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Pre-Budget MeMoranduM

2012 – 2013

The Associated Chambers of Commerce and Industry of IndiaASSOCHAM Corporate Office

1, Community Centre, Zamrudpur, Kailash Colony, New Delhi-110048Tel: 011-46550555 (Hunting Line) | Fax: 011-46536481, 46536482

Email: [email protected] | Website: www.assocham.org

B: inDiRECT TAXES

TOPIC Page No.

B: INDIRECT TAX ISSUES

EXECUTIvE SUmmARy ........................................................................1

● EXCISE DUTy .......................................................................................5

● SERvICE TAX ......................................................................................21

● CENTRAL SALES TAX ........................................................................30

● CUSTOmS DUTy ................................................................................33

Pre-Budget Memorandum 2012-2013 – Indirect Taxes 1

EXECUTIvE SUmmARy

ASSOCHAM is pleased to present its Pre-Budget Memorandum for the year 2012-13 in the backdrop of present global scenario and economic environment prevailing in the country.

The last few years experience has confirmed that the tax reforms and pragmatic economic policies followed by the Government have accelerated the economic growth and also increased the tax revenue. This reform process, however, has slowed down in the recent past which has started reflecting in the slowdown of investment, reduction in the industrial growth rate and increased fiscal deficit. Many developed nations, notably the United States and European Union nations are facing severe economic slowdown and looking at emerging economies like India and China to lead the global economic growth. On the other hand Indian industry is facing competitive disadvantages due to complex multilayered indirect tax structure having cascading tax impact on its cost, high compliance cost and prolonged tax litigation. The major tax reforms initiatives such as introduction of Goods and Service Tax (GST) to replace present complex tax structure and Direct Tax Code (DTC) are being postponed year after year since 2009. ASSOCHAM strongly recommends that Government should now take decisive steps to introduce rational GST and DTC at the earliest by giving these tax reforms a high priority. These tax reforms will have significant positive impact on our economic growth and will benefit all stake holders. Some of the important tax proposals which need to be considered in the Union Budget 2012-13 are highlighted below:

1. Widening the base of Service Tax:

(a) ASSOCHAM fully support the Government initiative to widen the base of service tax and cover all the services except those in the negative list. At the same time it is important that the definition of “service” is made precise and it should not include any capital account transactions such as buying or selling property, loans in any form, money, actionable claims and gifts. In determining the negative list it is suggested that the following services should be excluded:

• Servicestaxedbystatesundertheconstitutionprovisions(untilGSTisintroduced)such as entertainment, deemed sales, luxuries etc

• Primaryandsecondaryeducation

PRE-BuDgET MEMoRAnDuM 2012-13

B: inDiRECT TAXES


• Medicalservices

• Services by Government, RBI or regulatory authorities (excluding commercialservices)

• ReligiousservicesandPersonalservicesprovidedondeathorbirth

• Charitableservicesprovidedfreeofcostoratnominalcost

(b) ASSOCHAM recommends that service tax rate should be retained at the current level of 10% as many service sectors are facing difficulty in view of the difficult economic environment. Any increase in the rate will adversely affect their growth and in turn even the tax collection.

2. Proposal to levy TDS on Services:

ASSOCHAM does not support the proposal to levy TDS on services at this stage as it may lead to hardship for may service providers and will also increase significant compliance cost of service receivers. The service providers are eligible for CENVAT credit the quantum of which is not known to service receiver. If TDS is deducted at source from gross amount, it may require refund of tax by service providers when the TDS amount is more that their tax liability after adjusting CENVAT credit. Instead of TDS, Government can ask service receivers to provide information about all their service providers with returns which can be used for any tax non compliance by the service providers.

3. CENvAT Credit Rules:

TherecentchangesintheCENVATCreditRuleswithreferencetoinputserviceshasremovedthe eligibility of services received during setting up of service up of manufacturing facility or service center. This is retrograde step and the original definition of input services should be retained. Similarly CENVAT credit of excise duty paid on cement and service tax paid on civil construction in a manufacturing unit are denied CENVAT credit due to recent changes in the service tax rules. Such credit should be restored as tax is collected from the manufactured goods from such units or output services. AASOCHAM recommends that CENVAT credit should be provided seamlessly in line with the basic principle of GST.

4. Removal of tax cascading when job worker manufactures goods for marketing company owning brands:

Asper theprovisionsofCENVATCreditRules,2004cenvatcrediton inputsandcapitalgoods may be availed by a manufacturer as long as such inputs / capital goods are physically received in his factory premises under cover of a valid Central Excise Invoice and are used


byhiminorinrelationtomanufacture.However,underthesameRules,creditofservicetaxmay be availed by an assessee on payment of the same to any input service provider, as long as the input service is received in or in relation to manufacture. The credit is, thus, only available on the basis of Invoice payments.

In the case of Brand Owners (Principal Manufacturers) who employ job-workers exclusively for manufacture of goods, the benefit of cenvat credit on inputs is available since the job-worker can claim the CENVAT credit and offset his central excise liabilities against the said credit. However, as far as service tax is concerned, since the payments for taxable input services are generally effected by the Principal Manufacturer instead of the job-worker, the benefit of service tax credit is not available. This is due to the fact that the Principal Manufacturer cannot avail the credit since he is not the manufacturer and the manufacturer, i.e., the job-worker, cannot avail the credit since he does not pay for the taxable input service.Consequently,undertheRulesthePrincipalManufactureremployingjob-workersexclusively is discriminated against in relation to Principal Manufacturers having their own manufacturing facilities, in so far as credit of service tax is concerned

5. Income Tax Exemption to Infrastructure Capital Companies

Section 10(23G) of the Income Tax Act, which was there in the Statute till AY 2006-07, provided for exemption of interest and long-term capital gains in the hands of Infrastructure Capital Cos./Fund derived from lending/investment made in approved eligible infrastructure projects, development of SEZs, Housing Projects, etc. The said provision has been deleted from the Statute by the Finance Act, 2006. The rationale given in the explanatory memorandum was that the tax rates as well as the interest rates on borrowing have come down thereby reducing the overall cost of infrastructure projects. The ground on which the exemption was withdrawn does not hold good since the interest rates have already started arising, thereby increasing the borrowing costs.

It is recommended that the exemption to Infrastructure Capital Companies/Fund should be reinstated. Infrastructure development has been identified by the Government as one of the thrust area and a lot of initiatives have been taken in this area. The withdrawal of tax exemption in respect of interest and long-term capital gains will result into higher cost of lending to the Infrastructure Capital Co./Fund. This higher cost would ultimately increase the overall cost of the Infrastructure Project making it unviable.

6. Tax holiday for Oil and Gas Exploration period need to be increased:

Oil and Gas exploration is strategically important for the country as significant foreign exchange is spent on import and we do not have control on their prices in international


market. Like Infrastructure, E&P Industry is also highly capital intensive with a long gestation period. Thus, the provisions of Section 80-IB (9) should be amended to extend the period of seven years of tax holiday to ten years and to allow flexibility to E&P companies to choose the period of a tax holiday of ten years during the initial fifteen year period of their operation.

Tax holiday u/s 80-IB(9) is available to E&P companies for seven consecutive years starting from the year in which commercial production commences. The period of seven years of tax holiday is less than the tax holiday period available to companies in the infrastructure sector, such as power generation and distribution companies. Furthermore, during the initial seven years, companies have large expenditure to set off and hence the actual benefit of the tax holiday does not reach them.

The other suggestions received from our members in relation to direct and indirect taxes are given in Part A and B of this memorandum which need your consideration and favourable response. These include:

1. Need to increase depreciation rate for tax deduction under income tax to improve internal accrual for replacement of assets in the current difficult financial market.

2. Removalofinverteddutystructureincaseofcertainindustries

3. Need to retain current rate of excise duty in view of falling industrial growth

4. Simplification of tax refund procedure for exporters of goods and services and ensuring that refunds are made within reasonable time period and not held up for hyper technical reasons.

5. Need to remove double taxation of same taxable event under VAT and Service tax like in case of copy right, software, right to use goods and immovable propertis

We request you to kindly consider our recommendations favourably.

HHH


PRE-BuDgET MEMoRAnDuM 2012-13

EXCiSE DuTy

1. Interest on differential duty on supplementary invoices

Many a times, sale contract contains a clause for escalation which is based on WIP or Cost to be determined at an intermittent period or at the end of supply. Some time, cost data are required to be audited also for this purpose. It is suggested that no interest should be charged in such cases if cost is determined within a reasonable period, as it is impossible to know this escalation at the time of dispatch of goods.

2. Time Limit for Disposing off Applications for Destruction of Goods:

Occasionally, some inherent damage or manufacturing defect, rendering the goods unfit for consumptionormarketing,aredetectedaftertherecordingofmanufactureintheRG1.UnderRule21oftheCentralExciseRules,2002,destructionofsuchgoods,onremissionofexciseduty, can only be done after obtaining permission from the jurisdictional Commissioner of Central Excise. The excise authorities normally give permission after getting the damaged/defective goods tested at notified laboratories to satisfy themselves on the condition of the goods. On many occasions, the authorities keep such applications pending for a long time, at times up to 5 years. Till such time the destruction is allowed by the authorities, the stocks of damaged/defective goods have to be stored by the assessee. This is not only hazardous in many cases (e.g., contaminated food products, infested tobacco products, etc.) but also economically inefficient since these goods block up valuable storage space.

As per CBEC’s Excise Manual of Supplementary Instructions, in the normal course the Department should accept the assessees views that the goods are rendered unfit for consumption or marketing and accord permission within a period of 21 days or earlier, if possible. Where samples are drawn, such permission should be accorded within 45 days. These instructions are, unfortunately, not adhered to in most of the cases.

It is recommended that the provisions of Central Excise statutes be amended to bring in a time limit (say, 45 days) within which applications for remission of duty and destruction of goods are disposed off. Additionally, to hasten the process, assessees be allowed to get the goods tested (on the basis of samples collected and sealed by excise authorities) at any of the notified laboratories.


3. Duty on Clearance of Waste generated

Central Excise authorities insist on payment of excise duty on clearance of waste that arises during the course of manufacture in case the inputs are those on which cenvat credit has been availed by the assessee. The rationale for the duty demand seems to be that since cenvat credit has been availed on the inputs, clearance of waste arising out of usage of such inputs for manufacture are also liable to excise duty. As a result of the position taken by the Excise Authorities, mere generation of waste (e.g., paper scraps arising in the course of slitting paper bobbins, slag generated by usage of fuel oils, etc.) is being held to be ‘manufacture’ of a ‘marketable product’ and hence, dutiable.

The CBEC has already clarified that duty should not be demanded on waste packages / containers used for packaging cenvatable inputs when cleared from the factory of the assessee availing Cenvat credit. This clarification is based on the Hon’ble Supreme Court’s judgment in M/s West Coast Industrial Gases Limited v. Commissioner of Central Excise.

