In this backdrop, the vote-on-account exercise has merely tinkered with the rate of excise duty for specific sets of commodities. While the theme and thrust of these amendments have been positioned as providing succour to the manufacturing sector, it is pertinent to note that the reduction in rate is effective only up to June 30, 2014, in many cases. Key beneficiaries of the excise duty reductions provided by the interim budget include the automobile, construction equipment, consumer goods and mobile phones industries.
A key beneficiary of the rate reduction appears to be the automobile industry, which, after consistently witnessing increasing rates of duties has been gifted with a reduction in the rate across product categories as under:
In addition to the same, there has been a marginal reduction in the rate of duty (from 12% to 10%) on various capital goods specified under Chapters 84 and 85 of the central excise tariff which lists various types of plant and machinery including consumer durables and electronics.
With this, the general expectation is that the prices of most consumer durables/electronics as well as passenger vehicle prices should come down in the next few days/weeks. However, a key factor to be considered is that, the stock already cleared from the factory and available at dealerships and sales outlet would have already suffered the higher duty rate. Unless the differential duty is borne by the manufacturer, a reduction in price seems unlikely. Whether, the benefits of the lower rate will even percolate down to the consumer by June 30 (upto which the reduced rate applies) remains to be seen. A lot will depend upon the stock on hand vis--vis supply chain efficiency of these sectors. Specifically, for the auto sector, the reduction in rate to 8% for small cars and bikes may not be a real boon as it is likely to increase the inverted duty structure and accentuate potential excess credit situation. In summary, whether these announcements would provide these sectors with the required succour remains to be seen.
On the other hand, a key and standout beneficiary is likely to be mobile handset manufacturers who can now effectively manufacture goods at 1-2% as against a trader who is likely to import at 6%. Similarly, for encouraging domestic production of road construction machinery, exemption from levy of countervailing duty on such imported machinery has been taken away. As regards the services sector, the persistent efforts of rice-producing states in ensuring service tax exemption for storage, warehousing and related activities for rice has been heeded to. On the other hand, differential treatment and rate arbitrage on software continues with the CVD rate on software on a media coming down to 10% and service tax on electronic supplies is being maintained at 12%. However, the criteria for selection of specific industries and sectors for grant of benefits is not clear.
Evidently, while this vote-on-account proposal has been marketed as a populist measure, its efficacy as well as benefits appear moot and remain to be validated in the months to come.
Sadly, albeit expectedly, there was no commitment to a GST implementation date other than a plea from the finance minister for co-operation across political parties to ensure the regime is implemented. GST which has been heralded as a cure to many of the malaise afflicting the current indirect tax system appears to be a distant dream.
The changes and reforms in indirect taxes possibly peaked in the year 2012 which saw a complete overhaul in the taxation of services, with 2013 being a year of minimal changes and overall consolidation of indirect tax laws. This vote-on-account exercise with minimal changes leaves us with great anticipation of changes and reforms in store when the detailed budget exercise is carried out by the new government post general elections. Till then, possibly for most industries, no news is good news
With inputs from Jayashree P, director, BMR & Associates LLP
The author is leader, Indirect Tax, BMR& Associates LLP.
Views are personal