Budget 2016 -Indirect Taxes-

Highlights
 Published on March 4, 2016
R K Hasija
FollowR K Hasija
Chief Advisor at GSTaxperts

Budget 2016-17

Highlights - Indirect Taxes

1. Textiles

Central Excise duty on branded ready-made garments (RMG) and made

up articles of Retail Sale Price (RSP) Rs. 1000/- or more introduced. The
rate of duty is 2% without CENVAT credit or 12.5% with CENVAT
credit regardless of composition. Tariff value of these items have been
increased from 30% to 60% of the RSP.

Now RMG with a RSP of Rs. 1000/- will be assessed to excise duty @
Rs. 600/-. However SSI Notification would apply.

Basic excise duty on PSF / PFY manufactured from plastic scrap or

plastic waste including waste PET bottles has been increased from “2%
without CENVAT credit or 6% with CENVAT credit‟ to “2% without
CENVAT credit or 12.5% with CENVAT credit”.
 1. Footwear.

Abatement rate from RSP, for all categories of footwear has been
increased from 25% to 30%.

Footwear with a RSP of Rs. 1000/-, assessed to excise duty @ Rs. 750/-
will now be assessed at Rs. 700/-.

Basic Excise Duty on rubber sheets & resin rubber sheets for soles and
heels [4008 29 10] has been reduced from 12.5% to 6%.

1. Precious metals (Jewellery)

Basic Excise Duty of 1% (without Cenvat Credit) and 12.5% (with

Cenvat Credit) has been imposed on Articles of Jewellery [excluding
articles of silver jewellery, other than those studded with diamonds,
ruby, emerald or sapphire].

SSI threshold exemption for the above has been specified at Rs. 6 crore
in a year, with an eligibility limit of Rs. 12 crore in the preceding
financial year. For the month of March, 2016, the SSI exemption for
such articles of jewellery is being restricted to Rs. 50 lakh.

Basic Excise duty on Gold Bars manufactured from gold ore or

concentrate; gold dore bar and silver dore bar has been increased from
9% to 9.5%.
Basic Excise duty on Gold bars and gold coins of purity not below
99.5%, produced during the process of copper smelting has been
increased from 9% to 9.5%.

Basic Excise duty on silver manufactured from silver ore or concentrate;

silver dore bar and gold dore bar has been increased from 8% to 8.5%.

Basic Excise duty on silver in any form, except silver coins of purity
below 99.9%, produced during the process of copper smelting has been
increased from 8% to 8.5%.

Basic Excise duty on silver produced during the process of zinc or lead
smelting has been increased from 8% to 8.5%.

The existing area based exemptions for production of gold and silver
from gold dore, silver dore or any other raw material has been
withdrawn. Thus, a new industrial unit engaged in production of refined
gold from gold dore, silver dore or any other raw material, which
commences commercial production on or after 1st day of March, 2016,
shall not be eligible for the exemption. Also, an existing industrial unit
as on 1st of March, 2016, which undertakes substantial expansion of
existing capacity or installs fresh plant, machinery or capital goods for
production, by using such expanded capacity or such fresh plant,
machinery or capital goods, and commences commercial production
from such expanded capacity, on or after 1st March, 2016, shall not be
eligible for the exemption.

1. Food Products
Soft drinks duty increased from 18% to 21%.

1. Pan Masala/ Cigarettes/Tobacco products

Basic excise duty on pan masala increased from 16% to 19%. Rate of
compounding of excise duty also revised accordingly.

Additional duty of excise on cigarettes drastically increased to more than

three times of existing rates.

Basic duty on cigars etc. has also been increased.

Basic Excise Duty has been increased on unmanufactured tobacco, and

jarda scented tobacco, gutkha and chewing tobacco. Accordingly, the
duty leviable under the compounded levy scheme has also been
modified. Further, the speed slabs and the deemed production and duty
payable per month on chewing tobacco without lime tube / lime pouches
and jarda scented tobacco have also aligned.

1. Petroleum

Oil Industries Development Cess levied on domestically produced crude

oil under the Oil Industry (Development) Act, 1974 has been reduced
from Rs. 4500 PMT to 20% ad valorem.
 1. Aviation

Basic Excise Duty rate on aviation turbine fuel [ATF] has been
increased from 8% to 14%. However, ATF for supply to Scheduled
Commuter Airlines [SCA] from the Regional Connectivity Scheme
[RCS] airports shall attract 8%.

Excise duty on tools and tool kits for maintenance, repair, and
overhauling of aircraft has been exempted. Further, the exemption under
S.No.305 of notification No.12/2012-Central Excise, dated 17.03.2012
on parts and testing equipment has been made subject to actual user
condition, along with simplified procedure.

Similar exemption has been granted under Customs also.

1. Agriculture/ Fertilizers

Basic Excise Duty on micronutrients falling under Chapter 28, 29 or 38,

which are covered under Sr. No. 1(f) of Schedule 1 Part (A) of the
Fertilizer Control Order, 1985 and are manufactured by the
manufacturers which are registered under FCO, 1985, has been reduced
from 12.5% to 6%.

Basic Excise Duty on mixture of fertilizers, made by physical mixing of

chemical fertilizers on which appropriate duty of excise has been paid,
by Co-operative Societies, holding certificate of manufacture for mixture
of fertilizers under the Fertilizer Control Order 1985, for supply to the
members of such Co-operative Societies, has been fully exempted.

1. Consumer Goods (FMCG)

Retail Sale Price based assessment of excise duty introduced on soaps

and detergents with an abatement of 30%. Third Schedule to the Central
Excise Act, 1944 is also being amended so as to include these items i.e.
packing, repacking, labelling, relabeling, affixing/altering RSP of these
items would now amount to manufacture.

Retail Sale Price based assessment of excise duty introduced on

Aluminum Foils not exceeding 0.2 mm with an abatement of 25%. Third
Schedule to the Central Excise Act, 1944 is also being amended so as to
include these items i.e. packing, repacking, labelling, relabeling,
affixing/altering RSP of these items would now amount to manufacture.

Excise duty structure on Disposable aluminium foil containers has been

changed from “2% without CENVAT credit or 6% with CENVAT
credit‟ to “2% without CENVAT credit or 12.5% with CENVAT
credit‟.

1. Construction

Ready Mix Concrete [3824 50 10] manufactured at the site of

construction for use in construction work at such site has been fully
exempted from excise duty. Also, the expression “site‟ is being defined
as “any premises made available for the manufacture of goods by way of
a specific mention in the contract or agreement for such construction
work, provided that the goods manufactured at such premises are solely
used in the said construction work only.”

The above amendment has been made to overcome the effect of the
Supreme Court judgment in the case of Larsen & Toubro Ltd. v.
Commissioner — 2015 (324) E.L.T. 646 (S.C.) wherein the Hon’ble
Supreme Court has held that RMC and Concrete Mix are two different
items and there is no exemption to RMC manufactured at site.

Services by way of construction, erection, etc., of original works

pertaining to low cost houses up to a carpet area of 60 sq.m per house in
a housing project approved by the competent authority under the
“Affordable housing in partnership” component of PMAY or any
housing scheme of a State Government are being exempted from service
tax.

A uniform abatement at the rate of 70% is now being prescribed for

services of construction of complex, building, civil structure, or a part
thereof, subject to fulfilment of the existing conditions.

“In-situ Rehabilitation of existing slum dwellers using land as a resource

through private participation” component of Housing for All (HFA)
(Urban) Mission / Pradhan Mantri Awas Yojana (PMAY), except in
respect of such dwelling units of the projects which are not constructed
for existing slum dwellers, has also been exempted from service tax.

1. Plastics

Basic excise duty on bags and sacks imposed @ 15%.

1. Machinery

Basic Excise Duty on 5 specified parts required for the manufacture of

centrifugal pump has been reduced from 12.5% to 6%, subject to actual
user condition.

Accessories of goods of earth moving machinery such as cranes, fork-

lifts, bull-dozers etc. brought into RSP based assessment of excise duty.
Third Schedule to the Central Excise Act, 1944 is also being amended so
as to include these items i.e. packing, repacking, labelling, relabeling,
affixing/altering RSP of these items would now amount to manufacture.

Basic Excise duty on all goods falling under 8607 (parts of railway or
tramway locomotives or rolling stock) and 8608 (railway or tramway
track fixtures and fitting, etc.) has been reduced to 6%.

Basic Excise duty on refrigerated containers [8609 00 00] has been

reduced from 12.5% to 6%.
 1. IT Sector

Excise duty of “4% without CENVAT credit / 12.5% with CENVAT

credit‟ has been prescribed for the following Consumer Premise
Equipments (CPEs).