There are instances where the Commissioner (Appeals) has set aside Orders of the Department demanding duty on clearances of waste generated during manufacture in respect of one particular Unit of an assessee, while, on an identical issue Show Cause Notices have been issued to sister Units of the same assessee. It is submitted that clearance of scrap/waste generated by the use of cenvatable inputs in the manufacturing process is, conceptually, the same as clearance of waste packages and containers and should, therefore, be outside the scope of central excise levy.

It is recommended that the the Central Excise statutes be amended to make clearance of scrap/waste arising out of the manufacture of finished / intermediate goods duty free.

4. Need for change in Rule 8 to make it practical

Section 4(1) (b) of the Central Excise Act, 1944, states that if assessable value cannot be determined u/s 4(1)(a), it shall be determined in such a manner as may be prescribed by Rules.Byexercisingthesepowers,CentralExciseValuationRules,2000,havebeenmadeeffectivefromJuly,2000.ThusasperRule8,whereexcisablegoodsarenotsoldbyassesseebut are used for consumption by him or on his behalf in the production or manufacture of other articles, the value will be 115%/110% of COST of production or manufacture of such goods.

TheCBECinCIRCULARNO.692/08/2003-CX,Dated.13thFebruary2003hadclarifiedthatthe COST of production is required to be computed as per CAS-4, prescribed by the Institute of Cost & Works Accountants of India. The COST of production is, therefore, ACTUAL COST


of production. The ACTUAL COST can only be worked out at the end accounting year after accounts have been prepared and actual expenditures have been duly capture.

The fact is that Actual Cost of Production is the HISTORICAL COST and can only bedeterminedonaLATERDATEattheendofanAccountingperiodandnotonthedayofdispatch of the goods. It is impossible to implement this rule. This has led to unjustified demands on account of Interest and Penalty.

In order to overcome this situation, it is suggested that:Ruleshouldpermittoclearthegoods in August to October month based on the Provisional Quarterly Costs of April to June (Previous Quarter), in November to January based on the Provisional Quarterly costs of July to September and so on. After the end of the financial year, the assessee may be required toreworkitsRevisedLiabilitybasedonannualcostsanddepositthedifferentialtaxby30thJunewithoutanypenaltyorinterest.ThisissimilartotheprovisionscontainedinRule6(3)ofCenvatCreditRules2004.

5. Amendment of the provisions related to Unjust Enrichment

Section 11B of the Central Excise Act, 1944 provides for diversion of refund of excess excise duty paid by an assessee to the Consumer Welfare Fund in order to avoid unjust enrichment. This holds true even in cases where the excess duty has been paid erroneously or has been appropriated by the Department through coercive demands.

No doubt, the Hon’ble Supreme Court of India, in the case of Mafatlal Industries, has upheld the constitutional validity of the principle of unjust enrichment. However, the law as it stands today is draconian because the assessees right to appeal has been rendered illusory since the Department invariably denies the return of pre-deposit / refund of duty on grounds of unjust enrichment – even in cases where the excess duty has been paid by mistake or under coercion. In view of the inequitable consequences of Section 11B, there is a strong case for its modification.

It is recommended that Section 11B be amended to provide relief to assessees in cases of erroneous collection of duty and further, not be made applicable to duty paid on captive consumption, return of pre-deposits made in the course of litigation and excess duty paid under provisional assessments, as determined at the time of finalisation.

6. Discontinue Power to Take away Exemption Retrospectively:

Sub-Section 2A of Section 5A of the Central Excise Act, empowers the Executive to clarify the applicability of a Notification by inserting an ‘Explanation’ in the Notification within one


year of its issue and provides that such explanation shall have effect from the date of the original Notification.

The power to issue explanations beneficial to the assessee, with prospective effect, already exists per sub-section 1 of Sec. 5A. However, sub-section 2A provides for retrospective effect of a Notification, merely by insertion of an ‘Explanation’ subsequently. To the extent such ‘Explanations’ are to the detriment of assessees, such a provision is unjustified and inequitable since it causes undue hardship.

It is recommended that Section 5A be amended appropriately to prevent retrospective effect of changes in Notifications in case these are detrimental to the assessee.

7. Pre-Deposit Requirement for Appeals

Currently, the quasi-judicial process under the Central Excise law empowers Departmental officers to adjudicate assessments and appeals. Section 35F empowers Commissioner (Appeals) or the Appellate Tribunal to deal with the applications filed for dispensing with the deposit of duty demanded or penalty levied. The appellate authority uses this power with discretion, resulting often in undue hardship to the assessees.

Considering the Department’s stated commitment to increase tax compliance voluntarily through objectivity, transparency and judiciousness, at least the first Appellate Authority should be free from constraints of the Department and, therefore, be from a Department other than Finance, ideally, belonging to the Ministry of Law and Justice. Since this may not be possible in the immediate future, at least the requirement for pre-deposit of duty and penalty arising out of Order-in-Original and the first Order-in-Appeal should be done away with or, at the very least, be restricted to a reasonable quantum, say, 5% of the disputed tax.

It is recommended that the Central Excise statutes be amended to remove the requirement of pre-deposit of disputed duties, or, restrict it to not more than 5% of disputed taxes only. Further, the statutes are amended such that appellate authorities are not drawn from the Department.

8. Time limit for return of inputs or capital goods sent to job-workers

AsperRule4(5)(a)ofCenvatCreditRules,2004,iftheinputsorthecapitalgoods(onwhichcenvat credit has been availed) are sent out of the factory premises for further processing, manufacture of intermediate goods necessary for manufacture of final products, etc., to a job-worker and are not returned within 180 days, the manufacturer has to pay an amount


equal to cenvat claimed on such inputs. The re-credit of such amount is allowed as and when the inputs / capital goods are returned.

Return of capital goods from a job worker location with consequential disruption ofmanufacture at such location, merely to avail cenvat credit, is economically inefficient. Additionally, in the event of return of inputs / capital goods beyond 180 days due to reasons like strike / lockout / other disruptions at the job-workers premises also disentitles an assessee from availing the cenvat credit for reasons beyond his control.

It is recommended that the jurisdictional authority be delegated the necessary powers to extend the time limit of 180 days for return of inputs from job worker for reasons beyond the control of the manufacturer, like strike/lockout at the premises of the job worker. In respect of capital goods the time limit be extended for the duration of the contract with the job-worker based on which such capital goods are sent out.

9. Inputs cleared ‘As Such’

Rule3(5)ofCenvatCreditRules,2004providesforpaymentofexcisedutyoninputs/capitalgoods equal to the credit availed on them in case they are cleared from the factory ‘as such’. In order to comply with this provision, the manufacturer has to keep track of inputs, the rate of duty at the time of their entry into the factory and the value at which they were purchased – until such time that the inputs are in stock. Since maintenance of such voluminous data over long periods is prone to human error, very often there are objections by Departmental officers, particularly Audit, and consequent litigation.

It is recommended that Central Excise statutes be amended to allow removal of inputs ‘as such’ on payment of excise duty at the rate prevailing on the date of removal and the value for purpose of duty determination be the Weighted Average Cost of the inputs as on that date (as per the assessees books of accounts).

10. Request to review automatic vacation of Stay granted by CESTAT:

Section 35C (2A) of Central Excise Act and section 129B (2A) of Customs Act provides that where an order of stay is made in any proceeding relating to any appeal, the Appellate Tribunal shall dispose of the appeal within a period of 180 days from the date of such order. The Proviso to the said section states that if such appeal is not disposed of by the Appellate Tribunal within a period of 180 days from the order of stay, the said stay order shall stand vacated on the expiry of that period.


In numerous instances, due to exigencies of work, it is not possible for the Appellate Tribunal to dispose an appeal within the stipulated period of 180 days. In such cases the Department seeks recovery of the amount demanded after the expiry of 180 days.

Considering the fact that stay against recovery of alleged dues is granted by the Appellate Tribunal after due prima-facie consideration of the merits of the case, mere delay by the Appellate Tribunal in disposing of the appeal within the stipulated time frame should put an assessee in hardship. Since the assessee is not in a position to expedite disposal of the appeal by the Appellate Tribunal. Accordingly, once stay has been granted by the Tribunal, the stay should continue till such time the appeal is heard and disposed off.

It is recommended that Central Excise Act and Customs Act be amended to provide that once the stay has been granted by the Tribunal, the same should continue till such time the appeal is disposed by it.

Central Excise law amended to bring in a time limit (say, 45 days) within which applications for remission of duty and destruction of goods are disposed off. Additionally, to hasten the process, assessees be allowed to get the goods tested (on the basis of samples collected and sealed by excise authorities) at any of the notified laboratories.

Central Excise statutes be amended to make clearance of scrap / waste arising out of the manufacture of finished / intermediate goods duty free.

Section 11B be amended to provide relief to assessees in cases of erroneous collection of duty and further, not be made applicable to duty paid on captive consumption, return of pre-deposits made in the course of litigation and excess duty paid under provisional assessments, as determined at the time of finalisation.

Section 5A be amended appropriately to prevent retrospective effect of changes in Notifications in case these are detrimental to the assessee.

11. Excise on DTA Sale by 100% EOU-Request to exempt 3rd time charge of Education Cess:

As per Sec. 3 of CEA, 1944, a 100% EOU is required to pay excise duty at an amount equal to the aggregate of the duties of customs; as it is required to be paid on like goods when imported into India. While computing the aggregate customs duty on imported goods, the Education Cess is charged two times only. However, 100% EOU are forced to workout/ pay Education Cess, three times while calculating the aggregate Customs duty on clearance made to domestic tariff area.


It is requested that – Once education cess is added to the customs duties to arrive at aggregate of customs duties, charging education cess again amounts to charging this cess twice. Suitable clarification is required to be issued accordingly.

12. Increase in SSI Exemption Limit:

Notification 8/2003 dated 01/03/2003 (as amended) provides exemption to Small Scale Industries in respect of payment of Excise duty. An SSI unit can avail the said exemption if theturnoverduringthepreviousfinancialyeardoesnotexceedRs.400Lakhs.TheeligibleSSIneednotpayexcisedutyfortheirfirstclearanceofRs.150Lakhs(providednocenvatcredit is availed).

ItisrecommendedthattheeligibilityturnoverinthePreviousFYbeincreasedfromRs.400LakhstoRs.500LakhsalongwithanincreaseofthebasicexemptionfromRs.150Lakhsto200 Lakhs / 250 Lakhs. This will encourage companies to enhance sourcing from SSI units to avail the benefit of excise exemption which will also in turn help the SSI sector to grow. This would be in line with the recognition of the SSI sector as an engine of growth for Indian economy with a high potential for employment generation.

