Budget wishlist: What can be done in indirect taxes

By Smritikona Dutta

The key to the upcoming Union Budget 2013-14 will be to rein-in fiscal deficit, show buoyancy in tax revenues and yet be industry friendly.

With plethora of changes introduced in last year’s budget, it is necessary that a clear framework is set to achieve fiscal prudence. Some of the key budget expectations of the industry are retention of the existing customs, excise, service tax rates and laying down of a clear roadmap so that GST may be rolled out at the earliest.

[caption id=“attachment_634432” align=“alignleft” width=“380”]  The VAT authorities do not accept software transactions being regarded as a service and vice-versa. Moneycontrol.com[/caption]

We have discussed below a few industry-specific as well as generic issues that are plaguing various sectors from an indirect tax perspective.

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Software- dual levies, VAT, service tax: Practically, most software sellers levy both service tax and VAT on the value of software supplied in order to avoid disputes.

This is so because the authorities that levy of tax on sale and service are different. One operates at the state level and the other at the Centre.

The VAT authorities do not accept software transactions being regarded as a service and vice-versa.

To avoid such double taxation it is recommended that the position with regard to software, including licence to use such software, is clarified.

Automobile sector: The Supreme Court in the Fiat judgment has held that a consistent loss making price for penetration of the market cannot be considered as ordinary sale under Section 4 of the Central Excise Act as it existed prior to 1 July, 2000.

It has also been held that under new Section 4 (i.e. post 1 July 2000) such sale of goods below the cost of production will violate the condition of “price being the sole consideration for sale”.

Till the pronouncement of the above judgment, the understanding prevailing in the government and industry was that unless there is a quantifiable additional consideration flowing from the buyer to seller, the sale price shall be accepted as the transaction value at which the goods are sold in ordinary course.

Clarity is sought on this subject. The hope is that the section be amended retrospectively to state that this judgment will not apply year 2000 onwards.

Declared goods status: Coal is a declared good. Such declared goods status should be extended to natural gas and naphtha. Lower tax rates would increase the use of such energy efficient fuels.

Further, cement, unlike other similar goods is subject to higher rates of taxation. It is requested that cement be stipulated as declared goods to give equal footing with other core sector goods like coal and steel. This would give impetus to the infrastructure sector.

Broadening the ambit of CENVAT credit: The Finance Act 2012 introduced the concept of negative list which broadened the tax base. At the same time numerous restrictions were imposed on the availability of Cenvat credits with regard to inputs and input services.

As a harbinger to the GST regime, it is suggested that Cenvat credit of all the input/ input services be available with limited restrictions.

Withdraw partial reverse charge mechanism: The introduction of partial reverse charge mechanism has created an enormous compliance burden on the industry, while the service tax contribution from this mechanism is quite low. It is suggested that this mechanism be withdrawn.

Pending Cenvat refund claims under Rule 5: Suitable mechanism with time limits prescribed should be introduced for expediting the sanctioning of pending refund claims. This will also minimise the litigation. Further, late sanctioning of refund claims should require the government to pay interest on the same.

Withdraw recovery circular: The recovery circular is draconian, arbitrary in nature since recovery proceedings can be initiated if there are no stay orders or the stay orders have lapsed. The circular has created unnecessary hassle for the assessee and it is suggested that the same may be withdrawn.

Central excise, service tax and customs interest payment: An interest rate of 18 percent is payable by the assessee when duty is short levied / short paid or not levied / not paid. However, in case of delayed refunds, the department is liable to pay 6 percent interest. There is need for fairness and equity in the rates at which interest is paid by the department and what is charged.

Given the varied expectations of Budget 2013-14, it now needs to be seen how our finance minister balances the expectations of the industry vis-a-vis the need of fiscal consolidation.

Budget-day is much awaited.

The author is a Manager at Deloitte Touche Tohmatsu India Private Limited