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SUBJECT: CENTRAL EXCISE & SERVICE TAX – BUDGET PROPOSALS FOR 2004-05 The
Finance Minister has introduced the Finance (No.2) Bill, 2004 in the Lok
Sabha on 8th July,
2004. A number of changes in excise, customs and service tax have been
made through clauses 61 to 85 of
the Finance Bill and through notifications Nos. 66/2004-Customs to
71/2004-Customs, 23/2004-CE to
36/2004-CE, 11/2004-CE (NT) to 13/2004-CE (NT) and 5/2004-ST to
10/2004-ST, all dated 9th July 2004. For full
details, the relevant provisions
of the Finance (No.2) Bill, 2004 and the notifications may be referred to. The
salient
features of the proposals in respect of excise and service tax are
indicated below:
(1) Education
Cess 1.1
An
Education cess at the rate of 2% of the aggregate duties of customs,
excise and service tax has
been imposed. While the cess will apply in respect of customs and excise
duties with effect from 9.7.2004,
in respect of service tax, it will come into effect only on enactment of
the Finance Bill. 1.2
In
respect of excise, the cess will be 2% of the aggregate duties of excise
leviable on the goods.
The following illustration explains how the cess should be calculated. An
item attracts excise duty of 16%. With education cess, the total incidence
of excise duty will
be 16.32%. The Cess of 0.32% will be available as credit, but only for
payment of education
cess leviable on final products as provided for in the CENVA T Credit
Rules. (2)
CENTRAL
EXCISE
The
highlights of the changes in central excise duties are: 2.1
Excise
duty has been raised on iron and steel of chapter 72 from 8% to 12%. 2.2
Excise duty of 8%
with CENVAT credit has been imposed on contact lenses and playing cards. 2.3
Excise duty on following
items has been increased from 8% to 16%, namely, cakes and pastries,
plastic insulated ware, vacuum flasks, scented supari, pre-fabricated
buildings, Laboratory glassware,
Clocks and watches of retail sale price not exceeding Rs.500 per piece (SSI
exemption has been extended),
monochrome televisions receivers, populated printed circuit boards for
monochrome television receivers, imitation jewellery and candles. 2.4
Excise
duty on matches made in semi mechanized and mechanized sectors, has been
changed from 8% without
Cenvat credit, to 16% with credit.
2.5
Excise
duty of 16% has been imposed on specified parts of pre-fabricated
buildings such as blocks,
slabs, concrete beams and stairs and parts of clocks and watches of retail
sale price not exceeding
Rs. 500 per piece.
2.6.1
The
retail sale price (RSP) limit for excise duty exemption on footwear has
been raised from Rs.
125 to Rs. 250 per pair. The exemption will now be available only if RSP
is indelibly marked or embossed
on the footwear itself.
2.6.2
Excise
duty has been reduced from 16% to 8% on gas stoves of retail sale price
not exceeding Rs.
2000 per unit.
2.6.3
The
value limit for excise duty exemption on pens and ball point pens
(including refills for ball
point pens) has been raised from Rs. 100 to Rs. 200 per piece.
2.6.4
Parts
of pens and parts of refills for ball point pens have been exempted from
excise duty.
2.6.5
Computers have been
exempted from excise duty. Stand alone Central Processing Units (CPUs)
will also be eligible for the exemption.
2.6.6
Excise
duty on non-alcoholic beverages, such as chocolates and malted food
drinks, falling under
chapters 18 or 19, prepared and dispensed through vending machines, has
been exempted.
2.7
Agriculture:
2.7.1
Tractors
(of heading 87.01) have been exempted from excise duty.
2.7.2
Milking
machines and dairy machinery of heading 84.34 have been exempted from
excise duty.
2.7.3
Excise
duty on branded and packed preparations of meat, fish and poultry has been
reduced from
16% to 8%. 2.7.4
Excise
duty on food grade hexane has been reduced from 32% to 16%. 2.7.5
Hand
tools of heading No. 82.01 have been exempted from excise duty. 2.8
Textiles:
2.8.1
The duty structure has
been completely revised. There will be mandatory duty
only on manmade fibres. The mandatory duty will be as under: (a)
24%
on polyester filament yarn (including textured yarn) (b)
16%
on all other filament yams (including textured yam) and man made fibres However,
when these duty paid fibres and filament yams are subjected to any
processing in a unit which has not made
the basic filament yarn (including textured yarn) or the fibre, there will
be an optional exemption. The existing duty of 16% on polyester filament
above 750 deniers will also continue.
2.8.2
The
Cenvat scheme for textiles has been made optional. There will be a
mandatory duty only on man made fibres (artificial and synthetic staple
fibres and filament yarns). Except for these duties, textile
goods (yarn, fabrics, garment, articles of chapter 50 to 63) will be fully
exempt if no credit of duties
is taken under the Cenvat Credit Rules.
