision of output service.

• Provider of output services using common inputs or input services for

providing taxable and exempted services and opting not to maintain separate
books of accounts may:
- either pay an amount equal to 8 percent of the value of the exempted
services or
- pay amount equivalent to credit attributable to inputs and input services
used for providing exempted services (to be calculated in the manner
prescribed).

• Provision introduced for taking of credit on inputs and capital goods in respect
of which purchase invoices are received by an office or any other premises of
the output service provider desirous of taking credit. Such credit allowed on
the basis of invoice/ bill/ challan issued by the office/ premises receiving
purchase invoice.

Other proposals
Effective from 1 March, 2008:
• Facility of payment of service tax in advance and adjustment against service
tax for the subsequent period extended to all service providers (earlier the
facility was available only to service providers having centralised registration).

• Limit for self-adjustment of excess service tax paid increased from the present
level of INR 0.05 million to INR 0.1 million.

• Time limit for filing revised return increased from 60 days to 90 days.

Effective from 1 April, 2008:

• The exemption limit for small service providers increased from the present
level of INR 0.8 million to INR 1 million.
 15

Customs Duty

Amendments (effective from 1 March, 2008)

• No change in peak rate of Basic Customs Duty (BCD) on non-agricultural
products. However, effective Customs Duty stands reduced from 34.13
percent to 31.70 percent due to reduction in Additional Duty of Customs
(ADC).

• BCD on Project Imports reduced from 7.5 percent to 5 percent on specified

industrial projects, power transmission, sub-transmission and distribution
projects, etc.

• Exemption of ADC of 4 percent withdrawn for power generation projects

(other than mega power projects), transmission, sub-transmission and
distribution projects, and specified goods for high voltage transmission
projects.

• Benefit of 5 percent BCD expanded to include MP3/ MP4 and MPEG player
with or without audio and video reception facility.

• Exemption from BCD extended to specified parts of set-top boxes, raw

materials /inputs used in manufacture of specified electronic/ IT products.

• Customs Duty on export of chromium ores and concentrates increased from

INR 2,000 PMT to INR 3,000 PMT.

• National Calamity Contingent Duty (NCCD) of 1 percent has been imposed on

mobile phones. This duty shall be levied as ADC under Section 3 (1) of
Customs Tariff Act, 1975.

• NCCD of Customs removed on specified synthetic filament yarn.

• BCD on specified raw materials for use in sports goods for export exempt
subject to specified conditions.

• Maximum period of re-export of leased equipment and machinery, temporarily

imported for use in projects increased to 18 months. Such goods would be
subject to customs duty ranging from 5 percent to 40 percent of applicable
duty depending on their period of stay.

• The maximum period for duty drawback on re-export of goods reduced to 18

months.
 16

Illustrative Changes in BCD rates:

Prior to 1 March With Effect From 1

Items
2008 March 2008

Helicopter simulators 10% Nil

Crude and unrefined sulphur 5% 2%

Naptha for manufacture of

Nil 5%
specified polymers

Animal feed additives/ pre-mixes 30% 30%

Specified drugs/ kits and bulk

10% 5%
drugs for their manufacture

Iron or steel melting scrap/

5% Nil
aluminum scrap

Cigars, cheroots and cigarillos 30% 60%

Specified raw materials for tyre

10% 5%
industry

Specified machinery for

7.5% 5%
manufacture of sport goods

Proposed amendments (effective from enactment of Finance Bill, 2008)

• All Gazetted Customs officers empowered to issue summons.

• Penalty for violations of Customs provisions not expressly mentioned in the

law increased from INR 10,000 to INR 100,000.

• Difference in opinion within the committee of commissioners of customs

regarding appealing against an order to be referred to jurisdictional Chief
Commissioner of customs for his decision.
 17

Central Excise

Amendments (effective from 1 March, 2008)

• Excise duty reduced from 16 percent to 14 percent. Other ad valorem rates of

24 percent, 12 percent and 8 percent remain unchanged.

• National Calamity Contingent Duty (NCCD) of 1 percent imposed on mobile

phones.

• Benefit of 8 percent Excise Duty expanded to include MP3/ MP4 and MPEG
player with or without audio and video reception facility.

• Effective Excise Duty for clearances from 100 percent Export Oriented Unit
(‘EOU’) to Domestic Tariff Area (‘DTA’) to be computed on 50 percent BCD and
applicable ADC.

