2014 Union Budget Analysis by ELP

Union Budget 2014
AN ANALYSIS OF BUDGET PROPOSALS

UNION BUDGET 2014
An Analysis of Budget Proposals

Economic Laws Practice 2014 Page | 2
Foreword
Dear Reader,
The promise of Acche Din and the resounding mandate in the elections had led to unrealistic expectations of what
would be delivered in this Budget. The Finance Minister would have had to walk on water to fulfill the expectations
built up in the media. In his speech, the Finance Minister, rightly pointed to the fact that not everything could be
addressed in one Budget and systemic changes would have to be made in the next few years to achieve our economic
aspirations.
The challenge for the Finance Minister was to balance the unduly high expectations built up pre Budget, with the
economic realities prevailing at a ground level, with a view to help reshape investment sentiment both domestically
and internationally. In that background, it is disappointing that some of the schematic issues impacting investment
sentiment, viz. Retrospective Amendments, GST & DTC are largely not dealt with in any manner of detail. A frame
work and time line for dealing with GST and the issue of retrospective amendments were the need of the hour, and,
should have been more definitively addressed in terms of a clear path and time frame. The issue of tax terrorism,
which impacts both the culture and credibility of our tax system, also seems to have passed largely unaddressed.
Indirect Tax appeals appear to have been subjected to an onerous condition of a statutory pre-deposit. The tax
treatment of CSR expenditure is another dampener.
The expansion of the scope of Advance Ruling and the settlement mechanism are clear positives. The clarity in
relation to the taxation of Foreign Fund Managers and the tax provisions relating to REITs and Infrastructure related
funds will also have a positive impact. The changes related to the Transfer Pricing provisions will facilitate greater
clarity and the roll back qua APAs is very welcome.
There will undoubtedly be more defining signals throughout the coming fiscal year on the issues of GST, retrospective
amendments and DTC. The Governments attempts towards stamping out Tax Terrorism will also be keenly
followed.
The Finance Ministers devotion to detail and the focus of the new Government on better governance in every aspect
of taxation, augurs well for the future. If this focus on details and governance carries through for the next few years,
there is hope that we will truly emerge to a point, where daily governance shapes our future and an exercise like the
Budget becomes less relevant as a statement of the Governments policy and intent.
There is reason to look forward with enthusiasm and excitement.
As always, we at ELP would be happy to hear your comments on this publication and happy to support.
We look forward to your comments and questions.
Best Regards,
Rohan Shah | Managing Partner
Economic Laws Practice | Advocates & Solicitors
Date: July 10, 2014

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TABLE OF CONTENTS
FOREWORD........................................................................................................................................................ 2
TABLE OF CONTENTS .......................................................................................................................................... 3
CHAPTER 1 BUDGET HIGHLIGHTS ..................................................................................................................... 4
1. INDIRECT TAXES............................................................................................................................................... 4
2. DIRECT TAXES .................................................................................................................................................. 4
3. EFFECTIVE DATE OF VARIOUS CHANGES IN INDIRECT TAXES ......................................................................... 6
CHAPTER 2 GOODS AND SERVICES TAX ............................................................................................................ 7
CHAPTER 3 SERVICE TAX .................................................................................................................................. 9
1. LEGISLATIVE CHANGES .................................................................................................................................... 9
2. CHANGES IN NEGATIVE LIST .......................................................................................................................... 12
3. EXEMPTIONS/CONCESSIONS ......................................................................................................................... 13
4. ABATEMENT OF SERVICE TAX ....................................................................................................................... 19
5. AMENDMENT TO RULES ................................................................................................................................ 23
CHAPTER 4 EXCISE DUTY ................................................................................................................................ 26
1. LEGISLATIVE CHANGES .................................................................................................................................. 26
2. CHANGES IN RATE OF EXCISE DUTY .............................................................................................................. 32
CHAPTER 5 CUSTOMS DUTY ........................................................................................................................... 36
1. LEGISLATIVE CHANGES .................................................................................................................................. 36
2. CHANGES IN RATE OF CUSTOMS DUTY ......................................................................................................... 41
CHAPTER 6 - CENVAT CREDIT RULES, 2004......................................................................................................... 47
CHAPTER 7 DIRECT TAXES .............................................................................................................................. 50
1. KEY AMENDMENTS ....................................................................................................................................... 50
2. INCOME TAX RATES ....................................................................................................................................... 60
3. TRANSFER PRICING ........................................................................................................................................ 63
CHAPTER 8 BANKING, FINANCING, INFRASTRUCTURE, CAPITAL MARKETS AND INVESTMENT UPDATE ............. 66
1. BANKING........................................................................................................................................................ 66
2. FINANCING .................................................................................................................................................... 67
3. INFRASTRUCTURE SECTOR ............................................................................................................................ 69
4. CAPITAL MARKETS ......................................................................................................................................... 72
5. FOREIGN DIRECT INVESTMENT ..................................................................................................................... 75
6. MISCELLANEOUS ........................................................................................................................................... 77
GLOSSARY OF TERMS ....................................................................................................................................... 78

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Chapt er 1 Budget Hi ghl i ght s
1. INDIRECT TAXES
On GST, it was announced that the Government intends to find solution on issues with States in the
course of the year and approve the legislative scheme. Announcement falls short of the pre-budget
expectation that a definitive path and time line for GST would be declared.
No changes are made in tax rates. Though, various Customs Duty and Central Excise Duty exemptions
have been announced in line with the stated objective to boost manufacturing sector and to address
the issue of inverted duty structure.
Certain measures proposed to reduce litigation. Critical amongst these are:
Scheme of Advance Rulings is being extended to resident private limited companies
Amendments proposed in the appeal procedures by making mandatory fixed pre-deposit for
appeals to be entertained by the Commissioner (Appeals) and Tribunals.
Amendment made to the CENVAT Credit Rules which curtails the ability of the assessee to avail credit of
input and input services after 6 months from the date of issue of invoice/ challan/ other specified
document.
Amendment made to the Central Excise Valuation Rules to overcome the decision of the Honble
Supreme Court in CCE, Mumbai vs. Fiat India Pvt. Ltd. [2012 (283) E.L.T. 161 (S.C.)] by providing that
value for assessment of duty to be accepted as transaction value where the excisable goods are sold at a
price below the manufacturing cost and profit and there is no additional consideration flowing from the
buyer to the assessee directly or from a third person on behalf of the buyer.
2. DIRECT TAXES
No change in retrospective operation of provisions relating to taxability of indirect transfers
New Government to review DTC in its present shape and consider the comments received from the
stakeholders
Increase in basic exemption limit by INR 50,000
Lower rate of dividend from foreign subsidiary continues @ 15% without any sunset date

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Unlisted securities and units of debt oriented mutual funds to be held for 36 months to qualify as Long
Term Capital Asset
Units of mutual fund excluded from eligibility of concessional rate of 10% (without indexation) on Long
Term Capital gains under Section 112
Distributable income and Dividends to be grossed up for the purpose of computing the Dividend
Distribution Tax and Income Distribution Tax move to grossing as opposed to netting
Sunset date for power sector under Section 80-IA extended by 3 years from March 31, 2014 to March 31,
2017
Pass through status to Real Estate Investment Trusts and Infrastructure Investment Trusts
Income arising from investment made by FIIs in accordance with the SEBI regulations would be in the
nature of capital gains
Mandatory CSR Expenditure not allowed to be deducted under Section 37 of the IT Act
Mutual funds, securitisation funds and venture capital funds now required to file tax returns and not
statement of income
Rationalization of the definition of international transaction
TPO included as an authority competent to levy penalty
Amendment proposed to provide roll back mechanism in the APA scheme
Proposal to introduce range concept for determination of ALP
Amendments proposed to allow use of multiple year data for comparable analysis

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3. EFFECTIVE DATE OF VARIOUS CHANGES IN INDIRECT TAXES
Particulars Date from when effective
Legislative changes in Customs and Excise Date of enactment of the Finance Bill, 2014
Legislative changes in Service Tax
Date of enactment of the Finance Bill, 2014/Date to
be notified in Official Gazette
Amendments to CENVAT Credit Rules, 2004 (Other than
those specified in the relevant Notifications)
July 11, 2014, save as otherwise specified
New rates of Customs Duty July 11, 2014
New rates of Excise Duty July 11, 2014

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Chapt er 2 Goods and Servi ces Tax
The debate whether to introduce a Goods and Services Tax (GST) must now come to an end. We have discussed the
issue for the past many years. Some States have been apprehensive about surrendering their taxation jurisdiction;
others want to be adequately compensated. I have discussed the matter with the States both individually and
collectively. I do hope we are able to find a solution in the course of this year and approve the legislative scheme
which enables the introduction of GST. This will streamline the tax administration, avoid harassment of the business
and result in higher revenue collection both for the Centre and the States. I assure all States that Government will be
more than fair in dealing with them.
Excerpt of the Budget Speech of the Finance Minister
The intention to introduce the GST model of taxation has been conveyed, however, the Budget remains silent on the
way forward for its effective implementation. The Doing Business Report 2014 prepared by the World Bank shows
that India ranks 134 out of 189 countries for ease of doing business leading us to believe that introduction of GST
could help India improve this ranking. Although the Economic Survey 2014-15 mentioned a phase-wise
implementation of GST with the introduction of CenGST as its first step, the Budget did not make any such reference.
The Finance Minister has collectively and individually discussed the two contentious issues with the States viz.
curtailment in tax jurisdiction of the States and the adequacy of compensation to be awarded, to them and is hopeful
of finding a solution to these issues within a year. The Finance Minister hopes that they will be able to approve the
legislative scheme which will enable the implementation of GST, in the near future. In fact, as per the recent meeting
of the Empowered Committee of State Finance Ministers (EC), both, the Centre and States are looking to
expeditiously resolve issues that have delayed the implementation of GST. The Chairman of EC stated that all States
are on board subject to the addressing of certain concerns such as subsumation of entry tax and petroleum products
in the comprehensive tax regime.
The Budget has predicted a streamlined tax administration and an end to the harassment faced by business, with the
introduction of the GST model of taxation. A higher revenue collection for the Centre and States has also been
foreseen with the implementation of GST. The Finance Minister has ended his address in regard to GST by assuring
all States that Government will be more than fair in dealing with them.
The nation has echoed the significance and importance of introducing the GST regime by acknowledging its
significant bearing on the resource-raising potential of State Governments. It has been unanimously agreed that the

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implementation will improve tax efficiency and reduce the cost cascading prevalent in the present Indirect Tax
regime, thereby contributing to higher growth.
The Economic Survey of FY 2014-15 has identified the key objective of GST as simplification with a clean conceptual
core, and removal of a large number of special cesses and exemptions that favour special interest groups.
Although the Budget does not give significant pronouncements on the implementation of GST, the nation is
anticipating a fresh direction and definite approach to GST with baited breath. In line with the manifesto of the
Government, the Finance Minister has successfully identified the impediments to the implementation of the
comprehensive tax regime and assured the concerned States of a fair deal. The nation awaits a drastic step towards
the introduction of the GST model and the subsequent delivery of the Governments promise of bringing in Acche
Din.

