OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE

OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD-I,

CENTRAL EXCISE BHAVAN, 7^TH FLOOR, AMBAWADI, AHMEDABAD-380 015.

Web: www.cenexahmedabad.nic.in Email : cexahmed@excise.nic.in

(Tel: 079-26300024, Fax: 079-26306152, C. Room: 079-26300183)

Sub: Introduction of Finance Bill, 2010: Major changes in Central Excise, Service Tax and Customs duties: Regarding.

It is notified for information of all concerned that the Finance Minister has introduced the Finance Bill, 2010 in Lok Sabha on 26^th February, 2010. Changes in Central Excise and Customs duties have been proposed through the Finance Bill, 2010 (Clauses 57 to Clause 74, Clauses 82 to 86) and through Notification Nos. 15/2010-Customs to 31/2010-Customs, 18/2010-Customs (NT), 3/2010-CE to 18/2010-CE, 5/2010-CE (NT) to 11/2010-CE (NT) and Notification Nos. 1/2010-M & TP & 2/2010-M & TP , all dated 27.02.2010. Changes in rates of duty (unless otherwise stated) take effect from the midnight of 26^th February / 27^th February of 2010. The legislative changes, except through Clauses 60, 62, 74, 85 and 86 declared under the Provisional Collection of Taxes Act, 1931, would come into effect only upon the enactment of the Finance Bill, 2010.

2) Changes in Service Tax made through Clause 75 and 76 of the said Bill covers the legislative changes relating to Chapter V of the Finance Act, 1994 (i.e. Service Tax). While some fresh exemptions from Service Tax have been granted, some existing exemptions have either been withdrawn or modified. All these changes have been notified under Notification Nos. 2/2010-ST to 17/2010-ST, all dated 27^th February, 2010. While most of the legislative changes in the Finance Act, 1994 would come into force from a date to be notified after the enactment of the Finance Bill, 2010, the Notifications (except Notification Nos. 7/2010-ST, 8/2010-ST and 9/2010-ST which would come into effect from 01.04.2010) would become effective from 27^th February, 2010.

3) The salient features of changes in respect of Central Excise duties, Customs duties and Service Tax are indicated in the Annexure.

4) Central Excise Notifications No. 3/2010-CE to 18/2010-CE, 5/2010-CE(NT) to 11/2010-CE(NT) and 1/2010 – M& TP to 2/2010 – M& TP, all dated 27^th February, 2010 , Customs Notifications No. 15/2010-Customs to 31/2010-Customs and 18/2010-Customs (NT) , all dated 27^th February,2010 and Service Tax Notifications No. 2/2010-ST to 17/2010-ST, all dated 27^th February, 2010, issued in this regard may kindly be referred to for information and guidance. It is clarified that this Trade Notice is only illustrative and explains the position in brief. It cannot be a substitute for the Finance Bill, 2010 or the Notifications issued thereunder. For full details the relevant provisions of the Finance Bill, 2010 and/ or relevant Notifications may be referred to.

5) All the Trade Associations/Chambers of Commerce and the Members of the RAC/PGRC are requested to bring/publicise the contents of this Trade Notice amongst their Members/Constituents for their information and necessary action.

Salient features of changes in respect of Central Excise duties, Customs duties and Service Tax introduced in Finance Bill, 2010.

I-1.1 The standard rate of excise duty (CENVAT) for non-petroleum goods has been increased from 8% to 10%. The increased rate would apply to all such goods that hitherto attracted the general rate of 8% except in a few cases where a fresh exemption or concession has been given. The lower rate of 4% is being retained. However, there are some items for which this rate has either been enhanced to the standard rate or fully exempted. These exceptions are discussed later.

I-1.2 Consequent to enhancement of the standard rate, the rates of duty on cement have also been revised upwards suitably. In the case of packaged cement manufactured by units other than mini-cement plants, excise duty has been increased from 8% to 10% for cement of declared retail sale price exceeding Rs. 190 per 50 kg bag or Rs. 3800 per tonne. On packaged cement of declared retail sale price not exceeding Rs. 190 per 50 kg bag or Rs. 3800 per tonne manufactured by such units, the rate of duty has been increased from Rs.230 per metric tonne to Rs.290 per metric. The composite rate of duty applicable to bulk cement manufactured by such units has been enhanced from „8% or Rs.230/- per metric tonne, whichever is higher‟ to „10% or Rs.290/- per metric tonne, whichever is higher‟. Corresponding changes have been made to increase the rates of duty applicable to cement manufactured by mini-cement plants too. The details are available in Notification No.10/2010-Central Excise dated 27.2.2010.

I-1.3 Excise duty on cement clinker has been increased from Rs.300 per metric tonne to Rs.375 per metric tonne.

I-1.4 Large cars, Multi Utility Vehicles and Sports Utility Vehicles etc. and chassis thereof hitherto attracted excise duty rates of „20%‟ and „20% + Rs. 15,000 per unit‟. The ad-valorem component of both these rates has been increased from 20% to 22%. The specific component of duty on such vehicles remains unchanged.

I-2.1 The rates of excise duty on Motor Spirit (petrol) and HSD (diesel) have been increased by Re.1 per litre. The increase is applicable to both branded and unbranded products. The rates of duty on other petroleum products remain unchanged. The revised rates for MS and HSD are as under:

Note : BED, AED and SAED denote basic excise duty, additional excise duty & special additional excise duty respectively.

I-3.1 The rates of basic excise duty have been raised on all forms of tobacco and tobacco products (e.g. branded unmanufactured tobacco and tobacco refuse, branded „”hookah” or “gudaku” tobacco, chewing tobacco, preparations containing chewing tobacco, jarda scented tobacco, snuff and its preparations, tobacco extracts and essences etc ; smoking tobacco, cut tobacco, smoking mixtures etc.), other than those which are already fully exempt. On some of these item notified under section 4A the rates of abatement are also being revised. The details are available in the Explanatory Notes. The rates of duty on “biris” remain unchanged.

I-3.2 The tariff sub-heading 240220 covering cigarettes has been restructured through suitable bill entries (clause 74 read with Ninth Schedule of the Finance Bill, 2010). The existing slab of filter cigarettes of length not exceeding 70 mm has been broken up into two slabs: filter cigarettes of length not exceeding 60 mm; and filter cigarettes of length exceeding 60 mm but not exceeding 70 mm. Corresponding changes have also been made in the Tariff Schedules for National Calamity Contingency Duty (NCCD) leviable under Finance Act, 2001 and Additional Excise Duty leviable under Finance Act, 2005. The basic excise duty (BED) on all cigarettes, other than cigarettes of length not exceeding 60 mm (both filter and non-filter), has been increased. Some quarterly Post-Budget reports are being prescribed to monitor the production, clearance and revenue trend of cigarettes consequent upon these changes.