2.8.3
For
those opting to pay duty, and thereby avail of duty credit, the applicable
rates of duty for all other goods of chapter 50 to 63 will be: (a)
4%
for pure cotton textiles including yam, fabrics, garments, made ups and
articles (b)
8%
for other textiles including yarn, fabrics, garments, made ups and
articles
2.8.4
It
may be noted that no intimation or permission is needed by any unit either
for availing of the
exemption or for payment of duty at the above rates. The optional route is
open for all sectors i.e. handloom,
power looms, independent processors, stand alone units as well as
composite mills.
2.8.5
All
textiles and textiles articles falling under chapter 50 to 63 have been
fully exempted from duties
under Additional Excise Duty (Goods of Special Importance) Act and
Additional Excise Duty (Textiles
and textiles Articles) Act, wherever applicable.
2.8.6
Manufacture of polyester
filament yarn on job work basis has been excluded from the purview
of notification No. 214/86-CE.
2.8.7
Rule
12 B of the Central Excise Rules, 2002 has been omitted.
2.8.8
Provision
relating to endorsement of document under clause (e) of sub-rule (1) of
Rule 7 and the
provisions relating to transfer of credit by exempted textile manufacturer
under rule 8A of the Cenvat
Credit Rules have been omitted. 2.9.1
Existing
concessional rate of excise duty of 16% to ambulances for Government run
hospitals has
been extended to all ambulances.
2.9.2
Rehabilitation
aids such as
talking
books, talking calculators, talking thermometers, Braille writers,
Braille computer terminals have been exempted from excise duty.
2.9.3
Excise
duty exemption available to diagnostic kits used for detection of
Hepatitis B has been extended
to diagnostic kits used for detection of all types of Hepatitis.
2.10
Retail
Sale Price (RSP) based assessment: (a)
Consequent to changes in excise duty rates: 1)
Abatement on gas stoves of RSP not exceeding Rs. 2000 per unit, has been
reduced from
40% to 35% 2)
Abatement on scented supari, has been raised from 30% to 35% 3)
Abatement on plastic insulated ware has been raised from 40% to 45% 4)
Abatement on vacuum flasks has been raised from 35% to 40% (b)
RSP based assessment has been extended to monochrome (black & white)
television sets with an abatement of 35%. 2.11
Area
based exemptions:
A
sunset clause has been introduced in case of area based exemptions
for Sikkim, Uttranchal and Himachal Pradesh so as
to
provide that the exemptions would be
available only to those new units which are set up or existing units which
are substantially expanded
and commence commercial production on or before 31.03.2007. 2.12Small Scale Sector: 2.12.1 SSI exemption has been extended to watches of retail sale price not exceeding Rs.500 per piece and parts thereof. 2.12.2
There is no change in the extent of concession, exemption limits,
eligibility conditions and other conditions of the general SSI scheme. 2.13
Miscellaneous: 2.13.1
Newsprint in reels has been exempted from excise duty. 2.13.2
Specific rates of excise duty on colour television receivers, prescribed
in case retail sale price is
not declared or is not correctly declared, have been withdrawn. Colour
television receivers will now
uniformly attract excise duty of 16%. (3)
Amendments
in Customs and Central Excise Act and Rules: 3.1
Credit
of AED (GSI) 3.1.1
Amendments have been made
in the Cenvat Excise Rules, 2002 with retrospective effect from 1.4.2003,
so as to provide that AED (GSI) paid on inputs on or after 1.4.2000 alone
would be eligible for utilization towards payment of Cenvat duty. This amendment would come
into effect on enactment of the
Finance Bill. Effect of this amendment is that the credit of AED(GSI)
against BED will be applicable only if the AED(GSI) was paid on or after
1.4.2000, the date from which separate accounting
for AED (GSI) was dispensed with. If any credit has been taken on inputs
on which duty has been paid prior to this date, the same would be
liable to be recovered. On the other hand, if any assessee
has not taken credit, he would be entitled to do so if the AED (GSI) was
paid on or after 1.4.2000. For
details, relevant clause of the Finance Bill may be referred to. 3.2
Provisions
are being made in central excise and customs laws to allow compounding of offences
either before or after initiation of proceedings by the Chief
Commissioner. On compounding, the
person would get immunity from prosecution, but would have to pay duty,
interest and compounding fee. 3.3
A
provision is being made in the Central Excise Act to enable recovery of
arrears of revenue including
the interest from the person, to whom another person liable to pay duty
and interest in pursuance of a
confirmed demand and an adjudication order, has transferred his business
property. 3.4
Provisions are being made in the Central Excise Act to debar the
adjudicating authority, Commissioner
(Appeals), and the Appellate Tribunal, from granting more than three
adjournments of personal
hearings. 3.5
The
Third Schedule to the Central Excise Act has been amended to extend the
provisions of section
2(f)(iii) of the said Act to monochrome (black & white) television
sets. 3.6
Customs Act,
Central Excise Act and Finance Act, 1994 are being amended to provide for specified
