Published Editorial

Budget expectations: Negative list needs a close, hard look

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DNA India


Heetesh Veera
Tax Partner

The Union Budget is a couple of weeks away and crystal-ball gazers are at work attempting to read the mind of the finance minister, P Chidambaram.

The key focus of the FM will be to rein in fiscal deficit, control expenditure (slashing subsidies etc), show buoyancy in tax revenues (without raising rates) and yet present a ‘people and investment friendly’ budget, which would provide a much-needed stimulus to the economy.

In the current economic environment of a falling GDP growth and recession in many parts of the global market, it’s crucial that the Budget addresses, among other aspects, the concerns from an indirect tax perspective currently faced by the industry.

Against this backdrop, we bring you a snapshot of the general indirect tax expectations from across the industry:

1. No across the board hike in excise duty and service tax

The industry is abuzz with the talk of a possible increase in central excise duty and service tax rates. The expectation, however, is the duty rates would remain unchanged. This should definitely bring cheer to the manufacturing and service sector.

2. Reverse the impact of Supreme Court decision in the case of FIAT India Pvt Ltd (FIAT)

The FIAT judgment of the Supreme Court has compelled revisiting the understanding of valuation norms under the central excise law. Industry and experts are pressing hard for an amendment in law with retrospective effect to undo risk of litigation to the manufacturing sector. Hopefully, the Budget will address this issue.

Apart from the above, certain sectors are also hoping that the Budget addresses certain specific issues:

3. Relief from the inverted duty structure

For the pharma industry, active pharmaceutical ingredients i.e. raw materials attract higher excise duty @ 12.36% whereas the finished pharma formulations attract excise duty @ 6.18%, leading to accumulation of credit, which is cost to a company and a perennial concern for this sector.

This Budget hopefully should provide a solution by way of a refund mechanism for the unutilised credit.

4. Real estate woes

The negative list regime of service tax has opened a Pandora’s box, unsettling the settled. There is lack of clarity as to whether the law intends to tax certain transactions hitherto not subject to this levy.

To cite an example, ‘floor rise charges’ recovered by builders from customers are considered to be part of construction costs and eligible for a specified abatement for levy of service tax.

The industry is hoping that a similar treatment of service tax is extended to charges paid by buyers for “preferential location” i.e. corner plot, sea view, garden view etc so as to have parity with the treatment of floor rise charges from a service tax perspective.

5. Technical testing services rendered for foreign clients

New service tax rules mandate that testing or analysis activity done in India on goods provided by overseas clients would be subject to service tax, even if the consideration is received in foreign currency. It’s on the industry’s wish-list that the rules be amended to ensure the said service qualify as ‘export’ and not subject to service tax.

Well, a lot more is expected from this Budget from an indirect tax point of view. The roadmap on the goods and service tax (GST), especially against the backdrop of the latest developments, would be another area of avid interest for the industry. Hopefully, the Budget would provide an easy approach to administer tax law shrinking ambiguity and litigation to a large extent.

(Views expressed are personal)