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Indirect Tax Proposals in Finance Bill,
2002
The Finance Bill, 2002
has been presented in Parliament. A lot of debate is expected to
take place before the bill becomes law. Some of the proposals
mentioned in the bill are fairly controversial and open to more
than one point of view. This article aims to present a bird
eye’s view of the various indirect tax proposals proposed by
the Finance Minister. It is based on the speech of the Finance
Minister in the Parliament while presenting the budget. Obviously,
on indepth study of the bill, more intricacies will be found in the
bill and debated. Given below are the proposed changes in indirect
tax laws :-
Excise
Duty
-
Polyester Filament
Yarn
-
Motor cars
-
Multi Utility
Vehicles
-
Tyres for
replacement
-
Aerated soft drinks and
soft drink concentrates
-
Air
conditioners
-
Pan Masala
-
Chewing Tobacco &
miscellaneous tobacco preparations
-
The Finance Minister
proposes to remove the concessional rate of 8% excise duty
applicable to LPG, kerosene, auto CNG and diesel engines upto 10 HP
which will now attract the cenvat rate of 16%.
-
In the last year’s
budget, the Finance Minister had imposed excise duty at a moderate
rate of 4% on a few items. The Finance Minister proposes to
increase this rate from 4% to the next slab of 8% this year.
Simultaneously, the Finance Minister proposes to impose excise duty
at 4% on a few more items, which have remained exempted so
far.
-
Cigars, cheroots and
cigarillos of tobacco or tobacco substitutes which have been exempt
so far shall attract 16% CENVAT.
-
In view of the
abolition of Administered Price Mechanism on petroleum products and
in order to provide for the subsidy on LPG and kerosene oil, the
Finance Minister proposes to make some changes in the duty
structure of petroleum products. The rate of cess applicable to
indigenous crude oil under the Oil Industry (Development) Act will
be increased from Rs 900 per metric tonne to Rs 1800 per metric
tonne with effect from 1st March 2002. The Finance Minister
proposes to reduce the ad valorem rate of excise duty
applicable to motor spirit from 90% to 32%. However, the Finance
Minister proposes to impose on it a surcharge of Rs.6/- per liter.
But the surcharge on ethanol doped motor spirit will be Rs. 5.25/-
per liter.
-
Textile Industry
:
-
The Finance Minister
proposes to maintain the excise duty rates on yarns. At present,
cotton hank yarn is exempt from excise duty. In order to ensure
that the benefit accrues only to the handloom weavers, the Finance
Minister proposes to bring hank yarn within the net of excise duty
at 8%, but at the same time, provide for appropriate subsidy on the
price of hank yarn purchased by them.
-
In order to enable the
weavers to avail of CENVAT credit scheme,
the Finance Minister proposes to allow the weavers of grey fabrics
to pay excise duty on an optional basis. The Finance Minister
proposes to extend a similar option to the knitting
sector.
-
In the case of
textiles, the Finance Minster proposes to grant a remission of 4%
from the CENVAT rate of 16% in the excise duty structure. The rate
of excise duty on fabrics, made ups and garments would be 12%. This
special dispensation shall continue upto 28.2.2005. Industrial
fabrics would however continue at 16%.
-
Currently, hand
processing of textile fabrics by independent processors is exempt
from excise duty even if power is used on 12 specified processes in
the case of cotton fabrics or 7 specified processes in the case of
man made fabrics. The Finance Minister proposes to confine this
exemption to only 3 processes, namely, scouring, hydro-extraction
and calendering.
-
The Finance Minister
proposes to abolish the compounded levy scheme for independent
power processors.
-
Excise duty exemption
on handloom fabrics continues. The Finance Minister proposes to
grant exemption to handloom garments also from excise duty subject
to certification by Handloom Export Promotion Council.
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In order to enable the
textile industry to modernize itself and acquire new technology,
the Finance Minister proposes to exempt excise duty on automatic
shuttleless looms. The Finance Minister also proposes to exempt
excise duty on specified processing machinery and specified silk
reeling, weaving and twisting machinery. The customs duty on such
machinery is also proposed to be reduced from 25% to 10%. It is
also proposed to exempt specified jute machinery from excise
duty.
-
With effect from 1st
March 2002, the petroleum products produced by all refineries
located in the North East Region shall be charged to excise duty at
half of the normal rates of excise duty otherwise applicable to
petroleum products.
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Inland Air Travel Tax
is exempted for air travel within the North East States. The
Finance Minister proposes to extend this exemption on air travel to
and from North East States.
-
The Finance Minister
proposes to reduce the excise duty on tea from Rs 2 per kg to Re.1
per kg.
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The Finance Minister
proposes to exempt specified anti-AIDS drugs from excise duty with
effect from 1st March 2002.
-
Specified cold chain
equipment is exempt from excise duty. The Finance Minister proposes
to add three more equipment to this list to promote the
preservation of fruits and vegetables.
-
The excise duty
exemption scheme for the small-scale sector is applicable to
granite. In view of the fact that it is not available to marble.
