Dear Principal Chief Commissioner/ Chief Commissioner/ Principal Director General/ Director General,
The Finance Minister has introduced the Finance Bill, 2023 in Lok Sabha today, that is 1st February, 2023. Amendments have been proposed through clauses 123 and 124 of the Bill to the Customs Act, 1962, through clauses 125, 126 and 127 of the Bill to the Customs Tariff Act, 1975 and through clause 153 of the Bill to section 136 of the Finance Act, 2001. The changes proposed through clause 126 (a) and clause 153 have been given immediate effect through a declaration under the Provisional Collection of Taxes Act, 1931. The other changes proposed in the Bill would come into effect upon its enactment on the date of assent of the Bill or from the date specified in the Finance Bill. Changes have also been proposed in the CGST Act and IGST Act through clauses 128 to 144 of the Bill. The details are briefly brought out below.
2. Changes in customs and central excise duty rates are also being carried through the following Notifications which are effective from 2nd February,2023 unless specified otherwise:
3. The proposed changes in customs, central excise/ NCCD rates, and other changes proposed in the Finance Bill, 2023 are briefly summarized below:
A. CUSTOMS
I Basic customs duty rate structure:
a) As part of rationalization of customs duty rate structure, the number of basic customs duty rates on goods, other than textiles and agriculture, is being reduced. As a result, there are changes in the rates of BCD as well as in the rates of AIDC and/ or SWS .
b) The BCD is being increased on styrene, vinyl chloride monomer, toys and parts of toys (other than parts of electronic toys), bicycles, automobiles in SKD and CBU form, Silver bar, Silver dore and naphtha.
c) The BCD and the AIDC /SWS rates are being re- calibrated while maintaining the existing incidence of customs duties on gold, gold dore, platinum, coal, peat and lignite. Similarly the BCD and AIDC on aircraft (other than those at Nil or 2.5%) & aircraft tyres (other than those at Nil) are being re-calibrated while maintaining the same incidence of duty. These changes will also be effective from, 2nd February,2023 through the relevant notifications.
II. Duty rate changes
1. Chemicals and petrochemicals:
a) The BCD on denatured ethyl alcohol is being reduced from 5% to Nil for use in the manufacture of industrial chemicals through IGCR route.
b) The BCD on acid grade fluorspar (containing by weight more than 97% of calcium fluoride) is being reduced from 5% to 2.5% .
c) The BCD on crude glycerin is being reduced from 7.5% to 2.5% for use in manufacture of epichlorohydrin through IGCR route.
d) The BCD on Naphtha is being increased from 1% to 2.5%.
e) The BCD on styrene is being increased from 2 % to 2.5%.
f) The BCD on Vinyl Chloride monomer is being increased from 2% to 2.5%.
2. Precious Metals
a) The import duty on Dore and bar of gold and platinum were enhanced in June and October 2022 respectively. While maintaining the existing incidence of import duty on these items, the BCD rate and AIDC rates are being recalibrated. The import duty on silver bar and silver Dore is however being enhanced. The changes are as follows:
b) The import duty on articles made of precious metals falling under CTH 7113 & 7114 is being increased from 22% to 25%. It is however being exempted from SWS.
c) The import duty on imitation jewellery classified under Heading 7117 is being increased from 22% or Rs. 400/kg, whichever is higher' to '25% or Rs. 600/kg, whichever is higher'. It is however being exempted from SWS.
3. Export Promotion:
a) The BCD on 'seeds' for use in manufacture of rough lab grown diamond is being reduced to Nil subject to IGCR condition for a period of two years.
b) The BCD on certain ingredients/inputs for use in the manufacture of aquatic feed is being reduced subject to IGCR condition as follows:
4. Electronics goods
a) The BCD on camera lens for camera module and input/sub parts for lens of camera module of mobile phone is being reduced from 2.5% to Nil subject to IGCR condition.
b) Exemption from BCD is being provided to specified chemicals/items for manufacture of Pre-calcined Ferrite Powder as is available for Ferrites (S. No 17 of Notification no 25/1999 -Customs).
c) Exemption from BCD is being provided to Palladium Tetra Amine Sulphate for manufacture of parts of connectors as is available for manufacture of connectors. (S.No 225 of Notification no 25/1999 -Customs).
d) The BCD on parts for manufacture of open cells of TV panels is being reduced from 5% to 2.5% subject to IGCR condition.
5. Electrical appliances
e) The BCD on electric kitchen chimney is being increased from 7.5% to 15% .
f) The BCD on heat coils for use in manufacture of electric kitchen chimney is being reduced from 20% to 15% subject to IGCR condition.
