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F. No. IV/16-126/MP/2009-Budget                                    Dated  07.07.2009




  Sub: Introduction of Finance (No.2) Bill 2009 : 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 (No.2) Bill, 2009 in Lok Sabha on 6th  July, 2009. Amendments to the Customs Act, 1962 have been proposed through clauses 84 to 90 of the Bill and to the Customs Tariff Act, 1975 through clauses 93 to 102. Some notifications issued under the Customs Act1962 have been validated retrospectively though clauses 91 and 92 of the Bill. On the excise side, amendments to the Central Excise Act, 1944 have been proposed through clauses 103 to 109 of the Finance (No.2) Bill and notifications issued under the erstwhile Rule 96ZO and 96ZP of the Central Excise Rules has been validated retrospectively vide clause 110. Clause 111 of the Bill proposes amendments to the First Schedule to the Central Excise Tariff Act, 1985. While the changes proposed through clause 111 have been given immediate effect through a declaration under the Provisional Collection of Taxes Act, 1931, the other changes proposed in the Bill would come into effect only upon its enactment or, in one case, from a date to be notified.


2)      Changes in excise and customs duties have been made through Notification Nos.77/2009-Customs to 80/2009-Customs and 7/2009-CE to 22/2009-CE all dated 7th July, 2009. These changes in rates of duty take effect from the midnight of 6th July/ 7th of July, 2009. Changes in CENVAT Credit Rules, 2004 and the Central Excise Rules, 2002 have been carried out through notification nos. 16/2009-CE (NT) and 17/2009-CE (NT) also dated 7th July, 2009. Rates of abatement on certain items covered under RSP based levy have been revised through Notification No. 18/2009-CE (NT) dated 07.07.2009.


3)     Changes in Service Tax have been made through Clause 112 of the Finance (No 2) Bill, 2009,  which covers all the changes relating to Chapter V of Finance Act, 1994. Changes are also being proposed in the provisions of the,-


• CENVAT Credit Rules, 2004;

• Works Contract (Composition Scheme for Payment of Service Tax)

Rules, 2007; and

• Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.Notification Nos. 16/2009-ST to 23/2009-ST and 16/2009-CE (NT) all dated 7th July, 2009 refer. Details of the changes are explained in the Explanatory Notes.


4)         The salient features of changes in respect of Central Excise duties, Customs duties and Service Tax are indicated in Annexure `A’.






5)         Central Excise Notifications No. 7/2009 –CE to 22/2009-CE and Notification Nos. 16/2009 -CE(NT) to 18/2009-CE(NT) all dated 07.07.2009, Customs Notifications No. 77/2009-Customs to 80/2009-Customs all dated 07.07.2009, Service Tax Notifications No. 16/2009-ST to 23/2009-ST, all dated 07.07.2009 issued in this regard may kindly be referred to for information and guidance. It is clarified that this Trade Notice is only illustrative and explain the position in brief. It cannot be a substitute for the Finance (No.2) Bill, 2009 or the Notifications issued thereunder. For full details the relevant provisions of the Finance Bill, 2009/or relevant Notifications may be referred to.


6)         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.










Encl : As above (Annexure-`A’).


Copy to : As per Mailing List of Department.
































Salient features of changes in respect of Central Excise duties, Customs duties and Service Tax introduced in Finance (No.2) Bill, 2009.





I.1 Rate structure


As a consequence of changes in the ad valorem rates of Central Excise duty for non-petroleum products on the 24th of February, 2009, a dual rate structure - with rates of 4% and 8% ad valorem was put in place. This rate structure for non-petroleum products has been retained but the rate of duty on several items attracting 4% has been restored to 8%. Among the important sectors/ items where such an increase has occurred are the manmade textile sector (the details of which are discussed in subsequent paras), ceramic tiles manufactured in a factory not using electricity for firing the kiln; plywood, flush doors and articles of wood; writing ink and other ink used in writing instruments; zip fasteners; and MP3/MP4 or MPEG4 players etc. On the other hand, the major items on which the 4% rate has been retained are:



food items such as sugar confectionary, biscuits with retail price exceeding Rs.100/kg, cakes and pastries, sherbets, scented supari etc.;


drugs and pharmaceutical products of chapter 30;

paper, paperboard and articles made therefrom;

footwear of retail price exceeding Rs.250 per pair but not exceeding Rs.750 per pair;

Pressure cookers

power –driven pumps designed for handling water;

water filtration/ purification equipment;

specified textile machinery;

compact fluorescent lamps (CFL) and vacuum and gas filled bulbs of retail price not exceeding Rs.20 per bulb; and

medical equipment



These lists are not exhaustive and the relevant notifications/ Explanatory Notes may be referred to for details. Consequent upon increase in excise duty rate from 4% to 8%, abatement rates have been revised suitably on items covered under RSP (Retail Sale price) based assessment.







