Indirect Taxes

Is an ice-cream a product or a service? Well, you are in for a surprise if you think that it’s a product. The tax authorities feel that the ice-cream served by the likes of Amul, Vadilal, Kwality Walls, Baskin Robbins and a host of others retail vends or parlours constitute a service and should be taxed accordingly.

The logic – it is served from air-conditioned facilities.

The budget this year brought under tax the services provided in relation to food or beverages served by a restaurant, eating joint or a mess having air-conditioning or central air-heating facility in any part of the establishment.

Ice -cream, which depends on air-conditioning for its very existence, naturally meets this condition.

The Central Board of Excise and Customs, the apex indirect taxes body under the ministry, is still to issue a directive on implementation of the budget provision. However, field officials, under pressure to meet collection targets, are taking no chances and have turned the heat on ice-cream manufacturers.

The industry finds itself in a precarious situation. Hit hard by rising raw material costs, it is unable to absorb the burden of double taxation.

Ice-cream also attracts value added tax and excise duty, being a manufactured good.

The industry has represented to the CBEC to give clarity on treatment of ice creams as good or service.

The implication of the new levy has been examined by finance minister P Chidambaram and the CBEC is now looking if there is a need to clarify the issue. Ice-cream manufacturers are planning to now take up the issue with finance minister’s office.

“This is a double whammy…Ice cream industry cannot function without air conditioned plant or without AC storage,” said Sudhir Shah, secretary, Indian Ice Cream Manufacturers Association.

(Economic Times)

The finance ministry may soon clarify that takeaway and home delivery of food will not attract service tax, a move that will be welcomed by the likes of McDonalds, Dominoes and Pizza Hut.

“The ministry is examining the issue. There is a strong view that takeaways and home deliveries should not attract service tax,” a senior government official told ET.

(Economic Times)

The finance ministry is considering a proposal to make Large Taxpayer Units (LTUs) mandatory for some categories of taxpayers. The idea is to help check evasion: LTUs act as a single window facilitation centre for all large entities paying excise duty, service tax and income tax.

A committee of the Central Board of Direct Taxes (CBDT) has looked into various aspects of LTUs, including making it mandatory, having an independent budgetary authority and undertaking a taxpayer satisfaction survey, said an official from the income tax department. If the LTUs are made mandatory, the finance ministry might review the thresholds for availing the facility. At present, those paying excise or service tax of over Rs 5 crore or advance tax of over Rs 10 crore in a year are eligible to register with LTUs.

Currently, LTUs are functioning in Bangalore, Chennai, Mumbai and Delhi. However, officials said, the scheme had not taken off very well in some centres, with not many volunteering for fear of a closer scrutiny by the department. There is also a proposal to open an LTU in Kolkata. If more assesses come to LTUs, it will help increase government revenues while lowering administrative costs. For instance, 56 assessees have registered with the LTU in Bangalore, set up in 2006. These account for 26 per cent of the revenue collected in the region. Toyota Kirloskar Motors, Bosch, IBM India, Canara Bank, HP India Sales Ltd, Vijaya Bank and State Bank of Mysore are some of the clients at LTU Bangalore.

The Shome panel on General Anti Avoidance Rules (GAAR) has also suggested making LTUs compulsory for a specified class of taxpayers, in line with international practice.

The concept of an LTU was introduced to assist large taxpayers in filing of documents, refund claims and settlement of disputes. As LTUs handle cases of companies having presence at several locations, the ministry believes these can play a crucial role in tax scrutiny of large taxpayers, through a closer coordination between income tax and excise departments. “This enables in-depth analysis of the finances of big corporates and helps prevent tax evasion. The LTU may become more effective if the audit cycle of the income tax, service tax and excise departments is aligned,” stated a position paper issued by the finance ministry on unaccounted money.

Though all three departments are included under LTUs, they scrutinise different accounting periods at the same time, which reduces the scope of simultaneous scrutiny and examination. As the government is trying to introduce a Goods & Services Tax in the country, the scope of LTUs could be widened to cover states’ taxes, too.

Analysts say one reason for the lukewarm response could be the apprehension among taxpayers that it would give the government a lot of information about them.

(Business Standard)

The Directorate General of Central Excise Intelligence (DGCEI) has served a Rs 30-crore service tax liability show-cause notice to Amity University’s Lucknow campus.

The 25-page notice says the Lucknow campus of Amity is an �off-campus� centre and not approved by the University Grants Commission and hence is �not authorised by law�.

�It appears that Amity University, Lucknow campus has not discharged its service tax liability and, thereby, defrauded the government exchequer, made wilful mis-statement , suppressed vital facts from the department and contravened the provisions of Finance Act 1994, as amended and the rules made thereunder,� the notice sent by Samanjasa Das, additional director general in the directorate, said.