13. Exemption of Excise Duty on Fly Ash Bricks:

Most of the coal based sponge iron plants set up coal based power plants. Fly ash is generated in coal based power plants the disposal of which is very difficult. It is, therefore, necessary to encourage proper utilization of Fly Ash. The Fly ash can be used for making Fly Ash Bricks. In order to encourage the manufacture of Fly

Ash Bricks, the Central Government in the year 2006 exempted from payment of excise duty by Notification No. 05/2006 dated 01.03.2006 vide which any duty mentioned in Central Excise Tariff in excess of 8% was exempted.

It is pertinent to mention here that at that point of time the Basic Excise Duty was 16% and as such by virtue of above Notification 50% of the excise duty on Fly Ash Bricks was exempted. But subsequently the Basic Excise Duty was reduced from 16% to 8% without any corresponding change in the said exemption Notification as a result of which now practically there is no exemption on the Fly Ash Bricks because as per the above Notification any duty prescribed over and above 8% was exempt. In order to encourage the best utilization of Fly Ash generated out of Coal based power plants, which otherwise create environmental pollution, fully exemption of excise duty should be given on Fly Ash Bricks.


14. Reduction of Excise Duty on Poly-coated Paper products (CE Tariff No. 481159 00)

Paper and paperboard that is coated / impregnated / covered with plastic is classified under Central Excise Tariff 4811 59 00 with an excise levy of 10% ad valorem – even as a large number of paper / paperboard items covered by Central Excise Tariff 4802, 4804, 4805, 4807, 4808 and 4810 are exigible to excise duty only at 5% ad valorem.

Plastic coated paper and paperboard are essentially bio-degradable paperboard and is an eco-friendly substitute for plastics which do not conform to requisite hygiene and environmental standards. The global trend is to actively discourage the use of plastics and to replace it with coated paper / paperboard.

In India the major consumers of this type of paper / paperboards are SSI / SME units engaged in manufacture of paper cups that are increasingly being supplied to institutional customers liketheRailways,theFMCGsectorandthehouseholdsector.

It is recommended that since SSI / SME units are not in a position to avail cenvat credit the excise duty on plastic coated paper / paperboards, classifiable under Central Excise Tariff 4811 59 00 be reduced to 5% from 10% - in line with most other paper / paperboards classifiable under Chapter 48. Not only will this provide substantial relief to the SSI / SME sector such a move will also be a “green” initiative in line with global trends.

Central Excise statutes be amended to remove the requirement of pre-deposit of disputed duties, or, restrict it to not more than 5% of disputed taxes only. Further, the statutes be amended such that appellate authorities are not drawn from the Department.

15. Time limit for return of inputs and capital goods sent to job-worker:

It is requested that the jurisdictional authority be delegated the necessary powers to extend the time limit of 180 days for return of inputs from job worker for reasons beyond the control of the manufacturer, like strike/lockout at the premises of the job worker. In respect of capital goods the time limit be extended for the duration of the contract with the job-worker based on which such capital goods are sent out.

Central Excise statutes be amended to allow removal of inputs ‘as such’ on payment of excise duty at the rate prevailing on the date of removal and the value for purpose of duty determination be the Weighted Average Cost of the inputs as on that date (as per the assessees books of accounts).


16. Excise Duty on Safety matches

Safety Matches are classifiable under Central Excise Tariff Heading 360590. The rate of duty on matches is 10%. However, full exemption from excise duty is available if none of the following processes is ordinarily carried on with the aid of power during manufacturing:

Frame filling, Dipping of splints in the composition for match heads,Filling of boxes with matches’Pasting of labels on match boxes, veneers or cardboards,Packaging

Typically, matches are manufactured with the aid of power in:

Units where power is used for dipping of splints in the composition of match head and the rest of the processes like box filling , tens packaging, unit packaging and bundle packaging, etc. are done manually.

Units where power is used across the manufacturing processes.

Currently most of the match manufactures in the country belong to category (i) listed above.

There is large-scale avoidance of duty by many manufacturing Units that use power for the process of dipping of splints into the chemical composition. These Units clear the chemically dipped head splints (matchsticks) without payment of duty, since the goods are at an intermediate stage of production, to Units that pack and label the matchsticks without using power. The latter Units, in turn, clear the finished goods - safety matches - without payment of duty since, by virtue of no power being used for filling/packing/labelling the safety matches are fully exempted from Central Excise Duty.

To ensure a level playing field it is recommended that:

All matches are exempted from central excise duty – irrespective of mechanised / semi-mechanised / manual manufacturing, or,

Excise duty levied on all matches that have undergone manufacturing with the aid of power (in respect of any of the specified processes) even if the matches are ultimately cleared from Units that do not use power for the process of packing. This will also ensure a reduction in avoidance of excise duty.

17. Excise Duty on Apparel

India is amongst the fastest growing economies in the world and the growth is attributed to the burgeoning middle class, which is fuelling the growth through retail consumption. India is also emerging as a major hub for sourcing of textiles and apparel globally.


An important aspect of the economic growth in retail and apparel exports is the huge generation of employment directly and in industries supporting the sectors.

India has emerged as the third most attractive destination for apparel retailers with clothing identified as one of the main engines for growth of organised retailing in India. Whilst the Central and State Governments have been supportive of the emerging needs of the sector, implementation of the following suggestions will enable the apparel industry to fully actualise its potential.

18. Levy of Central Excise Duty on Branded Readymade Garments

The branded garment industry incurred huge losses when Central Excise was introduced in 2001. In the Union Budget for the year 2004-05, after considering the decentralised and fragmented nature of production of fabrics in the country, the manufacturers were given the option to choose between full exemption from Central Excise or duty levy along with the benefit of cenvat credit. This provided much needed relief to the industry.

During the global recession in the recent past the industry came under severe pressure and financial hardship although the strong internal consumption in India helped mitigate the situation somewhat. Just as the industry was recovering from the effect of the global slowdown a 10% Central Excise levy was imposed in the Union Budget of 2011. The levy was justified as a transitory step to GST.

The imposition of excise duty has happened at a time when the industry is under severe margin pressure on account of account rising interest costs, raw material inflation, high freight and octroi costs, rising marketing expenses and VAT. Consequently, the industry has no option but to pass on the increased tax cost to the consumer. There has been a strong consumer resistance against increase in prices resulting in a significant drop in demand, thereby forcing the retailers to resort to extended discounting - creating further stress on margins that are already under severe pressure.

The Branded Garment Industry provides employment to lakhs of semi-skilled women in the country. The drop in demand will have an adverse impact on the employment of these workers who are, predominantly, from the economically weaker sections of society and have very limited scope of employability.

It is recommended that instead of the current duty levy of 10% on branded garments, excise duty at 1% may be levied - in line with the 130 items on which a similar levy was imposed in Union Budget 2011 as a precursor to GST. This will provide appropriate relief to industry, pave the way for rebuilding the growth sentiment and be in line with the rollout of GST.


Goods returned

The norm in the branded apparel industry is to “refinish” unsold stocks of garments at the end of the season and offer the same to consumers at the same or reduced retail sale prices. The activity of “refinishing” usually involves any one or more process like ironing, washing, retagging, dry cleaning and repacking in covers/boxes. Whilst there is no “manufacture” involved in theses processes, under the existing definition of manufacture (Notes to Chapters 61 & 62), some of these activities can be construed as manufacture with consequent requirement of payment of duty at the time of clearance of the refinished garments with corresponding cenvat credit of the duty paid at the time of first clearance of the garments. The entire activity results in avoidable duplication of effort, paper work and resourceswithno revenue implication.Recognising thisproblem theGovernmentwas pleased to issue Notification No. 31/2011 dated 24th March 2011 exempting branded garments covered by Tariff Chapters 61 to 63 from excise duty when such duty paid branded garments are returned to the same premises or factory from where they were originally cleared for refinishing and subsequent clearance. The Notification also stipulates that in order to qualify for duty exemption the aggregate value of refinished goods cleared from a factory in any financial year should not exceed 10% of the aggregate value of clearances for home consumption from the same factory or premises in the preceding financial year.

The benefit sought to be extended by the above Notification has remained more in paper because the goods have to be returned to the same factory, from which they were originally cleared, for refinishing. In the garment industry the sourcing (mix of manufactured and traded goods) and distribution is spread across the country making correlation and aggregation of inventory at the originating point extremely difficult besides increase in the logistics cost. Moreover, in case of traded goods, it is very difficult to avail this benefit as the original manufacturer will not be refinishing the goods. Also, the time factor for redeployment is critical due to seasonality and limited shelf life of the product.

Now that the responsibility of discharging the excise duty rests solely with the brand-owner (since the facility for authorising the job-worker to do so has been withdrawn), it is recommended that the terms of the exemption Notification be amended appropriately whereby the value limit is pegged at 10% of the aggregate value of garments sourced by the brand owner and the condition of having to bring the goods back to the same factory is done away with. If any misuse is apprehended in this regard, safeguards like certification from statutory auditors of the brand-owner can be prescribed.

Sample movement

In garment industry, development, display and approval of samples is an iterative and fundamental activity involving manufacture and movement of samples across supply chain –


from Brand Owner to Vendor/Job worker, washing units, value add in form of embellishments etc. and then finally from manufacturer/Brand Owner to the Buyers. To maintain records for these multiple movements is a cumbersome process and there is no commercial transaction involving consideration.

To facilitate the business process, it is recommended that necessary clarification be issued to consider regular delivery challan of concerned parties with an endorsement ‘For Sample Purpose. No Commercial Value’ be considered as proof and samples be exempt from Excise Duty.

19. Excise Duty on Hotel

Presently Central Excise is chargeable on Bakery and Confectionery items sold in hotels. Thisformsasmallportionofthehotels’Food&BeverageRevenue.Nootherfooditemisexcisable. Due to this hotels are subject to the cumbersome administrative formalities of Central Excise without any significant contribution to the exchequer. Hence it is urged to removetheseitemsfromtheexcisablelist.AlternatelyaturnoverexemptionlimitofRs.1.50crore computed solely based on the Turnover of the Excisable products of each Unit having separateRegistrationnumberandnotthetotalturnoveroftheHotelortheCompany,beprescribed, up to which no excise duty would be payable.

20. Excise Duty on Steel- relating to interplant transfers

When goods are produced for further manufacture within the same factory the intermediate goods are exempted and duty is collected after the final stage of manufacture. However, if the intermediate goods are cleared on stock transfer from one factory to another of the same manufacturer, duty is payable on value calculated using the cost construction method. This approach is based on the premise that cenvat credit would be available at the receiving end and the value chain will remain revenue neutral.

