Rate of Duty & Rate of Service Tax Via GST
Q 1 Whether the rate of excise duty and service tax has been increased due to the onset of GST regime ?
Answer :
Ofcourse , the rate of excise duty and service tax has been increased solely due to GST which will be a reality in 2016.
The excerpts of FM Budget Speech , produced herein below , itself convey the rest :
118. As part of the movement towards GST, I propose to subsume the Education Cess and the Secondary and Higher Education Cess in Central Excise duty. In effect, the general rate of Central Excise Duty of 12.36% including the cesses is being rounded off to 12.5% .
121. Introduction of GST is eagerly awaited by Trade and Industry. To facilitate a smooth transition to levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax plus education cesses from 12.36% to a consolidated rate of 14%.
Q2 Whether , further increase of rate of excise duty and service tax is on card ?
Answer
Yes , it seems that due to GST further increase in rate of excise duty and service tax is on card.
It is pertinent to note that the tussle for finalization of rate of GST by and between various finance commissions, empowerment committee , industrial associations , working committees, white papers, reports etc has had recommended a rate hovering between 16 to 23 % for GST .
But , as per various leading research institutions , anything above 16% shall not be viable for service sector in India and this seems to be sealed by Finance Minister in budget 2015 .This has led to enhance the service tax rate from 12.36% to 14 % which shall be notified with the enactment cum assent of Finance Act ,2015.
Since a touch and inform policy has been swiftly adopted in Finance Minister’s speech of Budget 2015 , as below , by way of mention of 2% as “Swachh Cess”, it appears that ultimately the service tax rate is going to be enhanced to 16%;
123. In indirect taxes, I propose to increase the Clean Energy Cess from ………….. It is also proposed to have an enabling provision to levy Swachh Bharat Cess at a rate of 2% or less on all or certain services if need arises. This Cess will be effective from a date to be notified. Resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat.
This Cess shall be levied from such date as may be notified by the Central Government after the enactment of the Finance Act, 2015. Hence, one can understand that at the time of assent or in near future , the levy of service tax , @ 16%, on value of service cannot be ruled out .
One must understand that the 16% rate can be bifurcated as 14% Service Tax and 2% Swachh Cess as both are levieable on value of services only. The levy and collection of proposed Swachh Cess can be understood from clause 117 of Finance Bill 2015 as below :
117. (1) This Chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
(2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of two per cent. on the value of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.
(3) The Swachh Bharat Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force.
Hence, in order to match the ultimate rate of GST ,and going by the various reports and whitepapers including between the lines wording of speech of Finance Minister in Budget 2015 itself ,though it is quite premature but then too I have strong feeling that we can see an era where 16% will be rate for service tax and 16% may be also rate of excise duty.
Job Work of Capital Goods
Q 3 In Budget 2015, the time limit for return of capital goods from job worker’s has been increased from 180 days to 2 years. Is this rule applicable to the goods sent prior to six months i.e. before this change in the time limit or otherwise ?
Is there any change of time limit for receipt of raw material/partially processed goods also.
Answer It is pertinent to refer the new provision under Rule 4(5) (a)(iii) of Cenvat Credit Rules,2004 , as below :
(iii) the CENVAT credit on capital goods shall be allowed even if any capital goods as such are sent to a job worker for further processing, testing, repair, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or the provider of output service taking the CENVAT credit that the capital goods are received back by the manufacturer or the provider of output service, as the case may be, within two years of their being so sent:
Provided that credit shall be allowed even if any capital goods are directly sent to a job worker without their being first brought to the premises of the manufacturer or the provider of output service, as the case may be, and in such a case, the period of two years shall be counted from the date of receipt of the capital goods by the job worker; On perusal of the same , it can be understood that the two year duration on capital goods sent to job worker will operate in the following manner :
a.if the 6 months period has expired , after sending the capital goods but before it is extended to two years , then the new provision will not be applicable . Therefore, one is required to reverse the cenvat credit availed thereon .
b. if the 6 months period has not expired, after sending the capital goods but in between the period of return is increased to two years , then it will be applicable. In such cases , no reversal of cenvat credit is required .
Capital Goods and Inputs For Job Work
Q 4 What will be the manner of counting two years where capital goods have been sent after receiving in factory and in those cases where it is directly sent to job workers ?
Answer
The two years period will be different under both the cases :
a.Where capital goods are received in the factory and then sent to job worker – Two year period will be counted from the date of sending the capital goods . It should be received within 2 years from such a date .
b.Where capital goods are received in the factory and then sent to job worker – Two year period will be counted from the date, such capital goods were received at the end of job worker . Similar provisions also exist for computing the 180 days stipulated period for Inputs as well .
Q 4 The digital signed invoices can be issued by a manufacturer but whether such invoices can be used for transportation of goods as well?
Answer
Sub-rule(8) of Rule 11 of Central Excise Rules ,2002 mandates that for transportation of the goods , the hard copy of digitally signed duplicate copy of invoice for transporter should be self certified by the manufacturer and accompany such goods during the transportation . For better understanding the provision , Sub-rule (8) of Rule 11 is produced herein below :
(8) An invoice issued under this rule by a manufacturer may be authenticated by means of a digital signature: Provided that where the duplicate copy of the invoice meant for transporter is digitally signed, a hard copy of the duplicate copy of the invoice meant for transporter and self attested by the manufacturer shall be used for transport of goods.
Note : I must share and caution that this budget has brought some minute changes which are substantial in nature . If such changes are not considered and implemented properly , it can bring hidden liabilities .
Anand Mishra, Founder Advocate, AMLEGALS ( The author is a leading indirect tax advocate handling cases in CESTAT & High Courts of India. He can be contacted on anand@amlegals.com and for more please refer www.amlegals.com . The views taken by the author is strictly based upon interpretation of law and information available on the subject matter under reference )
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