- goods used for the construction of a building or laying of structure for support of capital goods, except when used for certain construction related services;
- capital goods except when used as components in the manufacture of final products;
- motor vehicles;
- goods used primarily for personal use or consumption of an employee; and
- goods which do not have any relationship with the manufacture of a final product.
The last category will prove problematic since inputs are now defined to include all those used in the factory of manufacture of excisable products. As can be seen, the contrast between the two expressions is a stark one and needs to be resolved in a manner that the definition is operable. At the same time however, the scope has been widened by including accessories cleared alongwith the final products, goods used for providing free warranty and goods used for generation of electricity or steam for captive use, within the definition.
With respect to "input services", the scope has been narrowed by removing the expression "activities related to business" from the inclusive part of the definition. This expression had enabled assesses to claim credits on most input services which were in the nature of business expenses. Thus, assessees would now be required to demonstrate that input services qualify for offsets within the restricted scope of the new definition. The scope has been further narrowed by excluding services in relation to setting up of factory or premises therefrom. Yet again, services such as outdoor catering, heath services, health and fitness centre, and life insurance services, used primarily for personal use or consumption of employees have been specifically excluded from the definition of input services.
With a view of rationalising the definitions of input goods and services, the two definitions have been aligned such that services related to goods that do not constitute "input" do not also qualify for the offset. There fundamental changes to the core definitions of "input" and "input services" are actually very worrisome as they militate against the understanding that the forthcoming GST law will be broadly worded and hence amenable to a liberal and inclusive interpretation in relation to these definitions.
Further, the definition of capital goods has been amended to allow credit for goods used outside the factory of manufacture for generation of electricity for captive use. Other amendments to definitions are with regard to exempted goods, to include therein goods which attract the lower excise duty of 1 per cent which has been extended to a whole host of products, as also exempted services, which has been widened to include taxable services which are eligible for abatement with the condition that no credit on input service is availed. Very importantly, an explanation has also been inserted thereto clarify that "exempted services" include trading activities. This explanation thus affirms the position that credits cannot be availed on input services pertaining to trading operations. The interesting point is that the amendment seeks only to treat the trading margin as the consideration towards the exempted service and not the whole of the turnover relating thereto.
Further, Budget 2011 has proposed radical changes to the provisions relating to the manner in which input tax credits are to be allocated and apportioned if they relate to goods and services that are used to provide both taxable and exempt goods or services. Rule 6(5), which provided an exclusion from these provisions to 17 identical services, has been deleted. Thus, these services will now be treated as any other and hence be subject to the revised provisions. The provisions require separate books of accounts to be maintained for the receipt, consumption and inventory of inputs and the receipt and use of input services towards taxable and exempt supplies. In case separate accounts cannot be maintained, the following options are available:-
- payment of an amount of 5 per cent, as against the earlier rate of 6 per cent, on the value of exempted goods and exempted services.
- payment of a provisional amo-unt to be determined appropriately, followed by payment of a finally determined amount of cre-dit attributable to input and input services used in relation to exempted goods and exempted services.
- to maintain separate accounts only for inputs used in dutiable final products and taxable output services and payment of an amount to be appropriately determined, only in respect of input services.
Banking and life insurance companies will not however be able to avail the above mentioned options. These entities shall pay a blanket amount equal to 50% and 20% respectively of all credits availed on input and input services and will only be eligible to avail of input tax credits on the balance.
As regards service providers rendering services to SEZ units/developers, in specified circumstances they will neither be required to charge service tax on such services nor will they be required to reverse proportionate input tax credits. The Credit Rules have also been amended to require reversal of the CENVAT credit on inputs or capital goods, even where their value is partially written off in the books before their being put to use.
In his budget speech, the Finance Minister stated that the amendments were intended to "achieve a more realistic balance between input credits and output tax and to harmonise the provisions of the scheme across goods and services". These objectives appear to have been met but with the result that taxpayers will now be able to offset significantly lesser input tax credits than before! Indeed, the proposals undo numerous Tribunal and Court rulings that had extended the benefit of tax credits to several inputs/input services which now stand excluded. Not a very encouraging augury of the things to come in the GST!
Posted by : S Rahul
Source : Business Standard
0 comments:
Post a Comment