SIAM is the Apex National Body representing Indian Automobile Industry

Post Budget Memorandum

PART – A (Issues arising of Union-Budget 2015-16 – SIAM proposals)

S.No. Issue SIAM Suggestion Explanation
1 Credit of Education Cess and Secondary and Higher Education Cess in pipeline Amendment should be done in Cenvat Credit Rules to allow utilization of credit of Education Cess and SHE Cess for payment of Basic Excise Duty Liability or Basic Service Tax Liability. As per the Cenvat Credit Rules, credit of Education Cess and SHE Cess can be utilized only for payment of Education Cess and SHE Cess on excisable goods or on taxable services respectively.

By virtue of Education Cess and SHE Cess becoming exempted on all excisable goods with effect from 01.03.2015, the cenvat credit of Education Cess and Secondary and Higher Education Cess in pipeline like Inputs and Capital Goods in transit, Input services and Deferred Cenvat Credit on Capital Goods will not be available since there will be no Output Liability of Education Cess and SHE Cess on final products.

Further Education Cess and SHE Cess will continue on all Input Services till the time Service tax rate gets increased to 14%. This will also become non- usable since there will be no Output Liability of Education Cess and SHE Cess on final products.
2 Introduction of Swachh Bharat Cess There should be no separate Cess. Any cess should be subsumed in the Basic Service Tax Rate itself. Levying Swachh Bharat Cess on some services will again create a positive list of services liable to this Cess which will be against the Negative List of services introduced for levy of service tax.

In case this Cess is still to be levied, necessary provisions should be incorporated in Cenvat Credit Rules to allow cenvat credit of this cess and its utilization against the basic duty liability/ basic service tax liability.
3 Digital Signatures on Invoices for Manufacturer Digital signature should be allowed on all copies of invoice issued by manufacturer without any requirement of self-attestation on any copy of invoice. Self-attestation of the transport copy of the invoice negates the entire purpose of allowing digital signatures.
4 CENVAT Credit Amendment to Rule 14 for Recovery of CENVAT Credit Wrongly taken or erraneously refunded. Notification 6/2015 - CE (NT) Dt 01.03.2015 has been inserted which provides the mechanism of utilization of the CENVAT Credit. Under the same it is deemed that the Opening Balance is utilized first, credit admissible in terms of these rules taken during the month has been utilised next; credit inadmissible in terms of these rules taken during the month has been utilised thereafter. According to the above there may be ambiguity in what is meant by "Opening Balance". The term opening balance should be clearly stated to be Opening Balance of the period reduced by the amount of Credit inadmissible upto the previous Months.
5 Charge of duty on non-excisable goods. Explanation 1 & 2 are inserted to Rule 6 of CCR, 2004, to include non-excisable goods sold for consideration for the purpose of reversal of credit under Rule 6. It also provides to determine the value, if not available, in terms of accounting principles. The above amendment unsettles the position of law that input credit shall not be denied, or varied on account of waste & scrap arising during the manufacturing operations. This can also be a litigation-prone matter. This explanation should be withdrawn.
6 Proceedings on Co-noticees As per amendments proposed in Customs Law, if duty, penalty and interest is paid by noticee, then proceedings will be deemed to be concluded for noticees and co-noticees as well. Similar provision needs to be included in Central Excise Act and Service Tax. Amend the Central Excise and Service Tax in line with amendment in Customs law.
7 Continuation of criminal proceedings even if tax is paid in civil proceedings Though tax is deposited and civil proceedings are over, the criminal proceedings continues resulting into hardship to the noticees. Once the disputed tax is deposited, the noticees should be absolved of criminal proceedings.

