Whether Rent-a-cab service used for bringing employees to work in the factory for manufacture goods is eligible Input Service for the purpose of Cenva...
Tariff values for edible oils, brass scrap and poppy seeds notified as customs valuation benchmarks for imports. CBEC notification dated December 31, 2008 fixes per-metric-tonne tariff values for specified edible oils (noting most edible-oil values unchanged), brass scrap (all grades) and poppy seeds, to be used as benchmark values for customs valuation and import duty assessment for the listed tariff items.
Export refund period extended and refund scope broadened to include mandated testing, C&F, and commission agent services. Extension of refund claim period to six months from the quarter-end and an expanded refund scope: testing and analysis services mandated by domestic law may obtain refunds without buyer agreements; clearing and forwarding agent services related to exports are covered; refunds apply to goods exported under drawback; and the benefit for services by commission agents located outside India has been increased. Changes implemented via notifications and a circular amending Notification No. 41/2007-ST.
Indirect tax revenue collection shows mixed monthly performance with notable year to date growth in service tax. Provisional collections show month wise and year to date movements in indirect tax receipts: November 2008 Customs and Central Excise figures produced a month on month decline in combined receipts but a positive cumulative growth, with Central Excise data excluding cess not administered by the Department of Revenue. Service Tax provisional collections for October 2008 recorded both a significant monthly increase and strong year to date growth relative to the prior year.
Tariff values for edible oils, brass scrap and poppy seeds notified; most edible oils remain unchanged under customs valuation notice. Notification No.131/2008-Customs (N.T.) notifies tariff values in US dollars per metric tonne for specified imports-enumerating unit values for various edible oils, brass scrap (all grades) and poppy seeds-and states that the listed edible oil values are unchanged, providing the administrative pricing schedule for customs valuation and duty assessment.
Service tax refund procedures expedited: streamlined claims, wider exporter eligibility, and compliance checks to speed refunds. CBEC has directed field officers to pay validated service tax refund claims for services used in export within 30 days. Exporters not registered with central excise may file a refund claim with the excise authority having jurisdiction over their factory, which will issue a service tax code to facilitate refund processing. Independent random checks are required for compliance verification and significant refunds may be subject to post-refund audit.
Input service eligibility: employee rent a cab for factory transport qualifies as supportive service for Cenvat credit. The inclusive definition of Input Service embraces services used "in relation to" manufacture and a wide range of business activities that promote efficiency; employee transportation by rent a cab, as an indirect support to production and a business-promoting facility, qualifies as an input service eligible for Cenvat Credit.
Cenvat credit on CHA services: services up to the place of removal qualify as input service credit. Where sales are on FOB/CIF basis, the place of removal is the load port, and the definition of input service includes services rendered for outward transportation up to the place of removal and services used for clearance of final products; accordingly CHA services facilitating clearance to the load port fall within input services and are eligible for Cenvat credit, with reliance placed on an administrative circular interpreting input service scope.
Uniform luxury tax proposed to harmonise hotel levies and reduce tour package taxation, improving tourism competitiveness. The government is weighing fiscal measures to boost tourism: abolish the service tax on tour packages, seek a uniform luxury tax across states, reduce development charges for expanding hotel capacity, and shift certain taxes to apply on actual negotiated tariffs rather than published rates. These measures aim to lower the layered tax burden-service tax, luxury tax and fringe benefit tax-embedded in room and package prices, restore competitiveness after demand shocks, and will require Centre-state consultation because luxury tax is a state subject.
Fiscal stimulus expands public expenditure and tax relief to sustain credit flow and support exports and MSMEs. The Government announced monetary measures to ensure bank liquidity and credit supply via reduced reserve requirements, lower policy rates, SLR flexibility and liberalised external borrowings, together with fiscal stimulus through increased plan expenditure authorisation, a temporary across the board 4% cut in ad valorem Cenvat for most products, targeted export supports including interest subvention and enhanced refunds and guarantees, housing refinance facilities and bank packages for home loans, expanded MSME refinance and credit guarantee provisions, and IIFCL authorisation to raise tax free bonds for infrastructure refinancing.