However, there are instances where cenvat credit builds up for a variety of reasons such as large export volumes of the final product, credit accumulated in new factory, inverted duty structure etc. This creates a huge working capital burden on the manufacturers. In such circumstances, the manufacturer should be allowed to clear the intermediate product from one unit to another without payment of duty but with adequate controls to ensure the actual receipt and consumption at the receiving end. Such a procedure was available under the erstwhileChapterXwhere the intermediategoodscouldmove in-bondwithoutpaymentof duty. This will simplify the process by avoiding duty payment and credit and also avoid valuation disputes. Currently, such exemption for intermediate products has been extended


to goods such as parts of power tillers (Not 16/2011 CE dt. 1.3.2011) & parts of mobile handsets (sr no 31 of Not CE 6/2006 dt. 1.3.2006), subject to following the procedure of the CentralExcise[RemovalofGoodsatConcessionalRateofDutyforManufactureofExcisableGoods]Rules,2001.However,toprotectrevenue,suchexemptionsshouldnotbegrantedto any intermediate products transferred to factories enjoying area based exemptions.

An alternative to this could be by granting the transfer of credit from one unit to another of the same manufacturer so long as the units are manufacturing the intermediate product and the final product in the same product line.

Critical input for Steel Industry should be exempted from Import Duty

Graphite Electrodes: Currently there is an import duty @ 7.5% on 30” electrodes , 16” electrodes. As the domestic capacity for this item is inadequate, they need to be imported, thereby increasing production cost.

Request: Import duty on graphite electrodes may please be reduced to Nil.

21. Request for Excise duty exemption of distilled water used for industrial purpose:

The Central Government has exempted water treatment plants and pipes used for treating water (including de-salination using sea water) from excise and customs duty with a view to conserve precious ground water with a view to conserve precious ground water. The only condition is that the processed water should be consumed for agricultural or industrial purpose. However, distilled water (classifiable under CETH 28530010) obtained through this desalination and used for industrial purpose seems to be excisable. This appears to be an unintended omission when excise and customs duty exemptions are granted for the desalination plant but the distilled water produced for industrial use remains dutiable. Such distilled water is used in a variety of industrial applications, mainly in generating electricity. Having extended the excise and customs duty exemption for the capital goods, equipments and pipes, to produce desalinated water it would be appropriate that the distilled water used for industrial purpose is also exempted from duty.

Request: It is requested to issue suitable notification granting excise duty exemption to desalinated / distilled water falling under CETH 28530010 when supplied for industrial use, which would be in consonance with the efforts of the Government to conserve precious ground water.


22. Excise Duty on Cigarettes & Tobacco

(a) Request for Continuation of Specific Duty Structure of Excise

Goods like cigarettes, whose price is largely constituted of tax, offer lucrative arbitrage and are vulnerable to large-scale smuggling must be reserved for exclusive central taxation in theformofcentralexciseatspecificrates.Recognisingthebenefitsofaspecific levyonhighly taxed products like cigarettes, specific, length related excise duty for cigarettes was introducedbyShriRajivGandhiintheUnionBudgetof1987.Theefficacyofthespecificlevy, from a revenue perspective, can be gauged from a tenfold growth in revenue collection on a comparable volume base.

1984/85 (AD vALOREm) 2009/10 (SPECIFIC)Industry Volume (Billion Sticks) 96 101ExciseCollections(Rs.Crore) 988 9759

Specific duty has not only resulted in unprecedented growth in revenue collection due to the simple, transparent and dispute free duty collection mechanism, it has also encouraged the manufacturers to position their brands at various price points, thereby addressing India’s wide income distribution.

Specific duty levy on cigarettes has proven to be superior than an ad-valorem levy in terms of revenue buoyancy, offer of high end value added products of international standards to the Indian consumer and resulting in increased demand of high quality tobacco which, in turn, has protected the interest of millions of India farmers. On the other hand the ad-valorem regime witnessed the Government and the cigarette industry involved in a plethora of litigation, locking up of excise revenues, product debasement by manufacturers (in an attempt to reduce cost) with adverse impact on farmer earnings and evasion by unscrupulous manufactures and traders.

Request : The single-point Central, specific duty structure must be retained for cigarettes.

(b) The Excise Duty on other Filter Cigarettes be maintained at the current level

The new segment of filter cigarette (length not exceeding 60 mm), introduced in the Union Budget2010,wasexpectedtocombatthedutyevasionofaboutRs.1200croretoRs.1500crore per annum by the manufacturers of illegal, duty evaded filter cigarettes that are sold at Rs.1perstick,byprovidinganopportunitytothelegitimatecigaretteindustrytoofferdutypaid filter cigarettes to consumers at competitive price.

However,thecombinedlevyofCentralExciseDuty@Rs.689.07perthousandcigarettesand State taxes (at rates up to 40%) precludes the possibility of offers by the legitimate industrytoconsumersatpricepointsequal toornearthepricepointofRs.1/-perstick


offered by the illegitimate cigarette manufacturers. In fact, post the Union Budget 2010, the legitimate cigarette industry launched filter cigarettes of 59 mm at the cheapest viable pricepointofRs.15/-forapackof10cigarettes,asaresultofwhichconsumershavetopayatleastRs.1.50perstickforthecigarettes.Further,thecheapestviablepricepointforthelegitimateindustryisRs.20/-perpackof10cigarettesforfiltercigarettesnotexceeding70mm length.

Whilst the illegal filter cigarettes of length not exceeding 70mm are available to consumers atRs.1/-perstick,theconsumersarenotseeinganyvalueinthe59mmfiltercigarettesavailable atRs. 1.50per stick and filter cigarettesnot exceeding70mm in length atRs.2/- per stick. Consequently, the legitimate cigarette industry has not been able to sell the brands launched under the new segment of 59 mm filter cigarettes and the growth of illegal filter cigarettes continues unabated by reason of the extremely attractive price point at which such illegal filter cigarettes are available in the market. In fact, as per industry estimates, the volumesofthelegitimateindustryattheRs.2/-andRs1.50pricepointhassignificantlycomedown from approximately 4745 million cigarettes per month in 2009 (49% of the industry) to a current level of about 1080 million cigarettes per month (11% of the total industry). Further, it is anticipated that growing input costs and steep rates of VAT imposed by certain States oncigarettes(ashighas40%insomecases)maysoonrendereventheRs.2/-perstickprice point economically unviable for the legitimate industry. This, it is apprehended, will provide further impetus to the growth of illegal filter cigarettes and duty evasion. To combat the menace of growing illegal filter cigarettes, the existing excise slab of Filter Cigarettes of length not exceeding 60 mm should be amended to a slab of Filter cigarettes of length not exceeding65mmwithalevyofCentralExcisedutyofRs.200/-perthousandcigarettes.Post the Union Budget 2010, the legitimate Cigarette industry test launched filter cigarettes atRs.10perpackof10cigarettes,andat64mmlength,invariousmarkets.Marketsourcesindicate that these offers have performed better than the offers of 59 mm filter cigarettes at Rs.15perpackof10cigarettes,againstillegaldomesticcigarettes.

In order to address the wide disparity in income distribution in India, the specific excise duty structure on cigarettes should facilitate the legitimate cigarette manufacturers to offer their brands of cigarettes to the consumers at multiple price points. This will not only combat the growing illegal trade in cigarettes but would also leverage revenue efficiency, thereby contributing to revenue growth of the National Exchequer, and crate a steady demand for high quality Virginia Flu Cured tobacco with consequential benefits to farmer earnings.

It is recommended that the existing excise slab of filter cigarettes of length not exceeding 60mmbeamendedtoaslaboflengthnotexceeding65mmwithanexcisedutylevyofRs.200/- per thousand cigarettes. Further, to enable the legitimate cigarette industry to continue tooperate atpricepointsofRs.2/- andabove, theExciseDutyonother filter cigarettes


should not be increased any further and be maintained at the current level. This would provide the legitimate industry with viable price points to combat the menace of illegal, duty evaded cigarettes and also demonstrate the serious intent of the Government for resolving the menace of contraband trade.

23. Continue with multiple price point, length based specific excise structure

This structure is best suited to India as it caters to the country’s wide range of income distribution and enables positioning of brands at convenient and affordable price points. It has proven to be extremely successful over the years as it has ensured increasing revenue collections in a litigation-free environment with no valuation disputes and transparent administration. Additionally, it provides for value-addition to achieve international quality standards and improved farmer earnings through usage of high quality tobaccos and increased exports.

24. maintain tax stability in Excise Duty rates

Excise Duty rates should be kept unchanged to leverage the tax efficiency of cigarettes by encouraging shifts from non-cigarette forms of consumption. This, in turn, will maximise contribution to the Exchequer, even in a shrinking basket of overall tobacco consumption.

25. Contain tax evasion by unscrupulous manufacturers

To prevent revenue losses, excise duty evasion by small manufacturing units should be controlledthroughcompulsorylicensing[asrequiredundertheI(D&R)Act,1951],strictersurveillance and harsher penalties.

HHH


SERviCE TAX

1. Increased Revenue collection by widening Tax Base while Retaining Existing Rate:

It has been our experience that wider tax base with lower tax rate improve tax collection and promote economic growth. ASSOCHAM therefore fully support the Government initiative to widen the base of service tax and cover all the services except those in the negative list. At the same time it is important that the definition of “service” is made precise and it should not include any capital account transactions such as buying or selling property, loans in any form, money, actionable claims and gifts. In determining the negative list it is suggested that the following services should be excluded:

• Services taxedby states under the constitutionprovisions (untilGST is introduced)such as entertainment, deemed sales, luxuries etc

• Primaryandsecondaryeducation

• Medicalservices

• Services by Government, RBI or regulatory authorities (excluding commercialservices)

• ReligiousservicesandPersonalservicesprovidedondeathorbirth

• Charitableservicesprovidedfreeofcostoratnominalcost

At the same time ASSOCHAM recommends that service tax rate should be retained at the current level of 10% as many service sectors are facing difficulty in view of the difficult economic environment. Any increase in the rate will adversely affect their growth and in turn even the tax collection.

2. CENvAT Credit Rules:

TherecentchangesintheCENVATCreditRuleswithreferencetoinputserviceshasremovedthe eligibility of services received during setting up of service up of manufacturing facility or service center. This is retrograde step and the original definition of input services should be retained. Similarly CENVAT credit of excise duty paid on cement and service tax paid on civil construction in a manufacturing unit are denied CENVAT credit due to recent changes in the service tax rules.

Budget 2011 restricts the definition of “inputs” and “input services”, on which CENVAT credit can be availed. The scope of the “inputs” has been restricted by excluding the following therefrom: • goodsusedfortheconstructionofabuildingorlayingofstructureforsupportofcapital

goods, except when used for certain construction related services;


• capitalgoodsexceptwhenusedascomponentsinthemanufactureoffinalproducts;

• motorvehicles;

• goodsusedprimarilyforpersonaluseorconsumptionofanemployee;and

• goodswhichdonothaveanyrelationshipwhatsoeverwiththemanufactureofafinalproduct.

