Pre Budget Memorandum 2011-12 (Indirect Taxes)

I N D E X

S.NO.ISSUE PAGE NO.

CUSTOMS DUTY

  1. Customs Duty on Propane, Ethylene, Propylene1
  2. Import of Coal for Power Generation1 - 2
  3. Customs Duty on Paper/Paperboards 2
  4. Import of Waste Paper3
  5. Plantations for pulp and paper mills on degraded waste lands3 - 4
  6. Zero Duty Customs Duty on Hulled Oats (Agricultural Products) 4 - 5

falling under Chapter Heading 1104 22 00 of the Indian Customs Tariff

  1. Drawback Benefits on Furnace Oil available to SEZ & EOU 5

not restored even after Customs Duty has been imposed on Crude Oil

  1. Customs Duty Exemption/Concession on Solar Lanterns5
  2. Customs Tariff - Chapters 61 & 626
  3. Custom Duty on Cold Chain Infrastructure6 - 7
  4. Exemption of Customs Duty on Aluminium Ingots7
  5. Exemption from Customs Duty on Die Steel related Items7
  6. Customs Duty on Natural Rubber (HSN 4001)7 - 8
  7. Wavier of Customs Duty on Raw Materials not Manufactured Domestically8 - 9
  8. Reduction in Customs Duty on Key Raw Materials of Tyre Industry9 - 10
  9. Abolition of Special Additional Duty (SAD) of 4% on Capital Goods10 - 11
  10. Custom Duty on Education Cess and Scanned Cess11
  11. Customs Tariff - Chapters 51, 52, 54, 55, 5811
  12. Refund of Customs Duty under Section 26A of the Customs Act11 - 12
  13. Curtail Contraband Trade in Cigarettes12
  14. Ban FDI in the Tobacco Sector13 - 14
  15. Amendment of List 12 and 13 of Customs Notification14 - 17
  16. Partial Custom Duty Exemption to the Raw Material for Manufacturing of Castings17 - 18
  17. Exemption from Duty – Import of Oakwood Barrels18

*****

I N D E X

S.NO.ISSUE PAGE NO.

CENTRAL EXCISE

  1. Excise Duty Exemption on Solid-State Non-volatile Storage-Device1 - 2
  2. Excise Duty Exemption on ‘Stamper for CD/DVD-ROM’ 2
  3. Excise Duty on Matches2 - 3
  4. Exemption from Central Excise Duty on Bakery and Confectionery Items3 - 4
  5. Excise Duty Exemption on Confectionery 4
  6. Excise Duty on Packaging Materials 4 - 5
  7. Import Duty on Olive Oil5
  8. NCCD on Crude Oil5
  9. Exemption from Excise Duty on Irrigation Pipes and Tubes5 - 6
  10. CENVAT Credit on Imports through Courier6
  11. Central Excise Tariff on Textile Products classified under Chapters 50-637
  12. CENVAT Credit on Capital Goods7
  13. Excise Duty on Packaged Drinking Water8
  14. Reduction of Excise Duty on Poly-coated Paper Products – 8

Central Excise Tariff No. 4811 59 00

  1. Reduction in Excise Duty Rate on EOU Despatches9
  2. EPCG benefit (Indigenous sourcing) to be Extended to 9

Pre Engineered Buildings

  1. Excise Duty on Intermediate Goods Captively Consumed9 - 10
  2. Inverted Duty Structure10
  3. Duty on Clearance of Waste Generated10 - 11
  4. Amendment of the Provisions related to Unjust Enrichment11
  5. Power to Grant or Take away Exemption Retrospectively11 - 12
  6. Time Limit for Return of Input/ Capital Goods from Job Worker12
  7. Partial credit of Capital Goods 12
  8. CENVAT credit on Diesel12 - 13
  9. Pre-Deposit Requirement for Appeals13
  10. Storage of Capital Goods outside the factory of the manufacturer13 -14
  11. Excise Duty on Cigarettes used Captively for Testing14
  12. Continuation of Specific Duty Structure of Excise14 – 15
  1. Amend the existing Excise Slab of Filter Cigarettes with a Levy 15 - 16

