Union Budget 2008-2009: Highlights

CUSTOMS

Export Duty

The rate of Export duty on chromium ores and concentrates, all sorts, has been increased from Rs.2000 PMT to Rs.3000 PMT.

Project Imports

Basic customs duty on project imports attracting 7.5% has been reduced to 5%. This would apply to industrial projects; power transmission, sub-transmission and distribution projects; power transmission projects of 66KV and above; as well as certain projects notified under heading no.9801 such as airport development projects, metro rail projects, port development projects, railway electrification projects, digital cinema development projects etc.

Chemicals & Petrochemicals

  • Basic customs duty on crude and unrefined sulphur has been reduced from 5% to 2%.

  • The general effective rate of basic customs duty on phosphoric acid has been 7.5% with a concessional rate of 5% for phosphoric acid used for the manufacture of fertilizers. The rate of duty has now been unified at 5% irrespective of its use. CVD will however continue to be attracted at applicable rates.

  • Basic customs duty exemption presently available on naphtha for manufacture of specified polymers has been withdrawn and consequently it will attract 5% basic customs duty.

Export Promotion

  • Basic customs duty has been reduced from 10% to 5% on unworked or simply prepared corals.

  • Basic customs duty has been reduced on rough cubic zirconia from 5% to Nil and on cubic zirconia (polished) from 10% to 5%.

  • Basic customs duty on tuna bait has been reduced from 30% to Nil.

  • Basic customs duty on specified machinery for manufacture of sports goods for export has been reduced from 7.5% to 5% subject to specified conditions.

  • Basic customs duty has been reduced from 10% to Nil on specified raw materials for manufacture of sports goods for exports. The exemption would be available only upto 3% of FOB value of exports made by the importer in the preceding year and would be subject to certification by the Sports Goods Export Promotion Council.

Dairy/Poultry

Basic customs duty has been reduced from 7.5% to Nil on bactofuges and from 30% to 20% on feed additives/pre-mixes.

IT/Electronic industry

  • A concessional duty of 5% (basic) is already available to certain electronic products such as MP3 and MPEG4 players. This concession has now been extended to "convergence products" i.e. MP3/ MP4 and MPEG player having audio and video reception facility.

  • Similarly, full exemption from basic customs duty is available to a large number of raw materials/ inputs for manufacture of specified electronic/ IT products to provide a level playing field to the domestic manufacturers of such products. This concession is now being extended to more raw materials and inputs.

  • Set-top boxes are fully exempt from basic customs duty. Specified parts for the manufacture of set-top boxes are also exempt from customs duty, on end-use basis. Two more items viz. SMPS power board and IR module have been added to the list of exempted parts.

Drugs and diagnostic kits

  • Basic customs duty on six specified drugs/kits, and bulk drugs for their manufacture, has been reduced from 10% to 5% with Nil CVD by way of excise duty exemption. These drugs are used in the treatment of cancer/diabetes/asthma/Hepatitis B etc.

  • Specified raw materials and components for the manufacture of ELISA kits enjoy a concessional duty of 5% (basic). The coverage of the list has been expanded to include four more items.

Metals

Basic customs duty on iron or steel melting scrap and aluminium scrap has been reduced from 5% to Nil. Vigil may kindly be maintained to prevent any misuse of these exemptions.

NCCD

  • National Calamity Contingent duty of 1% currently leviable on Polyester filament yarn has been withdrawn.

  • NCCD of 1% has been imposed on mobile phones. For this purpose, the relevant Schedule of the Finance Act, 2001 has been amended. On imported mobile phones this duty shall be collected as additional duty of customs under section 3(1) of the Customs Tariff Act.

Other relief measures

  • Basic customs duty on specified raw materials for tyre industry has been reduced from 10% to 5%.

  • 25.2 Basic customs duty on helicopter simulators has been reduced from 10% to Nil.

Tobacco products

Basic customs duty on cigars, cheroots and cigarillos has been increased from 30% to 60%.