6. Automobiles
a) Exemption from BCD is being provided to vehicles, specified automobile parts/components, sub-systems and tyres, when imported by notified testing agencies for the purpose of testing and/ or certification , subject to specified conditions.
b) The BCD on vehicle (including electric vehicles) in Semi-Knocked Down (SKD) form is being increased from 30% to 35%. However it is being exempted from SWS
c) The BCD on vehicles in Completely-Built Unit (CBU) form is being increased from 60% to 70%. However it is being exempted from SWS.
7. Capital Goods
a) Customs duty exemption is being provided to import of specified capital goods and machinery required for manufacture of lithium-ion cells for batteries used in electric vehicles as is available for manufacture of lithium-ion cells for batteries used in mobile handsets.(S.No 69 of Notification no 25/2002 -Customs )
8. Others
a) The BCD on bicycles is being increased from 30% to 35%. However it is being exempted from SWS.
b) The BCD on toys and its parts is being increased from 60% to 70%. However it is being exempted from SWS . There are no changes to the effective rate on parts covered under S. No 591 of Notification No. 50/2017-Customs.
c) The BCD on aircraft (other than those at Nil or 2.5%) and aircraft tyres (other than those at Nil) is being reduced from 3% to 2.5% but they will attract AIDC of 0.5%.
d) The BCD on coal, peat and lignite is being increased to 2.5% but these are being exempted from AIDC.
e) The BCD on compounded rubber is being increased from 10% to '25% or Rs. 30/kg whichever is lower'.
f) The BCD on pecan nuts is being reduced from 100% to 30%. The SWS exemption is being withdrawn.
g) The BCD on Warm blood horse imported by sports person of outstanding eminence for training purpose for equestrian sports is being reduced from 30% to Nil subject to conditions.
9. Social welfare surcharge (SWS)
The following goods are being exempted from levy of Social Welfare Surcharge in order to maintain the total effective duty owing to rationalization of basic customs duty rate structure:
The following notifications are being rescinded on account of being redundant owing to basic customs duty rate structure rationalization:
Note: Description of entries is indicative, notification may be referred for complete description. 10. Agriculture Infrastructure and Development Cess (AIDC)
(a) AIDC rate changes (with changes to the effective rate of customs duty)
Note: Description of entries is indicative, notification may be referred for complete description.
(b) Changes to AIDC (without any change to the effective rate of customs duty)
11. Review of Exemptions
Out of 196 exemptions, 146 exemptions are being extended for a period of one year i.e. up to 31.3.2024 for the purpose of undertaking review. Of the remaining, a few are being extended for five years, two years and one year while some exemption entries are being discontinued with effect from 31.3.2023.
The details of exemption entries/ notifications extended by five years, two years and one year are as follows:
In addition, there are 146 conditional exemptions covered by Notification no 50/2017-Customs and standalone notifications that are also being extended up to 31.3.2024 for the purpose of undertaking review during the year which is at Annexure -I. The list of conditional /unconditional exemption entries under notification no 50/2017-customs and standalone notification discontinued with effect from 31.3.2023 is at Annexure -II.
B CENTRAL EXCISE
1. The Seventh Schedule of the Finance Act, 2001 is being amended to revise the specific rates of National Calamity Contingent Duty (NCCD) levied as duty of excise on specified cigarettes w.e.f. 2nd February, 2023 as follows:
2. Central excise duty exemption is being provided on blended Compressed Natural Gas (CNG) from so much of the amount as is equal to the GST paid on Bio Gas /Compressed Bio Gas contained in such blended CNG.
C. LEGISLATIVE AMENDMENTS
I. Amendments in Customs Act, 1962
(i) Section 25 of the Customs Act is being amended to insert a Proviso to subsection (4A) to provide that the validity of two years shall not apply to exemption notifications issued in relation to multilateral or bilateral trade agreements; obligations under international agreements, treaties, conventions; UN agencies, diplomats, international organizations; privileges of constitutional authorities; schemes under Foreign Trade Policy or other Central Government schemes having a validity of more than two years; re-imports, temporary imports, goods imported as gifts or personal baggage; any duty of customs imposed under any law in force including integrated tax leviable under sub-section 7 of Section 3 of the Customs Tariff Act, 1975, other than under Section 12 of the Customs Act;
(ii) Section 127 C of the Customs Act is being amended to insert sub section (6) to specify a time limit of 9 months from the date of application, for disposal of the application filed before the Settlement Commission.
II. Amendments in Customs Tariff Act, 1975
(i) Sections 9, 9A, 9 C of the Customs Tariff Act are being amended to clearly amplify the intent and scope of these provisions. They are also being validated retrospectively with effect from 1st January 1995.
