India: Indian Budget 2018 | Indirect Tax

Last Updated: 2 February 2018
Article by Khaitan & Co. Indirect Tax Team

Most Read Contributor in India, August 2018

CUSTOMS LAW

Legislative changes (effective from the date of Presidential assent)

  • The law is proposed to be amended to give extra-territorial jurisdiction in respect of offences committed outside India, and proposes to include non-resident offenders. The Amendment empowers the revenue department to launch proceedings, inter alia, against foreign suppliers for abetting duty evasion or circumvention of regulations.
  • The Amendment proposes to empower custom officers to undertake search of vessels and conveyances, confiscate goods, and arrest people in the Exclusive Economic Zone (EEZ) of India. The EEZ extends up to 200 nautical miles from the baseline. Earlier, such power was restricted to the Contiguous Zone of India, i.e., 24 nautical miles. This will prevent intrusion of hostile persons in the EEZ.
  • Various enactments of Parliament regulate the import and export of goods such as drugs & cosmetics, food, pesticides etc. Further, the Foreign Trade Policy and Indian Trade Classification (Harmonised System) (ITC (HS)) issued under the Foreign Trade (Development & Regulation) Act, 1992 lays down a licensing regime for import and export, of dual-use items and technologies notified under Special Chemicals, Organisms, Materials, Equipment and. Technologies List (SCOMET). It is proposed that any such regulation on import or export would not be effective, unless it is also notified under the Customs Act, 1962 (Customs Act).
  • The Government has to issue the requisite notification under Section 11 of the Customs Act, in order to give effect to other enactments that regulate import and export, as they are mandatorily obligated on account of security, public safety, or international obligations. This amendment seems to be contrary to the provisions contained in Section 111(d) and Section 113(d) of the Customs Act which mandate compliance with other laws.
  • Amendments are proposed to substantially overhaul demand and adjudication proceedings:

    • Pre-notice consultations with the importer/ exporter will be required before issuance of notice.
    • Notices issued under Section 28 of the Customs Act shall be adjudicated in a time bound manner, failing which notices will lapse.
    • Wherever notice for extended periods (5 years) do not survive, in the absence of collusion, willful mis-statement, or suppression, the notice will be deemed to have been issued for a normal period (2 years), and duty/interest will be computed accordingly.
  • The Amendment proposes substantial changes to the mechanism for obtaining advance rulings:

    • In line with the obligations under the World Trade Organization Trade Facilitation Agreement (which came into force on 22 February 2017), the definition of 'applicant' has been broadened to permit more persons to approach the advance ruling authority.
    • The Authority has been made two tier: Customs Authority for Advance Ruling (CAAR), and Appellate Authority for Advance Ruling (AAAR). Principal Commissioner or Commissioner of Customs shall be CAAR. Present Authority for Advance Ruling shall become the AAAR. On appointment of CAAR, all pending applications shall stand transferred to CAAR.
    • CAAR has to give a ruling within three (3) months.
  • As a measure to apparently link customs with GST, option of making duty payments through an electronic cash ledger (operational in GST) has been introduced.
  • A new provision proposes to provide for a customs audit. This will replace the on-site post clearance audit regulations of 2011. The 2011 regulations were not implemented widely.
  • Option to redeem confiscated goods on payment of redemption fine shall be exercised within 120 days of the order, unless an appeal is pending against such order. Failure to redeem goods within prescribed time will render confiscation absolute.
  • Appellate Commissioner of Customs is empowered to remand a case back to the original adjudicating authority in case there is a breach of the principles of natural justice.
  • Mode of service for official communication has been amended and brought in line with the modes of service prescribed under GST law.
  • IGST forming part of customs duty on the clearance of into-bond transferred goods shall be as below:

    • The higher of the in-bond sale value or Assessable value, being aggregate of assessable value under Section 14 of the Customs Act + basic customs duty + Social Welfare Surcharge (if any);
    • In case of multiple in-bond sales, the in-bond sale value of the last sale or Assessable value (as determined above), whichever is higher.