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Chapt er 3 Servi ce Tax
1. LEGISLATIVE CHANGES
Amendments to the Finance Act, 1994
An amendment has been proposed under Section 73 to prescribe time limits for completion of
adjudications by the authorities, similar to existing provision under the CE Act.
o Sub-clause (4B) has been introduced to prescribe the following:
- Adjudications to be completed within six months in cases where limitation is of eighteen
months as per Section 73(1) [where normal period of limitation is applicable]
- Adjudications to be completed within one year where the extended period of limitation
of five years is invoked
o The above time limits are to be followed by the Authorities as far as possible
New Rules are proposed to be prescribed for determining the rate of exchange for Service Tax
valuation purpose
o Explanation to Section 67A has been substituted to provide reference to such proposed Rules
o The above proposal is in response to the industry requests for delinking the conversion rate
from the Customs notified rates of exchange
o The amendment shall come into effect from a date to be notified after the Finance Bill, 2014
receives the assent of the President
o Industry has been invited to share their suggestions before such Rules are notified
It has been proposed to amend Section 80 to remove the power to waive the 50% penalty imposable
in cases of default of payment of Service Tax on account of suppression of facts or willful
misstatement etc., by deleting reference to first proviso to Section 78(1)
o First proviso to Section 78(1) deals with applying reduced penalties in cases where true and
complete details of transactions are available

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o The above penalty, earlier, could have been waived by invoking Section 80 where the assessee
demonstrated reasonable cause for default in payment of Service Tax
Section 82 has been proposed to be amended along the lines of Section 12F(1) of the CE Act, to
extend powers of authorizing search and seizure to the Additional Commissioner or any other officer
notified by the CBEC.
Section 83 has been proposed to be amended to make the following provisions of the CE Act
applicable to Service Tax
o Section 5A(2) which provides that insertion of explanation in notifications/orders within one
year from the date of such notification/ order shall have the effect as if it had always been part
of the notification
o Section 15A which provides that the assessees or specified authority (such as VAT / Sales Tax
authorities, Income Tax authorities, State Electricity Board, Registrar of Companies etc.) will be
required to submit an information return in prescribed format to an authority / agency as well
as Section 15B which provides for penalty for non-compliance of Section 15A
The proposed substitution of Section 35F of CE Act, which provides for mandatory fixed pre-deposit
of duties and penalties for filing appeals before Commissioner (Appeals) and Tribunal, will have
reflective impact on Service Tax appeal proceedings.
Similarly, the amendments as proposed under Sections 35B and 35C of the CE Act will have reflective
impact on Service Tax litigations.
The scope of Section 87 has been proposed to be broadened by insertion of proviso to clause(c)
o The new proviso states that where the person from whom tax or other dues are recoverable,
transfers or disposes his business or effects any change in the ownership thereof, then all
goods in custody or possession of successor of such business may also be attached and sold
for recovery of such tax or other dues.
o Such proceedings can be initiated by an officer empowered by CBEC after obtaining written
approval of the Commissioner of Central Excise.

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It has been proposed to amend Section 94 to provide for additional rule making powers to the
Central Government on the following:
o Rules in relation to furnishing information, keeping records and making returns and specifying
the manner in which they shall be verified [Clause (k) substituted]
o Rules in relation to withdrawal of facilities or imposition of restrictions on utilization of
CENVAT credit to check its misuse or evasion [Clause (l) inserted]
o Rules in relation to authorizing CBEC or Chief Commissioner of Central Excise to issue
instructions in supplemental or incidental matters [Clause (m) inserted]
Imposition of unique and severe slab rate of interest has been proposed to be introduced with effect
from October 1, 2014.
o Notification No. 12/2014-ST dt. July 11, 2014 has been issued to revise the interest rates as
under:
- 18% per annum for delay upto six months
- 24% per annum for delay beyond six months and upto one year
- 30% per annum for delay beyond one year
ELPs Comments
This will have a far reaching impact on the litigated/ disputed amounts in respect of which cost of interest
may increase from 18% to 30% w.e.f. October 1, 2014.
Similar to the amendments as proposed under Advance Ruling provision of the CE Act, Section 96A
has been amended to extend the scheme of Advance Ruling to resident private limited companies
The proposed amendments to Section 31G, 32E and 32O of the CE Act in relation the Settlement
Commission will have reflective impact on Service Tax applications.
New Section 100 has been proposed to be inserted to provide for non levy of Service Tax in respect
of taxable services provided by the Employees State Insurance Corporation during the period prior to
July 1, 2012.

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2. CHANGES IN NEGATIVE LIST
With a view to broadening the tax base, Negative List has been narrowed in respect of the following two
entries
Selling of space or time slot for advertisements:
Section 66D(g) amended to exclude all forms of advertisement other than sale of space in print
media from the coverage of the Negative List
o Sale of space for advertisements in print media was included in the wider ambit of the entry
earlier and the same forms part of Negative List even after proposed amendment
o Print media defined under Section 65B(39a) as books (excluding business directories, yellow
pages and trade catalogues) and newspaper
As a result of the proposed amendment, the levy of Service Tax will extend to advertisements in
internet websites, out-of-home media, on film screen in theatres, bill boards, conveyances, buildings,
cell phones, Automated Teller Machines, tickets, commercial publications, aerial advertising, etc.
ELPs Comments
As far as sale of space in print media is concerned, original position is restored as existed prior to the
introduction of Negative List regime.
Transportation of passenger, with or without accompanied belongings:
Section 66D(o)(vi) of Negative List modified to exclude radio taxis
o Radio taxi is defined under clause 2(za) of Notification No. 25/2012-ST dt. June 20, 2012 of
Exemption list to mean taxi, including radio cab, with two-way radio communication with
central control office and enabled for tracking using GPS/GPRS (Refer our comments on
Service Tax exemption)
Abatement scheme similar to rent a cab made available to radio taxis
The services of transportation of passengers by metered cab and auto rickshaw would continue to be
covered under the Negative List

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3. EXEMPTIONS/CONCESSIONS
New Exemptions / Concessions
Sr.
No.
Description of services* ELPs Comments
1. Services by way of transportation of
organic manure and cotton (ginned or
baled) by:
Rail or a vessel from one place in
India to another
Services of a goods transport agency
by way of transport in a goods
carriage
Exemption for such transportation was hitherto
available in respect of various goods including
chemical fertilizer, oil cakes, agricultural produce, etc.
Vide this amendment, similar exemption has been
extended in respect of transportation of organic
manure and cotton.
2. Services by way of loading, unloading,
packing, storage or warehousing of
cotton (ginned or baled)
Hitherto exemption of this service was available only
in respect of rice and the same has now been
extended to cotton.
3. Services provided by operators of the
Common Bio-medical Waste Treatment
Facility to a clinical establishment by
way of treatment or disposal of bio-
medical waste or the processes
incidental thereto
Provisions have been introduced to exempt such
services to augment safe disposal of medical and
clinical wastes.
4. Services received by the RBI, from
outside India in relation to
management of foreign exchange
reserves
Services provided by RBI are covered under the
Negative List of services and hence not chargeable to
Service Tax. Nevertheless, no exclusion / exemption
was hitherto available for services received by RBI.
Vide this amendment, specified services received by
RBI have been exempted, thereby absolving RBI from
payment of Service Tax on reverse charge basis on the
same. This exemption is in line with exemptions
enjoyed by Service Providers to other Government
Organizations
5. Services provided by a Tour Operator to
a foreign tourist in relation to a tour
conducted wholly outside India
Services provided by a Tour Operator are covered
under Rule 9 of the Place of Provision of Services
Rules, 2012, being in the nature of intermediary
services and are identified as such in the Education
Guide released by the Tax Research Unit in June 2012.
In such situations, location of the tour operator is
deemed to be the place of provision of service. This
new exemption entry seeks to carve out an exemption
for services provided by Indian tour operators

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Sr.
No.
Description of services* ELPs Comments
operating tours outside India for foreign tourists.
6. Services of life insurance business
under life micro-insurance product as
approved by the Insurance Regulatory
and Development Authority having
maximum amount of cover of INR
50,000
The scope of the exemption in respect of services of
life insurance business has been broadened to include
these services.

* Description of services in respect of which exemption from payment of Service Tax is proposed to be
granted
Existing Exemptions / Concessions amended
Sr.
No.
Taxable Service Relevant Entry* Amendments ELPs Comments
1. (i) Various services
received by an
Educational
Institution
providing
education
services not
chargeable to
Service Tax
Serial no. 9 of the
Notification provided
exemption to
Services provided to
an educational
institution in respect
of education
exempted from
Service Tax, by way
of:
(a) Auxiliary
educational
services, or
(b) Renting of
immovable
property.
Hitherto, exemption
was available in
respect of auxiliary
education services
received by an
Education Institution.
Vide this amendment,
exemption has been
restricted to only the
following services
received by an
Educational
Institution:
(i) Transportation of
students, faculty and
staff
(ii) Catering including
mid-day meal scheme
(iii) Security, cleaning and
housekeeping services
performed within
premises of such
institution
(iv) Services relating to
admission to, or
Hitherto, exemption was
available in respect of
Auxiliary Education
Services; defined to mean
various services relating to
imparting of skill, education
by an Education Institution
and various other services,
which are although
ordinarily carried out by
such institutions, may be
obtained as outsourced
services from any other
person.
Vide this amendment,
concept of auxiliary
education services has
been done away with and
only specified services
received by an Education
Institution are exempted.
Rent of immovable
property paid by an
Educational Institution is
now exigible to Service Tax

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Sr.
No.
conduct of
examination by such
institution

2. Renting of hotel
inn or guest
house, club,
campsite or other
commercial
places
Serial No. 18 of the
exemption to
Services by way of
renting of a hotel,
inn, guest house,
club, campsite or
other commercial
places meant for
residential or lodging
purposes, having
declared tariff of a
unit of
accommodation
below INR 1000 per
day or equivalent.
The words or other
commercial places
has been replaced
with by whatever
name called.
The exemption on service
by way of renting for
residential or lodging
purposes has been
extended to include within
its ambit dharmashalas or
ashram or such other
entities, having declared
tariff of a unit of
accommodation below INR
1000 per day or equivalent.
The intention was to treat
the tariff threshold as the
sole basis for extending the
exemption.
3. Transportation of
passengers by
contract carriage
exemption to
Transport of
passengers, with or
without
accompanied
belongings, by a
contract carriage for
the transportation of
passengers,
excluding tourism,
conducted tour,
charter or hire
The words contract
carriage have been
replaced by non air
conditioned
contract carriage
other than radio
taxi.
The scope of exemption is
withdrawn for air-
conditioned contract
carriage and radio taxi and
Service Tax has been levied
at abated rates.
The term radio taxi has
been defined to mean a
taxi including a radio cab,
by whatever name called,
which is in two-way radio
communication with a
central control office and is
enabled for tracking using
Global Positioning System
(GPS) or General Packet
Radio Service (GPRS).
Therefore, Service Tax
services of transport of
passengers by an air-
conditioned contract
carriage and radio taxi
would now attract Service
Tax at an abated rate on

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Sr.
No.
40% of the amount charged
from service receiver
provided CENVAT credit on
inputs, capital goods and
input services used for
providing such services has
not been availed
4. Services provided
to Government, a
local authority or
a governmental
authority
exemption to
Services provided to
Government, a local
authority or a
governmental
authority by way of
carrying out any
activity in relation to
any function
ordinarily entrusted
to a municipality in
relation to water
supply, public health,
sanitation
conservancy, solid
waste management
or slum
improvement and
upgradation;
The words carrying
out any activity in
relation to any
function ordinarily
entrusted to a
municipality in
relation to have
been omitted.
The exemption has been
restricted to services
provided to Government or
local authority or a
governmental authority by
way of certain specified
services of water supply,
public health, sanitation
conservancy, solid waste
management or slum
improvement and up-
gradation
The amendment provides
an exhaustive list of
services to exclude ancillary
services
5. Services by way
of technical
testing or analysis
of newly
developed drugs
Serial No. 7 of the
Notification No.
25/2012- S.T. dt.
June 20, 2012
exempted services
by way of technical
testing or analysis
of newly developed
drugs, including
vaccines and herbal
remedies, on
human participants
by a clinical
research
organization
approved to
conduct clinical
This exemption has now
been omitted.
This benefit was provided
in terms of Notification No.
11/2007- S.T. dt. March 1,
2007 and was continued
under the Negative List
regime. However, he same
has now been withdrawn.

