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The Budget announcements have attempted a broad-based rationalisation of the existing indirect taxes. While some proposals for incentivising domestic manufacturing and addressing inverted duty structure have earned the business community’s cheer, the fine print of the Budget proposals reveal some critical fault-lines.
It was expected that a concrete roadmap would be laid out with respect to the introduction of the Goods and Services Tax (GST). While it was announced that the implementation of GST would be a priority for the government, definitive time-lines and a roadmap for this were conspicuously missing in the announcements.
In an attempt to fast track resolution of disputes, the provision under customs, excise and service tax laws empowering the appellate authorities to waive off pre-deposit of demand for admitting an appeal have been withdrawn. Instead, a mandatory pre-deposit is proposed to be introduced. Pre-deposit is to be 7.5% of the duty and penalty demanded at the first level appeal and 10% for second level appeals before the Tribunal. The proposal of mandatorily pre-depositing a percentage of penalty is unfair and unreasonable. It is well-known that penalties are applied by revenue authorities in a routine and mechanical manner without judicious evaluation of the circumstances of the case. Further, mandatory pre-deposit provisions is likely to drive adjudicating authorities towards frivolous and inflated tax demands most of which, as has been seen in the past, are unlikely to sustain before the higher courts. Thus, it seems that this provision will cause undue financial burden on the taxpayer. In this context, the cap of R10 crore on payment of pre-deposit appears unreasonably high. In terms of the language of this proposed provision, it is unclear whether the taxpayer would be required to deposit an additional 10% while preferring the second level appeal or would he be required, after having deposited 7.5% at the first appeals stage, to pay only the balance amount of 2.5%. Explanatory notes suggest the former and is likely to be a bone of contention with the tax authorities. The proposed amendment is also silent on the status of the balance unpaid demand and whether that would be deemed to have been ‘stayed’ till the final disposal of the appeals. There is a critical need for revaluating this proposal taking into account the above concerns.
Post the Supreme Court’s decision in the case of Fiat India, excise authorities had been targeting all loss making manufacturing companies