The Finance Bill, 2002 has been presented in Parliament. A lot of
debate is expected to take place before the bill becomes law. Some of the proposals
mentioned in the bill are fairly controversial and open to more than one point of view.
This article aims to present a bird eye’s view of the various indirect tax proposals
proposed by the Finance Minister. It is based on the speech of the Finance Minister in the
Parliament while presenting the budget. Obviously, on indepth study of the bill, more
intricacies will be found in the bill and debated. Given below are the proposed changes in
indirect tax laws :-
Excise Duty
The Finance Minister proposes to abolish the 16% special excise duty on a number of
items. Henceforth, the special excise duty shall be confined to the following
8 items only:-
The Finance Minister proposes to remove the concessional rate of 8% excise duty
applicable to LPG, kerosene, auto CNG and diesel engines upto 10 HP which will now attract
the cenvat rate of 16%.
In the last year’s budget, the Finance Minister had imposed excise duty at a
moderate rate of 4% on a few items. The Finance Minister proposes to increase this rate
from 4% to the next slab of 8% this year. Simultaneously, the Finance Minister proposes to
impose excise duty at 4% on a few more items, which have remained exempted so far.
Cigars, cheroots and cigarillos of tobacco or tobacco substitutes which have been exempt
so far shall attract 16% CENVAT.
In view of the abolition of Administered Price Mechanism on petroleum products and in
order to provide for the subsidy on LPG and kerosene oil, the Finance Minister proposes to
make some changes in the duty structure of petroleum products. The rate of cess applicable
to indigenous crude oil under the Oil Industry (Development) Act will be increased from Rs
900 per metric tonne to Rs 1800 per metric tonne with effect from 1st March 2002. The
Finance Minister proposes to reduce the ad valorem rate of excise duty applicable
to motor spirit from 90% to 32%. However, the Finance Minister proposes to impose on it a
surcharge of Rs.6/- per liter. But the surcharge on ethanol doped motor spirit will be Rs.
5.25/- per liter.
Textile Industry :
The Finance Minister proposes to maintain the excise duty rates on yarns. At present,
cotton hank yarn is exempt from excise duty. In order to ensure that the benefit accrues
only to the handloom weavers, the Finance Minister proposes to bring hank yarn within the
net of excise duty at 8%, but at the same time, provide for appropriate subsidy on the
price of hank yarn purchased by them.
In order to enable the weavers to avail of CENVAT credit scheme,
the Finance Minister proposes to allow the weavers of grey fabrics to pay excise duty on
an optional basis. The Finance Minister proposes to extend a similar option to the
knitting sector.
In the case of textiles, the Finance Minster proposes to grant a remission of 4% from
the CENVAT rate of 16% in the excise duty structure. The rate of excise duty on fabrics,
made ups and garments would be 12%. This special dispensation shall continue upto
28.2.2005. Industrial fabrics would however continue at 16%.
Currently, hand processing of textile fabrics by independent processors is exempt from
excise duty even if power is used on 12 specified processes in the case of cotton fabrics
or 7 specified processes in the case of man made fabrics. The Finance Minister proposes to
confine this exemption to only 3 processes, namely, scouring, hydro-extraction and
calendering.
The Finance Minister proposes to abolish the compounded levy scheme for independent
power processors.
Excise duty exemption on handloom fabrics continues. The Finance Minister proposes to
grant exemption to handloom garments also from excise duty subject to certification by
Handloom Export Promotion Council.
In order to enable the textile industry to modernize itself and acquire new technology,
the Finance Minister proposes to exempt excise duty on automatic shuttleless looms. The
Finance Minister also proposes to exempt excise duty on specified processing machinery and
specified silk reeling, weaving and twisting machinery. The customs duty on such machinery
is also proposed to be reduced from 25% to 10%. It is also proposed to exempt specified
jute machinery from excise duty.
With effect from 1st March 2002, the petroleum products produced by all refineries
located in the North East Region shall be charged to excise duty at half of the normal
rates of excise duty otherwise applicable to petroleum products.
Inland Air Travel Tax is exempted for air travel within the North East States. The
Finance Minister proposes to extend this exemption on air travel to and from North East
States.
The Finance Minister proposes to reduce the excise duty on tea from Rs 2 per kg to Re.1
per kg.
The Finance Minister proposes to exempt specified anti-AIDS drugs from excise duty with
effect from 1st March 2002.
Specified cold chain equipment is exempt from excise duty. The Finance Minister proposes
to add three more equipment to this list to promote the preservation of fruits and
vegetables.
The excise duty exemption scheme for the small-scale sector is applicable to granite. In
view of the fact that it is not available to marble. The Finance Minister proposes to
withdraw this exemption from granite also.