The notice also said service tax amounting to Rs 28.08 crore, in addition to education cess of Rs 56 lakh and secondary and higher education cess of Rs 28 lakh for the period between October 2007 and September 2012, should be recovered from Amity under the provision to sub-section 1 of section 73 of the Finance Act.

Amity University’s gross revenue received (fee) from students between October 2007 to September 2012 was Rs 291 crore.

The services performed by the Lucknow campus were required to be classified as services rendered by commercial training or coaching centres liable to service tax, the notice said.

Off-campus study centres not affiliated to the UGC attract a service tax of 12.36 per cent on their total income. Educational institutions issuing certificate, diploma or degree or any other educational qualification recognised by law do not come under the service tax net.

Amity University has filed a case against the order. According to the Allahabad High Court website, the case was filed on May 29 this year. The status of the case, however, is not known.

Amity University did not respond to an email questionnaire sent last week. Atul Chauhan, president at Amity Education Group, did not respond to calls made to his cell phone. Amity University is run by the Ritnand Balved Education Foundation.

The directorate is confident about its claims. �The documents provided by the group revealed without an iota of doubt that the Lucknow campus of Amity was an off-campus centre of AU, Noida, albeit without any statutory approval as required under law�.

The notice adds that in a letter dated September 13, 2012, UGC said Amity was not included in the list of universities maintained by it. UGC also made it explicitly clear that it had no information about any Amity University Lucknow campus.

The campus conducts courses ranging from BBA, LLB, BCOM. LLB to BA.LLB from Bar council of India. It also offers B.Ed course from National Council for Teacher Education, B.Arch course from Council of Architecture and B.Pharma course from Pharmacy Council of India (PCI).

DGCEI says while applying for recognition of B. Pharma course from PCI, or for that matter, for recognition of other courses from other statutory authorities, Amity had mis-declared the factual position before these authorities and had obtained recognitions which were contrary to the provisions of the UGC CAT and regulations. The Lucknow campus thus could not be termed as an off-campus centre or constituent unit.

(Business Standard)

Chief minister Siddaramaiah held discussions with the chambers of commerce and trade bodies at the weekend as part of his pre-budget exercise to elicit views of the trade and industry.

The Bangalore Chamber of Industry and Commerce (BCIC) has sought a reduction in stamp duty from 7 per cent to 4 per cent to encourage registrations of properties and ensure buoyancy in revenues.

The BCIC has also suggested bringing parity in the value added tax (VAT) rates with respect to all commodities so that industries in Karnataka are placed on a competitive platform compared to other states. This will also bring in more revenues to the state’s exchequer which otherwise is moving to border states.

P V Srinivasan, chairman, Indirect and State Taxes Expert Committee and Senior Vice President-Corporate Taxation, Wipro Limited, said: “Reduction in stamp duty paid in respect of the immovable properties under the VAT principle in the real estate sector is a novel method and if implemented would be the first of its kind in the country.”

He added: “There should be commonality in value added tax rates in respect to all commodities to help the state’s trade and business to have a level playing field as far as competition is concerned. We also strongly demand the abolition of entry tax as it is complicated and highly litigated.”

M Lakshminarayan, president, BCIC, said: “We urge the chief minister to implement the 12-point economic agenda that the chamber submitted to him to regain the lost glory of Karnataka as the most investor-friendly state.”

The FKCCI suggested introducing Commercial Taxes Amnesty Scheme with a view to grant relief to pending cases and litigants under the KVAT Act, 2003, CST Act, 1956, KTPTC Act, 1976 and Entry Tax Act and reduce outstanding taxes, interests and penalties levyable because of amendment to Section 40A of the KVAT Act, 2003.

It has also asked to write-off irrecoverable small arrears of Commercial Taxes which are not under litigation.

FKCCI has also suggested for the withdrawal of 0.5 per cent hike in VAT rates effective from August 1, 2012, and restore the earlier levels immediately.

Among other suggestions, the chamber has called for creation of a New Bangalore on the outskirts of the city with all modern amenities to attract industries. It has also suggested for creation of an international airport hub at Bangalore for the flights from countries to the East of India to the countries in the west of India.

The reduction of entry tax on diesel and petrol from 5 per cent to 3 per cent, exemption of textile traders from entry tax, reduction in entry tax on machinery, spare parts, accessories and machine tools are some other important suggestions made by the FKCCI.

The Karnataka Small Scale Industries Association (Kassia) has demanded for a 15 per cent price preference to small industries in all government corporations and public undertakings.

The procurement policy should be made applicable to all departments, autonomous bodies and local bodies upto panchayat level, Kassia said in its memorandum.

“Industrial township formation in important industrial estates and clusters may be expedited to create a better environment and ecosystem for industrialization,” it said.

Among other demands, the Kassia has suggested for introduction of quarterly payment of VAT for small industries, reduction in property tax rate at Re 1 for BBMP areas, sales tax exemption on diesel used in captive power generators, abolition of entry tax for MSMEs and lowering of the higher end of the sales tax from 14.5 per cent may be effected from July, 2013 itself, among others.

(Business Standard)

Economic Times

As negotiations between the Centre and states for a single indirect-tax system, called the goods and service tax (GST), stretched to enter their seventh year, Manjeet Singh decided he could not wait any longer. Three months ago, Singh relocated his 60 lakh inverter-manufacturing unit from Haryana to Delhi. In a scenario of multiple taxes, for Singh’s small enterprise, that 25 km inter-state shift, from Murthal in Sonipat to Vishnu Garden in Delhi, was the difference between staying in business and going out of it.

Singh’s economics were being wrecked by a state boundary, and the taxes that flowed from it. He was sourcing his raw materials from Delhi and his clients too were mostly in Delhi. When he moved raw materials from Delhi to Haryana, he had to pay 2% central sales tax (CST) on it. When he moved the finished inverter back into Delhi, he had to pay another 2% CST on it.

Compared to a rival located in Delhi, just a few km away, his costs were 4% higher. Plus, the current system, with its multiple taxes, was loaded against millions of micro and small enterprises in India – with an annual turnover of less than 1.5 crore – like his.

Most of them don’t register themselves with the tax authorities to avoid paying tax or expending effort on paying taxes, but also become ineligible to claim tax set-offs. And the wait for a tax system like the GST, which equalises imbalances and reduces the significance of taxation in a business decision, is hurting them. “The GST barrier was one of the reasons for relocating, to avoid the taxation problem,” says Singh.

He is not the only one. In Murthal, which is a hub for cycle parts, iron fabrication and food processing, Alankar Cables, a 30 lakh maker of electrical cables, and Murthal Thread Company, a 30 lakh supplier of threads used in electrical coil, also have relocated to Delhi, citing similar reasons. “Our business is boxed inside the state, limiting our expansion,” adds Chakit Swarup, vice-chairman of the Ghaziabad chapter of the Indian Industries Association, a grouping of small enterprises.

Even as small businesses are forced to make sub-optimal decisions, indications are the GST, whose original rollout deadline was April 1, 2010, may not even happen in the tenure of the current UPA government. The last meeting of the empowered committee of state finance ministers, the grouping of state representatives that is thrashing out the GST with the Centre, was held on May 10-12.

The main point of concern for the states is compensation for the perceived loss of revenues because of the subsuming of several state taxes into the GST. In April, picking up from the statement of Sushil Kumar Modi, chairman of the grouping, that the Centre and states agreed on 80% of the issues, finance minister P Chidambaram indicated a 70% chance of the passage of GST during this government’s tenure.

“Many issues have to be resolved at the political level,” Modi told ET in April. “The prime minister or finance minister will have to take the initiative. It all depends on the Centre. We are moving in a positive direction, but this being election year, one cannot say anything.”

Business Standard Economy Policy News

The growing price differential between branded and non-branded fuel due to high excise duty has impacted the sales of branded petrol and diesel, by 40 and 65 per cent, respectively.

Branded petrol and diesel is priced at a premium to regular fuel as it is considered more efficient. Branded fuels contain additives which result in better engine performance and reduce pollution levels. But, since a higher excise duty was imposed on these in 2009, sales have suffered. Compared to 2007-08, when sales of branded fuel had peaked at 3.31 million kilolitres for petrol and 5.82 million kilolitres for diesel, it has slipped to 0.92 million kilolitres for petrol and 0.31 million kilolitres for diesel in 2011-12.

�Given this differential pricing, consumers are not showing a propensity to spend on a premium product. This has happened only because of the tax element. This kind of volume hit does not help the government,� said Srikumar N, executive director, branding, at Indian Oil Corporation (IOC).

The concept of branded fuel began in 2002 with the opening of the petroleum marketing sector. With an influx of new generation cars for the Indian market, the public sector oil companies decided to offer a fuel variant. Branded fuels were developed to cater to meet this need.

While 2007-08 turned out to be the best for sales, the excise duty levied in 2009 began taking users away from the market. �A Rs 1.15 a litre higher basic Cenvat duty on both branded petrol and diesel vis-a-vis the non-branded fuel is to blame for this,� added the marketing director of an oil company.

IOC sells branded petrol under the Xtrapremium brand and diesel under Xtramile. Up to 2007-08 the difference between regular fuel and branded fuel was 60p to a rupee per litre. �Today, branded diesel is being sold at Rs 4.9 per litre more than regular diesel; of this, Rs 4.3 is on account of the special duties on branded diesel. In the case of petrol, the difference between normal and branded is Rs 2.5 per litre; of this, nearly Rs 2 is on account of the duty difference,� added Srikumar.