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Sr.
No.
trials by the Drug
Controller General
of India. This
exemption has now
been omitted.
This benefit was
provided in terms of
Notification No.
11/2007- S.T. dt.
March 1, 2007 and
was continued under
the Negative List
regime. However, the
same has now been
withdrawn.
* Relevant Entry in the existing Notification No. 25/2012- S.T. dt. June 20, 2012
Procedural simplifications for availing ab-initio exemption for provision of services to an SEZ
The following changes have been made for simplifying the procedure for availing upfront exemption in
provision of services to SEZ:
A time limit of 15 days has been laid down for Central Excise Officers for issuance of Form A-2 within
15 working days from the date of submission of Form A-1 from the SEZ unit or developer. Previously
no time frame had been prescribed;
Authorization in Form A-2 will be valid from the date on which Form A-1 is verified by the Specified
Officer of SEZ (in cases where Form A-1 is furnished after a period of 15 days from the date of its
verification, Form A-2 will have validity from the date of furnishing Form A-1 to the Central Excise
Officer);
Pending issuance of Form A-2, a service provider can provide services to the SEZ unit or Developer
without payment of Service tax and the SEZ unit or developer who should provide a copy of Form A-2
to such service provider upon receipt thereof; however, in case such Form A-2 is not received by the
service provider within a period of 3 months from the date services in question are deemed to be
provided, such service provider would be liable to pay Service Tax on such services;

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It has been clarified that a service shall be treated as used exclusively for the authorized operation of
SEZ if:
Such service is received by SEZ unit or developer under an invoice in their respective names, and
Such service is used only for furtherance of authorized operations in the SEZ.
ELPs Comments
These procedural simplifications would put an end to the long prevailing uncertainty as regards eligibility of
ab initio exemption in respect of services received before receipt of authorization in Form A-2. Further, a
time bound issuance of Form A-2 would be a welcome step for the industry.
However, the requirement of service being used only for furtherance of authorized operations in the SEZ
so as to be treated as used exclusively for authorized operations would factor in discretion of the tax
authorities and fails to address the possibility of the phrase being interpreted differently by the authorities
and the service providers.

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4. ABATEMENT OF SERVICE TAX
Amendment in Notification No. 26/2012-ST dt. June 20, 2012
Sr. No. Service Tax base* Conditions ELPs Comments
1. Services of goods
transport agency in
relation to
transportation of
goods
25 CENVAT credit on Inputs,
Capital Goods and Input
services, used for
providing the taxable
service, has not been
taken by the service
provider under the
provisions of the CCR
The insertion of the
expression by the service
provider makes it clear
that the restriction in
respect of availment of
CENVAT credit is
applicable only to the
service provider and not
to service recipient
2. Services provided
in relation to chit
services, used for
taken under the
Consequential change on
account of change in
condition for entry
referred at point 1 above.
No impact in the legal
position.
3. Renting of motor
cab
40 (i) CENVAT credit
on Inputs and
Capital goods,
used for
providing the
taxable service,
has not been
taken under the
provisions of the
CCR
(ii) CENVAT credit
on Input service
of renting of
motor cab has
been taken
under the
provisions of the
CCR, in the
following
manner:
(a) Full CENVAT
credit of such
input service
received from
The earlier entry was
applicable on renting of
any motor vehicle
designed to carry
passenger (including
motor cab)

Earlier, CENVAT credit was
not available on any
Inputs, Capital goods or
Input Services. The
amendment relaxes the
restrictions of CENVAT
credit only on input
services by allowing credit
in respect of Input
services of motor cab,
subject to the cap of 40%.

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a person who
is paying
Service Tax on
40% of the
value; or
(b) Up to 40%
CENVAT credit
of such Input
service
received from
a person who
is paying
Service Tax on
full value
(iii) CENVAT credit
on Input services
other than those
specified in (ii)
above, has not
been taken
under the
provision of the
CCR
4. Transport of
passengers, with or
without
accompanied
belongings, by a
contract carriage
other than a motor
cab
services, used for
taken under the
New entry introduced
Effectively, it was part of
the earlier entry no. 9 of
Notification No.26/2012-
ST dt. June 20, 2012.
The abatement would
also be applicable to
services by radio taxi from
the date to be notified.
5. Transport of goods
in a vessel
services, used for
taken under the
Increase in the exemption
from 50% to 60%.
6. Services by a tour
operator in relation
on Inputs,
The CENVAT credit on
Input services pertaining

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to
(i) a package tour
Capital Goods
and Input
services other
than the input
service of a tour
operator, used
for providing the
taxable service,
has not been
taken under the
provisions of the
CCR
(ii) The bill issued
for this purpose
indicated that it
is inclusive of
changes for such
a tour
to tour operator services
would be available in all
the 3 entries
Earlier no credit on any
Input service was
admissible. The service
provider will be entitled
to avail credit of input
service provided to it only
by another tour operator
w.e.f. October 1, 2014 by
the said amendment.
(ii) a tour, if the
tour operator is
providing services
solely of arranging
or booking
accommodation for
any person in
relation to a tour
on Inputs,
Capital Goods
and Input
services other
than the input
service of a tour
operator, used
for providing the
taxable service,
has not been
taken under the
provisions of the
CCR;
(ii) The invoice, bill
or challan issued
indicates that it
is towards the
charges for such
accommodation;
(iii) This exemption
shall not apply in
such cases
where the
invoice, bill
or challanissued

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by the tour
operator, in
relation to a
tour, only
includes the
service charges
for arranging or
booking
accommodation
for any person
and does not
include the cost
of such
accommodation.
(iii) any services
other than
specified at (i) and
(ii) above.
on inputs, capital
goods and input
services, used
for providing the
taxable service,
has not been
taken under the
provisions of the
CENVAT Credit
Rules, 2004.
(ii) The bill issued
indicates that
the amount
charged in the
bill is the gross
amount charged
for such a tour.
* Tax base on which tax is to be computed, post amendment (%)

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5. AMENDMENT TO RULES
Amendments to STR
Addition/amendment in the definition of persons liable for paying Service Tax under Rule 2(1)(d)
(effective from July 11, 2014)
o New sub-rule (AA) provides that banking company, financial institution or a non banking
financial company availing services of recovery agent shall be liable to pay Service Tax.
o Amendment to sub-rule (EE) provides that a company or a body corporate shall be liable to
pay services tax in respect of services provided by a director of the said company or body
corporate. (Earlier only company was liable to pay Service Tax on such services)
- In both the above cases 100% Service Tax is payable by the recipient of the services
ELPs Comments:
o The insertion of body corporate in sub rule (EE) widens the base for reverse charge wherein it
includes all body corporates to pay Service Tax in relation to services provided by a director,
except:
o A registered co-operative society;
o Any other body corporate which the Central Government may, by notification specify in this
behalf
Amendment in partial Reverse Charge Mechanism under Notification 30/2012-ST dt. June 20, 2012
(effective from October 1, 2014)
Serial no. 7(b) under Notification No. 30/2012-ST dt June 20, 2012: In respect of services of renting of
motor vehicle designed to carry passengers where the Service Provider does not take abatement, the
percentage of Service Tax payable by Service Receiver and Service Provider has now been revised to
50% each. Previously Service Receiver was liable to pay 40% whereas 60% of Service Tax was to be
paid by Service Provider.

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Every assessee to pay Service Tax electronically (effective from October 1, 2014)
Amendment to Rule 6(2): Earlier only in case of taxpayers whose Service Tax liability in the preceding
financial year was more than Rs. 10 lakhs were required to pay electronically. Now every assessee
will be required to pay Service Tax through internet banking.
Assistant Commissioner / Deputy Commissioner of Central Excise shall have the power to allow the
assessee to deposit tax by mode other than internet banking.
Amendments to POT
First proviso to Rule 7 of the POT Rules has been amended to provide that, for invoices issued after
October 1, 2014 in respect of cases where tax is to be paid under reverse charge basis, the point of
taxation will be the date of payment or the day after 3 months from the date of issue of invoice,
whichever is earlier.
A transition rule has been inserted by way of Rule 10 of the POT Rules to provide that for invoices
issued (but payments not made) before October 1, 2014 in respect of which payments have been
made within 6 months, the point of taxation will be the date of payment. If payment is not made
within 6 months than tax shall be payable on accrual basis.
All the above amendments under the POT Rules shall be effective from October 1, 2014.
Amendments to PPSR
Earlier, an exclusion by way of a proviso to Rule 4 of the PPSR was provided in respect of goods that
were temporarily imported into India for repairs on fulfillment of specified conditions. However, no
conditions were provided under the said rule.
The said proviso has been substituted to indicate that for the purpose of exclusion of repair services
in such cases, it would be sufficient if the goods imported for repair are exported after repair without
being put to any use other than that which is required for such repair. The above exclusion is
however not applicable to goods which are imported in the usual course of business and are
subjected to repair while such goods are in India.
The definition of Intermediary under Rule 2(f) of the PPSR has been amended to include
intermediary of goods within its purview. Earlier, it included only intermediaries engaged in

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facilitating provision of services between two persons. Accordingly, under the proposed rules a
commission agent or consignment agent shall also be covered under Rule 9(c) of the PPSR.
ELPs Comments
The amendment effectively brings services of commission agent for marketing of goods belonging to
overseas customers under Service Tax which otherwise were considered to be in the nature of exports. The
amendment also tends to turn down the decision (although under erstwhile Export of Service Rules, 2005) in
the case of Blue Star Ltd vs. CCE, Bangalore [2008 (11) STR 23 (Tri. Bang)] which held that the taxability of
such services should be based on the location of the service recipient.
Rule 9(d) of the PPSR has been amended to exclude services of hiring of vessels (excluding yachts)
and aircraft from its purview, and therefore the same shall fall under the general rule i.e. location of
recipient.
ELPs Comments
The exclusion of vessels and aircraft from the Rule 9(d) has provided a breather to shipping industry and such
services when provided to overseas customer will be treated as export irrespective of the period of hire of
vessels/ships.
All the amendments under PPSR shall be effective from October 1, 2014.
Amendments to Valuation Rules
Rule 2(A) has been amended to remove the delineation between works contract for repair and
maintenance of any goods (value of services - 70% of value) and the residual category (value of
services 60% of value).
ELPs Comments
The rationale behind the merger of two categories is to avoid disputes of classification between works
contract for maintenance or repairs in respect of goods and in respect of immovable property. By virtue of
the above amendment, Service Tax will be charged on 70% of the total amount on all the works contracts
except works contracts in respect of original works, which shall continue to be charged at 40% of the
contract value. Further, under most VAT Laws an abatement of 30% has been provided on such transaction
thereby, leading to duality of taxes.