4% Additional Duty of Customs

Exemption from additional duty of customs of 4% levied under section 3(5) of Customs Tariff Act, 1975 has been withdrawn from power generation projects (other than mega power projects), transmission, sub-transmission and distribution projects, and specified goods for high voltage transmission projects.

Electricity

Tariff rate of Rs.2000 per 1000 kWh has been prescribed on ‘electrical energy’. However, the effective rate will continue to be Nil by notification.

Miscellaneous

  • Temporary imports of capital goods/ equipment for use in the execution of contracts in India can avail of concession under two different provisions- drawback under section 74 (2) of the Customs Act or exemption under notification no.27/2002-Customs dated 1.3.2002. In the first case, the importer pays normal duty at the time of import and claims drawback at the time of re-export. In the other case, he pays a concessional rate of duty at the time of import. However, the admissible period of retention of equipment and the extent of exemption under these schemes have been at variance. The two provisions have now been aligned in the following manner:

  1. The period for re-export of leased equipment and machinery, imported for temporary use in contracts under notification no. 27/2002-Customs dated 1.3.2002 has been increased from 12 months to 18 months. Simultaneously, the period of retention prescribed under notification no.19/65-Customs dated 6.2.1965 has been reduced (for all goods covered by S.No.1 of the notification) from 36 months to 18 months.

  2. The slab rates of duty under both the provisions have now been prescribed on a quarterly basis. Earlier, the rates under notification no.27/2002 were prescribed on half-yearly basis.

  3. The rates have also been aligned with the rates of drawback admissible under section 74(2) of the Customs Act, 1962, depending on the period of retention of the goods in India. No drawback will be admissible when goods for which the benefit of notification no.27/2002-Customs has been claimed, are re-exported.

  • Concessional customs duty of 5% provided on polymer long rod insulators has been restricted to polymer long rod insulators of 765 KV rating only.

  • Basic customs duty and CVD on 0.177 calibre airguns have been exempted. Consequently, 4% special additional duty of customs shall also be exempted on these airguns.

  • Sl. No. 349 of Notification No. 21/2002-Customs dated 1.3.2002 exempts specified goods imported for the launch of satellites and payloads into outer space by the Department of Space. The description of the goods covered by the exemption has been amended to add ‘ground equipment brought for testing’. A condition has also been inserted to prescribe that such goods would be re-exported.

  • Sl. No. 347 of notification No. 21/2002-Customs dated 1.3.2002 provides exemption to aircrafts imported by Aero Club of India, or by a flying training institute. Inadvertently, the condition No. indicated in the notification as 103, which is also the condition No. provided for entry No. 77A of the notification. This has now been rectified by renumbering the said condition as ‘103A’.

Other amendments in Customs Act and Central Excise Act

[To come into effect on enactment of Finance Bill, 2008, unless otherwise specified]

  1. Section 2 of the Central Excise Act, 1944 is being amended to insert an explanation n clause (d) to provide that for the purposes of this clause, "goods" include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.

  2. Section 3A is being inserted in the Central Excise Act, 1944 empowering the Central Government to charge excise duty on the basis of capacity of production in respect of notified goods, and to notify the procedure for the same.

  3. Section 11B of the Central Excise Act, 1944 is being amended, to provide for the refund of interest paid on any duty of excise.

  4. According to the provisions of Section 11D of the Central Excise Act, 1944, a person liable to pay duty is required to deposit with the Central Government any amount that he collects as representing duty of excise in excess of the duty assessed or determined and paid on any excisable goods. As such, recovery of amounts collected in this manner is possible only from persons who are liable to pay duty. Sub-section (1A) has now been inserted to enable the Central Government to recover such amounts from any person. Besides, it has also been provided that any person who recovers an amount representing it as duty of excise on excisable goods, which are wholly exempt or chargeable to Nil rate of duty, would also be required to deposit it with the Central Government. Consequential amendments have been carried out in section 11 DD to enable recovery of interest on such amounts if they are not deposited in time. The analogous provision contained in section 28 B of the Customs Act has also been amended in the same manner.

