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V. S. Datey

1. Budget 2009 was presented before Parliament on 6-7-2009. The major changes in indirect taxes are summarised below:

2.1-No change in existing rate of service tax - Existing rate of service tax of 10 per cent continues unchanged.

2.2 -New services and expansion of some services - Four new services are proposed to be taxed. Coverage of some existing services is proposed to be altered/enhanced. The levy on new services and expanded services will be effective after Finance (No. 2) Act, 2009 receives assent of President and date is notified.

2.2-1- New Services

a.Transport of goods through rail.

b.Transport of coastal goods and goods transported through inland water.

c.Legal services of consultancy, advice or technical assistance (but not service of appearance before any court of law or any statutory authority). Service will be taxable only when provided by business entity like firms, associates, enterprises, companies, etc., but not individual.

d.Cosmetic and plastic surgery undertaken to preserve or enhance physical appearance or beauty.

2.2-2- Coverage Of Existing Services

a.Job work under Business Auxiliary Service (BAS) is exempt if there is manufacture'. Now, this exemption is available only if excisable goods' are manufactured. Thus, if alcoholic liquor is manufactured on job work basis, the exemption will not be available.

b.Sub-brokers have been exempted from tax. They will also not be liable under Business Auxiliary Service as commission agent.

c.The word acquiring' IT software is being changed with retrospective effect from 16-5-2008 to providing'

2.3- Service tax on transfer of right to use IT software - Packaged, i.e., branded (canned) software is excisable goods' under Heading 8523 80 20 [earlier 8524 91 11, 8524 91 12 and 8524 91 13]. The rate of excise duty is 12% w.e.f.
1-3-2008. Information Technology Software falls under Heading 8524 40 11 of Customs Tariff. Duty is free'. Thus, on import of software (branded or tailor-made), there is no customs duty. However, excise duty of 12% is payable on branded (packaged or canned) software. Hence, CVD was payable if packaged or canned software is imported.

The issue was whether both service tax and CVD/excise duty are payable on transfer of right to use software. It is now provided that service tax is payable and not CVD or excise duty [Notification Nos. 22/2009-CE and 80/2009-Cus dated 7-7-2009].

2.4 -Works contract composition scheme - So far, in case of works contract, if tax was paid under composition scheme at the rate of 4.12%, the value of material supplied free by customer was not required to be included. Now, this value will have to be included while calculating gross amount of works contract'. Further, if contract is split and some amount is shown as sale', that value will also be includible for purpose of calculating gross amount of works contract'.

2.5- Exemptions

a.Private bus operators providing point-to- point transportation of passengers having contract carriage permit' have been exempted from service tax.

b.Inter-bank transactions of sale and purchase of foreign currency when undertaken by scheduled banks has been exempted.

2.6- Services provided to installations, structures and vessels in continental shelf of India and the EEZ - Services provided to installations, structures and vessels in the continental shelf of India and the EEZ by person outside India will be Import of Service' and the person receiving the service will be liable to pay service tax under reverse charge method.

2.7 - Modifications in refund scheme of services utilised by exporters Scheme of refund of service tax on services utilised for exports has been modified. In case of GTA service and services of foreign commission agent (where service receiver is liable to pay service tax), the service tax is exempt [Notification No. 18/2009-ST, dated 7-7-2009].

In case of other services, the procedure has been simplified and (hopefully) refund will be obtained within one month on basis of self-certification or certification of CA [Notification No. 17/2009-ST, dated 7-7-2009].

2.8- Cenvat credit when exempt as well as taxable services provided - If both taxable and exempt services are provided, the assessee was required to pay 8% amount' under rule 6(3)(i) of the Cenvat Credit Rules w.e.f. 1-4-2008. Now, the amount' payable is 6% of value of exempted services w.e.f. 7-7-2009.

2.9- Duty rate - The general rate of excise duty continues to be 8% (Rate of service tax continues to be 10%). In case of many items, the duty rate which was 4% has been increased to 8%, except a few items.

In case of textile sector, the provision as applicable to manmade and natural textiles was disturbed when excise duty was reduced from 14% to 10% w.e.f. 7-12-2008 (and later to 8%) Now, duty regime as prevailing prior to 7-12-2008 has been restored.

3.0-Exemptions from duty

a.Branded jewellery has been fully exempted from excise duty (The duty rate was 2% till 6-7-2009).

b.Goods falling under Chapter 68 manufactured at the site of construction for use in construction work at the site have been exempted [Sl. No. 10 of Notification No. 5/2006-CE, dated 1-3-2006 amended w.e.f.

7-7-2009] (They had become liable to duty in view of amendment to definition of excisable goods' in section 2(d) of Central Excise Act amended w.e.f. 10-5-2008)

a.Printed laminated rolls manufactured with brand name of another person would be eligible for SSI exemption.

b.EVA compound manufactured on job work basis for further manufacture of footwear has been exempted.

3.1- Service taxon transfer of right to use IT Software and no excise duty - See para 2.3 above

3.2- Cenvat credit when exempt as well as taxable service provided and exempted as well as taxable goods - See Para 2.8

Similarly, if both dutiable and exempt goods are manufactured, the assessee was required to pay 10% amount' under rule 6(3)(i) of Cenvat Credit Rules w.e.f. 1-4-2008. Now, the amount' payable is 5% of value of exempted goods w.e.f. 7-7-2009.

3.3- Input does not include steel, cement etc. used for construction of shed, building or structure - Explanation 2 of rule 2(k) of Cenvat Credit Rules has been amended w.e.f. 7-7-2009 to clarify that Input' shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods.