JUNE 25, 2009

Union Budget - A simple wish-list for FM to simplify legislative intent

Anil S. Menon, Spark Consultancy

BUDGET comes once a year, but will this one bring cheer?

Expectations are high from this Budget and some clear messages as regards the way forward in the next years could be evident from the Finance Minister's speech this time.

I take this opportunity to thank TIOL for providing me this benefit to air some of views which could help the trade from indirect tax aspect.

Customs Notification reducing rate of duties under Free Trade Agreements : Having a Department background, probably I never happened to go through these notifications. In the role of a consultant, I did and the results vehemently suggest that the said notifications could do so with some simplification. And may be this Budget is the right time to look at the said notifications to make it easy for an importer. Some aspects thereof are identified herein below:

++ We have a host of customs notifications covering imports from Thailand, SAFTA, SAARC, least developed countries etc with most of them drafted in the manner as cumbersome as possible. eg Customs Notification No 67/2006 dated 30 June 2006 span papers akin to a research compilation with three different Annexures for specific exclusions and one table of goods with varied rates of customs duty for different products specified therein.

++ For imports from Singapore, as per article 2.3.1 of the ‘India- Singapore Comprehensive Economic Co-operation Agreement', it has been agreed that both India and Singapore shall reduce customs duty on identified goods originating from the other country in phased manner before completely exempting customs duty on said goods. However, the corresponding customs notification issued by Indian Customs fails to respect the above agreement and the said anomaly should be rectified in this Budget.

++ Further there are four different exemption notifications for imports from Singapore (namely notification 10/2008 dated 15 Jan 2008, 73/2005, 74/2005 and 75/2005 all dated 22 July 2005) – entries thereof can well be captured in a single customs notification.

++ There are different customs notification from imports from SAARC countries (notification no 105/99 dated 10 August 1999) and imports from SAFTA countries (notification no 67/2006 dated 30 June 2006). The striking part is that both notifications cover imports from Pakistan, Sri Lanka, Bangladesh, Bhutan, Maldives and Nepal and there are two separate notifications offering different rates of exemption for same products imported from the same countries. So as an importer, you are expected to go through both these notifications, identify which of the said notification offers the best reduction and then opt for the said notification for imports thereof. It is beyond me to understand why such confusion and why the same cannot be made simple with one notification in place specifying the exemptions in place for imports from the said countries.

++ There are few products which attract higher rate of duties as per the customs duties for import from preferential countries as compared to the normal customs duty rates (after availing of exemption from tariff rate). The said anomalies also need to be rectified

Exemption from additional duty of customs : Notification no 20/2006 dated 1 March 2006 provides exemption to goods from additional duty of customs leviable thereon under sub-section (5) of section 3 of the said Customs Tariff Act as detailed in the said notification. Sr No 50 provides for exemption from the said duty of customs for all goods specified in the First Schedule to the Additional Duty of Excise (Goods Special Importance) Act, 1957 (58 of 1957). Now, we all know that the duty under Goods Special Importance Act has been specifically exempted and no goods attract the said duty as of now. This gives rise to a typical situation where goods mentioned in the First Schedule to the Additional Duty of Excise (Goods Special Importance) Act, 1957 (58 of 1957) do not attract Additional Duty of Excise under the said Act as well as additional duty of customs leviable thereon under sub-section (5) of section 3 of the said Customs Tariff Act. Whether or not the same is intentional or otherwise, I leave it to the experts to decipher. Prima facie, I do not see any specific reasoning thereof and maybe this Budget could look to make amends thereof.

Infant foods : Infant food products (classified under CSH 19011090) enjoy exemption from payment of excise duty on manufacture and also CVD on import whereas other food products do not have the said benefit. To add to this position, there is no clarity on the term ‘infant food' and which age group should be construed as ‘infants'.

There is one reported judgment under excise/customs (stay order) which refers to infants as “falling under the age group of one year or less”. Certain other allied laws define ‘infants' and age group thereof. Other generic definitions available on the net appear to add to the confusion on which age group should qualify as ‘infants'.

This Budget should consider providing specific definition to infant foods to ensure against litigation and clarity at the time of imports/local manufacture of said goods.

Cenvat credit on capital goods : As law stands as of now, the Cenvat credit paid on capital goods is available in two parts ie. upto 50% of the duty paid in the year of receipt of capital goods in the factory/premises of the service provider and balance thereof in any subsequent financial year. Given the present scenario ( cash strapped manufacturers/ service providers), it is suggested that the Cenvat Credit Rules, 2004 may be amended to provide for availing 100% of credit in the year of receipt of capital goods. This would also do away with avoidable time effort to monitor correct availment of Credit.

Cenvat Credit on endorsed bill of entry : There is no provision under Credit Rules for availing Cenvat Credit on endorsed bill of entry. Importers have no option but to register themselves with the jurisdictional Central Excise Department. Practically this has become a big issue for the importers as the officers are demanding that the goods should come to the depot and without a depot, registration would not be granted. It is suggested that Cenvat Credit Rules may be amended to recognise endorsed Bill of Entry as a valid document for availing credit of duty paid at the time of import. Else detailed instructions be provided to the field officers not to insist on depot for importers registration.

Advance Rulings : The benefit of advance ruling is presently restricted to certain category of tax payers only. It is suggested that advance ruling may be made available for all new ventures without differentiating between residents or non-residents.

‘Refund' – time to look at an alternative : Whether it is the Budget or by way of any other means, the authorities concerned should seriously reconsider whether provisions for refund of unutilized credit on services/inputs for service providers engaged in export of services, refund of 4% additional duty of customs etc are really getting implemented as perceived and conceptualized by the law makers. The ground level reality is otherwise and I need not elaborate on the same. The answer is simple, it is not worth it. May be, Board should consider granting an ad hoc amount to the exporters/importers, as the case may be, as reimbursement of legal expenses to fight the issue up to Tribunal stage and more. Sounds a bit too much, but that how it is at ground zero level. Can we hope for a magic potion?

Admittedly there are quite a few suggestions, which could add a couple of pages and more to this piece. But more of this and may be our netizens may shred this piece before opting to browse. So, may be, let's wait till the Budget day. Also wish TIOL yet another year of clinical analysis of the Budget.