The key amendments proposed by the FM to the Finance Bill 2012 in
Excise, Service tax & Custom laws which have been approved by the
Lok Sabha & Rajya Sabha are discussed below:
Customs
•
The rigour of the prosecution provisions originally proposed to be
introduced under the Customs Act has been diluted in the following
manner:
- Only serious offences under the customs law involving
prohibited goods or duty evasion exceeding Rs. 50 Lakh has been retained
as `cognizable offences' as opposed to a broader criterion proposed
(viz., any offence punishable for a term of imprisonment of three years
or more) under the original Finance Bill;
- An attempt seems to
have been made to render the bail provisions less onerous by providing
that all offences would be bailable. However, despite the declaration by
the FM in his speech that "In response to concerns expressed by Members
that the proposal regarding grant of bail only after hearing the public
prosecutor is too harsh, I propose to omit this provision entirely",
Section 121 of Finance Bill 2012 (which prescribes the opposition by the
public prosecutor) does not seem to have been changed. This appears to
be an oversight and further clarifications may be expected in this
regard from the Ministry of Finance
Excise
• In the face
of severe opposition from the relevant industry bodies,
the proposed
levy of excise duty of 1 percent on unbranded precious metal jewellery
has been rolled back with effect from March 17, 2012
• Excise duty rates for various tobacco products have been rationalized
Service tax
Various changes have been introduced vis a vis the comprehensive service tax regime. The key changes are highlighted below:
•
The definition of `service' has been amended to exclude activities
which qualify as `deemed sale' under the Constitution. This would have a
significant impact vis a vis service tax positions in case of `lease
transactions' and `works contracts'.
• The definition of
`Interest' has been amended to exclude "any service fee or other charge
in respect of the moneys borrowed or debt incurred or in respect of any
credit facility which has not been utilized". This was earlier included
in the definition.
Given that the Negative List of services
includes "services by way of extending deposits, loans or advances in so
far as the consideration is represented by way of interest or
discount", it might have been possible (based on the earlier definition)
to adopt a view that several financial services would be outside the
service tax net since not only `interest' in the classical sense, but
also various processing charges etc could also have been said to be
excluded vide the original definition. This potential planning option
has effectively been done away with.
• The definition of `works
contract' has been expanded to include works carried out on moveable
properties also. Under the original provisions of the Finance Bill,
contracts solely for "any building or structure on land" were covered
under the ambit of `works contract'. Thus, an attempt has been made to
align the definition of `works contract' under service tax to State VAT
laws presumably in order to achieve consistency of tax treatment.
This
is a significant change as the option of composition scheme under
service tax may now be available even for certain hitherto uncovered
services like maintenance contracts for goods. On the flip side, this
may also lead to new credit restrictions given the Explanation 2 to the
new Rule 2A in the Service Tax Valuation Rules which states "For the
removal of doubts, it is clarified that duty of excise paid on any
goods, property which is transferred (whether as goods or in some other
form) in the execution of works contract, shall not be availed as CENVAT
credit"
• The language used in the negative list entry
pertaining to services of transportation of goods provided by an
aircraft or vessel from outside India to within India has been amended
to avoid interpretative disputes as to the scope and extent of that
entry.
The earlier entry used the phrase "to the first customs
station of landing in India" which has now been replaced with "upto the
customs station of clearance" – a much improved drafting effort which
would hopefully result in avoiding interpretative disputes.