  5. Orders passed in appeal by Commissioner (Appeals) are currently examined by a Committee consisting of two Commissioners of Central Excise under section 35B of the Central Excise Act, 1944. This provision does not cover a situation where there is a difference of opinion between the two Commissioners about the filing of appeal against the appellate order. It is now being provided that the Committee would refer such cases to the jurisdictional Chief Commissioner specifying the points of difference so that he may decide whether or not to accept the appellate order. A similar amendment has been carried out in section 129A of the Customs Act.

  6. Orders passed in appeal by a Commissioner of Central Excise are currently reviewed by a Committee consisting of two Chief Commissioners of Central Excise under section 35E of the Central Excise Act, 1944. This provision does not cover a situation where there is a difference of opinion between the two Chief Commissioners about the filing of appeal against the order in original. It is now being provided that the Committee would refer such cases to the Board specifying the points of difference so that the Board may decide whether or not to appeal against the order to the Tribunal. A similar amendment has been carried out in section 129D of the Customs Act.

  7. Section 35FF is being inserted in the Central Excise Act, 1944 to provide for payment of interest on pre-deposits made by appellants who succeed in appeal, if the amount of pre-deposit is not refunded within three months from the date of communication of the order of the appellate authority to the adjudicating authority. A similar provision (Section 129 EE) is being inserted in the Customs Act, 1962.

  8. Note 16 of Chapter 39 to the Central Excise Tariff Act, 1985 is being amended to specify that the process of lamination or of lacquering shall also amount to manufacture in addition to the process of metallization.

  9. Section 108 of the Customs Act, 1962 is being amended to give all customs officers powers to issue summons.

  10. Section 117 of the Customs Act, 1962 is being amended to increase the maximum amount of penalty from the existing ten thousand rupees to one lakh rupees.

  11. Section 141 of the Customs Act, 1962 is being amended to regulate the manner in which the imported or export goods may be received, stored, delivered, dispatched or otherwise handled in a customs area by any person and to specify by regulations the responsibilities of person engaged in the aforesaid activities.

  12. Section 158 of the Customs Act, 1962 is being amended to increase the maximum amount of penalty from five hundred rupees to fifty thousand rupees for contravention of any of the rules, and from two hundred rupees to fifty thousand rupees for contravention of regulations.

Amendment in Rules

  1. Rule 18 of the Central Excise (No.2) Rules, 2001 is being amended to allow with retrospective effect, rebate of duty paid on excisable goods cleared from the factory for exports.

  2. Rule 12 of the Central Excise Rules, 1944 is being amended to allow with retrospective effect, rebate of duty paid on excisable goods cleared from the factory for exports.

  3. Rule 18 of the Central Excise Rules, 2002 is being amended to allow with retrospective effect, rebate of duty paid on excisable goods cleared from the factory for exports.

  4. The CENVAT Credit Rules, 2004 are being amended to bring in the following significant changes:

  1. Rule 3 [except sub-rule (4)] is being amended to allow removal of capital goods outside the premises of the provider of the output service without any time restriction, if the same is for providing output service. This change shall come into effect from 1st April, 2008.

  2. Sub-rule (4) of Rule 3 is being amended to provide that in case of National Calamity Contingent duty (NCCD) payable on mobile phones, credit of any duty of excise other than NCCD will not be utilized for payment of the said NCCD. This change shall come into effect from 1st March, 2008.

  3. Rule 6 is being amended to provide,-

Following options to a manufacturer, using common inputs or input services for manufacture of dutiable as well as exempted goods and opting not to maintain separate accounts. Such manufacturers can:

  • either reverse the credit attributable (to be worked out in a manner prescribed in the rule) to the inputs and input services used in the manufacture of exempted goods; or

  • pay 10% amount of the value (to be determined in accordance with the provision of section 4/4A of the Central Excise Act, 1944) of the exempted goods.

Following options to a provider of output services, using common inputs or input services for providing taxable as well as exempted services and opting not to maintain separate accounts. Such provider of output services can,-

  • either reverse the credit attributable (to be worked out in a manner prescribed in the rule) to the inputs and input services used for providing exempted service; or

  • pay 8% amount of the value (determined in terms of section 67 of the Finance Act, 1994) of the exempted services.

