Office of the Commissioner of Central Excise & Customs,

 idk-la- IV (16)30-11/2006/Tech/                            ukxiqj] fnukaod 28.02.2006

  O;kkikj lwpuk la- 772 / 05 / 2006

roduhodh fnukaod 28.02.2006

The Finance Minister has introduced the Finance Bill, 2006 in the Lok Sabha on          28^th February, 2006.  Changes in Excise and have been made through the Finance Bill and through Notification Nos. 3/2006-CE to 22/2006-CE, 2/2006-CE (N.T.) to 3/2006-CE(N.T.) dated 1.03.2006 details of the changes are available in the Explanatory Notes (copies enclosed as Annexure I).  For full details, relevant provisions of the Finance Bill 2006 and the Notifications may be referred to.  Changes in Service Tax have been made vide Clause 68 of the Finance Bill, 2006 and through notification Nos. 1 to 7/2006-Service Tax, all dated 1^st March, 2006.  Details of the changes are explained in the Explanatory Notes (copies enclosed as Annexure II). For complete details, clause 68 of the Finance Bill, 2006, notifications and Explanatory Notes may be referred to.

 Salient features of some of these proposals in respect of Excise & Service Tax are indicated below. This is not an exhaustive summary of all the changes made, and is intended to give a birds eye view of the proposals.  For full details, relevant provisions of the Finance Bill and the notifications should be referred to.

 CENTRAL EXCISE :

 The term Excise duty wherever mentioned is Central Value Added Tax leviable under Section 3(a) of Central Excise Act, 1944.

1.         Relief Measures :

1.1.            Excise duty has been reduced from 24% to 16% on aerated waters.

 1.2.            Excise duty has been reduced from 24% to 16% on:

(a)        Petrol cars with length not exceeding 4 metres and engine capacity not exceeding 1200cc; and

(b)        Diesel cars with length not exceeding 4 metres and engine capacity not exceeding 1500cc.

1.3              Excise duty has been reduced from 16% to 12% on specified printing, writing and packing paper and paperboard.

1.4              Excise duty on all man made fibres and filament yarns has been reduced  from 16% to 8%.

1.5              Excise duty has been reduced from 16% to Nil on Condensed milk; Ice cream; Pectic substances, pectinates and pectates, pectin esterase; Yeast; Pasta, whether or not cooked or stuffed or otherwise prepared.

1.6              Excise duty has been reduced from 16% to 8% on Ready to eat packaged food; Texturised vegetable protein (Soya bari); and Instant food mixes, namely, pongal mix, vadai mix, pakora mix, payasam mix, gulab jamun mix, rava dosa mix, idli mix, dosai mix, murruku mix and kesari mix.

1.7              Excise duty has been reduced from 8% to Nil on processed meat, fish and poultry products.

manufactured prior to 28.02.2006/1.03.2006, pre-budget stocks will be leviable to excise duty at the rates prevailing on the date of their removal.  In other words, the goods cleared after 28.02.2006 would be liable to pay duty at the new rates even if they were exempted on or prior to 28.02.2006.  In this connection, your attention is invited to the decision of the Supreme Court in the case of CCE Hyderabad vs. Vazir Sultan Tobacco Ltd., 1996(83)ELT3(SC) which has laid down the law regarding duty liability of pre-budget stock.

2.         Manufacture

2.1       Amendments have been made in the Central Excise Tariff Act to provide that certain processes carried out in respect of certain goods will amount to manufacture.  These changes are indicated below.  It may be noted that these changes come into force immediately.

1)                  A Note has been inserted in Chapter 25 to provide that in elation to products of heading 2515 and 2516, the processes of cutting or sawing or sizing or polishing of blocks or any other process of converting stone blocks into slabs or tiles, shall amount to ‘manufacture’.

2)                  Note 7 to Chapter 32 in the First Schedule to the Central Excise Tariff Act, 1985 has been amended so as to provide that in relation to products of heading 3206 and products of tariff items 3204 19 81 to 3204 19 90, labeling or relabelling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture,.

3)                  A note has been inserted in Chapter 39 so as to provide that in respect of goods falling under heading 3920 and 3921, the process of metallization shall amount to ‘manufacture’.