I.2 Textile and textile intermediates:


Broadly speaking, the excise duty regime applicable to textiles, both manmade and natural, prior to the reductions made on the 7th of December, 2008 is being restored. The important changes in this sector are:


i. In respect of cotton textiles, not containing any other material, the rate of duty has been enhanced from Nil to 4% on optional basis. Full exemption would now be available only if a manufacturer does not avail of Cenvat credit of the duty paid on inputs. If he does not fulfill this condition, he would be required to pay a duty of 4% ad valorem.


ii. The rate of duty on manmade fibre and yarn has been enhanced from 4% to 8% on mandatory basis. Beyond the fibre/ yarn stage, the optional levy of 8% ad valorem has been restored (instead of the pre-budget rate of 4%).


iii. Similarly, textile items manufactured from natural fibres other than cotton such as silk, wool, flax etc. would now bear an optional levy of 8% ad valorem instead of 4% beyond the fibre stage. The enhanced rate of 8% would also apply to blended fabrics and products.


iv. Corresponding changes have also been made in the rates of duty applicable to Export Oriented Units (EOU) that use only indigenous raw materials when they make clearances of textile items into the Domestic Tariff Area (DTA).


v. Full exemption from excise duty has been provided to tops manufactured from duty paid tow of manmade fibre using the tow-to-top process on the condition that the manufacturer availing of this exemption does not have the facility to manufacture tow in his factory.


vi. Excise duty on some important textile intermediates has also been enhanced from 4% to 8% ad valorem. These are:

a. Polyester chips

b. Di-methyl terephthalate (DMT)

c. Pure Terephthalic Acid (PTA); and

d. Acrylonitrile


As far as possible, the enhanced rates are being prescribed through the Tariff Schedule. In many cases, however, these rates have been prescribed by notification as the tariff rates are higher.


I.3 Packaged or canned software:


Partial exemption from excise duty has been provided to packaged or canned software so that the duty payable on that portion of the value which represents the consideration for the transfer of the right to use such software, is exempted. The benefit of the exemption is available to the manufacturer of such software when he declares to the Central Excise authorities that the right to use





is transferred for commercial exploitation and fulfillment of some other conditions. The details are contained in notification no.22/2009-Central Excise dated 7th July, 2009. On the portion of the value which is exempted from excise duty, service tax will be leviable under the ‘Information Technology Software Service’.


I.4 Automobiles:


There are two important changes in the excise duty rates applicable to automobiles:


i. Excise duty on motor vehicles of headings 8702 and 8703 having engine capacity exceeding 1999cc, has been reduced from 20% + Rs.20,000 per unit to 20% + Rs.15,000 per unit.


ii. Excise duty on petrol driven motor vehicles for transport of goods except dumpers of tariff item 8704 10 90 has been reduced from 20% to 8%. Excise duty on chassis of  such petrol driven vehicles has also been reduced from 20% + Rs.10,000 per chassis to 8% + Rs.10,000 per chassis .


I.5 Petroleum:

The basic excise duty rates on MS/HSD intended for sale with a brand name have been converted from ‘ad valorem + specific rate’ to pure ‘specific rate’ as under :


S. No.





Motor Spirit

6% + Rs. 5 per litre

Rs. 6.50 litre



6% + Rs. 1.25 litre

Rs. 2.75 litre




Consequently petrol intended for sale with a brand name will attract total excise duty of Rs. 14.50 per litre while the total duty applicable to High Speed Diesel intended for sale with a brand name would be Rs 4.75 per litre. Other changes in respect of petroleum products are:


i. Exemption from basic excise duty, additional duty of excise and special additional duty of excise has been provided to High speed diesel oil blended with bio-diesels, up to 20% by volume, provided both HSD and bio-diesel have paid the appropriate duty of excise.


ii. Excise duty rate on special boiling point spirits falling under tariff items 27101111, 27101112 and 27101113 has been reduced to 14%. Excise duty rate on Naphtha falling under heading 2710 has also been reduced to 14%.








