BDO Budget Analysis 2011-12

BUDGET ANALYSIS
2011-12
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1
FOREWORD
The budget presented by the Finance Minister today is a technocratic, IT driven,
modern budget. The Finance Minister has struck a fine equilibrium between
controlling inflation and fiscal imbalances on the one hand and promoting growth
on the other. The budget presented in the parliament today seeks to achieve the
following objectives:
To achieve double digit growth in GDP as against the estimated growth rate
of 8.6% for the FY 2010-11
To address the menace of black money
To Enhance growth rate of agriculture sector
To establish good governance in the Government system
The policy directions that emerge from the budget are:

Liberalisation of foreign direct investment
Substantial allocation to infrastructure, education and social sectors
Introduction to Direct Tax Code and Goods and Service Tax w.e.f 1st April
2012
Address food inflation and food storage
Scale up the flow of resources to rural areas to give a more inclusive thrust
to the development process
Curb in implementation gaps, leakeages from public programme and the

quality of outcome
Address the increasing drift in governenace and a gap in public

accountability
Roadmap to fiscal consolidation
The budget provides for measures to mop up revenue and plan for expenditure.
Revenue Mop up Measures:
Dis-investment in PSUs to yield ` 40,000 crore
Gross tax receipts for 2011-12 are estimated at ` 9,32,440 crores
Increase in MAT from 18% to 18.5%
Levy of MAT on LLPs, SEZ developers and SEZ units

2
Inclusion of new services in the service tax net
Raise the corpus of the rural infrastructure development funds XVII to

` 18,000 crore from ` 16,000 crore
Expenditure Plan:
The plan and non-plan expenditure for 2011-12 are estimated at

` 4,41,547 crore and ` 8,16,182 crore respectively.
Allocation of ` 2,14,000 crores for infrastructure
Allocation of ` 7,860 crores to Rastriya Kisan Vikas Yojna
Allocation of ` 1,60,887 crores for the social sectors and ` 52,057 crores
for education
The Finance Minister aims at withdrawing stimulus in the form of subsidies and
wants to promote sustainable growth through development in the infrastructure,
agriculture, education, and social sector. His emphasis on governance, IT driven
automated functions and efficiency measures should make India an attractive
destination for investment. The long term fiscal policy is in place.
Team
BDO
Place: Mumbai
Date: 28th February, 2011
3
BDO
Budget Analysis 2011-12
Para Page
Particulars
no. No.
1. ECONOMIC INDICATORS 4
2. DIRECT TAX PROPOSALS

a) Corporate Tax 8
b) Personal Tax 10
c) Transfer Pricing 12
d) Exemptions and Deductions 15
e) Other Major Amendments 20
3. INDIRECT TAX PROPOSALS

a) Service Tax 28
b) CENVAT Credit 43
c) Central Excise Duty 48
d) Customs Duty 55
4. FEMA AND CORPORATE LAW 62

4
1. ECONOMIC INDICATORS
GDP growth indicators
The Indian economy has shown strong resilience in the face of uncertain
economic conditions. The GDP growth of 8.6% is commendable in the overall
context as it comes at the back of negative trends at the global level. Most
countries are still reeling from the after effects of the financial crisis of
2008. Even domestically India seems to have overcome the problems which
had plagued the agriculture sector over the last two years. The growth in
2010–11 indicates that it is relatively broad based across major sub-sectors
including revival of the agriculture.
• The Indian economy seems to have tide over the negative trends in
the global economy as well as overcome the setback it faced in the
agriculture sector over the last two years.
• The revival of the agriculture sector, which has been a laggard over
the last two years, indicates strong trends of inclusive growth.
GDP growth
9.5 9.6 9.3
8.6
8.0
6.8
2005-06 2006-07 2007-08 2008-09 2009-10 2010 - 11

(Advance
Estimates)
5
Performance of select major sectors

Agriculture
For India to continue a sustainable path of economic growth it is of critical
importance that the growth is inclusive in nature. In this context the
development of agriculture sector gains prime importance as it accounts for
58% of employment of the country. Additionally it also contributes to vast
sections of industries by providing food, fodder and other raw materials.
While the average GDP growth during 2004-05 to 2010-11 was 8.5%, the
growth of agriculture was a meager 3.4%. The current revival of agricultural
growth to 5.4% is extremely positive as it would help further strengthen the
rural sector.
Industry
The growth of the industrial sector in the current fiscal indicates volatility
with a weakening trend. The growth in the first half of the year was robust
particularly in the manufacturing segment. However the trend weakened
significantly as the growth in Index of Industrial Production (IIP) decelerated
to 2.3% during November. There has been significant volatility in IIP as growth
varying widely between 2% to 16%. The volatility has largely been on account
of capital goods and consumer non-durables segment.
Services
The emergence of the services sector is one of the main reasons for
the dominant position the Indian economy holds at the global level.
The contribution of services sector at 57.3% of the overall economy is
comparable with the developed nations. Within the services segment
the two categories – financing, insurance and real estate and transport,
storage and communications have been the biggest drivers of growth. These
segments witnessed a growth of 15% and 9.2% respectively. The hotels
and restaurants segment, one of the major engines of economic growth,
recovered moderately.
Inflation
The financial year 2010-11 started with a headline Wholesale Price Inflation
(WPI) of 11% in April 2010 and continued to be in double digit till July and then
reduced to around 8.2% in January 2011. The major pressure on prices was
emanating from food and energy sectors. The WPI food inflation moderated
to 8.59% in December 2010 from its peak of 20.22% in February 2010. While
the high inflation in food articles is not unique to India but is widespread,
the current growth and inflation trends warrant persistence with an anti-
inflationary monetary stance.
6
9.4
8.0
6.5
4.8 3.6
4.3
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

(April -December)
Capital Markets
After a dismal year for primary issues in the previous year, 2010-11 saw
a surge in the amounts mobilised through public offerings. As many as
40 companies came up with an Initial Public Offering (IPO). The cumulative
IPO and FPO amounts mobilised upto November 2010 stood at USD 10.37
billion. The positive sentiments in the capital markets and the success of
the primary market also led to the benchmark indices BSE Sensex and NSE
Nifty to once again touch record highs to 21,000 and 6,312 respectively.
The FII investment in the Indian equity market and debt segment in 2010-
11 (till December 2010) stood at USD 25.02 billion and ` 5.50 billion. These
volumes are largely attributable to the strong domestic growth coupled with
resurging corporate sector.
Forex
The foreign exchange reserves in the current fiscal has increased by
USD 18 billion to reach USD 297 billion as on December, 2010. This increase
is largely attributed to the valuation gain and the purchase of USD by RBI.
On the exchange rate front, the Rupee appreciated marginally by 0.7% and
1.2% against the dollar and euro respectively.
Foregin Exc hange Reserves (USD bn)
309 297
252 279
199
2006-07 2007-08 2008-09 2009-10 2010-11

(upto December 2010)
7
Foreign Direct Investment in retail sector

One of the major constraints currently being faced by the Government is
food inflation. The inflation is partly on account of high margin between
farm gate prices and retail prices. India lacks a modern supply chain
management and large participation by companies in the retail sector. The
policy makers are of the opinion that permitting Foreign Direct Investment
(FDI) in multi product will bring in the requisite know how as well along with
the investments.
The Government is of the view of creating a road map of allowing foreign
companies to operate in the retail sector. However the Government also
wants to create a balance wherein the interests of small mom and pop
stores are protected and avoid a situation where foreign companies gain a
dominant position in the market. Keeping this in mind the implementation
strategy would be to limit the international companies operations in the
major cities. Further liberalisation of the sector could be reviewed in
the future.
8
2. DIRECT TAX PROPOSALS

Corporate Tax
Tax Rate
Corporate tax rates remain unchanged for both domestic as well as foreign
companies, except for an increase in the effective rate of Minimum
Alternative Tax (MAT) from 18% to 18.5%. The applicable rates of tax are as
under:
Particulars Tax Rate (%) *
1. Domestic Company
Normal Tax Rate 30%
Minimum Alternative Tax (MAT) 18.5%
2. Foreign Company
Normal Tax Rate 40%
Currently the surcharge on income tax @7.5% is payable by a domestic

company having total income exceeding one crore rupees. It is proposed to
reduce the surcharge on income-tax from 7.5% to 5%.
The existing surcharge of 7.5% in all other cases (including Section 115JB,
115O, 115R) is proposed to be reduced to 5%.
In case of companies, other than domestic companies, having the income

exceeding one crore rupees, the surcharge on income-tax is 2.5%. It is
proposed to reduce the surcharge on income-tax from 2.5% to 2%.
The marginal relief in tax will continue to be allowed in the cases where
income is more than one crore rupees.
The Education Cess shall continue to be levied @ 3%.
Minimum Alternate Tax u/s 115JB

Under the existing provisions of Section 115JB, a company is liable to
pay inimum alternate tax on its book profits @ 18% if the tax payable by
company on the total income under the other provisions of the Act is less
than Minimum Alternate Tax. The MAT tax is allowed to be carried forward
and set off against the tax liability arising under the other provisions of the
Act upto the 10th assessment year.
9
It has been proposed to increase the tax rate u/s 115JB from 18% to 18.5%.
This amendment will take effect from 1st April, 2012 and will, accordingly,
apply from the assessment year 2012-13.
It is pertinent to note that the proposed Direct Tax Code has provided for
levy of MAT at 20%.
Applicability of Minimum Alternate Tax in case of SEZ

As per the existing provision of Section 115JB, SEZ developers and SEZ units
were exempt from the payment of Minimum Alternate Tax. The said benefit
is proposed to be withdrawn by levying Minimum Alternate Tax of 18.5% on
the book profits of SEZ developers as well as the units operating in SEZ. The
proposed amendment is in line with the Direct Tax Code, 2010 which had
proposed to levy Minimum Alternate Tax on all SEZ developers and SEZ units
at the rate of 20%.
The above amendment is proposed to take effect from 1st April, 2012 and will,
accordingly, apply in relation to assessment year 2012-13 and subsequent
years.
Extension of Dividend Distribution Tax to SEZ Developers

As per the existing provision of Section 115-O, SEZ developers are exempted
from the payment of dividend distribution tax (DDT). However, SEZ Units
were liable to pay DDT on distribution of dividends. It has now been proposed
to discontinue the exemption to SEZ developers as a result of which they
would be liable to pay DDT on any distribution of dividend. This is in line
with the Direct Tax Code, 2010 which has proposed to extend DDT provision
to SEZ developers.
The above amendment is proposed to take effect from 1st June, 2011.
10
Personal Tax
Rate of Income-tax at a glance
At present, the income upto ` 1,60,000/- is exempt in respect of individuals
(other than women below the age of sixty-five years and senior citizens),
Hindu Undivided Families (HUF), Association of Persons (AOP), Body of
Individuals (BOI) etc. In respect of women below the age of sixty-five years
and senior citizens resident in India, the income upto ` 1,90,000/- and upto
` 2,40,000/- respectively is exempt.
It is proposed to increase the threshold limit of exemption. It is also

proposed to lower qualifying age of senior-citizen from 65 years to 60 years.
The proposed changes have been tabulated below:
Individual Assessee (other than women & senior-citizen) (Assuming

Income of ` 8,00,000/-)
Existing Limit Proposed Limit Tax Rate (%) Tax Relief
Upto ` 1,60,000 Upto ` 1,80,000 NIL
}
` 1,60,001 – ` 1,80,001 – 10%
` 5,00,000 ` 5,00,000
` 2,000
` 5,00,001 – ` 5,00,001 – 20%
` 8,00,000 ` 8,00,000
` 8,00,001 & above ` 8,00,001 & above 30%
Effective Tax Rate Savings
11.75% 11.50% 0.25%
Women Assessee below the age of sixty years

(Assuming Income of ` 8,00,000/-)
Upto ` 1,90,000 Upto ` 1,90,000 NIL
}
` 1,90,001 – ` 1,90,001 – 10%
` 5,00,000 ` 5,00,000
` Nil
` 5,00,001 – ` 5,00,001 – 20%
` 8,00,000 ` 8,00,000
` 8,00,001 & above ` 8,00,001 & above 30%
11.375% 11.375% Nil
11
Senior Citizen between the age of sixty years to eighty years

Upto ` 2,40,000 Upto ` 2,50,000 NIL
}
` 2,40,001 – ` 2,50,001 – 10%
` 5,00,000 ` 5,00,000
` 1,000
` 5,00,001 – ` 5,00,001 – 20%
` 8,00,000 ` 8,00,000
` 8,00,001 & above ` 8,00,001 & above 30%
10.75% 10.625% 0.125%
Senior Citizen above the age of eighty years

Upto ` 2,40,000 Upto ` 5,00,000 NIL
}
` 2,40,001 – NIL
` 5,00,000
` 26,000
` 5,00,001 – ` 5,00,001 – 20%
` 8,00,000 ` 8,00,000
` 8,00,001 & above ` 8,00,001 & above 30%
10.75% 7. 50% 3.25%
No surcharge will be levied in case of individuals, HUF, AOP & BOI,

co-operative society, local authority and firms.
The education cess shall continue to be levied at the rate of 3%.