PART – B (Other Critical & Important Issues Continuing from SIAM Pre-Budget Memorandum)

S.No. Issue SIAM Suggestion Explanation
1 Multiple rates of duty for motor vehicles There should be two excise duty rates for motor vehicles. We request that only two rates should be applicable on Motor Vehicles

a) Small cars/vehicles, Two-wheeler/Three wheeler/Goods vehicle/ chassis for motor vehicles/Passenger vehicle designed for carrying 10 or more persons should attract lower duty (12.5% as is the present rate)

b) All other passenger vehicles (20%)
Government should rationalize tax structure on vehicles. It will be in alignment with the proposed GST Model, which proposes minimum tiers in tax structures amongst various goods.
2 SUV Definition as per the notification No.12/2013 of Central Excise is vague has led to a distortion in the tax structure for same category of vehicles The definition should be reframed as provided below:

"Motor Vehicles falling under tariff heading 8703 and meeting all the four parameters mentioned below :

1) Engine capacity exceeding 1500 CC
2) Motor Vehicle length exceeding 4000 mm
3) Ground Clearance exceeding 200 mm
4) Transaction value exceeding Rs 12 lakhs per vehicle"
The definition as published in notification No.12/2013 of Central Excise is as given below:

SUV Definition – "Motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles. (Falling under HS Code 8703) Explanation - For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm and above."

The definition of SUVs on the basis of ground clearance of 170 mm and above is vague and arbitrary specially when Indian roads have high speed breakers and pot holes on roads due to which higher ground clearance of vehicles is desirable especially in rural areas. The definition with low ground clearance would create an anomaly in the market due to which companies may reduce their ground clearance in order to be in the lower excise duty category which will enable them to price their products lower for the price sensitive market of India. This will not be a desirable outcome.

The SUV tax when was introduced in Union Budget 2013-14 the concern as discussed by the then Finance Minister Mr P Chidambaram was that 90% of SUVs run on diesel and as diesel is a subsidized fuel the duty rise on these vehicles will help Government in recovering a part of the subsidy. Here, we would like to bring to your notice that diesel price has already been decontrolled and hence is now not a subsidized fuel anymore. We therefore request that this additional 3% Excise Duty be reconsidered.
3 Excise duty anomaly - Excise duty on motor vehicles having carrying capacity of 10 to 13 persons including the driver and falling under tariff heading 8702. 10-13 seat vans are used as rural transport & not for private use at all. They are also used for mass transportation and serve the purpose of buses only. These vehicles should also attract excise duty of 12.5% as applicable to buses in tariff heading 87.02.
  1. Chapter Heading 8702 of CETA covers motor vehicles for transport of 10 or more persons, including the driver. Whereas Chapter Heading 8703 of CETA applies to motor cars and other motor vehicles principally designed for transport of persons (other than those of Heading 8702), including station wagons and racing cars.
  2. The Tariff Rate prescribed for Tariff Items 87021011; 87021012; 87021019 or 87029011; 87029012; and 87029019, i.e. passenger carrying vehicles with carrying capacity of 13 persons, including the driver or less, is 27.81%.
  3. Vehicles having seating capacity of 9+the driver and above mainly cater to transportation needs of rural population for whom having individual motor vehicle is an uneconomical and an unaffordable solution to satisfy transportation requirements. Buses with seating capacity of 13 passengers and above are treated as favourable class, while vehicles with passenger carrying capacity of 9 to 12 are treated adversely.
  4. The vehicles having carrying capacity over and above 10 persons, including the driver, but less than 14 persons, including the driver, are incorrectly equated with large luxurious sedans and sports utility vehicles normally used as personal vehicles, for taxation purposes.
  5. This artificial sub-clause created for vehicles having capacity up to 12 passengers + driver, and vehicles having capacity of 13 passengers + driver and above needs be discarded and the description of goods for the Chapter Heading 8702 of CETA should be aligned totally to the HSN Coding System.
4 Incentivizing Replacement of Old Vehicles The Government should incentivise replacement of vehicles, which were registered before the year 2000 when the Bharat Stage 1 emission norms were introduced. The replacement of these vehicles would be beneficial for the society as it will reduce the emissions, including CO2, lead to fuel savings, reduce accidents, reduce health cost, etc. This would cover a total of 45 million vehicles (8 million cars, 3 million commercial vehicles, 2 million three wheelers and 32 million two wheelers) i.e. 40% of the vehicle population.

The incentives could be in the form of direct transfer of benefit amount to customers on scrapping old vehicle for a new one. To start with an amount of Rs 500 cr could be allocated in the 1st year for a pilot in select cities.
Suggested scheme would not only spur demand but will also considerably reduce the pollution in the country as nearly 80% of pollution is caused by vehicles more than 10 years old. Several other countries most notably Spain and Italy have used this successfully to spur demand of automobiles in their respective countries. China has also carried out such an exercise. Recently Govt of Germany announced a Euro 2 bn package for replacement of old vehicles, which has also successfully stoked demand.