For Bharat Petroleum Corporation (BPC), volumes for branded petrol are down from 248,000 tonnes to 180,000 tonnes. Volumes for branded diesel are down from 147,000 tonnes to 76,000 tonnes.

�If the government does not do anything to address the issue of excise duty on branded fuels, it will kill the market. Barring a few elite customers, no customer is keen to buy the fuel with such a differential. Sales have already dwindled and there are no takers for this good-for-economy fuel,� said a senior BPC official.

BPC has reduced the number of outlets where it sells its branded fuels, Speed (petrol) and Hi Speed Diesel. While the number of outlets selling Speed has come down from 29 per cent to 22.8 per cent, those selling Hi Speed Diesel have come down from 27 per cent to 18 per cent.

Hindustan Petroleum Corporation, which sells its fuel under the brands Power (petrol) and Turbo Jet (diesel) did not respond to the email from Business Standard.

Indian Oil said the conversion rate (share of branded fuel to total sales of non-branded fuel) for the company had gone down from 30 per cent in 2007-08 to six to eight per cent for petrol and two per cent for diesel. �When the sales had peaked in 2007-08, our biggest users were truckers and commercial vehicles. At these prices, they have moved away from the brand,� added Srikumar.

To make good this gap, IOC has adopted a strategy where it is aggressively positioning branded diesel to high-end SUVs, MUVs and sedans, against its earlier strategy of targeting commercial vehicles and truckers. �Our strength was in the highways but the moment truckers moved away from it, our market share dipped. But we are re-positioning now. In any case, we are still the market leaders,� said IOC. It has 56 per cent market share in branded petrol and 52 per cent in branded diesel.

When excise on diesel was reduced and made nil in June 2011, the excise on branded fuel was not reduced. That gave a differential of Rs 3.56 in the form of excise between regular and branded diesel. �We have been pursuing with the petroleum as well as finance ministry that there is no logic in making excise duty nil on diesel and not permitting this branded fuel. But to no avail so far. Now that we have developed these brands, spent a lot of goodwill and money to get these established, it�s difficult to discontinue it. All our efforts and cost incurred will go to the dogs,� said the director of marketing at one of the oil marketing companies.

Business Standard Economy Policy News

Engineering major Bhel shot up 3.6 per cent to around Rs 223 on news of the Prime Minister�s Office advising the Cabinet to impose a 5 per cent import duty, 10 per cent countervailing duty and 4 per cent special additional duty on power generation equipment. The cabinet will decide on the issue within the next two weeks.

While the news is definitely positive for the company, it may be too little and too late to revive the fortunes of the company.

It�s almost two years since Bhel has been talking of unfair competition from Chinese and other power equipment manufacturers who have the benefit of lower financing and government support. As per a Royal Bank of Scotland report, the imposition of duty was first suggested by the Arun Maira Committee in July 2010, which was agreed by the Group of Secretaries.
However, the report says that the Minister of Power and private power developers strongly opposed the duty imposition and ensured that the duty imposition was delayed till the end of the Eleventh Plan. This delay has resulted in most of the players placing their orders for capacities to be added between 2013 and 2017. So now Bhel will have to wait for another five years to see a growth in its order book.

RBS adds that in order to circumvent this issue of import duty, Chinese manufacturers are considering setting up manufacturing units in India. This will also help them counter the slowdown in power equipment demand in China and the impact of currency depreciation.

Added to this is the competitive bidding seen in the recent past, where orders were bagged on single digit operating margins. The power sector continues to be impacted by non-availability of fuel for the producers, which is expected to affect decision making for new plants.

It seems the better trade would be to utilise the rise in Bhel�s stock price to exit from it as both order book growth visibility and implementation are at risk.

Business Standard Economy Policy News

The Congress-led government in Maharashtra appears divided over reversing its decision to amend the value-added tax (VAT) set off scheme applied to the automobile industry, despite pressure from the industry and political leaders to do so.

The state finance department has taken an aggressive stand, saying the government should not succumb to auto companies, while other departments say the issue needs to be revisited to arrest the fall of investment to the state.

Instead of a VAT set-off claimed on a gross sales basis, auto companies were asked to claim in on a net sales basis from April 1, 2011, a move which has been objected to by the automobile industry.

According to critics of the government�s move, the amendment is a blow to the auto makers, which are now preferring other states over Maharashtra for new projects.

Mahindra and Mahindra has recently announced its decision to invest in Tamil Nadu, while Maruti Suzuki India, Ford India and Volkswagen have chosen Gujarat, not Maharashtra.

Incidentally, Union Agriculture Minister and Nationalist Congress Party chief Sharad Pawar criticised the state government for losing investments to other states and not keeping continuity in the decisions taken in the past on incentives.