I-3.3 In respect of cigars, cheroots and cigarillos of tobacco, the basis of levy for both BED and AED is being changed from ad valorem to composite rates. The revised rates are: “10% or Rs.1227 per thousand, whichever is higher” (BED) and “1.6% or Rs.246 per thousand, whichever is higher” (AED). On the same basis, cigars, cheroots and cigarillos of tobacco substitutes will now attract BED of “10% or Rs.1473 per 1000, whichever is higher”.

I-3.4 Another important change in respect of tobacco is the shift to compounded levy under section 3A of the Central Excise Act on chewing tobacco and branded unmanufactured tobacco packed in pouches with the aid of packing machines. Notifications specifying these goods under section 3A and prescribing the rates of duty and the rules of procedure are being issued along with the Budget notifications. The scheme is analogous to the one already in operation for “guthka” and “pan masala” with the difference that the facility of input credit of the duty paid on bulk packs of chewing tobacco shall be available to the manufacturer of packaged products subject to the levy. It may kindly be noted that the scheme would come into effect on the 8th of March, 2010.

I-3.5. Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 have also been amended to effect certain technical changes. A manufacturer is now allowed to remove goods, other than notified goods, from his factory during the period of abatement specified in rule 10 and the notified goods already produced before the commencement of said period can also be removed within the first two days of the abatement period.

I-4.1 Clean Energy Cess is being imposed on coal, lignite and peat produced in India. This cess would be levied and collected as a duty of excise from coal mines. The rate of the cess, the date from which it will be effective and the rules and procedure for its collection shall be notified after the enactment of the Finance Bill, 2010. This cess would apply to imported coal as CVD.

I-5.1 A few exemptions or concessions have been withdrawn. The details along with revised rates are as under:

I-6.1 Full exemption from excise duty has been provided in the following cases:

· .Dementholised oil, Deterpenated Mentha oil, Spearmint/ Mentha Piperita oils and all intermediates and by-products of Menthol

· .Excise duty exemption on specified plantation machinery is being reintroduced upto 31.3.2011

· .Goods supplied to mega power projects –(i) from which power supply has been tied up through tariff-based competitive bidding, or (ii) awarded through tariff-based competitive bidding. Rule 6 (6) of the Cenvat Credit Rules is also being amended so as to allow Cenvat credit of duty paid on inputs used in the manufacture of such exempted supplies.

· Few more specified raw materials for the manufacture of rotor blades for wind operated electricity generators

· .Self-loading/self-unloading trailers & semi trailers for agricultural purposes (tariff item 8716 20 00)

I-6.2 Full exemption from excise duty presently available to 20 specified equipments for preservation, storage or transport of agricultural produce has been extended to apiary, horticultural, dairy, poultry, aquatic & marine produce and meat as well as processing thereof.

I-6.3 Full exemption from excise duty is being provided to security inks manufactured by Bank Note Press Dewas and supplied to Bank Note Press Dewas, Currency Note Press, India Security Printing Press, Nasik, Security Printing Press, Hyderabad etc. Similarly full exemption is also being provided to Circulation Coins, blanks etc and scrap generated in the manufacture of blanks by India Government Mints at Mumbai, Kolkata, Hyderabad and Noida. The exemptions to these units are being provided by name and therefore the ownership of these units is not relevant for being eligible for the said exemption.

· Replaceable kits for all household type water filters (except those operating on RO technology)

· Corrugated boxes/ cartons manufactured by stand- alone manufacturers, subject to conditions

I-6.5 A uniform concessional rate of duty of 4% is being prescribed for parts, namely batteries including battery chargers, electric motors and AC or DC motor controllers required for manufacture of all categories of electrical vehicles including cars, two wheelers and three wheelers (like “Soleckshaw “) subject to actual user condition. This concession will be available till 31.03.2013. Such vehicles will also be charged to excise duty @ 4%.

I-6.6 Refined serially numbered gold bars made from the ore/concentrate stage will now attract excise duty of Rs.280 per 10 grams (instead of 10% ad valorem) with Cenvat credit facility on inputs and capital goods.

I-6.7 The relaxation from brand name restriction under the general SSI exemption scheme has been extended to plastic bottles and plastic containers used as packing material.

I-7.1 Excise duty on DTA clearances of plain gold and silver jewellery manufactured by a 100% EOU is being increased from:

I-7.2 The rates of excise duty are being equalized/ unified in the following cases:

· ceramic tiles manufactured in kilns fired by not using electricity, and other ceramic tiles at 10%, with Cenvat credit.

I-8.1.1 There are two significant procedural relaxations/ concessions that have been made for the SSI sector. These are:

(i) Full Cenvat credit on capital goods in one instalment in the year of receipt of such capital goods in the factory

For this purpose, amendments have been made in the CENVAT Credit Rules, 2004 and Central Excise Rules, 2002. These amendments come into effect on the 1st of April, 2010. The important point about these relaxations is that they are available to any assessee who is „eligible’ to claim SSI exemption regardless of whether he actually claims it or opts to pay duty. An “eligible” unit has been defined as one whose aggregate value of clearances did not exceed Rs. 4 crore in the preceding financial year. Moreover, the benefit is available to a unit that is eligible for the entire financial year even if it crosses the limit of Rs. 4 crore (aggregate value of clearances) during the year.

I-8.1.2 The date of filing of quarterly returns by SSI units is being aligned with the date for non-SSI units so that all returns are required to be filed by the 10th of the month following the said quarter.

I-8.2.1 Some of the other procedural simplification measures that are contained in the budget proposals are as under:

· Benefit of allowing Cenvat credit to be reversed on proportionate basis (when common inputs are used for the manufacture of dutiable and exempt products) is being extended retrospectively for pending cases. Suitable provisions have been incorporated in the Finance Bill, 2010 (clauses 68 to 72)

· Accelerated depreciation of the credit amount has been allowed for reversing credit taken on computers and computer peripherals when they are cleared after use in the factory

· Movement of moulds, dies, jigs and fixtures by the main manufacturer to vendors (other than job-workers) without loss of Cenvat credit has been facilitated by suitably amending the Cenvat Credit Rules

· In cases of voluntary payment of duty under section 11A (2B) of the Central Excise Act, it is being clarified that no penalty shall be imposed

· Settlement of cases through the Settlement Commission has been liberalized by removing restrictions on the nature of cases that may be settled and the number of times the Commission may be approached by an assessee

I-9.1 Among the important legislative provisions is the amendment of section 37 of the Central Excise Act, 1944 to enable the Central Government to make rules providing for deterrent action through the withdrawal of certain facilities to deal with evasion.

I-9.2 In the First Schedule to the Central Excise Tariff Act, amendments have been made to–

(i) Carry out editorial changes in sub- heading no.2712 20 through the deletion of the entry covering chlorinated paraffin wax and insertion of new entries for paraffin wax.

(ii) Prescribe that certain processes in respect of goods falling under chapters 68 and 76 as amounting to manufacture. These would come into effect immediately as the relevant provisions have been declared under the PCT Act.