I.6 Other Concessions:


The following concessions/ changes have also been made:


i. Full exemption from excise duty has been provided to goods falling under Chapter 68 manufactured at the site of construction for use in construction work at such site.


ii. Recorded smart card and tags are exempt from excise duty. A condition has been added to this exemption so that it would be available only if the manufacturer does not avail of Cenvat credit of the duty paid on inputs for these goods.


iii. Articles of jewellery on which brand name or trade name is indelibly affixed or embossed (branded jewellery), have been fully exempted from excise duty.


iv. Full exemption has also been provided to EVA compound manufactured on job-work basis for further manufacture of footwear.


I.7 SSI Exemption:


There is no change either in the exemption limit or the eligibility limit for the small scale exemption. Under para 4(e) of Notification No. 8/2003-CE dated 01.03.2003, specified items that are in the nature of packaging material are excluded from the purview of the brand name restriction. One more item viz. ‘printed laminated rolls’ has been added to this list with immediate effect. As a consequence, manufacturers of printed laminated rolls bearing the brand name of another person and fulfilling the conditions of the notification would be entitled to full exemption from excise duty for their first clearances of this item (for home consumption) not exceeding Rs.150 lakh during the remaining part of this financial year i.e. 2009-10.


I.8 Important Legislative amendments:


The highlights of the legislative amendments in the Central Excise Act and the First Schedule to the Central Excise Tariff Act are as under:


i. In respect of ‘betel nut product known as supari’, it is being prescribed that the process of adding or mixing certain ingredients to betel nut in any form would be a process amounting to manufacture. For this purpose, note 6 is being inserted in Chapter 21 of the Schedule. A corresponding note is being inserted in Chapter 8 so as to exclude this product from its purview. These changes come into immediate effect under the Provisional Collection of Taxes Act, 1931.



ii. In the case of tariff item 5801 2210, columns (3) and (4) of the Schedule, unit and rate of duty of 8% have been inserted in column (3) and (4) respectively, with immediate effect.






iii. Section 9A (2) of the Central Excise Act has been amended so as to exclude certain types of offences and circumstances from the purview of the compounding provisions.


iv. Sections 14A and 14AA have been amended to provide that the Chief Commissioner may also nominate Chartered Accountants for conducting special audits under these provisions.


v. Section 23A has been amended to prescribe that the Authority for Advance Rulings authorised under section 28F of the Customs Act would be competent to deal with cases under the Central Excise Act as well.


vi. Sections 35G and 35H have been amended to empower High Courts to condone delay in the filing of appeals as well as the memorandum of cross objections where it is satisfied that there was sufficient cause for delay.


vii. Three notifications viz. notification Nos.33/1997-Central Excise [N.T.], dated 01.08.1997, 44/1997-Central Excise [N.T.], dated 30.08.1997 and 7/1998-Central Excise [N.T.], dated 10.03.1998 issued under the provisions of the compounded levy scheme for steel induction furnace units and re-rolling mills (Rules 96ZO and 96 ZP) are being amended with retrospective effect so as to regularise fixation of rates of duty under these notifications.


viii. Rule 6(3) Cenvat Credit Rules, 2004 has been amended to prescribe that a manufacturer of both dutiable and exempted goods, who does not maintain separate accounts of inputs, shall now pay an amount equal to 5% of the total price of exempted goods.


ix. Rule (2) of Cenvat Credit Rules, 2004 has been amended to clarify that ‘input’ should not include cement, angles, channels, CTD/TMT bars etc. used for construction of shed, building or structure for support of capital goods.


x. The Central Excise Rules, 2002 have been amended to provide that seized records that have not been relied upon should be returned to the party within 30 days of issue of a show cause notice.




II.1. Rate Structure:


There is no change in the overall rate structure of customs duties. As such, the peak rate for industrial goods has been retained at 10% and the major ad valorem rates of 5% and 7.5% have also been retained. Changes in the rate of duty on specific items are discussed in subsequent paras.