Similarly, the scope of the “input services” has been narrowed by removing the expression “activities related to business” from the inclusive part of the definition.

The scope has been further narrowed by excluding services in relation to setting up of factory or premises there from.

Also, services such as outdoor catering, heath services, health and fitness centre, and life insurance services, used primarily for personal use or consumption of employees have been specifically excluded from the definition of input services.

Suggestion

The restrictions carried out in the scope of “Input” and “input Services”, under Cenvat Credit Rulesmeritstobereviewedandthe“activitiesrelatedtobusiness”,asalsothe“servicesin relation to setting up of factory or premises” may be explicitly made eligible for Cenvat credit since these taxes would constitute a significant element in setting up of a factory. The depreciation on such structure is already built in the cost on which excise duty is paid therefore denying credit on inputs and inputs service in relation to setting up factory building puts additional burden to taxpayer.

The above referred CENVAT credit should be restored. AASOCHAM recommends that CENVAT credit should be provided seamlessly in line with the basic principle of GST.

3. Removal of tax cascading when job worker manufactures goods for marketing company owning brands:

Asper theprovisionsofCENVATCreditRules,2004cenvatcrediton inputsandcapitalgoods may be availed by a manufacturer as long as such inputs / capital goods are physically received in his factory premises under cover of a valid Central Excise Invoice and are used byhiminorinrelationtomanufacture.However,underthesameRules,creditofservicetaxmay be availed by an assessee on payment of the same to any input service provider, as long as the input service is received in or in relation to manufacture. The credit is, thus, only available on the basis of Invoice payments.


In the case of Brand Owners (Principal Manufacturers) who employ job-workers exclusively for manufacture of goods, the benefit of cenvat credit on inputs is available since the job-worker can claim the CENVAT credit and offset his central excise liabilities against the said credit. However, as far as service tax is concerned, since the payments for taxable input services are generally effected by the Principal Manufacturer instead of the job-worker, the benefit of service tax credit is not available. This is due to the fact that the Principal Manufacturer cannot avail the credit since he is not the manufacturer and the manufacturer, i.e., the job-worker, cannot avail the credit since he does not pay for the taxable input service.Consequently,undertheRulesthePrincipalManufactureremployingjob-workersexclusively is discriminated against in relation to Principal Manufacturers having their own manufacturing facilities, in so far as credit of service tax is concerned

4. Service Tax on E&P Activities

Services in relation to Survey and exploration of mineral, Oil and Gas service were brought in the service tax net in September 2004. As the operators and their associates in E&P sector do not provide any taxable output service or do not manufactures any excisable goods, they are not able to set off the service tax paid and have to absorb the cost. Further, the risks and uncertainty associated with E&P sector underlines the need of providing supportive environment for sustaining the business. Services related to core sector activities like highways, airports, sea ports, railways etc. are already exempted from service tax on economic considerations. As it is for the sake of energy security, there is a strong case to incentivise investments in E&P Sector, thus fully exempting hydrocarbon exploration activities from the ambit of service tax.

It is therefore suggested that the services required for E&P sector may be included in the negative list of services so as to reduce their cost. In line with consideration given to services required for infrastructure development like roads, airport, railways, ports etc. in the concept papers for public debate circulated on taxation of services based on negative list of services.

5. Service Tax on Retail Rentals

Commercial rental, which is a cost to the retailer, was brought in the ambit of Service tax vide UnionBudget2007-08.Retailershadchallengedthislevyinhighcourtsbutfailedtosecurea relief. If implemented, this additional levy will put huge burden on the retail segment, which is already operating with low margins.


Service tax on rentals will result in further increase in net retail rentals, impacting both the retailers as well as developers. Additionally, retailers would be forced to pass on the service tax burden to customers. This will result in higher cost of goods. Also considering that rentals are cost incurred by the retailer, the same should be withdrawn.

6. Payment of Interest under Rule 14 of CENvAT credit Rules,2004

GovernmentshouldgivereliefinRule,14ofCenvatcreditRules,2004.Rule14shouldonlyapplies when Cenvat credit is to be taken ‘wrongly’ , but in case of Cenvat mistakenly taken and reversed before utilization means Cenvat credit not taken in that case Interest should not be levied.

7. Reconsider inadmissibility of Cenvat Credit on various services:

(a) Service Tax input credit on Commercial or Industrial construction services, works contract services, Architect services, Interior decorator services etc. should be eligible for new construction and setting up of new project, In present scenario it has adverse effect on new establishment because of non eligibility of Cenvat credit on above mentioned services. Industries seek some relief to this pain. And there is also issue of liquidity for new establishment in initial stage or in case of expansion.

(b) Inadmissibility of Cenvat Credit on Colony where it is a part of manufacturing premises

Service Tax input credit should be eligible on various services availed by the company in relation to residential colony, when colony existed along with plant area. Because here we can find the nexus between manufacturing process and residential colony, in continuous process it is quiet essential for manufacturer to have staff located at residential colony of the company to cop up any type of emergency and presence of them when needed.

8. Service Tax on services availed by exporters:

Currently exporters are required to pay service tax on many services and later claim refund after providing large volume of documents which delay the process of refund and add to administrative cost. Some of these services cannot be avoided by exporters such port charges, negotiation of documents with bank. Services provided by clearing agent (CHA), export inspection by Govt. agency, container charges etc.

It is recommended that the services essentially used by exporters should be exempted from service tax such as those referred above. The tax department can always do service tax audit of exporters and verify the documents.


9. Clarification required on point of taxation Rules:

As per the point of taxation rules liability to pay service tax arises either at the time when the invoice for the service provided or to be provided is issued or where the person providing the service, receives a payment whichever is earlier. Following aspects requires clarification in this regard:-

a) If any party fails to make the full payment to the service provider then what will be the procedure to be followed by him to recover the service tax already paid while issuing the invoice.

b) If any party makes part payment to the service provider in relation to a particular invoice then whether he is eligible to adjust that excess payment with the other invoices or not by issuing a credit note.

10. Service tax payment under ‘Point of Taxation Rules:

All business survives on credit extended to its customers. In this age of cut-throat competition, the usual credit period ranges from 15 to 60 days.

The service sector faces a unique problem in their bills being reduced and negotiated or cancelled by the recipient subsequent to their enjoying the service. To keep the good relation and to avoid delays and litigations, more often than not, the service providers have very little option but to accede to such reduction / cancellation.The margins are not that high to justify a payment of 10% on account of service tax even before collections. This, coupled with advance income tax and mandatory overhead payments is leading to adverse cash flows in most small and medium enterprises.

It is, therefore, suggested that the payment of service tax should be extended to 30 days from the end of month.

11. Ambiguity in CENvAT Rules to be removed:

Ambiguity in CENVAT rules to be removed and full credit should be available all service tax paid on overheads like telephone, rent, etc. whether the assessee provides any exempted service or not. It is not possible to predict before-hand the percentage of exempt and taxable services provided during the year to take proportionate credit. Any event, government is getting the tax at one point, so giving credit for the same should not create problem.


12. Reasonable statutory time limit for deemed assessment and audit:

A time limit of say 6 months from the end of the half year or receipt of revised returns, whichever is later, should be the cut off for deemed assessment. It may be pertinent to note that at the time of introducing service tax the then Finance Minister had stated at the floor of Parliament that it did not intend to be a raid raj. This principle should be followed in spirit by the department. What happens now is that there is no assessment. This is followed by an audit and on some flimsy ground the longer period is invoked with draconian interest and penalty, when the department had ample scope of assessing and rectifying the misconceptions / mistakes of the assessees earlier.

13. Need for Compilation of service-wise notifications / circulars / clarification by department:

With a plethora of notifications and clarifications, small and medium sized enterprises are at a loss trying to figure out which notification / clarification is applicable / relevant to their service and whether such notification has subsequently been rescinded. The department should post on its website service-wise notifications / clarifications which still applicable, so that the assessees can figure out for themselves the legal position for their services, instead of having to a need to incur significant expenditure on consultants.

14. Other suggestions on CENvAT Credit Rules:

• ExemptionfromExciseDutyonCaptiveConsumptionatadifferentunitof thesamemanufacturer - As per the rule when excisable goods are not sold by the assessee but are used for captive consumption within the same unit, then no excise duty is payable as it enjoys exemption from payment of excise duty. However, under similar circumstances, when excisable goods are not sold by the assessee but are used for captive consumption in another unit of the same manufacturer, excise duty is required to be paid at the value of 110% of the cost of production. There is always a dispute arising on the value to be adopted for payment of duty. Since the duty paid by the first unit is available as Cenvat credit to the second unit, the whole exercise is revenue neutral. Hence, there is no rationale for not providing exemption in such circumstances.

• CENVAT onCapitalGoods: As perCenvatCredit Rules, only 50%Cenvat credit isallowed on Capital goods in the year of purchase and the balance 50% is allowed in subsequent years. This severely restricts the cash flows of a manufacturing unit where investment planning is a regular feature. Hence the rules may be amended to allow 100% credit on capital goods in the year of purchase.


• CENVATonOutwardTransportationbeyondtheplaceofremoval:Intoday’sbusinessworld, transportation cost typically constitutes more than half of the total logistics cost. Hence all business entities try to derive the most efficient use of its transportation facilities.AsperthedefinitiongivenintheCenvatCreditRules,‘inputservice’amongstother things also includes both inward transportation of input or capital goods as well as outward transportation of finished goods. The availment of Cenvat credit of service tax paid on outward transportation is however limited only up to the place of removal. In other words, the transportation involved between the place of removal and the ultimate destination do not qualify as an ‘input service’ and therefore remain outside the purview of the Cenvat scheme. One may of course contend that nothing prevents the consignee to claim credit as inward transportation even if such transportation may occur beyond the place of removal of the consignor. But this is always not possible since such transportation is rarely arranged by the consignee.

In actual practice, transportation beyond the place of removal is generally arranged by the consignor himself, who is unable to claim the credit of the service tax paid on such transportation due to the limiting scope of the definition of input service. Presently, this constraint is relevant for transportation of goods by road and would also be relevant to transportation of goods by rail, once it gets notified as a taxable service.

• CenvatCreditonRailwaySleepers/concrete,RailwayWagons–DefinitionofCapitalGoodsunderCenvatCreditRules,2004is,substantially,basedonspecificchapterIDsinstead of capital goods used in industries in general parlance. Under CTH 84, many of material handling equipments are included and credit has been allowed till date. In thesimilarline,Railwaywagons&Railwaytrackwhichareessentiallyrequiredtobringthe raw materials within factory premises to manufacture final product should also be covered for the purpose of availment of Cenvat Credit, therefore, it is suggested to made appropriate provision in Cenvat credit rules to allow Cenvat Credit.