(ii) The First Schedule to the Customs Tariff Act, 1975 is being amended to introduce new tariff lines or modify existing tariff lines. The proposed changes are in chapter 3, chapter 4, chapter 9, chapter 10, chapter 12, chapter 13, chapter 19, chapter 27, chapter 29, chapter 31, chapter 38, chapter 39, chapter 48, chapter 52, chapter 54, chapter 57, chapter 61, chapter 62, chapter 63, chapter 69, chapter 71, chapter 84, chapter 85, and chapter 87. Changes which does not involve change in rate of duty would come into effect from 1.5.2023.
(iii) The General explanatory note to the General Rules for interpretation of the Schedule is being amended to carry out some changes which inter alia, include changes to align the abbreviations and the tariff with complementary amendments to the HS 22. These changes would come into effect from 1.5.2023.
(iv) The First Schedule to the Customs Tariff Act, 1975 is also being amended to modify the tariff rates on certain tariff items as part of rationalization of customs duty rate structure.
Wherever there are increase in duty rates, they would come into effect from 2.2.2023 and the others would come into effect from the date of assent of the Bill.
(v) The Second Schedule is being amended to align the entries under heading 1202 with that of the First Schedule. These changes would come into effect from 1.5.2023.
III. Amendments in CGST and IGST Acts
Amendments carried out in the Finance Bill, 2023 except those in clause 142 will come into effect from the date when the same will be notified concurrently, as far as possible, with the corresponding amendments to the similar Acts passed by the States & Union territories with legislature. Amendments carried out in the Finance Bill, 2023, vide clause 142 will come into effect retrospectively from 1st July, 2017.
Amendments in CGST ACT, 2017:
a) Clause (d) of sub-section (2) and Clause (c) of sub-section (2A) in section 10 of the CGST Act is being amended so as to remove the restriction imposed on registered persons engaged in supplying goods through electronic commerce operators from opting to pay tax under the Composition Levy.
b) Second and third provisos to sub-section (2) of section 16 of the CGST Act are being amended to align the said sub-section with the return filing system provided in the said Act.
c) Explanation to sub-section (3) of section 17 of the CGST Act is being amended so as to restrict availment of input tax credit in respect of certain transactions specified in para 8(a) of Schedule III of the said Act, as may be prescribed, by including the value of such transactions in the value of exempt supply. Further, sub-section (5) of said section is also being amended so as to provide that input tax credit shall not be available in respect of goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013.
d) Sub-section (1) and sub-section (2) of section 23 of the CGST Act are being amended, with retrospective effect from 01st July, 2017, so as to provide overriding effect to the said section over sub-section (1) of section 22 and section 24 of the said Act.
e) A new sub-section (5) in section 37 of the CGST Act is being inserted so as to provide a time limit upto which the details of outward supplies under sub-section (1) of the said section for a tax period can be furnished by a registered person. Further, it also seeks to provide an enabling provision for extension of the said time limit, subject to certain conditions and restrictions, for a registered person or a class of registered persons.
f) A new sub-section (11) in section 39 of the CGST Act is being inserted so as to provide a time limit upto which the return for a tax period can be furnished by a registered person. Further, it also seeks to provide an enabling provision for extension of the said time limit, subject to certain conditions and restrictions, for a registered person or a class of registered persons.
g) A new sub-section (2) in section 44 of the CGST Act is being inserted so as to provide a time limit upto which the annual return under sub-section (1) of the said section for a financial year can be furnished by a registered person. Further, it also seeks to provide an enabling provision for extension of the said time limit, subject to certain conditions and restrictions, for a registered person or a class of registered persons.
h) A new sub-section (15) in section 52 of the CGST Act is being inserted so as to provide a time limit upto which the statement under sub-section (4) of the said section for a month can be furnished by an electronic commerce operator. Further, it seeks to provide an enabling provision for extension of the said time limit, subject to certain conditions and restrictions, for an electronic commerce operator or a class of electronic commerce operators.
i) Sub-section (6) of section 54 of the CGST Act is being amended so as to remove the reference to the provisionally accepted input tax credit to align the same with the present scheme of availment of self-assessed input tax credit as per sub-section (1) of section 41 of the said Act.
j) Section 56 of the CGST Act is being amended so as to provide for an enabling provision to prescribe manner of computation of period of delay for calculation of interest on delayed refunds.
k) A new sub-section (1B) in section 122 of the CGST Act is being inserted so as to provide for penal provisions applicable to Electronic Commerce Operators in case of contravention of provisions relating to supplies of goods made through them by unregistered persons or composition taxpayers.
