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Tax proposals: figuring out the fine print Some select services included in tax net, but their simplicity may be misleading TR Rustagi   The finance minister’s Budget speech puts an end to the much publicised hype about the Budget. The FM’s speech outlines the salient features of the tax proposals. But by no means can it be exhaustive enough to explain all that is there in the fine print. In the area of indirect taxes, the reduction in the peak rate of customs duty to 15% for industrial goods is no surprise. However, in quite a number of cases, the duty rate has been reduced to a much lower rate of 10% or even 5%. Even though opinion may differ on individual items, the approach finds its legitimacy in reducing the cost of production for the concerned section of the domestic industry. The imposition of additional duty to counterbalance sales tax, value-added tax, local tax or any other charges is an improved version of the special additional duty that earned the sobriquet ‘SAD’. The Cenvatable character of the new duty marks the essential difference between the two, though service providers may lament that they are denied the credit of the new levy. Also, for the present, it is confined to certain IT and IT-related products. On the excise side, the rate of 16% continues to maintain its supremacy as the Cenvat rate. The fine print indicates that those who part company can never be sure of retaining their own identity. An illustration. For many years, tractors were exempt from excise duty. Then 8% duty was imposed. In due course, it was hiked to the full rate of 16%. Then, it was again exempted. It has now completed the circle by coming back to the original position. But such an example need not deter the hopefuls. Excise duty was imposed on refined edible oils only recently. Now it has been given the go- by. Excise duty on a few items, like cakes and pastries, has been fixed at 8%. Those who dream of 16% as the single rate have to wait. But they have no reason to feel frustrated. Has not the finance minister shown way to the incorrigibles—tyres, air-conditioners and polyester filament yarn—who, for long, refused to part company from the special excise duty? The MRP based system has proved itself as the fitting answer to the obnoxious problem of determining value for assessment of goods for excise duty. The industry welcomed its birth and growth wholeheartedly. It saw great virtue in it, but never felt confident of its temperament. For them, the announcement of an advisory committee to advise on the extent of abatement from the retail price has removed this irritant. Comprehensive coverage of services, as recommended by many expert committees, is still far away. As in the previous Budgets, some select services have been added to the tax net. Some of the newcomers may pretend to impress with their simplicity, but this may be misleading. For instance, “Commercial or industrial construction service” is not confined to construction of buildings. It also covers services such as glazing, plastering, painting, floor and wall tiling, wall and wallpaper covering, etc. And no one should grudge if a hair-cutting saloon charges service tax on hair-cutting. It has the finance minster’s mandate to do so. • Reduction in peak rate of customs duty for industrial goods not surprising • The wait continues for those who want a single rate of excise duty • Important procedural change made to reduce the number of frivolous disputes Many would find the exemption upto Rs 4 lakh tempting. But it disappoints those who provide more than one service, or operate from more than one premises. In their case, the aggregate value would be taken into account to compute the eligibility limit of Rs 4 lakh. Those who take pride in their brand or trade name should hold their breath. They are not eligible for exemption. Those who are obliged to pay service tax as recipient would also curse their fate. While the exemption provides relief to the genuinely small service providers, evaders may use the exemption limit as a legal protection. The finance minister has said, “According to my calculations, 80% of the present service tax payers will gain from the exemption.” What is equally true is that it would render many of the existing services as only those of academic interest. The revenue from these services would simply vanish. An important change which deserves to be taken note of is that the service providers are now required to issue invoices within 14 days of the date of completion of provision of, or receipt of payment, whichever is earlier. Also, they now have to pay the tax within five days of the end of the month/quarter. This has put them at par with excise assessees. Till now, they enjoyed a 25 day facility. It’s never too late for the finance ministry to realise that old is gold. Last year, the new services were proposed to be made effective from the date of enactment of the Finance Bill. This was the sole exception since the introduction of service tax. What happened in the case of goods transport service is well-known. Now, the old practice has been restored. The fine print also reveals an important procedural change. The commissioner (appeals) decides appeals against orders passed by officers below his rank. However, the executive commissioner can ask for its review by the tribunal. Henceforth, a committee comprising two chief commissioners will sit in judgment to decide whether an order passed by commissioner (appeals) needs to be ‘disturbed’. This will, undoubtedly, enhance the prestige and boost the sagging morale of the commissioner (appeals) and reduce proliferation of frivolous disputes. Last but not the least, the Finance Bill contains a number of proposals to be implemented with retrospective effect. Notably, the Cenvat credit of the additional duty of excise in lieu of sale tax used for payment of basic duty is sought to be recovered with interest. The writer is former chief commissioner, central excise

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