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INDIRECT TAXES
Indian Budget 2009-10- Full Text- July 06, 2009
104. Madam Speaker, I turn to my main proposals on indirect taxes.
105. I will first take up customs duties.
106. Although our domestic industry has weathered the impact of the global financial crisis and the resultant slowdown with resilience, it is yet to fully find its feet. Manufacturing growth, which had turned negative in October 2008 on a year-on-year basis and remained in that zone till March this year, appears to be barely turning the corner. However, the global scenario remains worrisome and it is my view that the paramount need is to provide industry with a stable framework. My proposals on indirect taxes seek to achieve this by maintaining the overall rate structure for customs and central excise duties as well as service tax. I must hasten to add that I have not hesitated to act where distortions provide a compelling reason or where relief would provide a healing touch.
107. Full exemption from basic customs duty was provided to Set Top Boxes in 2006 to enable their free import for the smooth introduction of the Conditional Access System (CAS). Now that production capacity has come up in the country, I propose to impose a nominal basic customs duty of 5 per cent on such Set Top Boxes to encourage domestic value addition.
108. The electronic hardware industry has a strong potential for creating employment especially in the SME sector. I intend to reduce the basic customs duty on LCD panels from 10 per cent to 5 per cent to support indigenous production of LCD televisions.
109. Full exemption from CVD of 4 per cent was available to accessories, parts and components imported for the manufacture of mobile phones till the 30th of June, 2009 . I propose to reintroduce this exemption for another year.
110. For reasons that are apparent, industry sectors having an export-orientation have been adversely impacted by the demand compression in global markets. Presently, exporters of leather products, textile garments, footwear as well as sports goods are permitted to import raw materials, consumables etc. upto 3 per cent of the fob value of their exports free of duty. I propose to add a few more items to these lists. Full exemption from basic customs duty is being provided to rough corals for encouraging value-addition and export.
111. It is imperative that the contribution of new and renewable energy sources of power is enhanced if we have to successfully combat the phenomena of global warming and climate change. I am reducing the basic customs duty on permanent magnets - a critical component for Wind Operated Electricity Generators - from 7.5 per cent to 5 per cent.
112. On influenza vaccine and nine specified life saving drugs used for the treatment of breast cancer, hepatitis-B, rheumatic arthritis etc. and on bulk drugs used for the manufacture of such drugs, I propose to reduce the customs duty from 10 per cent to 5 per cent. They will also be totally exempt from excise duty and countervailing duty.
113. Customs duty will also be reduced from 7.5 per cent to 5 per cent on two specified life saving devices used in treatment of heart conditions. These devices will be fully exempt from excise duty and CVD also.
114. Gold bars currently attract customs duty at the specific rate of Rs.100 per ten grams while other forms of gold (excluding jewellery) are chargeable to a duty of Rs.250 per ten grams. These rates were fixed in 2004 and have not been reviewed even as the price of gold has increased manifold. I propose to partially restore the incidence by increasing these rates to Rs.200 per ten grams and Rs.500 per ten grams respectively. Along the same lines, the customs duty on silver (excluding jewellery) will be increased from Rs.500 per kg to Rs.1,000 per kg. These revised rates would also apply to gold and silver, including ornaments that are not studded, when imported by a bona fide passenger as baggage.
115. I will now come to central excise duties.
116. Hon’ble Members are aware that the Government announced a series of fiscal stimulus packages, one of the key elements of which was the sharp reduction in the ad valorem rates of Central Excise duty for non-petroleum products by 4 percentage points across the board on 7th of December 2008 and by another 2 percentage points in the mean CENVAT rate on the 24th of February, 2009.
117. One of the consequences of these cuts was that pure cotton textiles came to be fully exempted from excise duty. We have received representations that full exemption prevents manufacturers from availing of export rebate of the duty paid from CENVAT credit. I propose to rectify this situation by restoring the erstwhile optional rate of 4 per cent for cotton textiles beyond the fibre stage.
118. Ever since the revamp of the excise duty structure on textiles by my distinguished predecessor in the 2004 budget, a differential in rates has been maintained between the cotton sector and the manmade sector. In keeping with the integrity of the earlier structure, I propose to restore the rate of 8 per cent Central Excise duty on manmade fibre and yarn on a mandatory basis and on stages beyond fibre and yarn at that rate on optional basis. These changes, together with duty changes on intermediates, would imply that the duty on all types of manmade fibre and yarn and their intermediates would be the same, easing the problem of credit accumulation.
119. Wool waste and cotton waste are chargeable to basic customs duty of 15 per cent. These are used in the manufacture of cheaper varieties of textile articles such as blankets and rugs. As a measure of relief to this sector, I propose to reduce the basic customs duty on these items to 10 per cent.
120. With the Government’s proclaimed objective of introducing a Goods and Services Tax (GST) both at the national and State level, some more steps in that direction are necessary. One measure that would facilitate the process is the further convergence of central excise duty rates to a mean rate - currently 8 per cent. I have reviewed the list of items currently attracting the rate of 4 per cent, the only rate below the mean rate. There is a case for enhancing the rate on many items appearing in this list to 8 per cent, which I propose to do, with the following major exceptions:
• food items; and
• drugs, pharmaceuticals and medical equipment.