This change shall come into effect from 1st April, 2008.

iv) A new rule 7A is being inserted to prescribe a procedure to enable the provider of output services to take credit on inputs and capital goods on the basis of an invoice/challan/bill issued by its other office. This change shall come into effect from 1st April, 2008.

v) A new rule 15A is being inserted to provide for general penalty upto Rs.5000/- in case of contravention of any of the provisions of the CENVAT Rules, 2004, for which no specific penal provision exists.

This change shall come into effect from 1st March, 2008.

e) The Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules,

2008 are being issued under section 4A(4) of the Central Excise Act, 1944 to provide the manner for determination of retail sale price, where the same is not declared on the packages or tampered or altered or obliterated. This change shall come into effect from 1st March, 2008.

CENTRAL EXCISE

General CENVAT Rate

The general rate of excise duty (CENVAT) has been reduced from 16% to 14%. This reduction applies to all goods that hitherto attracted this general rate of 16%. In some cases, a deeper reduction has been made. The other ad valorem rates of 24%, 12% and 8% have been retained.

Drugs and Pharmaceuticals

Excise duty on drugs and pharmaceuticals falling under Heading Nos. 3001, 3003 (except Menthol crystals), 3004, 3005 and 3006 (except 3006 60 and 3006 92 00) has been reduced from 16% to 8%. Thus, the general effective rate for all goods of Chapter 30 is now 8%. Specified items such as life saving drugs continue to be fully exempt. Excise duty has been fully exempted on Anti-AIDS drug ATAZANAVIR, and bulk drugs for its manufacture.

Automobiles

  • Excise duty on Small cars has been reduced from 16% to 12%. There is no change in the definition of small cars. Large cars will continue to attract duty at 24%. A concessional rate of duty of 14% has been provided for "Hybrid cars" driven by a combination of an internal combustion engine and an electric motor.

  • Full exemption has now been provided to Electric cars. Specified parts of electric cars have also been fully exempted on end-use basis.

  • Excise duty on buses and vehicles for the transport of more than 13 persons has been reduced from 16% to 12%. Simultaneously, the duty on the chassis of such vehicles has also been brought down from ‘16% + Rs.10,000-’ to ‘12% +Rs.10,000.’

  • There is also a reduction in the excise duty on two-wheelers and three-wheelers (for the transport of upto 7 persons) from 16% to 12%.

Food Processing Sector

  • Full exemption from excise duty has been provided to some more food products viz. tender coconut water; Paws, mudi (puffed rice) and the like; milk containing edible nuts and other ingredients; and Tea/ coffee pre-mixes containing tea/ coffee, milk and sugar.

  • On a few more food items - muesli, corn flakes & similar breakfast cereals; and ‘sharbats’, a concessional rate of duty of 8% has been provided.

  • On specified packaging material used mainly for packaging of processed foods, the rate of duty has been reduced from 16% to 8%. These items are: Open Top Sanitary (OTS) cans, aseptic packaging paper and aseptic bags.

Information Technology & Communication sector

  • Packaged software hitherto attracted excise duty of 8%. This has been enhanced to 12%. There is no change in the excise duty on other software. Excise duty has been fully exempted on Wireless data modem cards. Consequently, CVD shall also be exempted on imported cards. However, 4% additional duty of customs will be applicable.

  • Specified convergence products viz. MP3/ MP4/ MPEG4 player having video and audio reception facility have been provided a concessional excise duty of 8%.

Paper and Paper products

  • Excise duty on writing paper, printing paper and packing paper falling under heading nos. 4802, 4804, 4805, 4807, 4808 and 4810 has been reduced from 12% to 8%.

  • Excise duty has been fully exempted on paper and paper products, manufactured from non-conventional raw materials, upto first clearance of 3500 metric tonne in a year from a unit.

  • Excise duty on paper and paper products, manufactured from non-conventional raw materials, beyond clearance of 3500 metric tonne per year from a unit (not having an attached bamboo/wood pulp plant) has been reduced from 12% to 8%.