Detailed project concept paper has been submitted to the Ministry of Heavy Industries & Public Enterprises.
5 Budget allocation to FAME (Faster adoption and manufacturing of Electric Vehicles) SIAM welcomes the announcements in this regard, which will go a long way in promoting xEV mobility. However, the initial allocation of 75 crores in this year’s budget is very modest for the project to take off in its entirety.

Needs funds to be made available from Auto Cess for the project to be launched in a meaningful way.

The concession also needs to be extended to a few other critical components of xEV as provided in the Appendix 1
Excise Duty & Custom Duty Concessions on Identified parts of Hybrid/ EVs parts should be extended for a longer period so that the companies can plan accordingly.
6 Budget allocation for public transportation SIAM suggests that budget allocation should be made for JNNURM scheme for a robust public transportation system in the country. Public transport system in India has been under developed in most cities. Government needs to keep allocating funds to STUS to procure buses. Moreover, Government has already announced its plans to develop smart cities. For any smart city model to be successful, it is utmost important to have a robust public transport system. Hence, budget allocation should be made to procure buses for STUs.
7 Utilizing CENVAT for payment of NCCD on automobiles Board has even issued a draft circular no. F.No. 354/135/2012-TRU in Sep.2012 clarifying NCCD can be paid through cenvat credit of Basic Excise duty. It is requested that a final circular be issued in this regard so that pending litigation can be closed. NCCD is levied u/s 136 of Finance Act, 2001 and this duty is levied by way of duties of excise. The taxable event of this duty is similar to Central Excise Duty.

Rule 3(4) of Cenvat Credit Rules allows that the cenvat credit may be utilized for payment of any duty of excise on any final product. The exception is given in Rule 3(4) that cenvat credit of BED cannot be utilized for payment of NCCD on goods falling under tariff items 8517 12 10 and 8517 12 90 (i.e mobile phones).

Rule 3(7) does not impose any restriction for utilization of Cenvat credit of BED for payment of NCCD.

Thus, there is no restriction for utilizing cenvat credit of BED for payment of NCCD levied on motor vehicles.

However, the department is issuing periodical show cause notices demanding that NCCD should be paid in cash only. This is revenue neutral for the Government in as much as the cenvat credit of BED can then be utilized for payment of basic excise duty.
8 Legislative Amendment to Central Excise Act- Excise Duty should not be applicable on Sales Tax/ VAT Benefits given by State Governments It is suggested for a legislative amendment to Excise Law with the following substance:-

The amount of sales tax collected and retained by the manufacturer, as allowed under an incentive scheme launched by the State Government, be considered as equivalent to sales tax actually paid under the excise law and thus should not be added to the assessable value of goods for excise duty calculation. This should be made effective from date of amendment.
Detailed note explaining the issue is provided in Appendix 2.
9 Interest on delay in payment of Service Tax. Rate of Interest ranging from 18% to 30% introduced in service tax laws (Notification No.12/2014-Service Tax dt. 11.07.2014 Interest rate as high as 30% for delay in payment of service tax is unjustifiable. Even in State VAT laws, rate of interest is 18%. Hence, same should be withdrawn.
10 Accumulation of Special Additional Duty Small Vendors facing cash strain as they are unable to utilize the excess Special Additional Duty due to low value addition

Higher Import content and lower value addition
Excess Accumulation of SAD is not sector specific and is an all Industry Issue.