of Central Excise Duty of Rs. 200/- per thousand Cigarettes

  1. Actualisation of Revenue Potential of Tobacco16 - 17
  2. Harmonisation of Rates of Tax on Tobacco Products17 - 18
  3. Increase the rate of central Excise Duty on Cigars, Cheroots and Cigarillos18
  4. Measures required for Curbing Sale of Domestic Duty Evaded Filter Cigarettes19
  5. Central Excise Duty on Molasses20 - 21
  6. Extension of Excise Duty Exemption to the Raw Materials for 21

Manufacturing of Components of Wind Operated Electricity Generators

*****

I N D E X

S.NO. ISSUE PAGE NO.

SERVICE TAX

  1. Levy of Service Tax on Copyright Services1
  2. Service Tax Exemption by Way of Refund on1

all Services used by the Exporters

  1. Upfront exemption for services used by SEZ2
  2. CENVAT Credit of Service Tax Leviable u/s 66A of the Finance Act2
  3. Cascading of Service Tax for Brand Owners 2 - 3

when Manufacture is by Job-Workers

  1. Deduction of Goods and Reimbursements from the Value of Service3 - 4
  2. Credit for Input in case of Composition Scheme 4

followed by the Works Contractor

  1. Service Tax on Windmills4
  2. Export Benefit Schemes for Exporters5
  3. Utilisation of Tax on Input Services5
  4. Service Tax on Marketing and Brand PromotionActivities in Rural Areas5 - 6
  5. Service Tax Cost of Tobacco Exports6 - 7
  6. Service Tax on Renting of Immovable Property7
  7. Service Tax – Hotels7 – 8
  8. Service Tax on E&P in Oil and Gas Sector8 - 9
  9. Service Tax Refund9 - 10
  10. Service Tax Return10
  11. Abolition of Service Tax for Exporters10
  12. Service tax Exemptions for Production of 10

Components for Wind Operated Electricity Generators

*****

I N D E X

S.NO.ISSUE PAGE NO.

CENTRAL SALES TAX

  1. Restrictive Conditions in the Central / State Sales Tax Legislation1 - 2
  2. Issuance of Form F by Job-Workers2

VALUE ADDED TAX

  1. Input Tax Credit to the Coal and Furnace Oil Industry3
  2. Abolition of Double Taxation on Sale of 3 - 4

Licensed Software (VAT and Service Tax)

  1. Indirect Taxes on Raw Materials/Input Services in Agri Input Business4
  2. VAT on Packaged Drinking Water4
  3. VAT on Fruit and Vegetable Processing Industry5
  4. Declared Goods Status for Natural Gas5

CENTRAL EXCISE

1.Excise Duty Exemption on Solid-State Non-volatile Storage-Device

In the last Budget, Government had imposed 4% Excise Duty on product the like USB-Pen Drive, Misco SD Cards, falling under CTH 85235100, by inserting following entry against Sr. No. 17 of Notification 6/2006-CE dated 01.03.2006 and amended by Notification No. 12/2010 dated 27.02.2010.

(i)meant for fitment inside the CPUNIL

Housing/laptop body only,

(ii)meant for external use with a4%

computer or laptop as a plug-in-device.

The products like USB-Pen Drive, MiscoSD Cards are always used externally with a computer or laptop as a plug-in-device and therefore is payable now 4% Excise Duty. With the imposition of 4% duty on these items, manufacturers in India, who have invested in creating manufacturing facilities in India on an equal footing on duty payment and therefore in disadvantageous position in comparison to Traders, as explained hereunder.