(i) Routers [tariff item 8517 69 30]

(ii) Broadband Modems [tariff item 8517 62 30]

(iii) Set-top boxes for gaining access to internet [tariff item 8517 69 60]

(iv) Reception apparatus for television but not designed to incorporate a

video display [tariff item 8528 71 00]

(v) Digital Video Recorder (DVR)/Network Video Recorder (NVR)

[tariff item 8521 90 90]

(vi) CCTV Camera/IP Camera [tariff item 8525 80 20]

(vii) Lithium-ion batteries, other than those for mobile handsets

including cellular phones [tariff item 8507 60 00]

Further, excise duty has been exempted on parts, components and

accessories for use in manufacture of Routers, broadband Modems, Set-
top boxes for gaining access to internet, set top boxes for TV, digital
video recorder (DVR) / network video recorder (NVR), CCTV camera /
IP camera, lithium ion battery [other than those for mobile handsets].
Further, Excise Duty has also been exempted on sub-parts for use in
manufacture of parts, components and accessories of the aforesaid
Consumer Premise Equipments subject to actual user condition.

Wrist wearable devices (commonly known as “smart watches‟) [8517

62] have been notified for the purposes of RSP based assessment of
excise duty with an abatement of 35%. Third Schedule to the Central
Excise Act, 1944 is also being amended so as to include therein such
wrist wearable devices i.e. packing, repacking, labelling, relabeling,
affixing/altering RSP of these items would now amount to manufacture.

Excise duty exemption has been withdrawn on charger/adapter, battery

and wired headsets/speakers for use in manufacture of mobile handsets
including cellular phones.

Excise duty of “2% without CENVAT credit / 12.5% with CENVAT

credit‟ is being prescribed for charger/adapter, battery and wired
headsets/speakers, for manufacture of mobile handsets including cellular
phone, subject to actual user condition.

Further, excise duty has been exempted on inputs and parts for use in
manufacture of charger/adapter, battery and wired headsets/speakers of
mobile handsets including cellular phone. Excise duty has also been
exempted on inputs and sub-parts for use in manufacture of parts of
charger/adapter, battery and wired headsets/speaker of mobile handsets
including cellular phone subject to actual user condition.

Software
Transactions involving supply of software on media bearing RSP, not
amounting to sale/deemed sale, service tax is being exempted.

Media with recorded Information Technology Software which is not

required to bear RSP, is being exempted from so much of the Central
Excise duty/CVD as is equivalent to the duty payable on the portion of
the value of such Information Technology Software recorded on the said
media, which is leviable to service tax. In such cases,
manufacturer/importer would therefore be required to pay Central
Excise duty/CVD only on that portion of value representing the value of
the medium on which it is recorded along with freight and insurance.
The exemption is subject to the fulfillment of certain conditions. Thus,
the levy of Central Excise duty/CVD and service tax will be mutually
exclusive.

1. Automobiles

The validity period of concessional excise duty of 6% granted to

specified goods for the use in the manufacture of electrically operated
vehicles and hybrid vehicles has been extended without time limit.

The description “Engine for HV (Atkinson cycle)” appearing in S. No.

297 of notification No. 12/2012-Central Excise is being changed to
“Engine for xEV (hybrid electric vehicle)”.
An Infrastructure Cess, as a duty of excise, is being imposed on motor
vehicles falling under heading 8703 with immediate effect. However the
effective rates of the Infrastructure Cess are as under:

1. a) Nil on : i. Three wheeled vehicles, ii. Electrically operated

vehicles, iii. Hybrid vehicles, iv. Hydrogen vehicles based on fuel
cell technology, v. Motor vehicles which after clearance have been
registered for use solely as taxi (subject to prescribed conditions),
vi. Cars for physically handicapped persons (subject to prescribed
conditions), and vii. Motor vehicles cleared as ambulances or
registered for use solely as ambulance (subject to prescribed
conditions);
2. b) 1% on Petrol/LPG/CNG driven motor vehicles of length not
exceeding 4m and engine capacity not exceeding 1200cc;
3. c) 2.5% on Diesel driven motor vehicles of length not exceeding
4m and engine capacity not exceeding 1500cc;
4. d) 4% on all categories of motor vehicles other than those listed at
(a), (b) and (c) above;

Infrastructure cess is not Cenvatable.

