Some changes have to be brought in the Budget 2016-17 so as to prepare for the impending goods and services tax (GST). The GST may come after the Budget but we have to prepare for it.
The first general change that has to be thought of is the law of unjust enrichment. Under this law, the tax payer is not entitled to refund unless he proves he has not passed the burden of higher tax on to the buyers. If this law continues, the GST will be bogged down to litigations, and the smooth flow of goods and the availing of tax credit will be hindered. This law has to go for Customs also if it goes for excise and service tax.
Central excise
Some legal change is also necessary before the GST takes over. This is regarding Section 3 (1) (a) of the Excise Act, which calls excise as Cenvat. This is conceptually wrong and must be corrected. Excise is not Cenvat. It is only when input tax credit is allowed on the Central Excise Duty that the remaining portion becomes Cenvat (duty). For example, 16 per cent of the value of the excisable goods is the excise duty on tyre and an input credit is allowed by a certain amount, which comes to, say, seven per cent of the value. So nine per cent is actually the Cenvat. Nine per cent is the tax, which is on value-added on the inputs and 16 per cent is on the total turnover. So Cenvat is only a part of Central Excise. A whole cannot be equal to a part. So conceptually, it is a misnomer to call excise duty as equal to Cenvat. This has to be corrected.
Cenvat rules
We have to simplify the Cenvat Rules to rule out any difference between capital goods and raw materials. This has been creating problems in giving the credit for tax paid on the input. Rules should also allow repair and maintenance for the purpose of input tax credit. Action should be taken to make the rules much friendlier for input tax credit.
Customs tariff
We have to make one rate of duty for every chapter as much as possible. That is the only way to make less number of rates of duty in place of the present rates, which are 150, 100, 85, 70, 65, 60, 50, 40, 35, 30, 25, 17.5, 15, 10, 7.5, 5, 3, 2.5, nil and some specific rates. Then there are hundreds of exemptions with nearly 50 lists covering another nearly 2,000 items and more than 100 conditions that apply, though not all at a time. Tariff also requires certificates from any or more of 32 departments.
I suggest that for improving the tariff, we should have the system of "One chapter one rate" in as many chapters as possible. It may not be possible in chapters like 22, 27, 84, 85, 87 and 90, which have variegated items but it can be possible in most chapters. Even in these chapters, many exemptions can be withdrawn. The 19 rates can be combined into 100, 50, 30, 10, 7.5 and nil. There should not be any exemption to the extent of 5 per cent or 2.5 per cent. Self-declaration should be accepted in place of certificates.
Service tax
There are so many exemptions in the negative list of services that controversies in interpretations still persist. Before the GST, this is the time to prune the exemptions to a number, which will also match with the central excise side.
Advance rulings
The advance ruling scheme has a bigger scope now than what it was, but still there is more scope. Now only the proposed activity is covered. There is scope to cover an activity, which has started but still doubts may arise about the classification or assessment. If no show-cause memo has been issued, it is possible to make provision for asking for ruling. For this purpose, the definition of advance ruling in Section 28E (b) will have to be amended suitably.