UNION BUDGET 2014

Chapt er 4 Exci se Dut y
Amendments to CE Act
An amendment has been proposed in the definition of Central Excise Officer under Section 2(b) of
the CE Act so as to cover a Principal Chief Commissioner of Central Excise / Principal Commissioner of
Central Excise, where any reference is made to a Chief Commissioner of Central Excise /
Commissioner of Central Excise under the Act.
o All powers conferred and functions exercised by the Chief Commissioner of Central Excise /
Commissioner of Central Excise will equally apply to the Principal Chief Commissioner of
Central Excise / Principal Commissioner of Central Excise.
An enabling provision is proposed to be inserted in Section 15A of the CE Act, whereby assessees or
specified authorities (such as VAT / Sales Tax authorities, Income Tax authorities, State Electricity
Board, Registrar of Companies etc.) will be required to submit information/return in prescribed
format to an authority / agency.
o The objective of this provision is to enable exchange of information between relevant
authorities in order to identify tax evaders or recover confirmed dues.
o The authorities will also be empowered to issue a notice for submission of information within
a period of 90 days.
o In case the required information is not submitted, a penalty may be imposed at the rate of INR
100 per day for which the failure to furnish the information continues.
Settlement Commission
Section 31G has been proposed to be amended to rechristen the Customs and Central Excise
Settlement Commission as the Customs, Central Excise and Service Tax Settlement Commission,
pursuant to the amendment in 2012 which enabled the Commission to also take up Service Tax
matters.
Section 32E has been proposed to be amended to extend the scope of the cases which can be taken
up by the Settlement Commission, to also cover situations in which the assessee has not filed the

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prescribed returns, provided that the Settlement Commission is satisfied with the circumstances for
non-filing of returns.
Section 32E is also proposed to be amended to do away with the bar on filing of application before
the Commission for a period of 180 days, where the excisable goods, books of accounts or
documents have been seized under the CE Act or Rules thereunder.
By way of a proposed Explanation to Section 32O, the bar on filing of subsequent applications to the
Settlement Commission will apply where there has been any concealment of particulars of duty
liability from a Central Excise Officer.
Intention to reduce litigation
Section 35B is proposed to be amended to increase the monetary limit for exercise of discretionary
powers of the Tribunal to refuse admission of appeal, from INR 50,000 to INR 2,00,000.
The aforesaid Section is also proposed to be amended to permit the CBEC to constitute a Committee
in relation to filing of Department appeals before the Tribunal, by issuance of an order. Accordingly,
the issuance of a notification published in the Official Gazette would no longer be required.
Section 35C is proposed to be deleted to do away with the provisions in relation to the validity
period of Stay Orders.
ELPs Comments
The previous Union Budget 2013-14 had imposed a cap of 365 days on the extension of a Stay Order by the
Tribunal. Further to the amendment, recovery proceedings were initiated for several assessees whose Stay
Orders had crossed the 365 day limit. Certain conflicting precedents had been rendered on whether or not
the Stay Order could, in fact, be extended beyond the 365 day period, where the pending appeals had not
been heard by the Tribunal, due to no fault attributable to the assessee (while a negative view was taken in
Commissioner of Customs & Central Excise vs. J.P. Transformers [2013-TIOL-1152-HC-ALL-ST], a recent
decision of the CESTAT bearing No. CESTAT/BNG/M.O./1/2014 [2014-TIOL-1204-CESTAT-BANG] issued
uniform instructions to the Department not to recover amounts even beyond the 365 day limit). These
provisions have now been proposed to be deleted altogether going forward, laying this dispute to rest.

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Section 35E(3) has been proposed to be amended to enable the Board to extend the period, for
determining whether the Department would be required to file an appeal before the Commissioner
(Appeals) or the Tribunal, by a further thirty days.

Pre-deposit and Stay of Recovery before Appellate Authorities
Section 35F has been substituted to introduce an entirely new procedure for appellate proceedings
before the Commissioner (Appeals) and Tribunal. Going forward, no applications for dispensation of
pre-deposit will be required to be filed before these appellate authorities. Instead, assessees will be
required to make a mandatory pre-deposit for filing of appeal, which will be as follows:
o 7.5% of the duty demanded or penalty imposed or both for Commissioner (Appeals) or the
Tribunal at the first stage;
o Another 10% of the duty demanded or penalty imposed or both for filing second stage appeal
before the Tribunal;
o The total pre-deposit under the Section is subject to a ceiling of Rs. 10 Crore.
The said provision will not apply to stay applications and appeals pending on the date of commencement of
the Finance (No. 2) Act, 2014.
The aforesaid provision will also cover duty demanded under Section 11D of the CE Act, erroneously availed
CENVAT credit and amounts payable under Rule 6 of the Credit Rules.
ELPs Comments
With this new procedure, assessees will be required to compulsorily deposit these amounts in order to lodge
their appeals, and appellate authorities will then proceed to directly take up appeals for final hearing.
In the past, similar provisions have been employed under other legislations, such as State VAT Acts, and
assessees challenging this requirement have been directed to make the pre-deposit, failing which their
appeal would not be entertained (M/s. Johnson Lifts Pvt. Ltd. vs. State of Karnataka [Order of the Honble
Karnataka High Court dt. March 5, 2013 in W.P. Nos. Act 173 & 3953-3988 of 2013]).

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It is pertinent to note that the provision is silent on whether previous deposits (e.g. deposits made under
protest in the course of investigation) will be taken into account while computing the amount required to be
pre-deposited under this provision. Furthermore, the provision is also silent on refunds (along with interest)
of the pre-deposit amounts pursuant to an assessee receiving a favourable ruling from the appellate
authority when their appeal is finally decided.
An amendment has been proposed to Section 35L of the CE Act to provide that the determination of
disputes relating to taxability or excisability of goods is covered under the term determination of
any question having a relation to rate of duty.
ELPs Comments
This proposed amendment has adopted the reasoning in decisions such as Commissioner of Service Tax vs.
Ernst And Young Pvt Ltd [2014-TIOL-263-HC-DEL-ST] and Commissioner of Service Tax vs. Delhi Gymkhana
Club Ltd. [2009 (16) STR 129], which have held that issues of taxability / excisability in effect determine
whether the transaction is liable to a nil rate of tax, and are therefore in relation to the rate of duty.
Accordingly, the appeal in such cases from an Order of the Tribunal would lie to the Honble Supreme Court,
and not the jurisdictional High Court.
Section 35R(4) is proposed to be amended to provide that the Commissioner (Appeals) will be
permitted to take into consideration the fact that a particular order cited as a precedent has not
been appealed by the Department for reasons of the disputed amount being low. This power was
previously only available with the Tribunal.
Amendments to the Central Excise Tariff Act, 1985
The Third Schedule to the CETA (which specifies the goods for which certain specified activities, such
as packing, repacking, labeling relabeling etc., amount to deemed manufacture) has been aligned
to Notification No. 49/2008-CE(NT) dt. December 24, 2008, which specifies goods liable for
assessment based on Retail Sale Price. This amendment will take effect immediately.
Vide Notification No. 17/2014Central Excise (N.T.) dt. July 11, 2014
Notification No. 49/2008 CE (NT) dt. December 24, 2008, which outlines the percentages of
abatement in relation to products covered under RSP valuation, has been amended to include goods
falling under CETH 8421 99 00 (viz. other parts of centrifuges, including centrifugal dryers, filtering or

UNION BUDGET 2014

purifying machinery and apparatus, for liquids and gases), on the clearance of which an abatement
of 35% will be available.
The Advance Ruling provisions are being extended to Resident Private Limited Companies. The term
Private Limited Company has been defined to mean a Private Company, as defined under the
Companies Act 1956, and the term Resident has been ascribed the same meaning as in Section
2(42) read with Section 6(3) of the IT Act.
The CE Rules have been amended to make it mandatory for all assessees to pay the applicable Excise
Duty electronically through Internet Banking. The Assistant Commissioner or the Deputy
Commissioner may, for reasons recorded in writing, allow the assessee to pay the Duty through any
other mode. This amendment will take effect from October 1, 2014.
Further, Rule 8(3A) has been substituted to provide that in case of default in payment of Excise Duty,
the assessee must suo motu pay a penalty of 1% per month on the amount of Excise Duty unpaid for
each month or part thereof. This change will take effect from the date of publication of the
amending Rules in the Official Gazette.
Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 has
been amended so as to provide that in cases where excisable goods are sold at a price below the
manufacturing cost and profit, and price is not the sole consideration for the sale, and there is no
additional consideration flowing from the buyer to the assessee directly or indirectly, the value for
the assessment of duty shall be deemed to be the transaction value. This change will take effect
from the date of publication of the amending Rules in the Official Gazette.
ELPs Comments
The amendment has been brought to overcome the judgment of the Honble Supreme Court in the case of
Commissioner of Central Excise Mumbai vs. Fiat India Pvt. Ltd [2012 (283) ELT 161 (SC)]. The said verdict
was rendered in connection with the valuation of cars which were sold (on wholesale basis, i.e. by
manufacturer to dealer) at a price lower than their manufacturing cost with a view to penetrate the market.

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The Honble Supreme Court had observed that price was not the sole consideration for sale and hence the
transaction value could not be accepted for assessment. This finding was premised on the ground that the
lower price was accompanied by the hidden consideration of market penetration and hence the price was
not the sole consideration for the sale. In view of the same, the transaction value in terms of Section 4(1)(a)
was rejected and the best judgment assessment method was resorted to.
The present amendment would be a positive change as manufacturers would not be required to pay Excise
Duty on a value that is greater than the price actually charged by them, in a case where there is additional
consideration flowing to the assessee. This change would come as welcome relief amongst stakeholders of
all major industries in which goods are sold to wholesalers at a price below manufacturing cost and profit.
It is also important to note that, while the decision of the Honble Supreme Court had dealt with a situation
in which the price was lower than the manufacturing cost, the aforesaid provision covers scenarios in which
the price is less than the manufacturers cost and profit.
Rule 8 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules,
2008 has been amended with retrospective effect from April 13, 2010 to provide that where pouches
having different RSPs are manufactured on a single machine in a month, the duty liability for that
month would be the duty applicable to the highest of the RSPs.

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2. CHANGES IN RATE OF EXCISE DUTY
There is no change in the peak rate of Excise Duty @ 12%.
Increase in rate
Duty on cigarettes is being increased by 72% for cigarettes of lengths not exceeding 65 mm and by
11% - 21% for cigarettes of other lengths. Similar increase is proposed on cigars, cheroots and
cigarillos. Tabulated below is the summary of changes in rates of Excise Duty:
Tariff
Item
Description
(length in mm)
Rs. Per 1000
Sticks
(existing rate)
Rs. Per 1000
Sticks
(new rate)
24022010 Non filter not exceeding 65 669 1150
24022020 Non-filter exceeding 65 but not
exceeding 70
2027 2250
24022030 Filter not exceeding 65 669 1150
24022040 Filter exceeding 65 but not exceeding
70
1409 1650
75
2027 2250
85
2725 Tariff item
omitted
24022090 Other 3290 3290

Duty on pan masala, unmanufactured tobacco and jarda, scented tobacco (including gutkha and
chewing tobacco) are increased from 12% to 16%, from 50% to 55% and from 60% to 70%,
respectively
Duty on winding wires of copper is increased from 10% to 12%
Duty on recorded smart cards is increased from 2% (without CENVAT credit) or 6% (with CENVAT
credit) to 12%
Clean energy cess levied on coal, lignite and peat is increased from Rs. 50 per tonne to Rs. 100 per
tonne