Accessories of certain vehicles falling under Chapter 87 are being

included for RSP based assessment. Third Schedule to the Central
Excise Act, 1944 is also being amended so as to include therein such
accessories packing, repacking, labelling, relabeling, affixing/altering
RSP of these items would now amount to manufacture.
 1. Shipping

Excise duty on Capital goods and spare thereof, raw materials, parts,
material handling equipment and consumable for repairs of ocean-going
vessels by a ship repair unit has been exempted subject to actual user
condition.

1. Energy / Environment

Solar lamp [tariff item 9405 50 40] has been exempted from excise duty.

Excise duty exemption on 5 specified items for manufacture of rotor

blades and intermediates, parts and sub-parts of rotor blades for wind
operated electricity generators is being withdrawn now to attract a
concessional excise duty of 6%, subject to actual user condition.

Basic Excise Duty on Carbon pultrusions, for manufacture of rotor

blades and intermediates, parts and sub-parts of rotor blades for wind
operated electricity generators, is being reduced from 12.5% to 6%,
subject to actual user condition.

Excise duty on improved cook stoves including smokeless chulhas for

burning wood, agro-waste, cow-dung, briquettes, and coal in being
exempted unconditionally.
As a result, parts of such cook stoves will also be exempt from excise
duty subject to actual user condition.

In case of power generation project based on municipal and urban waste,

valid agreement between importer with urban local body for processing
of municipal solid waste for not less than ten years from the date of
commissioning of project is being prescribed for availing customs and
excise duty concessions as an alternative to the existing condition of
“production of valid power purchase agreement between the
importer/producer of power and the purchaser, for the sale and purchase
of electricity generated using non-conventional materials”.

Schedule Rate of Clean Energy Cess, levied on coal, lignite and peat,
has been increased from Rs.300 per tonne to Rs.400 per tonne.

1. Health

Disposable sterilized dialyzer and micro barrier [Chapter 84 or 90] of

artificial kidney has been exempted from excise.

1. Small Scale Industry

Consequent upon abolition of the Duty Refund Procedure for exports to

Nepal, Notification No. 8/2003-Central Excise dated 01.03.2003 is being
amended so as to exclude value of clearances made for export to Nepal
from the definition of “clearances for home consumption”.
 1. Transport

Service of transportation of passengers, with or without accompanied

belongings, by an air-conditioned stage carriage made taxable with
effect from 1.06.2016 with abatement (60%) with condition of non-
availment of Cenvat credit.

Ocean Freight

Ocean Freight is now taxable. Services by way of transportation of

goods by a vessel from a place outside India up to the customs station of
clearance now taxable. The domestic shipping lines registered in India
will pay service tax under forward charge while the services availed
from foreign shipping line by a business entity located in India will get
taxed under reverse charge at the hands of the business entity. The
service tax so paid will be available as credit with the Indian
manufacturer or service provider availing such services (subject to
fulfillment of the other existing conditions).

1. Certain services now taxable

Lottery - Activity carried out by a lottery distributor or selling agents of

the State Government under the provisions of the Lotteries (Regulation)
Act, 1998 (17 of 1998), is leviable to service tax.”

Spectrum- Assignment by the Government of the right to use the radio-

frequency spectrum and subsequent transfers thereof is proposed to be
declared as a service under section 66E of the Finance Act, 1994 so as to
make it clear that assignment by Government of the right to use the
spectrum as well as subsequent transfers of assignment of such right to
use is a service leviable to service tax and not sale of tangible goods.

Legal Services- Services provided by a senior advocate to an advocate or

partnership firm of advocates, and a person represented on an arbitral
tribunal to an arbitral tribunal now levied under forward charge and not
under reverse charge. Such tax is not cenvatable if services availed by an
Advocate of firm of Advocates. Existing dispensation regarding legal
services provided by a firm of advocates or an advocate other than
senior advocate is being continued.

1. General

Normal period for demand of Central Excise duty where there is no

suppression, fraud etc., has been increased from one year to two years.
In Service tax, it would be 30 months. The history of such amendments
is as under:

Central Six months upto One year from Two years by

Excise 11.5.2000 12.05.2000 Finance Act 2016
Two years by
Customs Six months One year Finance Act 2016
Service Tax One year 18 months 30 months by
 28.05.2012 Finance Act 2016

Is it a punishment for being honest or is it a case of premium over

inefficiency? Poor assessees are now have to wait for 2 years/ 30 months
even if everything has been properly declared and nothing has been
suppressed.

In case of claiming refunds of duties and taxes paid incorrectly, there is

no change in the period. It would have been better if period of claiming
refunds of duties and taxes paid from one years to two years.

