New Delhi, Feb 28: 

Bringing some cheer to the industry, the Finance Minister, Mr Pranab Mukherjee,
has lowered the surcharge tax limit on corporate tax to 5 per cent from 7.5 per cent
even while marginally raising the Minimum Alternate Tax.

The Government has retained the corporate tax at 30 per cent, to be paid by
domestic firms earning a total income of over Rs 1 crore a year. It increased the
Minimum Alternate Tax (MAT) to 18.5 per cent from 18 per cent on book profits.

Presenting the Budget for 2011-12, the Finance Minister, Mr Pranab Mukherjee,
said: “My initiative of phasing out the surcharge continues. I propose to reduce the
current surcharge of 7.5 per cent on domestic companies to 5 per cent.’’

The Minister also proposed to bring developers of Special Economic Zones (SEZs)
under the MAT. The reduction in surcharge will bring some cheer to the industry
which has been clamouring for a reduction in corporate tax rate to 25 per cent.

Industry chambers have been demanding reduction in corporate tax to 25 per cent
to spare India Inc with more money to undertake big-ticket investments.

With a view to providing incentive for Indian companies to repatriate money from
offshore subsidiaries, Mr Pranab Mukherjee also proposed a lower rate of 15 per
cent tax on dividends received by an Indian company from its foreign subsidiary.

“I do hope this will allow funds to flow to India,” he said.

The latest proposals come two years after the Government did away with surcharge
on income tax during the 2009-10 Budget.

During last year’s Budget also, the Government had reduced the surcharge on
corporate tax while hiking the MAT rate.

A pragmatic, multifaceted Budget

13 March 2011

The finance minister has presented a pragmatic multifaceted Budget that is

designed to provide momentum to the trajectory towards a 9 per cent GDP growth,
and move towards fiscal consolidation to control inflationary pressures, while
maintaining the objective of “inclusiveness”. The stimulus provided earlier by
reducing peak excise duty from 12 per cent to 10 per cent has been retained at 10
per cent. Corporate surcharge has been reduced from 7.5 per cent to 5 per cent.
Considering the buoyancy in tax collections, corporate taxation could have been
reduced below 30 per cent. that would also have brought the tax structure more in
alignment with those in East Asian economies. However, the corporate sector has
on the whole been euthosed by the Budget, and it would effectuate its expansion
programmes.
The Budget gives due importance to infrastructure, which provides underpinning to growth.
Allocation has been increased by 23 per cent in 2011-12. Since infrastructure required mega
investment of about $1 million in the 12th plan and public private participation is on the anvil,
about $500 billion is expected from the private sector. The Budget provides that tax-free bonds
of Rs 30,000 crore would be issued by Public Sector Institutions. Foreign direct investment in
infrastructure would also be encouraged. Dividend income from foreign subsidiaries would be
taxable at 15 per cent, important agro-related sectors like fertilisers and cold storage have been
given industries status and large power project equipment exemption from excise duty. Besides,
Mutual funds would be allowed to accept monies from foreign investors. FII limit for investment
in corporate bonds n infrastructure sector has been increased. The Budget focuses on various
social welfare projects such as Bharat Nirman, NREGA and other health and educational
schemes etc. They would be adequately monitored by Planning Commission to secure proper
execution. It also provides for reduction in personal taxes. Experience bears out that this leads to
stimulated activity, increased productivity, growth in incomes, improved compliance and
enhancement of revenues.
Food inflation which adversely affects aam admi is essentially due to factors on the supply side:
distribution problems of essential commodities, hoarding, escalation in incomes as also increase
in global prices. The Budget gives importance to increase in agricultural productivity and better
managed distribution channels so as to reduce middlemen’s profit. Production of wheat and
pulses is also expected to increase.
Certain factors can adversely affect the performance of the economy which is still dependent
upon good monsoon for achieving the envisaged agricultural production. Escalation in
international oil prices may have an impact upon domestic price inflation. Expenditure on social
infrastructure is scheduled to increase by 17 per cent it is imperative that the major part of the
outlay reaches target groups. The Budget has provided incentives for escalation of FDI.
Government expects to reduce regulations for encouraging such inflow. But many countries are
vying for foreign capital and the envisaged quantum of inflow may not materialise.
In conclusion, it may be asserted that the Indian economy on the whole has great potential for
growth and the Budget has enhanced the momentum of the trajectory of growth. The Reserve
Bank of India is expected to modulate monetary policy to balance growth and inflation control.
ss kothari
10 march, kolkata
Good balancing act
The Union Budget for 2011-12 appears to be a conservative and balanced one without any
without undue display of fireworks. The Union finance minister, Mr Pranab Mukherjee, has
played it safe with his clever balancing act. He has touched upon relevant aspects of the
economy with a firm eye on future growth, fiscal consolidation and long-term strategy for
containing food inflation. With this, he has also thrown in a few populist measures to satisfy the
salaried classes. He has, for the time being, left alone drastic reforms, particularly in key
financial sectors such as banking and insurance as also issues relating to Foreign Direct
Investment (FDI) limits in insurance and retail.
This approach of the finance minister needs to be viewed from the perspective of rising global oil
prices, particularly, in the aftermath of political upheavals in Egypt, Libya and Tunisia. Also,
with food prices high throughout the country with inflation in this area ranging between 18 and
20 per cent and the UPA-II government's image taking a serious beating with scams and
corruption overwhelming it, Mr Mukherjee, who is rated as an astute politician, has decided
rightly to play it safe.
The finance minister has projected a 9 per cent growth in 2011-12, an 18 per cent increase in tax
collection and a substantial reduction in government borrowing. To ensure fiscal consolidation,
he has adopted a measure of expenditure containment for keeping the net difference between
government expenditure and income at a low level of 4.6 per cent of the Gross Domestic Product
(GDP). This may come down further with the government posting a substantial gain of Rs
68,000 crore from 3G spectrum sale in the current year. Had the 2G scam not prevented the
accrual of expected revenue, it would have garnered a solid foundation for fiscal consolidation
and a lower fiscal deficit. It is a good sign to see calculated efforts for fiscal discipline on the part
of the government. Reforms have been initiated with respect to taxation ~ Direct Tax Code
(DTC) for direct taxation and Goods & Services Tax (GST) for indirect.
On the agricultural front, desired steps have been taken to expand the irrigation network, make
available high-yielding seeds and fertilisers and create large storage facilities for food grains and
perishables. Credit flow to the farmers through the banking channel, has been enhanced to Rs
4,76,000 crore with an incentive of 3 per cent discount on the rate of interest to farmers who
repay in time. The government plans to set up 15 new mega food parks throughout the country.
Such measures are long term and are expected to yield results in a phased manner.

Corporate Income Tax: small benefits, but SEZs dealt a

MAT blow
March 1, 2011, 7:24 am
The Special Economic Zone tax bonanza will end, if the Budget proposals pass in their current
form. Barring this, the Budget does not have any nasty surprises for companies.

Highlights:
The corporate surcharge has been lowered from 7.5% to 5%. That reduces the effective
corporate tax rate from 33.2% to 32.4%, which is a nice, even if small, relief for Indian
companies. The new rate will be 30% plus a 5% surcharge, which works out to 31.5%, and after
adding the education cess of 3%, it works out to 32.4%.

But the Minimum Alternate Tax (MAT) which is levied on firms has been increased to 18.5% of
book profits from 18% earlier. This was to compensate for the lower surcharge, according to the
FM. MAT is levied on those firms whose profits as per the Income Tax Act, is lower than that in
their books prepared under the Companies Act.

So, companies will have to pay 18.5% of their book profits or tax as per the Income Tax Act,
whichever is higher. But this tax is adjustable against future taxes payable. That is, when the
company exits the tax holiday, or any other situation, which is lowering its tax incidence, it will
be able to set off its MAT credit against the tax liability. This is in the nature of an advance tax,
which lowers the cash flow of the company and in turn, hikes the cash flows of the government.

The Special Economic Zone Act has come under fire on several fronts. Earlier, profits earned by
SEZ developers and units operating in these SEZs were exempt from tax.
 
In addition, the dividend paid by these SEZ units was exempt from tax, compared to other
companies who paid a dividend distribution tax of 15%. This will go. The exemption of tax on
dividends ends from June 2011 itself. This again does not affect their profits but will reduce
the profits available for distributing to shareholders.
 
SEZ profits will continue to be exempt from income tax, but they were also exempt from MAT.
Now, they have to pay MAT of 18.5% on their profits earned in 2011-12. Their profits will
fall to that extent. As said earlier, this is a cash flow and timing-related effect, and they will
be able to set it off against future profits, as and when they become taxable.

But the SEZs may have to wait for a very long time for that. At present, units set up in SEZs get
a 100% exemption on profits for the first five years, 50% for the next five years, and then 50% of
the export profit reinvested in the business. And, developers of SEZs could get a tax holiday for
10 out of 15 years from the time it was notified. That is, their tax incidence will go up
substantially only after 10 years.

In one shot, the government has ensured it loses no revenue (cash flow) due to companies using
SEZs for their business nor from developers who were racing to set up residential and
commercial complexes near the eligible areas surrounding the SEZ, and were eligible for tax
exemptions.
MAT in SEZs to impact smaller IT Cos: Nasscom
PTI     New Delhi   March 1, 2011    

The Budget proposal for bringing units operating in special economic zones (SEZs) under the minimum
alternate tax (MAT) bracket will impact small and medium enterprises, software representative body
Nasscom on Monday said.

"Last year, it was clarified that under Direct Tax Code (DTC), SEZ units set up till 2014 will continue to get
profit linked tax exemptions. Imposition of MAT at 18.5 per cent with an effective rate of nearly 20 per
cent, nullifies the impact of any such incentive," Nasscom President Som Mittal said.

This will be a deterrent for small companies in tier II and III cities, which are looking at expanding in SEZs,
he added.

IT companies have been migrating to SEZs as tax breaks under the Software Technology Parks of India
(STPI) scheme will come to an end on March 31, 2011.

Under the Software Technology Parks of Indian scheme, IT firms operating in these units had been given
a 10-year tax break that was to end in 2010. In the FY 10 Budget, however, this was extended to March
31, 2011.

The IT industry has been asking for an extension of one more year until the Direct Tax Code is
implemented in 2012.

SEZs have a 100 per cent tax exemption for a period of five years and 50 per cent exemption for another
five years.

"There will be a significant impact on both SEZ developers as well as the units operating in SEZs...The
attractiveness of SEZ units will drop significantly," Mittal said.

Imposition of MAT on SEZs will impact cash flows, said Genpact President and CEO Pramod Bhasin.

Large IT players such as TCS, Wipro and Infosys have moved a large part of their operations to SEZs.
The IT industry had also been seeking a roll back in MAT after it was increased from 15 per cent to 18
per cent last year. However, it has been increased to 18.5 per cent this year.

Customs Modernisation – Self-Assessment to be Introduced

Customs Modernisation – Self-Assessment to be Introduced

Jodhpur to be Included for Development of Handicraft Mega Cluster

Presenting the General Budget 2011-12 here today, Shri Pranab Mukherjee,
Finance Minister said that to quicken the clearance of the cargo by Customs
authorities and further modernize the customs administration, it has been
proposed to introduce self-assessment in Customs. Under this scheme, the
importers and exporters will themselves asses their duty liabilities while filing
their declarations in the EDI system. The department will verify such
assessments on a selective system driven basis.

The Finance Minister Shri Mukherjee said that a new scheme has also been
proposed under which SEZs will be able to obtain tax-free receipt of services
wholly consumed within the zone and get their refunds in a much easier
manner.

It has also been proposed to extend the mega cluster scheme for development
of leather products. Seven mega leather clusters have been proposed to be set
up during 2011-12. Jodhpur has been proposed to be included for the
development of a Handicraft Mega Cluster.