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Full Exemption from Excise Duty
Liquefied propane and butane mixture, liquefied propane, liquefied butane and liquefied petroleum
gases supplied to non-domestic exempted category (NDEC) customer by IOCL, HPCL, BPCL is
exempted retrospectively w.e.f. February 8, 2013
Unbranded articles of precious metals are being exempted retrospectively for the period March 1,
2011 to March 16, 2012
Backsheet and EVA sheet (including the specified raw materials used in their manufacture) for
manufacture of solar photovoltaic cells or modules
Solar tempered glass used in the manufacture of solar photovoltaic cells or modules, solar power
generating equipment or system and flat plate solar collectors
Flat copper wire used in the manufacture of PV ribbons for use in the manufacture of solar cells or
modules
Machinery, equipments etc. required for initial setting up of solar energy production projects, and
compressed biogas plant
Parts consumed within the factory of production for manufacture of non-conventional energy
devices and if such parts are used elsewhere than the factory of production, the exemption is
allowed subject to actual user condition
Parts of tractors removed from one or more factories of tractor manufacturer to the other factory of
the same manufacturer for manufacture of tractors
Intermediate goods manufactured and consumed captively for further manufacture of matches is
being fully exempted
Education Cess and Secondary & Higher Education Cess (Customs component) is being
exempted on goods cleared by an EOU into the DTA
Reverse Osmosis (RO) membrane element for water filtration or purification equipment (other than
household type filters). For household type filters, the duty is reduced from 12% / 10% to 6%
Forged steel rings used in manufacture of bearings of Wind Operated Electricity Generators

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All goods supplied to National Technical Research Organization
Security threads and security fibre supplied to Security Paper Mill Corporation of India Limited and
Bank Note Paper Mill India Private Limited
Plastic material reprocessed out of scrap or waste and cleared into the DTA by an EOU unit. This
would bring EOU at par with DTA and SEZ units
HIV/AIDS drugs and diagnostic kits supplied under the National AIDS Control Programme
Reduction in rates
Duty on machinery for use in Agriculture, Agro Processing and Plantation Sector is reduced from 10%
to 6%
Duty on Footwear having retail sale price above Rs.500 but not exceeding Rs.1,000 is reduced from
12% to 6%. Footwear of retail sale price up to Rs.500 will continue to be exempted
Duty on metal core PCB and LED driver used in the manufacture of LED lights, fixtures and LED lamps
is reduced from 12% to 6%
Duty on branded petrol is reduced from INR 7.50 per litre to INR 2.35 per litre
Concessional Duty
Concessional duty to gloves used in Sports 2% (without CENVAT credit) and 6% (with CENVAT
credit)
Semi-mechanized units manufacturing safety matches (which attract concessional duty of 6%) are
allowed to carry out the process of pasting of labels and packing with the aid of power
Duty Impact on Specific Goods
An additional duty of Excise @ 5% on waters [including aerated waters, containing added sugar,
lemonade and others (falling under CETH 2202 10)] is levied with immediate effect
Duty on hand operated sewing machines is being rationalized by levying concessional duty [2%
(without CENVAT credit) / 6% (with CENVAT credit)] other than those operated with electric motors

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Duty on polyester staple fiber (PSF) and polyester filament yarn (PFY) is exempted retrospectively
w.e.f. June 29, 2010 to July 10, 2014 (including the intermediate product Tow)
o However, Excise Duty @ 2% (without CENVAT credit) or @ 6% (with CENVAT credit) is levied
w.e.f. July 11, 2014
Withdrawal of Exemption
Optional Excise Duty of 2% (without CENVAT credit) / 6% (with CENVAT credit) on writing and
printing paper for printing of educational textbooks has been withdrawn and instead a uniform
Excise Duty of 6% (with CENVAT credit) is levied
Important Clarifications
Supplies against International Competitive Bidding by a sub-contractor have also been extended the
benefit of full Excise Duty exemption [subject to the conditions prescribed]
Education Cess and Secondary Higher Education Cess are not leviable on the Clean Energy Cess
component collected on coal
Goods falling under CETH 8601 to 8606 (except 8604) attract Excise Duty @ 6% (with CENVAT credit)
as per Excise Tariff; or attract Excise Duty @ 2% [vide Notification 1/2011-CE, dt. March 1, 2011
(without CENVAT credit)]
Excise Duty exemption is available on Heena Powder [in liquid/paste form] and not on Heena dye or
any other cosmetic products
Plants and equipments supplied [prior to 2008] for use in projects financed by the UN or an
International Organization, which could not be transferred / sold out of the project site are now
being allowed to be transferred / sold from the project site [subject to the conditions specified
therein]

UNION BUDGET 2014

Chapt er 5 Cust oms Dut y
Amendments to the Customs Act
An amendment has been proposed to cover a Principal Chief Commissioner of Customs / Principal
Commissioner of Customs where any reference is made to a Chief Commissioner of Customs /
Commissioner of Customs under the Customs Act.
o All powers conferred on and functions exercised by the Chief Commissioner of Customs /
Commissioner of Customs will equally apply to the Principal Chief Commissioner of Customs /
Principal Commissioner of Customs.
The proviso to Section 15 is proposed to be amended to also cover a vehicle, in addition to an
aircraft, as regards the determination of rate of duty and tariff valuation for imports in cases where
the Bill of Entry is filed prior to the filing of Import Report.
An amendment has been proposed to Section 25 to provide that Customs Duties on mineral oils
including petroleum & natural gas extracted or produced in the Continental Shelf of India or the
Exclusive Economic Zone of India will not be recovered for the period prior to February 7, 2002.
However, where tax has already been paid, no refund will be granted.
Section 46(3) is proposed to be amended to permit that a Bill of Entry may be presented before filing
of manifest / import report for a vessel / aircraft which is expected to arrive within thirty days from
the date of presentation.
Settlement Commission
Section 127A has been proposed to be amended to rechristen the Customs and Central Excise
Settlement Commission as the Customs, Central Excise and Service Tax Settlement Commission,
pursuant to the amendment in 2012 to enable the Commission to also take up Service Tax matters.
Section 127B has been proposed to be amended to extend the scope of the cases which can be taken
up by the Settlement Commission, to also cover situations in which the applicant has filed a Bill of
Entry / shipping bill / bill of export / baggage declaration / label / declaration accompanying the

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goods imported or exported through post or courier, and a show cause notice has been issued to the
applicant in relation to such document or documents.
Section 127B is also proposed to be amended to do away with the bar on filing of an application
before the Commission for a period of 180 days, where the goods, books of accounts or documents
have been seized under the Customs Act or Rules thereunder.
By way of a proposed Explanation to Section 127L, the bar on filing of subsequent applications to the
Settlement Commission applies where there has been any concealment of particulars of duty liability
from the officer of Customs.
Intention to reduce litigation
Section 129A is proposed to be amended to increase the limit for exercise of discretionary powers of
the Tribunal to refuse admission of appeal, from INR 50,000 to INR 2,00,000.
The aforesaid Section is also proposed to be amended to permit the CBEC to constitute the
Committee in relation to filing of Department appeals before the Tribunal. Accordingly, the issuance
of a notification published in the Official Gazette would no longer be required.
Section 129B is proposed to be amended to delete the provisions in relation to validity period of Stay
Orders.
ELPs Comments
The previous Union Budget 2013-14 had imposed a cap of 365 days on the extension of a Stay Order by the
Tribunal. Further to the amendment, recovery proceedings were initiated for several assessees whose Stay
Orders had crossed the 365 day limit. Certain conflicting precedents had been rendered on whether or not
the Stay Order could, in fact, be extended beyond the 365 day period, where the pending appeals had not
been heard by the Tribunal, due to no fault attributable to the assessee (while a negative view was taken in
Commissioner of Customs & Central Excise vs. J.P. Transformers [2013-TIOL-1152-HC-ALL-ST]; a recent
decision of the CESTAT bearing No. CESTAT/BNG/M.O./1/2014 [2014-TIOL-1204-CESTAT-BANG] issued
uniform instructions to the Department not to recover amounts even beyond the 365 day limit). These
provisions have now been proposed to be deleted altogether going forward laying this dispute to rest for the
future.

UNION BUDGET 2014

Section 129D(3) has been proposed to be amended to enable the Board to extend the period, for
determining whether the Department would be required to file an appeal before the Commissioner
(Appeals) or the Tribunal, by a further thirty days.
Section 129E has been substituted to introduce an entirely new procedure for appellate proceedings
before the Commissioner (Appeals) and Tribunal. Going forward, no applications for stay and
dispensation of pre-deposit will be required to be filed before these appellate authorities. Instead,
assessees will be required to make a mandatory pre-deposit for filing of appeal, which will be as
follows:
o 7.5% of the duty demanded or penalty imposed or both for Commissioner (Appeals) or
Tribunal at the first stage;
o Another 10% of the duty demanded or penalty imposed or both for filing second stage appeal
before the Tribunal;
o The total Pre-deposit under the Section is subject to a ceiling of INR 10 Crore.
The said provision will not apply to stay applications and appeals pending on the date of commencement of
the Finance (No. 2) Act, 2014.
ELPs Comments
With this new procedure, assessees will be required to compulsorily deposit these amounts in order to lodge
the appeals, and these appellate authorities will then proceed to directly take up appeals for final hearing.
In the past, similar provisions have been employed under other legislations, such as State VAT Acts, and
assessees challenging this requirement have been directed to make the pre-deposit failing which their
appeal would not be entertained (M/s. Johnson Lifts Pvt. Ltd. vs. State of Karnataka *Order of the Honble
Karnataka High Court dt. March 5, 2013 in W.P. Nos. Act 173 & 3953-3988 of 2013]).
It is pertinent to note that the provision is silent on whether previous deposits (e.g. deposits made under
protest in the course of investigation) will be counted towards the amount required to be pre-deposited
under this provision. Furthermore, the provision is also silent on refunds (with interest) of the pre-deposit
amounts pursuant to an assessee receiving a favourable ruling from the appellate authority when their
Appeal is finally decided.

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Section 131BA is proposed to be amended to provide that the Commissioner (Appeals) will be
permitted to take into consideration the fact that a particular order cited as a precedent has not
been appealed by the Department for reasons of the disputed amount being low. This power was
previously only available with the Tribunal.
Amendment to the Customs Tariff Act
Section 8B of the CTA has been amended so as to provide for levy of Safeguard Duty on inputs / raw
materials imported by an 100% Export Oriented Unit (EOU) or a unit located in an SEZ and cleared
into the DTA as such, or are used in the manufacture of final products and cleared into the DTA.
ELPs Comments
In the event inputs / raw materials, subject to a Safeguard Duty, are imported by an EOU or SEZ unit and
such inputs / raw materials are sold as such into the DTA, without consuming for further manufacture, the
said Safeguard Duty will be payable by the EOU or SEZ unit. In the event inputs / raw materials, subject to a
Safeguard Duty are imported by an EOU or SEZ unit and used for further manufacture of a final product
which is sold into the DTA, then the said Safeguard Duty is payable by the EOU or SEZ unit on that portion of
the raw material / inputs used in the final product sold into the DTA. Moreover, the rate of the Safeguard
Duty payable by the EOU or SEZ will be the rate applicable to such inputs / raw materials at the time they
were imported by the SEZ or EOU unit. It is also noteworthy that Free Trade Zones have been omitted, since
the definition of SEZ includes free trade zones.
Vide Notification No. 50/2014-Customs (N.T) dt. July 11, 2014
The Baggage Rules, 1988 have been amended to:
(i) raise the free baggage allowance from INR 35,000 to INR 45,000 for all passengers of and
above 10 years of age and returning after a stay abroad of more than three days;
(ii) raise the free baggage allowance from INR 15,000 to INR 17,500 for all passengers of and
above 10 years of age and returning after a stay abroad of less than three days and for all
passengers up to 10 years of age and returning after a stay abroad of more than three days ;
(iii) reduce the duty free allowance of cigarettes from 200 gms to 100 gms, of cigars from 50 gms
to 25 gms and of tobacco from 250 gms to 125 gms

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Vide Notification No. 51/2014-Customs (N.T.) dt. July 11, 2014
The Advance Ruling provisions are being extended to Resident Private Limited Companies. The term
Private Limited Company has been defined to mean a Private Company, as defined under the
Companies Act 1956, and the term Resident has been ascribed the same meaning as in Section
2(42) read with Section 6(3) of the IT Act.