The Finance Minister proposes to extend the scheme of levying excise duty on Maximum
Retail Price basis to 9 more categories of items this year, thus raising the number to 92
categories of items.
Service Tax
The Finance Minister proposes to extend the service tax to the following services with
effect from a notified date :-
Life insurance, including insurance auxiliary services relating to life insurance
Inland cargo handling
Storage and warehousing services (except for agriculture produce and cold storages)
Event management
Rail travel agents
Health Clubs & Fitness Centers
Beauty parlours
Fashion designers
Cable operators
Dry cleaning services
Service tax is applicable to specified services provided by banks and non-banking
financial companies. The Finance Minister proposes to extend the service tax to corporate
bodies that provide similar services.
The Finance Minister proposes to extend the exemption from service tax on the services
provided by hotels for one more year upto 31st March 2003.
Customs Duty
The Finance Minister proposes to reduce the peak rate from 35% to 30% this year.
The Finance Minister proposes to lower customs duty on a number of refractory raw
materials for the steel industry by 10%. These include natural graphite powder, silicon
metal, sintered alumina, fused zirconia and boron carbide. The Finance Minister also
proposes to reduce the duty on graphite electrodes of above 24 inches diameter from 25% to
15%.
Ships imported for breaking are charged to customs duty at 5% along with CVD and special
additional duty. The Finance Minister proposes to revise this by increasing the basic duty
on ships for breaking from 5% to 15% and exempting them from CVD and special additional
duty. This is to reduce the disparity between rolled products produced by the steel plants
and cheaper products produced from ship breaking.
The Finance Minister proposes to increase the basic customs duty on seconds and
defectives of steel to the bound rate of 40%.
The Finance Minister proposes to reduce the customs duty on copper, zinc and lead from
35% to 25% and on aluminium and tin from 25% to 15%.
The Finance Minister proposes to reduce the customs duty on specified equipment for
Ports and Airports to 10%.
The Finance Minister proposes to exempt duty on aeroplanes, helicopters, gliders,
simulators of aeroplanes and their parts and raw materials.
The Finance Minister has postponed the zero duty regime on IT products for 2003 to 2005.
The Finance Minister proposes to reduce the customs duty on a number of hardware inputs to
5% and on certain capital goods to 15%. The duty on certain IT items would be reduced to
10% or 5%.
The Finance Minister proposes to exempt cellular phones and pagers from CVD. The basic
customs duty is, however, being increased from 5% to 10%.
The Finance Minister proposes to increase the customs duty on tea and coffee to 100% and
on natural rubber, poppy seeds, pepper, cloves and cardamom to 70%. It is also proposed to
increase the duty on pulses from 5% to 10%.
The Finance Minister proposes to reduce the customs duty on agricultural machinery and
implements from 25% to 15%.
The Finance Minister proposes to include eight more drugs used for treatment of cancer
and some other critical diseases in the list of fully exempted drugs. Vaccine for
immunization against Japanese Encephalitis shall also be exempt from customs duty.
The Finance Minister proposes to impose a basic customs duty of 5% on drugs which are
made indigenously.
The Finance Minister proposes to reduce the customs duty on Glucometers and test strips
from 25% to 10%.
The Finance Minister proposes to reduce the customs duty on non-PDS kerosene from 35% to
20% and increase the customs duty on kerosene sold under the PDS scheme from 5% to 10%.
The Finance Minister proposes to reduce the customs duty on planetarium equipments,
parts and accessories to 15% and also exempt them from CVD and special additional duty of
customs.
In order to promote state-of-the-art uplinking facilities for television channels at
competitive costs, the Finance Minister proposes to reduce customs duty on certain earth
station equipment and studio equipment from 35% to 25%.
The Finance Minister proposes to reduce the customs duty on cement and clinkers from 25%
to 20%.
The customs duty on imported liquors is bound at 182% for the current year under the
WTO. Accordingly, The Finance Minister proposes to reduce the customs duty on these items
from 210% to 182%. The Finance Minister also proposes to rationalize the rates of CVD
applicable to liquors and wines to 75% for value upto US $ 25 per case and 50% for others.
Passengers returning from abroad on transfer of residence are allowed certain items of
personal use on payment of customs duty at a flat rate of 35%. The Finance Minister
proposes to reduce this rate to 30% and also add a few more items like lap top computers,
portable photocopy machines, digital video disc players, video cassette disc players in
the eligible list of items. The overall limit is also being raised from Rs 1.5 lakh to Rs
5 lakh.
The Finance Minister proposes to impose nominal customs duty of 5% on some of the items
that are exempt at present. It is also proposed to impose special additional duty on
certain other items that are currently subjected to 5% customs duty.
