Budget 2007 - Indirect Taxes

General

• The Empowered Committee of State Finance Ministers has been entrusted the task of preparing a roadmap for the introduction of a national level Goods and Services Tax (GST) with effect from April 1, 2010.

• The rate of Central Sales Tax (CST) is to be reduced from 4% to 3% w.e.f. April 1, 2007. Thus, the process of phasing out of CST has been initiated and is a first step towards introduction of national level GST by April 1, 2010.

• A Secondary and Higher Education Cess @1% has been imposed on each of the Central Taxes. The cess on Customs Duty and CENVAT will come into effect from March 1, 2007, however, the cess on Service Tax would be effective on enactment of the Finance Bill, 2007.

Customs Duties

Tariff

• The proposals incorporated in the Union Budget continue the process of reform and the declared policy of bringing the customs duty rates closer to that of the ASEAN countries. The peak rate of basic customs duty (BCD) has been brought down from 12.5% to 10% on all non-agricultural products with the following exceptions:-

– motor vehicles in any form other than completely knocked down kits

– textile fabrics chargeable to specific duties

• Exemption from the 4% Additional Duty of Customs levied in lieu of sales tax/VAT (ADC) for parts, components and accessories used in the manufacture of cellular phones has been extended from 30/4/2007 to 30/6/2009.

• Extension of the concessional rate of BCD of 5% on importation of specified items by research institutions registered with the Department of Scientific and Industrial Research, subject to specified conditions.

• Extension of concessional rate of BCD of 5% on importation of specified items by the pharmaceutical and biotechnology sector for research and development.

• Digital Cinema Development Projects notified under the Project Imports Scheme and their imports would be chargeable to BCD @7.5%.

• Several specified end use exemptions abolished. These inter alia include:-

– chemicals for use in manufacture of Centchroman

– codeine phosphate or Narcotine imported by Government alkaloid factories

– recorded magnetic tapes for producing TV serials

– specified goods such as television cameras of professional grade, audio recording equipments etc

– specified goods for manufacture of fly ash based goods

• Export duty levied on exports of iron ore at Rs. 300/metric tonne and on chromite ore and specified concentrates at Rs.2000/metric tonne.

• BCD on seconds and defectives of iron and steel reduced from 20% to 10%.

• BCD on boron ores reduced from 5% to 2%.

• BCD exempted on import of coking coal having an ash content of 12% or more.

• BCD imposed on import of aircrafts and parts thereof @ 3% other than by scheduled airlines operators, Government and PSUs.

• BCD on dredgers reduced from 5% to Nil.

• BCD on food processing machinery reduced from 12.5% to 5%.

• BCD on sprinklers and drip irrigation systems used for agricultural and horticultural purposes reduced from 7.5% to 5%.

• BCD on imports of all fertilizers falling under Chapter 31 reduced from 10% to 7.5%, other than urea, which would be chargeable to BCD @ 5%.

• BCD on glycerol waters and glycerol lyes reduced from 12.5% to 7.5%.

• BCD on denatured ethyl alcohol reduced from 10% to 7.5%.

• BCD on specified chemicals and petrochemicals reduced to 7.5%.

• BCD on presses and other machinery for manufacturing particle board and fibre board or for treating wood or cork reduced from 12.5% to 5%.

• BCD on non industrial diamonds has been reduced from 5% to 3%.

• BCD on rough synthetic gemstones reduced from 12.5% to 5%.

• BCD on parts of umbrellas including umbrella panels reduced from 12.5% to 5%.

• BCD on unworked or simply prepared corals reduced from 30% to 20%.

• BCD on imports of watch dials and watch movements reduced from 12.5% to 5%.

• BCD on polyster fibres and yarns reduced from 10% to 7.5%.

• BCD on dog or cat food imported for retail sale reduced from 30% to 20%.

• BCD on medical equipment reduced from 12.5% to 7.5%

Non Tariff

• Section 14 of the Customs Act, 1962 is proposed to be amended to provide that the value of imported goods and exported goods shall be the transaction value of such goods. It is further proposed to provide that the transaction value in case of imported goods shall include any amount that the buyer is liable to pay for cost and services, including commissions and brokerage, assists, engineering, design work, royalties and license fees, costs of transportation to the place of importation, insurance and handling charges.