Tariff reductions and export tax adjustments expand duty cuts and refund eligibility for exporters and power inputs. Revision reduces primary ad valorem excise rates and lowers composite/ad hoc specific excise components for specified goods; exempts imported naphtha for power generation from basic customs duty temporarily and withdraws or reduces export duties on iron ore; expands service tax refund to include clearing and forwarding services, raises the threshold for foreign commission agent service refunds, and permits simultaneous drawback and service tax refund claims. All amendments are effected by notifications and are effective immediately.
Manufacture exclusion: activities amounting to manufacture are outside service tax, non-manufacture processes remain taxable. Activities on job work producing alcoholic beverages are excluded from Business Auxiliary Service tax if they amount to manufacture as defined in central excise law; processes subject to state excise are also excluded when they meet the manufacture test. Processes not amounting to manufacture under section 2(f) remain taxable under service tax. The term manufacture is imported from the Central Excise Act for determining exclusion, without importing the wider excise duty regime.
Foreign direct investment approvals expand sectoral inbound equity, permitting conversions to holding companies, WOS formation and downstream investments. Foreign direct investment approvals authorise inbound equity infusions, establishment of wholly owned subsidiaries, issuance of equity and compulsorily convertible instruments, share transfers and swaps, and conversion of operating companies into operating cum holding companies to enable downstream investments across multiple sectors; several proposals were deferred, a few rejected, and two withdrawn.
Import of sensitive items: values up but share of total imports down, driven by refined edible oil growth. Total imports of sensitive items rose year-on-year for the April-September period, yet their share of gross imports declined; commodity-level movements were mixed, with falls in milk products and food grains and increases in edible oil, automobiles, fruits and vegetables, cotton and silk, SSI products, rubber, spices, alcoholic beverages, marble and granite, and tea and coffee. Edible oil imports saw a fall in crude volumes and a marked rise in refined imports, notably refined bleached deodorised palmolein, and country-level import flows showed increases from several Asian, European and African partners while imports from some South American and North American origins decreased.
Customs duty revision: withdrawal of import exemptions leading to imposition of tariffs on iron, steel and crude soybean imports. Revision removes full exemptions and imposes basic customs duties: specified iron and steel items now attract a basic customs duty of 5% ad valorem, and crude soyabean oil now attracts a basic customs duty of 20% ad valorem; refined soyabean oil duty remains unchanged. The changes aim to protect domestic producers in light of falling international commodity prices and have been notified by the government with an effective date set in the notification.
Indirect tax collections show mixed results: customs and excise contrast with rising service tax year on year growth. Provisional indirect tax revenue collections report Customs and Central Excise receipts for October 2008 with month and year to date comparisons showing mixed month and cumulative performance and specified percentage growth rates; Service Tax collections for September 2008 are reported separately and show positive month and cumulative growth. The excise figures are noted as exclusive of cess not administered by the Department of Revenue.
Hazardous waste import rules: imports allowed only for recycling and reuse subject to regulatory consent and permits. Import and export of hazardous wastes is permitted only for reuse and recycling under the Hazardous Wastes (Management and Handling) Rules, 1989 as amended in 2003; trans boundary movement requires consent of competent authorities and importers/exporters must obtain permissions from Pollution Control Boards/Committees and the Ministry. Certain imports are restricted while others (copper, zinc and non halogenated plastic scrap) are allowed for secondary manufacture; waste paper imports are subject to limits, no organic contamination and customs verification to ensure permissible contaminants are recycled environmentally soundly.
Export duty changes alter export and customs treatment for iron ores, steel products and aviation fuel pricing. Modifications to export and customs duties effective 31.10.2008: export duty withdrawn on specified iron and steel products while scrap retains its duty; ad valorem export duty on iron ore fines replaced by a specific export duty of Rs.200 per metric tonne and duty on iron ore lumps remains unchanged; basic customs duty on Aviation Turbine Fuel abolished; full exemption for ferro molybdenum and ferro vanadium withdrawn and these items will attract basic customs duty at the newly stated rate.
