Union Budget 2014 - An Overview

Budget Overview 2014
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FOREWORD
The much awaited Union Budget 2014 was presented in the Parliament. At the beginning
of his speech, the Finance Minister made a few significant observations:
u The Budget is the most comprehensive action plan
u It is only the beginning…
u There is a need to revive growth in Manufacturing and Infrastructure
u Fiscal Prudence is paramount
Hence, the Budget 2014 needs to be examined in the backdrop of these observations:
The specific announcements which could be potential game changers:
u Increase in FDI limit in Defence and Insurance sectors from 26% to 49%
u Reduction of minimum FDI thresholds in Real Estate; Construction based limit
reduced from 50,000 sq mtrs to 20,000 sq mtrs and investment limits reduced from
USD 10 mn to USD 5 mn
u Allowing banks to raise long term resources for Infrastructure Funding without any
pre-emption for CRR/SLR
u Tax pass-thru status to Real Estate Investment Trust as well as new category of
entity called Infrastructure Investment Trust
u Increased Plan Capital Expenditure by 26% over last year
Importantly, each one of these steps can kick start investment cycles to heat up the
growth engine.
The predictable announcements include:
u Change in personal taxation threshold
u Increase in savings/investment limit under section 80-C of the IT Act.
u Reduction of investment allowance eligibility amount from INR 1 bn to INR 0.25
bn.
The statements of intent that need to be watched very closely:
u The intent to overhaul subsidy regime coupled with a New Urea Policy and the
need to correct nutrient balance
u Fiscal deficit target of 3% for fiscal year 2016-17 and aspiration of 4.1% for fiscal
year 2014-15
u Focus on industrial corridors and 100 smart cities
u Need to re-focus (read dilute) NREGA schemes
u Viability Gap Funding (VGF) to Urban Projects by Central Government

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u National market for farm products and dilution of state level APMC mechanism
u INR 1 bn funding for project report on river linking project
In course of time, some of the above will help tackle the fiscal targets and inflation.
The Budget has also announced steps to make the Tax Regime predictable and favorable.
There were some disappointments which were contrary to expectations:
u Retrospective amendment to section 9 of the IT Act for indirect transfers
(Vodafone case) has not been repealed and recommendations of Dr Shome
Committee not dealt with
u Challenges in the GAAR regime and its implementation not addressed
u In spite of making right noises about GST & DTC, the Budget stopped short of
defining timelines for implementation
Overall, considering that the FM was constrained to come up with major policy document
in 45 days; the budget is a very good directional exercise. A sustained momentum
coupled with other policy and administrative steps can create the right framework for a
bolder Union Budget, 2015-16 and act as a major catalyst in nudging the economy into
a fast orbit!
Milind Kothari
Managing Partner
BDO India LLP July, 2014

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CONTENTS
1. BUDGET SNAPSHOT.......................................................................... 1
2. DIRECT TAX PROPOSALS.................................................................... 2
3. INDIRECT TAX PROPOSALS
3.1. GOODS AND SERVICES TAX.........................................................16
3.2. CUSTOMS..............................................................................16
3.3. CENTRAL EXCISE.....................................................................29
3.4. SERVICE TAX AND CENVAT CREDIT...............................................44
3.5. COMPLIANCE CHART................................................................57
4. FDI PROPOSALS.............................................................................59
5. GLOSSARY OF TERMS.......................................................................60

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1. BUDGET SNAPSHOT
Direct Tax
u Tax rates remain unchanged
u Tax pass-thru status for REIT and IIT
u Extension of tax holiday for power sector
u ‘Roll back’ Mechanism introduced for APA schemes
u Income of Foreign Portfolio Investor to be characterised as capital gains
Indirect Taxes
u Rationalisation of tax provisions to reduce litigations
u Peak rate of Customs Duty, Central Excise Duty and Service Tax remains
unchanged to support economic growth
u BCD on multiple products reduced to boost domestic manufacturing and to
arrest the issue of inverted duties
u Scope of Advance Rulings and Settlement Commission enhanced
u Service Tax amendments to provide for smooth transition towards GST
implementation

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2. DIRECT TAX PROPOSALS
2.1 Corporate Tax
u Investment Allowance for Medium Size Manufacturing Companies
The Finance Bill proposes to extend the benefit of investment allowance for
manufacturing companies under section 32AC of the IT Act. It is proposed
that a deduction of 15% of the cost of new assets acquired and installed
after April 1, 2014 but before April 1, 2017 would be available, provided
the cost of new assets is INR 250 mn or more during a fiscal year. The
said amendment is extension of the investment allowance introduced vide
Finance Act, 2013. Accordingly, the following situations could arise:
— For fiscal year 2014-15: If cost of new assets exceeds INR 1 bn, relief
could be claimed under the present law or the proposed amendment,
provided that the relief in either case would not exceed 15% of the
cost of the new assets. If the cost of the new assets exceed INR 250
mn but does not exceed INR 1 bn, relief could be claimed under the
proposed amendment.
— For fiscal years 2015-16 and 2016-17: Relief could be claimed under
the proposed amendment, provided the cost of new assets acquired
and installed during a particular fiscal year exceeds INR 250 mn.
It needs to be noted here that unlike the present law, the amendment does
not provide for aggregation of investments made in the previous years and
the investment threshold is to be considered qua a particular fiscal year.
The amendment is aimed at encouraging investment in plant and machinery
by Medium and Small Medium Enterprises in the manufacturing sector, by
providing additional tax reliefs on such investments.
u Disallowance of Corporate Social Responsibility Expenditure
The Finance Bill proposes to add an Explanation to section 37(1) of the IT
Act wherein it has been clarified that the expenditure incurred for meeting
CSR obligations under the new Company Law would not be treated as
expenditure incurred for the purpose of business.
The above amendment will take effect from fiscal year 2014-15.
The new Company Law mandates specified corporates to spend certain
percentage of their profits on activities relating to CSR. However, as per
the proposed amendment, such expenditure would not qualify as deductible
expenditure unless the same is in the nature of specific deductible
expenditure prescribed under section 30 to 36 of the IT Act. This will
increase the cost of undertaking CSR and may dissuade the corporate from
fulfilling their responsibility.

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u Loss on Purchase / Sale of Shares by Company Engaged in Trading of
Shares
It is proposed to amend the Explanation to section 73 of the IT Act, wherein
loss incurred on purchase / sale of shares by a company whose principal
business is of trading in shares, shall not be considered as a speculation
loss.
The above amendment will be effective from fiscal year 2014-15.
Presently, any company deriving income primarily from business and
profession, where part of business involves purchase and sale of shares,
such business of purchase/sale of shares is deemed to be speculation
business. Therefore such loss from purchase/sale of shares constituted
speculation loss, which could not be set off against any other non-
speculative income. However, as per Explanation to section 73 of the IT Act,
these provisions are not applicable to a company whose gross total income
consists mainly of income which is chargeable under the heads ‘Income from
House Property’, ‘Capital Gains’ and ‘Income from Other Sources’ and to
a company whose principal business is that of banking or granting of loans
and advances. Taking a cue from this provision, the Tax Officers treated loss
from purchase/ sale of shares as speculation loss even in cases where the
Assessees were engaged in the business of trading in shares.
The amendment proposes to rationalise the operation of this section by
excluding a company whose primary business is purchase / sale of share.
u Concessional Tax Rate for Foreign Sourced Dividend Income
It is proposed to extend the benefit of concesional rates of 15% under
section 115 BBD of IT Act to dividends received by Indian companies from
foreign subsidiaries for the fiscal year 2014-15 and subsequent years. To
indian companies This amendment is aimed at encouraging corporate
Assessees to repatriate money earned by subsidiaries outside India.
u Amended Calculation of Dividend and Income Distribution Tax
Section 115-O and section 115R of the IT Act have been proposed to be
amended with effect from October 1, 2014 to modify the method of
computing tax on distribution of profits / income. For the purpose of
computing the distribution tax, the tax on distribution of profits / income
shall now be grossed-up.
Effectively, the amendment shall entail additional tax burden of
approximately 3% on the distributable surplus.

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2.2 Transfer Pricing
u Deemed International Transaction
An amendment has been made to the concept of ‘deemed international
transaction’ under section 92B of the IT Act. The proposed amendment
seeks to clarify that even a transaction entered into by an Assessee with
a resident unrelated third party would be deemed to be an International
transaction, if the same is pursuant to a prior arrangement between the
third party and Associated Enterprise.
The above amendment will apply for transactions entered into in fiscal year
2014-15 and onwards.
Presently, in cases where the terms of transaction between the Assessee and
the third party are determined between the third party and the Associated
Enterprise, the transaction is deemed to be an International transaction.
The Revenue Authorities have been invoking the deeming provisions in cases
where transactions were entered into by Indian Assessees with Indian third
parties. This was contested by the Assessees on the ground that transactions
between two Indian residents could not be subject to international transfer
pricing provisions.
With this amendment, the Assessees can no longer take an argument
that transaction between two domestic unrelated parties (under specified
conditions) cannot be treated as deemed international transaction. Assessees
would need to re-evaluate positions taken on applicability of transfer pricing
provisions to their current transaction structures.
u ‘Roll back’ Mechanism for APA
The Finance Bill has proposed to introduce ‘Roll back’ mechanism in the
present APA scheme enacted under section 92CC of the IT Act. As per the
proposal, methodology agreed for determining ALP of an International
transaction under an APA could be made applicable to period of upto four
years prior to the first year covered under the APA. However, benefit of such
‘Roll back’ would be available subject to certain conditions/rules which are
to be prescribed.
This amendment will take effect from October 1, 2014.
The APA scheme was introduced to reduce potential transfer pricing
litigation and provide certainty, but was limited to transactions to be
entered in a future date. With this proposed amendment, certainty is
sought to be brought to similar transactions that may have been entered in
earlier years. While a ‘Roll back’ mechanism is proposed in principle, there
is no clarity as regards the treatment of open issues, i.e., matters subject
to transfer pricing scrutiny or appeals and its applicability to APAs agreed

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before October 1, 2014. Though a welcome change, the exact impact and
benefit will only be known once the Rules are notified.
u Transfer Pricing Officer Given Power to Levy Penalty
The Amendment proposes to now empower even the Transfer Pricing Officers
to levy penalty under section 271G of the IT Act when an Assessee fails to
furnish prescribed information / documents.
This amendment will take effect from October 1, 2014.
Until now such powers were vested only with the Assessing Officer or the
First Level Appellate Authority. However, with the proposed amendment,
even the Transfer Pricing Officers shall have power to levy penalty.
This proposal appears rational given that the Transfer Pricing Officer will be
in a better position to determine whether initiation of penalty proceedings
is warranted or not, given the facts of a specific case. While the power
to levy such Penalty is given to the Transfer Pricing Officer, similar power
vested with the Assessing Officer, continues.
u Concept of Arm’s Length Range
With an objective to align the Indian transfer pricing regulations with global
best practices, in his Budget Speech the Finance Minister proposed to
amend certain transfer pricing regulations pertaining to determination of
ALP.
The Finance Minister proposed to introduce the concept of ‘arm’s length
range’ for determination of ALP. He indicated that the relevant data for
the proposed amendment is under analysis and appropriate rules will be
prescribed in due course. He however clarified that the present mechanism
of using ‘arithmetical mean’ would continue to apply where the number of
comparables is ‘inadequate’.
Use of the ‘range concept’ in determination of ALP could provide more
flexibility to Assessees for pricing transactions with their Associated
Enterprises. However, it remains to be seen how and when the ‘range
concept’ is legislated in the Indian transfer pricing regulations. Guidance
would also be expected for determining when would the number of
comparables be considered as ‘inadequate’ for denying the benefit of ‘arm’s
length range’ for determining ALP. Also, it remains to be seen how the
concept of ‘arithmetic mean’ as it exists within the IT Act be overridden
without any amendment to the relevant section.
u Use of Multiple year Data
As opposed to presently prescribed rule of using single year data for
computing ALP, it is proposed that use of multiple year data would be
permitted for determination of ALP.