Government to remove SAD which would pave way for alignment with GST, more so when Govt has taken the initial steps towards implementation of GST.
11 Definition of input services amended and restricted as below:
  • Removal of the expression “activities related to business” from the definition
  • Specific services included (list not exhaustive)
  • Services having nexus to manufacture would only qualify as input services.
  • Credit on services excluded would result in cascading effect of taxes on the final product.
  • Clarity on credit eligibility of services which do not form a part of the eligible list/ ineligible list.
  • Admissibility of credit on services – narrowed.
  • Restore the phrase "activities related to business" in the definition of input services.
  • Admissibility of Cenvat credit – to be broadened to include all services related to business.
  • Credit on Services relating to employees to be allowed
12 CENVAT credit on Capital goods ("CG") As per the existing rule 3 of CCR, credit on CG is availed 50% in the first year and balance in the subsequent years. Parity to be maintained with that of Inputs.
Entire credit may be allowed in the first year of purchase itself.
Move in line with introduction of GST
13 Rationalization of Provisions of Section 32AC Investment Allowance for new Plant & Machinery (under Section 32 AC) should be allowed if new Plant & Machinery has been acquired and installed during the period beginning from 01.04.2013 and ending on 31.03.2017. Finance Act 2013 has inserted the provisions of Section 32AC. This section enables the assesse to claim an Investment allowance @ 15% for new plant and Machinery acquired and installed during the period 01.04.2013 to 31.03.2015 if such investment is more than 100 Crores.
Finance Act 2013 has inserted the provisions of Section 32AC. This section enables the assesse to claim an Investment allowance @ 15% for new plant and Machinery acquired and installed during the period 01.04.2013 to 31.03.2015 if such investment is more than 100 Crores.

The section was further amended to cover cases where the assessee has acquired and installed new assets between 01.04.2015 to 31.03.2018 if such investment is more than 25 Crores in the respective FY.

There are lot of projects / expansion of the business which may be spread over the respective year. It may be possible that a company acquires certain assets in a year but it may complete the installation in another year.

Thus, although the assessee has invested in the new plant and machinery he may not be eligible to claim the allowance due to the reason that the same is acquired in one year but is installed in another year.

Therefore it may be further rationalized / clarified stating that while the eligibility for the benefit under this section will be based on the investment in that FY, the allowance will be given in the FY in which the asset is put to use.
14 Any interest, commission, brokerage, fees for technical services paid or payable to a resident on which tax has been deducted in subsequent year or has been deducted during the previous year but paid after due date u/s 139(1), deduction shall be allowed to assessee @ 30% in computing the income of the previous year in which such tax been paid. To reduce the hardship on the assessee, finance minister proposed to restrict the disallowance u/s 40(a)(ia) to 30% on payment made to residents on which tax was deducted in subsequent year or was not paid before due date for filing return u/s 139(1). Conversely, Income Tax Act states that allowance should be restricted to 30% in the year in which tax is paid contradicting to the proposal in Union Budget. Deduction allowed u/s 40(a)(ia) is not in accordance with the Union budget memorandum 2014. Request for suitable amendment in the provisions to provide clarity meeting the intent of budget proposal.