The Finance Minister proposes to withdraw this exemption from
granite also.
-
The Finance Minister
proposes to extend the scheme of levying excise duty on Maximum
Retail Price basis to 9 more categories of items this year, thus
raising the number to 92 categories of items.
Service
Tax
-
Life insurance,
including insurance auxiliary services relating to life
insurance
-
Inland cargo
handling
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Storage and warehousing
services (except for agriculture produce and cold
storages)
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Event
management
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Rail travel
agents
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Health Clubs &
Fitness Centers
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Beauty
parlours
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Fashion
designers
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Cable
operators
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Dry cleaning
services
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Service tax is
applicable to specified services provided by banks and non-banking
financial companies. The Finance Minister proposes to extend the
service tax to corporate bodies that provide similar
services.
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The Finance Minister
proposes to extend the exemption from service tax on the services
provided by hotels for one more year upto 31st March
2003.
Customs
Duty
-
The Finance Minister
proposes to reduce the peak rate from 35% to 30% this
year.
-
The Finance Minister
proposes to lower customs duty on a number of refractory raw
materials for the steel industry by 10%. These include natural
graphite powder, silicon metal, sintered alumina, fused zirconia
and boron carbide. The Finance Minister also proposes to reduce the
duty on graphite electrodes of above 24 inches diameter from 25% to
15%.
-
Ships imported for
breaking are charged to customs duty at 5% along with CVD and
special additional duty. The Finance Minister proposes to revise
this by increasing the basic duty on ships for breaking from 5% to
15% and exempting them from CVD and special additional duty. This
is to reduce the disparity between rolled products produced by the
steel plants and cheaper products produced from ship
breaking.
-
The Finance Minister
proposes to increase the basic customs duty on seconds and
defectives of steel to the bound rate of 40%.
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The Finance Minister
proposes to reduce the customs duty on copper, zinc and lead from
35% to 25% and on aluminium and tin from 25% to 15%.
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The Finance Minister
proposes to reduce the customs duty on specified equipment for
Ports and Airports to 10%.
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The Finance Minister
proposes to exempt duty on aeroplanes, helicopters, gliders,
simulators of aeroplanes and their parts and raw
materials.
-
The Finance Minister
has postponed the zero duty regime on IT products for 2003 to 2005.
The Finance Minister proposes to reduce the customs duty on a
number of hardware inputs to 5% and on certain capital goods to
15%. The duty on certain IT items would be reduced to 10% or
5%.
-
The Finance Minister
proposes to exempt cellular phones and pagers from CVD. The basic
customs duty is, however, being increased from 5% to
10%.
-
The Finance Minister
proposes to increase the customs duty on tea and coffee to 100% and
on natural rubber, poppy seeds, pepper, cloves and cardamom to 70%.
It is also proposed to increase the duty on pulses from 5% to
10%.
-
The Finance Minister
proposes to reduce the customs duty on agricultural machinery and
implements from 25% to 15%.
-
The Finance Minister
proposes to include eight more drugs used for treatment of cancer
and some other critical diseases in the list of fully exempted
drugs. Vaccine for immunization against Japanese Encephalitis shall
also be exempt from customs duty.
-
The Finance Minister
proposes to impose a basic customs duty of 5% on drugs which are
made indigenously.
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The Finance Minister
proposes to reduce the customs duty on Glucometers and test strips
from 25% to 10%.
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The Finance Minister
proposes to reduce the customs duty on non-PDS kerosene from 35% to
20% and increase the customs duty on kerosene sold under the PDS
scheme from 5% to 10%.
-
The Finance Minister
proposes to reduce the customs duty on planetarium equipments,
parts and accessories to 15% and also exempt them from CVD and
special additional duty of customs.
-
In order to promote
state-of-the-art uplinking facilities for television channels at
competitive costs, the Finance Minister proposes to reduce customs
duty on certain earth station equipment and studio equipment from
35% to 25%.
-
The Finance Minister
proposes to reduce the customs duty on cement and clinkers from 25%
to 20%.
-
The customs duty on
imported liquors is bound at 182% for the current year under the
WTO. Accordingly, The Finance Minister proposes to reduce the
customs duty on these items from 210% to 182%. The Finance Minister
also proposes to rationalize the rates of CVD applicable to liquors
and wines to 75% for value upto US $ 25 per case and 50% for
others.
-
Passengers returning
from abroad on transfer of residence are allowed certain items of
personal use on payment of customs duty at a flat rate of 35%. The
Finance Minister proposes to reduce this rate to 30% and also add a
few more items like lap top computers, portable photocopy machines,
digital video disc players, video cassette disc players in the
eligible list of items. The overall limit is also being raised from
Rs 1.5 lakh to Rs 5 lakh.
-
The Finance Minister
proposes to impose nominal customs duty of 5% on some of the items
that are exempt at present. It is also proposed to impose special
additional duty on certain other items that are currently subjected
to 5% customs duty.
Pritesh Mehta
Chartered Accountant
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