Economic growth and fiscal deficit are immediate issues for the Budget 2009. The mechanism for addressing them has necessarily to be worked out in this Budget. For this the first thing to be done is to rationalise the tax structure, make it more user-friendly and less prone to evasion. With that in view I am giving here some suggestions on Central Excise that should help the Budget makers.
Tariff
While the rates have been reduced when the fiscal stimulus was injected during the recession, the Budget needs to rationalise them for the next full year. The rate of 14 per cent (which has temporarily been reduced to 10 per cent) is the mode but there are many other rates like 2, 8, 12, 24, 37.5, 42 and many specific rates. The rates should be made to converge to the mode which should remain at 10 per cent like the Service Tax rate keeping in view the GST to be introduced in 2010 Budget.
Exemptions
The tariff remains highly complicated with so many rates and so many exemptions. After the 2008 Budget, there were 283 exemptions, with nine lists and 54 conditions in the main notification. There are many more others. While removing exemptions may be difficult when the recession is on, standardisation can certainly be done by sticking to two rates like 10 and 5 (apart from nil). Give below are a few specific suggestions: (i) Exemptions based on the use of power or machine should be abolished.
(ii) Exemption for broom can be abolished as it is covered by small-scale exemption.
(iii) Area-specific exemptions have become much less profitable after the rates of duty have come down. The productions in the non-exempted areas are shifting to the exempted areas. In the long run the areaspecific exemptions are very harmful for the country. A sunset clause should be introduced to end these exemptions, sooner than later.
(iv) Exemption for panmasala, which is damaging to both health and revenue, should be abolished and the rate made equal to the general rate.
Cenvat:
The Cenvat procedure is highly complicated and should be simplified as suggested below.
(a) Distinction between capital goods and inputs to be abolished; (b) Reference to manufacture has to be replaced in favour of ‘use’.
(c) It should be laid down that all goods used should be allowed Cenvat Credit excepting those in the banned list.
(d) Interchangeability of input from service tax and central excise should be made complete without any restriction.
Legal Changes
(i) Section 3(1)(a) of the Central Excise Act has been amended in 2000 whereby Excise has been called Cenvat.
This is conceptually incorrect. Misinterpretations in litigations are the result. This amendment should be done away in order to restore the previous position. It is not semantics. Law cannot be conceptually incorrect.
(ii) All entries in the Central excise tariff which are for unmanufactured goods must be removed from the Central excise tariff as they are not excisable. In place of three expressions, ‘Nil’, ‘Blank’, and ‘Free’ there should be only one expression: ‘Nil’.
(iii) Definitions of aluminium and zinc dross should be incorporated in the relevant chapters saying that the generation of aluminium and zinc dross in the process of vulcanization, etc. ,is manufacture.
(iv) The law of unjust enrichment should be abolished.
(v) Remand Power of Appellate Commissioner should be taken away by a clear and transparent amendment.
(vi) The system of Review Committee of Chief Commissioners and Commissioners introduced through Section 35B&E of Excise Act in 2005 Budget should be abolished forthwith, as it is creating delay and loss of revenue without any corresponding improvement in quality.