Comparative Statement- Manufacturers V/s Traders
Sl.No. / Item / CTH / Duty Paid By / Remarks
Manufacturer / Traders
1 / Solid-State non-volatile storage device- Like -- / 85235100 / SAD duty is NIL on MRP products.
1.1 / --USB Pen Drive / 4.12% / 4.12% / Disadvantage position for Manufacturers.
1.2 / --Micro SD Cards / 4.12% / 4.12% / Disadvantage position for Manufacturers.

In view of above there is no incentive to Indian Manufacturers to invest in manufacturing facilities of these products.

Further, the imposition of 4.12% duty has encouraged the Grey Market in large scale in India. Since these products are valuable and easy to carry, imposition of 4% duty has activated the players in grey market. Resulting to this the genuine manufacturer’s in India are suffering further on account of loss of sale, since the products are easily available in grey market, wherein no duty is paid. This also results in a loss to the exchequer.

Suggestion

It is suggested that to protect the domestic manufacturer’s for the reasons explained above, there is a need to exempt the products ‘Solid-State non-volatile storage device’, falling under CTH 85235100 from payment of 4.12% Excise Duty, by restoring the position, as available prior to aforesaid amendment made under Notification No. 12/2010 dated 27.02.2010.

2.Excise Duty Exemption on ‘Stamper for CD/DVD-ROM’

All CD/DVD-ROM (Recorded discs) falling under CTH 8523 are exempted from payment of Excise Duty in terms of Sr. No. 22 of Notification No. 6/2006-CE. CD/DVD (Recorded discs) are manufactured with the help of Stampers made for CD/DVD. The Stamper also falls under CTH 8523 and are in form of Discs wherein content is recorded. These Recorded Stampers are not included in Sr. No. 22 of above said exemption notification.

Suggestion

It is suggested that there is need for Excise Duty Exemption on product “Stamper for CD/DVD-Rom’, falling under CTH 8523, on following grounds:--

(i)Recorded CD/DVDs (CD/DVD-ROM) are exempted from payment of Excise Duty. Stampers for CD/DVD-Rom are used exclusively to manufacture the exempted goods CD/DVD-ROM. Since final goods are exempted, the manufacturers of CD/DVD-ROM are not in position to avail CENVAT Credit of duty paid on these Stampers. The duty paid on Stampers thus becomes a cost for the manufacture of Recorded CD/DVDs which, we submit, is contrary to the intent of exempting Recorded CD/DVDs from Excise Duty.

(ii)Since Stamper for CD/DVD-ROM are also ‘Recorded Disc’ falling under CTH 8523, the same are needed to be included as exempted goods under Sr. No. 22 of Notification No. 6/2006-CE dated 01-03-2006, as amended.

3.Excise Duty on Matches

Safety Matches are classifiable under Central Excise Tariff Heading 360590. The rate of duty on matches is 10%. However, full exemption from Excise Duty is available if none of the following processes is ordinarily carried on with the aid of power during manufacturing:

  1. Frame filling
  2. Dipping of splints in the composition for match heads
  3. Filling of boxes with matches
  4. Pasting of labels on match boxes, veneers or cardboards
  5. Packaging

Typically, matches are manufactured with the aid of power in:

  1. Units where power is used for dipping of splints in the composition of match head and the rest of the processes like box filling , tens packaging, unit packaging and bundle packaging, etc. are done manually.
  1. Units where power is used across the manufacturing processes.

Currently most of the match manufactures in the country belong to categories (i) listed above and only few Fully Mechanised Match Units operating in the country.There is large-scale avoidance by many manufacturers at the Units where power is used for the process of dipping of splints into the chemical composition. These Units sell chemically dipped head splints (i.e., matchsticks - on which no Excise Duty is levied) to Units that pack the matchsticks without using power and thus, clear the matches without payment of duty.

Suggestion

It is suggested that to ensure a level playing field following should be considered:

  1. A level playing field should be provided by exempting all matches from central Excise Duty – irrespective of mechanised / semi-mechanised / manual manufacturing, or;
  1. Excise Dutyshould be levied on all matches that have undergone manufacturing with the aid of power (in respect of any of the specified processes) even if the matches are ultimately cleared from Units that do not use power for the process of packing. This will ensure a reduction in avoidance of Excise Duty.

4.Exemption from Central Excise Duty on Bakery and Confectionery Items

F&B products sold in hotels are exempt from Central Excise Duty with exception of Bakery and Confectionery items. Even though bakery and confectionery products comprise a relatively miniscule portion of total F&B sales, hotels are subjected to maintenance of cumbersome records and myriad procedural formalities under the Central Excise laws – without any significant contribution to the exchequer.

This levy does not get the benefit of small scale industrial activity either since no State Government recognises the activity as an industrial activity and issues SSI registration.

Suggestion

It is suggested that in order to provide administrative relief to the hotel industry it is recommended that all bakery and confectionery products be exempted from Central Excise Duty on. Alternately, an exemption can be given based on turnover as is given to small scale units under Central excise laws – which, at present, is Rs 1.50 crore per annum.

5.Excise Duty Exemption on Confectionery

After Biscuits, Confectionery is the second largest category in the processed food industry. Whilst there are several players in the organised sector, a large part of the industry operates in the unorganised sector. The fragmented nature of the unorganised sector enables it to avoid appropriate oversight, resulting in products of questionable quality, flouting of labour laws and, inevitably, escape of tax revenues.The consequential cost disadvantage faced by the organised sector has been compounded further by steep increases, in the recent past, of input costs, packaging costs, power and fuel costs, etc., coupled with manifold increase in transportation costs.

Pertinently, by virtue of being one of the highest consumers of sugar, the confectionary industry has strong linkages to agriculture. A fillip to this industry, therefore, also impacts the agri sector favourably by way of improved farm-gate prices. In order to mitigate the issues faced by the organised sector the Government is requested to consider central excise exemption for confectionary – in line with what has been extended to Biscuits.

Suggestion

It is suggested that Sugar Confectionery having MRP up to Re 1/-, falling under Chapter Headings 1704 90 20 / 1704 90 30 / 1704 90 90 / 1806 90 20, be exempted from Excise Duty.

6.Excise Duty on Packaging Materials

Packaging Cost constitutes a large proportion (30% to 35%) of the cost of processed food products. The industry uses packing materials such as Printed Laminates, Pet Jars, Corrugated Cartons, etc., all of which currently attract 10% Excise Duty. CENVAT credit is not available in respect of the Excise Duty since most processed foods are exempt from Excise Duty.

In the recent past the cost of packaging materials have increased significantly due to increase in the cost of inputs for packaging materials. Consequentially, the excise cost on this account has also increased. In view of the fact that the intention of the Government is to have zero excise cost fro processed foods, the packaging material used in the processed foods industry should also be exempt from Excise Duty.

Suggestion

It is suggested that the packaging materials used in the food processing industry – including Printed Laminates and Pet jars (falling under Chapter 39 of the Central Excise Tariff) and Corrugated Cartons (falling under Chapter 48 of the Central Excise Tariff) – be fully exempted from Excise Duty. In the event any misuse is apprehended, a scheme similar to CT3 Certification may be introduced.

7.Import Duty on Olive Oil

Import Duty on olive oil is not increased from current level of 0% and 7.5% for various grades of olive oil in case a review of existing duty concessions is undertaken to protect domestic producers of other edible oils. There is no indigenous production of olive oil in India and all the oil is being currently imported. Olive oil is therefore, a unique case to be treated differently from other edible oils.

Central Board of Excise & Customs has early very kindly considered our recommendation positive to lower import duty rates from 45% on extra virgin and 40% on refined olive oil and olive pomace oil to 0% and 7.5% respectively.

