BUDGET HIGHLIGHTS


Education Cess:

• 2 % Education Cess to be levied on all types of taxes, whether direct or indirect.

Service Tax:

• Finance Minister put forward proposal for integration of tax on goods and services.

• The rate of service tax enhanced from 8 percent to 10 percent.

• The number of service that fall with in the ambit of service tax increased from 58 to 71. Apart from the services that are hitherto chargeable to service tax, the tax shall also be payable on the following services:
  1. Business exhibition services
  2. Airport service
  3. Transport of goods by road (by a goods transport agency)
  4. Transport of goods by air
  5. Survey and exploration of minerals
  6. Opinion poll services
  7. Intellectual property services other than copyrights
  8. Forward contract service
  9. Pandal or shamiana service
  10. Outdoor catering
  11. TV or radio program production
  12. Construction service in respect of commercial or industrial buildings or civil structures
  13. Travel agents (other than air/rail travel agents)

• Service tax restricted to the risk cover in life insurance service

• The following service tax exemptions removed
  1. Exemption to services in relation to safe deposit lockers and vaults
  2. Maintenance or repairs of computers under a maintenance contract or by the manufacturer
  3. Mandap keeper services provided by hotels. However, 40% abatement will be allowed if catering is also provided
  4. Commission agents, other than those dealing in agricultural produce, under business auxiliary service
  5. Broadcasting service provided by cable operators
  6. Reduction of abatement from 90% to 60% for non-package tours

• Major amendments in the Act and Rules:
  1. No compulsory verification of assessment by departmental officers.
  2. No mandatory penalty for non-registration. No penalty in case of bona fide procedural infringements.
  3. Amendment in Rule 6 of the Service Tax Credit rules: The Service Tax credit cannot be recovered from the person availing the credit if he had taken reasonable steps in terms of Rule 5.
  4. Amendment in Section 67 of Finance Act, 1994 to provide that where the gross amount charged is inclusive of service tax, the tax value shall be so calculated that with addition to the tax payable there on is equal to the gross amount charged.
  5. Sections 71, 72, 75A, 79 and 81 of the Finance Act, 1994 omitted.
  6. Explanation inserted in Rule 6 of Service Tax Rules to clarify that in case payment is received in advance, service tax will be payable on pro rata basis.
  
  Central Sales Tax

• Units situated in Special Economic Zones (SEZs) have been exempted from payment of central s ales tax for setting up, operation and maintenance of such units. The benefit of exemption from payment of central tax is also being extended to developers of SEZs for the purpose of development, operation and maintenance of SEZs. The following amendments have been made in Section 8 of the Central Sales Tax Act:
  1. Sub Section(6): The following sub section has been substituted in place of subsection(6)
  “ Notwithstanding anything contained in this section, no tax under this Act shall be payable by any dealer in respect of sale of any goods made by such dealer, in the course of inter-state trade or commerce to a registered dealer for the purpose of setting up, operation, maintenance, manufacture, trading, production, processing, assembling, repairing, reconditioning, reengineering, packaging or for use as packing material or packing accessories in any unit located in any special economic zone or for development, operation and maintenance of special economic zone by the developer of the special economic zone, if such registered dealer has been authorized to established such unit or to develop, operate and maintain such special economic zone by the authority specified by the Central Government in this behalf.”
  
  2. Sub Section (8): For the words, brackets and figures “ authority referred to in sub-section (6) a declaration in the prescribed manner on the prescribed form obtained from the authority referred to in sub-section (5)”, the following shall be substituted:
  “ prescribed authority referred to in sub-section (4) a declaration in the prescribed manner on the prescribed form obtained from the authority specified by the Central Government under subsection (6)”.
  The above amendments in Section 8 shall extend the benefit of exemption from payment of Central Sales Tax to individual units in special economic zones for setting up, operation and maintenance of such units and also to developers of special economic zones who develop, operate and maintain such special economic zones.

• In order to ensure that there is a smooth resolution of disputes between various State Governments on matters relating to sale of goods in the course of inter state trade or commerce the following amendments have been proposed in chapter VI of the CST Act:
  
  1. Section 19(1): The words, figures and letter “section 6A or section 9”, substituted by “section 6A read with section 9”
  
  2. Section 20(1): The words, figures and letter “section 6A or section 9”, substituted by “section 6A read with section 9”
  
  3. Section 21(3): The words in the first proviso “also to the State Government” s substituted by the words “also to each State Government”
  
  4. Section 22: The following words inserted as Sub-section (1A):
  “The Authority may grant stay of the operation of the order of the assessing authority against which the appeal is filed before it or the pre-deposit of the tax before entertaining the appeal and while granting such stay or making such order for the pre-deposit of the tax, the Authority shall have regard, if the assessee has already made pre-deposit of the tax under the general sales tax law of the State concerned, to such pre-deposit”.
  
  5. Section 25: The words “every appeal” substituted by “any proceeding”.
  
  6. Section 26:The words “the assessing authorities” substituted by “each State Government concerned, the assessing authorities”.
  By virtue of these amendments the jurisdiction of the Authority (i.e. the Central Sales Tax Appellate Tribunal) shall get restricted only to settle the inter state dispute falling under Section 6A read with Section 9 of the Central Sales Tax Act. The amendment in Section 22 by way of insertion Sub-section (1A) has conferred power on Authority to grant stay of the operation of the order of assessing authority against which appeal is filed before the Authority.
  
  VAT:

• VAT to be implemented from 1st April 2005.

• Committee of Technical Experts proposed to be set up to help States move steadily towards the stage of implementation.

• The Learned Finance Minister emphasized on the need implementation of VAT as it is a modern and efficient trade tax system that incorporates the international best practices.

• The Finance Minister congratulated all the State Governments for having reached on a consensus to implement VAT.

• The States that have not yet passed VAT legislation have been urged to do so before the end of 2004.