Important changes/amendment in respect of Custom Duty

The Finance Minister has introduced the Finance Bill, 2011 in Lok Sabha on
28th February, 2011. Changes in Customs law and rates of duty have been
proposed through the Finance Bill, 2011 (clauses 35 to 58 for customs). In
order to prescribe effective rates of duty and to carry out changes in the Rules
made under the respective Acts, the following notifications are being issued:

CUSTOMS: Notification Nos. Date

No.13/2011-Customs to No. 27 1st March,
Tariff
/2011-Customs 2011
 No.15/2011 -Customs(NT) to 1st March,
Non-Tariff
No.18/2011-Customs (NT) 2011

Unless otherwise stated, all changes in rates of duty take effect from the
midnight of 28th February/1st March, 2011. A declaration has been made
under the Provisional Collection of Taxes Act, 1931 in respect of clauses 57(a)
(i), 57 (b) and 70(a)(i) of the Finance Bill, 2011 so that changes proposed
therein take effect from the midnight of 28 th February/1st March, 2011. The
remaining legislative changes would come into effect only upon the enactment
of the Finance Bill, 2010. Retrospective amendments in the provisions of law
or notifications issued under the respective Acts shall have the force of law
only upon the enactment of the Finance Bill, 2011 but with effect from the
date indicated in the relevant clause or Schedule. These dates may be carefully
noted.

The important changes in respect of Customs duty are discussed below.

Rate structure:

1. There is no change in the peak rate of basic customs duty of 10%. The
existing rates of 2%, 2.5% and 3% are being fused into a single rate of 2.5%.
Consequently, all items that hitherto attracted basic customs duty of 2% or
3% would now be chargeable to 2.5%.

Aircraft:

2.1 Full exemption from import duty (basic, CVD and special CVD) was
hitherto available to import of aircraft by non-scheduled operators whether
for passenger services or chartered services. This exemption was subjected to
certain conditions including the condition that the aircraft should be used
exclusively for charter or passenger services. The exemption from basic
customs duty has been withdrawn on such imports and a basic duty of 2.5%
has been imposed. The exemptions from CVD and special CVD have been
retained. The conditions of the exemption have also been amended so as to
allow the aircraft to be used interchangeably between passenger and charter
services in consonance with the Civil Aviation Requirements.

2.2      Exemption from education cess and secondary and higher education
cess presently
available to aircrafts is being withdrawn.
IT Software

3. With effect from 21.12.2010 packaged or canned software falling under chapter 85 has been
notified under section 4A of the Central Excise Act. Accordingly, the value of such software for
the purposes of charging CVD is required to be determined on the basis of the retail sale price
(RSP) affixed on the package under the Standards of Weights and Measures Act, 1976. It has
been represented by the trade that in certain situations packaged software is not required to bear
the RSP when imported and difficulties are being experienced in the assessment of such software
to CVD. In order to resolve the issue, packaged software which is not required to bear RSP is
being exempted from so much of the additional duty of customs as is equivalent to the duty
payable on the portion of the value which represents the consideration paid or payable for
transfer of the right of its use. Such software would therefore be required to pay CVD only on
that portion of value representing the value of the medium on which it is recorded alongwith
freight and insurance. The exemption is subject to the fulfillment of certain conditions. A parallel
exemption is also being provided from central excise duty in respect of IT software
manufactured domestically.

Postal Imports:

4. Description of heading 9804 in the First Schedule is being amended to cover all dutiable items
intended for personal use, imported by post or air and to prescribe a tariff rate of 35% for tariff
items under the heading. However, the effective rate of duty for goods imported for personal use
by post or air is being maintained at 10% in respect of imports which are exempted from any
prohibition under the Foreign Trade (Development and Regulation) Act, 1992 through a
notification. This would obviate the need for resorting to merit assessment of goods when they
are imported by this mode and the value exceeds the limits prescribed under the FT(D & R) Act.
Fourth Schedule of the and clause 57 (a)(i) of the Finance Bill, 2011 may be seen.

Export Duty:

5.1 The Second Schedule to the Customs Tariff Act is being recast so as to align the entries with
the Harmonized System of Nomenclature (HSN) and introduce a new entry for de-oiled rice bran
cake. Clause 57(b) read with the Sixth Schedule of the Finance Bill, 2011 may be referred to.
The effective rates of export duty on all items other than iron ores lumps, fines and pellets; and
de-oiled rice bran cake are being maintained through notification no. 27/2011-Customs dated 1st
March, 2011.

5.2 The export duty on iron ore lumps and fines has been enhanced from 15% and 5%
respectively to a uniform rate of 20%. Full exemption from export duty has been provided to iron
ore pellets.

5.3 Export duty has been imposed at the rate of 10% on de-oiled rice bran cake with
immediate effect.

Relief Measures:
6.1 Exemptions/ concessions have been provided to a number of items with a
view to remove anomalies in the duty structure and enable domestic value
addition/ production. The details of these changes are available in the relevant
notifications as well as the Explanatory Notes. These may kindly be referred
to.

7.2 Full exemption from import duty is available to works of art imported for exhibition in a
public museum or national institution. The scope of this exemption is being expanded to include
imports made for exhibition of works of art in private galleries that allow unrestricted access to
general public, subject to the fulfillment of certain conditions.

8.3 In order to resolve ongoing disputes, certain clarificatory amendments have been made in
exemption notifications/entries. Specifications have been prescribed for coking coal which is
fully exempt from customs duty under S. No. 68 of notification No. 21/2002 dated 1 st March,
2002 so that it may be distinguished from non-coking coal which attracts a duty of 5%.
Similarly, an Explanation has been added to the entry at S. Nos 344 and 345 of the same
notification to define a „Completely Knocked Down‟ (CKD) unit of a vehicle to exclude a unit
containing a pre-assembled engine, gearbox or transmission mechanism as well as a body
assembly on which a sub-assembly of assembled engine, gearbox or transmission mechanism is
installed. The Explanation to Notification No. 14/2004–Customs dated 8 Th January,2004 has been
amended to clarify that a water supply project includes water pumping station and water storage
facility. A similar amendment has been carried out in entry 26A of Notification No. 42/1996-
Customs dated the 23rd July, 1997.

8.4 As a trade facilitation measure, it has been decided to reduce the security amount to be
tendered at the time of registration of a contract under Project Import Regulations to 2% of the
contract value with a ceiling of Rs. 1 crore to be taken in the form of bank guarantee. It has also
been decided that the bank guarantee would not be required to be renewed if the finalization is
not completed within six months of the submission of the necessary documentation by the
importer. Instructions contained in letter of even file number dated 1st March, 2011 may kindly
be seen.

Legislative Amendments:

9.1 One of the highlights of the provisions of the Finance Bill, 2011 is the
introduction of self-assessment in the Customs Act, 1962 both for imported
goods and export goods. This would replace the existing legal requirement of
assessment of every bill of entry or shipping bill by the Customs Officer. As
you are aware, after the implementation of EDI and risk management system,
the practice in most customs formations has been to carry out assessment on
selected bills of entry based on risk parameters and to allow the balance to be
facilitated. While aligning the legal provisions with the current practice, the
proposed amendments would move the Customs administration further along
the path of trust based compliance management. They would provide a basis
for progressive reduction in the levels of Customs interdiction in clearance of
import/export cargo leading to significant enhancement in facilitation for
compliant trade. This would release resources for more incisive verification
and audit of consignments that involve a high degree of risk enabling the
department to strike an optimal balance between the concerns of trade
facilitation on the one hand and enforcement on the other. For this purpose,
the important amendments proposed in the provisions of the Customs Act are
as under:

(i)  The definition of assessment in section 2 is being amended to include “self-

assessment”.

(ii)  Section 17 which deals with assessment of duty has been recast to provide
legal backing for self-assessment by the importer or exporter. It has also been
provided that the customs officer may verify the assessment and have the
goods tested or examined for this purpose. An obligation is also being cast on
the importer or exporter to furnish any documents or information that may
be required for such verification. Where it is found that the self-assessment is
not in order, the customs officer is required to reassess the bill of entry and to
issue a speaking order for the same unless the importer agrees with the
reassessment. Barring cases where a speaking order is issued on reassessment,
powers have also been assigned to customs officers to conduct audit either in
their own office or at the premises of importer or exporter.

(iii) Consequential amendments are being proposed in section 18 relating to provisional

assessment. It is being provided that the importer may make a request for assessment of goods by
the officer when he is not in a position to self-assess. The provisions of section 19 are also being
amended to prescribe that the finalization of provisional assessment may be carried out by the
proper officer. Other consequential amendments include amendments in section 46 and 50 to
make the electronic filing of bills of entry/shipping bills the norm. Power is also being conferred
on the Commissioner of Customs to permit filing in any other manner when electronic filing is
infeasible. Section 157 is being amended to empower the Board to issue regulations for
specifying the manner of conducting audit.

These provisions would come into effect on the date of enactment of Finance Bill, 2011.

They may be examined carefully and suggestions/comments, if any, in this regard may be sent to
the Board.

9.2 Sub-section (1) of section 27 is being substituted so as to enhance the time limit for claiming
refund of duty and interest from six months to one year for all categories of importers. This
would unify the provisions with regard to raising of demands and claiming of refund.
9.3 As in the case of Central Excise, Section 28 is being substituted so as to make the provisions
relating to recovery of duty not levied or short levied or erroneously refunded more coherent and
clear. There is no change in the content of this provision.

9.4 Section 28AA and 28AB are being substituted with a revised section 28AA so as to make the
provisions relating to interest more coherent and clear. It is being provided that interest would be
payable from the first day of the month succeeding the month in which the duty ought to have
been paid or erroneously refunded. Pending enactment of the Finance Bill, 2011, notifications
revising the rate of interest to 18% per annum has been issued under the existing provisions.

9.5 Section 110A is being amended to empower the adjudicating authority to allow release of
seized goods instead of Commissioner of Customs.

9.6 Section 124 is being amended so as to provide for issuance of a show cause notice with prior
approval of an officer not below the rank of an Assistant Commissioner of Customs as against
Deputy Commissioner presently.

9.7 Section 131D is being inserted to empower the Board to issue instructions relating to non-
filing of appeal in certain cases in line with National Litigation Policy retrospectively with effect
from 20.10.2010.

9.8 A new section 142A is being inserted so as to create first charge on the property of the
defaulter for recovery of the customs dues from such defaulter subject to the provisions of
section 529A of the Companies Act, the Recovery of Debt due to Bank and Financial Institution
Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002.

9.9 Section 150 is being amended so as to provide that the balance of sale proceeds of unclaimed
cargo sold in auction shall be paid to the Government if they cannot be paid to the owner within
six months.

9.10 Special provision is being made vide clause 54 of the Finance Bill, 2011 read with the Third
Schedule to retrospectively provide a concessional basic customs duty of 30% to fresh garlic
imported by National Consumer Cooperative Federation and Madhya Pradesh State Cooperative
Marketing Federation under import licenses issued by the Central Government and cleared after
15.1.2003. This provision would come into force on the date of enactment of the Finance Bill,
2011. Pending cases of these importers pertaining to the period mentioned above may be
identified and disposed off accordingly.

9.11 Special provision is being made vide clause 58 of the Finance Bill, 2011 read with the
Seventh Schedule to impose definitive safeguard duty retrospectively on imports of caustic soda
lye imported into India during the period from 04.12.2009 to 03.03.2010. This would validate the
imposition of provisional safeguard duty on this product during the same period. This provision
would come into force on the enactment of the Finance Bill.
9.12 Notification Nos.92/2004-Customs dated 10th September, 2004, 41/2005-Customs dated 9th
May, 2004, 90/2006-Customs dated 1st September, 2006, 64/2008-Customs dated 9th May, 2008
and 136/2008-Customs dated 24th December, 2008 have been retrospectively amended (in the
case of first four w.e.f. 1st April, 2008; and the remaining ones from the date of their issuance).
Clause 53 read with Second Schedule of the Finance Bill refers. The implication of these
amendments is that benefit of reward schemes such as the Served from India Scheme, Focus
Market Scheme, Focus Product Scheme etc. would be available towards fulfillment of export
obligation under EPCG Scheme. This would also come into force on the enactment of the
Finance Bill.

9.13 Notification No.16/2011-Customs (N.T) dated 1st March, 2011 has been issued under
section 11 of the Customs Act to restrict imports of acetate tow and filter rods except when they
are used for manufacture of filter rods and filter cigarettes respectively.

