The Union Budget 2016 includes key indirect tax proposals such as the introduction of a new cess (Krishi Kalyan Cess at 0.5%) and amendments aimed at aligning current tax provisions with the forthcoming Goods and Services Tax (GST). Notable changes involve the rationalization of interest rates for various taxes, revised conditions for CENVAT credit, and a dispute resolution scheme to reduce litigation. Additionally, several exemptions and abatements have been introduced or revised, impacting service tax calculations and classifications.

1. UNION BUDGET 2016
KEY INDIRECT TAX PROPOSALS
BS & Co LLP
Chartered Accountants
Pune

2. Key Highlights
 No specific time line on Goods and Service Tax
 No Change in median rate of Basic Customs, Excise duty and Services tax
 Introduction of new cess - Krishi Kalyan Cess @ 0.5% on all taxable services (w.e.f 1 June
2016) and the credit of the same is available
 Rationalization of interest rate in respect of Customs, Central Excise and Service Tax* @
15% p.a. and *24% p.a. incase of service tax collected but not deposited to Government
 Revamp of Rule 6 (reversal of CENVAT credit on account of exempted activities) and Rule 7
(Input Service Distributor) of the Cenvat Credit Rules
 Capital goods – goods value upto Rs 10,000/- per piece are covered in inputs
 Annual Return under service tax and central excise subject to specified annual turnover
 Provision for revision of return under Central Excise
 Indirect Tax Dispute Resolution Scheme, 2016 to minimize litigation
 11 additional benches of CESTAT

3. GOODS AND SERVICE TAX

4. Goods and Service Tax
 Finance Minister has not setout any time frame for implementation of GST
 FM has not made any statement/remark on GST except following:
The Government shall also endeavour to continue with the ongoing reform programme and
ensure the passage of the Constitutional amendments to enable the implementation of the
Goods and Service Tax, the passage of Insolvency and Bankruptcy law and other important
reform measures which are pending before the Parliament.
 However Government has introduced certain provisions to align existing provisions with GST

5. SERVICE TAX
14%
Service Tax
14.5%
ST + SBC
15%
ST + SBC +
KKC

6. Service Tax – Legislative Changes
 Definition of ‘Service’ has proposed to amend to include any activity carried out by a lottery
distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or
facilitating in organizing lottery of any kind, in any other manner, of the State Government as
per the provisions of the Lotteries (Regulation) Act, 1998
 Declared Service- Assignment by the Government of the right to use the radio-frequency
spectrum and subsequent transfers thereof is being declared as a service
 Section 93A of the Finance Act, 1994 is proposed to be amended so as to allow rebate by
way of notification as well as Rules
 The power to arrest under the Act is proposed to be restricted only to situations where the
assessee has collected tax but not deposited it with the Central Government, and the amount
of such tax is more than Rs 2 crores from existing limit of Rs 50 Lacs
 The benefit of quarterly payment of Service Tax and facility of payment of Service Tax on
receipt basis – extended to One Person Company and HUF

7. Service Tax – Exemptions (Withdrawal)
Sr No Discerption Effective date
1 • a senior advocate to an advocate or partnership firm of advocates
providing legal service; and
• a person represented on an arbitral tribunal to an arbitral tribunal
1 April 2016
2 Services - construction, erection, commissioning or installation of
original works pertaining to monorail or metro
1 March 2016
3 Transport of passengers, with or without accompanied belongings, by
ropeway, cable car or aerial tramway
1 April 2016

8. Service Tax – Exemptions (Granted)
Sr No Discerption Effective date
1 Services by way of construction etc. in respect of-
(i) housing projects under Housing For All (HFA) (Urban)
Mission/Pradhan Mantri Awas Yojana (PMAY)
(ii) low cost houses up to a carpet area of 60 square meters in a
housing project under “Affordable housing in Partnership”
component of PMAY
(iii) low cost houses up to a carpet area of 60 square meters in a
housing project under any housing scheme of the State
Government
1 March 2016
2 The service of life insurance business provided by way of annuity under
the National Pension System regulated by Pension Fund Regulatory and
Development Authority (PFRDA) of India
1 April 2016
3 Services provided by Employees’ Provident Fund Organisation (EPFO) 1 April 2016