• Excise Duty on unbranded Motor Spirit changed from 6 percent (advalorem)

plus INR 13 per Litre (specific rate) to specific rate of INR 14.35 per Litre.

• Excise Duty on unbranded High Speed Diesel changed from 6 percent

(advalorem) plus INR 3.25 per Litre (specific rate) to specific rate of INR 4.60
per Litre.

• Abatement rates for maximum retail price (‘MRP’) products realigned due to
reduction in Excise Duty.

• Rules notified for determination of MRP to be applicable in specific cases.

 18

Reduction in excise duty (effective from 1 March 2008)

Prior to 1 March With Effect From 1

Item
2008 March 2008

Drugs and formulations 16% 8%

Small cars 16% 12%

Hybrid cars (driven by a combination

of electric and internal combustion 24% 14%
engine)

Electric cars 8% Nil

Buses and other vehicle for transport

16% 12%
of more than 13 persons

Two-wheelers and passenger three-

16% 12%
wheelers (upto 7 persons)

Specified refrigeration equipment for

the installation of a cold storage, cold
16% Nil
room or refrigerated vehicle, on end-
use basis

Wireless data modem cards 16% Nil

Composting machines 16% Nil

Increase in Excise Duty (effective from 1 March 2008)

With Effect From 1

Item Prior to 1 March 2008
March 2008

Packaged software 8% 12%

14% or INR 400 per

Bulk cement INR 400 per tonne tonne, whichever is
higher

Cement clinker INR 350 per tonne INR 450 per tonne
 19

Amendments (effective from 1 April 2008)

• Manufacturer of dutiable and exempted goods has the option to take full credit
and pay either 10 percent of the value of exempted goods or reverse the
credit attributable to the exempted goods.

Proposed amendments (effective from enactment of Finance Bill 2008)

• Explanation inserted in Section 2 of the Central Excise Act to clarify that goods
include any article capable of being bought and sold and deemed to be
marketable.

• Government empowered to charge duty on the basis of capacity of production

for certain specified products.

• Refund of interest paid on excise duty to be made available to an assessee.

• Interest to be paid to assessee on delayed refund of pre-deposit by

department.

Central Sales Tax (CST)

• CST rate to be reduced from 3 percent to 2 percent with effect from 1 April,
2008.

• Once agreement is reached about compensation for losses, new rate would
be notified.

Goods and Services Tax (GST)

According to the Finance Minister, considerable progress has been made in the
preparation of introducing GST from 1 April, 2010. However, no concrete roadmap
has been unveiled.
 in.kpmg.com

KPMG in India KPMG Contacts

Mumbai Sudhir Kapadia
KPMG House, Kamala Mills Compound Head - Tax
448, Senapati Bapat Marg, Tel: +91 22 3983 5700
Lower Parel, Fax: +91 22 3983 6000
Mumbai 400 013 e-Mail: shkapadia@kpmg.com
Tel: +91 22 3989 6000
Fax: +91 22 3983 6000 Pradeep Udhas
Head - Markets
Delhi Tel: +91 22 3983 6205
4B, DLF Corporate Park Fax: +91 22 3983 6000
DLF City, Phase III e-Mail: pudhas@kpmg.com
Gurgaon 122 002
Tel: +91 124 307 4000
Fax: +91 124 254 9101

Pune
703, Godrej Castlemaine
Bund Garden
Pune 411 001
Tel: +91 20 3058 5764/65
Fax: +91 20 3058 5775

Bangalore
Maruthi Info-Tech Centre
11-12/1, Inner Ring Road
Koramangala,
Bangalore 560 071
Tel: +91 80 3980 6000
Fax: +91 80 3980 6999

Chennai
No.10 Mahatma Gandhi Road
Nungambakkam
Chennai 600 034
Tel: +91 44 3914 5000
Fax: +91 44 3914 5999

Hyderabad
II Floor, Merchant Towers
Road No. 4, Banjara Hills
Hyderabad 500 034
Tel: +91 40 2335 0060
Fax: +91 40 2335 0070

Kolkata
Park Plaza, Block F, Floor 6
71 Park Street
Kolkata 700 016
Tel: +91 33 2217 2858
Fax: +91 33 2217 2868

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