Indirect Tax: Hits and misses of Budget 2015

Budget 2015 has laid out a message of implementation by bringing in a slew of reforms to kickstart India's economic growth and move towards a non-adversarial tax system. Given the same, proposals in Budget 2015 may best be described as ‘pro-growth’. Some of the noteworthy measures from an Indirect tax perspective are listed below.

Hits of Budget 2015

· Goods and Service tax (‘GST’) is expected to play a transformative role in the way the Indian economy functions. GST will add buoyancy to the economy by reducing the cascading effect on the cost of goods and services. The budget has re-affirmed the Government’s intent in moving towards implementing a GST regime in India from April 1, 2016.

· In Budget 2014, the scheme of Advance Ruling was extended to Resident Private Limited Companies. The budget further extends this benefit to resident firms (i.e. partnership firms, sole proprietors and one person company). This would go a long way in reducing unnecessary litigation for businesses.

· Although the effective rate of customs duty has been increased from 28.85% to 29.44%, proposals have been made for rationalization of the inverted duty structure in line with the agreement of the Government with the World Trade Organisation. For the Information Technology industry, the budget has brought in goods news with the abolition of Special Additional Duty in lieu of VAT on all goods (except populated printed circuit boards) for manufacture of ITA bound items.

· Penalty provisions have been rationalized across the Customs, Excise and Service tax; thereby, reducing penalties on bonafide errors and making them more stringent in cases of tax evasion. The same may help in reducing litigation.

· Cenvat credit of service tax paid under a partial reverse charge may now be taken on payment of service tax. This would reduce the time lag in availment of Cenvat credit as credit availment need not be delayed till payment of invoice value.

· The increase in the time limit for availing Cenvat credit from 6 months to 1 year is a welcome step. This would ensure there is no credit leakage on account of delay in availing credit.

Misses of the Budget 2015
Although the Finance Minister managed to please the industry in certain sector, there were certain misses as well, such as:

· The Union Budget 2014 (w.e.f October 1, 2014) has substantially increased the interest rates for delay in payment of service tax (for a delay for a period beyond 6 months and upto 1 year) to 24% and to 30% (for a period beyond 1 year). Much was expected that Finance Minister in present Budget would consider lowering such penal interest rates so as to reduce the cost burden on an assessee. However, no announcements have been made in this regard by the Finance Minister.

· Double taxation of certain transactions like taxation of intellectual property rights, supply of software, works contracts, etc. have been plaguing the industry for long. The Budget has failed to provide any clarity in this regard.
· Further, it was also expected to clarify the position regarding levy of service tax on amount recovered by employer from employee during the course of employment.

· The industry was widely expecting that given the time consuming process for obtaining refunds, specific guidelines would be issued by the Government for procuring of refund claim within specific time frame. However, no guidelines have been issued in this regard in the budget.

· Last but not the least, the media industry was hoping for a slew of reforms and the same may be a matter of discussion at the macro level within the corridors of power. However, not much was done. The industry is now hoping for measures at a micro-level for the common man to cherish with family.

Broadly the regulatory measures along-with issues of inverted duty structure, time limit of availing credit etc. are steps in the right direction. A favorable amendment in form of reduction in penalties to encourage compliance and early dispute resolution are measures and signals to facilitate ease of doing business in India.

(About the author: This article has been contributed by Nitish Sharma, Executive Director and Tanushree Roy, Manager, Nangia & Co.)