New levy (effective from 2 February 2018)

The Budget has replaced Education Cess and Secondary & Higher Education Cess with the following:

  • Social Welfare Surcharge @ 10% on the aggregate duties of customs levied at the time of import. Petrol and High Speed diesel (HSD), unwrought or semi-manufactured silver and gold are subjected to surcharge @3%.
  • Road and Infrastructure Cess @ INR 8/liter on domestically produced petrol and High Speed diesel. Import of petrol and HSD has been exempted from this cess.

Customs Duty rates tracker

The standard rate of Basic Customs Duty (BCD) of 10% remains unchanged.

Key BCD rate changes

Description of Goods Existing rate New Rate
Cashew nuts in shell 5% 2.5%
Crude edible vegetable oils 12.5% 30%
Refined edible vegetable oil 20% 35%
Orange fruit juice 30% 35%
Cranberry juice 10% 50%
Miscellaneous food preparations (other than soya protein) 30% 50%
Kites 10% 20%
Articles of stone containing magnesite, dolomite or chromite 10% 7.5%
Ceramic goods of siliceous fossil meals / siliceous earths 10% 7.5%
Refractory goods 5% 7.5%
Solar tempered glass used in manufacture of solar cells/panels/modules 5% Nil*
Silica used in manufacture of optical fibre cables Nil* 5%*
Diamonds; Cut and polished coloured gemstones 2.5% 5%
Specified goods used in manufacture of LCD / LED TV panels Nil* 10%*
Motor vehicles imported as

(a)Completely Knocked Down (CKD) kit;

(b)Other form

10%

20%

15%

25%

Raw materials, parts or accessories for manufacture of Cochlear Implants 2.5% Nil*
Lamps and lighting fittings excluding solar lantern / solar lamps 10% 20%
Silk fabrics 10% 20%
Moulded plastics of charger or adapter of cellular mobile phones Nil* 10%

*Subject to conditions

EXCISE DUTY

  • Imposition of Road and Infrastructure Cess: An Additional Duty of Excise called the Road and Infrastructure Cess has been imposed on petrol and highspeed diesel (HSD) oil at the rate of INR 8 per litre. This levy will come into effect immediately. The levy is in lieu of erstwhile Road Cess imposed on such products at the rate of INR 6 per litre which is now being abolished.
  • Reduction in Basic Excise Duty on petrol and diesel: Basic Excise Duty on petrol and diesel has been reduced by INR 2 per litre to neutralize the incremental impact of Road and Infrastructure Cess. Accordingly, the total Excise Duty burden on motor spirit, commonly known as petrol and HSD, remains unchanged.
  • Exemption from levy of Road and Infrastructure Cess: The following exemptions have been granted from levy of Road and Infrastructure Cess namely:

    • 50% exemption on petrol and HSD manufactured in and cleared from four specified refineries located in North-East
    • Full upfront exemption from Road and Infrastructure Cess on – (i) 5% ethanol blended petrol (ii) 10% ethanol blended petrol and (iii) bio-diesel up to 20% by volume subject to the condition that appropriate excise duty on petrol or diesel and appropriate GST on ethanol or bio-diesel has been paid.

SERVICE TAX

  • Retrospective exemption to specified services: Retrospective exemptions from levy of service tax has been granted to the following services:

    PARTICULARS EXEMPTION FROM
    Services by Naval Group Insurance Fund by way of life insurance to personnel of Coast Guard under Group Insurance Schemes of Central Government 10 September 2004
    Services by Goods and Services Tax Network (GSTN) to the Central Government, State Government, or Union Territories 28 March 2013
    Services by way of grant of license or lease by Government to explore or mine petroleum crude or natural gas or both, when the consideration is paid in the form of its share of profit petroleum 1 April 2016

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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