12
Transfer Pricing
Section Existing Provision Proposed Effective Date Analysis
Provision
92C The second proviso Instead of a Applicable from With the intent
to the Section variation of 5%, 1st April, 2012 and of bringing in
92C(2) provides the allowable shall accordingly the Direct Tax
that if the variation will be apply in relation Code (DTC) by
variation between such percentage to the assessment April 2012, we
the actual price of as may be notified year 2012-13 and believe this is
the international by Central subsequent year. a step towards
transaction and Government. introducing
the arm’s length safe harbor
price (ALP), does for different
not exceed 5% industries based
of the actual on the nature
price, then, no of international
adjustment will transactions.
be made and the
actual price shall
be treated as the
ALP.
13

Provision
92CA The existing Now the Applicable from In the recently
provision lays jurisdiction of 1st June, 2011. concluded case
down that the TPO shall of Amadeus India
Transfer Pricing extend to the Pvt. Ltd. (2011-
Officer (TPO) can determination TII-22-ITATDEL-TP)
determine the of the ALP in it was held that
ALP in relation to respect of other the TPO cannot
an international international determine the
transaction, which transactions, arm’s length price
has been referred which are of an international
to the TPO by the noticed by him transaction, which
assessing officer subsequently has not been
(AO). in the course referred to him by
of proceedings the AO.
before him. With a view to
give more power
These transactions to the TPO to
would be in effectively
addition to the determine the
international arm’s length
transaction price in case
referred to the of the newly
TPO by the AO. identified
international
transactions even
though they have
not been referred
by the AO for
computation of
arm’s length price.
Thus, overcoming
the existing
administrative
weakness,
the Govt. has
proposed to
introduce “sub-
section (2A)” of
92CA after “sub-
section (2)” of
92C.
92CA(7) For the purpose of TPO to also Applicable from With a view to
determining the exercise the 1st June, 2011. give additional
ALP, the TPO can power of survey powers to the TPO
exercise powers conferred upon for conducting
available to an an income tax surveys to
AO under Section authority under effectively
131(1) & 133(6). Section 133(A) of determine the
the Act. arm’s length
pricing.
14

Provision
92E Under the existing Extended the due Applicable from This revision
provisions, in date of filling of 1st April, 2011. mandates that
addition to FORM 3CEB from the data used for
filing of return September 30th comparability
of income, to November 30th analysis should be
assessees who of the assessment contemporaneous.
have undertaken year. Currently one of
international the reasons for
transaction are using multiple
also required to year data was
prepare and file unavailability of
a transfer pricing data. With the
report in FORM revision in the
3CEB before the date of filing the
due date for return, not only
filing of return of contemporaneous
income (i.e. 30th data will have to
September of the be used but also
assessment year). multiple year data
can also be used
in case there is
cogent relevant
and reliable
evidence to prove
that the data for
preceding two
years revealed
facts which
could have an
influence on the
determination of
ALP.
In the case of an assesse, being a company, which is required to furnish a

report in form 3CB, the due date for filing the return of income is extended
to 30th November of the assessment year.
This amendment is proposed to take effect from 1st April, 2011.

15
Exemptions and Deductions

Exemption of perquisites of Chairman and Members of Union Public
Service Commission
Under the existing provisions, any perquisite or allowance received by an
employee is taxable under the head “salary” unless it is specifically exempt.
It is proposed to provide exemption to any allowance or perquisite, as may
be notified by the Central government in the Official Gazette, paid to the
chairman or the retired Chairman or any other member or retired member
of the Union Public Service Commission.
The above amendment is proposed to take effect retrospectively from

assessment year 2008-09.
Enhancement of weighted deduction for any sum paid to a National

Laboratory or a University or an Indian Institute of Technology or a
specified person
Under the existing provisions of Section 35 (2AA), a weighted deduction of
175% is allowable for any sum paid to a National Laboratory or a University
or an Indian Institute of Technology or a specified person that undertake
scientific research programme approved in this behalf.
It is now proposed to increase the said weighted deduction from 175% to

200%. This amendment will take effect from 1st April, 2012 i.e., assessment
year 2012-13 and onwards.
However, it may be noted that under Section 79 read with The Sixteenth
Schedule of the Direct Tax Code, 2010 in its current form which may become
operative from assessment year 2013-14, deduction on such payment is
capped at 175%.
Exemption of specified income of notified body or authority or trust

or board or commission
Section 10 specifies the Incomes which are not included in Total Income.
It is proposed to insert new clause (46) in the said section so as to provide

that any specified income, arising to a body or authority or Board or Trust or
Commission (by whatever name called), which is constituted or established
by or under a Central or State or Provincial Act with the object of regulating
or administrating an activity for the benefit of general public shall be exempt
if it is not engaged in commercial activity and is specified by the Central
Government by notification in the official gazette in this behalf.
Central government to notify the nature and extent of the income which
shall constitute the specified income
16
Corresponding amendment is also proposed in Section 139 of the Act, by

inserting clause (g) to sub-section (4C), to provide for filing of the return of
income by such notified entity, if the total income in respect of such entity
exceeds the maximum amount which is not chargeable to income-tax.
The amendment will take effect from 1st June 2011.
Enhancement of income criteria for Charitable Trust/Institution

Presently, a Charitable Trust/institution, which carries out activities in the
nature of trade, commerce or business, or renders any service in relation to
a trade, commerce or business for a cess or fee or any other consideration,
irrespective of the nature of use or application, or retention, of the income
from such activity, will not be eligible for exemption u/s 11 or 12, if the
income from such activities exceeds ` 10 lakhs. This is in consonance with
the Direct Tax Code, 2010.
However, it has been proposed to enhance the monetary limit in respect of

receipt from such activities to ` 25 lakhs.
This amendment is proposed to take effect from 1st April, 2012 and will
accordingly, apply from the assessment year 2012-13.
Investment linked deduction in respect of specified businesses

Under the existing provisions of Section 35AD, certain businesses, as specified
in Section 35AD(8)(c), are eligible for hundred per cent deduction in respect
of capital expenditure (investment linked) incurred for specified business. It is
proposed that the definition of the term specified business be widened so as to
include the following two businesses to be eligible for deduction under Section
35AD(8)(c):
Developing and building a housing project under a scheme for affordable
housing framed by the Central Government or a State Government, as the
case may be, and notified by the Board in this behalf in accordance with the
prescribed guidelines;
Production of fertiliser in India.
The specified businesses of affordable housing project and production of

fertiliser in new plant or in a newly installed capacity in an existing plant shall be
commenced on or after 1st April 2011.
The above amendment is proposed to be effective from assessment year
2012-13
17
Tax benefits for New Pension System (NPS)

NPS is a defined contribution based pension system launched by Government
of India with effect from 1 January, 2004. It was extended for all citizens
on May 1, 2009. The Finance minister has proposed to amend the provisions
related to NPS to give a boost to its usage as a saving mechanism.
Section 80CCE of the Act provides that aggregate amount of deductions

under section 80C, Section 80CCC and Section 80CCD shall not, in any case,
exceed one lakh rupees.
Section 80CCD provides, inter alia, a deduction in respect of contributions

made by an employee as well as an employer to the New Pension Scheme
(NPS) account on behalf of the employee.
It is proposed that contribution made by the employer to the NPS under

Section 80CCD(2) shall be excluded from the limit of one lakh rupees.
Currently, the contribution made by an employer by way of contribution

towards a recognised provident fund or an approved superannuation fund
is allowed as deduction from business income under section 36, subject to
certain limits. However, the contribution made by an employer to the NPS is
not allowed as a deduction
Consequential to above amendment in Section 80CCE, It is proposed to

amend Section 36 to provide that any sum paid by an employer by way of
contribution towards a pension scheme as referred to in Section 80CCD(2),
on account of employee to the extent it does not exceed 10 per cent of the
salary in the previous year, shall be allowed as deduction in computing the
income under the head profits and gains of business and profession.
These amendments will take effect from 1st April 2012 and will, accordingly,
apply in relation to the assessment year 2012-13 and subsequent years.
Deduction in respect of long-term infrastructure bonds

Under the existing provisions of Section 80CCF, subscription made by an
individual or a Hindu Undivided Family in notified long term infrastructure
bonds during the financial year 2010-11 is allowed as a deduction upto
a sum of ` 20,000/-. The above deduction is over and above the limit of
` 1 lakh available under Section 80CCE for tax savings. It is proposed to extend
the benefit of deduction for one more year. Accordingly, the deduction of
upto ` 20,000/- for such investment will be allowed for the year 2011-12
(assessment year 2012-13) also.
This amendment will take effect from 1st April, 2012 and will, accordingly,
apply in relation to the assessment year 2012-13.
18
Extension of sunset clause for Power Sector

As per the existing provisions of Section 80-IA(4)(iv), deduction of profits is
allowed to an undertaking which
Is set up for the generation and distribution of power if it begins to generate
power at any time between 1st April 1993 and 31st March 2011;
Starts transmission or distribution by laying a network of new transmission or

distribution lines at any time between 1st April, 1993 and 31st March, 2011;
Undertakes substantial renovation and modernisation of existing network

of transmission or distribution lines between 1st April, 2004 and 31st March,
2011.
It is proposed to extend the terminal date by one more year i.e. upto 31st March,
2012.
The above amendment is proposed to be effective for assessment year 2012-13.
Sunset clause of tax holiday for certain undertakings engaged in
commercial production of mineral oil
Section 80IB(9) deals with seven-year profit-linked deduction of 100% to
an undertaking engaged in commercial production of mineral oil, if such
undertaking fulfils any of the conditions stipulated therein. One of the
conditions require that such undertaking is located in any part of India and
is engaged in commercial production of mineral oil and has begun or begins
commercial production of mineral oil at any time after 1 April 1997. No
sunset clause has been provided for such business.
In order to provide clarification on the sunset clause, proviso to the above

condition is been inserted, which provides that the aforesaid deduction will
not be available for blocks licensed under a contract awarded after 31 March
2011.
This amendment will take effect from 1 April 2012 and will, accordingly,
apply in relation to the assessment year 2012-13 and subsequent year.
Infrastructure Debt Fund