II-1.1 There is no change in the overall rate structure of basic customs duty. The peak rate of 10% and the lower rate slabs are being maintained. However, there are changes in respect of certain commodities/ goods which are discussed in subsequent paragraphs.

II-2.1 The following changes have been made in the duty structure applicable to crude petroleum and refined petroleum products:

(ii) basic customs duty on Motor Spirit (petrol) and HSD (diesel) is being increased from 2.5% to 7.5%.

(iii) basic customs duty on some other specified petroleum products is being increased from 5% to 10%.

II-3.1 The rates of duty on precious metals are being increased, whether these are imported as cargo or baggage (except platinum). The details are as under:

II-4.1 Additional Duty of Customs under section 3 (5) of the Customs Tariff Act

II-4.1.1 Outright exemption from additional duty of customs (of 4%) leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975 is being provided to goods imported in a pre-packaged form and intended for retail sale. The condition of the exemption is that the goods have to be such as requiring the declaration of the retail sale price either under the Standards of Weights and Measures Act or under any other law. Full exemption is also being provided to mobile phones, watches and ready made garments falling under specified headings of the Tariff. The exemption based on refunds contained in notification No. 102/2007-Customs dated 14.9.2007 is also being retained to enable other importers to claim exemption by way of refund, if VAT is paid on the goods. Full exemption from this duty is also being provided to Carbon Black Feedstock and Waste Paper.

(i) Cold storage, cold room (including farm pre-coolers) or industrial projects for preservation, storage or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic & marine produce and meat- (5% basic duty) .

(ii) Project for installation of Mechanized Handling Systems & Pallet Racking Systems, in mandis or warehouses for food grains and sugar (basic customs duty 5% +nil CVD + Nil Spl CVD)

· Bio-polymer/bio-plastics (HS Code 39139090) used for manufacture of biodegradable agro mulching films, nursery plantation & flower pots

· Ground source heat pump (geo-thermal energy) (with full exemption from special CVD of 4%)

· Specified capital goods and raw materials for the manufacture of electronic hardware.

· Specified parts namely, batteries including battery chargers, electric motors and AC or DC motor controllers imported for manufacture of all categories of electrical vehicles including cars, two wheelers and three wheelers (like Soleckshaw) with CVD of 4% and full exemption from special CVD till 31.03.2013.

· Parts for the manufacture of battery chargers and hands-free headphones (accessories of mobile phones) along with full CVD and special CVD (time-bound) exemption

· Specified components, raw materials and accessories for the manufacture of sports goods (Nil basic duty)

· Security thread, security fibres, M-features for use in the manufacture of security paper by Security paper Mill, Hoshangabad.

· Specified agricultural machinery e.g. paddy transplanter, laser land leveler, cotton picker, reaper-cum-binder, straw or fodder balers, sugarcane harvesters, track used for manufacture of track-type combine harvester

· Specified machinery for tea, coffee and rubber plantation is being extended upto 31.03.2011 (along with full excise/ CVD exemption)

· Machinery items, instruments, appliances required for initial setting up of solar power generation projects or facilities with full exemption from excise duty/ CVD

· Basic customs duty on magnetrons of upto 1,000 kw for the manufacture of domestic microwave ovens from 10% to 5%.

II-4.4 Specified road construction machinery items are presently fully exempt from customs duty subject to certain conditions in terms of S. No. 230 of notification No.21/2002-Customs dated 1.3.2002. One of the conditions of this exemption is that the equipment imported under it cannot be sold or disposed of for a period of five years from the date of import. The condition is now being relaxed to allow the sale or disposal of such machinery items on payment of customs duties on depreciated value at the rate of duty applicable at the time of import. In order to claim this benefit, the importer is to produce a certificate from the sponsoring authority that the equipment is no longer required for the project. Another condition of the exemption is that the importer is required to undertake that he shall use the goods exclusively for the construction of roads. It has been brought to the notice of the Ministry that this is being interpreted to mean that the imported machinery may be used only for the project for which it was initially imported. This is resulting in the idling of machinery/ equipment. It is clarified that it is permissible to relocate or re-deploy the machinery imported under the exemption to another road construction project for which the importer would have been otherwise eligible to claim the benefit of the exemption.

II-4.5 Gold ore and concentrate are being fully exempted from basic customs duty and special additional duty of customs. They will, however, be chargeable to CVD @ Rs.140 per 10 gram of gold content. This duty structure is subject to actual user condition.

II-4.6 The current limit of Rs. 1 lakh per annum for duty free import of samples in terms of notification no. 154/94-Customs dated 13.7.1994 is being enhanced to Rs. 3 lakh per annum.

II-5.1.1 The rate structure applicable to medical, surgical, dental and veterinary equipment falling under heading nos. 90.18, 90.19, 90.20, 90.21 and 90.22 is being rationalized. At present, such equipments attract varying rates of customs duty and are spread over many lists. This multiplicity of rates is being done away with and now all medical equipments (with some exceptions) will attract 5% basic customs duty, 4% CVD/ excise duty and Nil special additional duty of customs [i.e. effective duty of 9.2%].

II-5.1.2 Parts required for the manufacture and accessories of medical equipment will also attract 5% concessional basic customs duty with Nil special CVD. This concession is not confined to parts classifiable in Chapter 90 but to parts falling under any chapter of the tariff.

II-5.1.3 Concessional customs duty available to spares for the maintenance of medical equipment is being withdrawn except in specified cases.

II-5.1.4 Full exemption from basic customs duty and CVD/excise duty is being retained for specified medical devices (exempt by description) as well as for assistive devices, rehabilitation aids and other goods for disabled (List 41).

II-5.1.5 Cobalt-chrome alloys, special grade stainless steel etc. for the manufacture of orthopaedic implants are being exempted from basic customs duty subject to actual user condition.

II-5.2.1 Movies imported on cinematographic film are exempt from so much of the customs duty as is in excess of the duty payable on the aggregate of the cost of the print and the freight and insurance charges in terms of notification no.33/2003-Customs dated 1.3.2003. This exemption is being rescinded. A fresh exemption is being provided whereby customs duty on movies/ motion pictures recorded on cinematographic film or digital medium (CD/DVD etc.) would be charged only on the cost of the medium and the freight and insurance. The exemption would also apply to music and gaming software (meant for use with gaming consoles) but not to such goods when they are imported in a pre-packaged form for retail sale.

II-5.2.2 Full exemption from customs duty is being provided to promotional material like trailors, making of films etc. imported free of cost in the form of electronic promotion kits (EPK)/Betacams.