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2. CHANGES IN RATE OF CUSTOMS DUTY
No change in the peak rate of BCD @ 10%.
Full exemption from BCD
De-oiled soya extract, groundnut oil cake/oil cakes meal, sunflower oil cake/oil cake meal, canola oil
cake/oil cake meal, mustard oil cake/oil cake meal, rice bran/rice bran oil cake and palm kernel cake,
upto December 31, 2014
Raw material meant for manufacture of spandex yarn
Specified raw material used in the manufacture of solar backsheet and EVA sheet for use in
manufacture of solar PV cells or modules
Raw materials required for manufacture of security threads and security fibre
Wire rolls required by handicraft exporters
Specified goods for use in manufacture of textile garments for export
Fusible embroidery motifs or prints, anti-theft devices like labels, tags and sensors, pin bullets for
packing, plastic tag bullets, metal tabs, bows, ring and slider and rings are being included in the list of
items eligible to be imported duty free for manufacture of handloom made ups or cotton made ups
or manmade made ups for export
Non-fusible motifs or prints for use in manufacture of garments for export
Pre-forms of precious and semi-precious stones
Parts of LCD and LED panels for TVs
HIV/AIDS drugs and diagnostic kits imported under National AIDS Control Programme (NACP) funded
by the Global Fund to Fight AIDS, TB and Malaria (GFATM)
Goods imported by National Technical Research Organization
Security fibre, security threads and M-feature imported by Bank Note Paper Mill India Private
Limited

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Raw material for manufacture of security threads and security fibre
Re-gasified LNG for supply to Pakistan
BCD reduced from 12.5% to Nil
Crude glycerine meant for manufacture of soaps
BCD reduced from 12.5% to 7.5%
Crude glycerine
BCD reduced from 10% to 5%
Crude naphthalene
Coal tar pitch
Forged steel rings used in the manufacture of bearings of wind operated electricity generators
Battery waste and battery scrap
BCD reduced from 10% to 2.5%
Reformate and other goods classifiable under CTH 2707 5050
BCD reduced from 10% to Nil
Colour picture tubes for manufacture of cathode ray TVs
LCD and LED TV panels below 19 inches
Liquified natural gas
BCD reduced from 7.5% to Nil
Fatty acids, crude palm, stearin, RBD and other palm stearin and specified industrial grade crude oils
meant for manufacture of soaps and oleochemicals
E-Book readers

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BCD reduced from 5% to Nil
Flat copper wire for use in the manufacture of PV ribbons (tinned copper interconnect) for solar PV
cells or module
Specified raw material for use in the manufacture of spandex yarn
BCD reduced from 7.5% to 5%
Denatured ethyl alcohol
Methyl alcohol
BCD reduced from 5% to 2.5%
Steel grade dolomite and steel grade limestone
Anthracite coal and other coal
Propane
Ethane and other goods classifiable under CTH 2901 1000
Ethylene, propylene and butadiene
Ortho-xylene
Electrolysers and their parts/spares required by caustic soda or caustic potash units and membranes
and their parts/spares required by industrial plants based on membrane cell technology
Ships imported for breaking up
BCD increased from Nil to 10%
Specified telecommunication products not covered under the ITA (Information Technology
Agreement)
BCD increased from Nil to 2.5%
Metallurgical coke

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Coking coal
Half-cut or broken diamonds
BCD increased from 2% to 2.5%
Steam coal
Bituminous coal
Coloured gemstones
Cut and polished diamonds including lab-grown diamonds
BCD increased from 5% to 7.5%
Stainless steel flat products (CTH 7219 and 7220)
Full Exemption from CVD
Re-gasified LNG for supply to Pakistan
Raw materials required for manufacture of security threads and security fibre
Specified goods imported for use in the manufacture of textile garments for export
Machinery, equipment, etc. required for initial setting up of solar energy production projects
CVD reduced from 6% to 2%
Anthracite coal
Coking coal and other coal
Exemption from SAD
Specified inputs (PVC sheet & Ribbon) used in the manufacture of smart cards
Inputs/components used in the manufacture of Personal Computers (laptops/desktops) and tablet
computers

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Parts and raw materials required for use in the manufacture of wind operated electricity generators
Exemption withdrawn
Exemption from Education cess and SHEC leviable on CVD withdrawn on certain electronic goods
CVD exemption on portable X-ray machine / system is being withdrawn
Export duty increased from 10% to 20%
Bauxite
Other Amendments
Description of the product sun dried dark seedless raisins which attracts concessional BCD @ 30%
is being changed to dark seedless raisins *Entry No. 29 of Notification 12/2012-Cus dt. March 17,
2012 suitably amended]
Liquefied Propane and Butane mixture, Liquefied Propane, Liquefied Butane and Liquefied
Petroleum Gases (LPG) imported by the Indian Oil Corporation Limited, Hindustan Petroleum
Corporation Limited or Bharat Petroleum Corporation Limited, for supply to Non-Domestic Exempted
Category (NDEC) customers is being fully exempted retrospectively w.e.f. February 8, 2013 upto July
10, 2014. The exemption shall continue w.e.f. July 11, 2014 [Entry No 141 of Notification 12/2012-
Cus dt. March 17, 2012 suitably amended]
Entry No 169 of Notification 10/2008-Cus, dt. January 15, 2008 [India-Singapore Comprehensive
Economic Co-operation Agreement (CECA)] relating to CTH 3903 1990 is omitted. As a consequence,
BCD on Polystyrene (other than moulding powder) is being increased from 1.15% to 7.5%
Benefit of concessional BCD @ 5% is extended to (i) machinery, equipments, etc. required for initial
setting up of compressed biogas plant (Bio-CNG) and, (ii) machinery, equipment, etc. required for
initial setting up of solar energy production projects
Duty free entitlement for import of trimmings and embellishments and other goods used by the
readymade textile garment sector for manufacture of garments for export is increased from 3% to
5%

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Plants & Equipment imported prior to 2008 for use in projects financed by the UN or an international
organization allowed to be transferred / sold / re-exported from the project site
Withdrawal of the condition of certification by Ministry of Road Transport (or NHAI) for availing of
Customs Duty exemption on specified goods required for construction of roads
Provision is being made for refund of Customs Duty paid at the time of import of scientific and
technical instruments, apparatus, etc. by public funded and other research institutions
Important Clarifications
Aircraft engines and parts thereof are eligible for Customs Duty exemption [subject to conditions
specified] when imported for servicing, repair or maintenance of aircrafts used for scheduled
operations
Road construction machinery imported duty free [subject to the conditions specified] can be sold
within 5 years of importation subject to payment of Customs Duty on depreciated value and
individual constituents of the consortium whose names appear in the contract can also import the
said goods
Exemption from BCD and CVD is available to paints, consumables, metallic and non-metallic
materials etc. in any form and articles thereof, subject to the overall condition that they conform to
aeronautical specification accompanied with certificate of conformance/release note/airworthiness
certificate for development

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Chapt er 6 - CENVAT Credi t Rul es, 2004
Definition of place of removal introduced
Definition of the term place of removal has been introduced. The definition is identical to that provided in
Section 4(3)(c) of the CE Act.
The amendment shall take effect on July 11, 2014.
ELPs Comments
This definition will lend clarity and eliminate controversies in the context of and scope of input service. It will be
recalled that in context of goods liable to duty on MRP basis or specific duty, credit upto the place of removal was
denied in certain instances. While there have been rulings in case of L.G. Electronics (India) Private Limited vs.
Commissioner of Central Excise, Noida [2010 (19) STR 340 (Tri. Del.)], Commissioner of Cus. & C. Ex., Hyderabad-IV
vs. Pokarna Ltd [2013 (292) ELT316 (Tri. Bang.)], etc. and clarification by the Board vide Circulars dt. February 2,
2006 and August 23, 2007, the recent decision in case of Ultratech Cement Ltd vs Commissioner of Central Excise,
Raipur [2014-TIOL-478-CESTAT-DEL] had denied such credit in contrast to the earlier decisions and Circulars.
Further, another issue arose as to what is the place of removal and reference to CE Act was not given full play in
certain decisions such as Commissioner of C. Ex. & S.T., LTU, Bangalore vs. ABB Limited [2011 (23) STR 97 (Kar.)].
The insertion of the definition of the term in the Credit Rules shall put to rest all such controversies henceforth.
Time limit for taking CENVAT credit restricted to 6 months from date of issue of invoice
CENVAT credit of input and input services now has to be taken within a period of six months from the date of
issue of invoice/ challan/ other specified documents under Rule 9(1) of the Credit Rules.
The amendment shall take effect on September 1, 2014.
ELPs Comments
Recently, a Single Member Bench of the Tribunal held that CENVAT credit could be availed within a reasonable time
limit of one year from date of issue of invoice; refer Shayona Pulp Conversion Mills Pvt. Ltd vs. Commissioner of
Central Excise, Aurangabad [TS-241-Tribunal-2014-EXC].
CENVAT credit has been held to be an indefeasible right by the Honble Supreme Court in Collector of Central Excise,
Pune vs. Dai Ichi Karkaria Ltd [1999 (112) ELT 353 (SC)]. Further Courts had held that no time limit is applicable for

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availing credit, refer Collector of Central Excise, Allahabad vs. Ram Swarup Electricals Ltd [2007 (217) ELT 12 (All.)];
Central Bank of India vs. Commissioner of Central Excise & Service Tax, Coimbatore [2012-TIOL-1314-CESTAT-
MAD].
The amendment shall have a significant impact inasmuch as assessees now need to avail all eligible CENVAT credit
within the stipulated time period of 6 months from date of issue of invoice. It may be noted that there is no
stipulation as to time line for utilization of credit.
Point of time for availment of credit
CENVAT credit in respect of input services received from vendors where Service Tax is payable under reverse
charge mechanism has now been given differential treatment as under:
Scenario Present position Amended position
In cases where 100% of the Service
Tax liability is to be paid by the
service recipient

CENVAT credit can be availed after
payment of value of services and
Service Tax by the service recipient.
payment of Service Tax by the service
recipient; without payment of value of
service
In cases where the Service Tax
liability is partially to be paid by the
service recipient
payment of value of services and
Service Tax by the service recipient
payment of value of services and Service
Tax by the service recipient

Credit allowed of CENVAT reversed/ paid in cases where consideration in convertible foreign exchange received
after time period permitted by RBI
Service providers receiving value of services after the specified time/ extended time permitted by RBI but,
within one year from expiry of such specified time/ extended time shall be entitled to CENVAT credit
previously reversed/ paid in terms of Rule 6 of the Credit Rules.

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LTU cannot transfer CENVAT credit from one manufacturing unit to another
CENVAT credit taken on or before July 10, 2014 can be transferred from one manufacturing unit to another
by Large Taxpayer Units (LTUs).
o The amendment restricts transfer of credit by and between manufacturing units and does not place
any restriction with respect to premises engaged in rendition of service.
ELPs Comments
The amendment reduces/ restricts fungibility of credit between units of a LTU. The driving factor to register under
the LTU scheme was to en-cash accumulated credit by transfer of credit amongst the units. The withdrawal of this
facility will have far reaching impact for LTUs.
CBEC Clarification
Circular No. 178/4/2014-ST dt. July 10, 2014 has been issued by CBEC, which clarifies the manner and
methodology for distribution of CENVAT credit by an Input Service Distributor (ISD) to its manufacturing units
or units providing output services. This Circular by way of illustration has clarified doubts raised by the trade
and explained that credit is to be distributed amongst all eligible units based on the turnover, so long as such
credit pertains to more than one unit.

