The Hindu Business Line : Some long-standing demands addressed

As expected, the Budget has maintained the peak rate of basic Customs duty for non-agricultural products at 10 per cent — a result of rupee appreciation and demands from industry associations. However, the rationalisation of duty rates and correction of inverted duty structures was carried forward. In this regard, the Project Imports Scheme, which had become relatively insignificant on account of the reduction in the basic Customs duty rates applicable on capital goods in the last Budget, deserves special mention.

A long-standing demand of the industry — pertaining to the artificial distinction between dual use and convergence products — has been finally addressed. Drawback rates are aligned with the benefits available, where machinery is imported for temporary use.

Excise

The Finance Minister has announced a slew of concessions for key sectors, besides reducing the Cenvat rate from 16 per cent to 14 per cent across the board. However, the more notable change this year is on the non-tariff front. The definition of excisable goods has been amended to remove the ambiguity with respect to marketability of goods on account of judicial pronouncements such that any good which is capable of being brought or sold in the market would be deemed to be marketable. Further, the notes in the excise tariff, pertaining to deemed manufacture, have been aligned with the definition under the Excise Act.

The Government would now have the power to charge excise duty based on the capacity of production of an unit. The Government also proposes to introduce the Central Excise (Determination of Sale Price of Exisable Goods), Rules, 2008, to provide for the manner of determination of retail sale price, where the same is not declared on the packages, tampered, altered or obliterated.

The Cenvat Credit Rules have also been amended to provide for a detailed formula for making use of Cenvat credit, where common inputs are used for manufacturing excisable/exempted goods or where providing taxable/non-taxable services and maintenance of separate accounts is not possible.

Service tax

While the service tax rate remains unchanged at 12 per cent, the trend of introduction of new services and expansion in the scope of existing ones continues.

The revised policy on service tax vis-À-vis the information technology sector, where exemptions extended to the sector have been withdrawn and a new taxable service category of information technology software service has been introduced, needs a special mention.

GST

The objective of the Government to implement the Good and Services Tax (GST) is evident from the nature of the changes that have been proposed. The Cenvat rate has been reduced with a view to aligning the service tax and Cenvat rates. The amendment to the definition of goods under the Excise Act has also brought it in consonance with the VAT legislation. The rate of Central Sale Tax has been reduced to 2 per cent so as to phase it out completely by 2010.

What was missing, however, was a more definitive pronouncement on the roadmap towards implementation of GST. The exact model, transfer of the power to tax services at the State level, nature of services and the revenue neutral rate continue to remain matters of speculation. Given that we propose to move to the GST by April 1, 2010, it is imperative that the proposed model be made public knowledge at the earliest, to enable industry prepare itself.

(The author is Partner, Amarchand Mangaldas, New Delhi.)