II.2. Precious Metals


Rates of basic customs duty on gold and silver have been increased as under:-


S. No.             Item                                                            From                        To


   1.      Gold bars, other than tola bars, bearing     Rs. 100 per   Rs. 200 per

 Manufacturer’s or refiner’s engraved           10 gm                       10 gm

 serial number and weight expressed in

 metric units, and gold coins


   2.      Gold in any form (other than those      Rs. 250 per            Rs. 500 per

specified, against S. No. 1)                               10 gm                     10 gm



   3.     Silver in any form                                               Rs. 500                   Rs. 1,000

     per Kg                   per Kg


The revised rates shall also apply to gold and silver including gold/silver ornaments (excluding ornaments studded with stones or pearls) imported as baggage.


II.3. Capital Goods:


II.3.1 Concessional rate of basic customs duty of 5% was earlier available to specified plantation machinery till 30.04.2009. This concessional rate of 5% has now been restored for one more year i.e. upto 06.07.2010.


II.3.2 Basic customs duty on 'mechanical harvester' for coffee plantation has been reduced from 7.5% to 5%. Such harvesters have also been exempted from CVD by way of excise duty exemption.


II.3.3 Basic customs duty on permanent magnets for manufacture of PM synchronous generators above 500KW for use in wind operated electricity generators has been reduced from 7.5% to 5%.



II.4 Export Promotion:


II.4.1 Full exemption from customs duty presently available to specified raw materials/inputs imported by manufacturer-exporters of sports goods has been extended to five additional items.


II.4.2 Similarly, full exemption from customs duty is presently available to specified raw materials and equipment imported by manufacturer-exporters of leather goods, textile products, and footwear industry. The list of such items has been expanded by including additional items.





II.4.3 Basic customs duty on unworked corals has been reduced from 5% to Nil.


II.5. Electronic industry:


II.5.1 Full exemption from basic customs duty available to set-top boxes has been withdrawn. They will now attract basic duty of 5%.


II.5.2 Basic customs duty on LCD panels for manufacture of LCD televisions has been reduced from 10% to 5%.


II.5.3 Full exemption from 4% special CVD on parts for manufacture of mobile phones and accessories has been reintroduced for one year i.e. upto 06.07.2010.


II.6. Drugs and Medical Devices:


II.6.1 Basic customs duty on nine specified drugs and bulk drugs for their manufacture, and one vaccine has been reduced from 10% to 5%. CVD on these items would also be exempted by virtue of full exemption from excise duty.


II.6.2 Basic customs duty on Patent Ductus Arteriosus/ Atrial Septal Defect occlusion devices is being reduced from 7.5% to 5% with Nil CVD by way of excise duty exemption. Similarly, basic customs duty on Artificial Heart (left ventricular assist device) is being reduced from 7.5% to 5%. This device already attracts nil excise duty/CVD.


II.7. Textiles:

Basic customs duty on cotton waste and wool waste has been reduced from 15% to 10%.


II.8. Miscellaneous:


II.8.1 Basic customs duty on rock phosphate has been reduced from 5% to 2%.


II.8.2 CVD exemption on Aerial Passenger Ropeway Projects has been withdrawn. Such projects will now attract applicable CVD.


II.8.3 Basic customs duty exemption on “concrete batching plants of capacity 50 cum per hour or more” available by virtue of exemption on specified machinery for construction of roads has been withdrawn. Such plants will now attract basic duty of 7.5%.


II.8.4 Basic customs duty on inflatable rafts, snow-skis, water skis, surf-boats, sail-boards and other water sports equipment has been fully exempted.


II.8.5 Basic customs duty on bio-diesel has been reduced from 7.5% to 2.5%








II.9 IT Software


On packaged or canned software, CVD exemption has been provided on the portion of the value which represents the consideration for transfer of the right to use such software, subject to specified conditions. This portion of the value is leviable to service tax as “Information Technology Software Service’. Although, the CVD exemption has not been made conditional upon the payment of service tax, it is requested that a mechanism be put in place to ensure regular exchange of information on details of importers availing of the exemption between the customs and service tax formations so that, where necessary, action for recovery of service tax may be taken.