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Chapt er 7 Di rect Taxes
1. KEY AMENDMENTS
Definition of capital asset [Section 2(14) of the IT Act]
Amendment Section 2 (14) of the IT Act has been proposed to be amended to include any
securities held by an FII, which has invested in such securities in accordance
with the regulations under the Securities and Exchange Board of India Act,
1992.
The provision is effective from April 1, 2015.
ELPs Comments The amendment settles the controversy in relation to taxability of income in
the hands of an FII, which at times was sought to be taxed as capital gains and
at times as business income. By including the securities in the definition of
capital assets, any gains arising on such sale of securities will be taxable under
the head capital gains.
This indeed is a welcome step and in conformity with the ruling of Mumbai
ITAT in the case of Platinum Investment Management Ltd vs. DDIT [ITA No.
3598/Mum/2010] which, following the ruling of the ITAT in the case of LG
Asian Plus Ltd vs. ADIT (International Transaction)-3(2) [(2011) 46 SOT 159]
has inter alia held that income arising to an FII is to be taxed as capital gains.

Long term Capital Gains on Debt oriented fund and its qualification as Short-term Capital Asset [Section
2(42A) of the IT Act]
Amendment The definition of Short-term capital asset under Section 2(42A) is being
amended to provide that an unlisted security and a unit of a mutual fund
(other than an equity oriented mutual fund) shall be a short-term capital asset
if it is held for not more than thirty-six months.
ELPs Comments The shorter period of holding of not more than twelve months for
consideration as short-term capital asset was introduced for encouraging
investment on stock market where prices of the securities were market
determined.
The amendment will significantly impact assessees as they now need to hold
the unlisted securities and units of debt oriented mutual funds for a period of
more than 36 months (prior to transfer) in order, to qualify as Long Term
Capital Asset eligible to concessional rate of tax of 20%.

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Investment allowance to Manufacturing Company [Sections 32AC of the IT Act]
Amendment Presently, Section 32AC of the Act provides that where an assessee, being a
company, is engaged in the business of manufacture of an article or thing and
invests a sum of more than Rs.100 Crore in new assets (plant and machinery)
during the period beginning from 1st April, 2013 and ending on 31st March,
2015, then the assessee shall be allowed a deduction of 15% of cost of new
assets for assessment years 2014-15 and 2015-16. It has been proposed to
extend the deduction available under Section 32AC of the Act for investment
made in plant and machinery up to 31.03.2017.
Further, it is also proposed that the deduction shall be allowed if the company
on or after 1st April, 2014 invests more than Rs.25 Crore in plant and
machinery in a previous year.
It is also proposed that the assessee who is eligible to claim deduction under
the existing combined threshold limit of Rs.100 Crore for investment made in
previous years 2013-14 and 2014-15 shall continue to be eligible to claim
deduction under the existing provisions contained in sub-section (1) of Section
32AC even if its investment in the year 2014-15 is below the proposed new
threshold limit of investment of Rs. 25 Crore during the previous year.
These amendments will take effect from 1
st
April, 2015.
ELPs Comments The amendment is a move to simplify the existing provisions of Section 32AC
of the Act and also to make medium size investments in plant and machinery
eligible for deduction.

Deduction in respect of expenditure on specified business [Section 35AD of the IT Act]
Amendment Provisions of Section 35AD of the IT Act are proposed to be amended as follows:
Sub-section (3) is proposed to be amended to provide that no deduction for
specified businesses shall be allowed under this Section, if deduction is already
claimed under Section 10AA (for newly established Units in Special Economic
Zones).
Coverage of Specified business under sub-section (5) and sub-section (8) is
being expanded to cover:
o Laying and operating a slurry pipeline for the transportation of iron ore;
o Setting up and operating a semi-conductor wafer fabrication
manufacturing unit, if such unit is notified by the Board in accordance

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with the prescribed guidelines.
Sub-section 7A is proposed to be inserted to provide that any asset in respect
of which a deduction is claimed and allowed under this Section shall be used
only for the specified business, for a period of eight years beginning with the
previous year in which such asset is acquired or constructed.
Sub-section 7B is proposed to be inserted to provide that where provisions of
sub-section 7A are violated, then deduction claimed on the asset in all
previous years less depreciation as allowable, will be deemed as income of the
assessee chargeable under the head Profits and gains of business or
profession of the previous year in which the asset is used for any purpose
other than the specified business.
Provisions of Section 7B will not apply to a company which has become a sick
industrial company under sub-section (1) of Section 17 of the Sick Industrial
Companies (Special Provisions) Act, 1985, during the period of 8 years
specified in sub-section (7A).
ELPs Comments Units in SEZ opting to claim benefit of Section 10AA will not be eligible to claim
deduction under Section 35AD. Similar provisions are proposed to be inserted
under Section 10AA to dis-entitle an assessee from claiming dual benefits
under both Section(s) 35AD and 10AA.
Conditions as regards use of asset for 8 years may be onerous given the nature
of certain businesses, likelihood of the asset being rendered obsolete, etc.

Corporate Social Responsibility [Section 37 of the IT Act]
Amendment

Section 37 of the IT Act has been proposed to be amended by inserting
Explanation 2 which provides that any expenditure incurred by a Company on
the activities relating to corporate social responsibility (CSR) shall not be
deemed to be expenditure for the purpose of business or profession and
accordingly will not be allowed while computing the profits.
ELPs Comments The amendment comes as a dampener for companies as it comes after the
mandatory prescription for CSR expenditure under the Companies Act, 2013
which a company (depending upon the threshold) has to necessarily incur. For
an initiative as CSR, the expenditure criteria of which is linked to the profit of
the company, disallowance of deduction while computing the profits would be
a double whammy. The companies will have no option but to incur such
expenditure as it is mandatory to incur it.

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Disallowance of expenditure on payments made to non-residents [Section 40(a) of the IT Act]
Amendment Section 40(a)(i) of the IT Act is proposed to be amended to provide that the
deductor shall be allowed to claim deduction for payments made to non-
residents in the previous year of payment, if tax is deducted and paid on or
before the due date specified for filing of the return of income.
Section 40(a)(ia) of the IT Act is also proposed to be amended to provide that
deduction to the extent of 30% shall be disallowed in case of non- deduction
or non-payment of applicable TDS on any payment made to a resident in the
nature of interest, royalty, commission.
ELPs Comments The proposed amendment to Section 40(a) seeks to allow deduction within
the extended time period (as expenditure in the previous years of payment) to
residents making payments to non-residents in line with the provisions
relating to payments made by residents.
Undue hardship is created for the deductor, while there is no dispute that the
expenditure has been incurred by the entity, if 100% disallowance is made on
payment where tax is not deducted or after deduction has not been paid
within the specified timelines. The amendment sets at rest this undue
hardship.
This amendment could also reduce the litigation with the tax department.

Capital Gains exemption only for investment in one residential house in India [Sections 54 and 54F of the
IT Act]
Amendment Presently, Section 54 and Section 54F provide for capital gain exemptions
where capital gain arises from the transfer of a long-term capital asset, being
buildings or lands appurtenant thereto, and being a residential house, and the
assessee within a period of one year before or two years after the date of
transfer, purchases, or within a period of three years after the date of transfer
constructs, a residential house. These provisions have been proposed to be
amended to specifically provide that the benefit is for investment in one
residential house in India.
The amendments are to take effect from 1
st
April, 2015
ELPs Comments The amendment seeks to overcome the decision of the Mumbai Tribunal in
the case of Prema P. Shah Vs ITO [2006 100 ITD 60 (Mum)], wherein it was
held that the new house may be in India or Outside India.
The amendment removes ambiguity while specifying that the benefit is
available if the investment is made in one residential house located in India.

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Capital Gains exemption on investment in Specified Bonds [Sections 54EC of IT Act]
Amendment Section 54EC(1) presently provides that where capital gain arises from, the
transfer of a long-term capital asset and the assessee has, within a period of
six months, invested the whole or part of capital gains in the long-term
specified asset (specified bonds, etc.), the proportionate capital gains so
invested in the long-term specified asset, out of the whole of the capital gain,
shall not be charged to tax. The proviso to the said sub-section provides that
the investment made in the long-term specified asset during any financial year
shall not exceed Rs. 50 lakh. The proviso is proposed to be amended to
provide that such investments made during the financial year in which the
original asset was transferred and in the subsequent financial year does not
exceed Rs. 50 lakhs.
The amendments are to take effect from 1
st
April, 2015
ELPs Comments Prior to the amendment, certain taxpayers were investing post September in
the financial year of transfer and then investing further in the subsequent
financial year thereby claiming the benefit upto Rs. 1 Crore as against the
intended limit for relief of Rs. 50 lakhs.
The amendment seeks to plug this loophole by providing that the investment
made by an assessee in the long-term specified asset, out of capital gains
arising from transfer of one or more original asset, during the financial year in
which the original asset or assets are transferred and in the subsequent
financial year does not exceed Rs. 50 lakhs.

Taxability of advance for transfer of a capital asset [Section 56(2)(ix), 51 and Section 2(24) of the IT Act]
Amendment Section 56(2) has been proposed to be amended by inserting a new clause (ix),
which provides that any sum of money received as an advance or otherwise in
the course of negotiations for transfer of a capital asset
o If such amount is forfeited; and
o The negotiations do not result in transfer of such capital asset.
Section 2(24), definition of income has been amended to include the above.
Further, proviso to Section 51 [determining the cost of acquisition] has been
added to state that the amount so taxed under Section 56(2)(ix) shall not be
required to be deducted from the cost for which the asset was acquired while
computing the cost of acquisition.

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ELPs Comments The amendments provide clarity as to the treatment to be accorded to the
payments/amounts paid/received during the transaction of sale of a capital
asset. Earlier, this amount was usually deducted while computing the cost of
acquisition in the hands of the seller, if the asset which was subject to
negotiation was to be sold.
Post this amendment, such amount as specified under Section 56(2) shall now
be taxable under the head income from other sources in the hands of the
seller.

Losses in Speculation Business [Sections 73 of the IT Act]
Amendment Existing provisions of Section 73 of the Act provide that losses incurred in
respect of a speculation business cannot be set off or carried forward and set
off except against the profits of any other speculation business
It is proposed to amend the Explanation to Section 73 (which is a deeming
provision on what is carrying on speculation business) so as to provide that
the provision of the Explanation shall also not be applicable to a company the
principal business of which is the business of trading in shares.

Tax on Long term capital gains on units of mutual funds [Section 112 of the IT Act]
Amendment The Proviso to Section 112 provided an option to compute capital gains on
long term capital assets, being listed securities or units of mutual fund or zero
coupon bond @ 10% without giving effect to the indexation as specified under
second proviso to Section 48.
It is proposed to amend the provisions of Section 112 so as to allow the
concessional rate of tax of ten per cent on long term capital gain to listed
securities (other than unit) and zero coupon bonds.
ELPs Comments Amendment will result in exclusion of units of listed mutual funds from the
ambit of the proviso to Section 112, thereby resulting in them no longer
enjoying the concessional rate of 10% which is applicable to listed securities
and zero coupon bonds.

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Filing of returns for Mutual Funds, Securitisation Trusts and Venture Capital Companies [Sections
115R(3A), 115TA(3) and 139(4C) of the IT Act]
Amendment Section 139(4C) is proposed to be amended to provide that mutual funds,
securitization trust and venture capital company or venture capital fund, if
the total income in respect of which such fund, trust or company is assessable,
without giving effect to the provisions of Section 10, exceeds the maximum
amount which is not chargeable to income-tax, shall furnish a return of such
income of the previous year in the prescribed forms as if it were a return
required to be furnished under sub-section (1) of Section 139
Simultaneously, the requirement to furnish statement of income is proposed
to be dispensed with by omitting sub-section (3A) of Section 115R and sub-
section (3) of Section 115TA.
These amendments will take effect from 1st April, 2015
ELPs Comments The amendment will increase the compliance requirement for mutual funds,
securitisation funds, venture capital companies and venture capital funds.

