Meeting with Revenue Secretary on SIAM Pre-Budget

SIAM team led by Dr. Pawan Goenka met Revenue Secretary for

Pre-Budget consultation.

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Annex 2

SIAM’s Recommendation on GST

Rates

• Standard GST Rate of 28% should be applicable to two-wheelers,

three wheelers, commercial vehicles (bus & truck) and small cars

and utility vehicles.

• For all other cars an uniform cess of 8% is suggested.

• Electric Vehicles are currently attracting 6% excise plus under 6%

VAT in many states. Therefore the GST rate should be maintained

at 12% or lower.

• For Hybrid vehicles, ~ 10% rebate should be given from applicable GST rate plus Cess

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Concern

Section 140(2) at page No. 131 of the Draft GST Law provides the list ofActs which will be repealed as per the taxes being subsumed underGST. This list does not include NCCD, R&D Cess, etc.

Suggestion

The list should also mention the relevant part of the Act that leviesNCCD, Automobile Cess, R&D Cess on Import of Technology and InfraCess.

The mention of the above Acts shall ensure that all these cess existingtoday are subsumed under GST.

There should be no new tax / Cess introduced after GST is madeapplicable.

Repealing of Statutes relating to Old

Taxes/Cess3

Suggestion

The current draft law is silent on protecting the benefits currently

available to these units. Necessary clarification/provision should

be included to safeguard the quantum of benefits these units areeligible for under the current regime.

Concern

At present units established in Hilly States and North Eastern States are given Excise exemption

4Protecting quantum of benefit currently

available to units eligible for Area

based excise concession

A guiding principle should be made as part of the model State

GST Law to ensure that the benefits which had been promised

are protected by the respective State Governments – both interms of quantum and time.

Concern

The model GST law is silent regarding VAT & CST based incentive to

various manufacturers by the respective states.

Suggestion

5Protecting quantum of benefit

currently available under the various

State incentives schemes

Concern

Matured auto industry needs robust organised market for used vehicles

No specific provisions have been provided in the Draft GST Law for the leviability

of GST on the used vehicles.

Suggestion

The law should provide for specific provisions for the used vehicles business.

Registered Dealers would not be able to take input credit of purchase madefrom individual customers who would not be able to issue a taxable invoice.

In the absence of specific provisions, the organised pre-owned vehicles business

will become unviable because of full tax charged on the transaction value at the

time of sale by the Registered Dealers.

GST should be levied only on net value addition by registered used vehicle

dealers (on sales price – purchase price).

Specific Provisions for Organised

used-vehicles Business.6

1) Persons acting as ‘Traders’ and having stock as on the date of transition.

Such stock lying with the trader can be of two types:

a) Goods where the invoice showing the excise duty component

paid to the supplier is available.

b) Goods where the invoice does not show the excise duty

component but are excise paid goods.

2) Credit involved in the Goods in transit on the appointed date.

There will be goods in transit as on the appointed date for which the

invoice would have been issued by the supplier but the credit is not

availed by the buyer as the goods have still not been received by the

buyer.

Transitory Provisions

There are certain conditions where clarity is needed as regards

to the transitory provisions.

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It is suggested that the time of supply should not be linked with

the payment.

Also the running account is used as a common pool for the

supply of goods and services which makes it all the more difficult

to allocate the funds to a particular supply of goods.

Time of Supply: Linkage with “receipt”

of consideration

Section 12 (2) (c) mentioned at page No. 30 of the draft GST Law

provides that the date on which the supplier receives the paymentwith respect to the supply shall be considered as one of the event for

deciding the time of supply. As per Section 12(2) the time of supply

of goods shall be the earliest of the various events mentioned

therein.

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SIAM Submission - Accepted and

Changes Made in GST Law

SIAM requested incentives/subsidies received from Government

under various Industrial Policy should not be included in assessablevalue. Based on this submission, valuation related provision in GST

Law has been modified to exclude incentive/subsidy in assessable

value.

Transitory Provisions – The revised model GST Law has taken in

consideration most of the issues SIAM had raised on transitory

provision.