II-5.3.1 At present, Electrical energy is fully exempt from customs duty. Electrical energy supplied from a Special Economic Zone to the Domestic Tariff Area and non - processing areas of SEZ would now attract duty of 16% ad valorem + Nil Special CVD. This change is being made retrospectively w.e.f. 26th June, 2009. Exemption on supplies or imports of electrical energy, other than the above, would continue. (Clause 60 of the Finance Bill)

II-5.4.1 Packaged software is exempt from so much of the CVD as is equivalent to the duty payable on the portion of the value which represents the consideration paid or payable for transfer of the right to use such goods provided that the said transfer is for commercial exploitation. The condition of commercial exploitation is being removed. Similar change is being effected on the excise side as well.

II-6.1 The provisions relating to Settlement Commission in Section 127 of the Customs Act, 1962 have also been amended on the lines of Central Excise discussed above to expand the scope of cases that may be taken up for settlement, to enable repeated applications for settlement except in specified cases and to empower the Commission to extend the period for disposal of cases by three months.(clauses 57-59 of the Finance Bill)

II-6.2 Section 3 of the Customs Tariff Act is being amended to provide that the value of the imported goods for the purpose of charging CVD in respect of goods chargeable to excise duty on the basis of Maximum Retail Sale Price under Medicinal and Toilet Preparations (Excise Duties) Act, 1955 shall be the retail sale price declared on such imported goods less the amount of abatement, if any. This change will come into effect on enactment of the Finance Bill. (clause 61 of the Finance Bill)

II-6.3 Consequent upon insertion of a new tariff item covering filter cigarettes of length not exceeding 60 mm and other changes in the schedule to the Central Excise Tariff Act, similar change is being carried out in heading 2402 with the new tariff item attracting customs duty of 30% ad valorem. (clause 62 of the Finance Bill)

II-6.4 Changes in Chapter 27 carried out in the First Schedule to the Central Excise Tariff Act have been replicated in the Customs Tariff Schedule so as to align the two. (clause 62 of the Finance Bill)

III-1.1 Eight services, hitherto not included separately within the list of taxable services, are being included in the said list through appropriate amendments in sub-section 105 of Section 65 of the Finance Act, 1994. One of them, namely promotion, marketing etc. of lottery and similar games of chance presently figures as part of Business Auxiliary Service (BAS). This is now being introduced as an independent entry in the list of taxable services. Consequential amendments have been made in the definition of the BAS.

[## The tax on these health services would be payable only to the extent payment for such medical check up or preventive care or treatment etc. is made directly by the business entity or the insurance company to the hospital or medical establishment].

providing preferential location or external or internal development of complexes on extra charges [Section 65 (105) (zzzzu)].

III-1.3 The scope of these services and other significant details are enclosed in Annexure A. The tax on these services would come into effect from a notified date after the enactment of the Finance Bill, 2010.

III-2.1 In the case of following existing taxable services, the scope has been altered either to expand their scope or to remove certain difficulties that have been faced during tax implementation. These changes are as follows,-

I. provide explicitly that the activity of ‘renting’ itself is a taxable service. This change is being given retrospective effect from 01.06.2007; and

II. provide that renting of vacant land, where the agreement or contract between the lessor and lessee provides for undertaking construction of buildings or structures on such land for furtherance of business or commerce during the tenure of the lease, shall be subjected to service tax.

(a) all services provided entirely within the airport/port premises would fall under these services; and

(b) an authorization from the airport/port authority would not be a precondition for taxing these services.

III-2.2 The scope of modifications in the aforesaid taxable services and other significant details pertaining to amendments being made in the Finance Act, 1994 are enclosed in Annexure ‘B’. These modifications would come into effect from a notified date after the enactment of the Finance Bill, 2010.

a) insert an explanation in sub-section (3) of Section 73 to clarify that no penalty shall be imposed where service tax along with interest has been paid before issuance of notice by the department. This would be effective from the date of enactment of the Finance bill, 2010; and

b) provide definition of the term ‘business entity’ so as to include an association of persons, body of individuals, company or firm but to exclude an individual. This would be effective from a notified date after the enactment of the Finance bill, 2010

III-3.2 For other editorial changes being made in the Finance Act, 1994, please refer

III-4.1 The following exemptions from service tax are being provided with effect from

III-5.1 The following changes have been brought about in the existing exemptions,-

a) Exemption from service tax on service provided in relation to ‘Transport of Goods by Rail’ by notification No.33/2009, dated 1st September, 2009 is being withdrawn (Notification No.7/2010-ST, dated 27th February, 2010 refers). The exemption provided to certain specified goods transported by rail vide Notification No. 28/2009-ST, dated 31st August, 2009, which was subsequently withdrawn vide notification No. 36/2009-ST dated 9^th September, 2009, has been restored. (Notification No. 8/2010-ST, dated 27^th February, 2010 refers). An abatement of 70% of the gross value of the freight charged on goods (other than exempted goods) is being provided vide notification No. 9/2010-ST dated 27^th February, 2010 by adding the service of ‘Transport of goods by rail’ in notification No. 1/2006-ST dated 01.03.2006. All these changes will also come into effect from 01.04.2010.

b) The exemption from service tax on ‘Commercial training or coaching service’ extended to vocational training institutes vide notification No. 24/2004-ST dated 10.09.2004 is being limited by introducing a new definition of vocational training institutes. Service tax exemption will be available only to industrial training institutes or industrial training centres affiliated to National Council of Vocational Training (NCVT) and offering courses in the designated trades covered under Schedule I of the Apprentices Act, 1961. The List figuring under Schedule I of the Act covers engineering as well as non-engineering skills/trades (Notification No.3/2010-ST, dated 27th February, 2010 refers).

c) Exemption from service tax, presently available to Group Personal Accident Scheme provided by Govt. of Rajasthan to its employees, under General Insurance Service is being withdrawn (Notification No.5/2010-ST, dated 27th February, 2010 refers).

d) Notification No.1/2002-ST dated 01.03.2002 is being superceded by Notification No.14/2010-ST, dated 27th February 2010 to provide that the construction and operation of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oils and natural gas in the Exclusive Economic Zone and the Continental Shelf of India and supply of any goods connected with these activities would be within the purview of the provisions of Chapter V of the Finance Act, 1994. Similar changes have been made in the definition of the term ‘India’ appearing in the Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India & Received in India) Rules, 2006. (Notification No.6/2010-ST and Notification No.16/2010-ST, both dated 27^th February, 2010 refers).