In order to meet the funding requirement of infrastructure sector at lower
rate from abroad, it is proposed to set up dedicated debt funds, which would
meet debt requirements of infrastructure projects.
It is proposed to amend Section 10 to bestow the Central Government with

powers to notify any infrastructure debt fund which is set up in accordance
with prescribed guidelines. Such notified infrastructure debt fund would
be exempt from tax. However, the fund would be required to file return of
income.
19
It is usual practice in external borrowings wherein borrower is bound to meet

the withholding tax cost of borrowing which increases the cost of funding for
infrastructure projects. In order to reduce the cost of funds raised overseas,
it is proposed to amend Section 115A of the Act to provide that any interest
received by a non-resident from such notified infrastructure debt fund shall
be taxable at the rate of 5% instead of 20% which is applicable for other
types of external borrowings.
In order to provide withholding tax on the same, it is proposed to insert a

new Section 194LB to provide that tax shall be deducted at the rate of 5%.
These amendments are proposed to take effect from 1st June, 2011.
20
Other Major Amendments

Taxation of certain foreign dividend at reduced rate
Under the existing provisions, dividend received by a resident from an Indian
Company is exempt u/s. 10(34). However, dividends received by a resident
from a Foreign Company are taxable at the applicable marginal rate of tax.
Therefore, in cases of Indian Companies, dividend received from foreign
companies is taxable at the rate of thirty percent plus applicable surcharge
and cess.
Representations were made by various corporate that taxation of foreign

dividends in the hands of resident taxpayers at full rate is a disincentive for
their repatriation to India and they continue to remain invested abroad. In
view of this, it is proposed to insert a new Section 115BBD.
It is proposed to provide that where total income of an Indian Company

includes any income by way of dividends from a foreign subsidiary company,
then such dividends shall be taxable at the rate of fifteen percent plus
applicable surcharge and cess.
It is further proposed to provide that no deduction in respect of expenditure or

allowance shall be allowed in computing the income by way of dividends.
This amendment is proposed to take effect from 1st of April 2012 and, will,
accordingly apply in relation to the assessment year 2012-13.
Extension of time limit for assessments in case of exchange of

information
At present, where in the case of an assessee, information is required to be
obtained from outside India, time taken for obtaining such information is
not excluded from the time limit prescribed for framing assessment under
regular assessment or re-assessment or in search assessment.
It is now proposed to exclude the time taken in obtaining such information.

It is proposed to provide that the period commencing from the date on which
a reference for exchange of information is made by an authority competent
under an agreement referred to in Section 90 or 90A and the date on which
such information is received by the Commissioner or a period of six months,
whichever is less shall also be excluded.
This amendment will take effect from 1st June, 2011.
Anti-Avoidance measures to combat lack of exchange information

It is proposed to insert a new Section 94A to specifically deal with transactions
undertaken with persons located in any country or jurisdiction which does
not effectively exchange information with India.
21
The proposed section provides for:

The Central Government to notify any country or territory, having regards
to lack of effective exchange of information by it with India, as notified
jurisdictional area.
Any transaction with the person located in the said notified jurisdiction area,
then all such parties to the transaction will be deemed to be associated
enterprises and such transaction will be deemed to be an international
transaction and correspondingly transfer pricing provisions will apply to such
transaction.
To disallow any payment made to any financial institute located in the

notified jurisdiction area unless the assessee furnishes prescribed details to
the Income-tax Authorities.
No deduction of any other expenditure or allowance (including the

depreciation) arising from the transaction with the person located in notified
jurisdiction shall be allowed unless the assessee maintains and furnishes
prescribed information.
If any sum is received to the assessee from the person located in such
notified jurisdictional area, then the onus is on the assessee to explain the
source of such money in the hands of such person. In case, the assessee fails
to discharge such onus, then such amount will be income of the assessee.
The payments made to persons located in notified jurisdiction area, will be

subject to deduction of tax at source at the higher of the following rates:
rate or rates in force;
rates specified;
at the rate of 30%.
To define the certain expressions for the purpose of this section, as

follows:
“person located in a notified jurisdictional area” shall include:
a person who is resident of the notified jurisdictional area;
a person, not being an individual, which is established in the
notified jurisdictional area; or
a permanent establishment of a person not falling above, in the
notified jurisdictional area.
“permanent establishment” shall have the same meaning as defined in
the IT Act.
22
“transaction” shall have the meaning as defined in the IT Act.
This Section will be effective from 1st June, 2011.
Alternate Minimum Tax for Limited Liability Partnership (LLP)

The limited liability partnership (LLP) is a hybrid entity which comprises
the feature of a company as well as a partnership. It was introduced in I.T.
Act vide Finance Act, 2009. As per Act, there are no separate provisions for
taxation of LLP and it is governed by income tax provisions applicable to a
partnership firm.
Due to application of tax regime of partnership firm; a LLP was enjoying

following tax benefits:-
No Dividend Distribution Tax;
No Minimum Alternate Tax;
No Surcharge on income-tax.
All these are applicable in respect of a company and entail LLP tax edge
over a company. In order to preserve the tax base vis-a vis profit linked
investment, it is proposed to provide special provisions relating to certain
limited liability partnerships.
It is proposed to insert a new Section 115JC which is akin to Section 115JB-

Book Profit with a deviation in computation of adjusted total income. The
adjusted total income would be computed in the following way:-
Total income of LLP before giving effect to this chapter, as increased by
Deduction claimed, if any, under Chapter-VIA;
Deduction claimed, if any, under section 10AA.
On this adjusted total income, alternate minimum tax would be computed

at the rate of 18.5% (which is also MAT rate for Companies).
With non-obstante clause, it is provided that where regular income tax

payable for a previous year is less than the alternate minimum tax, the
alternate minimum tax shall be deemed to be the total tax liability of the
LLP.
In order to provide the credit of minimum alternate tax paid against the
tax paid under the normal provisions, it is proposed to insert a new Section
115JD which is akin to Section 115JAA.
23
As per newly inserted section, tax credit shall be the excess of alternate
minimum tax over the regular income tax payable for that year. No interest
would be available on this credit balance being carried forward.
The credit of minimum alternate tax shall be available for a consecutive

period of 10 succeeding year.
The credit available against the normal tax payable shall not exceed the
difference between the tax payable under normal provisions and tax payable
under the minimum alternate tax.
This amendment is proposed to take effect from 1st April, 2012 and will
accordingly, apply from the assessment year 2012-13.
Rationalisation of Tax on Income distributed to unit holders

Section 115R(2) deals with additional income-tax chargeable to the specified
company or a mutual fund on distribution of income to its unit holder.
Currently additional income-tax at 25% is chargeable on income distributed

by a money market mutual fund or a liquid fund in case of all recipients.
This is now proposed to increase to 30% in case of recipient other than
“Individual or HUF”. In other words, additional income-tax at 25% continues
to be chargeable in the case of recipient, being an Individual or a Hindu
Undivided Family. However, additional income-tax at 30% will be chargeable
in case of the recipients, other than Individuals or HUFs.
Further, on income distributed by debt fund other than a money market

mutual fund or a liquid fund, additional income-tax will be chargeable at
30% instead of 20%.
The above is tabulated as under:
Distributed by Current Rate Proposed rate Remark

Money market 25% - in case of 25% - in the case 5% increase
mutual fund or a all recipient of Individual and in additional
liquid fund HUF recipient income-tax
chargeable
30% - In case
where recipient
of any other
is a person
recipient other
other than an
than Individual
Individual or HUF
and HUF
MF other than a 12.5% - in case Same as current Neutral
money market of Individual and
MF or a liquid HUF recipient
fund
24
Fund other than 20% - if case of 30% 10% increase

a money market any recipient in additional
MF or a liquid other than income- tax
fund Individual or HUF chargeable
where recipient
is a person
other than an
Individual or HUF
Distribution of income by an equity-oriented fund shall continue to be
exempt from tax.
This amendment is proposed to take effect from 1st June, 2011.
Collection of information on requests received from tax authorities

Under the existing provisions of Section 131, certain Income-tax authorities
have been conferred the powers of Civil Court, in respect of discovery,
inspection, enforcing the attendance of any person, compelling production
of books of accounts, etc.
It is proposed to facilitate prompt collection on requests received from

tax authorities outside India in relation to an agreement for exchange of
information under Section 90 or Section 90A. Accordingly, it is proposed to
provide that for the purpose of making an inquiry or investigation in respect
of any person(s) in relation to an agreement referred to in Section 90 or
Section 90A, it shall be competent for any Income-tax authority not below
the rank of Assistant Commissioner of Income Tax, as notified by the Board,
to exercise the powers conferred under Sec 131(1). Such powers will be
exercisable notwithstanding that no proceedings with respect to such person
or class of persons are pending before it or any other income tax authority.
It is further proposed to amend Sec 131(3), so as to empower the aforesaid

authority, to impound and retain books of accounts, etc. produced before it
in any proceeding under the Act.
This amendment is proposed to take effect from 1st June, 2011.
Exemption from filing return of income u/s 139(1c)

Under the existing provisions contained in Section 139(1), every person, if
his total income during the previous year exceeds the maximum amount
which is not chargeable to income tax, is required to furnish a return of his
income.
A new sub-section (1C) is proposed to be inserted in Section 139. This

provision empowers the Central Government to exempt, by notification in
the Official Gazette , any class or classes of persons from the requirement
25
of furnishing a return of income, having regard to such conditions as may be

specified in that notification.
Consequential amendments are also proposed to be made to the provisions

of Section 296 to provide that any notification issued under section 139(1C)
shall be laid before Parliament.
The above amendments are proposed to reduce the compliance burden on

small tax payer. In the case of salaried tax payer, entire tax liability is
discharged by the employer through deduction of tax at source. Therefore,
in cases where there is no other source of income, filing of a return is a
duplication of existing information.
Notification for processing of returns in Centralised Processing

Centres
With effect from 1st April, 2008, a new Section 143(1A) was introduced,
which authorised CBDT to notify scheme for centralised processing of
returns for expeditious determination of tax liability or refund due to the
assessee.
Provision of sub-section 143(1B) also authorised Central Government to

notify for applicability or non-applicability with or without exceptions of
any provision of Income tax Act. However, no such notification is issued
by the Central Government under this section. Therefore to allow Central
Government to issue such notifications, this deadline of 31st March, 2011 has
been extended up to 31st March, 2012.
In his budget speech, Hon’ble Finance Minister has announced to open such
Centralised Processing Centre in Manesar, Pune and Kolkata. At present,
there is only one Centralised Processing Centre functioning in Bengaluru.
This amendment will take effect retrospectively from 1st April, 2011.
Modifications in the conditions for filing applications before

settlement commission under section 245C(1)
Under the existing provisions, an application can be made to the Settlement
Commission, if-
the proceedings have been initiated against the applicant under section
153A or under section 153C as a result of search or requisition of books
of account, as the case may be, and the additional amount of income-
tax payable on the income disclosed in the application exceeds fifty
lakh rupees,
26
in any other case, if the additional amount of income-tax payable on

the income disclosed in the application exceeds ten lakh rupees,
Clause (ia) has been inserted in proviso to section 245C(1) wherein the
criteria for filing application in cases where proceedings have been initiated
as a result of search or requisition of books of accounts has been expanded.
This provision stipulates that an application can also be made, where the
applicant-
is related to the person in whose case proceedings have been initiated

as a result of search and who has filed an application; and
is a person in whose case assessment and reassessment proceedings

have also been initiated under section 153A or 153C,
the additional amount of income-tax payable on the income disclosed in his

application exceeds ten lakh rupees.
For the purposes of new clause (ia), the definition of “related person” and
“person having substantial interest” have been given in Explanation to
section 245C.
Power of settlement commission to rectify its order u/s 245D

Settlement Commission was conferred all the powers of the Assessing Officer
except for passing the order rectifying any mistake which was apparent from
record.
Section 154 empowers any authority to rectify the mistake apparent from
the record but this section does not apply to orders passed by Settlement
Commission. There was no remedy available to the assessee/settlement
commission if the order was passed by Settlement Commission & there was
mistake apparent from record. Therefore, the assessee had no option but to
file an appeal.
In order to avoid this hardship, sub section 6B is proposed to be inserted in

Section 245D which will empower settlement commission to rectify its own
order where the mistake is apparent from record.
Any such order has to be passed within 6 months of passing the original order
by settlement commission after giving opportunity of being heard to the
applicant & Commissioner.
27
Similar amendment is introduced in Wealth tax Act, by inserting sub-section

6B to Section 22D of Wealth Tax Act, 1957.
This amendment is effective from 1st June, 2011.
Omission of requirement of quoting of Document Identification

Number
Under the existing provisions of Section 282B, every income tax authority
shall, on or after 1st July, 2011, allot a computer generated Document
Identification Number (DIN) in respect of every order, notice, letter or
any correspondence issued by him. Due to non-availability of requisite
infrastructure on an all India basis, the same is now dispensed with the
proposed omission of Section 282B.
This amendment will take effect retrospectively from 1st April, 2011.
Reporting of activities of Liaison Office

A non-resident does not file a return of income with regard to its liaison
office in India on the ground that no business activity is allowed to be carried
out in India. In order to seek information from non-residents in respect of
the activities of their liaison office in India in a financial year, it is proposed
to insert a new Section 285, mandating the filing of annual information,
within sixty days from the end of the financial year, in prescribed form and
providing prescribed details.
Recognition to Provident Funds – Extension of time limit

As per the existing provisions, where recognition has been accorded to any
provident fund on or before 31st March, 2006, the same shall be withdrawn,
if such fund does not satisfy, on or before 31st December, 2010, certain
specified conditions.
It is proposed to extend the said time limit to 31st March, 2012.
This amendment will take effect retrospectively from 1st January, 2011.
28
3. INDIRECT TAX PROPOSALS

Service Tax
New Taxable Services (Effective on passing of Finance Bill, 2011)
Taxable Service Air-conditioned restaurants having license to serve

liquor
Section 65(105)(zzzzv)
Service Provider Any restaurant having the facility of air-conditioning
in any part of the establishment (at any time during
the financial year) which has license to serve alcoholic
beverages
Service recipient Any person receiving the service
BDO Comments The primary reason to introduce Service Tax on such
restaurants is due to the fact that the conditions and
ambience are provided by these restaurants in such
a way that services (predominantly relating to use of
restaurant space and furniture, air-conditioning,
well-trained waiters, linen, cutlery and crockery,
music, dance floor etc.) assume predominance over
the food in most situations. Service Tax is purported
to be levied only on the value of services in the
composite contract and not on meal/food part; 70%
abatement (considered as attributable to meals and
beverages) announced on this service.
29
Taxable Service Short term accommodation in hotels/inns/clubs/guest

houses etc.
Section 65(105)(zzzzw)
Service Provider Any hotel, inn, guest house, club or campsite
Service Recipient Any person receiving the service
BDO Comments The levy would apply to hotels, inns, guest house,
club or campsite where the continuous period of stay
is less than 3 months. The levy would be restricted
to accommodation with declared tariff of ` 1,000 per
day or higher irrespective of actual amount charged
from the customer; 50% abatement announced on this
service.
30
Amendments in existing taxable service:

Sr. No. Taxable Service Classification Amendment
1. Authorised Section • Service Tax would be applicable
Service Station 65(105)(zo) to any person providing the
Service said service irrespective of
whether it is an authorised
service station or not (the
definition of authorised service
station under the Act has been
deleted).
• Decoration of motor vehicle
also included within the ambit
of taxable services in addition
to repair, re-conditioning or
restoration.
• Services provided in relation to
goods transport vehicles and
three-wheeler scooter auto-
rickshaws excluded from the
levy.
2. Life Insurance Section • Services of management of
Service 65(105)(zx) investments provided by life
insurance companies to attract
Service Tax.
• Tax to be levied @ 10% of
premium amount allocated to
expenses for management of
investment like commission and
other administration expenses
etc. (if disclosed separately to
the policy holders) or @ 1.5%
of gross premium amount (if
not disclosed separately to the
policy holders).
31

3. Commercial Section • The term of ‘commercial
Training or 65(105)(zzc) training or coaching centre’ to
Coaching include in its scope any pre-
Service school coaching and training
centre and centres providing
coaching or training relating
to educational qualifications
recognised by law.
• Suitable exemption to be
granted post enactment of the
Finance Bill, 2011 to pre-school
coaching and training and to
coaching and training related
to educational qualifications
recognised by law.
4. Club or Section • Service tax to be charged
Association 65(105)(zzze) on services provided to non-
Service members as well as members
of other affiliated clubs.
5. Business Section • The definition of services
Support Services 65(105)(zzzq) expanded to levy Service
Tax on operational or
administrative assistance of
any manner.
32

6. Legal Section Service Tax will also be levied on
Consultancy 65(105) the following services:
Service (zzzzm) Advisory, Consultancy or
assistance service provided
by a business entity to any
person;
Representational Service
provided by any person to a
business entity;
Services provided by an
arbitral tribunal to business
entities in relation to
arbitration.
It appears that such services
provided by an individual to
other individual would be
excluded from the levy.
33

7. Health Service Section Service Tax to be levied on the
65(105) following services:
(zzzzo) Services provided by a
clinical establishment having
the facility of central air-
conditioning in whole or any
part of the establishment
and more than 25 beds for
in-patient treatment at any
time of the year;
Services provided by a
clinical establishment or
any other entity in relation
to diagnostic tests of any
kind or investigative services
with the help of a laboratory
or medical equipment;
Service provided by doctors
from the premises of a
clinical establishment,
in a capacity other than
as an employee of such
establishment.
The term ‘clinical establishment’
has been defined as hospitals,
maternity homes, nursing homes,
dispensary, clinics, sanatorium or
any other institution by whatever
name called.
Services provided by clinical
establishments owned or controlled
by the Government or local
authority not to be included in the
purview of Service Tax.
34
Exemptions from Service Tax

Sr. No. Taxable Service Notification No. Services Exempt
1. Transport of Notification No. • Service Tax in excess of
passengers by 04/2011-S.T, 10% of gross value of ticket;
Air Service dated or
(Effective from 1st March, 2011 ` 150 (Domestic travel in
1st April, 2011) amending economy class) or
Notification No. ` 750 (International travel in
26/2010-S.T, economy class);
dated whichever is lower.
22nd June, 2010
2. Business Notification • Services rendered to an
Exhibition No. 05/2011 – exhibitor participating in an
Service S.T., dated 1st exhibition held outside India.
(Effective from March, 2011
1st March, 2011)
3. Works Contract Notification No. • Services rendered for
Service 06/2011 – S.T., construction or completion
(Effective from dated and finishing of new
1st March, 2011) 1st March, 2011 residential complex or part
thereof under Jawaharlal
Nehru National Urban
Renewal Mission and Rajiv
Awaas Yojana.
Notification No. • Services for execution of
10/2011 – S.T., works contract provided
dated wholly within an airport
1st March, 2011 and classifiable as Airport
Services.
Notification No. • Services for execution of
11/2011 – S.T., works contract provided
dated wholly within the port or
1st March, 2011 other port, for construction,
repair, alteration and
renovation of wharves,
quays, docks, stages, jetties,
piers and railways.
35

4. General Notification No. • General insurance provided
Insurance 07/2011 – S.T., under the Rashtriya Swasthya
Service dated Bima Yojana.
(Effective from 1 March, 2011
st
1st March, 2011)
5. Transport of Notification No. • Services provided to person

Goods By Air 08/2011 – S.T., in India for goods transported
Service dated (by air) from a place outside
(Effective from 1st March, 2011 India to a final destination
1st April, 2011) which is also outside India.
Notification No. • Exemption of Service Tax on
09/2011 – S.T., so much of the value as is
dated equal to the amount of air
1st March, 2011 freight determined under
section 14 of the Customs
Act, 1962 or the rules made
thereunder for the purpose
of charging customs duties
included in the taxable value.
Goods By Road 08/2011 – S.T., in India for goods transported
Service dated (by road) from a place
(Effective from 1st March, 2011 outside India to a final
1st April, 2011) destination which is also
outside India.
Goods By Rail 08/2011 – S.T., in India for goods transported
Service dated (by rail) from a place outside
(Effective from 1st March, 2011 India to a final destination
1st April, 2011) which is also outside India.
36

8. Transportation Notification No. • Abatement of Service Tax of
of Coastal 16/2011 dated 25% of the value of taxable
Goods 1st March, 2011 service; accordingly, 75% of
and Goods the value of taxable service
transported liable to Service Tax.
through
National
Waterways and
Inland Water
Service
(Effective from
1st March, 2011)
Amendments in Export of Service Rules, 2005 and Taxation of

Services (Provided from Outside India and Received in India) Rules,
2006 [Effective from 1st April, 2011]:
The category of following taxable services changed under Export of
Service Rules, 2005 and Taxation of Services (Provided from Outside
India and Received in India) Rules, 2006:
Sr. No. Classification of Service Existing Rule Proposed Rule
1. Provision of preferential Rule 3(1)(iii) Rule 3(1)(i)
location or external or Taxable based Taxable based on location
internal development of on location of of immovable property.
complexes recipient of
the service.
2. Rail Travel Agent’s Rule 3(1)(iii) Rule 3(1)(ii)
Service Taxable based Taxable based on
on location of performance of the
recipient of service.
the service.
3. Health Check-up and Rule 3(1)(iii) Rule 3(1)(ii)
Treatment Services Taxable based Taxable based on
on location of performance of the
recipient of service.
the service.
37
Sr. No. Classification of Service Existing Rule Proposed Rule

4. Credit Rating Agency’s Rule 3(1)(ii) Rule 3(1)(iii)
Services Taxable Taxable based on location
based on of recipient of the service.
performance
of the service.
5. Market Research Agency Rule 3(1)(ii) Rule 3(1)(iii)
Service Taxable Taxable based on location
performance
of the service.
6. Technical Testing and Rule 3(1)(ii) Rule 3(1)(iii)
Analysis Service Taxable Taxable based on location
performance
of the service.
7. Transport of Goods by Air Rule 3(1)(ii) Rule 3(1)(iii)
Service Taxable Taxable based on location
performance
of the service.
8. Transport of Goods by Rule 3(1)(ii) Rule 3(1)(iii)
Road Service Taxable Taxable based on location
performance
of the service.
9. Opinion Poll Service Rule 3(1)(ii) Rule 3(1)(iii)
Taxable Taxable based on location
performance
of the service.
10. Transport of Goods by Rule 3(1)(ii) Rule 3(1)(iii)
Rail Service Taxable Taxable based on location
performance
of the service.
38
CHANGE IN MECHANISM TO LEVY AND CHARGE SERVICE TAX

Point of Taxation Rules, 2011
A new legislation viz, Point of Taxation Rules, 2011 is proposed to be incepted
with effect from 1st April, 2011. The rules are framed to determine the point of
time when the services would be deemed to be provided. As per the said Rules,
the time of provision of service would be the earliest of the following:
Date on which service is provided or to be provided
Date of invoice
Date of receipt of payment
The above provisions would also squarely apply on payment of Service Tax under
reverse charge mechanism.
Further, the Rules also contains provisions for determination of point of taxation
in cases of change of rate of tax, continuous supply of service, associated
enterprises, copyrights, payment of tax in case of new services etc.
Other legislative Amendment Proposals
The Works Contract (Composition Scheme for Payment of Service Tax)
Rules, 2007 have been amended to provide for restriction in availment of
CENVAT credit to 40% of service tax paid on services relating to erection,
commissioning and installation services, commercial or industrial construction
services and construction of residential complex services in case service tax
has been paid, without availing the abatement benefit under notification
1/2006-S.T. dated 1st March, 2006, on full value of services after availing
CENVAT credit on inputs. This is primarily to ensure that CENVAT credit of
inputs (not admissible for payment of service tax on works contract service
under composite scheme) is not availed indirectly. [Effective from 1st March,
2011]
Amendment in Service Tax valuation provisions under the Service Tax