A senior government official, who did not want to be identified, told Business Standard: �If the government retracts, it will have to bear the burden of at least Rs 7,000 crore annually, which is not possible during the present economic slowdown.�

The 52 (A) amendment to the Maharashtra VAT Act has prevented companies from claiming higher input tax credit (ITC). Earlier, the companies would formally sell their entire production from the manufacturing arm to the marketing and sales arm, to claim VAT set-off for sales within Maharashtra. �The marketing arm would then, in effect, bill this to other states across the country. However, under a revised rule, the companies would not be able to claim the VAT set-off on products sold outside the state,� the official said.

The finance department has prepared a note, strongly opposing reversing the amendment to the VAT Act. The note would be forward to the state Cabinet for its consideration.

Chief Minister Prithviraj Chavan admitted the government and the industry were unable to arrive at a consensus in this regard. He said the industry department, as well as Ernst and Young, looked into the issue but were unable to come out with a solution agreeable to the auto industry. The issue still remains unresolved as the auto industry stuck to its stand. Chavan indicated the Cabinet would discuss the issue again.

Business Standard Economy Policy News

The Ministry of Petroleum and Natural Gas is demanding an increase in excise duty on diesel cars with a view to discouraging consumption of subsidised fuel by personal vehicle owners.

“A proposal was received from Ministry of Petroleum and Natural Gas for levy of additional excise duty on diesel cars along with their suggestions for Budget 2012-13,” Minister of State for Finance S S Palanimanickam said in a written reply to the Rajya Sabha.

In order to discourage consumption of subsidised diesel by personal vehicle owners, the Petroleum Ministry had suggested imposition of higher duty on purchase of diesel cars.

Diesel is the most consumed fuel in the country but is sold at a discount to its imported cost. Luxury cars and SUVs also run on diesel and so do power generators at malls and telecom towers.

It has long been argued that the rich should not get subsidised fuel. According to Oil Ministry estimates, 15% of diesel consumption is accounted for by personal cars and SUVs.

Petrol prices were de-regulated in 2010 but the government is yet to take a decision on freeing diesel prices. The government has budgeted Rs 40,000 crore as fuel subsidy for the 2012-13 fiscal.

In a separate reply, Minister of State for Finance Namo Narain Meena said the government is targeting better management of subsidies under the public distribution system (PDS) so that it reaches the intended beneficiaries.

As per a Planning Commission report using a particular method of measuring leakages, the government spends Rs 3.65 through budgetary food subsidies to transfer Re 1 to the poor.

Business Standard Economy Policy News

Property prices will rise by a minimum of 2% immediately due to the hike in excise duty and service tax in the Budget, National Real Estate Development Council today said.

“Property prices are surely going to rise. Now we have to see who will raise how much. However, it will increase by at least two%,” National Real Estate Development Council (NAREDCO) President Navin Raheja told reporters here.

In the Budget for 2012-13, Finance Minister Pranab Mukherjee proposed to raise excise duty and service tax by two% each to 12% from the earlier 10%.

Service tax was, however, exempted on construction activities in specified infrastructure, canals, irrigation works, post-harvest infrastructure, residential dwelling and low-cost mass housing up to an area of 60 sq metre under the affordable housing scheme in partnership.

“For the existing buyers, developers are likely to pass on the service tax burden only, but not the excise duty hike as the agreements were signed earlier. However, for the new buyers, we will pass on the entire burden,” Raheja, who is also the Chairman and MD of Raheja Developers, added.

He said the prices of input costs are going up gradually and these need to be controlled.

“After the excise duty hike, all raw materials like steel, cement, electric and other finishing equipments are going to be more expensive,” Raheja said.

Usually the cost of construction, which accounts for 70% of the total expenditure, will bear the pressure of excise duty hike. The service tax is usually charged on the remaining 30% of the expenditure, he added.

When asked about if sales will be affected, Raheja said: “The impact on demand is already there and it is fluctuating. In other words, we are seeing cautious increase in demand.”

Last week, Confederation of Real Estate Developers’ Association of India Chairman Pradeep Jain had also said the upward revision of the duties will further add pressure on to the overall cost of property that are bound be more costly in the coming days.

Business Standard Economy Policy News

Service tax exemption on advertising on media platforms, excluding TV and radio, could result in availability of up to Rs 1,500 crore more to advertisers for spending on campaigns, according to industry experts.

“Given that marketing budgets of companies always take into account the service tax component, now there will be more money available to be spent on media other than TV and radio (which are not exempt from service tax),” ZenithOptimedia Managing Partner Navin Khemka told PTI.

According to him, the total annual advertising spend in India is currently estimated at $5 billion (around Rs 26,000 crore), of which around 45% is spent on television and radio.

“Now if other advertising media (like print, outdoor, digital) are exempt for service tax, around Rs 1,500 crore, which was earlier spent on service tax by marketers will now benefit advertising and media planning companies,” he added.

