Union Budget 2013: KMPG expects no change in customs, service tax rates

Pratik Jain - Partner, KPMG India.

Pratik Jain
KPMG India

  • No change in Customs, Excise, Service tax rates
  • Appropriate announcements on progress and introduction of Goods and Services tax law
  • Basic exemption limit for Excise duty and Service tax should be reviewed and suitably increased as the same has been left untouched since last several years – inflation has considerable increased the
    cost of raw materials and services
  • Served From India ('SFI') scrip should be made transferable like Duty Entitlement Passbook ('DEPB') scheme as frequently the benefit remains unutilized by the exporter
  • It is a settled proposition that excise duty is applicable on the price realized from the customer on sale of goods – Suitable amendments should be made to overcome the impact of the decision by the
    Hon’ble Supreme Court in the case of Fiat India which has held that the excise duty can be calculated by adding notional profit over and above the sales price realized from the customer
  • In certain types of contracts which has price escalation clause, additional excise duty becomes payable in future when price escalation is determined – this results in additional interest liability – it is proposed that suitable amendments be made to clarify that interest is not payable in such cases
  • Goods supplied against export incentive schemes like Focus Market scheme, Focus Product scheme are exempted from excise duty – however due to the exemption the manufacturer is required to reverse Cenvat credit which increases the cost of such supplies and defeats the intended purpose – suitable amendment be made to bring such supplies at par with exports
  • Inter‐unit transfer of semi‐finished goods should be exempted as provided earlier under Chapter X procedure – the transaction is tax revenue neutral
  • With a view to promote Research and Development (R&D) activities capital goods / raw materials used in R&D centre of manufacturing companies should be treated as eligible goods for claiming Cenvat credit even if the R&D centre is located outside the factory
  • Specified percentage of abatement allowed from Maximum Retail Price to be increased since no change made last year despite increase in excise duty rate from 10.3% to 12.36%
  • Transaction between a branch / Head office outside India and Head office / branch in India is treated as import of service but the converse is not treated as exports – Either the said anomaly must be removed by treating such transactions as exports or such transactions should not be subject to tax as branch and Head office do not constitute separate legal entities
  • Re‐introduce rebate of service tax paid on provision of services withdrawn last year as the same provides a simpler mechanism for claiming refund of service tax
  • Scheme of partial reverse charge – part payment of service tax by service provider and part payment by service recipient should be reviewed and withdrawn – as the same has increased compliance
    burden besides increasing the lock up of Cenvat credit
  • Benefit of Advance ruling should be made available to every business and should not be restricted to select applicants – the scheme provides a window of opportunity to achieve certainty on tax laws
  • Certification of Service tax refund applications should be permitted by any practicing Chartered Accountant and should not be restricted to statutory / tax auditors
  • Education Cess and Secondary and Higher Education Cess (‘cesses’) is charged on both the Basic Customs duty (‘BCD’) and Additional Duty of Customs in lieu of Excise duty (‘CVD’) – Currently no Cenvat credit is available for the cesses charged on CVD portion – the same should be allowed by making suitable amendments