• Cenvat Credit on Capital Goods eventually used for manufacturing of dutiablegoods – Industry generally set up factory for manufacturing of final dutiable product, intermediate product of which is either exempted or no excisable. Capital Goods used for manufacturing of such intermediate product are eligible for Cenvat Credit since final product is excisable, however, in the situation wherein final excisable product is not manufactured at the commencement of first production and intermediate product alone is sold in local market, Cenvat credit on Capital Goods as well as input services used for setting up of such factory is objected by department, therefore, it is suggested to makesuitableamendmentinCCR2004inordertoallowsuchcreditsincetheseCG/input services are finally used for manufacturing of excisable goods.


15. Cenvat credit on Capital Goods

(a) IntermsofRule4(2)oftheCenvatCreditRules,2004thecreditofcenvatinrespectof capital goods has to be distributed over two years. In the year in which the capital goods are received in the factory credit equivalent to 50% of Cenvat can be availed. The balance 50% can be availed only during the next financial year. As a result of this a lot of time and effort is expended in tracking each capital goods in terms of year of entry, amount of credit available in each year, etc. Apart from the cost involved in such tracking, this also leads to errors and, consequently, long-drawn disputes/litigation with the Department.

ItisrecommendedthattheCenvatCreditRules,2004beamendedappropriatelytoenablecredit of full Cenvat in respect of capital goods in the year of receipt in to the factory. This would be in line with the provisions on cenvat credit in respect of inputs.

(b) Setting up of certain projects manufacturing facility involves on-site assembly and installation of many types of plant and machinery that are significantly large in size. Consequently, a lot of plant and machinery are brought into the plant site in a ‘knocked-down’ or unassembled state and, thereafter, assembled at location. Also, many of the equipments are fabricated and installed directly at the site on procurement of basic materials likeHRPlates,Plates,MSPlates,MSChannels,MSAngles,etc.classifiedunder Chapters 72 and 73 of the Central Excise Tariff.

Central Excise Department routinely issues Show Cause Notices to assessees alleging that these items cannot be treated as capital goods as per the definition under 2(a)(A) of theCenvatCreditRules andhence, no cenvat credit canbe taken.Consequently, evenafter making significant investments on capital goods that are required for manufacture of excisable products, a large number of assesses are denied cenvat credit / allowed to take credit only after considerable delay – on settlement of avoidable litigation. This results in blockage of significant amount of working capital over and above extensive effort in settling needless litigation.

It is recommended that to resolve the aforesaid issue the definition of capital goods should be modified such that it covers all goods used for setting up of plants/projects including all inputs required for the manufacture of capital goods.

16. Storage of Capital goods outside the factory of the manufacturer

Having regard to the nature of the goods and shortage of space in the factory premises, manufacturersarepermittedunderRule8oftheCenvatCreditRules2004tostoreinputs,inrespect of which Cenvat credit has been taken, outside the factory premises after obtaining necessary permission from the jurisdictional excise authorities.


At times the manufacturers are also constrained to store capital goods outside their factory premises on account of shortage of space which could be caused due to reasons such as major infrastructural upgradation, modernisation, renovation, etc of the factory premises.

ItisrecommendedthattheCenvatCreditRules2004beamendedappropriatelypermittingthe manufacturers to store the capital goods outside the factory premises without reversal of Cenvat Credit in the same manner as is currently permitted for storage of inputs outside the factory premises.

17. CENvAT credit on capital goods removed after subsequent use

Rule4(2)(a)ofCenvatCreditRules2004providesthatCenvatcredit inrespectofcapitalgoods received in a factory at any point of time in a given financial year shall be taken only for an amount not exceeding 50% of the duty paid on such capital goods in the same financialyear.AsperRule4(2)(b)thebalanceofCenvatcreditmaybetakeninanyfinancialyear subsequent to the financial year in which the capital goods were received.

In the event capital goods are cleared as such (without putting to use) in the financial year in whichitwasreceived,thefirstprovisotoRule4(2)(a)providesthatCenvatcreditinrespectof Capital goods shall be allowed for the whole amount of duty paid on such capital goods in the same financial year and concurrently, duty equivalent to the Cenvat credit taken will have to be paid on clearance of capital goods.

For Capital Goods which are used in the factory and thereafter cleared in financial year subsequent to the financial year inwhich itwas received, the third proviso toRule 3(5)provides that the manufacturer or provider of output service shall pay duty equal to the Cenvat credit taken on the said capital goods reduced by a specified quantum for each quarter of a year or part thereof from the date of taking the Cenvat credit. Consequently, whilst a part of the Cenvat credit is to be reversed on removal of capital goods from the factory, proportionate Cenvat credit is available to the manufacturer or provider of output service in respect of the period for which the capital goods were used.

HowevertheRulesdonotcognizeforascenariowhereintheCapitalgoodsarereceivedinto the factory, put to use and thereafter removed during the same financial year. There is lack of clarity on the treatment of the 50% cenvat credit kept on hold at the time of receipt of the capital goods, proportionate cenvat credit (if any) that is available to the manufacturer or provider of output service and the amount of cenvat credit to be reversed /duty to be paid on capital goods.

ItisrecommendedthattheCENVATCreditRules2004beamendedappropriatelysuchthatidentical provisions are applicable to capital goods that are cleared from the factory after having been put to use, whether during the same financial year or any subsequent financial year.


CEnTRAL SALES TAX

1. Natural Gas, LNG and Naptha Should be included in the list of ‘declared goods’ under CST Act

The above 3 items are widely used in several industries and move across states. Currently State Governments charge varying VAT rates on Natural Gas, Naphtha and LNG ranging between 15% to 18%. Such high rate increases the cost input cost of several industries like, fertilsers, power, petrochemical and several downstream products. In order to bring down the cost of these inputs for manufacturing, natural gas and naptha may be declared as Goods of Special Importance in Inter State Trade or Commerce under Section 14 of the Central Sales Tax Act, 1956. This change will reduce the VAT impact on gas purchased in certain States where the rates are higher. Such a move would also benefit the Public Sector Oil Companies.

ASSOCHAm strongly request that Natural Gas, LNG and Naptha should be included in the list of declared goods under the CST Act

2. Issuance of Form F by Job-Workers

In terms of Section 6A(1) of the Central Sales Tax Act, 1956 if an assessee sends goods on inter-State stock transfer then he has to furnish a Form F to his jurisdictional assessing authority to establish that the goods were actually sent out on stock transfer and not in the course of an inter-State sale. The Form F has to be issued by the recipient of the goods, being any other place of business of the assessee / agent of the assessee / principal. In the event of non-submission of Form F the transaction is deemed to be an inter-State sale.

Due to the provisions of Section 6A(1) in cases of despatch of goods by way of inter-State stock transfer to the assessee’s job-worker, the Department does not permit issuance of Form F by the job-worker to the principal notwithstanding the fact that the principal is permitted to issue Form F to the job worker. Consequently, genuine cases of inter-State stock transfer from a principal to a job-worker situated in another State are assessed to tax as inter-State sales and taxed accordingly. This leads to avoidable disputes and litigation between the Department and the assessee.

It is recommended that the Central Sales Tax Act be amended such that job-workers receiving materials through inter-State stock transfer from their Principals are permitted to issue Form F to the Principals.


3. Remove constrains/ Restrictions from free trade in Agri-commodities:

Certain statutory provisions in the Central / State Sales Tax legislation which restrict the applicability of exemption from sales tax for sale/purchase in the course of Export need to be amended appropriately as these provisions hinder free trade in agri-commodities. Section-5 of the Central Sales Tax Act, 1956 covers, inter alia, some aspects of taxes/exemptions applicable to the trade conducted in the course of export.

The following 3 provisions adversely affect the free trade in the course of exports:

(a) It is mandatory that the purchases must take place after procuring the Export Order to qualify the transaction for exemption from Sales Tax.

In items like agri commodities, where supplies are seasonal and the demand is spread over the year, it is important that an exporter procures the exportable commodities in advance (during the season) even if the demand does not exist in the international market at that point; even if it does, prices may not be right. Exporters either sell in distress or lose the business opportunity to remain within the scope of this provision.

Sec 5(3) of CST Act to be amended to such that any sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of India is also deemed to be in course of such export not withstanding whether such sale or purchase took place against an existing Export Order

(b) The exemption is applicable to the penultimate sale prior to the actual export sale alone.

Traditionally, in India the existing commodity trade channels and the highly fragmented structure of Indian farms has fostered a chain of traders and agents between a farmer and the exporter. The aforesaid provisions of CST severely restrict trading liquidity because it is not always possible that an exporter directly procures from farmers. Thus, the only alternative is to pay taxes at all points until the penultimate leg, making the price uncompetitive in the process.

(c) The procedure to avail exemption from CST necessitates a one-to-one linkage of various purchases and sales.

This would mean complication in blending of goods of various qualities to produce the exportable product of a desired specification, when multiple purchases (made at different points of time) are used to deliver multiple sales (compounded by the first provision explained above). An exporter has to issue Form H under the CST Act in support of his claim of tax exemption.


It is recommended that Form H may be permitted to be issued and the exemption be availed by the buyers at all transaction points as long as the goods are eventually exported (evidenced by the Bills of Lading as required under the current regulations) irrespective of the timing of buying (meaning that an exporter can also buy goods before entering into a sales contract) without necessarily linking purchases and sales one-to-one (only the aggregate volumes may be considered at the time of assessment).

HHH


CuSToMS DuTy

1. Solar Power Projects: Request for restoration of exemption:

In order to promote Solar Power Projects in India, the Central Govt. had given concession/ exemption from levy of Customs Duty on import against different equipments required for initial set up for Power Projects. Accordingly, Notification No. 01/2011-Cus dated 06/01/2011 was issued to providing levy of Concessional Rate of Basic Customs Duty @5% andExemption for Whole of the Additional Duty of Customs u/s 3 i.e. CVD & SAD, on goods imported for use of initial set up of Solar Power Projects.

Later, the Department had withdrawn the Exemption from SAD duty of Customs, by issuing the Corrigendum No. F.No.354/209/2010-TRU Dated 26/05/2011. Withdrawal of SADexemption will make the Solar Power Projects set up, more costly as SAD duty paid is not available as set-off or refund to the Solar Power Projects.

It is requested that that the above said Corrigendum Letter be withdrawn with immediate effect and Exemption Notification 01/2011-Cus dated 06/01/2011 is restored so that basic purpose for issuing the said Exemption Notification to support the Initial Setting up of Power Projects is not defeated.

2. Import of LED Panels for manufacture of LED Tvs:-

LCD Panels (CTH 8529), when imported for manufacture of LCD TVs (CTH 8528), are allowed to import on payment of concessional rate of 5% Basic Customs Duty; in terms of Sr. No. 319A of Notif No. 21/2002-Cus dated 01/03/2002. There is no such concession is given on import of LED Panels (CTH 8529), when imported for manufacture the LED TVs (CTH 8528); while technically the LCD Panels and LED Panels used for manufacturing the TVs are same; except the source of light.

It is requested that Serial Number 319A of exemption Notification No. 21/2002-Cus dated 01/03/2002 is amended by including LED Panels also along with LCD Panels for levying concessional rate of Basic Customs Duty @ 5% on importing said Panels for the purpose of manufacturing the TVs.

3. Request from Steel Industry:

(a) Duty on Project Imports: India does not have adequate indigenous capabilities to produce machinery or technology for steel plants. Therefore almost entire steel plant is


being imported. Nearly 50% of cost of the steel project is on the plant and machinery. The minimum basic rate of customs on machinery being 5%, it means that overall project costs are automatically higher by 2.5%. This is one of the reasons why cost of setting up projects in India becomes high. Making the duty nil will not only reduce the project costs substantially but will also make Indian Steel globally competitive.

(b) Anomaly in Customs law and Excise Law in respect of chargeability of education cess on clean energy cess. Since, the Clean Energy Cess was introduced in the Finance Act, 2010 as duty of excise, it would also apply to imported coal by virtue of section 3 (1) of the Custom Tariff Act in form of additional duty of customs.

(c) The dispute is on account of levy of Education cess and Higher secondary education cess on the clean energy cess as additional duty of customs despite the fact that central government has specifically exempted all goods specified in the Tenth Schedule to the Finance Act, 2010 from the levy of Education cess and Higher secondary education cess vide its notification no. 28/2010-CE and 29/2010-CE (both ated 22.06.2010) respectively. Custom Houses are insisting for payment of education cess and secondary education cess on clean energy cess on imported coal, lignite and peat whereas such education cess and secondary education cess on clean energy cess is not payable on such goods when manufactured within India i.e. on excise part.

This anomaly should be removed by inserting section 94 of the Finance Act, 2004 in the notification no. 28/2010-CE and 29/2010-CE (both dated 22.06.2010) respectively.

4. Request from Aluminum Industry:

Custom Duty on following key inputs need to be reduced:

The Custom duty on raw materials and other key inputs are either same or much higher compared to the Custom duty on Aluminum products (Custom classification 76 series) which is presently at 5%. The details are as shown in the following table.

Sl. No.

material Tariff No.

Existing Duty Rate

Suggested Duty Rate

1 Calcined Alumina 2818.2010 5% 2.5%2 Coal Tar Pitch 2708.1010 10% 2.5%3 Calcined Petroleum Coke 2713.1200 5% 2.5%4 Aluminum Fluoride 2826.3000 7.5% 2.5%5 Caustic Soda 2815.1110}

2815.1200}7.5% 2.5%


Against the above duty structure on the inputs, the customs duty on the finished goods is 5 %. It may be observed this is in direct contrast to the principle of a progressive increase in the duties with raw materials and other inputs being in the lowest slab and intermediate and finished goods being in the secondary and final slabs respectively.In the present scenario domestic aluminum industry (accounting for less that 3-4% of global production) is at the risk of predatory pricing, through manipulations of overseas manufacturers.

It is requested that duty on raw materials required for production of aluminum is appropriately reduced as enumerated above to maintain a sustainable balance of rate of duty between inputs and finished products and avoid an Inverted duty structure.

5. valuation of Catalysts made from precious metals like Platinum for Customs duty

Refineries require certain critical catalystsmade frompreciousmetals i.e. Platinum.ThePlatinum contained in the catalyst is obtained under a lease. After the catalyst is used in the refinery and its useful life is over, the Platinum is returned through London Metal Exchange (physical export). The value of such catalysts is very high mainly due to the Platinum contained therein. Also, the supplier is paid only to the extent of the lease and not the full value of the catalyst (excluding the Platinum value).

However, at the time of import, the customs duty is assessed on the entire value of catalyst including platinum even though the transaction value is limited to the lease arrangement only. The additional value of the platinum on which customs duty is paid is often 400% to 450% of the lease charges. This seems unfair and needs to be rectified.

Request :

To issue suitable Notification to exempt the duty on the portion of value of the precious metal contained in the catalyst except to the extent of lease charges which is the amount actually paid by the importer to the supplier and hence the transaction value.

6. Customs Duty on Paper/Paperboards

The Indian Paper/Paperboard industry has made significant capital investments to ramp-up capacities for meeting domestic requirements. The Industry has strong backward linkages with the farming community, from whom wood, which is a raw material, is sourced. A large part of this wood is grown in backward marginal/sub-marginal land, which is potentially unfit for other use. In India an estimated 5 lakh farmers are engaged in growing plantations of


Eucalyptus/Subabul etc, over an estimated 10 lakh hectares. This has generated significant employment opportunities for the local community and benefits have been reaped from this source, which are higher than other commercial crops. This industry, being mainly based in backward areas, has transformed the socio economic conditions of the population residing there. The output of this industry which is predominantly used by the educational, printing and packaging sectors is aligned to the Government’s initiatives such as “Sarva Siksha Abhiyan”. It is therefore strategically important and also necessary to keep Paper/Paperboard industry, which also belongs to the Core Sector, outside the ambit of FTA’s (ASEAN etc) and recognise this Industry as “sensitive” deserving special treatment.

The economic slowdown in developed economies and export dependant economies has led to severe excess capacity in of Paper/Paperboard in paperboard manufacturing countries. Taking advantage of the low Customs Duty rate of 10%, these countries find India as an attractive outlet for diverting their excess inventory.

Increased imports from foreign countries is severely impacting the economic viability of many paper mills in India.

In order to provide a level playing field to the domestic industry the Customs duty for import of Paper and Paperboards should be increased and this category kept in the Negative List (i.e., no preferential treatment) in bi-lateral and multi-lateral trade treaties and agreements.

7. Customs Tariff - Chapters 51, 52, 54, 55, 58

Goods covered by the above stated chapters attract different specific duties at 8 digit HS code level. The difference in the product description under various sub –classifications cannot be determined or identified by physical inspection and requires submission of samples for tests by Textile Committee. This results in inordinate delays in clearance of goods.

It is recommended that the structure of specific duties applicable to the goods covered by the said chapters be rationalised. Further, clarifications/instructions may be issued to field formations to accept test reports of any accredited testing laboratory after matching the sample fabric affixed on the test report with the import consignment.

8. Customs Tariff - Chapters 51 to 62

Textile goods are required to be accompanied by a certificate from a laboratory accredited by the government of the exporting country confirming that the goods are free from Azo dyes and other harmful chemicals. If the goods are not accompanied by such certificate, they are


subjectedtomandatorytesting-asprescribedvidePublicNoticeNo.12(RE-2001)/1997-2002 - to ensure that the products imported are free from Azo dyes and other harmful chemicals. This process leads to delay in clearances and resultant additional costs.

Internationally,theInstituteoftheInternationalAssociationforResearchandTestingintheField of Textile Ecology accredits mills after carrying out rigorous controls to ensure that they do not use prohibited dyes/chemicals. Once accredited, the certification remains valid for a specific period and a specific group of products. It is an internationally accepted practice to accept the accreditations and not insist for consignment wise testing.

It is recommended that the international practice of accepting the accreditation certificate issuedbyInstituteoftheInternationalAssociationforResearchandTestingintheFieldofTextile Ecology be adopted in India also.

9. Suggestions from Tobacco and Cigarette Industry

(a) Reinstatementofcigaretteimportsinthe‘RestrictedList’fromthecurrentpositioningunder OGL.

Banning cigarettes from Personal Baggage Allowance and Duty Free Trade. If that is not possible, a level playing field be provided to the domestic cigarettes manufacturers by allowing them to place their products in Duty Free Shops located both in the “Arrival” and “Departure” areas of the International Airports. Additionally, sales to Duty Free Operators (for onward sale through Duty Free Shops) be granted “deemed exports” status.

(b) Provide duty exemption to cigarettes tested captively for quality purposes.

It must be appreciated that imports in bulk form provides the importer to undertake appropriate quality checks on the goods. Further, value is added within the country through usage of domestic packaging materials (with consequential generation of local employment) for repacking the goods for sale in retail. Imposition of an additional tax, in effect, discourages value addition within the country and creates a cost disadvantage for bulk importers.

The discrimination between goods imported in bulk and in pre-packed condition, when both are intended for retail sale, is without any logic or economic rationale.

It is, thus, recommended that in respect of all goods intended for retail sale, the exemption from additional duty of Customs should be extended irrespective of whether they are imported in pre-packaged form or in bulk.


10. Process Foods Industry:

Horticulture today accounts for about 28% of value added in the Agriculture sector and 52% of India’s agri exports but takes up barely 9% of arable land. The government has rightly identified the National Horticulture Mission as a key driver of growth and value addition. This sector is also characterised by high wastages – up to 35% in the case of certain fruits and vegetables. Large scale investments are required in cold chain infrastructure to minimise waste and improve farmer realisations.

Cold chain infrastructure is not confined to cold storages only, but extends to temperature handling across the value chain from farms to consumers. The cold chain thus includes Farmlevelpre-coolers,SmallcapacitychillcoldstorageRefrigeratedtrucks,Coldstorages,Foodprocessingplants,RefrigeratedDisplaycabinetsforretailshopsandDeepfreezers.

11. In terms of Notification No. 29/2010-Customs dated 27th February 2010, all pre-packaged goods intended for retail sale - in relation to which declaration of retail sale price on the package is required under the Standards of Weights and Measures Act or such similar law – are exempted from levy of additional duty of customs that is leviable under Section 3(5) of the Customs Tariff Act. The exemption from additional duty of Customs is not available in case the goods are imported in bulk and are re-packed in the country prior to retail sale. Consequently, in case stationery products like pencils and other writing instruments are imported in bulk, the same suffers additional duty @ 4% whilst identical goods imported in pre-packaged form for retail sale do not suffer this levy.In order to encourage rapid investment and attract foreign direct investment towards minimising horticultural wastage and enhancing shelf-life, it is recommended that customs duty rates on cold chain equipment and their parts be pegged at 5% or below. Similarly, excise duty rates on cold chain equipment and parts need to be lowered to 5% or below to expand domestic manufacture, which is presently in its infancy.

12. Amendment of List 12 and 13 of the Customs Notification:

List 12 & 13 of customs notification should be amended and the following items should be included:

In serial No. 1 – Land Seismic Survey Equipment and accessories, requisite vehicles including those for carrying the equipment, seismic offshore survey vessels, global positioning system and accessories, and other materials required for seismic work or all other types of surveys for onshore and offshore activities, software, hardware, sample bottles and associated equipment required for petroleum operations


In serial No.2 – All types of Drilling rigs, jackup rigs, submersible rigs, semi submersible rigs, drill ships, drilling barges, shot-hole drilling rigs, mobile rigs, workover rigs consisting of various equipment and other drilling equipment required for drilling operations, snubbing units,hydraulicworkoverunits,selfelevatingworkoverplatforms,RemoteOperatedVessel(ROV)“accommodationunitsandcontainersattachedwiththeRigs”

In serial No. 3 – Aircrafts, Helicopters including assemblies/parts.