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Though, in his budget speech, the Finance Minister mentioned that the
regulations would be amended to give effect to the above, no such
amendments have currently been proposed in the Finance Bill.
Use of multiple year data could provide some flexibility to Assessees for
setting transfer prices in a volatile business environment. Implications can
only be understood once the modalities are prescribed.
2.3 Taxation of Non-residents
u Characterisation of Income of FIIs
The definition of the term ‘capital asset’ under section 2(14) of the IT Act
is proposed to be amended to include any securities held by FIIs, whether
held has stock-in trade or otherwise. Consequently, with effect from April
1, 2014, any income on transfer of securities by FIIs shall be characterised
as capital gains.
In view of CBDT’s circular issued earlier this year, the aforesaid provisions
shall apply to the persons investing under the new FPI regime.
This much-awaited amendment shall provide clarity and bring to rest varied
interpretations and contradictory rulings on the issue of whether the said
income is in the nature of business income or capital gains. This amendment
shall also allow Funds and Indian Asset Managers to take benefit of the
amendment by SEBI and allow Fund Managers in India to manage foreign
funds without adverse tax position that the Manager’s presence may create
in India.
u Transfer of Government Security from Non-Resident to Non-Resident
Periodic interest bearing government securities transferred by one non-
resident to another non-resident shall not be considered as transfer for the
purpose of capital gains with effect from April 1, 2014.
This amendment is proposed to facilitate listing and trading of government
securities outside India. This amendment shall encourage broader
participation of non-resident in government securities and create a broader
market with minimal compliance with respect to computation of tax
liability.
u Concessional Withholding Rate on ECBs – Expanded and Extended
Lower withholding rate of 5% on foreign borrowings on issue of long term
infrastructure bonds is now proposed to be expanded to include any long
term bond with effect from October 1, 2014. Such concessional rate is
extended to borrowings made before July 1, 2017 by way of issue of any
long term bond, including long term infrastructure bonds.

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Though this amendment allows raising loan or issuance of bonds in foreign
currency, similar provision for rupee denominated bonds has not been
extended beyond June 1, 2015.
2.4 Individual Taxation
u Increase In Limit of Deduction for Interest on Housing Loan
Considering the increase in the cost of housing and the increased finance
cost, it is proposed to increase the deduction limit for interest cost
under section 24(b) of the IT Act from INR 150,000 to INR 200,000. This
amendment shall be effective from April 1, 2014.
This is a welcome amendment and will enable smaller Assessees to save
taxes on purchasing house property with lower aggregate costs.
u Capital Gain Exemption Restricted to One House.
Currently, the provisions of section 54 of the IT Act provide for an
exemption in respect of long term capital gains arising on transfer of a
house property if the said gains are used to construct or purchase, a house
property, within specified time limits. The language of this section was
unclear on whether such exemption could be availed in case an Assessee
purchases or constructs more than one property. To address this ambiguity,
the amendment has been proposed to restrict the exemption to investment
in only one house property from fiscal year 2014-15.
u Increase in Limit for Investment Linked Deduction
The Finance Bill proposes to increase the deduction limit for investments
prescribed under section 80C of the IT Act to INR 150,000. This amendment
will be effective from April 1, 2014.
Under the existing provisions, a deduction of upto INR 100,000 is allowable
with respect to investments made or sum deposited in certain specified
instruments like Life insurance, Provident Funds, etc. The above limit was
earlier prescribed vide Finance Act, 2005 and has now been revised after
almost 10 years.
u Withholding Tax on Certain Receipts from Life Insurance Policy
Under the proposed provision of section 194DA of the IT Act, any amount
paid by the life insurance provider to an Assessee, excluding any amount
exempt under section 10(10D) of the IT Act, shall be subjected to tax
withholding at the rate of 2%. However, to avoid any hardship to small
tax payers, these provisions shall not be applicable if the aggregate sum
received during a fiscal year is less than INR 100,000. This amendment will
be effective from October 1, 2014.
This provision now casts additional compliance obligation on life insurance
companies.

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2.5 Other Key Amendments
u Change in Definition of Short Term Capital Asset
Definition of short term capital asset under section 2(42A) of the IT Act,
has been proposed to be amended such that an unlisted security and a
unit of a mutual fund (other than an equity oriented mutual fund) shall
be a considered to be a short term capital asset, if the same is held for a
period not more than 36 months as against earlier period of 12 months. This
amendment will be effective from fiscal year 2014-15.
This amendment has far reaching implications on the Mutual Fund industry
where the indexation benefits on Fixed Maturity Plans, having maturity
period of just over 12 months, availed by large investors, will now not be
available. This could have substantial tax impact in relation to the existing
investments in units of such funds.
Further, shares of an unlisted company will no longer enjoy the shorter
holding period for it to qualify as long term capital asset.
u Tax Rate on Long Term Capital Gains
The option to avail benefit of tax on long term capital gains at the rate of
10%, without indexation, under section 112 of the IT Act, is now proposed
to be limited only to listed securities (other than units of Mutual Funds).
This amendment will take effect from fiscal year 2014-15.
This is an additional blow to the investors of debt oriented mutual funds,
especially, fixed maturity plans.
u Deduction for Specified Businesses
The Finance Bill proposes to include the following businesses to the list of
specified businesses that would be eligible to claim deduction for capital
expenditure under Section 35AD of the IT Act:
— Laying and operating slurry pipelines for transportation of iron ore
— Setting up and operating of semiconductor wafer fabrication
manufacturing unit (if such unit is notified by the CBDT, in accordance
with the prescribed guidelines)
Further, it is proposed that the capital asset on which such deduction is
claimed should be used only for the purpose of such specified business at
least for a period of 8 years beginning from the fiscal year in which such
asset is acquired or constructed. In case the said condition is not satisfied,
an amount representing the difference between deduction claimed and
depreciation otherwise allowable under the IT Act would be taxable in
hands of the Assessee in the year in which the said condition is breached.

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However, this condition would not be applicable to a sick company as
defined under the Sick Industrial Companies (Special Provisions) Act, 1985.
It has been further proposed that Assessees claiming deduction under
Section 35AD of the IT Act would not be entitled to claim deduction under
section 10AA of the IT Act.
The above amendments will take effect from Fiscal Year 2014-15
The proposed amendments have been inserted to reinforce the intent that
deduction on capital expenditure should be allowed only if the asset is used
only for the purpose of specified business for a minimum period of 8 years.
u Rationalisation of Exemption for Investment in Capital Gain Bonds
An amendment has been proposed to section 54EC of the IT Act, which
provides that the exemption pursuant to the investment made by an
Assessee, in the year of transfer of the long term asset and in the
subsequent year, shall not exceed INR 5 mn. This amendment will be
effective from fiscal year 2014-15.
Section 54EC of the IT Act provides for an exemption of upto INR 5 mn
in respect of capital gains arising from a sale of long term capital assets,
in case the gain is invested in specified long term bonds within a period
of 6 months from the date of transfer of original asset. The provisions of
this section were ambiguous, which led to interpretational challenge that
the exemption under this section could be claimed in two fiscal years. To
remove this ambiguity and give effect to the intent behind enactment of
this exemption, suitable amendment has been proposed.
However, the proposed amendment does not answer whether the earlier
interpretation was accurate or otherwise.
u Taxability of Advance Money Received for Transfer of a Capital Asset
Amendment is proposed to section 56(2) of the IT Act to tax forfeiture of
money received as advance or otherwise in the course of negotiations for
transfer of capital asset and such negotiations do not result in transfer of
such asset.
Due to the proposed amendment, the amount forfeited would be taxed
as Income from Other Sources. There will be no impact on the cost of
acquisition for the purpose of computing capital gains on actual transfer of
asset.
As per the present provisions of section 51 of the IT Act, any advance
or other money received and forfeited by the Assessee in respect of

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negotiation of transfer of such asset is reduced from the cost /written
down value /fair market value of the asset while computing capital gains.
Consequential amendment has also been made to the section 51 of the IT
Act in order to avoid any double taxation of the forfeited amount.
u Extension of Sunset Clause for Power Companies
It is proposed to amend section 80-IA of the IT Act to extend the profit-
linked tax holiday for Assessees having undertakings carrying out generation,
distribution and transmission of power from fiscal year March 31, 2014 to
fiscal year March 31, 2017.
This proposal is a relief to the power companies which will now commence
their operations.
u Computation of AMT
The Finance Bill proposes to amend provisions of section 115JC of the IT Act
relating to computation of AMT in cases of non-corporate Assessees claiming
Investment-linked deductions.
As per the existing provisions for computation of AMT under section 115JC
of the IT Act, the adjusted total income is to be increased by certain
Profit-linked deductions claimed by an Assessee. However, no adjustment
was prescribed for Investment-linked deductions. As per the proposed
amendment, in case of eligible business, the adjusted total income for
computing AMT is to be increased by the deduction claimed under section
35AD of the IT Act and reduced by the depreciation that may have been
available under section 32 of the IT ACT on such capital expenditure.
With this amendment, the AMT computation is proposed to be harmonised
in case of non-corporate Assessees claiming Investment-linked deductions.
u Credit of AMT
As per the proposed amendment, AMT credit under section 115JD of the IT
Act is now allowed to be set off in subsequent years, even in cases where
adjusted total income of eligible Assessees is less than INR 2 mn or in case
where profit-linked deductions are not claimed during the year.
Earlier, the provisions of the Chapter XII-BA were applicable only to eligible
Assessees claiming profit linked deductions and having adjusted total income
in excess of INR 2 mn as prescribed under section 115JEE of the IT Act.
Thus, there arose an anomaly that credit for AMT would be available only in
the year where the Chapter XII-BA applies. The amendment proposes to do