(Determination of Value) Rules, 2006.
Money changing services [Effective from 1st April, 2011]
A new rule (2B) has been introduced in the Service Tax (Determination
of Value) Rules, 2006 providing for determination of value as under:
The difference between the buying rate or the selling rate, as

the case may be, and the RBI reference rate for that currency for
that day multiplied by units of currency exchanged;
If RBI reference rate is not available, the value shall be 1% of the

value of money exchanged in Indian rupees;
39
When both the currencies are not Indian rupees, 1% of the lesser
of the amounts receivable if the two currencies are converted at
RBI reference rate.
Telecommunication services [Effective from 1st March, 2011]
The valuation for the purpose of Service Tax would be the gross amount
paid by the person to whom telecommunication service is rendered
by the telegraph authority. Accordingly, in case of services provided
by way of recharge coupons or prepaid cards or the like, the value
would be the gross amount charged from the subscriber or ultimate
user of the service and not the amount paid by the distributor or other
intermediary to the telegraph authority.
Amendments made in Service Tax Rules, 1994 to align the provisions

consequent to the introduction of Point of Taxation Rules, 2011 (effective
from 1st April, 2011) as under:
New rule 5B has been introduced to provide that the applicable rate of
Service Tax should be the rate applicable at the time when the services
are deemed to have been provided (determined as per the Point of
Taxation Rules, 2011);
Rule 6(1) amended to provide for payment of Service Tax upon deemed
provision of services under the Point of Taxation Rules, 2011 (as against
receipt of payment towards taxable services) by due dates (viz 5th or
6th of the month immediately following the calendar month in which
services are so deemed to be provided, except for the month of March
where the due date would be March 31).
Rule 6(3) has been amended to provide that when an invoice has been
issued or a payment is received for a service which is not subsequently
provided, the service provider could take the credit of the Service Tax
paid earlier (pursuant to Point of Taxation Rules, 2011) provided the
amount (including Service Tax) has been refunded to the recipient of
service or a credit note is issued for the value of service not so provided
to the service recipient.
The maximum amount admissible for adjustment of excess Service Tax

under rule 6(4B)(iii) has been increased to ` 2 lakhs from 1 lakh.
Rule 6(6A) has been introduced to provide for recovery of amount of

Service Tax self assessed but not paid together with interest as per
Section 87 of the Finance Act, 1994. Accordingly, requirement to resort
to Section 73 for recovery of self assessed amounts of Service Tax would
not be required.
40
Rule 6(7B) has been amended where the composition rate applicable
in relation to purchase or sale of foreign currency, including money
changing, has been reduced from 0.25% to 0.1%; also, the option to
pay Service Tax on billed charges in relation to these services has been
withdrawn.
Interest rate on delay in payment of service tax (under Section 75) and amounts
collected in excess (under section 73B) increased from 13% to 18% [Effective from
1st April, 2011]
Exemption to services to SEZ Developer/Unit by way of refund (Service Tax

notification 9/2009-ST withdrawn); an option is available to not charge
Service Tax ab-initio if the services are meant to be “wholly consumed”
within SEZ (including services liable to Service Tax on reverse charge basis
under Section 66A). For this purpose, the criterion/principle for determining
what constitutes “whole consumption” of services within SEZ has been
borrowed from the Export of Services Rules, 2005. Further, it has also been
specified that all services received by SEZ Developer/Unit, which does
not have any other DTA operations, would constitute as services “wholly
consumed” within SEZ.
The maximum penalty for delay in filing Service Tax return under Section 70
is proposed to be enhanced from ` 2,000 to ` 20,000; the existing rate of
penalty under rule 7C of the Service Tax Rules, 1994 to be retained.
The revised position relating to penalties and their mitigation or waiver is

tabulated in summarised form in the table below:
Situation Position in Penalty & Mitigation Complete

records Provision Waiver
No fraud, Captured 1% of tax or Totally On showing
suppression ` 100 per day mitigated if reasonable
etc. upto tax and cause under
50% of tax interest paid Section 80
amount: Sec 76 before issue
of
notice:
Section 73(3)
41
Cases of Captured 50% of tax (a) 1% per On showing

fraud, true & amount: Proviso month; max reasonable
suppression complete to Section 78 of cause under
etc. position in 25% if all section 80
records dues paid
before
notice: Sec
73(4A);
(b) 25% of tax
if all dues
paid within
30 days (90
days
for small
assesses):
Provisos
to Section 78
Not so Equal amount: No mitigation Not possible

captured Section 78 at all
Small scale sector benefits
Individual and sole proprietor assessees with a turnover upto

` 60 lakhs not to be subject to audit;
Interest rates for assessees (including firms and corporates) upto a

turnover of ` 60 lakhs to be 3% less than prescribed rate;
The period of making the payment in order to avail the benefit of

reduced penalty under the second proviso to Section 78 to be 90
days for assessees (including firms and corporates) upto a turnover of
` 60 lakhs.
Retrospective exemptions have been given by the Finance Bill, 2011 to the
following services:
To an association or chamber representing commerce or industry in respect

of membership fee under the Club orAssociation Services for the period from
16th June, 2005 to 31st March, 2008.
To an inter-state or intra-state transportation of passengers, in a

vehicle bearing contract and tourist vehicle permit for the period from
1st April, 2000 to 6th July, 2009.
42
Refund should be granted on all Service Tax which has been collected on
these services during the relevant period (discussed above) provided the
claim for refund is filed within six months from the date on which the Finance
Bill, 2011 receives the assent of the President.
Other provisions on search, prosecution, arrest etc.
Power to issue search warrant is proposed at the level of Joint

Commissioner and the execution of search warrant at the level of
Superintendent.
Provisions relating to prosecution are proposed to be re-introduced and

would apply in the following situations:
Provision of service without issue of invoices;
Availment and utilisation of CENVAT credit without actual receipt

of inputs or input services;
Maintaining false books of accounts or failure to supply any

information or submitting false information;
Non-payment of amount collected as Service Tax for a period of

more than six months.
No power of arrest; the prosecution can be launched only with the

approval of Chief Commissioner.
43
CENVAT Credit
Definition of “Exempted Service” amended

Notification No. 3/2011 A clarificatory Explanation has been inserted under definition
CE(NT) dated 01-03-2011 of “exempted services” whereby it is clarified that exempted
services includes “trading”.
Effective date:
01-04-2011 It appears that this is a clarificatory amendment and could have
retrospective effect.
Definition of “Input” amended

Notification No. 3/2011 The definition of “input” amended as under:
CE(NT) dated 01-03-2011 “Input” means:
All goods used in factory by the manufacturer of the final
Effective date: products
01-04-2011
All goods including accessories, cleared along with the final
product, the value of which is included in the value of final
product and goods used for providing free warranty for final
products
All goods used for generation of electricity or steam for
captive use
All goods used for providing any output service
Exclusions:
Light Diesel Oil (LDO)
High Speed Diesel Oil (HSD)
Motor Sprits (Petrol)
Any goods used for construction of:
Building or a civil structure of a part thereof
Laying of foundations or making of structures for support
of capital goods except for provisions of any taxable
service as under:
Port Services
Other Port Services
Airport Services
Commercial or Industrial Construction Services
Construction of Complex Services
Works Contract Service
Capital goods except when used as parts or components in
the manufacture of a final product
Motor Vehicles
Any goods such as food items, goods used in guest house,
residential colony, club or a recreation facility, clinical
establishment when such goods are used primarily for
personal use or consumption of any employee
Any goods which have no relationship whatsoever with the
manufacture with the manufacture of a final product
Free Warranty means a warranty provided by the manufacturer,
the value of which is included in the price of the final product
and is not charged separately from the customer.
44
Definition of “Input Service” amended

Notification No. 3/2011 The definition of “input service” amended as under:
CE(NT) dated 01-03-2011 “Input Service” means:
Used by a provider of taxable service for providing an output
service
Effective date: 01-04- Used by a manufacturer whether directly or indirectly in
2011 or in relation to the manufacture of final products and
clearance of final products upto the place of removal
Inclusions:
Services used in relation to:
modernisation, renovation or repairs of a factory, premises
of provider of output service or an office relating to such
factory or premises
advertisement or sales promotion
market research
storage upto the place of removal,
procurement of inputs,
accounting,
auditing,
financing,
recruitment
quality control
coaching and training
computer networking
credit rating
share registry
security
business exhibition
legal services
inward transportation of inputs or capital goods and outward
transportation upto the place of removal
Exclusions:
The requirement of input services being “used in relation to
business activity” has been deleted
Architect Services, Port Services, Other Port Services, Airport
Services, Construction of Complex Services, Works Contract
Services in so far they are used for:
Construction of a building or civil structure or a part
thereof
Laying of foundation or making of structures for support of
capital goods
General Insurance Service, Rent a Cab Services, Authorised
Service Station, Supply of Tangible Goods Services in so far
they relate to a motor vehicle except when used for the
provision of taxable services for which the credit on motor
vehicle is available as capital goods
Outdoor Catering Services, Beauty Treatment Services,
Health Services, Cosmetic and Plastic Surgery Services, Club
and Membership Services, Health and Fitness Services, Life
Insurance Services and travel benefits extended to employees
on vacation such as Leave or Home Travel Concession
when such services are used primarily for personal use or
consumption of any employee
45
Definition of “Manufacturer or Producer” amended

Notification No. 3/2011 CE(NT) Manufacturer or Producer:
dated 01-03-2011
• In relation to articles of jewellery falling under
Effective date: 01-03-2011 heading 7113 of the First Schedule to the Excise Tariff
Act, includes a person who is liable to pay duty of
excise leviable on such goods under sub-rule (1) of
rule 12AA of the Central Excise Rules, 2002.
• In relation to goods falling under Chapters 61, 62 or 63
of the First Schedule to the Excise Tariff Act, includes
a person who is liable to pay duty of excise leviable on
such goods under sub-rule (1A) of rule 4 of the Central
Excise Rules, 2002.
CENVAT Credit of Service Tax paid under Section 66A of Finance Act 1994 (import of services)
is permissible
Notification No. 3/2011 Rule 3 is being amended retrospectively with effect from
CE(NT) dated 01-03-2011 18th April, 2006 to provide that the credit of Service Tax paid
under Section 66A of the Finance Act, 1994 shall also be
permissible.
Rule 3 and Rule 4 amended to disallow certain CENVAT Credit

Notification No. 3/2011 Rule 3 and 4 are being amended to disallow utilisation of credit
CE(NT) dated 01-03-2011 for paying duty on concessional goods (in respect of which an
exemption, other than full exemption, is availed subject to the
Effective date: 01-03- condition that no CENVAT credit of inputs and input services is
2011 taken).
Reference to provide for reversal of CENVAT Credit
Notification No. 3/2011 Rule 4 (7) is being amended to provide for reversal of CENVAT
CE(NT) dated 01-03-2011 credit in case any payment made towards an invoice of input
service is received back.
Reference to CENVAT Credit by ship breaking units
Notification No. 3/2011 The availment of CENVAT credit by ship breaking units is being
CE(NT) dated 01-03-2011 restricted to 85% of the additional duty of customs (CVD) paid at
the time of importation of ships for breaking.
46
Reference to amendment in Rule 6 of CENVAT Credit Rules 2004