Cement

  • Excise duty has been revised on bulk cement from Rs.400 per tonne to " 14% or Rs. 400 per tonne, whichever is higher". However, there is no change in the rates of duty applicable to cement manufactured and cleared in bulk by mini-cement plants.

  • Excise duty has been increased on cement clinkers from Rs.350 per tonne to Rs. 450 per tonne.

Petroleum

  • The duty rates on MS/HSD intended for sale without a brand name have been converted from ‘ad valorem + specific rate’ to pure ‘specific rate’ as under:

Description From To

Motor Spirit 6%+Rs.13 per litre Rs.14.35 per litre HSD 6%+Rs.3.25 per litre Rs.4.60 per litre

  • The duty rates on branded fuels would continue to attract the present ad valorem cum specific rates i.e. as under:

  1. Motor Spirit: 6%+Rs.13 per litre

  2. HSD: 6% + Rs. 3.25 per litre

NCCD: (Clause 117 of the Finance Bill, 2008)

  • National Calamity Contingent duty (NCCD) at the rate of 1% has been imposed on mobile phones. The CENVAT Credit Rules have been amended to provide that input or capital goods credit of other duties of excise cannot be utilized for the payment of this NCCD.

  • NCCD of 1% hitherto leviable on Polyester filament yarn has been withdrawn.

Export Oriented Units

The effective rate of duty applicable to clearances of goods to domestic tariff area from export oriented units, software technology parks, electronic hardware technology parks etc. has been revised from ‘25% of the basic customs duty + excise duty payable on like goods’ to ‘50% of the basic customs duty + excise duty payable on like goods’.

SSI Exemption

General SSI exemption has been extended to HDPE/ PP tapes consumed captively in the manufacture of sacks/ bags. This change will come into effect from 1st April, 2008.

Miscellaneous

  • Excise duty exemption on "shuttle-less looms" has been withdrawn. These goods will now attract 8% excise duty/CVD.

  • Consequent upon reduction of excise duty rates, abatement rates allowed from maximum retail sales price for various items have been suitably reduced. [notification No.14/2008-CE (NT) refers].

  • Notification No. 108/95-CE dated 28.08.1995 exempts, among other things, goods supplied to projects funded by the U.N. or other international organizations subject to the fulfillment of certain conditions. For the removal of doubts, an explanation has been inserted in the notification to clarify that the benefit is available to goods brought into a project that are not withdrawn by the supplier or the contractor. The intention is to clarify that the exemption is not available to goods brought for temporary use in a project. It has also been provided that the expression "goods are required for the execution of the project" shall be construed accordingly.

  • Notification No. 49/2003-CE dated 10.6.2003 provides exemption to specified goods manufactured by new units or units undertaking substantial expansion in the State of Uttarakhand or Himachal Pradesh. The goods or activities to which this exemption is applicable are specified in the schedule. Entry at Sl. No. 13 of the schedule has been amended so as to provide exemption to printers and monitors capable of connecting to a computer or network.

  • Some editorial changes have been carried out in the First Schedule to the Central Excise Tariff Act through a notification issued under section 5 (1) of the said Act. The details are as under:

  1. Section 2(f) (iii) of Central Excise Act contains definition of "deemed manufacture". Similarly, the Notes in some of the chapters of the Tariff also define certain processes as amounting to "manufacture". In respect of the processes of labeling and relabelling and packing/repacking, the definitions in the chapter notes are not aligned with the definition contained in Section 2(f) (iii). The chapter notes have been amended suitably.

  2. The First Schedule of the Central Excise Tariff Act has been amended so as to align entries related to parts and accessories of printers falling under heading 8443 of the Excise Tariff with the corresponding entries in the Schedule to the Customs Tariff.

  • Sl. No. 7 of Notification No. 64/95-CE dated 16.3.1995 provides exemption to goods meant for use in the launch vehicle project or a satellite project of ISRO.

Inadvertently, the description of goods in Col. 2 was printed under Col. 3 pertaining to conditions. This has now been rectified.

