MARCH 16, 2012

Opinion on BUDGET-2012

By G Prabhakara Sastry, Senior consultant- Indirect taxes & Convener- tax law research Group, Visakhapatnam

BUDGET-2012 is a mixture of confused but ambitious proposals. Extension of Service Tax on all the services except 18 covered in the negative list is sure to increase classification disputes to an enormous extent, since many services are in the borderline status, where the levy/exemption would become a contentious issue. It will be the prerogative of the department to say that a particular Servcie is taxable and it will be the assessee feeling otherwise.

Till now, only 9% of the service sector was being taxed fetching abnormal tax revenue to the government. Now that almost 90% of the services are being taxed, there is no justification for increase in the tax slab from 10% to 12% which will get huge revenue to the government and substantial difficulties to the tax-paying community. It would have been nice if the tax rate is retained at 10% or reduced to 8% to study the impact of levy on all services except those covered by the negative list.

Even for the Finance Minister, Excise and Customs became a second priority and he has rightly started with Service Tax proposals and then went to discussing about Excise and customs little later. Huge amendments in Service Tax law relating to time limit for filing the appeal, period of time available to the department to review and so on would be too harsh for an average assessee who is yet to acquaint himself with the procedures of Service Tax law.

The government was bold enough in correcting their mistakes in respect of levy of Service Tax on road repairs which was hanging in fire for over eight years. The Budget-2012 provided a respite by grant of retrospective exemption. Similarly, government relating contracts are also getting relief and that would set at rest bulk of the disputes where the contractors are crushed between excise and government department by way of such demands.

It is unfortunate that SSI exemption under Central Excise & Service Tax are left untouched and it is a continued anomaly that a Service Tax assesssee is entitled for an exemption upto Rs.10 lakhs whereas, the Central Excise assessee is eligible for Rs.150 lakhs of exemption.

Central Excise Duty:

In so far as the Excise Duty is concerned, the increase in the rate of duty from 10% to 12% is not warranted at a stage where the revenue baskets are full with their expectations and huge tax is accepted through service tax regime it may be right that levy of 1% tax is a laborious process not commensurate with the work involved and 2% is justified but peak rate enhancement from 10% to 12% would only encourage evasion which is certainly on the decline for quite some time.

Customs duty:

The controversy regarding calculation of Education Cess on Customs Duty which has already been accepted by the Tribunal was given a legal sanctity and it the illustration given in DO letter of Budget-2012 which says that Rs.100/- of assessable value goods would attract total duty of Rs.26.495ps as Customs Duty as against Rs.26.85ps being hither to demanded by the department. At least now, the officers who made the brilliant calculations that Education Cess has to be calculated thrice would converted the shallowness of such argument and accept that respect to the law on the subject.

On the whole, Mr.Pranab Mukherjee should be complemented for making a dashing budget which he was not known for presenting in his long tenure in the earlier regime.