9. Service Tax – Exemptions (Granted)
Sr No Discerption Effective date
4 Services provided by IRDA, SEBI 1 April 2016
5 The rate of Service Tax on single premium annuity (insurance) policies
is being reduced from 3.5% to 1.4% of the premium, in cases where the
amount allocated for investment, or savings on behalf of policy holder
is not intimated to the policy holder at the time of providing of service
1 April 2016
6 The services of general insurance business provided under ‘Niramaya’
Health Insurance scheme
1 April 2016
7 Services provided by National Centre for Cold Chain Development
under Department of Agriculture, Cooperation and Farmer’s Welfare,
Government of India, by way of knowledge dissemination
1 April 2016
8 Services provided by Biotechnology Industry Research Assistance
Council
1 April 2016
9 Services provided by way of skill/vocational training by training
partners under Deen Dayal Upadhyay Grameen Kaushalya Yojana
1 April 2016

10. Service Tax – Exemptions (Granted)
Sr No Discerption Effective date
10 Services of assessing bodies empanelled centrally by Directorate
General of Training, Ministry of Skill Development & Entrepreneurship
1 April 2016
11 The threshold exemption to services provided by a performing artist in
folk or classical art forms of music, dance or theatre is being enhanced
from Rs 1 lakh to Rs 1.5 lakh charged per event
1 April 2016
12 Service by stage carriage other than air conditioned stage carriage 1 June 2016
13 Services provided by the Indian Institutes of Management (IIM) by way
of 2 year full time Post Graduate Programme in Management (PGPM)
(other than executive development programme), Integrated Programme
in Management and Fellowship Programme in Management (FPM)
1 March 2016
14 Construction services provided to the Government, a local authority or
a governmental authority, in respect of construction of govt. schools,
hospitals etc. (during the period from the 1st July, 2012 to 29th
January, 2014 with consequential refund subject to unjust enrichment)
1 April 2015

11. Service Tax – Negative List
 Specified educational services and the definition of ‘approved vocational education course’
are proposed to be omitted . However the same has been included in exemption list
 ‘Service of transportation of passengers, with or without accompanied belongings, by a stage
carriage’ is being omitted (w.e.f 1 June 2016) However, stage carriage without air-conditioned
facility exempted from service tax
 Services by way of transportation of goods by an aircraft or Vessel from a place outside India
up to the customs station of clearance in India (w.e.f 1 June 2016). However, exemption has
been granted to transportation of goods by an aircraft

12. Service Tax – Abatements
Sr No Discerption Effective Tax
base
1 Transportation of Rail (Other than Transportation of goods in
containers by rail by any person other than Indian Railways)
30%
2 Transportation of goods in containers by rail by any person
other than Indian Railways
40%
3 Transportation of passengers with or without accompanied belonging
by rail
30%
4 Services of goods transport agency in relation to transportation of
goods other than used household goods
30%
5 Services of goods transport agency in relation to transportation of
used household goods
40%
6 Services provided by a foreman of chit fund in relation to chit 70%
7 Transportation of passengers with or without accompanied belongings
by a stage Carriage
40%

13. Service Tax – Abatements
Sr No Discerption Effective Tax
base
8 Transportation of goods in a vessel 30%
9 Services by a tour operator in relation to-
(i) a tour, only for the purpose of arranging or booking accommodation
for any person
(ii) Tours other than above
10%
30%
10 Construction of a complex, building, civil structure or a part
thereof, intended for sale to a buyer, wholly or partly except where
entire consideration is received after issuance of completion
certificate by the competent authority
30%
A condition mandating inclusion of cost of fuel in the consideration for availing abatement on the
services by way of renting of motor-cab is being prescribed with effect from 1 April 2016.

14. Service Tax – Other Changes
 Service tax on Information Technology Software on media bearing RSP is being
exempted from Service Tax with effect from 1 March 2016 provided Central Excise
duty is paid on RSP in accordance with Section 4A of the Central Excise Act
 First time, TRU circular clarified that the levy of Central Excise duty/CVD and service
tax will be mutually exclusive
 The liability to pay service tax on any service provided by Government or a local
authority to business entities shall be on the service recipient (w.e.f. 1 April 2016)