II.10 Important Legislative amendments:


The major changes in the Customs Act and Customs Tariff Act are discussed below:


i. Section 26A has been inserted in the Customs Act to provide for refund of import duty paid on imported goods if they are found to be defective or not conforming to the specifications agreed upon between the importer and the seller, subject to certain conditions.


ii. Section 28F of the Customs Act has been amended to provide that the Central

Government may by notification authorize the Authority for Advance Ruling constituted under Section 245-O of the Income Tax Act to act as an Authority for

the purposes of customs, central excise and service tax subject to some modification regarding the constitution of the Authority. The change will come into effect from a date to be notified.


iii. Sections 130 and 130A of the Customs Act have been amended to empower the High Court to condone the delay in filing of appeals/applications/memorandum of cross objections where it is satisfied that there is sufficient cause for delay.


iv. Section 137 of the Customs Act has been amended to exclude certain types of offences and circumstances from the purview of compounding provisions.


v. Section 3 of the Customs Tariff Act has been amended so as to provide that where the Central Government has fixed tariff value for collection of central excise duty on an article produced or manufactured in India, the value of a like imported article for the purpose of charging additional duty shall be such tariff value.


vi. Sections 8B, 8C, 9 and 9A of the Customs Tariff Act, 1975 have been amended retrospectively so as to extend the machinery provisions of the Customs Act to the duties levied under these provisions.





vii. Sub-section (6A) has been inserted in section 9A of the Customs Tariff Act so as to provide that the margin of dumping in relation to an article exported by an exporter or producer shall be determined on the basis of records maintained by such exporter or producer and on the basis of information available in the case of

non-cooperating exporter or producer.


viii. Para (A) in Note 2 of Section XI of the Customs Tariff Act has been amended so as to align it with the parallel provision in the Central Excise Tariff Act.


ix. Notification   No. 40/2006-Customs dated 01.05.2006 is sought to be amended retrospectively from its date of issue so as to allow the facility of rebate in respect of locally procured materials used in the manufacture of goods exported under the Duty Free Import Authorisation Scheme and to carry out other related changes.


x. Notification No. 27/2009-Customs (NT) dated 17.03.2009 appointing officers of

DGCEI as officers of customs with all India jurisdiction is sought to be given retrospective effect from 09.05.2000.




New Services included in the list of Taxable Services


The following new services are proposed to be included in the list of taxable services. These services would get covered under the list of taxable services from a date to be notified after the enactment of Finance (No. 2) Bill, 2009.


III.1 Transport of Goods through Rail:


 Presently, transportation of goods in containers by rail, by other than Government railways is taxable under section 65(105)(zzzp) since 2006. It is now proposed to impose service tax on goods transported by railways including Government railways, whether in containers or otherwise. Suitable abatement and exemption to specified goods would be provided through issuance of notification at the appropriate time.


III.2 Transport of Coastal Goods; and Goods transported through Inland  water:


Coastal goods (as defined under the Customs Act) and transport of goods through National Waterways, and inland waters are proposed to be brought under tax net. Suitable abatement and exemption to specified goods would be provided through issuance of notification at the appropriate time.










III.3 Legal Consultancy Service:


 As in the case of management consultancy or engineering consultancy service, any consultancy, advice or technical assistance provided in any discipline of law is proposed to be subjected to service tax. However, the tax would be limited to services provided by a business entity to another business entity. It has been defined that a business entity includes firms, associates, enterprises, companies etc. but does not include an individual. Thus, services provided by an individual advocate either to an individual or even to a business entity would be outside the scope of the taxable service. Similarly, the services provided by a corporate legal firm to an individual would also be outside the purview of taxable service. Any service of appearance before any court of law or any statutory authority would also be kept outside this levy.


III.4 Cosmetic and Plastic Surgery service:


III.4.1  Beauty treatment service provided by saloons, beauty parlors and beauticians are taxable since 2002. The service now proposed to be taxed is cosmetic surgery and plastic surgery undertaken to preserve or enhance physical

appearance or beauty. As per common definition, surgery is a medical technology consisting of a physical intervention on tissues. As a general rule, a procedure is considered surgical when it involves cutting of a patient’s tissues or closure of a previously sustained wound. Commonly surgery is performed in a sterile environment with anesthesia and antiseptic conditions using surgical instruments. It also includes ‘non-invasive’ surgery.