Appendix 1

List of Components For Excise Duty & Custom Duty Concession

Product Description HS Code Description of Code
Electric Motor 85013119 Electric motors & generators(excluding generating sets) - Other DC motors/DC generators of an output not exceeding 750 W - Other
85013210 Electric motors & generators(excluding generating sets) - Other DC motors/DC generators of an output exceeding 750 W but not exceeding 75 kW - DC motor
85015210 Electric motors & generators(excluding generating sets) - Other AC motors,multi phase of an output exceeding 750 W but not exceeding 75 kW - Squirrel cage induction motor, 3 phase type
85015330 Electric motors & generators(excluding generating sets) - Other AC motors,multi phase of an output exceeding 75 kW - Traction motor
85114000 Electrical ignition or starting equipment of a kind used for spark-ignition or compression-ignition internal combustion engines (for example, ignition magneto-dynamos, ignition coils, sparking plugs and glow plugs, starter motors); generators (for example, dynamos, alternators) and cut-outs of a kind used in conjunction with such engines - Starter motors and dual purpose starter-generators
Motor Controller / Hybrid Controller/ Battery Management System/ECU Controller for xEV 85423900 Electronic integrated circuits - Other
85044090 Electrical transformers,static converters (for example,rectifiers) and inductors - Static converters - Other
Traction Battery Pack 85072000 Electric accumulators,including separators therefor, whether or not rectangular(including square) - Other lead-acid accumulators
85068090 Primary cells & primary batteries - Other primary cells & primary batteries - Others
85075000 Electric accumulators, including separators therefor, whether or not rectangular(including square) - Nickel-metal hydride
85076000 Electric accumulators, including separators therefor, whether or not rectangular(including square) - Lithium-ion
85078000 Electric accumulators, including separators therefor, whether or not rectangular(including square) - Other accumulators
85069000 Primary cells & primary batteries - Parts
Battery Charger 85044030 Electrical transformers, static converters (for example,rectifiers) and inductors - Static converter - Battery chargers
Ultracapacitor Pack 85322990 85322990
Engine for xEV 840732 Spark ignition reciprocating or rotary internal combustion piston engines - Of a cylinder capacity exceeding 50 cc but not exceeding 250 cc
840733 Spark ignition reciprocating or rotary internal combustion piston engines - Of a cylinder capacity exceeding 250 cc but not exceeding 1,000 cc
840734 Spark ignition reciprocating or rotary internal combustion piston engines - Of a cylinder capacity exceeding 1,000 cc
840820 Compression-ignition internal combustion piston engines (diesel or semi-diesel engines) - Engines of a kind used for propulsion of vehicles of chapter 87
Drive Units for xEV 87084000 Parts and accessories of the motor vehicles of headings 8701 to 8705 - Gear boxes and parts thereof
Regenerative Braking System for xEV 87083000 Parts and accessories of the motor vehicles of headings 8701 to 8705 - Brakes and Servo brake, parts thereof
Wiring harness including cable for high voltage 85443000 Insulated (including enamelled or anodised) wire, cable (including co-axial cable) and other insulated electric conductors, whether or not fitted with connectors, optical fibre cables, made up of individually sheathed fibres,whether or not assembled with electric conductors or fitted with connectors - Ignition wiring sets & other wiring sets of a kind used in vehicles, aircrafts or ships
85444299 Insulated (including enamelled or anodised)wire, cable (including co-axial cable) and other insulated electric conductors, whether or not fitted with connectors, optical fibre cables, made up of individually sheathed fibres,whether or not assembled with electric conductors or fitted with connectors - Fitted with connectors – Other
Energy monitor including State-of-Charge (SOC) Monitor 902830 Gas, liquid or electricity supply or production meters,including calibrating meters therefor - Electricity meters
90328910 Automatic regulating or controlling instruments & apparatus - Other - Electronic automatic regulators
Power Control Unit (Inverter, AC/DC converter, Condenser) 85049090 Electrical transformers, static converters (for example,rectifiers) and inductors - Parts – Other
Electric Compressor for Air Conditioning System 84159000 Air conditioning machines, comprising motor-driven fan & elements for changing the temperature & humidity, including those machines in which humidity cannot be seperately regulated – Parts
Generators for xEV 85115000 Electrical ignition or starting equipment of a kind used for spark-ignition or compression-ignition internal combustion engines (for example, ignition magneto-dynamos, ignition coils, sparking plugs and glow plugs, starter motors); generators (for example, dynamos, alternators) and cut-outs of a kind used in conjunction with such engines - Other generators
85016100 Electric motors & generators(excluding generating sets) - AC generators (alternators) - Of an output not exceeding 75 kVA
85016200 Electric motors & generators(excluding generating sets) - AC generators (alternators) - Of an output exceeding 75 kVA but not exceeding 375 kVA