In the Budget for 2012-13 Finance Minister Pranab Mukherjee announced that “selling of space or time slots for advertisements other than advertisements broadcast by radio or television” will come in negative list and will be exempt from 12% service tax.

“It is a good news for growing sectors like outdoor and digital. The service tax exemption would ultimately benefit the advertisers who spend a lot on outdoor and Internet,” Madison World Chairman and Managing Director Sam Balsara said.

According to the ‘Pitch Madison Media Ad Outlook 2012’ (PMMAO) report the Indian media advertising industry has been pegged at Rs 25,594 crore in 2011.

Commenting on the impact of the Budget proposals on media and entertainment sector, KPMG Partner Himanshu Parekh said: “Earlier advertising in print was only exempt from service tax, while TV and radio were not exempt. Now even other media like outdoor and digital are exempt.”

Business Standard Economy Policy News

Car buyers would have to shell out more for their choice of vehicles, as Finance Minister Pranab Mukherjee proposed to raise the excise duty on small and large vehicles to its highest level in nearly four years, while also refraining from laying additional tax on diesel-driven vehicles.

Prices of all cars (compacts and sedans), utility vehicles (sports, multi-utlity and vans), commercial vehicles and two-wheeler is slated to rise by a minimum two per cent. The central excise duty has been enhanced by two percentage points to 12 per cent to 10 per cent.

In addition, there has been a two-way increase in excise duty on large cars. In keeping with the increase proposed in the standard rate the duty on such cars have been increased to 24 per cent from 22 per cent.
Presently, petrol cars longer than four meters having engine capacity above 1,200-cc and diesel cars longer than four meters with an engine capacity above 1,500-cc attract excise duty at the rate of 22 per cent, plus Rs 15,000.

Further, those vehicles, which attracted a tax of 22 per cent plus Rs 15,000, will now be subject to switching over to an ad valorem rate of 27 per cent, according to the finance minister’s proposal.

The excise duty on all compact cars (as defined by the government) and two-wheelers was brought down to eight per cent from 12 per cent and to 20 per cent from 24 per cent on large cars in the first stimulus package of December 2008.

Further, fully imported large cars, SUVs and MUVs having engine capacity above the specified capacity with value exceeding $40,000 (about Rs 19.60 lakh) will now attract a custom duty of 75 per cent as against the current 60 per cent.

As a result car and SUV making companies like Maruti Suzuki, Hyundai, General Motors, Honda, among several others are taking a price hike across all their models. Commercial vehicle and two-wheeler makers like Hero MotoCorp, Bajaj Auto, Honda Motorcycle are evaluating an increase.

Though the exact quantum of increase is yet to be finalised by most manufacturers experts say that it could range between Rs 3,000-Rs 35,000 for cars and SUVs while that for two-wheelers the hike would mean an increase in the range of Rs 800-2,000. Commercial vehicle could pass an increase of Rs 15,000-35,000.

Pawan Goenka, president (automotive and farm equipment sectors) Mahindra & Mahindra said to a television channel, “The hike in duty will surely impact demand but it will wear off with time”.

Imported cars whose price is double in India compared to the selling price in their home market will see a further hike by at least 15 percentage points. Price of models of Aston Martin, Lamborghini, Jaguar, Porsche, Bentley and Rolls Royce will go up as a result.

Meanwhile, to provide a competitive edge to home grown bicycle makers, the FM increased the customs duty on it to 30 per cent from 10 per cent and on bicycle parts from 10 per cent to 20 per cent.

Also, commercial vehicle bodies, on which specific rate of Rs 10,000 on chassis and applicable ad valorem duty is charged will now see a uniform rate of three per cent.

Specified parts required for the manufacture of hybrid vehicles enjoy full exemption from basic customs duty and special CVD with concessional excise duty/ CVD of six 6 per cent This concession is being extended to specified additional items and lithium ion batteries imported for the manufacture of battery packs for supply to electric or hybrid vehicle manufacturers.

Business Standard Economy Policy News

Bold, rational and courageous. Can�t be applied across the board but certainly in segments like agriculture, infrastructure credit, education and skill development. No cause to sulk!�

A tweet from Anand Mahindra, M&M�s Vice Chairman and Managing Director hinted on India Inc�s mixed mood. Only a few, such as Mahindra, admired the rooted-in-reality annual plan of the FM. Others termed the hike in excise and service tax — though on expected lines � inflationary in nature.

�Key indirect taxes like services, excise have gone up. I am expecting around 3-5 percent price hikes on an average cutting across sectors,� said Kewal Handa, managing director of drug major Pfizer in India. �So far pharma industry has tried to hold on to prices. But we will have to go back to the drawing board to evaluate this round of hikes.�
A few companies responded with price hikes. Tata Motors decided to increase the prices of its commercial vehicles and passenger vehicles with immediate effect.