Notification No. 3/2011 Rule 6 is being amended as under:
CE(NT) dated 01-03-2011
• Reduce the requirement of payment of 6% of the value of
exempted services to 5%;
• Provide an option to maintain separate accounts for inputs
alone and reverse the amount of input services credit as per
the allocation formula in rule 6 (3A).
• Provide that a payment made under this rule shall be treated
as credit not availed for the purpose of an applicable
exemption;
• Clarify the value of services in cases where the same is not
clearly defined and tax is collected on a compounding or
specific principle.
Rule 6(5) Deleted
Notification No. 3/2011 Rule 6(5) of the CENVAT Credit Rules, 2004 which allowed 100%
CE(NT) dated 01-03-2011 availment of CENVAT Credit of 16 specified services is now
deleted.
Reversal of CENVAT Credit for provider of ‘Banking and other Financial Services”
Notification No. 3/2011 Rule 6(3B) is being introduced to provide that only 50% of the
CE(NT) dated 01-03-2011 CENVAT Credit availed will be available for utilisation towards
payment of Service Tax under ‘Banking and other financial
services’ by a banking company and financial institution including
non-banking financial company.
This rule of reversal of CENVAT Credit is applicable for following:
• Banking Company
• Financial Institution including Non-Banking Financial Company
(NBFC)
No such reversal of CENVAT Credit availed on “capital goods” is
required.
Reversal of CENVAT Credit for providers of “Life Insurance Service Provider” and
“Management of investment under ULIP Services”
Notification No. 3/2011 Rule 6(3C) is being introduced to provide that only 80% of the
CE(NT) dated 01-03-2011 CENVAT credit availed will be available for utilisation towards
payment of Service Tax by the providers of life insurance service
and management of investment under ULIP.
In effect, 20% of CENVAT Credit will have to be reversed

voluntarily on tax paid on “inputs” and “input services”.
No such reversal of CENVAT Credit availed on “capital goods” is

required.
47
New Rule 6(6A) for SEZ unit or Developer without payment of Service Tax
Notification No. 3/2011 New rule 6(6A) is being inserted to provide that the provisions
CE(NT) dated 01-03-2011 of sub-rule (1), (2), (3) and (4) of the said Rule shall not apply
to taxable services provided to SEZ Unit or Developer without
payment of Service Tax.
CENVAT Return for manufacturer
Notification No. 3/2011 The time limit for filing of monthly CENVAT Credit Return has
CE(NT) dated 01-03-2011 been reduced to 10 days from 20 days
Effective from 01-03-2011

48
Central Excise
Legislative including procedural amendments in Central Excise Act,
1944
Reference for Retail Sales Price (RSP) valuation aligned with the Legal Metrology Act, 2009
Budget Proposal The Central Government of India has notified the Legal
Effective Date: 01-03-2011 Metrology Act, 2009 replacing the Standard Weights &
Notification No. 5/2011-CE(NT) Measures Act, 1976.
dated 01-03-2011
Section 4A of the Central Excise Act, 1944 which provides
for valuation based on Retail Sales Price (RSP) drew
reference from the Standard Weights & Measures Act,
1976 whereby excisable goods covered by the said Act
were to be valued as per RSP method.
In line with the replacement of Act, the Section 4A for

RSP valuation of excisable goods is being amended to
substitute the reference with Legal Metrology Act, 2009
with effect from 01-03-2011.
49
Provisions of recovery of Central Excise duty amended & simplified

Budget Proposal Provisions of Section 11A are amended as under:
Effective Date: 01-04-2011 (i) A separate category has been carved out from
Notification No. 5/2011-CE(NT) cases involving extended period of limitation (fraud,
dated 01-03-2011 collusion, willful mis-statement etc.) wherein a lower
mandatory penalty of 50% of the duty (rather than 100%
of the duty) would apply. These would cover cases where
it is noticed during an audit, investigation or verification
that duty has not been levied, short levied, not paid or
short paid or erroneously refunded but the transactions
to which such duty relates are entered in the specified
records.
(ii) While a provision has been made for issuance of

show cause notice invoking the extended period for
recovery of duty with interest under section 11AC and
penalty equivalent to 50% of the duty, it has also been
specifically provided that even in cases
where show cause notice has been issued involving
extended period of limitation (fraud, collusion,
willful mis-statement etc.) with penalty equal to
the duty, the penalty can be remitted to 50% if the
Central Excise officer is of the opinion that the details of
the transactions in respect of which the demand notice
has been issued have been duly recorded by the person
charged with duty in the specified records.
(iii)The provisions of the existing sub-section (1A)

of Section 11 have been omitted. The facility of
compounding the penalty amount has been confined only
to the new category and if the person chargeable with
duty (for an extended period) pays the duty in full or
part along with interest
Before the issuance of a show cause notice, the
penalty shall stand reduced to 1% per month but
not exceeding 25% of the duty.However if the duty
alongwith interest is paid within thirty days of the
issuance of adjudication order, the penalty would be 25%
of the duty.
11AA, 11AB and 11AC are being redrafted so as to make

them more lucid and coherent. A new category of cases
is being carved out in respect of which the period of
limitation would be five years but which would attract
general penalty of 50% of the duty. Waiver of show cause
notice and conclusion of proceedings would be available
if the duty along with interest and specified penalty is
paid before the issue of show cause notice in such cases.
50
Interest rate increased to 18% from existing 13%

Budget Proposal Rate of interest has been revised to 18% per annum from
Effective Date: 01-04-2011 13% per annum to be effective from 1st April, 2011.
Notification No. 6/2011-CE(NT)
dated 01-03-2011
Central Excise Act shall have a “First Charge” on the property of the defaulter for recovery
of Central Excise dues
Budget Proposal New Section 11E is being inserted so as to create first
charge on the property of the defaulter for recovery
of Central Excise dues from such defaulter subject to
provisions of Section 529A of the Companies Act, the
Recovery of Debt due to Bank and Financial Institution
Act, 1993 and Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act,
2002.
The implication of the same is that in case of any owing

under these provisions, the dues under the Central Excise
Act, 1944 shall have a “First Charge”.
Joint Commissioner/Additional Commissioner of Central Excise empowered to carry out the

search of any premises
Budget Proposal Section 12F is being inserted to empower the Joint
Commissioner or the Additional Commissioner of the
Central Excise to himself search or authorize a central
excise officer to carry out the search of any premises.
CBEC empowered to issue instructions as per National Litigation Policy

Budget Proposal A new Section 35R is being inserted retrospectively with
effect from 20th October, 2010 so as to empower CBEC
to issue instructions relating to non-filing of appeal in
certain cases in line with “National Litigation Policy”.
51
Legislative amendments in Central Excise Tariff Act, 1985

Changes in tariff rate of 5%
Budget Proposal A tariff rate of 5% is being prescribed for specified items,
which are being subjected to an effective rate of 1%
excise duty without CENVAT credit facility.
Chapter Note inserted in Chapter 22 for labeling, relabeling, packing and/or repacking
Budget Proposal A Chapter Note is being inserted in Chapter 22 –
“Beverages, Spirits and Vinegars”.
The said Chapter Note provides that in relation to

products of this Chapter, labelling or re-labelling of
containers or packing or repacking from bulk packs to
retail packs or the adoption of any treatment to render
the product marketable to the consumer, shall amount to
manufacture.
Chapter Note inserted in Chapter 26 for process of converting ores into concentrates
Budget Proposal A Chapter Note is being inserted in Chapter 26 - “Ores,
Slag and Ash”.
The said Chapter Note provides that in relation to

products of this chapter, the process of converting ores
into concentrates shall amount to manufacture.
Chapter Note inserted in Chapter 63 for labeling, relabeling, packing and/or repacking
Budget Proposal Chapter Notes are being inserted in Chapter 63 – “Other
Made Up Textile Articles; Sets; Worn Clothing and Worn
Textile Articles; Rags”.
Two chapter notes are being inserted in Chapter 63 so as

to define the expression ‘brand name’ and to provide that
affixing a brand name on the product, labelling or re-
labelling of containers or packing or repacking from bulk
packs to retail packs or the adoption of any treatment
to render the product marketable to the consumer, shall
amount to manufacture.
Chapter Note inserted in Chapter 71 for process of refining dore bar

Budget Proposal A Chapter Note is being inserted in Chapter 71 – “Natural
or Cultured Pearls; Precious or Semi-precious Stones;
Precious Metals; Metals Clad with Precious Metals and
articles thereof, Imitation Jewellery; Coin”
A chapter note is being inserted in Chapter 71 so as to

provide that the process of refining of dore bar shall
amount to manufacture.
52
Other legislative amendments in Central Excise law

Amendment in Medicinal and Toilet Preparations (Excise Duties) Act 1955
Budget Proposal Explanation III of the Schedule is being amended to

substitute the reference to Standards of Weight &
Measures Act, 1976 with Legal Metrology Act, 2009 with
effect from 1st March.2011.
Sugar and Textile Items excluded from levy of Additional duties of Excise (GSI)
Budget Proposal Sugar and Textile Items are being omitted from the
schedule of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957.
Transfer of right to use Packaged Software or canned software on which it is not required to
declare the retail sale price
Budget Proposal Exempt to the extent of consideration attributable to
transfer of the rights
Special Conditions
1. The manufacturer shall make a declaration regarding

consideration paid or payable in respect of such
transfer to the Deputy Commissioner of Central Excise
or the Assistant Commissioner of Central excise, as
the case may be.
2. The person providing the right to use is registered

under Section 69 of the Finance Act, 1994 (32 of 1994)
read with rule 4 of the Service Tax Rules, 1994.
53
Central Excise Tariff Changes

Goods Revised Rate of Duty
Prepared foodstuff like sugar confectionary, pastry and cakes,
starches, paper and articles of paper, textile intermediates &
textile goods, drugs. 5%
130 specified items, which were hitherto either fully exempt from
Central Excise duty or chargeable to NIL rate of Central Excise
duty.
Specific condition
Central Excise duty must be paid without CENVAT credit facility. 1%

Readymade garments and textile made ups bearing a brand name
or sold under a brand name.
Specific conditions
• Duty shall be charged @ 60% of their retail sale price.

