Amidst huge expectations, the Hon’ble Finance Minister Shri. Arun Jaitley presented the first full-year Union Budget of the Hon’ble Prime Minister Shri. Narendra Modi's Government on February 28, 2015, Saturday in the backdrop of easing inflation and interest rates but continued growth challenges which the Government needs to address. While considering Goods and Service Tax (“GST”) as a ‘game changing reform’, Shri. Arun Jaitley said that ‘GST will put in place a state-of-the-art indirect tax system by 1st April, 2016’. We are discussing herewith some of the key concerns on Union Budget 2015, which needs to be addressed/ clarified by the Central Board of Excise and Customs (“the CBEC or “the Board”):
1. Withdrawal of Education Cess ("EC") and Secondary and Higher Education Cess ("SHEC") [collectively referred to as “Cess”] – A Double-Edged Sword
With the underlying theme of setting the stage for Goods and Services Tax (“GST”), the Union Budget, 2015 has proposed to do away with the Cess. While withdrawal of Cess on Excise duty has been made effective from March 1, 2015, as a parallel change, Cess on Service tax has also been proposed to be withdrawn from the date to be notified after enactment of the Finance Bill, 2015. It is worthwhile here to note that there is no proposal to do away with the Cess on Customs duty and hence Cess on Customs duty will continue to be levied.
Key Concerns: The said amendment brings many unaddressed issues presenting the Industry at large with a bouquet of concerns.
The provisions of Rule 3(7)(b) of the Cenvat Credit Rules, 2004 (“the Credit Rules”) permit utilisation of Cenvat credit of Excise duty/ Service tax for payment of Cess but not vice versa:
“Provided that the credit of the education cess on excisable goods and the education cess on taxable services can be utilized, either for payment of the education cess on excisable goods or for the payment of the education cess on taxable services:
Provided further that the credit of the Secondary and Higher Education Cess on excisable goods and the Secondary and Higher Education Cess on taxable services can be utilized, either for payment of the Secondary and Higher Education Cess on excisable goods or for the payment of the Secondary and Higher Education Cess on taxable services.....” In the light of the stated provisions under Rule 3(7)(b) of the Credit Rules, following questions are left unanswered:
a) What will be the fate of balance of Cess lying unutilized in the hands of manufacturer as on March 1, 2015 and service provider (from a date to be notified)?
With the Cess on Excise duty being withdrawn effective from March 1, 2015, the major issue which crops up is the destiny of the amount of Cess lying unutilized in the hands of the manufacturers. While the service providers are in a position to utilize the existing balance of unutilised Cess lying in their hands before the enactment of the Finance Bill, 2015 but what will happen to amount of Cess lying unutilized after enactment of Finance Bill, 2015.
b) What happen for Cess charged on the excisable goods in transit, received in the factory after March 1, 2015?
It is likely that there may be a situation of excisable goods in transit as on March 1, 2015, which will involve an element of Cess as the supplier of raw material would have charged Cess. Now, what will happen for such Cess already charged on excisable goods received on or after March 1, 2015.
c) Time lag between effective dates of withdrawal of Cess under the Service Tax and the Central Excise – Accumulation of Credit in the hands of manufacturers.
Since Cess on Service tax will continue, albeit for some time, a service provider shall charge Cess to the manufacturer. In terms of the Credit Rules, while the manufacturer shall be entitled to avail Credit of such Cess, the question is as to how the manufacturer will utilize Credit of such Cess. With no Cess on Excise duty, the manufacturer will merely accumulate such Credit of Cess without
any option for its utilization.
d) Accumulation of Cess distributed by an Input Service Distributor (“ISD”) to manufacturing Unit
As an ISD distributes Cess portion also to the factory or the plant, on the services received by it, which will only accumulate at the factory or plant in the absence of any provision for its utilization.
e) What will be the treatment of balance 50% of the Credit of Cess on the Capital goods?
In case of Capital goods, 50% of the Cenvat credit is taken in the current year and balance 50% Cenvat credit is taken in subsequent financial year. Now, in a situation where Capital goods are purchased during the financial year 2014-15, 50% of Cenvat credit of Cess is taken in the current year and balance 50% Cenvat credit of Cess on Capital goods would be taken in the subsequent
financial year i.e. 2015-16. Accordingly, the assessee would confront the problem of utilizing the additional 50% Credit of Cess w.e.f March 1, 2015 (manufacturer) and from a date to be notified for
For more details follow this link:- http://www.caclubindia.com/articles/post-budget-2015-memorandum-key-concerns-on-union-budget-2015-23335.asp#.VQkCkOHs7cd