Place of removal determines cenvat credit eligibility for GTA services in FOB/CIF export movements to the load port. Whether cenvat credit for service tax on GTA services used to move goods from factory to port turns on the place of removal under the Cenvat Credit Rules, 2004; the tribunal held that for FOB/CIF exports the place of removal is the load port, bringing GTA services up to that point within credit availability.
Duty free tariff preference: preferential market access granted to eligible least developed countries subject to origin documentation. The Duty Free Tariff Preference Scheme grants duty free access on the majority of India's tariff lines to eligible Least Developed Countries, covering tariff lines representing the bulk of LDC exports and including specified commodities and manufactures. Eligibility requires each beneficiary LDC to submit a Letter of Intent and to furnish a Certificate of Origin with consignments; implementation proceeds via Customs notifications, with several LDCs having submitted intent and certain notifications already issued.
Export diversification: government strategy broadens market access through focus-country programmes and trade agreements. India's trade policy advances export diversification via a focus-product and focus-country approach promoting Brand India, supported by region-specific programmes for Latin America, Africa and the CIS, business-to-business promotion, international exhibitions, economic diplomacy, and trade instruments such as bilateral forums, joint commissions, Comprehensive Economic Cooperation Agreements, and regional and preferential trade arrangements to expand market access and reduce reliance on dollar-dominated markets.
The Government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem.
The first priority was to re-assure the people of the stability of the financial system in general and of the safety of bank deposits in particular. To this end, steps were taken to infuse liquidity into the banking system and also to address problems being faced by various non-bank financing companies. These steps have ensured that the financial system is functioning effectively without suffering the kind of loss of confidence experienced in the industrialised world.
Having assured stability of the system, the Government has focussed its attention on countering the impact of the global recession on India's economic growth. On the monetary side, the RBI has sought to pump sufficient liquidity into the banking system to enable bank credit to meet the expanded requirements of the economy keeping in mind the contraction in credit from non-bank sources. Banks have been provided adequate liquidity through a series of reductions in the CRR and additional flexibility in meeting the SLR requirement. Interest rate reductions have also been signalled by reductions in the repo and reverse repo rates, the most recent of which was announced on Saturday when both the repo rate and the reverse repo rate were cut by 100 basis points. Access to external commercial borrowings has also been liberalised so that borrowers capable of accessing funds from abroad are allowed to do so. The banks are being encouraged to counter what might otherwise become self-fulfilling negative expectations by enhanced lending to support economic activity.
These measures in the area of money and credit are being supplemented by fiscal measures designed to stimulate the economy. In recognition of the need for a fiscal stimulus, the government had consciously allowed the fiscal deficit to expand beyond the originally targeted level because of the loan waivers, issue of oil and fertilizer bonds and higher levels of food subsidy. In addition, the following steps are being taken:
1. Plan Expenditure:
In order to provide a contra-cyclical stimulus via plan expenditure, the Government has decided to seek authorisation for additional plan expenditure of upto Rs 20,000 crore in the current year. In addition, steps are being taken to ensure full utilisation of funds already provided, so that the pace of expenditure is maintained. The total spending programme in the balance four months of the current fiscal year, taking plan and non-plan expenditure together is expected to be Rs.300,000 crore.
The economy will continue to need stimulus in 2009-2010 also and this can be achieved by ensuring a substantial increase in plan expenditure as part of the budget for next year.
2. Reduction in Cenvat:
As an immediate measure to encourage additional spending, an across-the-board cut of 4% in the ad valorem Cenvat rate will be effected for the balance part of the current financial year on all products other than petroleum and those where the current rate is less than 4%.