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away with this anomaly and accordingly, credit for AMT would be available
even in the subsequent year even if the provisions of the Chapter XII-BA do
not apply.
u Tax Regime for REIT and IIT (Business Trust)
SEBI released consultation paper on draft regulations for business trust in
the last quarter of 2013. In anticipation of the relevant regulation being
formalised, tax regime under section 115UA of the IT Act for such business
trusts is proposed with effect from October 1, 2014.
Key provisions are as under:
— Listed units of the business trust shall be treated at par with listed
equity shares. On being traded, transaction of such units shall be
subject to STT. Long term capital gains would be exempt from tax
and short term capital gains shall be taxable at 15%.
— Business trust shall be treated a pass through entity for taxation of
interest income. However, income from capital gains on disposal of
assets (including shares) shall be chargeable to tax in the hands of
business trust at applicable rates. Other income in the hands of the
trust shall be taxable at MMR.
— Interest income received by the business trust shall not be subject
to withholding and shall not be taxed in its hands. Such interest
income, when distributed, shall be subject to tax withholding @ 10%
for interest paid to resident investors and 5% for interest paid to non-
resident investors.
— Interest paid to non-residents in case of ECB availed by business trust
shall be subject to withholding tax at 5%, provided such loan is availed
in consonance with conditions laid down in section 194LC of the IT
Act.
— Dividend received by the business trust shall be subject to DDT in
the hands of Investee Company. Such dividend will be exempt in the
hands of business trust as well as the investors.
— The business trust is required to furnish its return of income.
The effectiveness of this structure would principally be relevant for
investors who would like to take the benefit of steady returns from the
real estate and the infrastructure sector with the ability to liquidate the
investment. Considering the fact that gain on sale of underlying portfolio
is taxable in the hands of the business trust, foreign investors having the
reach and ability to invest in the companies directly, will evaluate the
benefits of investing through this pooling structure.

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u Mutual Funds, Securitisation Trusts and Venture Capital Companies Or
Venture Capital Funds to Furnish Return of Income
Section 139 of the IT Act has been proposed to be amended to extend the
compliance requirement of furnishing of return of income for Mutual Funds,
Securitisation Trusts and Venture Capital Companies or Venture Capital
Funds.
Such funds, trusts and companies were earlier not obligated to furnish
Return of Income. Instead they were required to furnish a statement giving
details of the nature of the income paid or credited during the year and
other prescribed details. With the amendment, such funds, trusts and
companies shall be required to furnish the return of income in respect of
income, without giving effect to the provisions of section 10 of the IT Act,
which exceed the maximum amount which is not chargeable to income tax.
u Tax Accounting Standards
The proposed amendment to section 145 of the IT Act seeks to clarify that
the accounting standards, as may be notified by the Central Government,
are relevant only for the purpose of computing the taxable income and
there is no obligation cast upon the Assessees to maintain books of
accounts as per such accounting standards. However, the tax authorities
are empowered to carry out a best judgement assessment in case it is
established that the Assessee has not followed such notified accounting
standards while determining the taxable income.
This is a welcome amendment which aims to clarifying the position that the
Assessees are not required to maintain a dual set of books of accounts and
it is sufficient if such standards, as and when they are notified, are followed
by the Assessees while computing their taxable income.
u Disallowances on Account of Tax Withholding Defaults
As per the proposed amendment to section 40(a)(ia) of the IT Act, no
disallowance of expenditure would be made in cases where withholding tax
on payments/ credits made to non-residents are deposited within the due
date of filing Return of Income.
Further, the Finance Bill proposes to restrict the disallowance of expenditure
to 30% of expenditure claimed on payments/ credits made to residents, as
against the current disallowance of the entire expenditure. It may be noted

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that the said relief would not be allowable in case of payments/ credits
made to non-residents and hence the entire amount thereon would continue
to be disallowed in case the conditions for deducting and depositing the
withholding tax are not complied with.
Further, it is proposed that disallowance under this section would now be
applicable for all payments to a resident which is subject to deduction of
tax at source under Chapter XVII-B of the IT Act (Deduction at Source).
The above amendments are applicable for the fiscal year beginning on April
1, 2014 and subsequent years.
The controversy with respect to applicability of this section on short
deduction of taxes remains unaddressed.
u Tax Withholding Compliances And Proceedings
The Finance Bill proposes to insert a proviso to section 200 of the IT Act,
which expressly empowers Assessee to file correction statements. Under
the present law, there was no provision under the IT Act for enabling
an Assessee to file a correction statement against the tax withholding
statements filed. However, by virtue of a notification and the relevant
utilities available on the website of the tax authorities, the Assessees could
file their correction statement.
In order to align the time limit for passing such order with that of initiation
of reassessment proceedings, it is proposed that the time limit for passing
an order by the tax authorities would be 7 years from the end of the fiscal
year of payment/ credit. This would be applicable from October 1, 2014.
The present law provides for a time limit of 2 years (or 6 years in case a
tax withholding statement has not been furnished) for passing of order by
the income tax authorities deeming an Assessee as ‘Assessee in default’ for
failure to deduct tax from payments made to a resident.
This amendment is aimed at giving sufficient time to the income tax
authorities to determine cases of defaults in tax withholding on payments
to residents. It needs to be noted that the present law does not provide
for any time limit in case of passing orders for defaults in tax withholding
on payments to non-residents.

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2.6 Rates of Income-tax at a glance
Individual / Hindu Undivided Family / Association of Persons / Body of
Individuals
The Bill has proposed to change the existing tax structure for individuals, HUFs,
AOP and BOI revising the basic exemption limit. The rates of tax for fiscal year
2014-15 are proposed as under:
Income Slabs (INR)
Individual HUF / AOP
/ BOIAge below
60 yrs
Age above
60 but
below 80
yrs
Age 80 yrs
and above
Upto 250,000 NIL NIL NIL NIL
250,001 – 300,000 10% NIL NIL 10%
300,001 – 500,000 10% 10% NIL 10%
500,001 – 1,000,000 20% 20% 20% 20%
1,000,001 & above 30% 30% 30% 30%
Surcharge shall be levied @ 10% where the taxable income exceeds INR 10 mn.
The Education cess and Secondary and Higher education cess shall continue to be
levied at the rate of 2% and 1% respectively.
Marginal relief will continue to be allowed in cases where taxable income is more
than INR 10 mn.
Partnership Firm / Limited Liability Partnerships
The rates of Income tax will continue to be the same as those specified for FY
2013-14.
Limit Tax Rate (%)
On the whole of the total income 30%
Surcharge shall be levied @ 10% where the taxable income exceeds INR 10 mn
The Education cess and Secondary and Higher education cess shall continue to be
levied at the rate of 2% and 1% respectively.
than INR 10 mn.
Company
Corporate tax rates remain unchanged for both domestic as well as foreign
companies. The applicable rates of tax for fiscal year 2014-15 are:

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Sr.
no
Particulars
Basic
Tax Rate
Surcharge
Total
Income
upto INR
10 mn
Total
Income
above INR
10 mn upto
INR 100 mn
Total
Income
above INR
100 mn
1. Domestic Company
Normal Tax Rate
Minimum
Alternative Tax
30%
18.50%
Nil
Nil
5%
5%
10%
10%
2. Foreign Company
Normal Tax Rate 40% Nil 2% 5%
The Education cess and Secondary and Higher education cess shall continue to
be levied at the rate of 2% and 1% respectively on the amount of tax computed
inclusive of surcharge(wherever applicable) in all cases.
than INR 10 mn or INR 100 mn.

16
3. INDIRECT TAX PROPOSALS
3.1 GOODS AND SERVICES TAX
The Union Finance Minister in his Budget Speech has categorically stated that time
has come for introduction of Goods and Services Tax (GST) and there is no scope
for any further debate on the efficacy of transition to GST. Emphasizing on the
importance of GST which would bring reforms in tax administration and would be
a booster to the economy, the Union Finance Minister said that he is individually
and collectively meeting the States to iron out the contentious issues.
The Union Finance Minister has clearly indicated that the necessary legislative
changes for introduction of GST would be brought by the end of the year. While
delivering the budget speech, he said that the government’s overall objective
is to prepare indirect tax regime for a smooth transition to GST and hence the
budgetary changes in indirect taxes have been kept at a minimal level.
While the industry was expecting a much stronger intent statement and a clear
roadmap to implementation of GST in the Budget Speech, the Union Finance
Minister has cleverly laid down the intent without emphasizing on any clear
roadmap, considering our federal structure and the consensus required from the
States to usher in this milestone tax reform.
Overall, the Budget Speech lays down a clear and strong intent towards early
implementation of GST and the industry expectation of possible implementation
of GST by April 01, 2016 seems to be quite achievable.
3.2 CUSTOMS
u Baggage Rules [to be effective from July 11, 2014] :
Baggage Rules, 1998 have been amended to allow passengers returning to
India to carry duty free articles to the extent –
i) Passengers above 10 years of age:
• After staying abroad for more than three days – Articles upto INR
45,000/- (Previous limit – INR 35,000/-)
• After staying abroad for three days or less – Articles upto INR
ii) Passengers upto 10 years of age:
• After staying abroad for more than three days – Articles upto INR

17
iii) Passengers who are returning to India shall be allowed to carry duty
free:
• Cigarettes upto 100 (Previous limit – 200)
• Cigars upto 25 (Previous limit – 50)
• Tobacco upto 125 gms (Previous limit – 250 gms)
u Advance Rulings [to be effective from July 11, 2014]
Resident Public Limited Company was already included in the class of person
eligible for making an application for Advance Ruling. Now “resident private
limited company” has also been included in the said class of persons.
u Legislative changes:
Exemption with Retrospective Effect [to be effective from the date to
be notified after the finance bill receives the assent of the president]:
(a) Mineral oils (including petroleum and natural gas) extracted or
produced in the continental shelf of India or exclusive economic zone
of India as referred to in section 6 and section 7, respectively, of the
Territorial Waters, Continental Shelf, Exclusive Economic Zone and
Other Maritime Zones Act, 1976, and imported prior to the 7th day of
February, 2002 have been exempted from the whole of customs duties
with retrospective effect. However, no refund of any customs duties,
if any, already paid in respect of such mineral oils shall be available.
(b) Notification 12/2012 Customs dated 17th March 2012 has been
retrospectively amended to exempt LPG imported during February 8,
2013 to July 10, 2014 for supply to non –domestic exempted category
customers.
Amendments to Customs Act, 1962 [to be effective from the date to be
notified after the finance bill receives the assent of the president]:
• Settlement Commission
(a) Customs and Central Excise Settlement Commission’ has been
redefined to mean “Customs, Central Excise and Service Tax
Settlement Commission”.
(b) Previously the applicant for settlement of cases was not allowed
to make application to the Settlement Commission before the
expiry of 180 days from the date of seizure. Now the said
restriction has been deleted.