4)                  A note has been inserted in Chapter 72 so as to provide that in relation to the products of this Chapter, the process of drawing or redrawing a bar, rod, sire rod, round bar or any other similar article, into bright bar, shall amount to ‘manufacture’.

5)                  Note 5 in Chapter 73 provides that the process of coating with cement or polyethylene or other plastic materials of pipes and tubes of heading 7304 and 7305 amounts to ‘manufacture’.  This provision is being extended to goods of heading 7306.

 3.         Other Amendments in Customs and Central Excise Act and Rules.

1.                  Section 12C of the Central Excise Act is being amended so as to enable credit of any excess amount collected as  service tax by any person to the Consumer Welfare Fund.

2.                  Section 23C of the Central Excise Act is being amended to explicitly confer the powers to decide the Excisability of any product on the Advance Ruling Authority.

SERVICE TAX :

1.         Significant changes are being proposed in a number of provision of the finance Act, 1994 and Service Tax Rules, 1994.  some of the existing notifications have been rescinded and new notifications issued.  Notifications relating to abatements are being consolidated into a single notification and reissued. (Notification No. 1/2006-ST dated 1.03.2006)

         The rate of service tax is being increased from 10% to 12%.  The increase in service tax    rate will be applicable from the date of enactment of Finance Bill, 2006.

         Service tax is being proposed on fifteen individually specified services and the scope of  certain existing services is being extended or clarified.  These proposals will come into effect from a date to be notified after enactment of the Finance Bill, 2006.

         Certain other changes relating to the Finance Act, 1994 will come into effect from the date of enactment of the Finance Bill, 2006.

         Changes have also been proposed in Service Tax Rules, 1994.  The procedural changes will come into effect from 1.03.2006.

2.                  Rate of Service Tax :

The rate of service tax is being increased from 10% to 12% [section 66 refers]

3.                  Taxable Services :

3.1              Taxable services are defined under clause (105) of section 65 of the Finance Act, 1994.  Classification of taxable services is determined according to the sub-clauses of clause (105) of Section 65, Section 65A provides for principles of classification of taxable services.

3.2              Often services provided consist of more than one service.  In such cases, it is important to decide, for the purpose of classification of services, whether each element of the transaction should be treated separately or as a single composite transaction, albeit, made up of two or more separate services.  A composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified.  The decision is to be made on question of facts and law.  It will not make a difference if the tax rates of the components are the same as that  of the principal service.  The problem may arise when some elements are taxable and others are exempt.  While taking a view, both the form and substance of the transaction are to be taken into account.  The guiding principle is to identify the essential features of the transaction.  The method of charging does not in itself determine whether the service provided is a single service or multiple services.

8.         Amendments in the Service Tax Rules, 1994 :

Rule 4(5A) makes it obligatory on the part of the assessee to intimate any change in information submitted at the time of registration within thirty days of such changes.

Rule 4(8) provides for cancellation of registration certificate where the assessee makes an application for cancellation.  It may be noted that the cancellation of registration may be done when the assessee applies for cancellation on his own or surrender his certificate under Rule 4(7) and not in other cases.  It may be noted that there is no statutory requirement for the assessee to make any application for cancellation in every case.

Rule 5(3) makes is obligatory for an assessee to preserve records at least for a period of  five years.

Rule 5(4) makes it obligatory for an assessee to make available records maintained by him to a Central Excise Officer for the purpose of inspection or examination.  However, such inspection or examination cab be undertaken only after the written approval of the jurisdictional Assistant/Deputy Commissioner.  It may also be noted that the assessee is required to make available the records in his registered premises.

9.         General :

9.1       Changes explained above are not exhaustive and are only for the purpose of providing guidance.  Explanations are not to be treated as part of the statutory provisions and do not over ride them.  The statutory provisions and the relevant notifications have to be read carefully for interpreting the law.

CUSTOMS :

A separate Public Notice is being issued by this Commissionerate highlighting the Budgetary changes.

            All Trade Associations, Chamber of Commerce and Members of Regional Advisory Committee are requested to bring the contents of this Trade Notice to the knowledge of their Constituent Members in general and manufacturers in particular.

             This is issued with the approval of Commissioner.

( SUCHITRA SHARMA )

    ADDITIONAL COMMISSIONER (TECH)

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la- 334/3/2006-TRU, 334/4/2006-TRU both  dated 28^th February, 2006

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