3. Measures to Support Exports
i) Pre and post-shipment export credit for labour intensive exports, i.e., textiles (including handlooms, carpets and handicrafts), leather, gems & jewellery, marine products and SME sector is being made more attractive by providing an interest subvention of 2 percent upto 31/3/2009 subject to minimum rate of interest of 7 percent per annum
ii) Additional funds of Rs.1100 crore will be provided to ensure full refund of Terminal Excise duty/CST.
iii) An additional allocation for export incentive schemes of Rs.350 crore will be made.
iv) Government back-up guarantee will be made available to ECGC to the extent of Rs.350 crore to enable it to provide guarantees for exports to difficult markets/products.
v) Exporters will be allowed refund of service tax on foreign agent commissions of upto 10 percent of FOB value of exports. They will also be allowed refund of service tax on output services while availing of benefits under Duty Drawback Scheme.
4. Housing
Housing is a potentially very important source of employment and demand for critical sectors and there is a large unmet need for housing in the country, especially for middle and low income groups. The Reserve Bank has announced that it will shortly put in place a refinance facility of Rs.4000 crore for the National Housing Bank. In addition, one of the areas where plan expenditure can be increased relatively easily is the Indira Awas Yojana. As a further measure of support for this sector public sector banks will shortly announce a package for borrowers of home loans in two categories: (1) upto Rs.5 lakhs and (2) Rs 5 lakh-Rs 20 lakh. This sector will be kept under a close watch and additional measures would be taken as necessary to promote an accelerated growth trajectory.
5. MSME Sector
The Government attaches the highest priority to supporting the medium, small and micro enterprises (MSMEs) sector which is critical for employment generation. To facilitate the flow of credit to MSMEs, RBI has announced a refinance facility of Rs.7000 crore for SIDBI which will be available to support incremental lending, either directly to MSMEs or indirectly via banks, NBFCs and SFCs. In addition, the following steps are being taken.
(a) To boost collateral free lending, the current guarantee cover under Credit Guarantee Scheme for Micro and Small enterprises on loans will be extended from Rs.50 lakh to Rs.1 crore with guarantee cover of 50 percent.
(b) The lock in period for loans covered under the existing credit guarantee scheme will be reduced from 24 to 18 months, to encourage banks to cover more loans under the guarantee scheme.
(c) Government will issue an advisory to Central Public Sector Enterprises and request State Public Sector Enterprises to ensure prompt payment of bills of MSMEs. Easing of credit conditions generally should help PSUs to make such payments on schedule.
6. Textiles
(a) An additional allocation of Rs.1400 crore will be made to clear the entire backlog in TUF Scheme.
(b) All items of handicrafts will be included under 'Vishesh Krishi & Gram Udyog Yojana'.
7. Infrastructure Financing
A large number of infrastructure projects are now being cleared for implementation in the Public Private Partnership mode. These projects may experience difficulty in reaching financial closure given the current uncertainties in the financial world. In order to support financing of such projects, Government has decided to authorise the India Infrastructure Finance Company Limited (IIFCL) to raise Rs.10,000 crore through tax-free bonds by 31/3/2009. These funds will be used by IIFCL to refinance bank lending of longer maturity to eligible infrastructure projects, particularly in highways and port sectors. In this way it is expected that IIFCL resources used for refinance can leverage bank financing of double the amount. Depending on need, IIFCL will be permitted to raise further resources by issue of such bonds. In particular, these initiatives will support a PPP programme of Rs.100,000 crore in the highways sector.
8. Others
(a) Government departments will be allowed to take up replacement of government vehicles within the allowed budget, in relaxation of extant economy instructions.
(b) Import Duty on Naphtha for use in the power sector will be eliminated.
(c) Export duty on iron ore fines will be eliminated and on lumps will be reduced to 5%.
The Government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity.
Fiscal stimulus expands public expenditure and tax relief to sustain credit flow and support exports and MSMEs.
The Government announced monetary measures to ensure bank liquidity and credit supply via reduced reserve requirements, lower policy rates, SLR flexibility and liberalised external borrowings, together with fiscal stimulus through increased plan expenditure authorisation, a temporary across the board 4% cut in ad valorem Cenvat for most products, targeted export supports including interest subvention and enhanced refunds and guarantees, housing refinance facilities and bank packages for home loans, expanded MSME refinance and credit guarantee provisions, and IIFCL authorisation to raise tax free bonds for infrastructure refinancing.
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