10. Amendments in the Customs Tariff Act, 1975:

1. Section 3 is being amended to substitute the reference to Standards of Weight &

Measures Act, 1976 with Legal Metrology Act, 2009 with effect from 1.3.2011 as has
been repealed by the latter. This change would be effective from the date of enactment of
the Finance Bill, 2011.
2. The First Schedule is being amended to include editorial changes in the Harmonized
System of Nomenclature (HSN) in certain chapters, which would be effective from
01.01.2012.

These provisions would come into effect on the date of enactment of Finance Bill, 2011

Budget 2011-12- Significant proposals related to Direct and

Indirect Taxes
Posted In Government Policy | No Comments »

Hon’ble Finance Minister presented budget for FY 2011-12. Significant proposal are as follows;

General: GDP is expected to grow in the region of 8.75% to 9.25%. The Minister spoken about
fiscal consolidation and put up a target of 4.6% fiscal deficit. Government is also mooting
liberalizing the FDI policy in the country, however no details was presented. A host of new bills
to bring reforms in the financial sector to be introduced in the current parliamentary session
including Pension Bill, LIC Bill, Banking Laws Amendment Bill and SBI Subsidiaries Bill. Bill
to allow RBI to grant more banking licenses under consideration. Government to introduce GST
(Goods and Service Tax Bill) in the current Parliamentary session. Government to move to direct
tax subsidy for kerosene and fertilizer. Subsidies to reach BPL families directly now under a new
scheme, the modalities of which will be worked out by Nandan Nilekani. Standard of of Weights
& Measure Act is being repealed and replaced by Legal Metrology Act from 01.03.2011.
Direct Taxes:

 Personal Income Tax limit have been increased to 180,000.

 Surcharge on corporate taxation have been reduced to 5%.
 MAT has been increased to 18.5%.

Indirect Taxes:

Custom:

 Self assessment in custom is being introduced.

 There is no change in the peak rate of basic custom duty.
 Assessment of postal import is being simplified with two rates, @35% and 10%.
 Aircrafts will attract custom duty @ 2.5%.
 Export duty on Iron ores have been increased to 20%.
 There shall be no export duty on Ore pellets.
 Export duty of 10% have been imposed on de-oiled rice bran cake.
 Sub-section (1) of section 27 is being substituted so as to enhance the time limit for
claiming refund of duty and interest from six months to one year for all categories of
importers. This would unify the provisions with regard to raising of demands and
claiming of refund.

Central Excise:

 The standard rate of 10% has been maintained.

 Goods attracting 4% of Central Excise duty shall attract an enhanced rate of 5%.
 Exemptions have been withdrawn from 130 items. These items will attract a duty of 1%
without Cenvat benefit.
 Rationalisation of duty rate on Cement has been made. Now the Cement shall attract a
duty to 10% ad velorem plus specific rate of Rs.30-180 PMT.
 Ready made garments and made up article of textile, bearing a brand name has been
brought under Central Excise net with imposition of duty @ 10%. These products shall
attract duty on MRP basis with an abatement of 40%. A new Rule [Rule 4(1A) of Central
Excise Rules] is being added so as to make complying with central excise procedure a
responsibility of the Brand name owners, and not of the job workers.
 Sugar, Textile and Textile product is being removed from the schedule of Additional
Duties of Excise Act. Now there products will be subject to State’s VAT.
 Welcome legal changes have been proposed to clarify the provisions and reduce dispute.
The maximum penalty under Section 11A has been reduced to 50% if the transaction
have been recorded in the books.
 Rate of interest on delayed payment of duty is being raised to 18%.
 Power to authorize searches is being given to Joint/Additional Commissioner in place of
Assistant/Deputy Commissioner.
 Cenvat Credit Rules is being amended to clarify the definition of inputs and input
services.
  The definition of deemed manufacture is being amended and now conversion of ores into
concentrates, refining of gold dole bars, galvanization etc. shall amount to manufacture.
In respect to products falling under Chapter 22, packing, labeling etc. amounts to
manufacture.

Service Tax:

 The existing rate of 10% has been retained.

 Service Tax is being proposed on air conditioned restaurants having bar license, and short
term accommodation in hotels/clubs/guest houses etc. Air travel will attract higher
service tax.
 Scope of various services have been extended.
 Definition of Commercial coaching and training is being expanded to include all
coaching/training not recognized by law irrespective of the fact that whether the institute
is providing any course recognized by law.
 The scope of the Club & Association service is proposed to be expanded to include
service provided to non-members as well.
 The scope of Business Support service is being expanded to include operational or
administrative assistance of any kind.
 Scope of Legal consultancy services is being expanded to include Services of advice,
consultancy or assistance provided by a business entity to individuals as well;
Representational services provided by any person to a business entity and Services
provided by arbitrators to business entities.
 The scope of heath services, insurance services etc. has also been expanded.
 Legal compliance system has been proposed to be revamped.
 A new rule 5B has been introduced to provide that the applicable rate of tax shall be the
rate prevailing at the time when the services are deemed to have been provided.
 It has also been provided that when an invoice has been issued or a payment received for
a service which is not subsequently provided, the assessee may take the credit of the
service tax earlier paid when the amount has been refunded by him to the recipient or by
the issue of credit note, as the case may be. The amount stated in rule 6(4B)(iii) for
adjustment of excess amount paid by an assessee is being enhanced to Rs. 2 lakhs.
 Export and Import of Service rules are being amended and there is a movement towards
destination-based levy in respect of B2B services while origin-based levy is largely
applicable to B2C services.
 There is proposal of enhanced penalty and prosecution in Service Tax offences.

The budget is taking important steps towards tax reforms. The Minister promised that
Constitutional amendment bill for implementation of GST shall be introduced in this session of
Parliament. Raodmap to various tax reforms was stated, and it is a welcome step.
Export duty hike on iron ore to hit Goa economy: Naik
Press Trust of India / Panaji 12 Mar 11 | 02:00 PM

1 Reply

The hike in export duty on iron ore, in the latest Union Budget, will have adverse affect on Goa's
economy, Congress MP from Goa Shantaram Naik said today.

The export duty on iron ore has been raised from 5% to 20%, to arrest export of ore from the
country.

In a statement issued here, Naik said iron ore extracted from Goan mines is of low grade and that
it has no market in the country.

The notion that pallets can be manufactured from such ore is not correct, he said, adding the only
palletisation plant in Goa has now been closed.

"Mine owners may survive in their own way even with the increase of duty but the fate of 15,000
truck owners who are engaged in the business of transporting ore, and in general, fate of the 20%
population which directly or indirectly depends upon iron ore activity in Goa, will be doomed,"
he pointed out.

Goa exports around 40 million metric tones of iron ore annually through its two ports.

The state has 100-odd mining sites, which are situated in the remote talukas of Sanguem,
Quepem, Sattari and Bicholim.

II. CUSTOMS

Rate structure:

There is no change in the peak rate of basic customs duty of 10%. The existing rates of 2%, 2.5%
and 3% are being fused into a single rate of 2.5%. Consequently, all items that hitherto attracted
basic customs duty of 2% or 3% would now be chargeable to 2.5%.

Aircraft:

1 Full exemption from import duty (basic, CVD and special CVD) was hitherto available to
import of aircraft by non-scheduled operators whether for passenger services or chartered 
services. This exemption was subjected to certain conditions including the condition that the
aircraft should be used exclusively for charter or passenger services. The exemption from basic
customs duty has been withdrawn on such imports and a basic duty of 2.5% has been imposed.
The exemptions from CVD and special CVD have been retained. The conditions of the
exemption have also been amended so as to allow the aircraft to be used interchangeably
between passenger and charter services in consonance with the Civil Aviation Requirements.
2 Exemption from education cess and secondary and higher education cess presently available to
aircrafts is being withdrawn.

IT Software

With effect from 21.12.2010 packaged or canned software falling under chapter 85 has been
notified under section 4A of the Central Excise Act. Accordingly, the value of such software for
the purposes of charging CVD is required to be determined on the basis of the retail sale price
(RSP) affixed on the package under the Standards of Weights and Measures Act, 1976. It has
been represented by the trade that in certain situations packaged software is not required to bear
the RSP when imported and difficulties are being experienced in the assessment of such software
to CVD. In order to resolve the issue, packaged software which is not required to bear RSP is
being exempted from so much of the additional duty of customs as is equivalent to the duty
payable on the portion of the value which represents the consideration paid or payable for
transfer of the right of its use. Such software would therefore be required to pay CVD only on
that portion of value representing the value of the medium on which it is recorded alongwith
freight and insurance. The exemption is subject to the fulfillment of certain conditions. A parallel
exemption is also being provided from central excise duty in respect of IT software
manufactured domestically.

Postal Imports:

Description of heading 9804 in the First Schedule is being amended to cover all dutiable items
intended for personal use, imported by post or air and to prescribe a tariff rate of 35% for tariff
items under the heading. However, the effective rate of duty for goods imported for personal use
by post or air is being maintained at 10% in respect of imports which are exempted from any
prohibition under the Foreign Trade (Development and Regulation) Act, 1992 through a
notification. This would obviate the need for resorting to merit assessment of goods when they
are imported by this mode and the value exceeds the limits prescribed under the FT(D & R) Act.
Fourth Schedule of the and clause 57 (a)(i) of the Finance Bill, 2011 may be seen.

Export Duty:

The Second Schedule to the Customs Tariff Act is being recast so as to align the entries with the
Harmonized System of Nomenclature (HSN) and introduce a new entry for de-oiled rice bran
cake. Clause 57(b) read with the Sixth Schedule of the Finance Bill, 2011 may be referred to.
The effective rates of export duty on all items other than iron ores lumps, fines and pellets; and
de-oiled rice bran cake are being maintained through notification no. 27/2011-Customs dated 1st
March, 2011.

The export duty on iron ore lumps and fines has been enhanced from 15% and 5% respectively
to a uniform rate of 20%. Full exemption from export duty has been provided to iron ore pellets.

Export duty has been imposed at the rate of 10% on de-oiled rice bran cake with immediate
effect.
Relief Measures:

Exemptions/ concessions have been provided to a number of items with a view to remove
anomalies in the duty structure and enable domestic value addition/ production. The details of
these changes are available in the relevant notifications as well as the Explanatory Notes. These
may kindly be referred to.

Full exemption from import duty is available to works of art imported for exhibition in a public
museum or national institution. The scope of this exemption is being expanded to include
imports made for exhibition of works of art in private galleries that allow unrestricted access to
general public, subject to the fulfillment of certain conditions.

In order to resolve ongoing disputes, certain clarificatory amendments have been made in
exemption notifications/entries. Specifications have been prescribed for coking coal which is
fully exempt from customs duty under S. No. 68 of notification No. 21/2002 dated 1st March,
2002 so that it may be distinguished from non-coking coal which attracts a duty of 5%.
Similarly, an Explanation has been added to the entry at S. Nos 344 and 345 of the same
notification to define a „Completely Knocked Down‟ (CKD) unit of a vehicle to exclude a unit
containing a pre-assembled engine, gearbox or transmission mechanism as well as a body
assembly on which a sub-assembly of assembled engine, gearbox or transmission mechanism is
installed. The Explanation to Notification No. 14/2004–Customs dated 8Th January,2004 has
been amended to clarify that a water supply project includes water pumping station and water
storage facility. A similar amendment has been carried out in entry 26A of Notification No.
42/1996- Customs dated the 23rd July, 1997.

As a trade facilitation measure, it has been decided to reduce the security amount to be tendered
at the time of registration of a contract under Project Import Regulations to 2% of the contract
value with a ceiling of Rs.1 crore to be taken in the form of bank guarantee. It has also been
decided that the bank guarantee would not be required to be renewed if the finalization is not
completed within six months of the submission of the necessary documentation by the mporter.