Rajan Mittal, Vice-Chairman and managing director of Bharti Enterprises, said the excise and service tax hike to 12 per cent will get passed on to consumers. �We were expecting the growth momentum to continue. The tone of the Budget did not have anything to convince we are still on that trajectory,� he said.

Limited option Most honchos acknowledge the FM had limited options at a time when fiscal deficit is getting out of hand. Options of bold reforms also carry a political price. Sanjiv Goenka, chairman, RP-Sanjiv Goenka Group, said �One should understand the constraints of coalition politics. It is difficult to do rapid reforms taking all stakeholders into account. So, I believe it is better to introduce realistic policies that can be done, rather than announcements which cannot be fulfilled.�

A mention of retail FDI or a timeline given for key financial sector bills such as pension, insurance reforms and banking amendments gave some hope. The budget also handed out sops for aviation and power.

�The abolition of customs duty on coal coupled with reduction in CVD on coal imports will reduce electricity cost for consumers and is a strong positive,� said Gautam Adani, chairman, Adani Group. �The specific provision to allow ECB for refinancing rupee debt of power project will also release considerable resources from the banking system.�

Retrograde step
The proposal to change the provisions of the IT Act, and tax all offshore share transfers retrospectively if underlying assets are in India, will open a Pandora�s Box, felt industry, and quadruple the sovereign risk profile of the country.

Several high profile deals involving GE and Genpact, Aditya Birla and AT&T, Sab Miller-Foster, Cairn-Vedanta may now be impacted.

�This is most retrograde. Our policymakers should realize we do not live in isolation. We need FDI, foreign technology and capital. By all means, impose capital gains or withholding tax but on a prospective basis. Why do we need to go all the way back to 1962. This one step is most negative in the Budget,� said Deepak Parekh, Chairman, HDFC.

Business Standard Economy Policy News

The government today proposed a slew of measures including customs duty exemption on imported fuel and lower levy on overseas funds for projects to provide relief to crisis-hit power sector.

Tata Power welcomed the Finance Minister�s recommendations for economic recovery, spurring growth, removing bottlenecks and promoting Public Private Partnerships.

The extended tax incentives, the decision to allow ECBs, and reinforcement of intention to introduce DTC and GST in the near future should create a positive investment climate.
In line with Tata Power�s focus and investment plans in the renewable energy space, we welcome the government�s continued interest in giving a boost to solar energy projects. The waiver for thermal power companies will be beneficial for upcoming projects. The removal of customs duty on imported coal, natural gas, LNG, and the incentives for the mining sector will marginally improve coal supply, but is still a far cry from achieving adequate fuel security.

However, other measures including the Fuel Supply Agreements with Coal India should provide some relief. However, we expect stronger sustained steps to be taken beyond the Budget, to address the core issues faced by the power sector.

— Anil Sardana, Managing Director, Tata Power

Business Standard Economy Policy News

Branded garments will become cheaper despite hike in its excise duty as a result of the government raising the abatement from 55% to 70% under the budgetary proposals for 2012-13.

This would mean the levy would not be imposed on 70% of the cost of the product as against the present exemption of 55%.

While presenting the Budget 2012-13, Finance Minister Pranab Mukherjee proposed to enhance the excise duty on branded apparel to 12% from 10% at present.

“Along with increase in duty to 12%, I propose to enhance the abatement to 70%. As a result, the incidence of duty as a percentage of the retail sale price would come down from 4.5% to 3.6%,” Mukherjee said.

Apparel Export Promotion Council Chairman A Sakthivel said: “The increase in the duty rate from 10% to 12% will adversely impact raw-material costs.”

Meanwhile, for promotion of technology especially in the weaving sector, Mukherjee proposed to fully exempt automatic shuttleless looms from basic customs duty of 5%.

“Similarly, full exemption from basic duty is being accorded to automatic silk reeling and processing machinery as well as its parts,” he said.

Further, Mukherjee proposed to restrict these exemptions and the existing concessional rate of basic customs duty of 5% only to new textile machinery. Also, second-hand machinery would now attract basic duty of 7.5%.

Reacting on the announcement, Textiles Minister Anand Sharma said, “The move will have a significant impact on value-addition, upgradation and job creation. To some extent, the Finance Minister has accommodated the request of textiles industry.”

Further, Mukherjee said, the basic customs duty on wool waste and wool tops would be reduced to 5% from 15%, currently.

Also, it was proposed to reduce basic customs duty on titanium dioxide to 7.5% from 10%.

Business Standard Economy Policy News

High rates of entertainment tax and lack of uniformity in levy structures across states are inhibiting growth of film industry in India but it could be addressed through adoption of GST.