Is it a step in the direction of “Make in India” and “Ease of Doing

Business in India”?

Rate of Interest on delayed payment of duty/ Service Tax demands has

been reduced from 18% to 15%. However, in Service tax, where tax
collected but not deposited, rate of interest would be 24%. In cases
where demand of service tax is less than 60 lakhs, interest rate would be
12%.

Revised return can be filed under Central Excise Rules, 2002 within the
same month under which it was filed.

Proceedings against co-noticee under Rule 26 (Penalty) would be

concluded if main Noticee has paid duty, penalty and interest. Some
decisions of CESTAT have been ratified.
Prosecution/arrest

The monetary limit for filing complaints for punishable offences is

proposed to be enhanced to Rs. 2 crore in service tax. Power to arrest in
service tax law is proposed to be restricted only to situations where the
tax payer has collected the tax but not deposited it with the exchequer,
and amount of such tax collected but not paid is above the threshold of
Rs 2 crore.

Dispute Resolution

Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in

respect of cases pending before Commissioner (Appeals), the assessee,
after paying the duty, interest and penalty equivalent to 25% of duty, can
file a declaration, is being introduced. In such cases the proceedings
against the assessee will be closed and he will also get immunity from
prosecution. However, this scheme will not apply in certain specified
type of cases.

Service tax assessees above a certain threshold will also be required to

file an annual return making three returns to be filed in a year.

Significant changes in CENVAT Rules

Capital goods having value up to Rs. 10,000 per invoice are being
included in the definition of inputs. Entire 100% CENVAT credit
available in the first year itself.

Reversal of an amount @ 6% in case of exempted goods not to exceed

the total CENVAT credit taken in such case. A very welcome step to
reduce a lot of litigation.

ISD

ISD can now distribute input service credit to an outsourced

manufacturing unit (job-worker) also in addition to its own
manufacturing units;

The condition of credit distributed against a document referred to in rule

9 does not exceed the amount of service tax paid thereon has been
continued.

Credit of service tax attributable as input service to a particular unit shall

be distributed only to that unit.

Credit of service tax attributable as input service to more than one unit
but not to all the units shall be distributed only amongst such units to
which the input service is attributable and such distribution shall be pro
rata on the basis of the turnover of such units, during the relevant period,
to the total turnover of all such units to which such input service is
attributable and which are operational in the current year, during the said
relevant period.
Credit of service tax attributable as input service to all the units shall be
distributed to all the units pro rata on the basis of the turnover of such
units during the relevant period to the total turnover of all the units,
which are operational in the current year, during the said relevant period.

Outsourced manufacturing unit (Job-worker) shall maintain separate

account for input service credit received from each of the input service
distributors and shall use it only for payment of duty on goods
manufactured for the input service distributor concerned;

Credit of service tax paid on input services, available with the input
service distributor, as on the 31st of March, 2016, shall not be
transferred to any outsourced manufacturing (Job-worker) unit and such
credit shall be distributed amongst the units excluding the outsourced
manufacturing units.

Common warehouse

Like First Stage Dealer/ Second Stage dealer passing on CENVAT

credit and on the lines of ISD, manufacturers with multiple
manufacturing units can maintain a common warehouse for inputs and
distribute inputs with credits to the individual manufacturing units.

Cesses

Cess withdrawn

1. Cess under the Mica Mines Labour Welfare Fund Act, 1946.
2. Cess under the Salt Cess Act, 1953.
 3. Passenger Welfare Cess under the Merchant Shipping Act,
1958
4. Cess under the Textiles Committee Act, 1963.
5. Cess under the Limestone and Dolomite Mines Labour
Welfare Fund Act, 1972.
6. Cess under the Tobacco Cess Act, 1975.
7. Cess under the Iron Ore, Manganese Ore Mines and Chrome
Ore Mines Labour Welfare Cess Act, 1976.
8. Cess under The Cine-workers Welfare Cess Act, 1981Oil
Industries Development Cess reduced from 4500 PMT to
20% ad valorem.Infrastructural Development Cess on cars.
Cess increased Advocate,rkhasija@gmail.com
9.
10. + 91 84277 55344, +91 98113 86064
11. R K Hasija,
12. Clean Environment Cess increased from Rs 300 to Rs.
400 per tonne.
13. Krishi Kalyan Cess @ 0.5% on value of taxable
services with effect from 01.06.2016.
14. Cess Imposed
15. Cess Reduced
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