Legislative Amendments:

One of the highlights of the provisions of the Finance Bill, 2011 is the introduction of self-
assessment in the Customs Act, 1962 both for imported goods and export goods. This would
replace the existing legal requirement of assessment of every bill of entry or shipping bill by the
Customs Officer. As you are aware, after the implementation of EDI and risk management
system, the practice in most customs formations has been to carry out assessment on selected
bills of entry based on risk parameters and to allow the balance to be facilitated. While aligning
the legal provisions with the current practice, the proposed amendments would move the
Customs administration further along the path of trust based compliance management. They
would provide a basis for progressive reduction in the levels of Customs interdiction in clearance
of import/export cargo leading to significant enhancement in facilitation for compliant trade.
This would release resources for more incisive verification and audit of consignments that
involve a high degree of risk enabling the department to strike an optimal balance between the
concerns of trade facilitation on the one hand and enforcement on the other. For this purpose, the
important amendments proposed in the provisions of the Customs Act are as under:

i. The definition of assessment in section 2 is being amended to include „self-assessmen

ii. Section 17 which deals with assessment of duty has been recast to provide legal backing
for self-assessment by the importer or exporter. It has also been provided that the customs
officer may verify the assessment and have the goods tested or examined for this purpose.
An obligation is also being cast on the importer or exporter to furnish any documents or
information that may be required for such verification. Where it is found that the self-
assessment is not in order, the customs officer is required to reassess the bill of entry and
to issue a speaking order for the same unless the importer agrees with the reassessment.
Barring cases where a speaking order is issued on reassessment, powers    have also been
assigned to customs officers to conduct audit either in their own office or at the premises
of importer or exporter.
iii. Consequential amendments are being proposed in section 18 relating to provisional
assessment. It is being provided that the importer may make a request for assessment of
goods by the officer when he is not in a position to self-assess. The provisions of section 
19 are also being amended to prescribe that the finalization of provisional assessment 
may be carried out by the proper officer. Other consequential amendments include
amendments in section 46 and 50 to make the electronic filing of bills of entry/shipping
bills the norm. Power is also being conferred on the Commissioner of Customs to permit
filing in any other manner when electronic filing is infeasible. Section 157 is being
amended to empower the Board to issue regulations for specifying the manner of
conducting audit. These provisions would come into effect on the date of enactment of
Finance Bill, 2011. They may be examined carefully and suggestions/comments, if any,
in this regard may be sent to the Board.

Sub-section (1) of section 27 is being substituted so as to enhance the time limit for claiming
refund of duty and interest from six months to one year for all categories of importers. This
would unify the provisions with regard to raising of demands and claiming of refund. 

As in the case of Central Excise, Section 28 is being substituted so as to make the provisions
relating to recovery of duty not levied or short levied or erroneously refunded more coherent and
clear. There is no change in the content of this provision.

Section 28AA and 28AB are being substituted with a revised section 28AA so as to make the
provisions relating to interest more coherent and clear. It is being provided that interest would be
payable from the first day of the month succeeding the month in which the duty ought to have
been paid or erroneously refunded. Pending enactment of the Finance Bill, 2011, notifications
revising the rate of interest to 18% per annum has been issued under the existing provisions.

 Section 110A is being amended to empower the adjudicating authority to allow release of seized
goods instead of Commissioner of Customs.
Section 124 is being amended so as to provide for issuance of a show cause notice with prior
approval of an officer not below the rank of an Assistant Commissioner of Customs as against
Deputy Commissioner presently.

Section 131D is being inserted to empower the Board to issue instructions relating to non-filing
of appeal in certain cases in line with National Litigation Policy retrospectively with effect from
20.10.2010.

A new section 142A is being inserted so as to create first charge on the property of the defaulter
for recovery of the customs dues from such defaulter subject to the provisions of section 529A of
the Companies Act, the Recovery of Debt due to Bank and Financial Institution Act, 1993 and
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002.

Section 150 is being amended so as to provide that the balance of sale proceeds of unclaimed
cargo sold in auction shall be paid to the Government if they cannot be paid to the owner within
six months.

Special provision is being made vide clause 54 of the Finance Bill, 2011 read with the Third
Schedule to retrospectively provide a concessional basic customs duty of 30% to fresh garlic
imported by National Consumer Cooperative Federation and Madhya Pradesh State Cooperative
Marketing Federation under import licenses issued by the Central Government and cleared after
15.1.2003. This provision would come into force on the date of enactment of the Finance Bill,
2011. Pending cases of these importers pertaining to the period mentioned above may be
identified and disposed off accordingly.

Special provision is being made vide clause 58 of the Finance Bill, 2011 read with the Seventh
Schedule to impose definitive safeguard duty retrospectively on imports of caustic soda lye
imported into India during the period from 04.12.2009 to 03.03.2010. This would validate the
imposition of provisional safeguard duty on this product during the same period. This provision
would come into force on the enactment of the Finance Bill.

Notification Nos.92/2004-Customs dated 10th September, 2004, 41/2005-Customs dated 9th

May, 2004, 90/2006-Customs dated 1st September, 2006, 64/2008-Customs dated 9th May, 2008
and 136/2008-Customs dated 24th December, 2008 have been retrospectively amended (in the
case of first four w.e.f. 1st April, 2008; and the remaining ones from the date of their issuance).
Clause 53 read with Second Schedule of the Finance Bill refers. The implication of these
amendments is that benefit of reward schemes such as the Served from India Scheme, Focus
Market Scheme, Focus Product Scheme etc. would be available towards fulfillment of export
obligation under EPCG Scheme. This would also come into force on the enactment of the  
Finance Bill.

Notification No.16/2011-Customs (N.T) dated 1st March, 2011 has been issued under section 11
of the Customs Act to restrict imports of acetate tow and filter rods except when they are used
for manufacture of filter rods and filter cigarettes respectively.
Amendments in the Customs Tariff Act, 1975:

a. Section 3 is being amended to substitute the reference to Standards of Weight & Measures
Act, 1976 with Legal Metrology Act, 2009 with effect from 1.3.2011 as has been repealed by the
latter. This change would be effective from the date of enactment of the Finance Bill, 2011.

b. The First Schedule is being amended to include editorial changes in the Harmonized System
of Nomenclature (HSN) in certain chapters, which would be effective from 01.01.2012. These
provisions would come into effect on the date of enactment of Finance Bill, 2011

Budget 2011-2012 - Central Excise - Rate structure for goods, other than
petroleum:
February 28, 2011

  3.1 The standard rate of Central Excise duty for non-POL products has been
maintained at 10%. The merit rate of excise duty (CENVAT) for non-petroleum
goods has been increased from 4% to 5%. The increased rate would apply to all
such goods that hitherto attracted the rate of 4%.  

Cement:  

3.2 The rate structure applicable to Portland cement falling under heading no.252329 has been
revised. Cement manufactured by units other than mini-cement plants and cleared in a packaged
form was chargeable to Central Excise duty either at specific rates or ad valorem rates depending
on the retail sale price per 50 kg bag. The ad valorem rate was applicable to the retail sale price.
Although the price slabs are being retained, the rates of duty are being converted to mixed rates
i.e. ad valorem + specific rates along with some reduction. For the purpose of the ad valorem
component, the value would no longer be the retail sale price but the transaction value
determined under section 4 of the Central Excise Act, 1944. Similarly, rates of duty applicable to
cement manufactured by mini-cement plants have been revised from specific rates to either ad
valorem or ad valorem+ specific rates with some reduction. The rate of duty on bulk cement (i.e.
other than packaged form), whether manufactured in a mini-cement plant or not, is being unified
at 10% ad valorem. The details of these changes are as under:  

S.No.Description of goods Earlier rate Revised rate

Packaged cement manufactured in a mini-cement

1    
plant -
 Of retail sale price not exceeding Rs. 190 per 50 kg
(i) Rs. 185 PMT 10% ad valorem
bag or of per tonne RSP not exceeding Rs. 3800

Of retail sale price not exceeding Rs. 190 per 50 kg

(ii) Rs. 315 PMT 10% ad valorem + Rs. 30 PMT
bag or of per tonne RSP not exceeding Rs. 3800

Packaged cement manufactured in a plant other

2    
than a mini-cement plant -

Of retail sale price not exceeding Rs. 190 per 50 kg

(i) Rs. 290 PMT 10% ad valorem + Rs. 80 PMT
bag or of per tonne RSP not exceeding Rs. 3800

Of retail sale price not exceeding Rs. 190 per 50 kg 10% of retail sale
(ii) 10% ad valorem +Rs.160 PMT
bag or of per tonne RSP not exceeding Rs. 3800
price

3.3 Excise duty on cement clinker has been revised from Rs. 375 per metric tonne to “10%+ Rs.
200 per metric tonne”.

Ready-made garments and made-up articles:  

3.4 Excise duty at the rate of 10% shall now apply to ready-made garments
and made-up articles of textiles falling under Chapters 61, 62 and 63 (heading
nos.63.01 to 63.08) of the Central Excise Tariff except those falling under
heading nos.63.09 and 63.10 when they bear or are sold under a brand name.
Hitherto, ready-made garments and made-up articles were exempt from
Central Excise duty on the condition that no credit of duty on inputs is taken
by the manufacturer in terms of notification no.30/2004-CE dated 9th July,
2004. If credit were taken, the applicable rate was 4% for goods of cotton, not
containing any other textile material and 10% for others under notification
no.29/2004-CE also dated 9th July, 2004. These notifications are being
amended so that they apply only to those goods of Chapters 61, 62 and 63 not
bearing a brand name or not sold under a brand name. For such goods,
therefore, the optional duty regime would continue. In the case of ready-made
garments and made-up articles bearing a brand name or sold under a brand
name, no such option would be available and a duty of 10% would be payable
regardless of the composition of the item/article.  

3.5 Note 12 of Chapter 61 and Note 11 of Chapter 62 already prescribe that certain
processes such as affixing a brand name on a product, labeling or re-labeling of containers
etc. shall be processes amounting to manufacture. A similar note (Note 5) is being added to
Chapter 63. As for the valuation of these goods, tariff value has already been fixed at the
rate of 60% of the retail sale price in terms of notification No.20/2001-CE (NT) dated 30th
April, 2004. This provision is being extended to goods of Chapter 63 as well. It may be
noted that SSI exemption is being extended to the goods attracting this levy. This is being
implemented through a suitable amendment in item (xxvi) of the Annexure to notification
No.8/2003-CE dated 1.3.2003. Although this should take care of small manufacturers, it
may be made abundantly clear to the field formations that the levy does not apply to retail
tailoring establishments that stitch garments in a customized manner to the size and style
specifications of individual customers, whether out of fabric purchased by the customer
from the same establishment or fabric supplied by the customer.  

3.6 It is the practice in the garment and made up industry for brand owners to
have goods manufactured from several job-workers. The brand owners may
or may not, themselves, possess any manufacturing facility. Central Excise
Rules are being amended to incorporate sub-rule (1A) in rule 4 to prescribe
that in such a situation the liability to pay duty and comply with Central
Excise procedure shall be on the person on whose behalf the goods are
manufactured by job-workers. For this purpose, he would be required to
register his private store-room or warehouse in which inputs are received for
distribution to job-workers and finished goods are received from the job-
workers. He would also be required to comply with all the other provisions of
Central Excise law. The job-worker is exempt from payment of duty if the
merchant manufacturer pays the duty. Alternatively, the merchant
manufacturer may authorize the job- worker to obtain registration and
comply with all formalities of Central Excise including payment of duty.
Cenvat Credit Rules, 2004 are being amended to enable merchant
manufacturers to avail of credit of duty paid on inputs, input services and
capital goods.

Automobiles:  

3.7 Motor vehicles of headings 87.02 and 87.03 which are registered for use solely as ambulance
after clearance are eligible to a concessional rate of 10% by way of a refund mechanism
(S.No.34 (i) of notification no.6/2006-CE). For factory-built ambulances i.e. vehicles duly fitted
with all fitments, furniture and accessories necessary for an ambulance, this concessional rate of
10% is being prescribed without any condition so that it may be claimed at the time of their
clearance from the factory.  

3.8 A similar refund-based concession was hitherto available to motor vehicles of heading 87.03
with a capacity of 7 persons including the driver which are registered for use solely as taxis after
clearance(S.No.34 (ii) of notification no.6/2006-CE). Two changes are being carried out in this
exemption: (i) the condition regarding capacity of the vehicle is being modified so that the
concession is available to vehicles with capacity upto 13 persons including the driver; (ii) instead
of a concessional rate of 10% ad valorem, the manufacturer of such vehicles would be entitled to
a concessional rate equivalent to 80% of the excise duty paid on such vehicle at the time of
clearance. Thus, if a vehicle attracts a normal duty of 10%, the manufacturer would be entitled to
a refund of the amount representing 2% i.e. one-fifth of the total duty if the vehicle is
subsequently registered as a taxi.  