Some of the other items on which I propose to retain the rate of 4 per cent are:
• paper, paperboard & their articles;
• items of mass consumption such as pressure cookers, cheaper electric bulbs, low-priced footwear, water filters/purifiers, CFL etc.;
• power driven pumps for handling water; and
• paraxylene.
The details are available in the relevant notifications.
121. Bio-diesel, obtained from vegetable oils and used for blending with petro-diesel, is currently exempt from excise duty. I now propose to fully exempt petro-diesel blended with bio-diesel from excise duty.
122. In order to encourage the use of this environment friendly fuel and augment its availability in the country, I also propose to reduce basic customs duty on bio-diesel from 7.5 per cent to 2.5 per cent - at par with petro-diesel. With these proposals I hope to see a smile on the faces of the green brigade!
123. My other proposals on central excise duties seek to address distortions that the manufacturing industry has been complaining about.
124. The IT industry has pointed out that it is facing difficulties in the assessment of software which involves transfer of the right to use after the levy of service tax on IT software service. To resolve the matter, I propose to exempt the value attributable to the transfer of the right to use packaged software from excise duty and CVD.
125. The construction industry has represented that they are facing difficulties on account of withdrawal of exemption on goods manufactured at site. I propose to restore full exemption to such goods, including pre-fabricated concrete slabs or blocks, when used for further construction at site.
126. A specific component was added to the ad valorem duty of 24 per cent applicable to large cars and utility vehicles in June last year. In the case of vehicles of engine capacity below 2000 cc, this component was Rs.15,000/- per unit while for vehicles of higher engine capacity it was Rs.20,000/- per unit. These rates are now being unified at the lower level of Rs.15,000/- per unit.
127. Petrol driven trucks provide a useful means of transport within cities and across short distances. These are chargeable to excise duty of 20 per cent. I propose to reduce excise duty on these trucks to 8 per cent to equate the duty with similar vehicles run on diesel.
128. Madam Speaker, I fear that my proposals relating to gold and silver on the customs side would somewhat dent my popularity with women. I propose to salvage this by fully exempting branded jewellery from excise duty.
129. I now turn to my proposals on service tax.
130. It is an international practice to zero-rate exports. To achieve this objective, a scheme was announced in 2007, granting refund of service tax paid on certain taxable services used after the clearance of export goods from the factory. For some time now, the exporting community has been expressing dissatisfaction over the difficulties faced in obtaining such refunds. Several procedural simplifications attempted in the past have also not yielded satisfactory results. The solution seems to lie in placing greater trust on the claims filed by the exporters. Keeping this in view, I propose to make the following changes in the scheme:
• Services received by exporters from goods transport agents and commission agents, where the liability to pay service tax is ab initio on the exporter, would be exempted from service tax. Thus, there would be no need for the exporter to first pay the tax and later claim refund.
• For other services received by exporters, the exemption would be operated through the existing refund mechanism based on self-certification of the documents where such refund is below 0.25 per cent of fob value, and certification of documents by a Chartered Accountant for value of refund exceeding the above limit.
131. The Export Promotion Councils and the Federation of Indian Export Organizations (FIEO) provide a valuable service in augmenting our export effort. I propose to exempt them from the levy of service tax on the membership and other fees collected by them till 31st March, 2010 .
132. In the goods transport sector, service tax is currently levied on transport of goods by road, by air, through pipelines and in containers. However, goods carried by Indian railways or those carried as coastal cargo or through inland waterways are not charged to service tax. In order to provide a level playing field in the goods transport sector, I propose to extend the levy of service tax to these modes of goods transport. The new levy is not likely to impact the prices of essential commodities or goods for mass consumption, as suitable exemptions would be provided.
133. As the Hon’ble Members are aware, services provided by chartered accountants, cost accountants, and company secretaries as well as by engineering and management consultants are presently charged to service tax. Although there is a school of thought that legal consultants do not provide any service to their client, I hold my distinguished predecessor in high esteem and disagree! As such, I propose to extend service tax on advice, consultancy or technical assistance provided in the field of law. This tax would not be applicable in case the service provider or the service receiver is an individual.
134. Vehicles having ‘Stage Carriage Permits’ and run by State undertakings are exempted from service tax. However, transportation of passengers undertaken by private enterprises in vehicles having ‘Contract Carriage Permits’ is, subjected to service tax. In order to bring parity in tax treatment, I propose to exempt such transportation also from the levy of service tax.
135. In July, 2008 goods transport agents (GTA) went on strike with several demands. One of the demands that was accepted by the government was to exempt certain services, such as packing, cargo handling and warehousing, provided to GTAs en route, from service tax. For this purpose an exemption notification was issued. It was also demanded by goods transport agents that the proceedings already initiated against such service providers should be dropped. The Government has accepted this genuine demand. Therefore, I propose to make certain legislative changes required to fulfill this promise.
136. Copies of notifications giving effect to the changes in customs, central excise and service tax will be laid on the Table of the House in due course.
137. My tax proposals on direct taxes are revenue neutral. On indirect taxes, they are estimated to yield a net gain of Rs.2,000 crore for a full year.
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