18
(c) The order of the Settlement Commission provides for imposition of
penalty on the applicant on the ground of concealment of particulars
of duty liability. An explanation has been added to clarify that the said
concealment is made only from the officer of customs.
• Litigation
(a) When the demand for duty/penalty/fine is upto INR Two Lakhs, the
Appellate Tribunal may in its discretion, refuse to admit an appeal.
(Previous limit was INR Fifty Thousand).
(b) The provisions for allowing stay by the Appellate Tribunal have been
omitted. A new section 129E has been introduced which stipulates that
the Tribunal/ Commissioner (Appeals) shall admit an appeal subject to
the conditions that Appellant has deposited the following:
• 7.5% of the duty/penalty confirmed in the Order -in -Original
• 10% of the duty/penalty confirmed in the order of the
Commissioner (Appeal).
However, the amount required to be deposited under this section
shall not exceed INR 10 crores.
The above conditions shall not apply to the stay applications
and appeals pending before any appellate authority prior to the
commencement of the Finance Act, 2014.
(c) The three months limit for review of the Order-in-Original passed
by the Commissioner of Customs by the Committee of Chief
Commissioners may be extended by the Board for a period of another
thirty days.
(d) Section 131BA is being amended so as to enable the Commissioner
(Appeal) to take into consideration the fact that a particular order
being cited as a precedent decision on the issue has not been
appealed against, the amount involved being lower than the monetary
limits laid down by the Board.
• Import of Goods through Land Route
(a) Filing of Bill of Entry prior to the filing of Import Manifest for import
by vessel or aircraft was allowed. Now the said facility has been
extended to imports through land route.

19
Amendments in Customs Tariff Act, 1975
I. Agriculture/Agro Processing/Plantation Sector [to be effective from July 11,
2014]:
• Rates - Downward revision of Duty/ Rate: Imports :
Sr.
No.
Chapter
Heading
Description of goods Existing
Duty/ Rate
Revised Duty/
Rate
1. 2302 40 00 Rice bran (upto 31
December 2014)
30% Nil
2. 2304 De-oiled soya extract (upto
31 December 2014)
30% Nil
3. 2305 Groundnut oil cake/oil cake
meal (upto 31 December
2014)
30% Nil
4. 2306 30 Sunflower oil cake/oil cake
meal (upto 31 December
2014)
30% Nil
5. 2306 60 00 Palm kernel cake (upto 31
December 2014)
30% Nil
6. 2306 90 Canola oil cake/oil cake
meal,
Mustard oil cake/oil cake
meal,
Rice bran oil cake (upto 31
December 2014)
30% Nil
II. Chemicals and Petrochemicals
• Rates - Downward revision of Duty/ Rate: Imports:
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 2711 12 00 Propane 5% 2.5%
2. 2901 10 00 Other goods 5% 2.5%
3. 2901 21 00 Ethylene 5% 2.5%
4. 2901 22 00 Propylene 5% 2.5%
5. 2901 24 00 Butadiene 5% 2.5%

20
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
6. 2902 41 00 O-Xylene 5% 2.5%
7. 2905 11 00 Methyl alcohol 7.5% 5%
8. 2707 40 00 Naphthelene 10% 5%
9. 3823 11 11
3823 11 12
3823 11 19
3823 11 90
3823 12 00
3823 13 00
3823 19 00
2915 70
All goods for use in the
manufacture of soaps and
Oleochemicals
7.5% Nil
10. 1520 00 00 Crude glycerin (in general) 12% 7.5%
11. 1520 00 00 Crude glycerin (for
manufacture of soap)-
subject to specified
conditions
12.5% Nil
12. 2207 20 00 All goods (Denatured Ethyl
Alcohol)
7.5% 5%
13. 15 Fatty acids, crude palm
stearin, RBD and other palm
stearin and
specified industrial grade
crude oils
7.5% Nil
II. Energy Sector
• Rates - Upward revision of Duty/ Rate: Imports:
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 2701 19 10 Coking coal Nil 2.5%
2. 2701 12 00 Bituminous coal 2% 2.5%

21
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
3. 2701 19 20 Steam coal 2% 2.5%
4. 2704 00 Metallurgical coke Nil 2.5%
• Downward revision of Duty/ Rate: Imports:
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 2701 11 00 Anthracite coal 5% 2.5%
2. 2701 19 90 All goods 5% 2.5%
IV. Textiles:
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 2929 10 90 Diphenylmethane 4,4
di-isocyanate (MDI) for
manufacture of spandex
yarn
5% Nil
2. 3907 20 10 Polytetramethylene ether
glycol
5% Nil
• Others
Sr.
No.
Description Comments
1. Duty free imports of trimmings
and embellishment and other
goods used by the readymade
garment sector for manufacture
of garments for export.
Rate increased from 3% to 5%
V. Metals:
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 7219, 7220 Stainless steel flat products 5% 7.5%

22
• Rates- Upward revision of Duty/ Rate: Exports
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
2. 2606 00 10 Bauxite (natural), not
calcined
10% 20%
3. 2606 00 20 Bauxite (natural), calcined 10% 20%
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 8908 00 00 Ships imported for breaking
up
5% 2.5%
2. 2708 Coal tar pitch 10% 5%
3. 8548 10 10
or
8548 10 20
Battery scrap and battery
waste
10% 5%
4. 2518 Dolomite for metallurgical
use
conforming to IS: 10346-
2004
5% 2.5%
5. 2521 Limestone for metallurgical
use
conforming to IS: 10345-
2004
5% 2.5%
VI. Precious Metals:
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 71 Half-cut or broken diamonds Nil 2.5%
2. 71 Lab-grown diamonds and
colored gemstones
2% 2.5%

23
• Downward revision of Duty/ Rate: Imports:
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 7103 Pre-forms of precious and
semi-precious stones
Tariff Rate Nil
• Others
Sr.
No.
1. Goods covered under Chapter
71 for re-import of specified
diamonds after certification/
grading by agencies specified
under FTP.
Diameter for round shape diamond increased
to +-0.05mm from +-0.01mm and +-0.07mm
in length and breadth for diamonds of other
shapes
VII. Electronics/Hardware:
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 8529 LCD and LED TV panels of
below 19 inches
10% Nil
2. 8540 11 Colour television picture
tubes for
use in the manufacture of
cathode
ray televisions
10% Nil

24
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
3. 8529, 4016 The following goods for use
in the
manufacture of Liquid
Crystal
Display (LCD) and Light
Emitting
Diode (LED) TV panels of
heading
8529, namely:-
(i) Open cell (15.6” and
above);
(ii) Plate diffuser;
(iii) Film diffuser;
(iv) Reflector sheet;
(v) Film, top;
(vi) Film, middle;
(vii) Film, bottom;
(viii) BAR, LED;
(ix) Cushion /Gasket;
(x) Bezzal;
(xi) Back cover sheet
Tariff Rate Nil
4. 90 or any
chapter
Portable X-ray machine /
system
Tariff Rate Nil
5. 8543 E-Readers 7.5% Nil
• Others
Sr.
No.
1. Electronic products like line telephone sets,
line video phones, telephone answering
machines, recorded media for reproducing
phenomena other that sound and image, parts
of electronic integrated circuits, facsimile
machines, units of automatic data processing
machines, etc.
Education Cess and Secondary
Higher Education Cess leviable
on CVD.

25
Sr.
No.
2. Inputs/components used in the manufacture
of Personal Computers (laptops/desktops) and
tablet computers.
Exempted from SAD subject to
actual user conditions.
3. Import of specific telecommunication
products like soft switches, optical transport
equipments, MIMO or LTE products.
BCD levied @ 10 percent,
Specified products exempt
subject to certain conditions.
4. PVC sheet and ribbon used in manufacture of
smart cards
SAD exempted, subject to
specified conditions
5. Portable x-ray machine / system stands CVD exemption withdrawn
VIII. RENEWABLE ENERGY:
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 7326 90 99 Forged steel rings for
manufacture of
special bearings for use in
wind
operated electricity
generators
10% 5%
2. 3208, 3815,
3901, or
3920
The following goods for use
in the manufacture of EVA
(Ethylene Vinyl Acetate)
sheets or backsheet,
which are used in the
manufacture of solar
photovoltaic cells or
modules, namely:-
(i) EVA resin;
(ii) EVA masterbatch;
(iii) Poly ethylene
terephthalate(PET) film;
(iv) Poly vinyl fluoride (PVF);
(v) Poly vinyl di-fluoride
(PVDF);
(vi) Adhesive resin; and
(vii) Adhesive hardner
Tariff Rate Nil

26
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
3. 7408 Flat copper wire for use in
the
manufacture of photo
voltaic ribbon
(tinned copper interconnect)
for
manufacture of solar
photovoltaic
cells or modules
5% Nil
• Others
Sr.
No.
Particulars Comments
1. Machinery, Equipments, etc
required for initial setting up of
compressed biogas plant.
Concessional duty of 5%
2. Machinery, equipments, etc.
required for initial setting up of
solar energy production project.
Concessional duty of 5% and CVD and SAD of
Nil rate.
3. Parts and raw material required
for manufacture of wind-
operated electricity generators
Fully exempt from SAD, subject to specified
conditions
IX. CAPITAL GOODS/INFRASTRUCTURE:
• Others
Sr.
No.
Particulars Conditions
1. Mono rail project import scope Scope extended to Metro rail projects
• Plants & Equipment imported prior to 2008 for use in projects financed by the
UN or an international organization can be disposed off in following manner:

27
Sr.
No.
1. Transfer to a new project 1. A certificate stating that the goods are
no more required for the old project
should be obtained from the concerned
officer of Central or State Government
or Union territory Administration
2. A declaration from UN or specified
international organization stating that
goods are required in the new project
approved by the Government of India.
2. Re-exportation 1. Identification of goods in required;
2. Export incentives cannot be claimed.
3. Sale 1. Payment of Customs duty on depreciated
value calculated by Straight Line
Method, subject to maximum 70%.
X. HEALTH
• Others
Sr.
No.
1. Anti Retroviral Drugs (ARV
Drugs ), Diagnostic kits
and equipments required
for National AIDS Control
Programmed funded by the
global fund to fight AIDS, TB and
Malaria
BCD and CVD exempt upto 31st March 2015
XI. SECURITY AND STRATEGIC PURPOSES
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 39 or any
Chapter
Raw materials for use in
manufacture of security
fibre and security threads
for supply to Security Paper
Mill,
Tariff Rate Nil