3.9 Concessional duty of 10% is being prescribed for hydrogen vehicles based on fuel cell
technology. Similarly, a concessional rate of Central Excise duty of 5% has been extended to
specified parts of hybrid vehicles and plug-in kits (and their parts) for conversion of normal fuel
vehicles into hybrid vehicles.

 Precious metals  

3.10 Excise duty on serially numbered gold bars, other than tola bars, when manufactured from
the ore/ concentrate stage is being reduced from Rs. 280 per 10 grams to Rs. 200 per 10 grams.
This concessional rate is also being extended when such bars are manufactured starting from the
stage of “gold dore bars”. Gold and silver arise in the course of manufacture of unwrought
copper from copper ore or concentrate through the smelting process. The rates of excise duty on
such gold and silver are also being rationalized at Rs. 300 per 10 grams and Rs. 1500 per kg
respectively.

Goods for Mega-Power Projects:  

3.11 Full exemption from Central Excise duty is available to goods supplied to ultra-mega power
projects subject to the fulfillment of certain conditions – one of them being that the goods should
be eligible for exemption from customs duties. Trade had represented that difficulties were being
experienced in availing of the benefit of this exemption owing to this condition. The description
of goods in the relevant entry in notification no.6/2006-CE has been amended to align it with the
description under heading no.98.01 (project imports) and the condition regarding eligibility for
customs exemption has been deleted. In addition, the exemption has been extended to power
cables used within the generation facility of such a project. It has also been clarified by an
explanation that the ash disposal system including ash dyke, coal transportation systems and
water intake are integral parts of such a project.  

3.12 Full exemption from Central Excise duty has also been extended to specified goods
supplied to expansion projects of existing mega power projects, subject to certain conditions.

India Budget 2011

Finance Minister has taken a middle path in this budget. It has rolled out many
schemes to stimulate basic sectors like Education, Infrastructure which is
expected to give a boost to overall economy. IT support for better governance has
been identified as a crucial element and Indians can look out for better
interaction, early resolution of queries and grievances with various tax
departments in times to come. FDI and FII investments are being liberalised.

India Budget 2011 doesnot offer too many tax soaps. Steps are being taken to
move to GST and DTC regime, which is expected to be in force from 01-Apr-2012.

For Businesses
• Silence over continuation of STPI scheme. Currently the STPI is coming to an
end on 31-Mar-2011. This shall hit the SME segment hard.
• MAT (minimum alternate tax) imposed on SEZ units @ 18.5%. Large
companies shall be impacted severely with this move as they will have to shell
out close to 20% (including surcharge and cess) as income tax on their book
profits.
• Surcharge on Income tax reduced from 7.5 to 5% for Domestic companies and
2.5% to 2% for others
• Income tax on dividends received by Indian companies from its subsidiary
companies reduced from 30% to 15%
• Many new services brought under service tax net. Major ones include Air
travel, AC Hospitals, AC Hotels & restaurant with bar, Life Insurance companies
etc.
• Service tax audit waived for Individual & proprietorship business for turnover
upto Rs.60Lacs
• Central excise duty rate changes: Min rate enhanced from 4% to 5% and
standard rate @ 10%
• 130 new items brought to Central excise net at nominal rate of 1%. These
excludes the basic food and fuel items
• Boost to Agriculture equipment sector, fertilizer, Infrastructure and Education
sector
• Proposal for liberalising FDI and also to lure FII in Infrastructure sector
•Iron or exports to attract export duty of 20%

For Individuals
• Income tax exemption limits enhanced. A new category called Very Senior
Citizens has been introduced (80 years & more of age). Income upto Rs.5 Lacs
are exempted for them. Qualifying criteria for senior citizens relaxed to 60 years
& above of age from existing 65 years. Income exemption limit enhanced to
Rs.2.5Lacs from Rs.2.4 Lacs
• No change in structure for Women. For other individuals the exemption limit
has been enhanced to Rs.1.8Lacs from Rs.1.6Lacs. Check the new Income tax
rates
• Proposals are underway to remove tax return filings for salaried class and
small tax payers who have already paid their taxes through their employers.
New form called SUGAM shall be introduced. eLagaan shall introduce these
forms as they are notified. When you file your taxes at eLagaan, you may relax
and not worry for changing formats anymore.
• Boost to low cost housing. Government shall bear 1% interest cost for loan
upto 15 Lacs (house value under 25 lacs)
• Investment benefits in infrastructure extended for another year (Rs.20,000
additional benefits for investing in infra bonds)
• Air travels to cost more and so is AC hotels, restaurants and hospitals, as these
services has been included in service tax net. Fuel, branded clothes to cost
more.
• Environmental friendly products, batteries to cost less. Hybrid vehicles to cost
less

'Not all exemptions to be withdrawn in GST'

SME Times News Bureau | 08 Mar, 2011

The central government is willing to continue with some exemptions and threshold limits to
ensure early implementation of the proposed goods and services tax (GST) system, Central
Board of Excise and Customs chairman S.D. Majumder said Monday.

"We are not aiming for a perfect GST. We are aiming for a good GST," Majumder said at a
conference organised here by the American Chamber of Commerce in India (Amcham).

"In a perfect GST there should be no exemptions or threshold limits. But initially we will have
to continue with some exemptions and threshold limits," he said.

GST is a major tax reform aimed at bringing uniformity in indirect tax structure across the
country by replacing state-level value added tax, excise duty and service tax.

Majumder said the government will gradually withdraw goods and services from exemption
list in a bid to enforce an effective GST regime.

He pointed out that the government has decided to withdraw 130 items from the exemption list
with a view to move closer to GST system.

In the union budget for 2011-12, Finance Minister Pranab Mukherjee announced last week that
130 items, mainly consumer goods, will be taken out from the exemption list of central excise.
Some 240 items still enjoy exemption from central excise.

The government plans to introduce constitutional amendments in the current budget session of
Parliament to facilitate the roll out of goods and services tax.

"If the bill gets passed by the parliament, the most critical hurdle will be cleared. Then things
can happen more reasonably," said Amitabh Singh, chairman of Amcham's tax, tariff and
regulatory affairs committee.

On opposition from the state governments, Singh said: "This is the third draft so hopefully the
concerns of most of the states might have been taken into consideration."

Some states, notably the Bharatiya Janata Party-ruled states like Gujarat and Madhya Pradesh
have opposed the introduction of GST regime saying it would compromise their autonomy and
result in revenue loss.

The centre and the state governments have been discussing the indirect tax reforms for the last
four years.

The government has already missed two deadlines and targets rolling out the GST system from
April 1, 2012.
Budget 2012: Government gives push to manufacturing

New Delhi, Feb 28 : The government today annouced a series of measures to give
a push to domestic manufacturing by reducing basic custom duty on raw silk
from 30 per cent to 5 per cent, halving excise on parts of ink jet and laser
printers to 5 per cent, and similarly cutting by 50 per cent excise on certain
textile intermediates, inputs for chemicals. ferro alloys and paper.

The budget 2011-12 also extended concessions on components of electronic gadgets, including
mobile phones, till March 2012 and fully exempted imports of stainless steel scrap.

The government also expanded list of raw materials for manufacture of specific electronic
components that are already fully exempted from payment of basic custom duty.

Meeting the persistent demand of industry, the government also reduced basic custom duty on
specific inputs for manufacture of certain technical fibre and yarn by 2.5 per cent to 5 per cent.

The government also reduced import duties on raw materials used in manufacturing syringes and
needles to 5 per cent and 4 per cent counter-vailing duty(CVD).

Experts said these concessions will enable domestic industry to produce goods at economic rates
and help them compete with Chinese products in the markets at home and abroad.

Central Excise

 
Legislative changes brought about in the Finance Bill 2011
i. The Bill seeks to amend Section 11A, which refers to recovery of duties not levied or short
levied, not paid or short paid, or erroneously refunded. The sequence in which provisions occur
have been corrected and language simplified.  A separate category has been carved out for
transactions involving extended period of limitation - fraud, collusion, willful mis-statement etc.
with an intend to evade duty - however a lower mandatory penalty of 50% of the duty instead of
100% of the duty would apply.

*Essentially in such cases it is necessary that the audit, investigation or verification brings forth
the short levy etc. but in all such cases it is essential that the transactions to which such duty
relates are entered in the specified records.

*The section has been further amended that even in cases where the show cause notice was
issued without specifying the quantum of penalty, while adjudicating the issue on hand, the
proper officer can remit the penalty to 50% of the duty amount provided he (Central Excise
officer) is of the opinion that the details of the transactions in respect of which the demand notice
has been issued have been duly recorded by the assessee in his specified records.

* The provisions of the existing sub-section (1A) of section 11 have been amended - if the
person chargeable with duty (for an extended period) pays the duty in full or part along with
interest before the issuance of a show cause notice, the penalty has been reduced to 1% of the
duty per month but not exceeding 25% of the duty for the over all period.

*However if the duty along with interest is paid within thirty days of the issuance of adjudication
order, the penalty would be 25% of the duty.

ii). The provisions of sections 11AA and 11AB have been merged into a revised section 11AA.
Under this provision, interest would be payable on any duty not levied or short-levied, not paid
or short paid or erroneously refunded from the first date of the month succeeding the month in
which the duty ought to have been paid under the Act or from the date of erroneous refund.

iii). From the date of enactment of the Finance Bill, 2011, the rates of interest are being revised
with effect from the 1st of April, 2011 to a uniform rate of 18 per cent per annum both under
sections 11AA and 11AB

iv). Section 11E is being inserted in the Central Excise Act to create a first charge on the
property of a defaulter for recovery of Central Excise dues subject to the provisions of the
Companies Act, Recovery of Debt due to Bank and Financial Institution Act, 1993 and
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002. Consequently, after the dues are adjusted for the above statutes, the balance if any, due to
the excise department shall have the first charge.

v). The provisions of section 12 are being retrospectively amended from 10th May 2008 of the
Central Excise Act enable the Central Govt. to borrow the machinery provisions of the Customs
Act with suitable modifications and alterations in respect of duties imposed (in terms of section
3). These provisions are also being amended to include a reference to duties imposed under
section 3A – refers to duties collected on the basis of compounded levy.

vi). Section 12F is being inserted to empower the Joint Commissioner/Additional Commissioner
of Central Excise (instead of Assistant Commissioner), to carry out the search of any premises or
to authorize a central excise officer to do so.

vii). The Board has issued instructions prescribing monetary limits below which appeals,
revision application or references need not be filed. A new section 35R is being inserted to
empower the Board to issue such instructions.

viii). The Standards of Weights and Measures Act, 1976 is being repealed with effect from
01.03.2011 and replaced by The Legal Metrology Act, 2009. Consequently, Section 4A of the
Central Excise Act is being amended to incorporate a reference to the new Act.

ix). The First Schedule to the Central Excise Tariff Act is being amended with immediate effect
to specify certain activities  as a deemed manufacturing activity:

* To prescribe that the process of repacking from bulk to retail packs, labeling or relabelling of
containers or adoption of any other process to render the product marketable shall be a process
amounting to manufacture through the insertion of a Chapter Note in Chapter 22.

* To prescribe that the process of conversion of ores into concentrates shall be a process
amounting to manufacture through the insertion of a Chapter Note in Chapter 26.

* To prescribe that the process of refining of gold dore bars shall be a process amounting to
manufacture through the insertion of a Chapter Note in Chapter 71.