III.4.2 Some of the commonly known aesthetic/cosmetic surgeries are abdominoplasty (tummy tuck); bletharoplasty (eyelid surgery); mammoplasty; buttock augmentation and lift; rhinoplasty (reshaping of nose); otoplasty (ear surgery); Rhytidectomy (face lift); liposuction (removal of fat from the body); brow lift; cheek augmentation; facial implants; lip augmentation; forehead lift; cosmetic dental surgery; orthodontics; aesthetic dentistry; laser skin surfacing etc.


III.4.3  However, any reconstructive surgery undertaken to restore one’s appearance, anatomy or bodily functions affected due to congenital defects, developmental abnormalities, degenerative diseases, injury or trauma would be outside the scope of this service. These processes could be undertaken to correct impairment caused by burns, fractures or congenital abnormalities like cleft lip etc.


III.5 Alteration in the scope of existing taxable services :


The following alteration/modifications have been done in the existing taxable services. These changes would come into effect from a date to be notified after the enactment of the Finance (No. 2) Bill, 2009.







III.5.1 Modification in Business Auxiliary Service (BAS) [section 65(19)]: It may be recalled that production or processing of goods for or on behalf of a client falls within the purview of this service. However, if any such activity amounts to manufacture within the meaning of section 2(f) of the Central Excise Act, the same is excluded from its purview. This exclusion has been modified to state that it would apply only if the activity results in manufacture of ‘excisable goods’. Both the words/phrases i.e. ‘manufacture’ and ‘excisable goods’ would have the same meaning as defined under the Central Excise Act. The impact of this change would be that even if a process of manufacture is undertaken for the client, but the resultant product does not fall under the category of excisable goods, such as

alcoholic beverages, the service tax would be attracted. Certain other goods which would also fall under BAS on account of the proposed change would be kept outside the tax net by way of exemption notification, to be issued at the appropriate time.


III.5.2  Stock-broker Service [section 65(105)(a)]: The present definition of a stockbroker [section 65(101)] includes sub-broker as well. A number of cases have been booked in the recent past where the sub-brokers have been asked to pay tax on the remuneration they receive from the stockbroker. Previously, the sub-brokers could issue contract note and receive amounts from the investors. With effect from 01.06.2005, SEBI regulations have prohibited sub-brokers from these activities. The role of sub-brokers has thus reduced substantially. Considering that the entire broking charges are anyway taxable at the hands of stock-broker and a large number of small sub-brokers have to comply with the service tax laws, the sub brokers have been excluded from the purview of service tax by making suitable amendment in the definition of stock-broker. It is also clarified that such sub brokers should also not be charged to service tax as commission agents under Business Auxiliary Service. For this purposes, specific exemption notification would be issued at the appropriate time.


III.5.3  Information Technology Software Service [section 65(105)(zzzze)]: A correction has been carried out in the definition of the taxable service by replacing the word ‘acquiring’ by the word ‘providing’, considering the fact that it is the providing of ‘right to use’ and not the acquiring of ‘right to use’ is a taxable service. This amendment would have retrospective effect from 16.05.2008, when the service came into effect.


III.6 Other changes in the Finance Act, 1994:


III.6.1  While most of the procedures under service tax law are aligned to that of the central excise, one of the exceptions is the treatment to an order-in-original passed by an officer subordinate to Commissioner, if the same is not acceptable to the Commissioner on account of its lack of legality or appropriateness. While section 35E of the Central Excise Act, 1944 prescribes a departmental appeal being filed against such order before the Commissioner (Appeals), section 84 of the Finance Act, 1994 prescribes revision of such orders, which amounts to recalling the order and re-adjudicating it. Field formations as well as trade has requested that the service tax procedure should be amended to make   it  in   line





 with the central excise procedure. The same has been done by suitably amending section 84 with certain consequential amendments in section 86. This provision would come into effect from the date of enactment of the Finance (No. 2) Bill, 2009. All cases decided before this date would continue to be governed by the existing provisions.


III.6.2 The service tax rules suffer from the deficiency of not having provisions relating to (1) relevant date for determination of rate of service tax and (2) place of provision of taxable services. For this purposes section 94 of the Act is being amended to empower the Central Government to make rules in this regard. This provision would come into effect from the date of enactment of the Finance (No. )

Bill, 2009.