28
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
Hoshangabad and Bank Note
Paper Mill India
Private Limited, Mysore
for use inc manufacture of
security paper.
• Others
Sr.
No.
1. Goods falling under first
schedule to the Customs Tariff
Act,1975 related to defense and
internal security forces when
imported by National Technical
Research Organization (NTRO)
and Indian Offsite Partner (being
contractor of NTRO)
BCD and CVD exemption, subject to certain
conditions
XII. MISCELLANEOUS:
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 85 or any
other
chapter
Electrolysers and their
parts/spares
required by caustic soda
or caustic potash units and
membranes and their parts/
spares
required by industrial plants
based on membrane cell
technology
5% 2.5%
2. 85 or any
other
chapter
Other Parts (other than
Membranes and part
thereof)
7.5% 2.5%

29
• Rates - Upward revision of Duty/ Rate: Imports
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 3903 19 90 Polystyrene (other than
moulding
powder) when imported
from Singapore
1.15% 7.5%
• Others
Sr.
No.
1. Un-registered public funded
and other research institutions
importing scientific and
technical instruments and
apparatus.
Customs duty and additional duty payable,
However, refund in excess of 5% of custom
duty and entire additional duty can be
claimed after obtaining registration and
subject to limitation period not exceeding
one year.
Safeguard Duty [to be effective from July 11, 2014] :
Safeguard duty exempted on imports by EOU or SEZ have been made subject to an
additional condition that the said goods are not cleared into the Domestic Tariff Area or
used in the manufacture of any goods which are cleared into the Domestic Tariff Area.
3.3 CENTRAL EXCISE
u LEGISLATIVE AMENDMENTS:
I. Amendments to CE Act [to be effective from the date of enactment
of the Bill, unless otherwise specified]:
• A new Section 15A is being inserted in the Act empowering
the Central Government to prescribe an authority or agency
to whom the information return shall be filed by the specified
persons such as Income tax authorities, State Electricity Boards,
VAT or Sales Tax Authorities, Registrar of Companies, Recognized
Stock Exchange, Depository, Officer of RBI, amongst others.
Another new Section 15B is also being inserted so as to provide
for imposition of penalty on the specified person on failure
to furnish information return. The purpose of collecting the
information is to identify tax evaders or recover confirmed dues.
• A few amendments in the provisions relating to ‘Settlement
Commission’ are being carried out as follows:

30
(i) Section 31(g) and Section 32(1) are being amended
to change the name of the ‘Customs & Central Excise
Settlement Commission’ to the ‘Customs, Central Excise
& Service Tax Settlement Commission’.
(ii) Section 32E(1) is being amended to replace the reference
to Section 11AB with a reference to Section 11AA (relating
to interest).
(iii) Section 32E(1) is being amended to allow filing of
applications of settlement before the Settlement
Commission in cases where the applicant has not filed the
Returns after recording reasons for the same.
(iv) Sub-section (2) of Section 32E prohibits the filing of
application before the expiry 180 days from the date of
seizure of any excisable goods, books of accounts or other
documents under the provisions of the Act or the Rules
made thereunder. Section 32E is being amended to omit
sub-section (2) since the same is redundant.
(v) Section 32O is titled ‘Bar on subsequent application for
settlement in certain cases’. Section 32O(1) is being
amended so as to insert an explanation thereunder to
read – ‘In this clause, the concealment of particulars
of duty liability relates to any such concealment made
from the Central Excise Officer’. The amendment had
become necessary as there were doubts as to whether
‘concealment’ referred to ‘concealment before the
Settlement Commission’ or ‘Central Excise Officer’.
Parallel amendments are also made in the relevant provisions of
the Customs Act.
• Second proviso to Section 35B(1) vests discretionary powers
in the Tribunal to refuse admission of appeal where the duty
involved or the amount of fine or penalty determined does not
exceed INR 50,000/-. Section 35B(1) is being amended so as
to increase this monetary limit for the purpose of exercise of
discretionary powers of the Tribunal from INR 50,000/- to INR
2,00,000/-.
• Section 35F provides for the filing of stay application before
the Commissioner (Appeals) or Appellate Tribunal for the waiver
of condition of pre-deposit of duty demanded, interest levied
and/or penalty imposed in case of an appeal being filed before

31
the Appellate authority. Section 35F is being substituted with a
new Section so as to prescribe a mandatory fixed pre-deposit
of 7.5% of the duty demanded or penalty imposed or both for
filing appeal with the Commissioner (Appeals) or the Tribunal at
the first stage and an additional 10% of the duty demanded or
penalty imposed or both for filing second stage appeal before
the Tribunal. However, the amount of pre-deposit payable shall
be subject to a ceiling of INR 10 crores. Consequently, there
would not be any requirement for the Appellant to file any stay
application before the appellate authority once this mandatory
condition of pre-deposit is complied with.
• Section 35C(2A), inter alia, requires the Tribunal to dispose of an
appeal within a period of 180 days from the date of stay order in
case where stay order is made in any proceeding relating to an
appeal filed before it. In case of non-disposal of appeal within
the stipulated period, the stay order stands vacated on expiry
of the said period. However, the Tribunal has been empowered
to extend the validity of stay order upto maximum period of
365 days on an application being made by the Appellant for the
purpose.
As with the insertion of new Section 35F as aforesaid, the above
requirements contained in first, second and third proviso to
Section 35C(2A) have become irrelevant and the same are being
omitted.
• Section 35E provides for the review powers of Committee of
Chief Commissioners of Central Excise or Commissioner of Central
Excise in certain circumstances. These powers are required to
be exercised within a period of three months from the date
of communication of the decision or order of the adjudicating
authority that is the subject matter of review by the Committee.
A proviso in sub-section (3) is being inserted in Section 35E to
vest the Board with the power to condone delay for a period
upto 30 days for review by the Committee of Chief Commissioner
of the orders-in-original passed by the Commissioner of Central
Excise.
• Section 35L provides for the appeal to Supreme Court against the
judgment of the High Court or an Order passed by the Appellate
Tribunal. Section 35L is being amended so as to clarify that
determination of disputes relating to taxability or excisability of
goods is covered under the term ‘determination of any question
having a relation to rate of duty’ and hence, appeal against

32
the Orders of the Tribunal in such matters would also lie to the
Supreme Court.
• Section 35R is being amended so as to enable the Commissioner
(Appeals) to take into consideration the fact that a particular
order being cited as a precedent decision on the issue has not
been appealed against, the amount involved being lower than
the monetary limits laid down by the Board..
II. Amendments to CE Rules [To be effective from the date of Notification
No. 19/2014-CE(NT) dated July 11, 2014, i.e. July 11, 2014, unless
otherwise specified] :
• Rule 8 provides for the manner of payment of duty by the
Assessees. A new sub-rule (1B) is being inserted in Rule 8
w.e.f. October 1, 2014 so as to make E-payment mandatory
for all Assessees unless the Assistant/Deputy Commissioner of
Central Excise allows, for the reasons to be recorded in writing,
an Assessee to pay the duty by any mode other than Internet
Banking.
• Sub-rule (3A) of Rule 8 deals with the default of the Assessee
in payment of duty beyond 30 days from the due date and the
consequences thereof. The sub-rule, as is in force at present,
provides that in case of such default, the Assessee shall pay
excise duty for each consignment at the time of removal
without utilizing the Cenvat Credit till the date of payment
of outstanding amount including interest thereon and in the
event of any failure, the goods shall be deemed to have been
cleared without payment of duty entailing the consequences and
penalties as provided in the Rules.
Sub-rule (3A) is being substituted by a new sub-rule (3A) so as
to provide that in case of default in payment of duty beyond 30
days from the due date, the Assessee shall be liable to pay the
penalty at the rate of one per cent on such amount of the duty
not paid, for each month or part thereof calculated from the
due date, for the period during which the default continues. The
penalty shall be paid by the Assessee on his own.
With this much-awaited amendment, the Assessees would be
relieved of the severe consequences i.e. payment of duty in
cash on each clearance at the time of removal of goods due
to default in payment of duty within the stipulated period as
attracted in terms of the current provision.

33
III. Amendment to Central Excise Valuation (Determination of Price of
Excisable Goods) Rules, 2000 [vide Notification No. 20/2014-CE(NT)
dated July 11, 2014 effective from July 11, 2014]:
• Rule 6 of Valuation Rules provides for the determination of
assessable value in certain circumstances and contains two
Explanations.
A proviso before Explanation 1 to Rule 6 is being inserted so
as to provide that in cases where excisable goods are sold at a
price below the manufacturing cost and profit and there is no
additional consideration flowing from the buyers to the Assessee
directly or from a third person on behalf of the buyer, value for
the assessment of duty shall be deemed to be the transaction
value.
The above insertion is being made vide Notification No. 20/2014-
CE (NT) dated 11.07.2014 and is effective immediately. So,
effectively, even if the Assessee sells the goods at a price less
than the manufacturing cost and profit, the value of such goods
shall be deemed to be the transaction value for the purpose
of payment of excise duty provided there is no additional
consideration flowing directly or indirectly from the buyer to the
Assessee.
This amendment could not have come a day sooner and puts at
rest, the controversy that has arisen throughout the country as
a consequence of the judgment of the Hon’ble Supreme Court
in the case of CCE, Mumbai V/s. Fiat India (P) Ltd. – 2012-TIOL-
58-SC-CX.
IV. Authority for Advance Ruling [Notification No. 18/2014-CE(NT) dated
July 11, 2014 refers]:
• The Scheme of Advance Ruling is being extended to Resident
Private Limited Companies vide Notification No. 18/2014-CE (NT)
dated 11.07.2014.
V. Unit Quantity Codes:
• The Schedules to the Customs and Central Excise Tariffs are
being amended in respect of selected goods to match the Unit
Quantity Codes prescribed therein with the ones that are actually
used in trade and commerce. This would facilitate trade and

34
improve data quality and compliance.
u RATE OF DUTY
i) An Additional Excise Duty is being levied @ 5% ad- valorem on aerated
waters containing added sugar. (w.e.f. July 11, 2014)
ii) The Clean Energy Cess levied on coal, Lignite and peat is being
increased from INR 50 per tonne INR100 Per tonne. (w.e.f. July 11,
2014)
III. EXCISE DUTY/ RATE CHANGES (to be Effective From July 11, 2014):
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
1. 8438 5000,
8438 6000,
8438 9090
Agriculture/ agro
processing/ plantation
sector:
Machinery for preparation
of meet, poultry, fruits,
nuts, vegetables and/
on presses, crushers and
similar machinery used in
the manufacture of wine,
cider, fruit juices or similar
beverages and on packing
machinery
10 6
2. 74 Metals:
Excise duty on winding wires
of copper
10 12
3. 24 Tobacco Products:
Pan Masala
12 16
4. 24 unmanufactured tobacco 50 55
5. 24 jarda scented tobacco,
gutkha and chewing tobacco
60 70
6. 85 Electronics/ hardware:
Smart Card
2% (without
cenvat or 6%
with Cenvat)
12