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SIAM Submission – Accepted by

Revenue Secretary, changes awaited

SIAM requested that specific provision should be made for used

vehicle business otherwise organized pre-owned vehicle business

will become unviable as no provisions were mentioned in the draft

GST Law.

Revenue Secretary understood the criticality of the issue and asked for

suggestion on the GST rate. SIAM suggested that a 5% GST on value addition

(sales value – purchase value) should be levied. Rev Secretary informed thatGST Rules will have provision for used vehicle business.

SIAM requested that the excise duty benefits currently available to

units in Hilly States and North Eastern States should be safeguarded.

Revenue Secretary informed that DIPP would make budgetary provision for

reimbursement to these companies. This reimbursement has been already

decided and would be to the tune of 58% of the GST incidence.

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SIAM Submission may not be Considered

Time of supply of goods has been linked with receipt of payment by the

recipient of goods/ services. – SIAM requested that since OEMs have a

running account with dealers, hence time of supply of goods should not belinked to payment receipt. GST Council is considering SIAM’s submission

SIAM requested inclusion of Acts that levies NCCD, Automobile Cess, R&D

Cess on Import of Technology and Infra Cess in the section (list) that

mention taxes/cesses which will be repealed under GST law. These are not

mentioned in the Model GST Law at present.

It seems NCCD may not get repealed

Also, DHI is in discussion for continuation of Auto Cess

Infra Cess likely to be subsumed

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Other Pre-Budget Matters

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Retain Custom Duty Structure on

Automobile CBUs

S.No Description Basic Customs Duty on All Vehicles (%)

Existing SIAM Suggestion

New Second

Hand

New Second

Hand

1 CBU of Commercial Vehicles

falling under Tariff Heading -

87.02 & 87.04

20 20 40 40

Retain existing customs duty rates for all automobile CBUs except commercial vehicles. Commercial vehicle rates should be increased from applied rate of 20% to basic duty rate of 40%.

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Custom Duty benefit of Hybrid/EVs

Custom Duty Concessions on Identified parts of Hybrid/ EVs parts should be extended to certain additional parts (list given in Memorandum).

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Tax Collection at Source on sale of

motor vehicle In Union Budget 2016-17, TCS was levied on vehicles with sales value

exceeding Rs 10 lakhs. The intention was to levy tax on luxury vehicles,

however in the Income tax amendment the words used were “motor

vehicles”, thereby including commercial vehicles in its as well.

A CBDT Circular was issued 22/2016 on 8th June 2016 to issue clarification

to exclude government departments and dealers from TCS levy

Suggestion:

TCS should be abolished since there are already various mechanisms for

keeping track of sale of high value motor vehicles, quoting of PAN, VAHAN

system, RTO Registration, etc.

If TCS cannot be abolished, commercial vehicles should be excluded

Make suitable amendment in IT Act itself to reflect CBDT Circular 22/2016

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Depreciation rate for Motor Cars, MUVs

and 2 wheelers

Depreciation rate under IT Act is 15% WDV whereas under companies

Act it is 25%.

Suggestion:

Depreciation rate for Motor Cars, MUVs and 2 wheelers, other than those

used in the business of hire, should be 25% under both Companies Act

and IT Act.

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Curtailment in Scope of R&D Expenses

for weighted Income tax DeductionIn May 2014 relating to the applicability and procedures providing for the

Weighted Tax Deduction of 200% incurred on scientific research by

companies in In-house R&D, which revises the last guidelines issued in May

2010

‘Capital expenditure on R&D, eligible for weighted deduction will include

only plant and equipment or any other tangible item. Capitalized

expenditure of intangible nature will not be eligible for weighted

deduction.’

‘The personnel with Degree / Diploma in Science or engineering discipline

and above qualification will only be regarded as R&D manpower eligible

for weighted tax deduction. Manpower under the category of retainership

/ consultants and manpower on contract will not be admissible forweighted tax deduction’

Suggestion:

Above should be allowed for weighted deduction

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Extension of weighted deduction in

respect of scientific expenditureConcern

The last Finance Budget had proposed to reduce the weighted

deduction from 200% to 150% with effect from 1st April 2017 to 31st

March, 2020.