Appendix 2

Excise Duty on Sales Tax/ Vat Benefit Given by State Governments

Background

  • Excise duty is payable on transaction value of sale of vehicles i.e. price charged by seller from buyer. Sales tax and other taxes are to be deducted from above Transaction Value if such tax is actually paid/ payable on such goods.
  • As a measure to promote specified areas and industries, various State Governments grant benefits to industries which are linked to the sales tax payable by these industries. Such benefits could be by way of :-
    • Exemption from payment of sales tax for a particular period.
    • Deferment of payment of sales tax for a particular period.
    • Grant of incentive equivalent to sales tax payable by the units.
  • The Central Board of Excise and Customs examined the issue of exclusion of these amounts for computation of the value of goods on which excise duty is paid and addressed the same in Board Circular No.378/11/98-CX dated 12.03.1998. The Board in its said circular stated that only in situation (i) above, the sales tax is not deductible as no sales tax is payable by the assessee in accordance with the law. However for situation (ii) and (iii) above, the Board clarified that the amount of sales tax is deductible for the determination of assessable value of goods for levy of Excise Duty.
  • The said circular of 12.03.1998 is still applicable even after amendment to Section 4 of the Central Excise Act with effect from 01.07.2000. This is evident from Circular No.679/70/2002-CX dated 04.12.2002 wherein the earlier Board Circular of 12.03.1998 was referred and it was clarified that where deferment of payment of sales tax for a particular period is allowed by the State Government as an incentive, interest on money retained by the assessee for that period cannot be considered as an “additional consideration” for levy of excise duty.
  • It is also important to note that CBEC issued a Circular No. 671/62/2002-CX dated 09.10.2002 which correctly laid down the principle that only that amount of sales tax will be permissible as deduction under section 4 as is equal to the amount legally permissible under the local sales tax laws to be charged/billed from the customer/buyer. Thus where the local sales tax law entitles the seller to charge a particular amount as sales tax from its buyers, then the same must be allowed as a deduction from the transaction value even if later on the State Government, to incentivize the manufacturer, allows him to retain a part of the sales tax collected by him as a subsidy.
  • On a broader perspective also, schemes of grant of incentive by the State Governments by way of retention of part or whole of sales tax collected are only methods for extending the benefits as they can be easily managed and accounted for. Alternatively, the State Governments could have collected the entire sales tax amount and thereafter, given back by issuing cheque for the whole or part of it to the same industries as subsidies, grants, etc. However such a methodology can be cumbersome for both the Government as well as the industries. It is for this reason that governments of various states adopt incentive schemes whereby industries are allowed to retain whole or part of the sales tax amount collected by them and the State Governments treat the retention as equivalent to full sales tax being paid by the assessee to the Government. Accordingly, retention of sales tax is the same as receiving grants from the State Government except for the number of steps involved, but the essence, intent and objective remain the same.
  • Likewise, some State Governments also grant incentive by way of deferment of sales tax for a particular period or allow the assessee to pay a part of the sales tax amount upfront in lieu of deferment of sales tax to be paid after a particular period. There can be a situation where the assessee collects the sales tax from the buyers of its goods but deposits the entire amount to the State Government after a particular period, say 5 years. In such a situation, the Board vide its circular dated 04.12.2002 has already clarified that interest on money retained by the assessee for that period cannot be considered as an “additional consideration” for levy of excise duty. On the other hand, some states like State of Haryana, allow the assesse to pay 50% of the sales tax amount upfront in lieu of deferment of sales tax. Thus in essence the State Government allows the upfront payment of 50% of tax amount in lieu of payment of 100% tax after say 5 years. Thus, it is also in nature of interest which has been held by the CBEC to be not includible in the assessable value for excise duty payment.

The judgment of Supreme Court in case of Super Synotex (India) Ltd and Maruti Suzuki India Limited

  • the Hon’ble Supreme Court in the case of Super Synotex(India) Ltd. has held that under the present provisions of Section 4 of the Central Excise Act which came into effect from 01.07.2000, a part of the sales tax amount collected and retained by the manufacturer, as allowed under an incentive scheme launched by the State Government, should be added to the assessable value of the product for the payment of excise duty.
  • A similar judgment has also been subsequently delivered by the Hon’ble Supreme Court in case of CCE v Maruti Suzuki India Limited (Civil appeal No.5183 of 2004)

Issues involved

  • Thus, till the pronouncement of the above judgments by Hon’ble Supreme Court, the understanding prevailing in the government as clarified by way of CBEC circulars & industry was that a part of the sales tax amount collected and retained by the manufacturer, as allowed under an incentive scheme launched by the State Government, by way of deferment or otherwise, should not be added to the assessable value of the product for the payment of excise duty.
  • Various manufacturers across the country and operating in different business segments are facing serious problems in light of this judgment of the Hon’ble Supreme Court in as much as the excise department is asking them to pay excise duty and interest on the sales tax incentive amounts granted to them by various State Governments.

Suggestion

  • It is suggested that suitable legislative amendments be made to solve problem relating to State Government incentives.Substance of amendment can be following:- The amount of sales tax collected and retained by the manufacturer, as allowed under an incentive scheme launched by the State Government, be considered as equivalent to sales tax actually paid under the excise law and thus should not be added to the assessable value of goods for excise duty calculation. This should be made effective from date of amendment.
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