35
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
7. Any Chapter Excise duty on RO
membrane element used in
household
type filters is being reduced
from 12%/10% to 6%.
10%/ 12% 6
8. 85 Electronics/ hardware:
Metal Core PCB and LED
driver for use in the
manufacture of LED lights
and fixtures and LED lamps
12 6
9. 73 Renewable Energy:
Forged steel rings used in
the manufacture of bearings
of wind operated electricity
generators
12 Nil
10. 70 Full exemption from excise
duty is being provided for
solar tempered glass used
in the manufacture of solar
photovoltaic cells/ modules,
solar power generating
equipment/system, and flat
plate solar collectors
New Entry Nil
11. 64 Consumer Goods:
Footwear of retail price
exceeding INR500 per pair
but not exceeding
INR1,000 per pair.
12 6
12. 27 Energy Sector:
Branded Petrol
INR7.5 per
litre
INR2.35 per litre

36
Sr.
No.
Chapter
Heading
Duty/ Rate
Revised Duty/
Rate
13. Any Chapter ELECTRONICS/ HARDWARE:
Full exemption from Excise
Duty is being provided
to reverse osmosis (RO)
membrane element used
in water filtration or
purification equipment
(other than household type
filter)
New Entry Nil
IV. CONCESSIONAL RATE OF DUTY UNDER NOTIFICATION NO. 1/2011-CE AND 2/2011-
CE (to be effective from July 11, 2014):
Sr.
No.
Tariff
Heading
Product
description
Existing Rate New Rate
1. 42 Gloves specially
designed for use
in sports.
New Entry 2% without
CENVAT credit or
6% with CENVAT
credit
2. 54 or 55 Textile :
Polyester
Staple Fiber
and Polyester
Filament Yarn
manufactured
from plastic
waste or scrap
or plastic waste
including waste
polyethylene
terephthalate
(PET) bottles
New Entry 2% without
CENVAT or 6%
with CENVAT
3. 84 Consumer
Goods:
Sewing machines
other than those
operated with
electric motors,
whether in-built
or attachable to
the body.
Entry Substituted (2% without
CENVAT/ 6% with
CENVAT)

37
V) DEEMED MANUFACTURE - COVERAGE EXPANDED:
The Third Schedule to the CE Act is being amended in the manner specified in the
Seventh Schedule of Finance Bill, 2014. The Description of Goods along with their
respective Central Excise Tariff Headings are summarized below (To be effective
from the Date to be Notified after the Finance Bill receives the assent of the
President):
Sr.
No.
Sr. No. of
Table
Heading, Sub-
Heading or
Tariff item
Description of goods Nature of
amendment
1. 30A 3002 20 or 2002
30 00
Vaccines (other
than those specified
under the National
Immunization Program)
New Entry
2. 36A 3215 90 10 Fountain Pen Ink New Entry
3. 36B 3215 90 20 Ball Pen Ink New Entry
4. 36C 3215 90 40 Drawing Ink New Entry
5. 38A 3306 1010 Tooth Powder New Entry
6. 53A 39 or 40 Nipples for feeding
bottles
New Entry
7. 53B 4015 Surgical rubber gloves
or medical examination
gloves
New Entry
8. 62A 7310 or 7326
or any other
Chapter
Mathematical boxes,
geometry boxes and
colour boxes,
pencil sharpeners”
New Entry
9. “65A 8215 All goods New Entry
10. 68 8415 All goods except goods
specified in sub-heading
8415 20
Substituted
11. 69 8418 21 00, 8418
29 00, 8418 30
90, 8418 69 20
All goods Substituted
12. 70 8421 21 Water filter & water
purifiers, of a kind used
for domestic purposes.
Substituted

38
Sr.
No.
Sr. No. of
Table
Heading, Sub-
Heading or
Tariff item
amendment
13. 70A 8421 21 20, 8421
99 00
Water filters functioning
without electricity and
replaceable kits thereof
New Entry
14. 73 8469 Typewriters Substituted
15. 76 8506 All goods other than
parts falling under tariff
item 8506 90 00
Substituted
16. 76A 8508 All goods other than
item 8508 70 00
Substituted
item 8509 90 00
Substituted
item 8510 90 00
Substituted
item 8513 90 00
Substituted
20. 81 8517 Telephone sets including
telephones with
cordless handsets and
for
cellular networks or
for other wireless
networks; videophones
Substituted
21. 81C 8517 Wireless data modem
cards with PCMCIA or
USB or
PCI express ports
New Entry

39
Sr.
No.
Sr. No. of
Table
Heading, Sub-
Heading or
Tariff item
amendment
22. 84 8523 All goods except goods
specified in tariff items
8523 21 00, 8523
29 60 to 8523 29 90,
8523 41 20 to 8523 41
50, 8523 49 30, 8523 49
50 to 8523 49 90, 8523
52 10, 8523 59, 8523 80
20, 8523
80 30 and 8523 80 60
Substituted
23. 84A 8523 80 20 Packaged software or
canned software.
Explanation.– For
the purposes of this
Schedule,
“Packaged software
or canned software”
means a
software developed
to meet the needs of
variety of users, and
which is intended for
sale or capable of being
sold off the shelf.”
New Entry
24. 89 8517 or 8525 60 Mobile handsets
including Cellular
Phones and Radio
trunking terminals
Substituted
25. 94 8539 All goods except lamps
for automobiles
Substituted
26. 94A Chapter 84 or 85 Goods capable of
performing two or
more functions of items
specified at S.Nos. 67
to 94
New Entry
27. 99A 9619 All goods New Entry

40
VI. Amendment in Tariff Rate:
The First Schedule to the Central Excise Tariff Act, 1985 is being amended in the
manner specified in the Eighth Schedule of Finance Bill, 2014. The Central Excise
Tariff Headings along with their amended Tariff rates are summarized below (To
be effective from the date to be notified after the Finance Bill receives the assent
of the President):
Sr.
No.
Heading, Sub-heading Earlier Rate New Rate
1. 2401 10 10, 2401 10 20, 2401 10 30, 2401 10
40, 2401 10 50,
2401 10 60, 2401 10 70, 2401 10 80, 2401
10 90, 2401 20 10, 2401 20 20, 2401 20 30,
2401 20 40, 2401 20 50, 2401 20 60,
2401 20 70, 2401 20 80 and 2401 20 90
50% 55%
2. 2402 10 10 and 2402 10 20 12 % or INR
1781 per
thousand,
whichever
is higher
12 % or INR
2250 per
thousand,
whichever
is higher
3. 2402 20 10 INR 509 per
thousand
INR 990 per
thousand
4. 2402 20 20 INR 1772 per
thousand
INR 1995 per
thousand
5. 2402 20 30 INR 509 per
thousand
INR 990 per
thousand
6. 2402 20 40 INR 1249 per
thousand
INR 1490 per
thousand
7. 2402 20 50 INR 1772 per
thousand
INR 1995 per
thousand
8. 2402 20 60 INR 2390 per
thousand
Omitted
9. 2402 90 10 INR 1511 per
thousand
INR 2250 per
thousand
10. 2402 90 20 and 2402 90 90 12% or INR
1738 per
thousand,
whichever is
higher
12% or INR
2250 per
thousand,
whichever is
higher

41
Sr.
No.
Heading, Sub-heading Earlier Rate New Rate
11. 2403 19 2403 19 After 2403
19 10, 2403
19 is to be
substituted
by 2403 19
21
12. 2403 99 10, 2403 99 30 and 2403 99 90 60% 70%
13. 4015 90 20 U kg
14. 4102 U Kg
15. 4901, 4909 and 4910 Kg U
16. 7308, 7323 and 7324 Kg U
17. 8205 and 8208 U Kg
18. 8301 Kg u
19. 8405 and 8466 Kg u
20. 8418 61 00, 8418 69 10, 8418 69 20, 8418
69 30, 8418 69 40, 8418 69 50, 8418 69 90,
8421 91 00,
8421 99 00, 8432 80 10, 8432 80 20, 8432
80 90, 8432 90 10, 8432 90 90, 8473 30 10,
8473 30 20, 8473 30 30, 8473 30 40,
8473 30 91, 8473 30 92, 8473 30 99, 8473 40
10, 8473 40 90, 8473 50 00 and 8483 90 00
Kg u
21. 8503, 8529, 8532, 8533, 8534, 8535 and
8536
Kg u
22. 8517 70 10, 8518 90 00 and 8538 10 10 Kg u
23. 8544 Kg m
24. 9004 90 90, 9005 80 90, 9026 90 00, 9031 10
00, 9031 20 00, 9031 41 00, 9031 49 00 and
9031 90 00
Kg u
25 9110 12 00, 9110 19 00, 9110 90 00 and
9113 10 00
Kg U

42
VII) OTHER CHANGES IN RATES OF DUTY:
Automobiles:
• Excise duty is being exempted on parts of tractors removed from one or
more factories of a tractor manufacturer to another factory of the same
manufacturer for manufacture of tractors.
Precious Metals:
• Un-branded articles of precious metals are being exempted from excise duty
for the period March, 01, 2011 to March 16, 2012.
Textiles:
• Excise duty on Polyester Staple Fiber (PSF) and Polyester Filament Yarn
(PFY) manufactured from plastic waste or scrap or plastic waste including
waste polyethylene terephthalate (PET) bottles (which is already exempt
w.e.f. May 08, 2012) is being exempted retrospectively w.e.f. June 29, 2010
to May 07, 2012 and intermediate product ‘Tow’ arising during the course of
manufacture of such PSF/PFY is being exempted retrospectively w.e.f. June
29, 2010 to July 10, 2014.
Health:
• Full exemption from Excise duty is being provided to DDT manufactured
by Hindustan Insecticides Limited for supply to the National Vector Borne
Diseases Control Programme (NVBDCP) of the Ministry of Health & Family
Welfare.
• Full exemption from excise duty is being provided for HIV/ AIDS drugs and
diagnostic kits supplied under National AIDS Control Programme (NACP)
funded by the Global Fund to Fight AIDS, TB and Malaria (GFATM).
• Excise duty on cigarettes is being increased by 72% for cigarettes of length
not exceeding 65 mm and by 11% to 21% for cigarettes of other lengths.
Similar increases are proposed on cigars, cheroots and cigarillos.
Renewable Energy:
• Full exemption from excise duty is being granted in respect of machinery,
equipments, etc. required for setting up of solar energy production
projects.
• Full exemption from excise duty is being provided to backsheet and EVA
sheet used in the manufacture of photovoltaic cells/modules and specified
raw materials used in their manufacture.
• Full exemption from excise duty is being provided to parts consumed within
the factory of production for the manufacture of non-conventional energy
devices.