* To prescribe that the process of galvanization shall be a process amounting to manufacture

through the insertion of a Chapter Note in Chapter 72.

x). The First Schedule to the Central Excise Tariff Act (CETA) is also being amended to
incorporate the latest editorial changes in the Harmonized System of Nomenclature (HSN).
These changes will come into effect from 01.01.2012.

xi). Parts, components and assemblies of vehicles falling under chapter 87 excluding vehicles of
headings 8712, 8713, 8715 and 8716 were notified under section 4A of the Central Excise Act
with effect from 27.02.2010. Subsequently, parts, components and assemblies of certain vehicles
falling under chapter 84 were also notified under these provisions with effect from 29.04.2010.
However, these goods were not simultaneously included in the Third Schedule to the CETA.
These are now being included in the Third Schedule retrospectively w.e.f. 27.02.2010 and
29.04.2010 respectively.

xii). Sugar and textile and textile products are being removed vide this amendment being made in
the Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957.
Consequently as sugar and textile products would not be within the purview of the above statute,
it would enable the State Governments to levy VAT on these items.

xiii). According to Note 5 of CETA the repacking of perfumes from bulk packs to retail packs,
labeling or re-labeling of containers is a process amounting to manufacture. In the case of
traditional perfumes, commonly known as attar, this repacking is done at the point of retail sale
to the customer in the retail shops. As a consequence, retail shops are required to obtain
registration and comply with all the formalities of Central Excise law. The trade has represented
that this poses a heavy compliance burden. Full exemption from excise duty has been provided to
such goods when removed from retail shops after they are subjected to any of the process
specified in the said Note provided that the manufacturer pays the duty on such goods when
cleared in bulk from the factory on value representing the retail sale price. If the retail sale price
is not required to be or not printed, then the value shall be the value at which such goods are sold
in retail at a time nearest to the time of clearance from the factory. The notification also provides
that the manufacturer shall observe the procedure specified by the jurisdictional Commissioner -
Notification No.18/2011-CE dated the 1st March, 2011.

Tariff Rate Amendments

i. The Standard Rate structure for most excisable goods maintained at 10% ;
the non petroleum goods whose standard / merit rate was 4%  has been
increased to 5% - thus all goods earlier attracting 4% would now suffer 5%
duty.  The duty rates would come into effect from 1st March 2011.

ii. Cement falling under 25 23 29 manufactured by a unit other than a mini cement plant and
cleared in a packaged form would now be liable to excise levy under adverolem rates. In certain
cases, the rate would be adverolem and a specific amount. Earlier duty was being paid under
specific rate per tonne which is now being modified. Cement clinker duty has also been revised
to combination of adverolem and specific rate.

iii. Ready made garments and made up articles of textiles when dispatched with a brand name
are liable to excise duty at the rate of 10%. Certain other goods    (laminated jute products) which
fall under chapter 61 to 63 have been subjected to 5% duty adv. with cenvat credit facility and
1% without cenvat credit facility. SSI exemption under notification 8/2003 dated 1.3.2003 as
amended has been extended

* In keeping with the general practice amongst garment manufacturers to have several job
workers, the central excise rules are being amended to incorporate that in such a situation the
central excise procedure and liability shall be on the person on whose behalf the said goods are
manufactured. Thus the primary manufacturer would be required to register his store room or
warehouse in which inputs are received for distribution to the job worker. Such primary
manufacturer would require to comply with the excise law and the job worker would be
exempted from payment of duty. This is an exclusive authorization given to the ready garments
and made up articles manufacturer only. Alternatively, the actual job worker may comply with
all the excise formalities and on payment of duty, despatch the goods in question.

iv). Automobile sector has certain concessions; motor vehicles which are registered for use
solely as an ambulance on clearance are eligible for the concessional rate of 10% - but only by
way of a refund mechanism.  Ambulances manufactured and cleared as such would need to pay
only 10% on clearance from their factory.

* A similar refund-based concession was hitherto available to motor vehicles of heading 87.03
with a capacity of 7 persons including the driver which are registered for use solely as taxis after
clearance(S.No.34 (ii) of notification no.6/2006-CE). Two changes are being carried out in this
exemption: (i) the condition regarding capacity of the vehicle is being modified so that the
concession is available to vehicles with capacity upto 13 persons including the driver; (ii) instead
of a concessional rate of 10% ad valorem, the manufacturer of such vehicles would be entitled to
a concessional rate equivalent to 80% of the excise duty paid on such vehicle at the time of
clearance. Thus, if a vehicle attracts a normal duty of 10%, the manufacturer would be entitled to
a refund of the amount representing 2% i.e. one-fifth of the total duty if the vehicle is
subsequently registered as a taxi.

* Concessional duty of 10% is being prescribed for hydrogen vehicles based on fuel cell
technology. Similarly, a concessional rate of Central Excise duty of 5% has been extended to
specified parts of hybrid vehicles and plug-in kits (and their parts) for conversion of normal fuel
vehicles into hybrid vehicles.

v). In connection with gold and silver, excise duty on serially numbered gold bars, other than tola
bars, when manufactured from the ore/ concentrate stage is being reduced from Rs.280 per 10
grams to Rs.200 per 10 grams. This concessional rate is also being extended when such bars are
manufactured starting from the stage of “gold ore bars”. Gold and silver arise in the course of
manufacture of unwrought copper from copper ore or concentrate through the smelting process.
The rates of excise duty on such gold and silver are also being rationalized at Rs.300 per 10
grams and Rs.1500 per kg respectively.

vi). Supplies to Ultra-mega power projects have been exempted from central excise duty subject
to the fulfillment of certain conditions – one of them being that the goods should be eligible for
exemption from customs duties. Trade had represented that difficulties were being experienced
in availing of the benefit of this exemption owing to this condition. The description of goods in
the relevant entry in notification no.6/2006-CE has been amended to align it with the description
under heading no.98.01(project imports) and the condition regarding eligibility for customs
exemption has been deleted. In addition, the exemption has been extended to power cables used
within the generation facility of such a project. It has also been clarified by an explanation that
the ash disposal system including ash dyke, coal transportation systems and water intake are
integral parts of such a project.  Full exemption from Central Excise duty has also been extended
to specified goods supplied to expansion projects of existing mega power projects, subject to
certain conditions.

Withdrawal of exemptions/ concessions

i). Several exemption notifications in excise (about 130 exemption entries) are being withdrawn.
These include certain cases where the tariff rate of duty itself is Nil. A nominal duty of 1% ad
valorem is being imposed on these items with the condition that no credit of the duty paid on
input and input services is taken. The statutory / tariff rate for certain of these items has been
fixed at 5% ad valorem. For the remaining items in whose case the statutory/tariff rate is not Nil,
a general effective rate of 5% is being prescribed (without any condition) through notification
no. 2/2011-CE dated 1st March, 2011. This would enable those manufacturers who wish to avail
of Cenvat credit to pay a concessional duty of 5%.

ii). In the case of jewellery of gold, silver or other precious metals as well as articles of these
metals falling under heading no.7114, the levy would apply only to goods either bearing a brand
name or sold under a brand name. Full exemption from excise duty is being retained for
unbranded products of this class.

iii). Full exemption from excise duty available to automatic looms and projectile looms is being
withdrawn. Full exemption on micro-processors, other than motherboards; floppy disc drive;
hard disc drive; CD-ROM drive; DVD drives/ writers; flash memory and combo drives meant for
fitment inside a laptop/CPU is also being withdrawn. All these goods would be chargeable to a
concessional rate of 5%.

iv). Full exemption was hitherto available to paper manufactured from non-conventional raw
materials for the first clearances not exceeding 3500 per metric tonne per annum made from a
unit. This exemption is being withdrawn.

Relief Measures
Full exemption from excise duty has been provided in the following cases:

i). Air-conditioning equipment, panels and refrigeration panels for installation of cold-chain
infrastructure for preservation, storage or transport of agricultural produce and apiary,
horticultural, dairy, poultry, aquatic & marine produce and meat as well as processing thereof.

ii). Conveyor belt systems for use in cold storages and in mandis and warehouses for the storage
of food grains and sugar

iii). Goods required for the expansion of an existing mega/ ultra mega power project subject to
specified conditions

iv).Specified parts of sewing machines (other than those with inbuilt motors)

v).Parts of power tillers when cleared to another factory of the same manufacturer for
manufacture of power tillers

vi).Cotton stalk particle board

vii).Enzymatic preparations for pre-tanning of leather

viii). Colour, unexposed cinematographic film in jumbo rolls of 400 feet and 1000 feet

ix). Pipe fittings required for a water supply project

Concessional duty of 1% is being provided for the following:

i). Sanitary napkins, baby and clinical diapers and adult diapers
ii). Water filters using pressurized tap water but no electricity and their replaceable kits

Excise duty is being reduced from 10% to 5% on

:i). Kits for the conversion of fossil fuel vehicles into hybrid vehicles and parts of such kits
ii). Grease proof paper and glassine paper

CENVAT CREDIT RULES

Several amendments have been carried out in the provisions of the Cenvat Credit Rules 2004.
The basic thrust of these changes is to simplify definitions with a hope of
reducing the disputes and to achieve a more realistic attribution when
common inputs or input services are used for the manufacture of both
dutiable and exempted goods. The salient features of these changes are as
under:
The definition of input contained in rule 2(k) has been revised.

* The requirement that goods should be used in or in relation to the

manufacture of final products whether directly or indirectly and whether
contained in the final product or not has been removed.

* Henceforth, all goods used in the factory by the manufacturer of the final product, except those
specified in the negative list and goods having no relationship whatsoever with the manufacture
of final product, would qualify for treatment as inputs.

* Any goods including accessories cleared along with the final product and goods used for
providing free warranty have also been included in the definition of inputs.

* Similarly, goods used for generation of electricity or steam for captive use also constitute
inputs.

* As for exclusions, any goods used for the construction of a building or a civil structure or
laying of foundation or making of structure for support of capital goods have been excluded.

* Another feature of the new definition is that goods used primarily for personal use or
consumption of any employee including food articles etc. have been expressly excluded.

ii). The definition of input service under 2(l) has also been rationalized.

* To impart clarity and to achieve congruence between goods and services so that the
services related to any goods excluded from the definition of inputs are also excluded
from the definition of input services. To give an example, goods used for construction
have been excluded from inputs while construction services, works contract service, and
other specified services in so far as they are used for construction have been kept out of
the purview of input services.

iii) Capital goods

In the case of capital goods, there is no material change in the definition. Credit of duty
paid on capital goods used outside the factory for generation of electricity for captive use
within the factory has been permitted.

iv). Ship breaking and scrap

The process of obtaining goods and material mainly melting scrap and re-rollable scrap
of steel, by breaking up of ships, boats and other floating structures is deemed to be a
process of manufacture in terms of section note 9 of Section XV of the Central Excise
Tariff. In the breaking of ships, a number of used serviceable articles such as pumps, air-
conditioners, furniture, kitchen equipment, wooden panels etc. are also generated. These
are generally sold as second hand goods by ship breaking units but no excise duty is
payable as they do not emerge from a manufacturing process. At the same time, ship
breaking units are allowed to avail full credit of additional duty of customs paid on the
ship when it is imported for breaking.

* It has been reported by the field formations that this anomaly is resulting in misuse of
the Cenvat credit scheme. Rule 3 of the CCR has been amended to prescribe that Cenvat
credit shall not be allowed in excess of 85% of the additional duty of customs paid on
ships, boats etc. imported for breaking.

v). Amendment to Rule 5B

Rule 5B is being amended to require a manufacturer or service provider to pay an amount

equivalent to the CENVAT credit taken in respect of inputs or capital goods even where
the value of such inputs or capital goods is written off partially before being put to use.
Currently, this is required only when the value is written off fully.

vi). The following amendments have been made in the Cenvat Credit Rules, 2004 for the
implementation of the 1% duty payment scheme under excise :

* The definition of “exempted goods” has been amended to include goods in respect of
which the benefit of notification No.1/2011-CE is availed. This would imply that the
credit attributable to such goods would have to be reversed when common inputs and
input services are used for both these goods and otherwise dutiable goods.

* Credit of duty paid on inputs or input services would not be available to a manufacturer
of these goods. Credit of the duty paid on items that are being subjected to the levy of 1%
would not be available to a manufacturer or service provider who buys them.

* It is also being prescribed in the Cenvat Credit Rules that the manufacturer of these
goods cannot discharge the duty liability on them by utilizing Cenvat credit otherwise
available in his books of accounts. For these provisions, amendments in the Cenvat
Credit Rules, 2004 contained in Notification No. 3/2011-CE (NT) dated 1st March, 2011
may be referred to.