• Optional Duty Regime would prevail for garments not bearing a
brand name. 10%
Automatic looms and projectile looms 5%
Microprocessors for computer, other than motherboards; floppy
disc drive; hard disc drive; CD-ROM drive; DVD drives/DVD writers;
flash memory and combo drives meant for fitment inside the CPU
or laptop. 5%
Parts of LaserJet & inkjet printers & mailroom equipment 5%
Air-conditioning equipment, panels and refrigeration panels for
installation of cold chain infrastructure for the preservation,
storage, transport or processing of agricultural, horticultural,
dairy, poultry, apiaries, aquatic and marine produce NIL
Conveyor belt systems for use in cold storage for the preservation,
storage, transport or processing of agricultural, horticultural,
dairy, poultry, apiary, aquatic and marine produce and in mandis &
warehouses for storage of food grains and sugar. NIL
Goods required for expansion of an existing mega/ultra mega
power project under specified conditions at par with exemption
from CVD on the import of goods for expansion of such projects. NIL
Parts of specified textile machinery. 5%
Specified part of sewing machines (other than those with in-built
motors) NIL
Hydrogen vehicles based on fuel cell technology. 10%
Hybrid kits for conversion of fossil fuel vehicles to hybrid vehicles.
& parts of such kits. 5%
MINI CEMENT PLANT
(i) Cement cleared in packaged form
(a) of retail sale price not exceeding ` 190 per 50 kg bag or of per
tonne equivalent retail sale price not exceeding ` 3800; 10%
54
Goods Revised Rate of Duty

(b) of retail sale price exceeding ` 190 per 50 kg bag or of per
tonne equivalent retail sale price exceeding ` 3800. 10% + ` 30 per tonne
(ii) Cement cleared other than in packaged form 10%
OTHER THAN MINI CEMENT PLANT
(i) Cement cleared in packaged form
(a) of retail sale price not exceeding ` 190 per 50 kg bag or of per
tonne equivalent retail sale price not exceeding ` 3800; 10% + ` 80 per tonne
(b) of retail sale price exceeding ` 190 per 50 kg bag or of per
tonne equivalent retail sale price exceeding ` 3800; 10% + ` 160 per tonne
(ii) Cement cleared other than in packaged form 10%
Cement Clinker 10% + ` 200 per tonne
Sanitary napkins, baby & clinical diapers and adult diapers
Special Conditions
• Duty must be paid without Cenvat credit facility
• Similar articles of textile wadding shall also get this
concessional duty treatment. 1%
Pipe fittings such as joints, elbows, couplings etc. NIL
Water filters using pressurized tap water but without use of
electricity and their replaceable kits 1%
Factory built ambulances 10%
Parts of power tillers when cleared to another factory of the same
manufacturer for manufacturing power tillers NIL
Cotton Stalk Particle boards NIL
Corrugated boxes whether or not pasted with Duplex sheet on their
outer surface 5%
Greaseproof paper and glassine paper 5%
Serially numbered gold bars, other than tola bars, made starting
from the ore/concentrate stage in the same factory ` 200 per 10 grams
Serially numbered gold bars manufactured by
refining of “gold dore bars” ` 200 per 10 grams
Serially numbered gold bars, other than tola bars, manufactured
during the process of copper smelting. ` 300 per 10 grams
Silver manufactured during gold refining starting from ore/
concentrate stage or from gold dore bar or during the process of
copper smelting. ` 1500 per kg
Branded jewellery and branded articles of precious metals. 1%
Jute yarn NIL
Colour unexposed cinematographic film in jumbo rolls of 400 feet
and 1000 feet NIL
55
Customs
Legislative changes including procedural changes under the Customs
Act, 1962
“Self Assessment” included in definition of “Assessment”
Budget Proposal Section 2 is being amended to include ‘self-assessment’ within the
definition of ‘assessment’ under Customs law.
Section 17 is being amended to replace the existing system of

assessment with ‘self-assessment’ of duty on imported and export
goods by the importer or exporter.
The revised provisions empower customs officers to verify the

self assessment and if required, re-assess duty on the imported
or export goods. It is being further provided that the officers may
conduct audit in certain situations either in their own office or at
the premises of the importer or exporter.
Section 18 is also being amended to make the provisions relating

to “provisional assessment” of duty applicable in case an importer
or exporter is unable to make self-assessment with the proposed
scheme of “self-assessment”.
Section 19 is being amended to align the provisions relating to

determination of duty where goods consist of articles liable
to different rates of duty with the proposed scheme of ‘self-
assessment’ under Section 17.
Extension in time limit for claiming refund of duty and interest

Budget Proposal The time limit for claiming refund of duty and interest from six
months to one year.
Changes in Notice for payment of duties, Interest, delayed payment of duty in normal or
special cases
Budget Proposal Rate of Interest for under Sections 28AA, 28AB is fixed at 18% vide
Notification numbers Notification numbers 17/2011 and 18/2011. Date of effect of both
17/2011 and 18/2011 the notifications is 1st April, 2011.
Entry of Goods for import and export
Budget Proposal Section 46 is being amended to provide that an entry of imported
goods shall be presented electronically and to empower the
Commissioner of Customs to allow filing of entry in any other
manner when it is infeasible to present electronically.
Section 50 is being amended to provide that an entry of export

goods shall be presented electronically and to empower the
Commissioner of Customs to allow filing of entry in any other
manner when it is not feasible to present electronically.
56
Duty Drawback will be allowed even though Export remittances not received within
prescribed time
Budget Proposal Section 75 is being amended to enable the Central Government
to prescribe circumstances under which drawback would not be
disallowed even though the export remittances are not received
within the period specified in the Foreign Exchange Management
Act.
Power of Adjudicating authority to release seized goods
Budget Proposal Section 110A is being amended to empower the adjudicating
authority to allow release of seized goods.
Changes in provisions for issuance of show cause notice

Budget Proposal Section 124 is being amended to provide for issuance of a show
cause notice with prior approval of an officer not below the rank of
an Assistant Commissioner of Customs.
CBEC empowered to issue instructions as per National Litigation Policy
Budget Proposal Section 131D is being inserted retrospectively with effect from
20th October, 2010 to empower the Board to issue instructions
relating to non-filing of appeal in certain cases in line with National
Litigation Policy.
Customs Act shall have a “First Charge” on the property of the defaulter for recovery of
Customs dues
Budget Proposal A new section 142A is being inserted so as to create first charge
on the property of the defaulter for recovery of the customs dues
from such defaulter subject to provisions of Section 529A of the
Companies Act, the Recovery of Debt due to Bank and Financial
Institution Act, 1993 and Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002.
Balance of unclaimed cargo sale proceeds to be paid to the Government
Budget Proposal Section 150 is being amended so as to provide that the balance of
sale proceeds of unclaimed cargo sold in auction shall be paid to
the Government when it cannot be paid to the owner within six
months.
Power to issue instructions on matters related to prohibition, restrictions or procedure of
Import or Export of goods
Budget Proposal Section 151A is being amended so as to empower the Board to
also issue instructions to customs authorities on any other matters
under the Customs Act or any other Act for the time being in force
so far as they relate to prohibition, restrictions or procedure
relating to import or export of goods.
Power to prescribe regulations for conducting Audit
Budget Proposal Section 157 is being amended to empower the Board to prescribe
regulations for specifying the manner of conducting audit at the
office of the proper officer of customs or at the premises of the
importer.
57
Definition of “Completely Knocked Down (CKD) unit” of a vehicle is inserted

Budget Proposal A definition for “Completely Knocked Down (CKD) unit” of a vehicle
including two wheelers, eligible for concessional import duty, is
being inserted to exclude from its purview such units containing a
pre-assembled engine or gearbox or transmission mechanism or a
chassis where any of such parts or sub-assemblies is installed.
Changes in list of goods which are either Imported or Exported Duty free
Budget Proposal The list of specified goods, allowed to be imported duty free
for use in the manufacture of leather goods, for export is being
expanded.
The list of specified goods, allowed to be imported duty free for

use in the manufacture of textile and leather garments, is being
expanded by including anti-theft devices like labels, tags and
sensors therein.
Description of some items is being changed in the list of items that

are allowed to be imported duty free for manufacture of textile or
leather garments and other leather goods for export.
Benefit of duty free import on trimmings, embellishments,

components etc. for manufacture of leather goods, footwear and
textile garments is being extended to merchant exporters subject
to certain conditions.
Specified tools used in the handicrafts sector are being included

in the list of specified goods, allowed to be imported duty free to
Handicrafts exporters.
Prohibition of Import of goods

Notification number Acetate Tow and Filter Rod are prohibited from Imports except if
16/2011 N.T. goods are used for manufacture of Filter Rod and Filter Cigarette.
Legislative changes under the Customs Tariff Act, 1975

Exemption from Special Additional Duty for certain products
Budget Proposal Full exemption from SAD presently available upto 31st March, 2011
on parts, components and accessories for manufacture of mobile
handsets including cellular phones is being extended upto
31st March, 2012.
58
Amendments in Customs Tariff Act, 1975

Budget Proposal Section 3 is being amended to substitute the reference to Standards
Along with Notification of Weight & Measures Act, 1976 with Legal Metrology Act, 2009 with
number 15/2011 effect from 1st March, 2011 with respect of RSP valuation of goods.
Section 9AA is being amended so as to enable the Central

Government to reduce the anti-dumping duty imposed under
the provisions of sub-section (1) of Section 9A on an article or an
importer where such importer proves to the satisfaction of the
Central Government that he has paid anti-dumping duty in excess
of his actual margin of dumping.
Customs Tariff (Identification, Assessment and Collection of Anti

Dumping duty on Dumped Articles and for Determination of Injury)
Rules, 1995 is being amended so as to revise provisions of rule 23
so as to align the same with Article 11 of the WTO Agreement on
anti dumping and also to insert Annexure-III containing principles to
determine the non-injurious price.
Security amount to be tendered at the time of registration of a contract under Project
Import Regulation.
Budget Proposal Security amount is reduced to 2% of the contract value under
Project Import Regulation, subject to maximum of Rupees one
crore to be taken in the form of bank guarantee.
Bank guarantee need not be renewed if the finalisation is not

completed within six months of the submission of the necessary
documents by the importer.
The following benefits of reward schemes are available towards fulfilment of export
obligations under EPCG scheme.
Budget Proposal Various notifications have been amended retrospectively so that
benefit of reward scheme such as, Served From India Scheme,
Focus Market Scheme, Focus Product Scheme etc. are available
towards fulfilment of export obligations under EPCG scheme.
Amendments in Customs Tariff

Commodities Revised rates
Specified agriculture machinery namely paddy transplanter, laser 2.5%
land leveler, cotton picker, reaper-cum-binder, straw or fodder
balers, sugarcane harvesters and track used for manufacture of
track-type combine harvester.
Parts and components required for manufacture of above 2.5%

equipments.
Micro-irrigation equipment(tariff item 8424 8100) 5%
Raw pistachios 10%
Cranberry products 10%
Sun-dried dark seedless raisins 30%
De-oiled rice bran oil cake i) Full exemption from
BCD
ii) Export duty @ 10%
59

Specified parts of the hybrid vehicles namely battery pack, battery Full exemption from
chargers, AC/DC electric motors and motor controllers. Such BCD and SAD and
concession is subject to actual user condition and will be available concessional CVD @ 5%
till 31st March, 2013.
Spare battery packs for the electric vehicles for Importers which Customs duty
are registered with the agencies notified for Central Financial dispensation and
Assistance (CFA) scheme of the Ministry of Non-conventional & concessional CVD @ 5%
Renewable Energy (MNRE).
All clearances from SEZ into DTA are being exempted from SAD Exemption from SAD
provided not exempt from levy of VAT/Sales Tax.
Domestic tariff area clearances of plastic materials manufactured CVD exemption
in SEZ units reprocessed in India out of the scrap or the waste of
goods falling under specified chapters.
Spares and consumables for repairs of ocean going vessels to be Exempt
availed by the owners of such vessels registered in India.
Raw Silk (not thrown) of all grades 5%
Cotton Waste Fully Exempted from
BCD
Poly Tetra Methylene Ether Glycol (PTMEG) and Diphenylmethane 5%
4, 4-diisocynate (MDI) subject to Actual User Condition
Acrylonitrile 2.5%
Sodium Polyacrylate 5%
Caprolactum 7.5%
Nylon Chips, Fibre and Yarn 7.5%
Rayon Grade Wood Pulp 2.5%
Water pumping station and water reservoir for agricultural and Fully Exempt
industrial use projects.
‘Tunnel Boring machine’ and parts thereof for highway Fully Exempted from
development projects BCD and CVD
Specified Gems and Jewellery Machinery 5%
Cash dispensers and parts used for manufacturer of cash Fully Exempted from
dispensers subject to actual user condition BCD
Mailroom equipment compatible with high-speed printing Concessional import
machinery imported by registered newspaper establishments duty of 5% basic
customs duty, 5% CVD &
Nil SAD
Parts and components for manufacture of 23 specified high voltage Concessional import
transmission equipments duty of 5% basic
Nil SAD
Bio-based asphalt sealer and preservation agent, millings remover Fully Exempted from
and crack filler, asphalt remover and corrosion protectant and BCD
sprayer system for bio-based asphalt applications
LEDs used for manufacture of LED lights and light fixtures Concessional CVD @ 5%
(by way of a central
excise exemption) and
full exemption from
SAD
60