43
• Full exemption from Excise Duty is being provided on flat copper wire used
in the manufacture of PV ribbons (tinned copper interconnect) for use in
the manufacture of solar cells/modules.
• Full exemption from excise duty is being provided on machinery,
equipments, etc. required for setting up of compressed biogas plant (Bio-
CNG).
Consumer Goods:
• The scope of the phrase “not mixed with any other ingredient” in the
context of excise duty exemption on “heena powder or paste, not mixed
with any other ingredient” is being clarified so as to provide that the
exemption is available to heena powder mixed with a liquid, so far that
the liquid is a medium to change the form of heena powder into paste
but excludes products like heena dye and such other products which are
cosmetics and have no ceremonial or traditional value
• Footwear of retail price upto INR500 per pair will continue to remain
exempted.
• Semi- mechanized units manufacturing safety matches, which attract
concessional excise duty of 6%, are being allowed to carry out the processes
of ‘Pasting of labels’ and ‘Packing’ with the aid of power
Energy Sector:
• Full exemption from Central Excise duty is being provided to Liquefied
Propane and Butane mixture, Liquefied Propane, Liquefied Butane and
Liquefied Petroleum Gases (LPG) for supply to Non-Domestic Exempted
Category (NDEC) customers by the Indian Oil Corporation Limited, Hindustan
Petroleum Corporation Limited or Bharat Petroleum Corporation Limited.
(retrospectively from February 08, 2013).
Security and Strategic Purposes:
• Full exemption from Excise Duty is being provided to goods supplied to
National Technical Research Organisation (NTRO).
• Full exemption from excise duty is being provided for security threads and
security fibre supplied to Security Paper Mill Corporation of India Limited
(SPMCIL) and Bank Note Paper Mill India Private Limited (BNPMIPL).
Miscellaneous:
• Optional excise duty of 2% (without CENVAT)/6% (with CENVAT) on writing
and printing paper for printing of educational textbooks is being withdrawn
and instead a uniform excise duty of 6% with CENVAT is being levied.
• Intermediate goods manufactured and consumed captively for further
manufacture of matches is being fully exempted.

44
• The scope of the Excise Duty exemption to “all goods supplied against
International Competitive Bidding” is being clarified to the effect that the
said exemption is also available to sub-contractors for manufacture and
supply of goods to the main contractor (who has won the bid for the project
through ICB) for execution of the said project
• Full exemption from Excise duty is being provided on plastic materials
reprocessed out of the scrap or waste and cleared into the DTA by an EOU.
• Education cess and secondary & higher education cess (customs component)
is being exempted on goods cleared by an EOU into the DTA.
• A clarification is being issued that the exemption from Education cess and
secondary & higher Education cess under notifications No.28/2010-CE and
No.29/2010-CE, both dated June 22, 2010 is applicable only in respect of
the clean energy cess leviable on coal and not in respect of excise duty
leviable on coal.
• It is being clarified that all goods falling under headings 8601 to 8606
(except 8604) attract 6% excise duty with CENVAT benefit.
• Basic excise duty on cigarettes and other products of tariff heading 2402 is
being increased.
• Compounded levy scheme in respect of Chewing tobacco, unmanufactured
tobacco and chewing tobacco(commonly known as khaini) is being modified.
• Plants and equipments supplied prior to 2008 for use in the projects
financed by the UN or an International Organization which hitherto could
not be transferred/ sold out of the project site, are now being allowed
to be transferred/ sold from the project site subject to the conditions
specified therein.
• The Seventh Schedule to the Finance Act, 2001 dealing with National
Calamity Contingent Duty is being amended to omit the Tariff item 2402 20
60 as a consequential change to amendment in the First Schedule to the
Central Excise Tariff Act, 1985.
3.4 SERVICE TAX AND CENVAT CREDIT
u Widening of the Tax Base
I. Negative List (Section 66 D) [to be effective from the date to be notified
after the Finance Bill receives the assent of the President]
• Selling of space or time slots for advertisements through internet
(online) and mobile now taxable:
Services in relation to Selling of Space or time for Advertisements
in broadcast media namely radio and television is now extended to

45
other segments like online and mobile advertisement. Accordingly,
advertisements by online and mobile media like internet websites, out
of home media, on film screen in theatres, bill boards, conveyances,
buildings, cell phones, Automated Teller Machines, tickets, commercial
publications, aerial advertising etc. would now attract the levy of
service tax. However, the sale of space for advertisements in print
media shall continue to be in the negative list and hence, excluded
from the levy of service tax.
• Services provided by radio taxis or radio cabs now taxable:
Services provided by radio cabs or radio taxis whether or not air
conditioned, are now proposed to be brought within the service tax
net. This amendment is proposed to bring services by radio taxis at
par with the services of rent-a-cab operators. However, abatement
option presently available to the rent-a-cab service would also be
made available to radio taxi services.
II. Mega Exemption Notification no. 25/2012-ST:
a) Exemptions withdrawn [to be effective from July 11, 2014]:
• Exemptions to clinical research on human participants now
withdrawn:
Services by way of Technical Testing or analysis of newly
developed drugs, including vaccines and herbal remedies, on
human participants by a clinical research organization approved
to conduct clinical trials by the Drug Controller General of India
is now proposed to be taxed.
• Exemption to air-conditioned contract carriages for
transportation of passengers now withdrawn:
Earlier Service of passenger transportation by contract carriage
other than for the purpose of tourism, conducted tour, charter
or hire was exempted from service tax. Now, the scope of tax
base is extended by withdrawing the exemption in respect of
air conditioned contract carriage. Service tax will be chargeable
on an abated value of 40% of the gross amount charged from
the service provider. Services by non-air conditioned contract
carriages for purposes other than tourism, conducted tour,
charter or hire however, continues to be exempted.
• Blanket exemption in relation to specified services provided
to Government or Local Authority or Governmental Authority
now withdrawn:

46
Services in relation to water supply, public health, sanitation
conservancy, solid waste management or slum improvement and
up-gradation are exempted and will continue to be exempted.
However, it is now proposed to restrict the exemption only
in relation to services directly connected with these specified
services. Accordingly, services such as consultancy, designing, etc.
not directly connected with the specified exempted services are
now taxable.
• Concept of ‘Auxiliary Educational Services’ omitted:
The concept of ‘auxiliary educational services’ is proposed
to be omitted and a positive list of services which will be
exempt when received by the eligible educational institutions
is specified. Accordingly, only the following services provided to
eligible educational institution are exempt from service tax:
i) Transportation of students, faculty and staff of the eligible
educational institution;
ii) Catering service including any mid-day meals scheme
sponsored by the Government;
iii) Security or cleaning or house- keeping services in such
educational institution;
iv) Services relating to admission to such institution or
conduct of examination.
Further, exemption to services provided by way of renting
of immovable property to educational institution now stands
withdrawn.
The term ‘educational institution’ is being defined for the
purposes of exemption as ‘institutions providing educational
services specified in the negative list’ (Not. No. 25/2012-ST
refers)
• Services by a hotel, inn or guest house:
The word ‘commercial’ appearing in the entry 18 of the
Notification No. 25/2012-ST is being omitted so as to remove any
ambiguity with regard to the admissibility of exemption, upto the
specified threshold limit to dharamshalas or ashrams or any such
entity which offer accommodation.

47
b) Additions to Mega exemption notification no. 25/2012-ST [to be
effective from July 11, 2014]:
• Bio-Medical Waste treatment services are now exempt:
Services provided by Common Bio – Medical Waste treatment
Facility operators by way of treatment, disposal of bio Medical
waste or processes incidental to such treatment or disposal to a
clinical establishment are now exempted (a new entry at Sr. no.
2B refers).
• Life Micro Insurance scheme by IRDA are now exempt:
All life micro insurance schemes approved by Insurance
Regulatory Development Authority (IRDA) where the sum assured
does not exceed Rs. 50,000 are now exempted from service tax
(item (c) inserted in entry at Sr. no. 26A refers).
• Transportation of organic manure by vessel, rail or road is now
exempt:
Services by way of transportation of organic manure by vessel,
rail or road (by GTA) is exempted (entries at Sr. nos. 20 and 21
as amended refers).
• Transportation of cotton (ginned or baled) by vessel, rail or
road is now exempt:
Services by way of transport by vessel, rail or road (GTA) of
cotton, whether ginned or baled, is exempted (entries at Sr. no.
20 and 21 as amended refers).
• Loading, unloading, etc. of rice, cotton, ginned or baled,
exempted:
Services by way of loading, unloading, packing, storage or
warehousing or rice, cotton, ginned or baled is now exempted.
• Financial services received by RBI from outside India is now
exempt:
Exemption is granted to Specialized Financial Services received
by RBI from outside India, in the course of management of
Foreign Exchange Reserves (e.g. External asset management,
custodial services, securities lending services) [new entry at Sr.
no. 41 refers]

48
• Tours conducted outside India by Indian Tour Operators are
now exempt:
Exemption is granted to services provided by Indian Tour
Operators to Foreign Tourists in relation to tours conducted
wholly outside India (new entry at Sr. no. 42 refers)
• ESIC services pre-01.07.2012 are exempted [to be effective
from the date to be notified after the Finance Bill receives
the assent of the President]:
Services provided by Employees State Insurance Corporation
(ESIC) during the period prior to July 1, 2012 is proposed to be
exempted from service tax. Such services provided by ESIC to
persons governed under the Employees’ Insurance Act, 1948 is
already exempt for the period commencing from July 1, 2012.
u Place of Provision of Services Rules, 2012 [to be effective from October 1,
2014]:
• Scope of intermediary services widened
The definition of ‘intermediary’ has been amended to include in its scope,
services provided by the brokers or agents who facilitate supply of goods.
Thus, the place of provision of services provided by the brokers or agents,
being intermediaries, shall be the location of the broker or agent i.e.
intermediaries providing the services. Consequently, w.e.f. October 1, 2014,
the intermediary of goods such as commission agents or consignment agents
or brokers shall be covered under Rule 9(c) of the Rules.
• Imported goods brought in only for repairs, and not otherwise, shall not
be taxable in India:
At present, by virtue of second proviso to Rule 4, the place of provision of
services of repairs, re-conditioning or re-engineering of goods temporarily
imported in India and subsequently re-exported was not to be determined
by Rule 4 i.e. the location of the actual performance of service.
Now, the said proviso is being amended so as to exclude the services of only
repairs from applicability of rule 4(a) if the goods imported for repairs are
re-exported without being put to any use in the taxable territory other than
that required for such repairs.
The TRU Circular clarifies that this exclusion does not apply to goods that
arrive in the taxable territory in the usual course of business and are
subjected to repair while such goods remain in the taxable territory. For
e.g., any repair provided in the taxable territory to containers arriving in