amount of fee to be paid when making appeal before appellate tribunal. (4)
SERVICE
TAX: 4.1
A
very significant step is being taken in this year's budget for moving
towards an integrated goods
and services tax by making a provision in the Finance Bill for allowing
credit of service tax and Cenvat
across goods and services. Besides, a number of new services are proposed
to be brought under
service tax. It
is expected that the above changes will substantially widen the base of
service tax. 4.2 Provisions have been made for dispensing with the mandatory penalty for non registration. 4.3 The
following changes will come into effect on enactment of Finance (No.2)
Bill 2004: 4.3.1
Rate
and input credit: The
rate of service tax is being raised from 8% to 10%. The credit of service
tax and excise duty is being extended across
goods and services. 4.3.2
Service
tax @ 10% is being imposed on the following services, namely,
Business exhibition services, Airport services, Transport of goods by road by a
goods transport agency (only applicable
to commercial concerns issuing the consignment note), Transport of goods
by air, Survey and exploration
of minerals, Opinion poll services, Intellectual property services other
than copyright, Forward contracts services, Pandal or shamiana
services, Outdoor catering, TV or radio programme production, Construction
services in respect of commercial or industrial buildings and civil
structure and Travel agents (other than
air/rail travel agents). 4.3.3
Service tax is being
imposed only on the risk cover in life insurance. 4.3.4
The
scope of certain existing services is being extended as follows: (a)
Commission and installation of plant, machinery or equipment to include
`erection' thereof. (b)
Stock brokers to include `sub-brokers'. (c)
Cable operator service to include 'Multi System Operators (MSO)'. (d)
Business auxiliary service also to include service relating to procurement
of inputs, production
of goods or provision of services on behalf of the client. However,
activities amounting
to manufacture are excluded from the scope of the service tax. (e)
Financial services also to include other specified financial services,
namely, lending, issue of
pay order, demand draft, cheque, letter of credit, bill of exchange,
providing a bank guarantee, overdraft facility, bill discounting, safe
deposit lockers, or safe vaults and operation
of bank accounts. The interest amount would, however, remain excluded from
the
purview of service tax. In
addition to banking company, financial institution including a non-banking
financing company, body corporates, any other commercial
concern providing financial
services will also be covered. (f)
Tour operator services to include such package tour operators also who
organize tours involving
any mode of transport. 4.4 The
following changes come into effect immediately: 4.4.1
Following
service tax exemptions are being removed: (a)
Exemption to services in relation to safe deposit lockers provided by
security agencies. (b)
Maintenance or repairs of computers under a maintenance contract or by the
manufacturer. (c)
Mandap keeper services provided by hotels (40% abatement if catering is
also provided). (d)
Commission agents, other than those dealing in agricultural produce, under
business auxiliary
service. (e)
Broadcasting service provided by cable operators. (f)
Reduction of abatement from 90% to 60% for non-package tours. 4.4.2
Following
abatements are being provided: (a)
40% abatement in convention service when catering is also provided. (b)
60% abatement to rent-a-cab scheme operators. 4.4.3
Changes
in Act and Rules: (a)
Compulsory verification of assessment by departmental officers is being
done away with. (b)
Mandatory penalty for non-registration is being removed. (c)
Rule 6 of Service Tax Credit Rules has been amended. If the input service
supplier has not
paid service tax, the Service Tax credit cannot be recovered from the
person availing the
credit if he had taken reasonable steps in terms of rule 5. (d)
The present rate of interest of 15% per annum on delayed payment of
service tax is being replaced
by a range, from 10% to 36% per annum. The Central Government will have
the power to notify the
rate of interest on delayed payment of service tax within this range. (e)
Section 67 of the Finance Act, 1994, is amended to provide that where the
gross amount charged
by a service provider is inclusive of service tax payable, the value of
taxable service
shall be such amount as with the addition of service tax payable thereon,
is equal to the gross
amount charged. (f)
Sections 71 and 72 of the Finance Act, 1994, relating to verification of
assessment and best
judgment assessment respectively are being omitted. (g)
Section 81 dealing with prosecution of companies, being otiose, is being
omitted. (h)
Explanation has been inserted in rule 6 of Service Tax Rules to clarify
that in case payment
is received in advance, service tax will be payable on pro
rata basis. 5.
All the Trade Associations are requested to give wide publicity of
the contents of this Trade Notice amongst their members/constituents. 6.
Hindi version will follow. (RAJENDRA PRAKASH) COMMISSIONER
CENTRAL EXCISE
DELHI-I. AUTHORITY:
D.O.F.NO. 334/3/2004-TRU DATED 8TH JULY, 2004.
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