Other Concessions

  • Excise duty has been fully exempted on composting machines and menthol/menthol crystals.

  • Excise duty has been reduced from 16% to 8% on water filtration and purification devices, veneers & flush doors, heat resistant rubber tension tape and inks for writing instruments such as marker pens, highlighters, magic pens etc.

  • Excise duty on pan masala, not containing tobacco, with betel nut content not more than 15%, has been reduced from 16% to 8%. It has also been exempted from National Calamity Contingent Duty.

SERVICE TAX

Increase in Threshold Exemption Limit for small service providers

  • The annual threshold limit of service tax exemption for small service providers is being increased from Rs.8 lakh to Rs.10 lakh by amending notification No.6/2005-Service Tax, dated 01.03.05 vide notification No.8/2008-Service Tax, dated 01.03.08. Amendment shall come into effect from 01.04.2008.

  • Consequent upon the increase in the threshold exemption limit from Rs.8 lakh to Rs.10 lakh, the annual turnover limit for obtaining service tax registration shall also be increased from Rs.7 lakh to Rs.9 lakh by amending notification Nos.26/2005-Service Tax and No.27/2005-Service Tax, both dated 07.06.05 vide notification Nos. 9/2008-ST and 10/2008-ST, both dated 01.03.08 respectively. Amendments shall come into effect from 01.04.2008. Increased threshold limit of Rs.10 lakh shall be applicable to small service providers for the financial year 2008-09 onwards.

Following Services are specifically included in the list of Taxable Services

  1. Services provided in relation to information technology (IT) software for use in the course, or furtherance, of business or commerce [section 65(105)(zzzze) refers];

  2. Services provided in relation to management of investment, known as segregated fund, under unit linked life insurance business, commonly known as Unit Linked Insurance Plan (ULIP) scheme [section 65(105)(zzzzf) refers];

  3. Services provided by a recognised stock exchange in relation to securities [section 65(105)(zzzzg) refers];

  4. Services provided by a recognised association or a registered association (commodity exchange) in relation to sale or purchase of any goods or forward contracts [section 65(105)(zzzzh) refers];

  5. Services provided by a processing and clearinghouse in relation to processing, clearing and settlement of transactions in securities, goods or forward contracts [section 65(105)(zzzzi) refers];

  6. Services provided in relation to supply of tangible goods, without transferring right of possession and effective control of said tangible goods [section 65(105)(zzzzj) refers]; and

  7. Services provided in relation to internet telecommunication [section 65(105)(zzzu) refers]. Services provided in relation to internet telephony has been covered within the scope of the proposed service. Hence internet telephony service shall be omitted.

Information Technology Software Services

Information Technology (IT) software service includes,-

  • Development (study, analysis, design and programming) of software.

  • Adaptation, up-gradation, enhancement, implementation and other similar services in relation to IT software.

  • Provision of advice and assistance on matters related to IT software, including:

- Conducting feasibility studies on the implementation of a system,

- Providing specifications for a database design,

- Providing guidance and assistance during the start-up phase of a new system,

- Providing specifications to secure a database,

- Providing advice on proprietary IT software.

  • Acquiring the right to use,-

- IT software for commercial exploitation including right to reproduce, distribute and sell,

- software components for the creation of and inclusion in other IT software products,

- IT software supplied electronically.

  • Software consists of carrier medium such as CD, Floppy and coded data. Softwares are categorized as "normal software" and "specific software". Normalised software is mass market product generally available in ackaged form off the shelf in retail outlets. Specific software is tailored to the specific requirement of the customer and is known as customized software.

  • Packaged software sold off the shelf, being treated as goods, is leviable to excise duty @ 8%. In this budget, it has been increased from 8% to 12% vide notification No. 12/2008-CE dated 01.03.2008. Number of IT services and IT enabled services (ITeS) are already leviable to service tax under various taxable services:

- Consulting engineer’s service - advice, consultancy or technical assistance in the discipline of hardware engineering [section 65(105)(g)].