III-6.2 These changes have been carried out keeping in view certain difficulties that

III-7. AMENDMENT TO NOTIFICATION NO. 5/2006-CE(NT) ISSUED UNDER RULE 5 OF THE CENVAT CREDIT RULES, 2004

III-7.1 It may be recalled that a number of representations were received from exporters, especially the exporters of services regarding difficulties being faced in availing the benefit of refund of accumulated credit under the scheme prescribed under Notification No. 5/2006-CE (NT) dated 14.03.2006, issued under rule 5 of the CENVAT Credit Rules, 2004. While certain issues germinated from the wordings used in the provisions of the notification or interpretation of such provisions, other issues were more in the nature of administrative difficulties in operating the scheme. As an immediate measure, CBEC issued a clarificatory Circular No. 120/01/2010-ST, dated 19.01.2010. It was however felt that a permanent solution would require supplementing the clarification with certain amendments to the notification, part of which had to be ‘retrospective’ in nature. Accordingly, Notification No. 5/2006(CE) (NT) has been amended vide Notification No. 7/2010-CE (NT), dated 27^th February 2010. This mainly deals with the procedure that needs to be adopted in case of the new refund claims. However, to resolve the disputes arising on account of the wordings/ illustration provided in the notification, the same is being amended retrospectively (w.e.f. 14.03.2006) (Clause 73 of the Finance Bill, 2010 refers) so as to resolve the disputes in respect of pending cases as well. Therefore to visualize the entire revamped and simplified refund scheme, both the amending notification and the Finance Bill provision must be read in conjunction. A note on the issue is enclosed as Annexure C.

Scope and the background of the new services included in the List of Taxable

1. Services of promoting, marketing or organizing of games of chance, including lottery.

1.1 Lotteries are conducted by various State Governments and are regulated by a Central legislation, i.e. the Lotteries (Regulation) Act, 1998. The said Act provides the conditions, restrictions and prohibitions pertaining to organization of lotteries conducted by the State Governments. Section 4 of the said Act enjoins upon the State Governments to print lottery tickets bearing the imprint and the logo to ensure authenticity of the lottery ticket. It also provides that ‘the State Government shall sell tickets either itself or through distributors or selling agents’.

1.2 The State Governments appoint distributors to advertise, promote and sell lottery tickets. Besides the State Governments organizing lotteries, some other games of chance are also being organized. The services provided for promotion or marketing or organizing such games of chance are now being covered by introducing a separate taxable service to cover the services in connection with games of chance, organized conducted or promoted by the client, in whatever form or by whatever name called (such as lottery, lotto) under the ‘Games of chance’ service. The tax would be applicable also to such games conducted online. Consequently, the Explanation appearing under ‘Business Auxiliary Service’ is being deleted.

2. Health services undertaken by hospitals or medical establishments for the employees of business organizations and health services provided under health insurance schemes offered by insurance companies.

2.1 With the change in the style of functioning of the business organizations, health check up is a routine facility provided by the employers to their employees. The main purpose is to ensure that the productivity of the organization is not adversely affected due to ill health of its employees. Such activities, commonly known as corporate health check up schemes, are undertaken by designated hospitals in order to detect any medical indicator or to ensure timely diagnosis of any disease so that prophylactic measures can be taken. In such cases, the hospital providing these services charge the employer i.e. the business organization and it constitutes expenditure for the latter. In certain cases (for example, in case of flight crew) pre-flight check ups are conducted not only to test the fitness levels but also to rule out the possibility of the flying crew being under intoxication. Such health check up schemes are being brought within the ambit of service tax under the new service.

2.2 A large number of health insurance schemes are being offered by the insurance companies under which charges for hospitalization, surgery, postsurgical nursing etc. are generally paid by the insurance company. Such insurance policies, which fall under the category of general insurance service, are already taxable. Under general insurance service, an insurance company is a service provider to its clients. Under the proposed new service, tax is also being imposed on the medical charges paid by the insurance companies to the hospitals on behalf of a business entity for its employees. As such, the insurance company would be the service receiver and the tax paid by the hospital would be available to the insurance companies as credit.

2.3 The tax on the above mentioned health services would be payable only if and to the extent the payment for such medical check up or treatment etc. is made directly by the business entity or the insurance company to the hospital or medical establishment. Any additional amount paid by the individual (i.e. the employee or the insured, as the case may be) to the hospital would not be subjected to service tax. This is to ensure that an individual is not required to pay a tax for which he cannot take credit.

3.1 World over, business organizations maintain medical histories of their employees which are used not only for medical purposes but also for finding the suitability of a person for a particular job or for promotion etc. Increasingly, this activity is being outsourced for a consideration. Such records are either maintained by certain designated hospitals or even by independent record keepers for a charge. This activity is now being brought under service tax.

4.1 Commercial advertisement has taken different shapes and forms. Apart from the advertisements in print and visual media and sponsorship, one of the recent trends is to advertise a brand (i.e. of goods, services, events, business houses bearing a particular brand name or house name) usually by using a celebrity (such as sportsperson, film stars, etc.) to associate him/her with the brand. The intended impression that is created in the minds of customers or users is that the products and services of that brand have the level of excellence comparable to that of the celebrity. Unlike in case of advertisements using models, a brand ambassador works under a contract of a reasonably long period, where under he is not only required to advertise the goods or service in different media but also to attend promotional, product launching events, make appearances in public activities related to the brand or the brand holder or use such goods or services in public. The contractual amounts are substantial and it may not only involve an individual celebrity but a group of celebrities such as a cricket team or the actors of a successful film.

4.2 It is important to note that promotion or marketing of sale of goods produced, provided or belonging to a client and promotion or marketing of services provided by the client are already covered under Business Auxiliary Services (BAS). Such activities would continue to remain classified under BAS. The difference between the services classifiable under BAS and the newly proposed service is that the latter has a wider coverage in the sense that mere promotion of a brand would attract tax under this service even if such promotions cannot be directly linked to promotion of a particular product or service. Many companies/corporate houses (for example Sahara, ITC or Tatas) are associated with a range of activities including production/marketing/sale of goods, provision of services, holding of events, undertaking social activities etc. If the brand name / house mark etc. is promoted by a celebrity without reference to any specific product or services etc., it is difficult to classify it under BAS. Such activities, like mere establishing goodwill or adding value to a brand would fall under this newly introduced service.

5.1 Like intellectual property rights there are certain personal rights such as, right to privacy, easement right, right to secrecy. With expansion in the field of information technology and broadcasting sector, many individuals or organizations offer to share/part with these rights for a consideration. A corporate sponsored cricket match or company sponsored music concert; film award events; celebrities’ marriages; beauty contests are some of such private functions, which a large number of viewers like to see on TV or media. In such cases, companies, broadcasting agencies and video producers are given right to capture these events or programmes for their commercial exploitation in future. Often such commercial exploitation results in provision of another taxable service such as broadcasting service or programme production service. The proposed service now seeks to tax the amount received by the person or organization, who permits the recording and broadcasting of the event from the broadcaster, or any other person, who seeks to commercially exploit the event. In many cases, the credit of the tax paid would be available to the receiver of the service.

6.1 Under ‘Forward Contract Service’, tax is payable by exchanges who offer assistance in sale of goods or forward contracts in commodities. However, only forward contracts covered by the Forward Contract (Regulation) Act, 1952 are covered in the scope of taxation In the recent past, exchanges have been set up for transactions in electricity. The Central Electricity Regulatory Commission authorizes such exchanges. Since electricity exchanges are not covered by Forward Market Regulations, such transactions are not covered under the commodity exchange taxation. The proposed new service seeks to tax the charges recovered for services in relation to assisting, regulating, controlling the business of trading, processing and settlement pertaining to sale or purchase of electricity by the associations authorized by Central Electricity Regulatory Commission.

