– By Shashi Mathews and Rajitha Nair
With a historic seventh Budget presentation, all eyes were on the FM to lay the tracks for the Indian growth engine to navigate the next five years, if not the next decade. On the investment and capex side, the outlay has been quite wide with a focus on job creation and infrastructure upgrade. The announcement on setting up of industrial parks around 100 cities, upskilling of youth, internships, stipend, one month salary for first time employees are all keeping in mind the youth of the country and focussing on the professionals entering the workforce.
Another manufacturing push?
As has been the case for the last decade, manufacturing is the word of the day and therefore, a lot of the indirect tax proposals on the Customs side have been to support the manufacturing sector and create new opportunities and avenues for widening the same. The Finance Minister announced a comprehensive review of customs duty structure which will be done over a period of next six months to rationalize and simplify the rate structure for ease of trade, removal of duty inversion and reduction of disputes. A similar announcement was also made after the 53rd GST Council Meeting. With this intention and objective, rate rationalisation will have a significant impact across various industries like electronics, gems and jewellery etc. While this is a welcome initiative, it is incumbent on the trade and industry associations to represent their concerns in respect of rate disputes/duty inversion so as to avail the benefit of such a measure proposed vide this Finance Bill. However, one may also note that the reduced income tax rates of 15% for new manufacturing units which existed till 31.03.2024 has lapsed and has not been extended, which is a dampener.
Further, in line with the Governments objective of bolstering nation’s renewable energy sector, exemption of basic customs duty is extended to capital goods used in the manufacturing of solar panels and solar cells. Components used for the manufacture of PV cells and PV modules which are major items used by the solar power generation industry are set to become cheaper with the duty exemptions. While the import of batteries, as such, for EVs are not going to be exempted post 30th September, the exemption on lithium ion cells for the manufacture of battery and packs continue for another 2 years. This is a pivotal step to encourage indigenous manufacturers by reducing their dependency on import and at the same time augment the Government’s “Make in India” initiative. Similar exemptions and concessions are going to be a boost for medical devices, marine products, chemicals, petrochemicals and telecom equipment where basic customs duties have been tweaked to incentivise local manufacturing.
A GST surprise
The Budget, insofar, as GST is concerned was expected to be a follow up of the last Council meeting to ratify its recommendations. However, the proposed amendments limiting the applicability of Sections 73 and 74 to FY 2023-24 was a surprise announcement. Section 73 and 74 will be replaced by Section 74A from FY 24-25 onwards. It unifies the features of section 73 and 74, by providing a common time limit for issuance of show cause notice to 42 months from the due date of filing annual returns. A uniform limitation period is established under this new section irrespective of involvement of fraud, suppression etc. The new provision, though, would help taxpayers from a certainty of business perspective but it is a significant departure from erstwhile positions in tax law.
As was proposed in the Council meeting, extra neutral alcohol used in manufacture of alcoholic liquor for human consumption is now out of the purview of GST and this meets a long standing ask of the alcohol industry. Section 11A has also been proposed, to empower the Government to regularize non-levy, short levy of GST, where tax was short paid or not paid due to common trade practices.
While overall, a lot still needs to be done from a duty inversion perspective, incentive and rate rationalizing is on the cards and hopefully it would support the concerned sectors. Ease of doing business markers have been improving and in that sense, digitization of customs procedures are always a welcome move.
(Shashi Mathews is Partner; and Rajitha Nair is Principal Associate, at INDUSLAW.)
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