15. CUSTOMS AND CENTRAL EXCISE

16. Customs and Central Excise
 The median rate of customs duty retained @ 10%
 No change in median rate Excise duty rate as well
 Provision for revision of Excise returns
 Annual Financial Information Statement for the preceding financial year, has been
substituted with the words Annual Returns. Further, Annual installed capacity return and
ER-5 and ER-6 has been dispensed off. Effectively, the number of returns to be filed by a
central excise assessee above a certain threshold from 27 to 13 (1 annual and 12
monthly return)
 Annual return is also applicable to EOU
 Penalty for late filing of Annual return is Rs 100 per day subject to Maximum - Rs 20,000
 Facility for single registration in case 2 or more units located within the same range of
superintendent subject to other conditions

17. Customs and Central Excise
 In case of provisional assessment interest needs to be calculated from original due date and
not from the 1st day of subsequent month in which final assessment completed
 Claim for rebate of duty paid on all excisable goods will now be required to be submitted
before the expiry of the time prescribed under Section 11B of the Central Excise Act
 In respect of ‘media with recorded information technology software’, exemption from payment
of Excise Duty is provided to the extent of taxable value on which Service Tax is leviable
 Abolished 13 different cess and introduction of Infrastructure Cess on Motor Vehicle falling
under 8703
 Appointment of public warehouses and licensing of private warehouses are being substituted
to provide for licensing by the Principal Commissioner of Customs/ Commissioner of
Customs instead of AC/DC
 Period for which goods may remain warehoused is proposed to be substituted to extend the
period of warehousing to EOU, EHTP and STPs. The provisions relating to period of 5 years in
respect of capital goods and 3 years in respect of goods other than capital goods is
proposed to be done away with.

18. CENVAT CREDIT

19. CENVAT Credit
Amendment in
Definition
Changes
Capital goods • Wagons falling under heading 860692 have been covered in capital
goods
• The words “but does not include any equipment or appliance used in an
office” has been omitted.
• Capital Goods used for pumping of water outside the factory
Input • All goods used for pumping of water covered with in ambit of ‘inputs’
• All capital goods which have a value upto Rs 10,000 per piece included in
inputs
Input Service
Distributor
• The scope of definition has been extended to an office of an ‘outsourced
manufacturing unit’.

20. CENVAT Credit
Amendment Changes
Rule 4(5)(b) • CENVAT Credit can be allowed on jigs, fixtures moulds and dies or tools
sent to a job worker or another manufacturer without bringing the same
to the premises
Rule 4(6) • The permission issued for clearance of goods from the job worker
premises would remain valid for three year vis-à-vis earlier validity of one
year

21. CENVAT Credit
 Amendment in Rule 6 – which deals with CENVAT credit with respect to exempted goods and
exempted services
 As per amended Rule, following 2 options were provided
 Pay 6% of exempted goods cleared or 7% incase exempted services provided subject to a maximum
of the total credit available in the account of the assessee at the end of the period to which the
payment relates or
 Pay an amount as determined under sub-rule (3A) (proportionately reversal based on the turnover)
 As Rule 6(3A)
 Inputs/Services used exclusively for exempted goods/exempted services – credit not allowed
 Inputs/Services used exclusively for non exempted goods/non exempted services – credit allowed
entirely
 Balance Credit (common credit) – shall be proportionately distributed based on turnover. Credit
attributable to exempted goods/service needs to be reversed

22. CENVAT Credit
 Rule 6(3A) needs to apply monthly on provisional basis based on previous year data and
True-up needs be done on Annually on or before 30 June of next year
 In case previous year data is not available, 50% of common credit needs to be reversed
provisionally
 Incase of option (ii) intimation in writing needs to be submitted with Excise authorities
 Such option shall not be withdrawn during the remaining part of the financial year on the
turnover
 Manufacturer who exclusively manufactures exempted goods or a service provider who
exclusively provides exempted services shall not be eligible for credit of any inputs and input
services

23. CENVAT Credit
 No CENVAT Credit can be allowed on capital goods used exclusively for manufacturing of
exempt goods or exempted services for a period of two years from the date of commercial
production or provision of services
 CENVAT credit can be availed based on invoice issued by service provider for clearance of
inputs or capital goods as such
 Draconian provision with regard to utilization of CENVAT credit on FIFO basis has been
deleted
 Time limit for refund claim under Rule 5 of the CENVAT Credit Rules has been provided
(service provider):
 1 year from the date of receipt in convertible foreign exchange where the provision of services has
been complete prior to receipt of payment; or
 1 year from the date of issue of invoice, where payment for the service has been received in
advance