7. Services related to two types of copyrights hitherto not covered under existing taxable service ‘Intellectual Property Right (IPR)’, namely, that on (a) cinematographic films and (b) sound recording.

7.1 The right to temporarily transfer or permit the use of Intellectual Property Rights (IPR), namely, trademarks, designs and patents was brought under tax net in 2004. However, one of the IPRs, i.e. copyright has been specifically kept out of the purview of the tax with an intent to encourage authors and artists, as it involves creative works, such as literary work, musical work and artistic work. In Budget 2008, Information Technology (IT) Software Service was also brought under tax net, which apart from involving development, up-gradation, assistance etc. also covered the IPR aspect i.e. right to use the information technology.

7.2 The provisions of copyright are incorporated in the Indian Copyright Act, 1957. As per section 13 of the said Act, the copyright subsists in the following classes of work:

7.3 The first category of copyright has been kept out of the tax net while the second and third categories of copyrights are being made taxable under this service. A cinematographic film means any work of visual recording on any medium (emphasis added) produced through a process from which a moving image may be produced. The same may be accompanied with sound reproduction also. Both the recording of the cinematographic film and the accompanying sound track are the property of the producer, who can temporarily transfer it or permit its use by another person for a consideration. It is this activity, which is being taxed under this service. It would have an impact on the royalty payments on both imported and indigenously produced films when the producer/right holder allows such use to another person, say the distributor.

7.4 Similarly, song, its music, lyrics and composition also enjoy the copyright protection to its owner who can commercially exploit it in the manner stated above. Normally, the copyright of music vests in the composer and the copyright of music recorded vests in the producer of the sound recording. It is possible that a lyricist or a singer may hold copyright for the words of a song or the song itself. Merely allowing that song to be recorded is a copyright, which would fall under category (a) of section 13 of the Copyright Act and thus would not be subject to service tax. However, after the performer has transferred his rights to a sound recording company, the sound recording company acquires the copyright mentioned in category (c) of section 13 supra. It is the transfer or allowing use of this right, which would be subjected to tax under the new service.

7.5 As such, depending upon the nature and conditions of the contract, companies distributing music, owners of copyright of cinematographic films etc. would be prospective taxpayers. It may be noted that this taxable service will not cover individual artists, composers, performers etc. as their copyrights fall under clause (a) of Sec. 13 of the Copyright Act.

8. Special services provided by builder etc. to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges.

8.1 Construction of commercial or industrial structures was brought under service tax net in 2004 while construction of residential complexes became a taxable service in 2005. The scope of the existing services includes construction, completion and finishing, repairs, alterations, renovation or restoration of complexes. It has been reported that in addition to these activities, the builders of residential or commercial complexes provide other facilities and charge separately for them and these charges do not form part of the taxable value for charging tax on construction. These facilities include,-

(a) prime/preferential location charges for allotting a flat/commercial space according to the choice of the buyer (i.e. Direction- sea facing, park facing, corner flat; Floor- first floor, top floor, Vastu- having the bed room in a particular direction; Number- lucky numbers);

(b) internal or external development charges which are collected for developing/maintaining parks, laying of sewerage and water pipelines, providing access roads and common lighting etc; (c) fire-fighting installation charges; and (d) power back up charges etc.

8.2 Since these charges are in the nature of service provided by the builder to the buyer of the property over and above the construction service, such charges are being brought under the new service. Charges for providing parking space have been specifically excluded from the scope of this service. Development charges, to the extent they are paid to State Government or local bodies, will be would be excluded from the taxable value levy. Further, any service provided by Resident Welfare Associations or Cooperative Group Housing Societies consisting of residents/owners as their members would not be taxable under this service.

Alteration and expansion in the scope of existing services and other significant changes in the Finance Act, 1994

1.1 Two services, namely ‘port services’ and the ‘airport services’ were introduced in Budgets 2001 and 2004 respectively. The services provided by minor ports covered under ‘other ports’ became taxable from 2003. The purpose behind creating these services was that since a number of activities are undertaken within the premises of ports and airports, it would be easier to consolidate all such services under one head.

1.2 It was reported that divergent practices are being followed regarding classification of services being performed within port/airport area. In some places, all services performed in these areas [even those falling within the definition of other taxable services] are being classified under the port/airport services. Elsewhere, individual services are classified according to their individual description on the grounds that the provisions section 65 A of Finance Act, 1994 prescribes adoption of a specific description over a general one.

1.3 Further, both the definitions use the phrase ‘any person authorised by port/airport’. In many ports/airports there is no procedure of specifically authorizing a service provider to undertake a particular activity. While there may be restriction on entry into such areas and the authorities often issue entry-passes or identity cards, airport/port authorities seldom issue authority/permission letters to a service provider authorising him to undertake a particular task. Many taxpayers have claimed waiver of tax under these services on the ground that the port/airport authority has not specifically authorised them to provide a particular service.

1.4 In order to remove these difficulties, the definitions of the relevant taxable services are being amended to clarify that all services provided entirely within the port/airport premises would fall under these services. Further, specific authorisation from the port/airport authority would now not be a pre-condition for the levy.

2.1 Auctioneer’s service was introduced in 2006 and is applicable to any service provided in relation to auction of property whether moveable or immoveable, tangible or intangible. However, the service, by definition excludes ‘auction by government’. This phrase has given rise to confusion. In certain cases, the property belonging to or vested in the Central or the State governments (such as goods confiscated by Customs department) are sold in an auction that is conducted by private organizations. Conversely, in certain cases government bodies, such as ‘Tobacco Board’ conducts auction of properties that belong to private individuals or organizations.

2.2 In order to avoid the confusion, it is being clarified through an explanation that the phrase ‘auction by government’ appearing in the taxable service, namely ‘Auctioneer’s service’ means an auction where government property is being auctioned and not when the government acts as an auctioneer for the private goods.

3.1 Tax on insurers issuing Unit Linked Insurance Plans (ULIP) was imposed w.e.f. 1-06-2008. The taxable service is the “Management of investment, under unit linked insurance business, commonly known as Unit linked Insurance Plans (ULIP) scheme” by an insurer carrying life insurance business.

3.2 ULIPs are broadly similar to the mutual funds, except that they are required to segregate a certain part of the premium towards the life insurance of the plan holder. Further, unlike in the mutual fund industry, where the funds are managed by an independent Asset Management Company (which is a separate legal entity), in case of ULIP the funds are managed by the insurance company itself. Thus, it is difficult to ascertain the component of the total charges that is attributable to the management of investment.

3.3 Accordingly, for the purpose of valuation for charging of service tax, an Explanation was prescribed which in brief, explained that the taxable value for the purpose of this service is the difference between the (a) premium paid by the policy holder for the Unit Linked Insurance Plan policy; and (b) the sum of premium paid for or attributable to risk cover, whether for life, health or other specified purposes, and the amount segregated for actual investment. In other words the differential amount was considered as the charges for asset management.

