25 Feb 2016 21:05 IST

Several tax issues need quick rationalising

Industry is hoping for clarifications and amendments on Cenvat credits, service tax levy and GST rollout

There is a lot of expectation and hope that the forthcoming Union Budget will certainly play an instrumental role in reforming the tax system. It is important to highlight, key indirect tax issues from a service tax or Cenvat perspective, which require immediate attention before the implementation of GST regime.

Education Cess Balances

The Budget 2015-16 granted exemption for the levy of Education cess, and Secondary and Higher Education cess (SHE cess). The utilisation of the accumulated balance of cesses as on February 28, 2015 and May 31, 2015 had become a hot topic in the indirect tax fraternity.

Moreover, the recent amendments in the Cenvat Rules that permit utilisation of the inputs/capital goods/input services received on or after March/May 2015 against payment of excise duty/service tax raised hopes on the amendment of rules regarding utilisation of accumulated Cenvat credit. However, we are still waiting.

Cenvat credit on Clean Energy Cess

and Swaach Bharat Cess

The restriction with regard to non-availment of Cenvat credit on clean energy cess and Swaach Bharat Cess has added to the trade and industry’s woes. To avoid the cascading effect of taxes, necessary amendments shall be carried out in the Cenvat regime for allowing Cenvat on the cesses mentioned above.

Cenvat credit on freight charges

paid up to the ‘place of removal’

The eligibility of Cenvat credit on freight/ transportation charges paid by the manufacturer till the buyer’s place/ depots/ port has been the subject matter of constant litigation. There are divergent views given by the various judicial forums across the country on this issue. To bring clarity, appropriate amendments should be carried out to enable the taxpayer avail Cenvat credit on outward transportation up to the customer’s premise.

Change in the definition of

‘inputs’ and ‘input services’

The current definition of ‘inputs’ and ‘input services’ envisage various activities such as (laying civil works/ foundation, health insurance, outdoor catering etc) on which Cenvat credit has been restricted. The provision for not allowing the credit goes against the very spirit of the Cenvat Scheme. Thus, it is suggested that requisite amendments be carried out wherein any expenditure incurred by the taxpayer for carrying out the business be Cenvatable.

Dual levies of Service Tax/ VAT

on software, food supply

The current Indirect tax regime envisage dual levy of VAT and service tax on certain transaction such as software/ food supplies etc. This results into an additional cost for the companies/ end customers since the tax burden cannot be passed on.

Further, there are various judicial precedents affirming a single levy of tax — that is, service tax or VAT — for a particular transaction. In view of this principle, appropriate guidelines/ clarification shall be issued to provide clarity as to whether supply of software/ supply of foods and beverages constitutes ‘goods’ or ‘services’.

Levy of service tax on services

provided by employer to employee

In the current regime, services provided by employee to employer during the course of employment are excluded from the service tax ambit. However, during the course of employment various facilities and amenities (cabs, outdoor catering, etc) is provided by the employer to the employee, and such services are leviable to service tax.

It may be noted that facilities provided by the employer to the employee are perquisites forming part of the latter’s compensation package. Also the levy of service tax on such facilities creates a lot of compliances and administrative issues to the employers. Thus, it is suggested that the ‘service’ definition be suitably amended to exclude the services provided by employer to employee.

Determining the ‘Relevant date’ for refund

of Cenvat credit on export of services

The exporter of services is eligible for a refund of service tax paid on inputs and input services used for provision of export of services. Such refund claims shall be filed within one year from the ‘relevant date’. Judicial forums have held divergent views on the ‘relevant date’ with different forums pegging it as either the date of receipt of foreign exchange or the date of export invoice or date of softex.

Given the above confusion, the entire process of obtaining refund for the exporters becomes complicated. Further, the refund process also involves a lot or procedural and documentation requirements. It is suggested that appropriate timelines shall be prescribed and the refund process shall be made easier and simpler.

Mandatory pre-deposit for filing

appeals shall be scrapped

The provisions for paying mandatory pre-deposit at various appellate stages create undue financial hardships to the taxpayer. Given that the appeal proceedings take a long time, the pre-deposit paid is also locked up in the government’s kitty for a longer period. It is recommended to streamline the litigation process and restore the earlier provisions of pre-deposit.

Rolling out the GST regime

The entire country is eagerly awaiting the passage of the GST Constitutional Bill in Budget session. It is thus imperative for the government to ensure that all issues, including the practical difficulties faced by trade, industry and the stakeholders are duly taken care of while framing the GST laws. This would ensure smooth and efficient tax administration in the country.

Given the Government’s continuous action on reforms and policy-making it is important to maintain and build on this momentum to create a strong eco- system/ investor-friendly tax environment in India. With a greater need to bring clarity in the tax laws, one hopes that, on February 29, complex and contentious issues are resolved, complicated procedures are simplified and various steps are taken to curb prolonged litigation.

The writer is Senior Consultant, EY, Indirect Tax Practice. The views expressed are personal.