24. CENVAT Credit - Input Service Distributor (ISD)
 The scope of ISD has been widen and now ISD can distribute CENVAT Credit to outsourced
manufacturing units also in addition to the own units
 outsourced manufacturing unit has been defined as:
“outsourced manufacturing unit means a job-worker who is liable to pay duty on the value
determined under rule 10A of the Central Excise Valuation (Determination of Price of
Excisable Goods) Rules, 2000 on the goods manufactured for the input service distributor or
a manufacturer who manufactures goods, for the input service distributor under a contract,
bearing the brand name of such input service distributor and is liable to pay duty on the
value determined under section 4A of the Excise Act.”
 Credit of service tax paid on input services, available with the input service distributor, as on
the 31 March, 2016, shall not be transferred to any outsourced manufacturing unit
 Provisions of rule 6 shall not apply to the input service distributor

25. CENVAT Credit - Input Distributor (ID)
 New provision introduced for distribution of credit on inputs by warehouse of manufacturer
 A manufacturer having one or more factories, shall be allowed to take credit on inputs
received under an invoice issued by a warehouse of the said manufacturer
 The provisions of these rules or any other rules made under the Excise Act as applicable to a
first stage dealer or a second stage dealer, shall, mutatis mutandis, apply to such warehouse
of the manufacturer

26. COMMON PROVISIONS

27. Common Provisions
Act Existing time limit Revised time limit
Customs 1 Year 2 Years
Central Excise 1 Year 2 Years
Service Tax 18 Months 30 Months
 Time limit for demand in case of no fraud, collusion, suppression etc. has been
enhanced by 1 year and accordingly revised time limits are:
 Rationalization of interest rates
Act Existing Rate Revised Rate
Customs 18% p.a. 15% p.a.
Central Excise 18% p.a. 15% p.a.
Service Tax 18% p.a. to 30% p.a.* 15% p.a.
24 % p.a. in case of service tax
collected but not deposited

28. INDIRECT TAX DISPUTE
RESOLUTION SCHEME 2016

29. Indirect Tax Dispute Resolution Scheme 2016
Particulars Details
Eligibility Appeals pending before Commissioner (Appeals) as on 1 March 2016 in
respect of Customs, Central Excise or Service Tax
Dates for filing of
an application
From 1 June 2016 to 31 December 2016
Amount Payable Basic Tax/duties in impugned order + applicable interest + 25% penalty
Relief Get immunity from prosecution and matter to be concluded and no matter
relating to the impugned order shall be reopened
Scheme not
applicable
• the impugned order is in respect of search and seizure proceeding; or
• prosecution for any offence punishable under the Act has been instituted before
the 1st day of June, 2016; or
• the impugned order is in respect of narcotic drugs or other prohibited goods; or
• impugned order is in respect of any offence punishable under the Indian Penal
Code, the Narcotic Drugs and Psychotropic Substances Act, 1985 or the
Prevention of Corruption Act, 1988; or
• any detention order has been passed under the Conservation of Foreign
Exchange and Prevention of Smuggling Act, 1974.

30. CONTACT US
Office Address:
Flat No 6, 3rd Floor, DSK Nishigandh,
Bharat Kunj Society,
Earandwane Pune - 38
+91 94 22 624 499
CA Mahesh Bandre
+ 91 99 75 719 003
mahesh@bsllp.in
CA Nilesh Saboo
+91 99 23 595 077
nilesh@bsllp.in

31. “This communication is primarily prepared for providing general information at macro level (existing as at the time of
production) about the key changes proposed by the Union Budget 2016. Further, this presentation is not an effort to identify
all the issues or developments pursuant to any transaction which you may undertake or has undertaken. Accordingly, this
presentation should not be regarded as sufficient for the purposes of decision-making. The information provided is not, nor is
it intended to be an advice on any matter and should not be relied on as such. Professional advice should be sought before
taking action on any of the information contained in it. This communication is intended solely for the use of the individual or
entity to whom it is addressed and others authorized to receive it. It may contain confidential or legally privileged information.
If you are not the intended recipient you are hereby notified that any disclosure, copying, distribution or taking any action in
reliance on the contents of this information is strictly prohibited and may be unlawful”