Phasing out of deduction / incentives alongwith reduction in tax rates

to implement a simplified tax regime is a welcome step.

However, curtailment of benefit would lead to hardship for thosecompanies who have recently established R&D facility with significant

investment

Suggestion

It is suggested that reduction in general corporate tax rate should be

implemented as first step. Phasing out of weighted deduction should

be implemented thereafter with a gap of 2-3 year so as to take care

of the gestation period.

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Expenditure on Scientific Research

There is ambiguity about capital expenditure done before R&D centre

becomes operational. Establishment of R&D Centre takes 2-3 years. Major

CAPEX is done at the initial period and hence disallowance of the CAPEX

dilutes the actual benefit significantly.

Suggestion:

It should be clarified that there should not be any cut-off (start) date for

claiming/ allowing the weighted deduction of R&D expenditure once

the approval has been granted and co-operation agreement has

been entered by the DSIR.

In other words total CAPEX should be allowed.

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NEMMP 2020: The FAME Scheme

A scheme for Faster Adoption & Manufacturing of (Hybrid &) Electric

vehicles in India by 2020, for a sustainable road transportation system to

achieve:a) National fuel securityb) Globally competitive xEV (hybrid & electric vehicle) eco-system and,c) Affordable environment friendly transportation

The Government has set up a robust mechanism for disbursement of

incentives, for ensuring quality of products and for value addition in the

country.

Need adequate budgetary support for running the scheme successfully

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Incentivise Vehicle Fleet Modernisation

Programme World over vehicle scrappage and fleet modernisation is regulated through an end

of life policy, which is implemented through a robust Inspection and Certification

system.

Notwithstanding a robust I & C system in countries like Europe, etc. even these

countries, at times, had to resort to schemes like Cash for Clunkers for weeding out

old and polluting vehicles and replacing them with new environment friendly ones.

Suggestion

SIAM would suggest that in order to mitigate immediate air quality problems and

decreasing the menace of road accidents, a limited-time incentive scheme for

retirement of old vehicles is required.

This would require support from both the State Government and the Central

Government. The Governments at both levels would need to come together to

make this programme successful by providing fiscal incentives/ subsidies for fleet

modernisation.

Need adequate budget allocation for the same.

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Domestic Transfer Pricing

Domestic Transfer Pricing provisions were introduced in Finance Act 2012.

This amendment has cast an additional obligation on the assessee even in

a situation where both the parties are paying tax at the highest rate and

there is no loss to the Income Tax Department.

Suggestions:

Provisions of Domestic Transfer Pricing should have been made

applicable only in case of loss making companies or the companies

whose income is exempt / availing tax holidays.

Further, in case where any adjustment made on account of Domestic

Transfer Pricing, the corresponding adjustment should be allowed to the

other Company.

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Mini Bus Type Vehicles under Tariff

Heading 8702 Anomaly exists under the Central Excise Tariff Act, 1985 (CETA). Vehicles are

mainly classified under tariff items 8702, 8703, 8704, and 8711. The tariff items are

described as below:

8702 –Motor vehicles for transport of ten or more persons, including the driver (buses)

8703 – Motor vehicles for the transport of persons (other than those covered in heading 8702) (passenger vehicles)

8704 – Motor Vehicles for transport of goods (trucks)

8711 – Motorcycles (including mopeds) (all two-wheelers)

Tariff item 8702 attracts two rates 12.5% and 27%. The rate 12.5% is for all vehicles

above 13 seaters, while the vehicles with 10-13 seaters attract 27%, which is a

clear anomaly as 10-13 seater vehicles are essential for public / rural transport.

SIAM would request that such anomalies in the taxation system should be removed

and all vehicles falling under tariff item 8702 including vehicles for transport of not

more than thirteen persons, including the driver, should attract a GST rate of 28%

only.

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