l) Sub-section (1) of section 132 of the CGST Act is being amended so as to decriminalize offences specified in clause (g), (j) and (k) of the said sub-section and to increase the monetary threshold for launching prosecution for the offences under the said Act from one hundred lakh rupees to two hundred lakh rupees, except for the offences related to issuance of invoices without supply of goods or services or both.
m) First proviso to sub-section (1) of section 138 of the CGST Act is being amended so as to simplify the language of clause (a), to omit clause (b) and to substitute the clause (c) of said proviso so as to exclude the persons involved in offences relating to issuance of invoices without supply of goods or services or both from the option of compounding of the offences under the said Act. It further seeks to amend sub-section (2) so as to rationalize the amount for compounding of various offences by reducing the minimum as well as maximum amount for compounding.
n) A new section 158A in the CGST Act is being inserted so as to provide for prescribing manner and conditions for sharing of the information furnished by the registered person in his return or in his application of registration or in his statement of outward supplies, or the details uploaded by him for generation of electronic invoice or E-way bill or any other details, as may be prescribed, on the common portal with such other systems, as may be notified.
o) Schedule III of the CGST Act is being amended to give retrospective applicability to paras 7, 8 (a) and 8(b) of the said Schedule, with effect from 01st July, 2017, so as to treat the activities/ transactions mentioned in the said paragraphs as neither supply of goods nor supply of services. It is also being clarified that where the tax has already been paid in respect of such transactions/ activities during the period from 01st July, 2017 to 31st January, 2019, no refund of such tax paid shall be available.
IGST Act, 2017:
a) Clause (16) of section 2 of the IGST Act is being amended so as to amend the definition of "non-taxable online recipient" by removing the condition of receipt of online information and database access or retrieval services (OIDAR) for purposes other than commerce, industry or any other business or profession so as to provide for taxability of OIDAR service provided by any person located in non-taxable territory to an unregistered person receiving the said services and located in the taxable territory. Further, it also seeks to clarify that the persons registered solely in terms of clause (vi) of Section 24 of CGST Act shall be treated as unregistered person for the purpose of the said clause.
Further, clause (17) of the said section is being amended to amend the definition of "online information and database access or retrieval services" to remove the condition of rendering of the said supply as it is essentially automated and involves minimal human intervention.
b) Proviso to sub-section (8) of section 12 of the IGST Act is being omitted so as to specify the place of supply, irrespective of destination of the goods, in cases where the supplier of services and recipient of services are located in India.
4. This letter only summarizes the key budgetary changes and does not have any legal force. It is only the Finance Bill and the relevant notifications that have legal force. While utmost care has been taken to clearly reflect the intention of the Government in the Finance Bill and the Notifications, the possibility of an inadvertent error cannot be ruled out. I, therefore, request you to kindly go through the Finance Bill, the Memorandum and the Notifications and bring to our notice, at the earliest, if there are any omission/error or discrepancies. You are also requested to study the budgetary changes and ensure the smooth implementation of the proposed changes keeping the convenience of the taxpayers in mind. The copies of Finance Bill, 2023, Finance Minister's Budget Speech, Explanatory Memorandum to the Bill and relevant notifications can be downloaded directly from www.indiabudget.gov.in as well as www.cbic.gov.in.
5. In case of doubt or difficulty on any issue, you are requested to bring it immediately to my notice at is-tru01@gov.in or to the notice of Shri Rakesh Dahiya, Deputy Secretary (TRU) (Tel: 011-23092236, email: rakesh.dahiya@gov.in), Ms. Amreeta Titus, Deputy Secretary (TRU) (Tel: 011-23092753, email: amreeta.titus@gov.in) or Sh. Sandesh Loldiande, Budget Officer (TRU) (Tel: 011-23095547, email: slokhande.9@gov.in). We can also be reached at budget-cbec@,nic.in.
6. Finally, I take this opportunity to personally thank my each and every member of my team and each one of you on behalf of my team for your suggestions/inputs and look forward to your comments/feedback.
Yours sincerely,
(Limatula Yaden)
Joint Secretary (TRU-I)
Annexure I
Conditional exemptions entries in Notification no 50/2017-Customs extended for one year, i.e. upto 31.3.2024 to be taken up for review this year
B. Standalone Customs exemption notifications extended for one year , upto 31.3.2024 to be taken up for review this year
Annexure II
Conditional /unconditional exemption entries in notification no 50/2017-customs being discontinued with effect from 31.3.2023.
Standalone notification being discontinued with effect from 31.3.2023.
Note: Description of entry is indicative, notification may be referred for complete description.