* Many of the manufacturers of these goods may be fresh registrants under Central
Excise law. It may kindly be ensured that they are provided the necessary facilitation and
guidance in securing registration and complying with Central Excise formalities and that
coercive measures are not used in the immediate aftermath of the Budget for the
implementation of the levy.
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Union Budget 2011 – Service Tax

Saturday, March 19th, 2011

• Standard rate of Service Tax retained at 10 per cent

• The Point of Taxation rules for service has been changed
With effective from 1‐Apr‐2011 the basis for tax collection has been shifted from “cash” to
“accrual” basis, i.e. payable when the services shall be deemed to be provided. The general rule
will be that the time of provision of service will be the earliest of the following dates:
I. Date on which service is provided or to be provided
II. Date of invoice
III. Date of payment

• Two new services have been proposed:

1. Hotel accommodation (providing short term accommodation of less than 3 months), in excess
of declared tariff of 1,000 per day with an abatement of 50 per cent so that the effective burden is
only 5 per cent of the amount charged.
2. Service provided by air‐conditioned restaurants that have license to serve liquor, by giving an
abatement of 70 per cent. Thus, the effective burden will be 3 per cent of the bill

• Scope of following existing services expended

1. Authorized Service Station service: To cover all persons and all motor vehicles other than
those meant for s carriage or three wheeler auto rickshaw
2. Life Insurance Services: Services provided by Life Insurance Companies in the area of
investment also brought within the ambit of Service Tax

3. Commercial Training or Coaching Services: Scope expanded to include all coaching and
training that is not recognised by law

4. Club or Association Services: Services provided to non-members covered

5. Business Support Services: Scope expanded to include operational and administrative

assistance of any kind.

6. Legal Consultancy Services: Services provided to individuals covered and representation

services provided by any to business entities covered under Service Tax net

7. Transport of passengers by air service: Service Tax on air travel increased as follows;
(a) Domestic (economy): From Rs.100 to Rs.150
(b) International (economy): From Rs.500 to Rs.750
(c) Domestic (other than economy): now will be Standard rate of 10% of the ticket charges

Other important changes made under service tax

• Individual and sole proprietors provided relief from Service Tax audit by Department subject to
having turnover less than INR60 lakhs

• Penal provisions rationalized to encourage voluntary compliance

• Interest rate for delayed payment of service tax is being increased to 18% perannum, effective
from 01.04.2011. A concession of 3% has been proposed in the Billfor tax payers whose
turnover during any of the years covered in the notice or the preceding financial year is below Rs
60 lakh.

• Exemption is being given to services rendered to an exhibitor participating in an exhibition held

outside India.

• Maximum penalty for delayed filing of return will be increased to INR 20,000.

• Business exhibition services for holding an exhibition outside India will be exempt from
service tax levy.

• Provisions relating to prosecution are proposed to be re introduced and shall apply

in the following situations:
(i) Provision of service without issue of invoice;
(ii) Availment and utilization of Cenvat credit without actual receipt of inputs or input services;
(iii) Maintaining false books of accounts or failure to supply any information or submitting false
information;
(iv) Non‐payment of amount collected as service tax for a period of more than six months
• The Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 vide
Notification 1/2011 ST so as to restrict the Cenvat credit to 40% of the tax paid on services
relating to erection, commissioning & installation; commercial or industrial construction and
construction of residential complex, in case tax has been paid on full value of the service after
availing Cenvat credit on inputs

• Presently, outright exemption from service tax is available to services which are “wholly
consumed” within a SEZ. However, “wholly consumed” has not been defined in this regard.
Now, wholly consumed services in a SEZ will be linked with Export Rules for obtaining the
above exemption. Other services will be entitled for proportionate refund.

• Composition rate applicable to service of purchase or sale of foreign currency, including money
changing, reduced to 0.1%.

• Definition of “input service” for Cenvat credit purposes substituted. Services provided for
construction of building or civil structure, outdoor catering, life/ health insurance services not to
be considered as input service.

• “Exempted services” to include trading. For the purposes of availment of pro rata Cenvat
credit, value of trading will be the difference between sale price and purchase price of the goods
traded.

• Banking companies or financial institutions obligated to pay an amount equal to 50% of Cenvat
credit availed. For services related to life insurance or management of ULIP, such amount to be
equal to 20% of credit availed.

Tags: Service tax budget changes

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Union Budget 2011 – Central Excise

Saturday, March 19th, 2011

Policy changes:

► Peak rate of duty maintained at 10%. Basic duty rate increased from 4% to 5% to align with
state VAT rates.

► AED under AED (GSI) removed on sugar, textile and textile products to enable states to levy
VAT.

► Readymade garments and articles made up of textile, sold under brand name, made subject to
mandatory duty of 10%. General SSI scheme also extended to such goods.

► Machinery provisions to enable brand owners of garments to pay duty and comply with
procedures, for goods manufactured by job workers, introduced. Corresponding changes made in
Credit Rules.
► Condition for availing exemption on goods supplied to MPP has been relaxed and aligned
with description under project imports scheme of customs. Exemption also extended to specified
goods supplied to expansion of existing MPP, subject to conditions.

► Duty of 1% (without input Cenvat) imposed on 130 items earlier exempted. For specified
items, option provided to avail credit and discharge duty at 5%. Corresponding changes
introduced in Credit Rules.

► Exemption provided inter-alia to air conditioning equipment, refrigeration panels for

installation of cold chain infrastructure for preservation, storage or transport of agricultural
produce and apiary, horticulture.

The key changes mentioned below will take effect on

Enactment of Finance Bill:

► Penal provisions to be amended to provide for the following:

Where, transaction to which duty relates is appropriately captured in records, penalty reduced to
50% of duty.

Where duty (along with interest) is paid before issuance of SCN, penalty compounded to 1% per
month but not exceeding 25% of duty. The reduced penalty provisions would not be applicable
in cases of fraud, suppression, misstatement or collusion.

► Interest rate for delayed payment of duty increased from 13% to 18%.

► Definition of inputs and input services substituted to specifically exclude goods and services
used for the following:

Construction of building or civil structure, laying of foundation for support of capital goods.

Outdoor catering or use in guest house, residential colony, club or recreation facility when such
goods or services are primarily used for personal use or consumption of employees.

Services such as beauty treatment, health services, health and fitness centre, life insurance which
are primarily used for personal use or consumption of employees.

► Trading activity specifically included in definition of exempted services for the purposes of
computing credit reversal.

► For payment (or part thereof) towards input service is received back, then proportionate
Cenvat credit to be reversed.

► Rule 6(6A) inserted under Credit Rules to provide that restrictions of input credit will not
apply to services provided to SEZ unit or developer without payment of service tax.
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Union Budget 2011 – Custom Duty

Saturday, March 19th, 2011

Policy changes:

► Peak rate of BCD unchanged at 10%.

► Basic customs duty rates of 2%, 2.5% and 3% replaced with median rate of 2.5%.

The following changes will be effective on enactment of the Finance Bill:

► Existing procedure provides for assessment of every bill of entry or shipping bill by the
customs officer before removal from port of import. Goods will now be allowed to be cleared
both for import or export on ‘self assessment’ basis.

► Time limit for demanding customs duty and claiming refund of duty enhanced from six
months to one year for all categories of importers.

► Amendments made to allow exports counted towards export obligation under EPCG scheme,
to be also simultaneously available for benefits under export incentive schemes. These
amendments have been made with retrospective effect at the specified date.

► Interest would be payable from first day of the month succeeding the month in which the duty
is payable. Interest on delayed payment of customs duties enhanced to 18%.

► Presently, the power to release seized goods vests with the Commissioner of Customs. Now
the adjudicating authority will be empowered to release seized goods.

► Provisions to enable the Government to reduce the antidumping duty on an article or an

importer where such importer proves to the satisfaction of the Government that he has paid anti-
dumping duty in excess of his actual margin of dumping.

► Definitive safeguard duty imposed retrospectively on imports of caustic soda lye during the
period from 4 December 2009 to 3 March 2010.

► De-oiled rice bran oil cake exempted from BCD.

► Full exemption from BCD and SAD and concessional CVD at the rate of 5% extended to
specified parts of the hybrid vehicles. This exemption is actual user based and will be available
up to 31 March 2013.

► Presently, exemption from SAD is limited only to goods which are manufactured in SEZ and
cleared to DTA. Now, such exemption is extended to all clearances from SEZ into DTA,
provided they are not exempt from the levy of local VAT/ Sales tax.
► Exemption from BCD and CVD available to specified tunnel boring machine and parts
extended to such machines used in highway development projects also.

► Cash dispensers fully exempt from BCD. Parts required for the manufacture of cash
dispensers also exempted from BCD on actual user basis.

► Concessional import duty of 5% BCD, 5% CVD and nil SAD extended to specified mailroom
equipment imported by registered newspaper establishments.

► Concessional import duty of 5% BCD, 5% CVD and nil SAD extended to parts and
components for manufacture of 23 specified high voltage transmission equipments.

► Patent and proprietary medicines included under chapter 30 of the CTA imported for retail
sale now exempted from SAD.

► Parts/ components required for manufacture of PC connectivity cable and sub-parts of parts
and components of battery charger, hands-free head phones and PC connectivity cable of mobile
handsets including cellular phones now exempted from BCD. Exemption from SAD presently
available upto 31 March 2011 on parts, components and accessories for manufacture of mobile
headsets including cellular phones extended up to 31 March 2012. Also concessional import duty
of 5% CVD and nil SAD provided on parts of inkjet and laser-jet printers imported for
manufacture of such printers.

► List of specified goods which can be imported duty free for manufacture of leather goods,
textile and leather garments expanded.

► Exemption from BCD extended to stainless steel scrap. Exemption from BCD now provided
on the value of gold and silver contained in copper concentrate.

► Exemption to specified categories of works of art and antiquities granted to:

Works or arts of antiquities for exhibition or display in private art galleries or similar premises
that are open to general public.

Works of art created by an Indian artist abroad, irrespective of the fact whether such works are
imported along with the artist or the sculptor on their return to India.

► Packaged software which are not required to bear RSP shall now be exempted from so much
of the additional customs duty as is equivalent to the duty payable on the portion of the value
which represents the consideration paid or payable for transfer of the right of its use, subject to
conditions. Such software would be required to pay CVD only on the portion of value
representing the value of the medium on which it is recorded along with freight and insurance.

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Union Budget 2011 – Direct Tax
Saturday, March 19th, 2011

• Direct Tax Code will be implemented from 01 April 2012.

CHANGE IN TAX SLABS FOR THE F.Y. 2010-11:-

• For Individuals:-

Basic Exemption limit for the individuals has been raised from Rs 160,000 to Rs 180,000.
From 180,000 to 500,000 @ 10%
From 500,000 to 800,000 @ 20%
From 800,000 onwards @ 30%

• For Women:-

There has been no change in the Basic exemption limit for women i.e. Rs 190,000.
From 190,000 to 500,000 @ 10%
From 500,000 to 800,000 @ 20%
From 800,000 onwards @ 30%

• For Senior Citizen:-*

Basic exemption limit for senior citizen has been raised from Rs 240,000 to Rs 250,000.
From 250,000 to 500,000 @ 10%
From 500,000 to 800,000 @ 20%
From 800,000 onwards @ 30%

* Qualifying age of senior citizen has been reduced from 65 yrs to 60 yrs.

• Very Senior Citizen:-

A new category has been included in the Tax Slabs i.e Senior Citizen with age 80 yrs or more

Basic exemption limit for this new category is from Rs 500,000.

From 500,000 to 800,000 @ 20%
From 800,000 onwards @ 30%

Change in tax rate for domestic companies:-

• Basic Rate of Tax and Cess remains same i.e. 30% and 3%
However Current surcharge of 7.5 percent on domestic companies to be reduced to 5 percent.
For non-domestic companies surcharge has been reduced from 2.5% to 2%

Minimum Alternate Tax (MAT):-

• MAT has been increased from 18 per cent to 18.5 percent of book profits.

• SEZ Units, LLPs and SEZ developers are liable to MAT.

Dividend Distribution Tax (DDT)

• Lower rate of 15 per cent tax on dividends received by an Indian company from its foreign
subsidiary.

Investment in Infrastructure Bonds:-

• Additional deduction of Rs 20,000 for investment in long-term infrastructure bonds to be

extended for F.Y. 2011-12

Return filing of Salaried Employees:-

• Return filing of salaried employees has been exempted.