3.4 It is however a fact that the amount appropriated by the insurance company is not only asset management but for various activities, such as,-

a) Premium Allocation Charge: is an upfront deduction from the policy premium, which is generally more than 10% in the first year of ULIP, and continues to be very high for the initial three years. This amount is used for following purposes:

b) Policy administration charges; monthly charges for managing the paperwork and other formalities for the insurance, and are not related to asset management. It is chargeable to service tax under insurance services.

c) A number of other charges are also charged by the insurance companies, which, inter alia, include, policy surrender charges, switching charges, partial withdrawal charges, miscellaneous charges etc.

d) Fund management charges: This is the amount charged by the insurance company for managing the investible funds, which is intended to be taxed under this service. This amount has been capped for ULIPs by Insurance Regulatory and Development Authority (IRDA) at 1.5% of the gross yield for schemes below 10 years, and 1.25% for schemes above 10 years.

3.5 Since the charge pertaining to asset management alone should form the value for taxable purpose, the explanation provided under the definition of the taxable service is being suitably amended to provide that that the value of the taxable service for any year of the operation of policy shall be the actual amount charged by the insurer for management of funds under ULIP or the maximum amount of fund management charges fixed by IRDA, whichever is higher.

3.6 The method of computation for monthly payment of tax by such service providers, would be prescribed at the appropriate time.

4.1 The taxes on transport of passengers traveling by air were in operation in the past. These were not in the nature of service tax but operated through separate legislations. Inland Air Travel Tax [@ 15%] was levied on domestic travel in 1989. Foreign Travel Tax [@ Rs. 500 per trip, except to neighboring countries for which the rate was Rs. 150 per trip] was levied on international travel in 1979. These taxes were withdrawn in the interim Budget 2004. In 2006, tax was imposed on international air travel by a passenger embarking in India and traveling in higher [other than economy] classes. This tax continues.

4.2 The taxable service is being suitably amended to extend this levy to cover all domestic and international air passengers embarking in India. The, modalities of working out the tax amount including exemptions, abatement etc. would be prescribed at the appropriate time.

5.1 In Budget 2008, services provided in relation to Information Technology (IT) Software, such as development, designing, programming, up-gradation of IT software, providing advice, consultancy and assistance on the matters of IT software and providing right to use IT software, whether supplied on a media or electronically, were brought in the ambit of service tax. However, the tax was limited to cases where such IT software was to be used in the course or furtherance of business or commerce. In other words, these activities are taxable only when the receiver of service exploits them for commercial or business purposes.

5.2 The definition of this taxable service is being suitably amended to extend this levy to cover the aforesaid IT software services provided in all cases i.e. whether or not used in the course or furtherance of business or commerce.

6.1 Commercial training and coaching service was introduced in Budget 2003 with a view to tax the mushrooming coaching institutes and training centres which either provide coaching classes for examinations or unrecognized courses in various areas such as, management, marketing, engineering etc. The schools, institutes, colleges and universities providing courses that lead to award of recognized diplomas/degrees and sports education were kept out of tax net. These include universities created under a Central or State Act, institutes recognized by UGC as universities or deemed universities, institutes granted recognition professional councils like AICTE, Medical Council of India, Bar Council of India etc. To distinguish the former types of institutes/centres from the latter, the word ‘commercial’ was used in the definitions of ‘Commercial training and coaching’, ‘Commercial training and coaching centres’ and ‘taxable service’.

6.2 The use of the word ‘commercial’ in these definitions has led to certain unintended consequences. A view has been taken that the term ’commercial’ appearing in various definitions implies that the institute must be run with a profit motive to fall under the taxable service. A number of taxpayers resisted paying tax on this ground. In order to clarify the legislative intent, the definition of the taxable service is being suitable amended, through insertion of an Explanation, to clarify that the word ‘commercial’ means any training or coaching that is provided for a consideration irrespective of the presence or absence any profit motive. This amendment is being carried out retrospectively (from July 2003) so as resolve the disputes pending at different levels of the dispute settlement system.

7.1 Business entities often associate their brand names, products or services by sponsoring popular or successful events with intent to obtain commercial benefits of spreading their name, goodwill or reputation to public. It is a form of advertisement. Sponsorship service was brought under tax net in Budget 2006. However, sponsorship of sports events was kept out of the purview of the taxation with a view to encourage sports activity and to provide an avenue for funding sports events.

7.2 Corporate involvement in certain sports such as cricket, golf and tennis has grown rapidly in the recent years and there is a substantial increase in sports events organized by private organizations or business entities. Further, the concept of owning and forming sports clubs that hire the services of sports persons has made many such events highly commercial and profitable activities. The advertisements through sponsorship of such events have created a disparity, as unlike advertisements displayed otherwise, advertisement (through sponsorship) when associated with sports, does not attract service tax.

7.3 Therefore, the exclusion available for sponsorship pertaining to sports is being removed by suitable amendment. Suitable exemption to certain categories of sports events would be considered at the appropriate time.

8.1 The service tax on construction of commercial or industrial construction services was introduced in 2004 and that on construction of complex was introduced in 2005.

8.2 As regards payment made by the prospective buyers/flat owners, in few cases the entire consideration is paid after the residential complex has been fully developed. This is in the nature of outright sale of the immovable property and admittedly no service tax is chargeable on such transfer. However, in most cases, the prospective buyer books a flat before its construction commencement/completion, pays the consideration in instalments and takes possession of the property when the entire consideration is paid and the construction is over.

8.3 In some cases the initial transaction between the buyer and the builder is done through an instrument called ‘Agreement to Sell’. At that stage neither the full consideration is paid nor is there any transfer in ownership of the property although an agreement to ultimately sell the property under settled terms is signed. In other words, the builder continues to remain the legal owner of the property. At the conclusion of the contract and completion of the payments relating thereto, another instrument called ‘Sale Deed’ is executed on payment of appropriate stamp duty. This instrument represents the legal transfer of property from the promoter to the buyer.

8.4 In other places a different pattern is followed. At the initial stage, instruments are created between the promoter and all the prospective buyers (which may include a person who has provided the vacant land for the construction), known as ‘Sale Of Undivided Portion Of The Land’. This instrument transfers the property right to the buyers though it does not demarcate a part of land, which can be associated with a particular buyer. Since the vacant land has lower value, this system of legal instrumentation has been devised to pay lesser stamp duty. In many cases, an instrument called ‘Construction Agreement’ is parrallely executed under which the obligations of the promoter to get property constructed and that of the buyer to pay the required consideration are incorporated.

8.5 These different patterns of execution, terms of payment and legal formalities have given rise to confusion, disputes and discrimination in terms of service tax payment.