Solar lantern or lamps 5%
Toughened glass and silver paste imported for manufacture of solar Fully Exempted from
cells or solar modules on actual user basis subject to actual user Customs Duty
condition
Endovascular stents Fully Exempted from
BCD
Specified raw material for the manufacture of syringes, needles, Concessional import
catheters, cannulae subject to actual user condition duty regime of 5% Basic
Nil SAD
P&P medicines imported for retail sale Exemption from SAD
Four specified life saving drugs and their bulk drugs 5% with Nil CVD
(by way of excise duty
exemption)
Lactose for use in the manufacture of homoeopathic medicines 10%
Parts of inkjet and laser-jet printers imported for manufacture of 5% CVD and Nil SAD
such printers
Parts/components required for the manufacture of PC connectivity Full exemption from
cable and sub-parts of parts & components of battery charger, BCD
hands-free head phones and PC connectivity cable of mobile
handsets including cellular phones
Additional specified capital goods and raw materials for the Fully Exempted from
manufacture of electronic hardware Customs Duty
Parts for manufacture of DVD writers Combo drives and CD Drives Concessional import
subject to actual user condition duty structure of 5%
CVD and Nil SAD
Imports of aircrafts for non-scheduled operations 2.5%
Exemption from e-cess
and SHES is withdrawn
Fin fish feed Full exemption from
BCD
Vannamei broodstock 10%
Bamboo used for manufacture of agarbattis 10%
Waste Paper 2.5%
Stainless steel scrap Full exemption of BCD
Ferro-nickel 2.5%
Export duty on iron ores while unifying the effective rate of export 30%
duty on iron ore fines and lumps at 20%.
Iron ore pellets Full exemption from
export duty
Copper dross, copper residues, copper oxide mill scale, brass dross Exemption from levy
and zinc ash of SAD
Vanadium pentoxide and vanadium sludge 2.5%
Gold and silver contained in the copper concentrate Exemption from BCD
Gold dore bars of upto 80% gold purity imported for refining and Import duty of Nil BCD,
manufacturing serially numbered gold bars in India CVD of ` 140 per 10
gram and Nil SAD
Carbon black feed stock, petroleum coke, mineral gypsum 2.5%
Crude palm stearin used in the manufacture of laundry soap on Exemption from BCD
actual user basis.
61

Works or arts or antiquities for exhibition or display in private art Fully exempt
galleries or similar premises that are open to general public and
works of art created by an Indian artist abroad, irrespective of the
fact whether such works are imported along with the artist or the
sculptor on their return to India
Imports of caustic soda lye imported into India during the period Definitive safeguard
4th December, 2009 to 3rd March, 2010 duty imposed
retrospectively
Fresh garlic imported by National Consumer Cooperative Federation Concessional basic
and Madhya Pradesh State Cooperative Marketing Federation under customs duty of
import licenses issued by the Central Government and cleared after 30% to be provided
15th January, 2003. retrospectively.
All dutiable items intended for personal use imported by post or 35%
air. The effective rate of duty for goods imported for personal
use by post or air is being maintained at 10% in respect of
imports exempted from any prohibition under the Foreign Trade
(Development and Regulation) Act, 1992
62
4. FEMA AND CORPORATE LAW

Foreign Exchange Management (Transfer or Issue of Security by a
Person Resident Outside India) (Amendment) Regulations, 2010
Pricing Guidelines
In case of offer of transfer or Issue of security by a person resident outside India
on right basis the pricing shall be:
In case of company Listed on recognised stock exchange in India: at a price
as determined by the company
In case of company not listed on recognised stock exchange in India: at a

price which is not less than the price at which the offer on right basis is
made to resident shareholders
Further, the earlier guideline of valuation of share by a Chartered Accountant

as per the guidelines issued by the erstwhile Controller of Capital Issues in
case of shares issued to persons resident outside India is replaced with the
following guideline:
The issue price of shares shall not be less than:
• In case of company is not listed on any recognised stock exchange in

India: fair valuation of shares done by a SEBI registered Category - I
Merchant Banker or a Chartered Accountant as per the discounted free
cash flow method
• In case where the issue is on preferential basis: the price as applicable

to transfer of shares from resident to non-resident as per the pricing
guidelines laid down by the Reserve Bank from time to time
Foreign Exchange Management (Foreign Currency Accounts by a

Person Resident in India) Amendment Regulations, 2010
An authorized dealer in India may, subject to the directions as may be issued
by the Reserve Bank, can now allow Project Offices set up in India by foreign
companies to hold and maintain non-interest bearing foreign currency
account in India for the projects to be executed in India.
Establishment of Branch Offices (BO)/Liaison Offices (LO) in India by Foreign

Entities – Delegation of Powers
Filing of Annual Activity Certificates (AAC) to the designated AD Category-I

bank has been extended from 30th April of every year to September 30th for
accounts finalised as on 31st March. In case the annual accounts of the LO/
BO are finalized with reference to a date other than 31st March, the AAC
63
along with the audited Balance Sheet may be submitted within six months
from the due date of the Balance Sheet.
Corporate Law
Easy Exit Scheme (EES) 2011
A company registered under the Companies Act, 1956 having a active status
on Ministry of Corporate affairs portal and which is not carrying over any
business activity or operation on or after the 1st April, 2008 or a company
which has not raised its paid up capital as required by provisions of Companies
Act 1956 (known as “Defunct company”) and who are desirous of getting
their names strike off from the Register of companies may apply under EES,
2011 in accordance with the provisions of this Scheme.
The purpose of the Scheme is to allow eligible companies to avail of this

opportunity to exit from the Register of Companies after fulfilling the
requirements laid down herewith and the decision of the Registrar of
Companies in respect of striking off the name of company shall be final.
The Scheme does not cover the following companies namely:-
• Listed companies;
• Companies registered under section 25 of the Companies Act, 1956;
• Vanishing companies;
• Companies where inspection or investigation is ordered and being carried

out or yet to be taken up or where completed prosecutions arising out
of such inspection or investigation are pending in the court;
• Companies where order under section 234 of the Companies Act, 1956
has been issued by the Registrar and reply thereto is pending or where
prosecution if any, is pending in the court;
• Companies against which prosecution for a non-compoundable offence

is pending in court;
• Companies accepted public deposits which are either outstanding or

the company is in default in repayment of the same;
• Company having secured loan;
• Company having management dispute;
• Company in respect of which filing of documents have been stayed by

court or company Law Board (CLB) or Central Government or any other
competent authority;
64
• Company having dues towards income tax or sales tax or central excise
or banks and financial institutions or any other Central Government or
State Government Departments or authorities or any local authorities
This Scheme shall come into force on the 30th May, 2010 has now been extend
upto 30th April, 2011.
Corporate Affair
Indian Accounting Standards Converged with IFRS
In pursuance of G-20 commitment by India for reliable and transparent

financial reporting, the process of convergence of 35 selected IAS with IFRS
will be carried out. The Ministry of Corporate Affairs will implement the
IFRS converged IAS in a phased manner after resolving the technical issues in
consultation with the various government divisions and stakeholders.
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Hungary
East
Kazakhstan
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Latvia
Lithuania
Poland New Delhi
Romania
Russia Jaipur
Serbia
Bahamas Sub-Saharan
Slovakia
British Virgin Islands Africa
Slovenia
Canada Austria Ahmedabad
Turkmenistan
The Caribbean Belgium Vadodara Kolkata
Ukraine
Cayman Islands Cape Verde
Jamaica Cyprus
Mexico Denmark
Mumbai
Antilles Finland
Pune
Latin & South France
Trinidad & Tobago
Germany Hyderabad
USA America
Gibralta
Greece
Guernsey
Ireland
Bengaluru Chennai
Isle of Man
Argentina Bahrain
Israel Angola
Bolivia Egypt Coimbatore
Italy Botswana
Brazil Jordan
Jersey Comoros
Chile Kuwait Australia Pakistan
Liechtenstein Mauritius
Colombia Lebanon China Philippines
Luxembourg Madagascar
Dominican Republic Oman Fiji Singapore
Malta Mozambique
Ecuador Qatar Hong Kong Sri Lanka
Morocco Namibia
EL Salvador Saudi Arabia India Taiwan
Netherlands Nigeria
Guatemala UAE Head Office Indonesia Thailand
Norway Reunion Islands
Panama Portugal Japan Vanuatu
Senegal Branch Offices
Paraguay Spain Korea Vietnam
Seychelles
Peru Sweden Malaysia
South Africa
Suriname Switzerland New Zealand
Zambia
Uruguay Turkey
Zimbabwe
Venezuela Tunisia
United Kingdom
Graphical Representation. Not to scale.
Updated as on November 2010
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BDO Budget Analysis 2011-12

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BDO Budget Analysis 2011-12

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BUDGET ANALYSIS

OUR CORE VALUES

To address the menace of black money

To Enhance growth rate of agriculture sector

To establish good governance in the Government system

The policy directions that emerge from the budget are:

Substantial allocation to infrastructure, education and social sectors

Address food inflation and food storage

Curb in implementation gaps, leakeages from public programme and the

Address the increasing drift in governenace and a gap in public

Roadmap to fiscal consolidation

Dis-investment in PSUs to yield ` 40,000 crore

Gross tax receipts for 2011-12 are estimated at ` 9,32,440 crores

Increase in MAT from 18% to 18.5%

Levy of MAT on LLPs, SEZ developers and SEZ units

Inclusion of new services in the service tax net

Raise the corpus of the rural infrastructure development funds XVII to

The plan and non-plan expenditure for 2011-12 are estimated at

Allocation of ` 2,14,000 crores for infrastructure

Allocation of ` 7,860 crores to Rastriya Kisan Vikas Yojna

2. DIRECT TAX PROPOSALS

3. INDIRECT TAX PROPOSALS

4. FEMA AND CORPORATE LAW 62

2005-06 2006-07 2007-08 2008-09 2009-10 2010 - 11

Performance of select major sectors

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Foregin Exc hange Reserves (USD bn)

2006-07 2007-08 2008-09 2009-10 2010-11

Foreign Direct Investment in retail sector

2. DIRECT TAX PROPOSALS

Particulars Tax Rate (%) *

Currently the surcharge on income tax @7.5% is payable by a domestic

In case of companies, other than domestic companies, having the income

The Education Cess shall continue to be levied @ 3%.

Minimum Alternate Tax u/s 115JB

Applicability of Minimum Alternate Tax in case of SEZ

Extension of Dividend Distribution Tax to SEZ Developers

It is proposed to increase the threshold limit of exemption. It is also

Individual Assessee (other than women & senior-citizen) (Assuming

Women Assessee below the age of sixty years

Senior Citizen between the age of sixty years to eighty years

Senior Citizen above the age of eighty years

No surcharge will be levied in case of individuals, HUF, AOP & BOI,

The education cess shall continue to be levied at the rate of 3%.

Section Existing Provision Proposed Effective Date Analysis

Section Existing Provision Proposed Effective Date Analysis

In the case of an assesse, being a company, which is required to furnish a

This amendment is proposed to take effect from 1st April, 2011.

Exemptions and Deductions

The above amendment is proposed to take effect retrospectively from

Enhancement of weighted deduction for any sum paid to a National

It is now proposed to increase the said weighted deduction from 175% to

Exemption of specified income of notified body or authority or trust

It is proposed to insert new clause (46) in the said section so as to provide

Corresponding amendment is also proposed in Section 139 of the Act, by

The amendment will take effect from 1st June 2011.

Enhancement of income criteria for Charitable Trust/Institution

However, it has been proposed to enhance the monetary limit in respect of

Investment linked deduction in respect of specified businesses

Production of fertiliser in India.

The specified businesses of affordable housing project and production of

Tax benefits for New Pension System (NPS)

Section 80CCE of the Act provides that aggregate amount of deductions