Transfer Pricing:-

Due date of filing TP reports has been enhanced to 30th November

Tags: Budget 2011, Direct Tax Code, Income Tax

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Admit Fema Violations, Get Away with a Small Penalty

Saturday, March 19th, 2011

1. What is contravention and compounding of contraventions?

Contravention is the breach of provisions and norms under the Foreign Exchange Management
Act, or FEMA 1999.Compounding of contraventions refers to the process where the individual
or the corporate entity can admit the contravention and seek redress from the Reserve Bank,
restricted to a specific sum.

What is the nature of these contraventions and how far can the central bank go?

The applications for compounding contraventions are categorized into technical, material or
sensitive by the Reserve Bank of India. The contravention involving money laundering, national
and security concerns involving serious infringement of the regulatory framework, etc., are
sensitive contraventions. RBI has no power to compound cases which are sensitive in nature.
Such cases will then have to be directed to the Directorate of Enforcement. If technical, the
applicant is issued a cautionary advice.

How does compounding of contraventions help?

When the contravention is material in nature, the individual or the corporate entity is given an
opportunity for a personal hearing by the compounding authority, which is optional. By
admitting the contraventions, the erring entity can save on the transaction costs as it would get
away by paying a smaller penalty levied by RBI. In not doing so, the individual remains exposed
to the action that can be taken by the central bank under FEMA. The penalty after compounding
the contravention, though much reduced, can be up to thrice the sum involved, in cases where the
amount if quantifiable and it can be up to.2 lakh in cases, where it is not quantifiable and for a
continuing contravention, RBI charges.5,000 each day, till the resolution of the case. All these
matters related to compounding are handled by the Cell for effective implementation of FEMA
(CEFA), which has to be kept informed about matters of compounding at all times.

What is the fee to be paid for applying for compounding and how long do the cases last?

The individuals are required to furnish all the details of the contravention along with the
application form which costs.5,000.The person, in his application, is also required to mention if
the case is under the investigation of the Directorate of Enforcement or under the Prevention of
Money Laundering Act (2002).The contravention penalty has to be paid up within 15 days of the
compounding order being signed. If the erring individual fails to pay the penalty within three
days, it is treated as if the individual never applied for compounding contravention, thus he
would be liable for the legal action under FEMA (1999).The compounding process is normally
completed within 180 days of the receipt of compounding application.

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Cos May have to Induct at least One Female Independent Director

Saturday, March 19th, 2011

The Corporate Affairs Ministry on Tuesday said it would make it mandatory for companies
having five or more independent directors to have at least one female independent director.
Companies having five or more independent directors would have to necessarily have at least
one female independent director, Corporate Affairs Minister Murli Deora said. The proposal
would be part of Companies Bill 2009,which is expected to be tabled in the current session of
Parliament. Industry body Assoc ham in a study titled Corporate Women: Close the Gender Gap
and Dream Big on Monday said that women executives would play a fundamental role in
shaping market-leading institutions. However, the study said, currently out of 1,112 directorships
of 100 companies listed on the Bombay Stock Exchange, only 59 positions, or 5.3%,are held by
women. This figure compares with 15% in Canada,14.5% in the US and 12.2% in Britain. Last
month, finance minister Pranab Mukherjee said Companies Bill 2009,which seeks to replace a
half-a-century old Act, would be presented in Parliament in the ongoing session. “The
Companies Bill introduced in Parliament in 2009 has been received by the Parliamentary
Standing Committee. The proposed Bill will be introduced in Lok Sabha in current session, “Mr
Mukherjee had said.

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Govt. Plans to Set Qualification Norm for Independent Directors
Saturday, March 19th, 2011

The new Companies Bill is expected to lay down the minimum qualifications and attributes
required in a person to be eligible for appointment as an independent director on the board of a
listed company.

The Bill, which was introduced in Parliament in the aftermath of the Satyam accounting scam of
2009, seeks to make boards and senior management of companies more accountable to
shareholders by replacing the 54-year-old Companies Act.

The new legislation may require an independent director to have understanding of business
negotiations, ability to read financial statements and a comfort level in handing numbers, a
government official told ET. “While a strong bio-data may not guarantee independence of mind,
but anything less than the desired background will certainly compromise on the responsibility
associated with the position,” the official said.

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ADR Norms may Ease as FDI Slows

Saturday, March 19th, 2011

The government has revived a proposal that seeks to give Indian companies easier access to the
US equity markets through American depository receipts (ADRs), with foreign direct investment
in the country slowing down.

The finance ministry is considering whether to allow Indian firms access to Level-I, or the most
basic, of ADRs. “There is a proposal… we are looking at it,” a senior finance ministry official
told ET.

A Level-I ADR is the most liberal form of a depository receipt that allows a non-American firm
to test the US equity markets with minimal reporting requirements from that country’s Securities
and Exchange Commission (SEC).

In a sponsored Level-1 offering, a company aggregates shares held by local investors who may
want to sell their holding, and offers them to the US market through ADRs.

The proceeds of the ADRs go to the investors, but the company gets to test the appetite for its
shares in the US, allowing it to raise fresh equity there through a Level-3 offering later.

“The ADR Level-1 issuance is the easiest and most inexpensive way of raising overseas finance
and gauging the interest of US investors,” said Punit Shah, head of financial services tax practice
at KPMG. “Allowing this route will throw open huge new opportunities for fund raising and will
certainly result in enhanced FDI inflows into the country.”
In 2008, an expert panel constituted to look into ADR/GDR rules had suggested Indian
companies should not access Level-I ADRs as the time then was not ripe.

The panel was chaired by Saumitra Chaudhuri, a member of the Prime Minister’s Economic
Advisory Council and the Planning Commission.

The proposal came up for discussion again in 2009, but was shelved because of uncertainties in
the global economy at the time.

However, with India’s current account deficit widening to record levels, the country needs to
attract foreign capital to fund the gap.

“India’s current account deficit is rising at a rapid pace,” Tushar Poddar, Chief India Economist
at Goldman Sachs, said in a report last month. “We believe it could widen to 4% of GDP (gross
domestic product) in FY11 and further to 4.3% in FY12, its highest-ever level.”

Though capital inflows are sufficient to cover even this large deficit, the rising share of short-
term or volatile flows is a cause of concern. The Reserve Bank in its latest policy review also
emphasised efforts should be made to attract more FDI in the country as it is more stable than
portfolio investments. “… The composition of capital inflows needs to shift towards longer-term
commitments, such as FDI,” the central bank said in its policy review on Tuesday.

FDI inflows into the country slipped to $19 billion year-on-year in April-November 2010-11,
from over $25 billion in the year-ago period. “The current account deficit is being largely
financed by portfolio flows, which is a concern especially in an environment which has been
oscillating between risk on and off,” said a recent Citigroup research note.

The companies issuing Level-1 ADRs can choose not to list, but be present on over-the-counter
exchanges and escape compliance with rigorous US accounting standards. India currently allows
only Level-3 ADRs, which involve capital raising and listing on regular exchanges and greater
disclosures, including costly compliance with the US laws.

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LIMITED LIABILITY PARTNERSHIP IN INDIA – AN OVERVIEW

Sunday, January 30th, 2011

Limited Liability Partnership (‘LLP’ for short) is the new form business entity. It is a hybrid
entity incorporating features of a body corporate and the partnership. LLP is prevalent across the
globe. They are commonly used by private equity/venture capital funds and professionals. Indian
LLP Act is unique in tax treatment.

LLP Act, 2008 was notified on 01.04.2009. First LLP was registered on 02.04.2009. As on
15.10.2010 2526 LLPs have been registered.
LLP shall be a body corporate and a legal entity separate from its partners having perpetual
succession. It is a form of business model which-

>> is organized and operates on the basis of agreement;

>> provides flexibility without imposing detailed legal and procedural requirements;

>> enables professionals/technical expertise and initiative to combine with financial risk taking
capacity in an innovative and efficient manner.

In 1997 Naresh Chandra Committee in its report on regulation of private companies and
partnership had suggested that the LLP form should initially be made available only to those
providing defined professional services like Advocates, Chartered Accountants, Companies
Secretaries like professionals as these professions are already governed by regulations that
adequately controls and disciplines errant professional conduct. The said Committee further
suggested that LLPs may be extended, at a later stage, to other services and business activities,
once the experience gained with this form of organization has been evaluated and tested. Now
LLPs have not been restricted only to professional services and all activities are permissible.

The following are the features of LLP:

LLPs are governed by Limited Liability Partnerships Act, 2008;

The essential requirement for setting up LLP is carrying on a lawful business with a view to
profit;

Foreigners can incorporate LLP in India provided at least one designated partner is resident of
India;

LLP is to be registered with Registrar of Companies;

LLP is governed by LLP agreement;

No minimum paid up capital is specified for LLPs;

Every contribution to the capital of LLPs shall have a monetary value, determined by a
Chartered Accountant but no guidelines have been prescribed yet;

A contribution of a partner may consist of tangible, moveable or immovable or intangible

property or benefit to LLP including money, promissory notes, other agreements to contribute
cash or property and contracts for services or to be performed.

LLP agreement is to be filed with Registrar of Companies;

LLP identification number is to be obtained from Registrar of Companies;

Minimum number of Members in LLP is 2 and maximum number is no limit;

LLP has to identify designated partner;

Liability of members is limited;

LLP can sue or be sued in the name of LLP;

Name of LLP should be obtained in accordance with LLP Act;

Board meetings is depending upon the procedure in the LLP agreement;

Share holders meeting procedure as that in Companies Act is not applicable to LLPs;

Preparation of minute books is depending upon the procedure prescribed in LLP agreement;

It is mandatory to appoint auditors;

All LLPs are compulsorily required to get their accounts audited by a Chartered Accountant.
However compulsory of audit of accounts is not required when the turnover in any financial year
does not exceed 40 lakh or the contribution does not exceed 25 lakh;

Maintenance of statutory registers as in Companies Act are not applicable to LLPs;

Maintenance of Books of accounts is compulsory for LLPs;

Filing of annual return and balance sheet with the Registrar of Companies is mandatory;

It is restricted to invite to the public to subscribe for any shares or debentures of the LLP;

It is restricted for the LLP to list on stock exchange;

It is possible to issue of shares/interest other than cash;

Merger and Amalgamation is possible in LLPs;

LLP is to obtain PAN/TAN from Income Tax Department;

Filing of Income Tax Return is compulsory;

Accounting Standards for LLP has yet been prescribed;

Tax Rate to LLP is 30.90%;

Minimum Alternative Tax is not applicable to LLPs;

Dividend Distribution Tax is not applicable to LLPs.

Every year on or before six months from the end of the financial year, each LLP is required to
file a Statement of Accounts and Solvency in form signed by designated partners.

The Registrar of Companies is having the following powers on LLP:

 Under Section 36 to inspect documents such as incorporation details of partners, statements of

accounts, returns etc;

 Under Section 37 to levy penalties for submission of false statements;

 Under Section 38 to obtain any such information from the LLP as it considers necessary for the
purposes of LLP Act;

The Central Government is having the following powers on LLP:

 Under Section 39 to compound the offences;

 Under 43 to appoint competent persons to investigate the affairs of the LLP;

 Under Sec. 79(2) to make rules for 39 items.

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Participation in The India Show 2011 in Singapore @ Suntec Convention & Exhibition Center
Tuesday, January 4th, 2011

The relation between India and Singapore have a long history, dating back to when Singapore
was given its name by an Indian ruler in the 10th century. Today, India and Singapore are
mutually important economic partners, a relationship that has expanded exponentially since the
two countries signed the Comprehensive Economic Cooperation Agreement (CECA) in June
2005. CECA is the first comprehensive treaty for economic relations signed by India and
includes not only trade but also investments, services and education among others. It has become
a model economic agreement for India.

In order to further strengthen the trade relation between India and Singapore / ASEAN nations,
Confederation of Indian Industry (CII) along with High Commission of India in Singapore is
organizing “The India Show” Exhibition in Singapore from 14th-16th January 2011 at Suntec
International Convention and Exhibition Centre, Singapore. “The India Show” is supported by
Ministry of Commerce and Industries, Government of India.

S R Corporate Services Private Limited is participating in the show as the Business Setup
Advisor for encouraging companies to invest in India. People associated with S R Corporate are
requested to be there at our Booth No. 92 if you or any of your representatives is in Singapore on
14-16 January 2011.