GST & Tax Exemptions Cannot Go Together: CBEC Chairman

The union budget 2016-17 is aimed to bring the huge chunks of industry including area-based exemptions together with SSI, edible oil, textile sectors and others into the tax net in a most easy manner, a top Finance Ministry official said.

“Out of the GDP Rs 110 lakh crores and manufacturing sector contributing about 17 per cent to it, we have huge chunks of industry which is out of the net,” said Mr Najeeb Shah, chairman, Central Board of Excise and Customs (CBEC) while inaugurating a post-budget seminar organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

“Area-based exemptions, it is one lakh plus crore which is out of the net, SSI, edible oil, textile sector, these are huge chunks of industry,” said Mr Shah.

“If we are talking of GST, we are now talking of all these sectors having in to move towards the tax net, how else are we going to have a GST,” he said.

“The industry supports GST but very-very surprisingly, keeps expecting and wanting exemptions, the two do not go together, every time there is a break in the CENVAT chain, you have a problem, you have tax sticking on to some products, which the next man has to bear and there is no reason why you should bear it,” added Mr Shah.

“Therefore, this was the thinking really behind to slowly bring these sectors into tax net and these are essential steps in our opinion if we wish to move towards GST,” further said Mr Shah.

Talking about the CENVAT credit rules, he said that more than 10-12 per cent of the litigations were because of two specific rules in the CENVAT i.e. Rule 6 and Rule 7, that have now been completely revamped. “We have tried to simplify them to the extent possible.”

“We are expecting a hit of more than Rs 1,000 crores only because of the CENVAT credit rule changes, in terms of simplification, we thought it is something essential, because the cost of litigation was much more than the revenue which we are otherwise getting,” said Mr Shah.

He said that all these simplified processes will add to ease of doing business and reduce transaction costs.

“The focus right through the budget has been on simplification, on ensuring that the taxpayer gets better value for money, gets better services from us and has lesser interaction with us,” said Mr Shah.

He also said that his department has now taken the move to withdraw all old pending prosecutions.

On the customs side, Mr Shah said that deferment of payment of duty had been permitted. “These are sections which have been amended in the Customs Act which permits removal of goods without payment of duty, the rules and details will be finalised in the course of next few weeks, basically we want to club this along with a concept of an accredited client, a scheme which we already have.”

He said that his department wants to upgrade that scheme to an authorised economic operator, a scheme which is running currently, but has not been really successful. “We want to link this with direct port delivery, so that you can remove your goods directly from the port without having to go through a CFS, which might add to cost and delay.”

He said that because the customs are at the point of entry and exit, the department tends to get all the blame for reasons like the importer not filing bill of entry, importer wanting to take time to pay duty, importer not producing goods for examination and assessment, this despite the fact that 70 per cent of goods are facilitated, there is no examination or verification done.

“So, we have dovetailed these changes in this broad philosophy, to ensure that goods can be cleared immediately,” said Mr Shah.

The CBEC chairman said that each decrease or an increase in the duty is invariably done in close consultation with aligned ministries concerned. “It is invariably their recommendations which prompt us to make some changes, the logic and philosophy invariably is to ensure that we can encourage manufacturing and production in India, so these duties are in the form of protections sometimes for the Indian industry, to create level playing fields.”

On the issue of increasing the time limit from normal period of adjudication, Mr Shah said, “Our analysis showed us that one year was too little for us simply because balance sheets for the financial year are invariably filed by the September 30 of the following year, so by the time the audit gets done and department gets to know something which we have to collect or not collect, the one year period gets over, to cover that up the departmental officers are invariably going in for the extended period of five years, which was happening across the board.”

He said that his department was trying to simplify the entire process of complying with tax laws. “It is an on-going process, we are still finalising a lot of other things which we will be releasing, we have dramatically simplified SVB (Special Valuation Branch) processes.”