8.6 In order to achieve the legislative intent and bring in parity in tax treatment, an Explanation is being inserted to provide that unless the entire payment for the property is paid by the prospective buyer or on his behalf after the completion of construction (including its certification by the local authorities), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and the service tax would be charged accordingly. This would only expand the scope of the existing service, which otherwise remain unchanged.

7 This service was introduced in 2007 with a view to tax the commercial use of immovable property hired on rent. The tax on rent paid is available as input credit if the commercial activity involves provision of taxable service or manufacture of dutiable goods. However, the Hon’ble High court of Delhi in its order dated 18.04.2009 in the case of Home Solutions Retail India Ltd. & Others vs. UOI has struck down this levy by observing that the renting of immovable property for use in the course of furtherance of business or commerce does not involve any value addition and therefore, cannot be regarded as service. Apart from the revenue loss caused to the exchequer, the judgement has placed the landlords in a very precarious situation. In view of this judgement, the commercial tenants have stopped them reimbursing the tax element. However, the landlords are receiving regular demand notices from the department issued to protect government’s revenue for the interim period.

9.2 In order to clarify the legislative intent and also bring in certainty in tax liability the relevant definition of taxable service is being amended to clarify that the activity of renting of immovable property per se would also constitute a taxable service under the relevant clause. This amendment is being given retrospective effect from 01.06.2007.

10.1 Under the definition of taxable service pertaining to renting of immovable property, the renting of vacant land used for agriculture, farming, forestry, animal husbandry, mining, education, sports, circus, entertainment and parking purposes, is excluded from the purview of service tax. Further, ‘vacant land’, whether or not having facilities clearly incidental to the use of such vacant land has also been excluded from the tax net.

10.2 It has been reported that in many states, the local industrial corporations or PSUs or even private organizations rent vacant land on a long term leases with an explicit understanding that lessee would construct factory or commercial building on that land. In such cases the ownership of the land is not transferred to the lessee and thus it is a service provided by the lessor to the lessee. The situation is similar to renting out a constructed structure for commercial purposes except that at the time of executing the lease agreement the land is in a vacant state and that later the lessee constructs commercial structure thereon after executing the lease deed. Such lease agreements escape service tax because of the exclusion mentioned above.

10.3 Suitable amendment in the definition of taxable service relating to renting to immovable property is being made so as to provide that tax would be charged on rent of a vacant land if there is an agreement or contract between the lessor and lessee that a construction on such land is to be undertaken for furtherance of business or commerce during the tenure of the lease.

Refund of accumulated Cenvat credit to Exporters : Amendments in Notification No. 5/2006-CE (NT)

Representations had been received by the Board that refund of accumulated CENVAT credit to the exporters of services and other service providers like call centers and BPO’s were getting delayed and most of them are ultimately getting rejected,-

I. On account of difference in perception/interpretation between the department and the export of services as to whether their actives fall under the purview of ‘export of service at all’;

II. Difference in wordings used in Notification No. 5/2006-CE (NT) dated 14.03.2006, issued under Rule 5 of CENVAT Credit Rules, 2004 as regards the definitions of terms such as ‘inputs’/ ‘input services’

III. The procedural requirements prescribed under the notification and illustrations given therein were causing difficulties both in terms of delays and filing of incorrect/incomplete refund forms.

02. The issue was discussed both with the departmental officers as well as the trade and as an immediate solution, Circular No. 120/01/2010-ST dated 19^th January, 2010 was issued.

03. To give legal backing to the above said circular, leading to faster and fair settlement of the refunds claims, changes have been effected in Notification No. 5/2006-CE (NT). Some of the changes have been made retrospective so that the pending cases are also covered. Other changes are being brought in prospectively, and are aimed at assisting the Departmental officers in faster processing of refund claims. The retrospective amendments are contained in clause 73 of the Finance Bill, 2010 while the prospective changes are contained in Notification no.7/2010- Central Excise (Non Tariff) dated the 27th February, 2010. Both these documents may be carefully read together for appreciating the full impact of the changes. The salient features of these changes are as follows:-

Retrospective changes effected from 14.03.2006 (i.e. from the date of issue of

1) The words “in relation to” have been added in main condition (a) of the Notification.

2) The word “in’ contained in main condition (b) of the said Notification has been replaced with “for”.

The above two changes ensure that the provisions of the refund notification and the CENVAT Credit Rules are aligned and that refund is granted on all goods or services on which CENVAT can be claimed by the exporter of goods or services.

3) The illustration given in condition 5 of the Appendix to the Notification has been deleted. This ensures that refund of CENVAT credit which has been availed in the period prior to the quarter/ period for which the refund has been claimed is also ligible for refund. The refund claims should be calculated only on the basis of the ratio of the export turnover to the total turnover of the claimant. Thus, if the CENVAT credit available to the exporter at the end of the quarter, or month, as the case may be, is Rs. 1 crore, and the ratio of export to total turnover during the quarter is 50%, then Rs. 50 lakh should be refunded to the exporter. The essence of the changes is that refund shall be available for all goods, or input services, on which CENVAT is permissible and should be processed accordingly. Further, refund of CENVAT should not be linked to CENVAT taken in a particular period only.

1. The conditions A and B given in the Annexure to the Notification are being deleted, and the details required to be given under these conditions, along with certain additional details, are to be furnished by the claimant in a table, which has been prescribed in condition A. The table should be certified by a person authorized by the Board of Directors (in the case of a limited company) or the proprietor/partner (in case of firms/partnerships) if the amount of refund claimed is less than Rs.5 lakh in a quarter. In case the refund claim is in excess of Rs.5 lakh, the declaration should also be certified by the Chartered Accountant who audits the annual accounts of the exporter for the purposes of Companies Act, 1956 (1 of 1956) or the Income Tax Act, 1961 (43 of 1961), as the case may be. This verification is aimed at reducing the checking of voluminous records which is required to be done by the officers processing the refund claims and ensure faster processing of refund claims.

2. Consequential changes by introducing the words “in relation to” and “for” in the Annexure to the Notification have been brought to bring them in line with the amendments made in the main conditions of the Notification.

S.No.	Description of goods	From	To
1	Serially numbered gold bars (other than tola bars) and gold coins	Rs.200 per 10 gram	Rs.300 per 10 gram
2	Other forms of gold	Rs.500 per 10 gram	Rs.750 per 10 gram
3	Silver	Rs.1000 per kg	Rs.1500 per kg
4	Platinum	Rs.200 per 10 gram	Rs.300 per 10 gram

S.No.	Description of goods	From	To
1	Mosquito nets impregnated with insecticides	Nil	4%
2	Av gas	Nil	4%
3	Microprocessor for computers (other than motherboard), Floppy disk drive, Hard disk drive, flash drive, CD/DVD and Combo Drive meant for external use	Nil	4%
4	Baby & clinical diapers and sanitary napkins	Nil	10%
5	Open top sanitary (OTS) cans	4%	10%
6	Goggles, other than those for correcting vision	4%	10%