49
India in the course of international trade in goods will be governed by
Rule 4.
• Hiring of aircrafts and vessels now taxable at the location of service
recipient:
At present, hiring of all means of transport upto a period of one month was
taxable at the location of service provider. However, now, in case of hiring
of aircrafts and vessels (except yachts), the place of provision of service
shall be the location of the service recipient irrespective of the time period
of the hire. However, hiring of yachts would continue to be covered by rule
9(d).
u Point of Taxation Rules, 2011 [to be effective from October 1, 2014]:
• Re-defining the point of taxation in case of payment under RCM:
The present provisions for POT in case of payment under the RCM are as
follows:
Scenario Point of Taxation
Payment made within 6 months
from the invoice date
Date of payment
Payment is not made within 6
months from the invoice date
Earlier of the following:
— Date of invoice (if invoice issued within 30days)
or
— Date of provision of service (if invoice not
issued within 30days) or
— Date of payment
The POT in case of payment under RCM is being amended as follows:
Payment made within period of 3
months from the invoice date
Date of payment
Payment is not made within
period of 3 months from the
invoice date
Date immediately after the end of 3 months from
the invoice date
The proposed amendment will apply only to invoices issued after October
1, 2014.
• Transitional provisions in the case of RCM for invoices issued prior to
October 1, 2014:

50
For the Invoices issued prior to October 1, 2014 whose payment is not made
upto October 1, 2014, a new Rule 10 to determine the point of taxation as
follows:
Payment made
within 6 months
from the invoice
date
Date of payment
Payment is not
made within 6
months from the
invoice date
Earlier of the below:
— Date of invoice (if invoice issued within 30days) or
— Date of provision of service (if invoice not issued within
30days) or
— Date of payment
u Notification No. 26/2012 [to be effective from July 11, 2014]:
• Condition for availing abatement for GTA service clarified:
In the condition for availing abatement in case of GTA services; the words
“by the service provider” have been inserted so as to clarify that the
condition of non – availment of the CENVAT Credit on input, capital goods
and input services is to be satisfied by the Service providers i.e. GTA and
not by the service recipient.
• Abatement made applicable for transport of passenger services by a
contract carriage other than motor cab:
The service provider providing services of transport of the passengers by
a contract carriage other than a motor cab can now avail abatement of
60 percent on the value of services. However, no CENVAT credit shall be
availed on the inputs, capital goods or input services used for provision of
such services. Similarly, the said abatement shall also apply to transport of
passengers by a radio taxi from the date it is made taxable by virtue of
proposed exclusion from the Negative List.
• Clarification on the condition for availing abatement on services in
relation to chit :
In case of services provided in relation to chit, it has been clarified that
earlier conditions of non availment of CENVAT credit on inputs, capital goods
and input services remains unchanged.
u Notification No. 26/2012 [to be effective from October 1, 2014]:
• Increase in the Abatement on services of transport of goods by vessel:
The abatement for services of transport of goods in a vessel has been

51
increased to 60 percent (earlier abatement was 50 percent). However, the
conditions for abatement remain unchanged.
• Abatement is now restricted to renting of motor cabs only with eligibility
of CENVAT Credit:
Presently, the service of renting of any motor vehicles designed to carry
passengers is eligible for abatement subject to non-availment of CENVAT
credit on inputs, capital goods and input services.
With effect from October 1, 2014, the abatement has now been restricted
to renting of a motor cab only.
CENVAT credit of input services in the nature of renting of motor cab i.e.
services received from a subcontractor will be eligible. The whole of the
CENVAT credit is allowed for the said input service received if the service
provider pays service tax on 40% of the value of services. However, the
CENVAT credit eligibility will be restricted to 40% of the credit of the input
service if service provider pays service tax on full value of the services i.e.
without availing abatement.
• Eligibility of CENVAT Credit for availing abatement on tour operator
services:
In case of services provided by the tour operator, abatement at specified
rates was eligible subject to non-availment of CENVAT credit on inputs,
capital goods and input services. An amendment has been proposed to allow
CENVAT Credit of input services availed from a tour operator for providing
the tour operator services.
u Amendments to CENVAT Credit Rules, 2004 [To be effective from July 11,
2014]:
• “Place of removal” defined
Rule 2(qa) has been inserted to define ‘place of removal’ which includes the
following from where the goods are removed -
a) a factory or any other place or premises of production or manufacture
of the excisable goods;
b) a warehouse or any other place or premises wherein the excisable
goods have been permitted to be deposited without payment of duty;
c) a depot, premises of a consignment agent or any other place or
premises from where the excisable goods are to be sold after their
clearance from the factory.

52
• New conditions prescribed for availment of CENVAT credit on Input
Services covered Reverse Charge Mechanism – amendment to Rule 4(7):
Particulars Conditions to avail
credit
Documents required
Full Reverse Charge Payment of
Service Tax to the
Government
Service Tax challan
Partial Reverse
Charge
Payment of service
value and Service
Tax to the Vendor
And Payment of
Service Tax to the
Government
Vendor payment proof and Service Tax
challan
• Re-availment of CENVAT Credit reversed on receipt of export proceeds
under Rule 6:
Re-credit of CENVAT reversed on account of non-receipt of export proceeds
within the specified period would be allowed subject to the condition that
the export proceeds are received within one year from the specified period.
Re-credit shall be done based on documentary evidence of receipt of export
proceeds.
• Inter-unit credit transfer for a LTU disallowed:
A unit of the Large Tax Payer was allowed to transfer CENVAT Credit to
other units on the basis of an entry of transfer in the records maintained
as per Rule 9. However, this facility is being discontinued w.e.f. July 11,
2014 vide the amendment to Rule 12A(4).
u Other Amendments to CENVAT Credit rules, 2004 [to be effective from the
specified date]:
• Time limit for availment of CENVAT Credit:
Time limit of six months from the date of issue of the invoice, bill or
challan, as the case may be, has been prescribed w.e.f September 1, 2014
for availment of CENVAT Credit on inputs and input services.
• Clarification in the manner of distribution of CENVAT Credit by an ISD:
A clarification has been issued by way of an illustration to clarify that the
entire turnover of existing units should be considered for the purpose of
determination of ratio for distribution of CENVAT credit attributable to
common input services.

53
u OTHER LEGISLATIVE AMENDMENTS:
Amendments to the Finance Act, 1994:
• Period of limitation specified (Section 73):
Time limit has been prescribed for completion of adjudication proceedings
and determining the amount of Service tax due from the concerned person.
The adjudication should possibly be completed within a period of six months
from the date of notice for the cases whose limitation of period has been
prescribed to be eighteen months u/s. 73(1). However, in cases where the
time limit is extended to period of five years under the proviso to section
73(1) or in cases where amount remains unpaid during the course of any
audit, investigation or verification under the proviso to sec 73(4A) the
adjudication should possibly be completed within a period of one year.
• Penal provisions made mandatory exemption (Section 80) :
The recourse available to the Assessee for non-levy of penalty of 50% by
proving a reasonable cause in cases where service tax has not been paid
or short paid, etc. by reasons of fraud, suppression, etc. but details of
transactions being available in the specified records, is now withdrawn.
Amendment is proposed to exclude the reference of first proviso to
section 78 and any Assessee found guilty under section 78 shall be liable
to pay applicable penalty and the protection under Section 80 will not be
available.
• Power to authorise search proceedings widened (Section 82):
Authorisation for search may now be granted by an Additional Commissioner
of Central Excise or any Central Excise Officer as may be notified. Earlier
such power was restricted to the Joint Commissioner of Central Excise.
• Provisions of CE Act, 1944 applied to Service Tax (Section 83):
Following provisions of Central Excise Act, 1944 have been made applicable
to Service Tax so as to bring in parity between both the legislations:
a. Section 5A(2A): Central Government is empowered to insert an
explanation in any notification or order issued under sub-section (1)
or (2), as the case may be, of Section 5A within one year of the issue
of the notification and every such explanation shall have an effect as
if it had always been the part of the notification or order.
b. Section 15A: Persons required to maintain periodic records or such
other stipulated details, shall furnish information return as may be
prescribed.

54
c. Section 15B: Penalty of Rs. 100 per day has been prescribed for non-
compliance of section 15A.
d. Section 35 F: Mandatory pre-deposit is prescribed before filing the
appeal. The pre-deposits required for filing the appeal is as under-
Appeal against
order passed by
Appeal before Pre-deposit demanded
Officer lower
in rank than a
Commissioner
Commissioner
(Appeals)
7.5% of the service tax demanded or penalty
imposed or both
Commissioner Appellate
Tribunal
7.5% of the service tax demanded or penalty
imposed or both
Commissioner
(Appeals)
Appellate
Tribunal
Additional 10% of the service tax demanded or
penalty imposed or both
The pre-deposit is however, subject to the ceiling of Rs. 10 Crores.
However, all pending stay applications / appeals would be governed by the
statutory provisions prevailing at the time of filing of such stay applications /
appeals.
• Recovery of dues from the successor(Section 87):
Section 87 is being amended to incorporate power to recover of the dues of
the predecessor from the successor to the extent of the assets purchased
from the predecessor as it is presently provided in Section 11 of the Central
Excise Act, 1944.
• Scope of Section 94 enhanced:
The rule making powers of the Central Government are being enhanced in
relation to the following -
a. to impose upon assessees, inter alia, the duty of furnishing
information, keeping records and making returns and specify the
manner in which they shall be verified;
b. for withdrawal of facilities or imposition of restrictions (including
restrictions on utilization of CENVAT credit) on service provider or
exporter, to check evasion of duty or misuse of CENVAT credit; and
c. to issue instructions in supplemental or incidental matters.

55
u Other Amendments:
• Scope of RCM extended with immediate effect:
a. Body Corporate to pay tax on service received from a Director. Earlier
the scope was restricted to the Director of a Company providing
services to the Company.
b. Banks, Financial Institutions and NBFCs to pay tax on services received
from Recovery Agents.
[Not. No. 30/2012-ST dated 20th June, 2012 as amended vide Not. No.
10/2014-ST dated 11th July, 2014 refers]
• Change in proportion for discharge of liability under Partial Reverse
Charge in case of rent-a-cab services [to be effective from October 1,
2014]:
Particulars Existing Revised
Liability of Service Provider 60% 50%
Liability of Service Recepient 40% 50%
[Not. No. 30/2012-ST dated 20th June, 2012 as amended vide Not. No.
10/2014-ST dated 11th July, 2014 refers]
u Amendments to Service Tax (Determination of Value) Rules, 2006 to be
effective from October 01, 2014:
• Valuation of service portion in works contract in terms of Rule 2A(ii)(B)
and (C):
Category ‘B’ and ‘C’ of Rule 2A(ii) of the Valuation Rules, 2006 are being
merged into a single category with percentage of service portion prescribed
at 70%. Consequent upon the amendment, the taxable value shall be
determined as under:
Nature of Works contract Value on which ST is
payable
Existing Revised
(a) Maintenance or repair or completion and finishing
services such as glazing or plastering or floor and wall
tiling or installation of electrical fittings of immovable
property
60% 70%
u Amendments to Service Tax Rules, 1994 [to be effective from July 11, 2014
unless otherwise specified]:
• E-payment made compulsory w.e.f October 1, 2014 (Rule 6):

Union Budget 2014 - An Overview

Union Budget 2014 - An Overview

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