III.6.3 Goods Transport Agents (GTAs) receive several services from other service providers (such as warehouse keeper, cargo handlers, C&F agents) during the movement of goods, en-route. While these individual services are taxable at the hands the service providers, the GTA cannot take credit of tax paid on such services, as the abatement allowed to them is subject to condition that no credit should be availed. This matter was agitated by the GTAs, and the government agreed to exempt such services. Consequently, notification No. 1/2009-ST dated 05.01.2009 was issued. It was, however, pointed out by GTAs that litigation is pending for the past period. In this regard Board’s letter F. No. 137/175/2007-CX.4 (Vol. II) dated 22.04.2009 was sent to the field formations to identify such cases, as the Government has promised to drop all past demands/litigation on this matter, latest by the end of August, 2009. In order to enable the field formations to dispose of the pending demands and discharge the notices issued for the past period, the said notification No. 1/2009-ST is being given retrospective effect (with effect from 01.01.2005) through changes made in the Finance (N0. 2) Bill, 2009. Upon the enactment of the Bill, field formations must be directed to take up these cases on priority and ensure that all such cases are disposed of latest by 31st August, 2009.


III.7. Amendments in Rules (pertaining to service taxpayers):


III.7.1  Changes in the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007: These rules provide a simplified procedure for working out the tax liability by the service providers providing works contract service. Instead of working out the service element from the value of works contract and paying service tax at full rate (i.e. 10%) the service provider is allowed to pay 4% on the ‘gross amount charged’ for the works contract. The reason for prescribing the lower rate under the scheme is that the service provider need not bifurcate the gross value of works contract. It was expected that the gross value should be shown to include the total value of materials as well as services used in providing the taxable services. However, it has been reported that in certain cases, the taxpayers are not including the full value of the goods required for execution of works contract for working out service tax liability under the Composition Scheme by either excluding the value of goods received free of cost from their client or splitting the contract into a sale contract (for a portion of goods required to execute the works contract) and works contract (for only a portion of the total




value of goods and the labor charges), thus reducing the value of works contract for the purposes of calculating service tax. In order to plug this loophole, the Explanation appearing in sub-rule (3) is being amended to provide that the composition scheme would be available only to such works contracts where the gross value of works contract includes the value of all goods used in or in relation to the execution of works contract whether received free of cost or for consideration under any other contract. This condition would not apply to those works contracts, where either the execution of works contract has already started or any payment (whether in part or in full) has been made on or before the date of the amendment, i.e. 07.07.2009, from which the said amendment becomes effective (refer notification No.23/2009-ST dated 07.07.2009).


III.7.2  Amendments made in CENVAT Credit Rules (pertaining to service tax)


III.7.3 Rule 3(5B) of the CENVAT Credit Rules provide that, if value of any input  or capital goods on which CENVAT credit has been taken, is written off fully or where provision to write off has been made in the books of account before being put to use, the ‘manufacturer’ shall pay an amount equivalent to the CENVAT credit taken on such item. Similar provision is presently not prescribed in case of taxable service provider. The said sub-rule is being amended to bring taxable service provider within the ambit of the said restriction. This provision would come into force immediately (Refer notification No.16/2009-CE (NT), dated 07.07.2009).


III.7.4 Rule 6(3) provides an option for a provider of taxable as well as exempt services, using common inputs or input services, but opting not to maintain separate accounts to pay an amount of 8 per cent of the value of exempted service. This provision was made when the rate of tax on taxable services was 12 per cent. Since the service tax rate has been reduced to 10 per cent, the said amount payable on the exempted services is being reduced from 8 per cent to 6 per cent of the value of exempted service. This provision would come into force immediately (Refer notification No16/2009-CE (NT), dated 07.07.2009).


III.7.5 For changes made in the Taxation of Services (Provided from Outside  India and Received in India) Rules, 2006, please see para 7.1


III.8 Exemptions:


III.8.1 Private bus operators, who operate buses on specific inter-state or intra-state routes, are required to pay service tax as they ply their buses having ‘contract carriage permits’ and thus fall within the definition of tour operators. On the other hand the State Undertakings run buses, which run on the same route carrying passengers, are not subjected to service tax as these buses bear ‘stage carriage permit’. In order to bring parity between the two, the services provided by the tour operators undertaking point-to-point transportation of passengers in a vehicle bearing contract carriage permit is being fully exempted from service tax, provided such transportation is not in relation to tourism or conducted tours, or charter or hire. (Notification No. 20/209-ST dated 07.07.09 refers).