- Management or business consultant’s service - procurement and management of information technology resources [section 65(65)].

- Management, maintenance or repair service - maintenance of software, both packaged and customized and hardware [section 65(64)].

- Banking and other financial services - ‘provision and transfer of information and data processing’ [section 65(12)].

- Business support service - various outsourced IT and IT enabled services [section 65(105)(zzzq)].

- Business auxiliary service - services provided on behalf of the client such as call centres [section 65(19)].

  • IT software services provided for use in business or commerce are covered under the scope of the proposed service. Said services provided for use, other than in business or commerce, such as services provided to individuals for personal use, continue to be outside the scope of service tax levy. Service tax paid shall be available as input credit under Cenvat credit Scheme.

  • Software and upgrades of software are also supplied electronically, known as digital delivery. Taxation is to be neutral and should not depend on forms of delivery. Such supply of IT software electronically shall be covered within the scope of the proposed service.

  • With the proposed levy on IT software services, information technology related services will get covered comprehensively.

Scope of specified Taxable Services is being amended as follows:

Foreign Exchange Broker Service

  • Foreign Exchange (Forex) broking service is leviable to service tax. Foreign exchange brokers provide services as an intermediary in relation to purchase or sale of foreign currency on a commission/brokerage basis. Purchase or sale of foreign currency is undertaken by foreign exchange broker and also by persons authorised under Foreign Exchange Management Act, 1999 to deal in foreign exchange and having licence issued by RBI. Such authorised persons are known as money changers or authorised dealers of foreign exchange. Services in relation to purchase or sale of foreign currency is, therefore, provided by foreign exchange broker, money changer and also authorised dealer of foreign exchange.

  • Foreign exchange broker indicates the consideration for the services provided (commission) explicitly. Whereas money changers/authorised dealers of foreign exchange providing same services may not necessarily indicate the consideration explicitly.

  • Section 65(12) is being amended so as to levy service tax on purchase or sale of foreign currency, including money changing, provided by an authorized dealer in foreign currency or an authorised money changer, in addition to a foreign exchange broker. An explanation is being added to the effect that explicit mention of the consideration for the services provided in relation to purchase or sale of foreign currency is not relevant for the purpose of levy of service tax. Taxable services [sections 65(105)(zzk) and 65(105)(zm)] are being amended suitably. With these amendments, services provided in relation to purchase or sale of foreign currency by a foreign exchange broker, money changer and authorised dealer of foreign exchange shall also be leviable to service tax.

  • To enable determination of taxable value, where the consideration for the services provided in relation to purchase or sale of foreign currency is not explicitly indicated by the service provider, a method under rule 6(7B) of the Service Tax Rules, 1994 shall be prescribed. As per this provision, the service provider has the option to pay service tax calculated at the rate of 0.25% of the gross amount of currency exchanged.

Illustration:

Buying rate: US$ 1 = Rs.38 Selling rate : US$ 1 = Rs.40

(i) Purchase of US$ 100 by the service provider: Gross amount of currency exchanged in rupees = Rs.3800 (Rs.38 x 100)

Service tax payable = Rs.9.5 (0.25% x 3800)

(ii) Sale of US$ 100 by the service provider: Gross amount of currency exchanged in rupees = Rs.4000 (Rs.40 x 100)

Service tax payable = Rs.10 (0.25% x 4000)

Cargo Handling Service

  • Cargo handling service does not cover mere transportation of goods. Mere transportation of goods by road is covered under ‘Goods transport agency service’. Service providers, commonly known as packers and movers provide services of packing together with transportation, with or without other services like unpacking, loading, unloading etc. Such composite services, at present, are classifiable under cargo handling service or goods transport agency service depending upon their essential or predominant character of the services provided.

  • Section 65(23) which defines cargo handling service is being amended so as to include services of packing together with transportation of cargo or goods, with or without one or more other services like loading, unloading, unpacking, under cargo handling service. With this amendment, packing with transportation will be classifiable under cargo handling service only.

