MARCH 03, 2016

By Sushil Solanki, Principal Commissioner of Service Tax (Retired)

I must congratulate the Government and the CBEC, in particular, for a number of actions taken in the direction of improving ease of doing business and reducing the litigation in the field of Indirect Taxes. Reducing litigation is also a significant step towards improving the business atmosphere so as to provide the businessman an atmosphere where he can do the business without worrying for taxation issues. Budget 2016 has taken a lot of initiatives, either by amending the rules or the law or by issue of clarifications in order to clarify the intention of the Government. It was really a pleasant surprise to see that in some cases retrospective amendments have been carried out which are taxpayer-friendly.

Let me first take up steps for improving ease of doing business. Refund of Service Tax paid by the exporter of goods for the services used beyond the factory has been permitted by making retrospective changes in the notification 41/2012 ST to clarify that all the services from factory upto the port of shipment would be eligible for refund. The controversy arising from issue of certain clarification by the department has been solved by the retrospective amendment. An exporter of goods using port services or goods transport services would be eligible for refund. Number of returns to be filed by a manufacturer under Central Excise Law have been reduced considerably by almost half. However, most of the information from those returns might be captured in newly prescribed annual return. This would give a lot of comfort to the taxpayer and it will also help the department in better scrutiny. Facility of filing revised return has been provided in the Central Excise Act on the lines of Service Tax. This will definitely give the excise taxpayer a fair chance to rectify their unintentional errors. Whenever a manufacturer wanted to send the goods to a job worker, the present law requires them permission to be taken every year. Now that permission will be valid upto 3 years. In the case of Service Tax, lot of rationalisation has been done in the rate of abatement for the purpose of payment of tax. In most of the cases, wherever for the similar services different rates were provided, now these rates have been changed to a uniform rate. This will definitely reduce the litigation and also disincentivesa person to misuse. For example, in the case of construction of building, earlier there were two rates of abatement of 75% and 70% depending upon the sale price and carpet area of the flat. Now a uniform rate of 70% is provided.

Taxation of software has been a victim of indifferent taxation policies. On one side, the State government wants to levy tax and at the same time Central government also wants to levy excise duty, service tax or customs duty. The height of agony is that the same department slaps notice for payment of different taxes on same activity even though one of the taxes has been paid. In the case of package software, where retail sale price is printed, a notification has been issued to clarify that Service Tax would not be leviable in such cases because excise duty is paid. On the other hand, in the case of customized software, it has been made clear that only the Service Tax would be leviable and excise duty would be exempted. I hope this would bring disputes to an end and software industry would get some relief.

In the last budget few exemptions were withdrawn like for construction of building for Govt, or a school or hospital etc. But what would happen to the ongoing projects. A bold step has been taken by the Government to give retrospective benefit to such project from levy of Service Tax. In the absence of such amendment, there would have been lot of litigation continuing for years.

Number of changes made in the Cenvat Credit Rules also show the intention of the Government to reduce the litigation and make the life simpler. Rule 6 of the Rules provides for a mechanism for determination of quantum for Cenvat Credit involved in common input or input services, used both for production of taxable goods and exempted goods for the purpose of reversal. Number of litigations had arisen mainly because of certain lapses in the drafting of the rule. CBEC has done a good job by redrafting the entire rule to make it very clear that the reversal cannot be more than the total amount of Cenvat credit taken by a person and reversal needs to be done only from the credit involved in the common inputs. My only wish is that the Government should clarify that the intention of the erstwhile rule was also same and a large number of pending disputes can be settled.

Rules have also been amended to clarify that if any goods are used for pumping of water used in the factory, Cenvat credit would be allowed even when pumping activities take place outside the factory.

Arrest power has been restricted only to one category i.e. when the Service Tax has been collected but not paid to the exchequer for more than six months and where the amount involved is more than Rs. 2 crore. This amendment will give a loft of relief to the taxpayers who are under threat by the department for arrest even for non-cognizable and bail able offence.

Another relief is the reduction in the rate of interest on the short payment of taxes. Now uniform rate of 15% has been prescribed for all indirect taxes as against the present different higher rates. The 30% rate in cases of Service Tax collected and not paid has also been reduced to 24%.

The flip side of the Budget is that the levy of excise duty on jewellers could have been announced but made applicable after a month or so. This could have been given them time to prepare them for complying with the excise duty provision. I do not find any reason for such a hurry by making it applicable from first March. The Government should have learnt from the past experience.

Another amendment of increasing the time limit for issue of notices for non-suppression cases from one year to two years in excise and customs cases and 18 months to 30 months in Service Tax cases is definitely a retrograde step. This will keep the sword hanging on the taxpayer.

I would conclude that efforts made by the Govt and CBEC needs appreciation because of their intention to make the administration of law as simple as possible and litigation-free.