III.8.2 Sale and purchase of foreign exchange/money changing were made taxable in the past. The inter-bank transactions of purchase or sale of foreign currency, when undertaken by scheduled banks, is being exempted. (Notification No. 19/2009-ST dated 07.07.09 refers). Scheduled banks under this notification mean the banks, which are included in the Second Schedule of the Reserve Bank of India Act, 1934.


III.8.3 Associations, including trade associations, are taxable under clubs and association service. Federation of Indian Export Promotion Organization (FIEO) and twenty-one specified export promotion councils sponsored by the Department of Commerce or by the Ministry of Textiles are being exempted from the levy of service tax under the said service. This exemption would remain valid till 31.03.2010. (Notification No. 16/2009-ST dated 07.07.09 refers)


III.8.4 All the exemptions mentioned above would come into force immediately.


III.9 Changes in territorial jurisdiction:


III.9.1 Vide notification No. 1/2002-ST dated 01.03.2002, the provisions of Chapter V of the Finance Act, 1994 (which governs the levy and collection of service tax were extended to the designated areas in the Continental Shelf of India (CSI) and the Exclusive Economic Zone (EEZ) of India, as declared by Ministry of External Affairs Notification Nos. S.O. 429(E) dated 18.07.1986 and S.O. 643 (E) dated 09.09.1996. Notification No. 1/2002-ST has been amended to extend the provisions of Chapter V of the Finance Act, 1994 to installations, structures and vessels in the entire CSI and EEZ of India. Thus, services provided to or from CSI and EEZ of India would be covered within the ambit of the provisions relating to service tax w.e.f. 07.07.2009 (Notification No. 21/2009-ST dated 07.07.09 refers). Consequential changes have also been made in the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (Notification No. 22/2009-ST dated 07.07.09 refers).




III.10 Changes in the scheme for refund of service tax to the exporters of



III.10.1 Notification No. 41/2007-ST dated 06.10.2007 provides for a scheme of refund of service tax paid on taxable services, received and used in connection with export of goods by the merchant/manufacturer-exporter. This notification has been amended several times in order to include a number of taxable services within the scheme and also to facilitate speedier disposal of the refund claims. The Board has also issued a number of circulars. Despite these efforts, representations have been received from trade and industry that there are inordinate delays in grant of refund claims and in many cases the refund is denied or notices are issued to the exporters. On the other hand, the field formations have expressed difficulties in implementing the conditions and following the procedures laid down in the said notification and the circulars






issued from time to time. In order to ensure that exporters get refunds speedily, the entire scheme has been revamped. The new scheme would consist of two parts.


III.10.2 Exemption to taxable services


The following two services have been exempted, if they are used for export of goods and where the liability to pay the tax on such services is on the exporter himself, on reverse charge basis, -


(i) Transport of goods by road, from the place of removal to any ICD, CFS, port

or airport; or from any CFS or ICD to the port or airport; and


(ii) Services provided by a foreign commission agent for procuring orders.


This has been done in order to avoid the circuitous route of first paying the tax and then receiving the refund. An exporter registered with an export promotion council, sponsored by Ministry of Commerce or Ministry of Textiles, having Import-Export Code Number and registered with the Department under section 69 of the Finance Act, 1994 for his liability under reverse charge is eligible to claim this exemption. (Notification No. 18/2009-ST dated 07.07.2009 refers).


III.10.3  Modified Refund Scheme


Notification No. 41/2007-ST is being superseded by Notification No. 7/2009-ST dated 07.07.2009 prescribing refund scheme in respect of 16 taxable services. Service of ‘terminal handling’ has been added in the existing list of taxable services. The service ‘transport of goods through road’ is also included in this list to cover such exporters who are not liable to pay service tax under reverse charge mechanism. The services of foreign commission agents have been deleted from the list, as it is comprehensively covered under Notification No. 18/2009-ST dated 07.07.2009. While the general structure of the notification is similar to that of  Notification No. 41/2007-ST, the new scheme is essentially trust based i.e. refund is to be granted on self-certification/certification by Chartered Accountant.