 

• The Budget proposes to amend the refund provisions to provide that the relevant date for the purpose of filing a refund claim in consequence of any judgment of an adjudicating authority would be the date of such a judgment.

• The Budget proposes to amend the Advance Ruling provisions to explain that a joint venture in India means a venture in which at least one of the participants, partners or equity holders is a non resident having substantial interest in the joint venture and exercising joint control over it.

• The Budget proposes to amend the provisions relating to proceedings before the Settlement Commission.

Cenvat

Tariff

• Excise duty exempted on the following categories of products:-

– packed biscuits of Maximum Retail Price (MRP) not exceeding Rs. 50 per kilogram

– food mixes

– specified water purification devices based on membrane technology

– household water filters not using electricity and pressured tap water

– bio diesel

– DVD drive

– flash memory

• Excise duty reduced on the following categories of products:-

– duty reduced from 16% to 12% on:

• caprolactum & Nylon

• benezene used for manufacture of caprolactum

– duty reduced from 16% to 8% on:

• umbrellas

• plywood, veneered panels and similar laminated wood

• footwear parts

• wadding, gauze

– ad valorem component of excise duty on petrol and diesel has been reduced from 8% to 6%

– duty on pan masala not containing tobacco has been reduced from 66% to 45%. Consequently, the abatement from maximum retail sale price has been reduced from 50% to 44%

– from Rs. 400 per metric tonne to Rs. 350 per metric tonne for cement of retail sale price not exceeding Rs. 190 per 50 Kg. bag or per metric tonne retail sale price equivalent not exceeding Rs.3800

• Duties increased on the following categories of products:-

– compounded levy on aluminum circles increased from Rs.7500/ Rs.10000 to Rs.12000 per machine per month

– specific rate on cigarettes increased by 5% in value terms

– from Rs.400 per metric tonne to Rs.600 per metric tonne for cement of declared retail sale price exceeding Rs.190 per 50 Kg. bag or per metric tonne retail sale price equivalent exceeding Rs.3800

• Exemptions withdrawn on the following:-

– goods like brooms, hand operated mechanical floor sweepers, mops, feather dusters, prepared knots and tufts of brooms or brush; pain pads & rollers, squeezes etc

– recorded video cassettes intended for television broadcasting, supplied in formats such as U-matic, Betacam or any similar format

– nicotine polacrilex gum

– dust and powder of synthetic stones

– pan masala containing tobacco and other tobacco products manufactured by specified units in the North East Region withdrawn

• Exemption from excise duty on all pipes of outer diameter exceeding 20 centimeter, when such pipes are integral parts of any water supply project whether used for taking water from treatment plant to the first storage point or from one storage point to another storage point.

• Exemption from excise duty extended to specified items when domestically procured by all research institutions registered with Department of Scientific & Industrial Research, for the purpose of research, subject to certain conditions.

• Exemption limit for SSI scheme increased from Rs 1 crore to Rs.1.5 crore.

Non Tariff

• MRP based assessment is being extended from a date to be notified to personal computers (including laptops and other portable computers), printers, monitors, computer key boards, scanners, computer mouse, facsimile machines, modems, set top boxes for gaining access to internet and television sets.

• Section 11B of the Central Excise Act, 1944 amended to provide that the relevant date for the purpose of refund of duty in consequence of a judgment, decree, order or direction of appellate authority, Appellate Tribunal or any court, shall be the date of such judgment, decree, order or direction.

• E-payment made mandatory for payment of duty by all assessees who have paid excise duty of Rs.50 lakh or more in cash during the preceding financial year.

• Relevant changes made in Valuation Rules to provide that where goods are manufactured by a job-worker on behalf of a person (commonly known as principal manufacturer), the value for payment of excise duty would be based on the sale value at which the principal manufacturer sells the goods, as against the earlier provision which provided that the value would be the cost of raw materials plus the job charges.

 

• Cement included in the Third Schedule of the Central Excise Act, 1944, and accordingly packing or repacking in unit container, labelling or relabelling of packages, including the declaration or alteration of retail sale price on it or adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.