It is to be noted that India’s entire requirement of olive oil is met by imports and there is no domestic production of olive oil in the country, hence no domestic producers that need protection. Being an expensive item, olive oil does not compete with other oils in common use. No other domestic product exists, with similar health benefits, that could be adversely affected by duty reduction.

8.NCCD on Crude Oil

The Ministry of Finance introduced National Calamity Contingent Duty of Excise @ Rs 50 per metric ton on indigenous crude oil and simultaneously an additional duty of customs at the rate of Rs 50 per metric ton on imported crude oil effective 1st March 2003. This duty was to be valid for one year i.e. upto 29th February 2004 so as to replenish the National Calamity Contingency Fund, but it continued after the expiry of the said period.

Suggestion

It is suggested that NCCD on crude oil should be abolished. However, if the same is not possible then atleast CENVAT credit may be allowed against payment of Excise Duty on finished petroleum products manufactured from crude.

9.Exemption from Excise Duty on Irrigation Pipes and Tubes

The agricultural sector is the backbone of the country. Aluminium extruded agricultural pipes were being used in large number in sprinkler irrigation equipments about 9 years back, but due to the high cost of aluminium, use of aluminium pipes in sprinkler irrigation system has been replaced by PVC pipes. Even though aluminium pipes have longer life and high resale value, the poor and illiterate farmers do not realise these benefits.

As stated earlier, 1/5th of the bauxite reserves of the world exist in India and the quality of bauxite available in India is the best in the world. The manufacturing cost of aluminium metal in India is also the lowest in the world. As against the manufacturing cost of USD 1500 PMT in India, the world average manufacturing cost of aluminium is more than USD 2000 PMT. Despite this, the price of aluminium metal in India is the highest in the world. This is solely due to customs duty (5%) and central excise duty (8%) imposed on aluminium by the Government apart from 3% educational cess as an additional burden now. About a few years ago, the agricultural pipes having specified dimensions were exempt from payment of excise duty. As this exemption was withdrawn, the farmers are not required to pay 8.24% excise duty in addition to the cost of pipes.

Suggestion

It is suggested that though the Government has been announcing various benefits and other incentive schemes to farming community to boost agricultural output, agricultural pipes and tubes used for irrigation purpose have not been exempted from duty. Therefore, the excise duty exemption Notification should be restored on agricultural pipes and tubes used for irrigation purpose. This will benefit farmers and contribute to increase in agricultural production in the country.

10.CENVAT Credit on Imports through Courier

At present, there is no specific provision for availing CENVAT credit based on courier receipts or package receipts though countervailing duty is paid on such imports through a common Bill or entry prepared for all imports by courier agency belonging to different importers. Now a days it has become inevitable that urgent requirements of spare parts of plant and machinery or inputs are to be met by import through courier. The importer also promptly discharges the countervailing duty against such couriers or baggage. However, there is no provision under CENVAT credit Rules to recognise the countervailing duty payment made against such imports through courier. The courier will file a combined Bill of entry for all the consignments belonging to different importers and discharge the import duty also together. However, the courier agent will forward a photocopy of the Bill of Entry to each importer. However, CENVAT is not allowed to be taken on such copy.

Suggestion

It is suggested that as duty has been paid an appropriate provision may be inserted in the CENVAT Credit Rules to avail the CENVAT credit based on certified copies of such Bill of Entry. This will help manufacturer/exporter to avail CENVAT on duty paid by them.

11.Central Excise Tariff on Textile Products

classified under Chapters 50-63

In terms of Notification No. 30/2004 textile products classified under Chapters 50 to 63 of the Central Excise Tariff are exempted from Central Excise Duty subject to the condition that manufacturers do not avail credit of duties paid on inputs or capital goods used for manufacture of such products. The benefit under this Notification is, however, denied by the Central Excise Department in case the manufacturer imports the inputs / capital goods. The denial is enforced by the Department in view to the effect that it is not possible to ascertain / verify whether the overseas supplier has claimed any benefit in India.