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Tax rates unchanged, enforcement measures tightened
March, 01st 2013

India Inc, battling a slowdown, is expected to see increased pressure as the government goes all outImport Styfile to recover taxes after the Union Budget 2013-14 unveiled a slew of measures to tighten enforcement across all indirect taxes—customs duty, excise duty and services tax.

Pursuing a carrot-and-stick policy, Finance Minister P Chidambaram spared the industry a tax hike by keeping peak customs duty, and standard excise duty and service tax rate unchanged, and offered an amnesty scheme for service providers while handing out more powers to his tax officials to go after evaders.

The toughened enforcement regime cuts across all indirect taxes to deal with evasion, makes customs offences over Rs 50 lakh non-bailable, and gives powers to service tax officials to arrest tax evaders. A Supreme Court verdict in September 2011 had said non-cognisable customs and central excise duty offences are bailable.

Cognisable offence implies that an officer can arrest an offender sans a warrant. Fraudulently availing exemption of customs duty or a drawback benefit over Rs 50 lakh, or not declaring imported goods over Rs 1 crore is also being proposed as a non-bailable offence. The amendment to reverse the verdict was attempted by former FM Pranab Mukherjee in the last budget. It was, however, dropped after strong opposition.

In the case of service tax, the finance minister is also proposing to allow the tax authorities to recover tax from third parties and also impose penalty on employees of a company, including its directors, if they are held responsible for evasion. It is also proposed that in case a tax tribunal stays a demand, it will automatically stand vacated after one year, even if the assessee is not in default.

Tax experts term the measures on tightening enforcement as against the FM's promise of non-adversarial tax administration. "These proposals are not in consonance with the stated objective of 'a non-adversarial tax administration, a fair mechanism for dispute resolution' as highlighted in the FM's speech," said Pratik Jain, executive director, KPMG. Experts said the enforcement measures take away the sheen.

"Service tax law is still evolving and a large number of disputes pertain to difference in interpretation; accordingly, power to arrest needs to be used with prudence to avoid harassment to genuine tax payers," said Bipin Sapra, partner, Ernst & Young.

Chidambaram has carried out tinkering in excise duty rates on specific products, such as sports utility vehicles, mobile phones costing more than Rs 2,000, which the industry said would hurt the sector by tempering demand. The minister reduced abatement for construction sector for flats costing more than Rs 1 crore.

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