“Adoption of the goods and services tax (GST), subsuming service tax and entertainment tax, could promote growth of the film industry,” according to the Economic Survey 2011-12.

Commenting on hurdles before the film industry that produces about over 1,000 films a year, it said, “High rates of entertainment tax and lack of uniformity in tax structure across states are major factors inhibiting growth of the film industry.”
Also with piracy becoming a major issue, the survey said the Ministry of Information and Broadcasting is in the process of amending the Cinematograph Act 1952 to make it relevant to present day requirements.

Suggesting sops to promote the industry, it said: “Given the potential of this sunrise sector in India’s growth and trade in services, efforts are needed to relocate the business of the Indian film Industry from foreign countries to India by addressing issues like tax credit.”

During 2011-12, the I&B Ministry has accorded 20 foreign production houses shooting permission, it added.

Commenting on the potential of the FM radio segment, the survey said the third phase of FM expansion “would usher in a new era of infotainment for people besides introducing new vistas of opportunities for employment.”

In the third phase, the government has taken a decision to e-auction 839 FM channels spread over 245 cities across the country. At present 86 cities of India are covered under private FM stations.

The TV segment, that has more than 700 channels and 100 million pay-TV households, is expected to get a major fillip by way of the Cable Television Networks (Regulation) Amendment Act 2011.

“Four metros will go digital in cable television by 30 June 2012, with the rest of the country following suit by 31 December 2014. The digitalisation will redefine broadcasting and bring benefits to all stakeholders,” it said.

Providing details on Prasar Bharati, the survey said the provisional expenditure of the public broadcaster in 2010-11 was Rs 2,686 crore and the total revenue earned was Rs 1,310.3 crore.

“Prasar Bharati has taken a number of steps to increase revenue generation by adopting an aggressive marketing strategy. The Budget for 2011-12 provided Rs 1,944.1 crore to cover the resource gap of Prasar Bharati,” it added.

Business Standard Economy Policy News

The steel ministry has recommended 10% import duty on the alloy in the forthcoming Budget to protect the interest of the domestic industry, sources said.

“The Steel Ministry has recommended doubling of import duty to 10% on steel in the Budget in view of the growing threat of Chinese imports into India. It is aimed at protecting the domestic industry,” the sources in the steel ministry said.

Steel imports during April-January were down marginally at 5.59 million tonne, against 5.62 million tonne in the year ago period. The domestic consumption grew by 5.5% to 57.24 million tonne in the same period.

Finance Minister Pranab Mukherjee will table the Budget for 2012-13 on March 16.

The marginal decline in imports during the April-January period of the current fiscal does not truly reflect the ground reality, sources said.

“The threat of growing exports to India from countries like China, Japan, Korea, Russia and Brazil is looming large given the current global economic scenario,” they added.

Sources said the steel ministry’s communication to its finance counterpart went after a spate of recommendations from major domestic steel makers like Tata Steel, JSW Steel and Essat Steel among others.

“The domestic industry fears huge exports from China in the face of large surplus of steel in Asia’s largest economy. Their fears are not totally unfounded,” they said without giving further details.

China, which accounts for nearly half of the global steel production, stimulates exports by giving an export incentive of nine% on various steel products.

The hike in import duty would also help the government to generate additional revenue.

Business Standard Economy Policy News

JSW Steel Ltd, Vijayanagar,has urged Finance Minister Pranab Mukherjee to curb iron ore exports and has listed a clutch of other measures, which will help the steel industry in India.

Vinod Nowal, president-Bangalore Chamber of Industry and Commerce (BCIC), and director & CEO, JSW Steel Ltd, said the resources of the country should be used for the development of the country. �The Indian steel sector, which is the backbone of the country�s infrastructure, is on the verge of exponential growth. This would require availability of the scarce iron ore for domestic consumption. Hence, export of iron ore should be curbed by way of imposing at least 35 per cent export duty,� he said.

In addition to this, Nowal has urged for rationalisation of railway freight and a careful approach should be adopted while restructuring the freight as economic health of many industries depends on it.
�The development of the free market economy is dependent on the ease with which import and export can be done. Hence it is imperative that new deep draft ports should be developed in public-private partnership to aid the same,� he detailed.

On the aspect of waiving the 5 per cent import duty on non-coking coal, he said the availability of power for the industries as well as civilian purpose is of prime importance.

�And the generation of power depends on the availability of non-coking coal at viable rates. Hence, non-coking coal should be exempted from import duty,� he explained, adding that the production of steam coal should be increased in India to meet the requirements of the power plants. Also, the power plants should get the coal linkages.

While these measures, it will help the industry directly, Nowal has also urged the FM to increase spending on infrastructure.

�The prerequisite for the growth of a nation is robust and strong infrastructure. The government should plan and build roads, highways and other infrastructure elements to facilitate transport of goods across the country,� he said.