In serial No. 4 – All types of Marine vessels to support petroleum operations including work boats, barges, crew boats, tugs, anchor handling vessels, lay barges and supply boats, Marine ship equipment including water Maker, DP system & Diving system.

In serial No.5 – the words “Requisite Vehicles” should be added before the words forspecialized services. Further the words “Equipment for riserless building, LWD / MWD tools” should be added after the words including wireline. This is required to bring clarity of the items covered under this item

In serial No. 6 – the word “Pipes” should be added before the word casing. Further the words “Thread Protectors, Drill Collars and Fittings” should be added after the word drive pipes. This would cover all types of pipes and fittings required for petroleum operations. Thread protectors on some occasions are to be imported separately if they are damaged in transit / storage.

In serial No.7 – All types of drilling bits, including nozzles, breakers and related tools should be added before “and related tools”

In serial No.8 – The word “Processing” should be added before “and transportation of oil or gas”.

In serial No.9 – should be recasted to state : Subsea / Flotting / Fixed Process, Production and well platforms and onshore facilities for storage / production / processing of oil, gas and water injection including items forming part of the platforms / onshore facilities and equipment / raw materials required like process equipment, turbines, pumps, generators, compressors, prime movers, water makers, filters and filtering equipment, all types of instrumentation items, control systems, electrical equipments / items , soil improvement, construction equipment, telemetry, telecommunication, tele-control security, access control, waste water & sewage treatment system, and other material required for petroleum operations. The said recasting is required to cover all types of offshore and onshore facilities and equipment/ material required for petroleum operations.

In serial No. 10 – the word “Jumpers” should be added before the words and trunk. The words “All types of” should be added before the words - coatings and wrappings. After


the word wrapping, the words should be added – “Pipeline Fittings, Flanges, Connection systems and Associated items, Paintings and Insulations”. The said change is required to cover all the material required for pipelines both offshore and onshore.

In serial No. 11 – the word “Operation” should be added before the words - of platforms.

In serial No. 13 –theword“Related”shouldbeaddedafterthewordsafety.Thismodificationis required to ensure that all types of fire and gas detection, fighting and suppression systems are covered. The word “and Medivac Equipment” should be added at the end.

In serial No. 15 – the words “and assemblies” should be added before the words including high pressure.

In serial No. 16 – the words “all types of” should be added before communication equipment. This is important to cover all communication equipments.

In serial No. 17 –thewordEPIRVshouldbereadas“EPIRB”.

In serial No. 19 – the words “all types of transponders including” should be added before thewordsX-bandradar.Thisisrequiredtoincludealltypesoftransponders.

In serial No. 21 – after the word panels, the words should be added – “Flow meters, sand detectors, DTS, MLS, artificial lift equipment including surface and sub-surface equipment”. This would help in covering all equipments based on latest technology.

In serial No. 23 – the words “all types of” should be added before data tapes. The word “cartridges / media” should be added before the words operational and maintenance. This is required to include new types of data storage, media using new technologies.

In serial No.24 – The word “Installation” should be added before “running, repairing”.

One new serial 25 should be added to state : “All types of material, equipments, instruments required for deep water projects and associated facilities like control system equipment and materials umbilical, hydraulic oils, connectors, clamps, sub-sea structures, assemblies, control modules, tempers, testing and calibration systems, simulators, intervention vessels, instrumented, safety systems.”

Serial 26 to state as: “All types of pre-fabricated structures like manifolds, PLEMS, PLET, decks,jackets,boatlandings,buildings,flare/ventboom,suseamodulesandRigMats.”

Amendment of List 13 of Customs Notification

In serial No. 1 – the words “and Aeromagnetic Survey” should be added before the words equipment and accessories. The word “Geotechnical” should be added before the words


and Geochemical. Further the word “CBM” should be added before the word activities. It is important to note that Aeromagnetic Survey is required in CBM for mapping the different formations having susceptibility to magnetism. Formation such as dolerite can be mapped using aeromagnetic surveys. Similarly, Geotechnical Surveys are also used for mapping of CBM.

In serial No. 2 – after the words drilling rigs, the words “Air Drilling with air package consisting of compressors and boosters” should be added. It is important to note that coal is susceptible to formation damaged during drilling operations; therefore, air drilling is used world wide to minimize formation damage during drilling.

In serial No. 3 – the words “and laboratory” should be added before the words equipment, directional drilling. The words “including all types of software” should be added before the words solids control, fishing. It is important to note that laboratory equipment for measuring gas content and carrying out various analyses on coal samples are required. Further, software’s are required for interpretations of well tests, reservoir simulation, carrying out geological and other modeling.

In serial No. 4 – the words “core drilling roads, core barrels” should be added before the words production tubing. It needs to be appreciated that core drilling roads and barrels are required for taking core samples during corehole drilling operations.

In serial No. 5 – the words “DTH hammers” should be incorporated before the words including nozzles. DTH hammers are required for carrying out air drilling operations.

In serial No. 6 – the term “POL” should be added before the words used in coal bed Methane. It is important to note that lubricants, oil and grease are required in the equipment used in CBM operations.

In serial No. 7 – the words turbines, pump generators should read as: “turbines, all types of pump generators, all types of electrical, electronic and instrumentation equipment.” These equipments are used in gas and water measurement and handling in CBM operation.

Serial No. 8 should read as: “Line pipes for flow line and trunk pipelines including weight coating, wrapping and all types of fittings.” It is important to note that fittings are required for pipe joiting, bends, hot taping etc.

Serial No. 9 should read as: “Tanks and vessels used for coal bed Methane operations, water, mud, chemicals and related materials.

In Serial No 13 All types off Communication equipment required for operations including synthesized VHF Aero and VHF multi channel sets, Non-directional radio beacons, intrinsically


safewalkie-talkies,repeatersystems,directionalfinders,EPIRV,electronicindividualsecuritydevices including electronic access control system.

13. Other Recommendations:

Exim policy

DEPB Scheme 5% of fob value with a cap of rs 9 per kg (scheme valid till 30th sep’11)

To be extended till gst is implemented

Due to various indirect & direct tax implication including cus-tom duty during procurement of inputs i.E. Iron oxides & gas for manufacturing of sponge iron, the incentive through scheme like depb is essential to partial recovery of such taxes & remain competitive in exports. In fact, our suggestion is to remove the cap also.

Advance Licence Scheme

Allow fuel as input for the manufac-turer having cap-tive power plant.

Allow electrical energy or fuel (as per option selected by exporter) as input under the scheme. The entitlement should be as per general norms for fuel.

This will lead to reduction in the cost of power for exporter and will make the export product competitive.

Customs Act 1962

Section 7 of Cus-toms Act 1962

TodeclareRevdandaPort for unloading of imported goods and loading of export goods or any class of such goods

The problems faced by us in export of Iron Ore Fines will be solved(nomenaclature) and we can import any goods/capital items for setting up of new plant/steel plant/power plant

Customs Act 1962

Section 18 Amendment required

To amend Section 18(1) to include following provision-The proper officer shall finalise the assessment within three months from the date of production of all the rel-evant documents by the importer, after providing proper opportunity of personal hearing to the importer. In case the proper officer failes to finalise the assessment,

At present provisional assessments are finalised after a gap of few years due to which the importer has to bear the brunt of renewing the Bank Guarantee which involves huge cost. The proposed amendment will be in line with the provisions of Section 18(3) which reads as “The importer or exporter shall be liable to pay interest, on any amount payable to the Central Government, consequent to


it is obligatory on the part of the Proper officer to discharge the Se-curity/Bank Guarantee and Bond and return the same to the importer forthwith. The proper officer shall not insist on bond/security deposit /Bank Gaurantee from importer/exporter who is a Custodian registered under Section 45/Han-dling of Cargo in Cus-tomsAreaRegulation2009.

the final assessment order under sub section(2), at the rate fixed by the Central Government under Section 28AB from the first day of the month in which the duty is provisionally assessed till the date of payment thereof”. Section 18(3) is totally biased against the importer, as he is forced to pay the interest on differential duty, if any, arrived at on finalisation of assessment which is done at the whims and fancies of the proper officer. Custodian has already executed sufficient bond and Bank Guarantee and hence additional bond or and Bank Guarantee is superfluous.

Customs Act 1962

Section 18 Amendment required

To amend Section 18(1) to include following provision-The proper officer shall ensure that the test results of the samples drawn by the Customs officers are obtained within one month from the date of drawal of such samples, failing which the proper officer shall rely on the test result produced by the importer. Further the proper officer is not empowered to question the genuineness of the test result produced by the importer under such circumstances.

At present the test rtesults of the samples sent to depart-mental laboratory are received by the proper officer after a gap of nearly six months. The delay in testing the samples may yeild different result.


Customs (Provision-al Duty Assessment) Regulations 1963

Regulation5 Amendment required

Amendement to in-cludeRegulation5asunder: Discharge of bond,surety/Security/Bank Guarantee : The bond,surety/Secu-rity/Bank Guarantee automatically gets discharged if the proper officer fails to finalise the assessment as provided under Section 18(1) of the Cusotms Act 1962.

For the delay in finalisation of assessment due to lethergic attitude of the proper officer, the importer has to unduly bear the cost of renewing the Bank Guarantee or continue with the Security deposit.

Handling of Cargo in Customs Area Reula-tions, 2009

Regulation2 Amendment re-quiredinRegula-tion 2-Definitions

“Cost recovery charges” means total of salary of the total number of staff assigned to a custodian/ICD etc for a specific financial year

At present Custodian regis-tered under Section 45 of the Csutoms act 1962 read with the Handling of Cargo in Customs AreasRegualtions2009,hastopay 1.85 times of the salary of the staff irrespective of whether they are assigned to Custodian or not. Cost recovery should not be a means to make profit

Customs valuation (Determination of value of imported goods)Rules 2007

Rule10(2)(b) Amendment required

A proviso to be inserted afterRule10(2)(iii)Ste-vedoring charges shall not be included in the assessable value where 1% FOB value as men-tioned in the proviso(ii) is already included in the assessable value.

This step will reduce litigation, since departmental officers tend to include 1% FOB value as landing charges which is over and above stevedoring charges. This action is con-trary to the decision of Hon’ble Supreme Court in the case of Coromandel Fertilisers Ltd V/S Collector of Customs reported in 2000(115)ELT 7(SC)and also against the letter and spirit of Board Circular No 80/2002-Cus dated 29-11-2002

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