The Hindu Business Line : Alignment of tariffs welcome

IN A WELCOME move, the Government has revamped the excise tariff by introducing an eight-digit classification and, thereby, completely aligning the excise tariff with the Customs tariff, which is again aligned with the HSN. A series of notifications were issued on February 24, 2005, to bring about this from February 28, 2005. Certain anomalies in the tariff, such as exemption for handmade items, iron and steel goods fabricated at the site and DG set assembled at site out of duty-paid items and so on have been removed from the revised tariff. These items have, in turn, been specified under Excise Notification 3/2005 issued on February 24.

On the rate front, a major change that has not been given the importance that it deserves is that the rate of iron and steel has been increased from 8 per cent and restored to 16 per cent. To rationalise the excise duty rate, Special Excise Duty (SED) of 8 per cent on polyester filament yarn, tyres and air-conditioners has been abolished. These would now attract 16 per cent Cenvat.

However, while this positive aspect was announced as a part of the Budget speech, what was not mentioned was the reduction in the abatement percentage for air-conditioners from 35 per cent to 30 per cent. This happened in the last Budget, too, when the SED rate was brought down from 16 per cent to 8 per cent and abatement was from 40 per cent to 35 per cent.

As a small relief to small-scale units (SSI), the exemption limit of annual turnover for SSI has been raised from Rs 3 crore to Rs 4 crore. However, the option to use Cenvat and concessional rate of duty has been withdrawn.

To fall in line with the benefits given to the textile industry in Customs, independent texturisers now have an option to make use of the exemption route or pay 8 per cent excise duty with Cenvat credit. Rate of excise duty on imitation jewellery has been brought down from 16 per cent to 8 per cent. And probably to make good this loss, the Government has imposed a two per cent excise duty on branded jewellery. The term `branded' has been defined under the law in such a manner that it would pave way for litigation.

The Government has removed the surcharge on tea. Excise duty of on refined edible oils and vanaspati has been abolished. However, introduction of a note in Central Excise 15 with retrospective effect from March 1986, to the effect that the `process of refining' would amount to manufacture, would be a cause for concern for the edible oil industry. This move is apparently to overcome the Supreme Court decision against the Revenue.

Section 5A has been amended to provide for mandatory utilisation of exemption where the goods are completely exempt from payment of excise duty.

The Government has hinted that duty drawback rates for goods may be brought down, by indicating that the rates would be reviewed in the light of changes made in the Budget.

The Government is to set up a committee to advise on the percentage of abatement for goods notified under Section 4A of the Central Excise Act which attract duty on printed retail price (MRP).

This committee would also look into the abatement percentage for service tax categories, such as erection, installation and commissioning and the newly worded and expanded `commercial and industrial construction service', as well as the other existing and new services.

(The author is a Chennai-based advocate.)

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