Tour Operator Service

  • l Services provided in relation to a journey from one place to another in a tourist vehicle having contract carriage permit is leviable to service tax under tour operator service. Tour in a vehicle covered by the following categories of permits granted under the Motor Vehicles Act (MVA), 1988 and rules made thereunder are clearly leviable to service tax under tour operator service:

  1. Contract Carriage permit granted under section 74 of the MVA, 1988 and authorisation certificate issued under Motor Vehicles (All India Permit for Tourist Transport Operators) Rules, 1993; and

  2. Permit granted under section 88(9) in accordance with the provisions of section 74 of the MVA, 1988 in respect of tourist vehicles, for the purpose of promoting tourism.

  • Since the permits under the above two categories are granted only for tourist vehicle, service tax is leviable if the tour is provided in the above categories of vehicles. Field formations may verify the nature of permits issued to the vehicles from the transport authorities and collect service tax from vehicles having the above two types of permits.

  • Section 65(115) defining tour operator is being amended so as to include services provided in relation to a journey from one place to another, generally known as point-to-point tour, in a vehicle having contract carriage permit, even if the vehicle does not meet the criteria specified for tourist vehicles. With this amendment, journey from one place to another conducted in a vehicle having contract carriage permit shall be leviable to service tax under tour operator service. Service tax is not leviable under tour operator service only if the tour is conducted in a vehicle having stage carriage permit. Field formations may collect data from transport authorities regarding details of contract carriage permits issued.

  • It may be noted that services provided in relation to a journey from one place to another conducted in a tourist vehicle having contract carriage permit for use by educational bodies shall be excluded from the scope of the taxable service. Educational bodies do not include commercial training or coaching centres.

Business Auxiliary Service

  • Services provided in relation to promotion or marketing of service provided by the client is leviable to service tax under business auxiliary service.

  • To clarify as removal of doubts, an explanation is added under business auxiliary service stating that services provided in relation to promotion or marketing of games of chance organized, conducted or promoted by the client are covered under the existing definition of business auxiliary service. Amendment is only for removal of doubts and field formations are, therefore, requested to ensure that service tax is collected on such services.

Renting of Immovable Property Service

To clarify by way of removal of doubts that renting of immovable property service includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the immovable property. Field formations may ensure that service tax is collected in all such cases.

Exemption from Levy of Service Tax

  • Taxable service provided by a person located outside India, in relation to booking of an accommodation in a hotel located in India for a customer located outside India, is being exempted from levy of service tax (Notification No.14/2008- ST dated 01.03.2008).

  • In the case of services provided for the transport of goods by road in a goods carriage, service tax is required to be paid by certain categories of persons who pay the freight instead of the service provider namely Goods Transport Agency. The actual amount of service tax payable is 25% of the amount of freight i.e. 75% of the amount of freight is provided as abatement, subject to the condition that no Cenvat credit of the duty paid has been availed of under Cenvat Credit Scheme. It has been represented that fulfillment of the condition of non-availment of Cenvat credit by the service provider is, at times, difficult to prove, when the service tax is required to be paid not by the service provider but by the consignor or consignee who pays the freight. Taking into account the special nature of the goods transport agency (GTA) service, it is being exempted from the payment of service tax unconditionally to the extent of 75% of the freight. In other words, service tax is required to be paid only on 25% of the freight irrespective of who pays the service tax. Simultaneously, the benefit of Cenvat credit has been withdrawn to GTA service under Cenvat Credit scheme by deleting the said service from the scope of output service in the CENVAT Credit Rules, 2004. Henceforth, the person who is required to pay service tax under reverse charge method on GTA service can pay service tax on 25% of the freight unconditionally. Recipient of GTA service paying service tax under reverse charge method is no more required to prove non availment of CENVAT credit by the GTA service provider.

The above exemptions shall come into effect from 1st March, 2008.

PENALTY

  • Section 78 is being amended so as to provide that penalty for failure to pay service tax under section 76 shall not apply where penalty is leviable under section 78.

  • Section 77 is being amended so as to provide specific penalty for specific contraventions.

 

Federation of Indian Export Organisations
New Delhi, INDIA.