This is the second post in the our new blog series on the Budget 2018. Following our two-part post (here and here) on the impact of the Budget on the Direct Tax regime, this piece focuses on the amendments proposed under this Budget in the Indirect Tax space. We hope you enjoy reading this as much as we have enjoyed putting this together.
With the Indian economy recovering from a transitional slump post the implementation of the Goods and Services Tax (GST) of July 01, 2017, the Union Budget 2018 (Budget), tabled in the Lok Sabha on February 01, 2018, reinforces the commitment of Central Government to its “Make in India” and “Digital India” initiatives.
Though the Budget does not propose any significant changes in GST legislation, it recommends changes on the customs front, with a clear intent to vitalise the domestic manufacturing sector, while maintaining investor interest. The key amendments proposed to customs law are detailed below:
Tariff – For the first time in over a decade and a half, the government has increased customs duty rates ostensibly with a view to boost domestic manufacturing in terms of the “Make in India” initiative. The sectors impacted are electronics, automobile, medical devices, packaged food, cosmetics, textile, etc. The duty hike on mobile phones, smart watches, perfumes, fruit juices, television parts such as printed circuit boards and cabinets, cosmetics, silk fabrics, etc. is expected to create a push for suppliers to manufacture or source components in these sectors, locally.
Social Welfare Surcharge – a Social Welfare Surcharge (SWS) @ 10% has been introduced, replacing the education cess and secondary and higher education cess leviable on imported goods. SWS shall be calculated on the aggregate of duties, taxes and cesses applicable on such goods (excluding safeguard duty, countervailing duty, anti-dumping duty, Integrated Goods and Service Tax and Goods and Service Tax Compensation Cess). The import of petrol, high speed diesel, silver and gold shall be exigible to concessional rates of SWS @ 3%. Various other products, such as those exempted from education cess earlier, shall continue to be exempted from the levy of SWS.
Trade Facilitation Measures – A new concept of a pre-notice consultation prior to the issuance of a demand notice, is proposed to be introduced in cases not involving collusion, suppression, etc. Such approach by way of a pre-notice consultation is an internationally adopted and successful alternate dispute resolution mechanism whereby the taxpayers must be mandatorily consulted prior to the issuance of demand notices, and provided with an opportunity to settle, ab initio, any probable demands being contemplated by the department. In addition, it has been proposed that provisions should be introduced giving definite timelines for adjudication and deemed closure of cases if such timelines are not adhered to.
The Budget also proposes to enable clearance of imported goods by a customs automated system, in addition to clearance by a customs officer. In addition, proposals for the introduction of an electronic credit ledger, in line with that on the GST Network portal, has been included to enable importers and exporters to deposit an advance with the government instead of paying by transaction as done at present. The Budget also includes various proposals to use the said automated system for the electronic submission of import and export related documentation, communication with authorities, etc. Further, in this regard, the Central Board of Indirect Taxes and Customs (previously known as Central Board of Excise and Customs) is also empowered to take appropriate measures to facilitate the expediting, clearance or release of goods entered for import or export, reduce transaction costs and maintain a balance between customs control and the facilitation of legitimate trade.
Advance Rulings – The scope of advance rulings has been expanded by way of empowering Central Government to notify additional subjects on which advance rulings may be sought. Importers and exporters may now be able to seek advance rulings on matters beyond the classification of goods, applicability of notifications having bearing on duty, valuation, etc. In the event of an unfavourable advance ruling, such importers and exporters would have a recourse of appeal.
Further, the Budget proposes to enlarge the ambit of the eligible persons entitled to make an application for advance ruling, to include any person holding a valid Importer-Exporter Code or exporting any goods to India or having a justifiable cause to the satisfaction of the authority, to make an application for advance ruling. This potentially extends the said facility to all persons, including foreign individuals, looking to independently set up business in India. Such foreign applicants intending to export goods to India may be represented by an authorised Indian resident in such proceedings. The Budget also proposes to reduce the time limit from six to three months within which the authority for advance ruling shall pronounce its advance ruling. Other amendments have also been proposed to align the provisions pertaining to advance rulings under the Customs Act with those under the IT Act, in view of the merger of authorities for advance rulings under indirect and direct taxes, into a single appellate body for advance rulings in relation to taxes.
- Excise and Service Tax
Rate changes have been introduced for petroleum products still under Central Excise. In this regard, the rates of Basic Excise Duty leviable on such products has been revised downwards and the levy of road cess on such products has been replaced with road and infrastructure cess. However, in effect the aggregate duties leviable on such products continues to remain the same. Further, certain government related services have been retrospectively exempted from the levy of Service Tax.
In view of the above, one can say that the Government has customised its budget proposals in line with its goals of the ‘Make in India’ and ‘Digital India’ initiatives on a number of fronts; the levy of a SWC @ 10% combined with the increase in tariff rates would have to be borne out over a period of time
* The author was assisted by Shiladitya Dash, Associate.