Dividend and Income Distribution Tax [Sections115-O, 115 R of the IT Act]
Amendment In order to ensure that tax is levied on a proper base, Section 115-O and
Section 115R are being amended to provide that the amount of distributable
income and the dividends which are actually received by the unit holder of
mutual fund or shareholders of the domestic company need to be grossed up
for the purpose of computing the DDT and IDT leviable under the Act
For example: If the amount of dividend paid or distributed by a company is Rs.
85, then DDT under the amended provisions would be calculated as follows:
Dividend amount distributed = Rs. 85
Increase by Rs. 15 (i.e. 85*0.15/0.85)
Grossed up amount = Rs. 100
DDT @ 15% of Rs. 100 = Rs. 15
Tax payable = Rs. 15
Dividend distributed to shareholders = Rs. 85
This amendment will take effect from 1
st
October 2014
ELPs Comments Previously, due to difference in the base of the income distributed or the
dividend on which the distribution tax was calculated, the effective tax rate

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was lower than the rate provided in the respective sections.
The proposed amendment addresses this issue and provides clear guidelines
on the base value to be adopted for taxation purposes.
It is still unclear whether the rate of surcharge has to be considered while
grossing up the amount of distributable profits.

Special Taxation regime for REITs & InvITs
Amendment Special taxation regime has been introduced for Real Estate Investment Trusts
(REIT) and a modified type of REITs for infrastructure projects i.e.
Infrastructure Investment Trusts (InvITs). These have been given pass through
status for the purpose of taxation.
REIT refers to an investment vehicle for securities that sells like a stock on the
major exchanges and invests in real estate directly, either through properties
or mortgages. The REIT is set up as a Trust as per the provisions of the Indian
Trust Act, 1882 and has the trustee, sponsor, manager and principal valuer as
its parties. The sponsor sets up the REIT. REIT may hold real estate properties
either directly or through a Special Purpose Vehicle (SPV). The REIT raises
capital by way of issue of units, which are required to be listed on recognized
stock exchange or through debts directly, both from resident as well as non-
resident investors. These essentially facilitate securitization of income earning
real estate assets.
The main features of the Special taxation regime proposed in the Budget in
relation to REITs/ InvITs are as under:
- The pass through treatment is essentially accorded as follows: no tax is
levied on interest income received from the SPV in the hands of the trust
and no withholding tax is levied at the level of SPV. Withholding tax is
levied in case of payments of this interest income to unit holders (@ 5% in
case of non-resident unit holders and @ 10% in case of resident unit
holders).
- Dividend received by the trust will be subject to Dividend Distribution Tax
(DDT) at the level of SPV but will be exempt in the hands of the trust and
also in the hands of the unit holders when such dividend is subsequently
received by the unit holders.
- Units of the REIT when traded in stock exchange would attract similar tax
treatments as equity shares i.e. these would be liable to the levy of
Securities Transaction Tax, would be exempt from the levy of long term
capital gains and short term capital gains would attract at the rate of 15%.
- The taxation of capital gains arising to sponsor at the time of exchange of
shares in SPV with units of the trust will be deferred and taxed at the time

UNION BUDGET 2014

of disposal of units by the sponsor. This exchange is disregarded as a
transfer for the purpose of computing capital gains under Section 47 of
the IT Act. However, when the sponsor sells these units, the preferential
capital gains regime (owing to the levy of STT) as available to the units of
the business trust will not be available to the sponsor. The cost of these
under Section 49 of the IT Act units shall be considered as the cost of the
shares to the sponsor. Holding period of the shares will also be included in
the holding period of the unit.
- The business trust will also be entitled to the benefit of reduced rate of 5%
tax on interest payments to non-resident lenders in case of external
commercial borrowings on similar conditions for such period as is
provided in Section 194LC of the Act.
- Capital gains at the time of sale of assets by the business trust will be
taxable in the hands of the trust at the applicable rate. If such capital gains
are distributed, then the component of distributed income attributable to
the capital gains would be exempt in the hands of the unit holder.
- Any other income of the trust shall be taxable at the maximum marginal
rate.
- Separate returns are required to be furnished by the business trust.
- The above amendment will be effective from 1
st
October, 2014
ELPs Comments The concept of REIT already exists in most developed countries. REIT and InvIT
have the benefit of providing greater liquidation to investments made in real
estate. The draft SEBI (Real Estate Investment Trusts) Regulations, 2013 has
been proposed for introducing REITs in India, which currently impose
conditions such as the REIT can invest only in assets based in India. As per the
research conducted by the Asia Pacific Real Estate Association, India's share of
the global investable real estate market is 1.3% at present. The above
favorable taxation regime will give a further boost to the real estate market in
India.

Time line prescribed for issuance of order under Section 201 [Section 201(3) of IT Act]
Amendment Section 201(3) is proposed to be amended by providing that the order
deeming a person as assessee in default in relation to payment to residents
shall not be passed after the expiry of seven years from the end of the
financial year in which the payment is made or credit is given.
ELPs Comments The proposed amendment is more onerous since the timeline has been
exceeded by a year.
Further, the scope of Section 201(3) and the Order thereof remains restricted
to payments made to residents. There is no provision prescribing any time line

UNION BUDGET 2014

for passing an Order in relation to payments made to non-resident. As
experience shows that major litigation in relation to assessee in default have
arisen on account of payment made to non-resident and shall continue to do
so, absence of a prescribed timeline for passing of the Order in relation to
payment made to non-residents will further aggravate litigation on this issue.

Other amendments
Deduction on account of interest payable on the amount borrowed while calculating Income from
House Property has been enhanced from INR 100,000 to INR 150,000
The limit for investment eligible for deduction under Section 80C has been proposed to be raised
from INR 100,000 to 150,000
Extension of the sunset date under Section 80-IA for the power sector for a further period upto 31st
March, 2017 i.e. till the end of the 12th Five Year Plan
Alternate Minimum Tax (AMT) under Section 115JC of the IT Act will be computed after adjusting
the total income by deductions provided under Section 35AD of the IT Act
New set of income tax authorities proposed to be introduced

UNION BUDGET 2014

2. INCOME TAX RATES
For Individuals, Hindu Undivided Families, Association of Persons and Body of Individuals**
Existing Proposed
Income (INR)
#
Rate (%)
@
Income (INR)

Rate (%)
@

0 -2,00,000 Nil 0 -2,50,000

Nil
2,00,001 - 5,00,000 10 2,50,001 - 5,00,000* 10
5,00,001 - 10,00,000 20 5,00,001 - 10,00,000* 20
10,00,001 and above 30 10,00,001 and above 30

Surcharge of 10% is levied if the total income exceeds INR 10 million.
@
Education cess of 2% and Secondary Education cess of 1% is leviable on the amount of income-tax.
#
The basic exemption limit was:
INR 2,50,000 for resident individuals of the age of 60 years or more
INR 5,00,000 for Very Senior Citizens of the age of 80 years or more.
* The proposed exemption limits are:
INR 2,50,000 for resident individual below the age of 60 years.
INR 3,00,000 for resident individuals of the age of 60 years or more.
INR 5,00,000 for Very Senior Citizens of the age of 80 years or more.
**Alternate Minimum Tax at the rate of:
If adjusted total income exceeds INR 2 million but less than INR 10 million - 19.06%
If adjusted total income exceeds INR 10 million 20.96%

UNION BUDGET 2014

For Others
No change in the rate of surcharge either for the corporate or HUFs, Firms, etc.
Description Existing & Proposed Rate* (%)
A) Domestic company
Regular tax 32.45
@^

Dividend income from overseas subsidiary 16.22
@@ +

Distribution tax on buyback 22.66
MAT 20***
$
(of book profits)
DDT 16.995
B) Foreign company
Regular tax 42
#&

C) Firms & LLP

Regular tax 30.90*
Alternate Minimum Tax 19.06

Inclusive of applicable surcharge:
Residents
total income exceeding INR 10 million but less than INR 100 million - 5%
total income exceeds INR 100 million - 10%
Non-residents
total income exceeding INR 10 million but less than INR 100 million - 2%
total income exceeds INR 100 million - 5%
Education cess of 2% & Secondary Education cess of 1% is leviable on the amount of income-tax.
@ 30.90% where the total income is equal to or less than INR.10 million
^ 33.99% where the total income is exceeding INR 100 million
@@ 15.45% where the total income is equal to or less than INR.10 million
+ 17% where the total income is exceeding INR 100 million
*** 19.06% where the total income is equal to or less than INR.10 million

UNION BUDGET 2014

$ 20.96% where the total income is exceeding INR 100 million
# 41.20% where the total income is equal to or less than INR.10 million
& 43.26% where the total income is exceeding INR 100 million
* 33.99% where the total income total income exceeds INR 10 million
20.96% where the total income total income exceeds INR 10 million

UNION BUDGET 2014

3. TRANSFER PRICING
Rationalization of the definition of international transaction
Amendment The following amendments have been made in Section 92B(2) of the IT Act,
which is a deeming provision:
o For the term deemed to be a transaction appearing in such section, the
words deemed to be an international transaction is being substituted;
o Insertions are proposed in the Section to provide that the deeming
provision will apply where the enterprise or the associated enterprise or
both of them are non-residents irrespective of whether such other person
is a non-resident or not
Amendment effective from April 1, 2015, i.e. Assessment Year 2015-16
ELPs Comments This amendment provides that the said Section would be applicable irrespective
of whether or not such other person is a non-resident.
In this context, it is to be noted that the Hyderabad Tribunal in the case of
Swarnandhra IJMII Integrated Township Development Co. P. Ltd [TS-762-ITAT-
2012(HYD)-TP], had held that Section 92B(2) does not apply to transactions
between domestic entities and the pre-condition of there being an
international transaction has to be satisfied if the said Section is to be applied.

TPO included as an authority competent to levy penalty under Section 271G
Amendment This Section is proposed to be amended to include the TPO, as an authority
competent to levy penalty under Section 271G, in addition to the AO and the
Commissioner (Appeals).
Amendment effective from 1 October 2014.

Amendments to Advance Pricing Agreement (APA)
Amendment Amendment proposed to provide roll-back mechanism in the APA scheme
under Section 92CC.
APA may, subject to such prescribed conditions, procedure and manner, provide
for determining the arms length price or for specifying the manner in which
arms length price is to be determined in relation to an international transaction
entered into by a person during any period not exceeding four previous years
preceding the first of the previous years for which the APA applies in respect of

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the international transaction to be undertaken in the future
Roll-back provisions refer to the applicability of the methodology of
determination of ALP, or the ALP, to be applied to the international transactions
which had already been entered into in a period prior to the period covered
under an APA.
Amendment effective from 1
st
October 2014.
ELPs Comments The APA regime has received an encouraging response from taxpayers with over
400 applications filed since its introduction.
India has seen a high level of transfer pricing adjustments year-on-year with the
adjustment figures being in the range of:
Year
No. of transfer prices
adjustment cases
Amount of amount adjusted (demand of
taxes) in INR Crore
2009-10 670 6,140
2010-11 1,138 23,237
2011-12 1,343 44,531
2012-13 3,200 70,000

The implementation of roll-back provisions will prove an efficient and cost-
effective manner of resolving pending transfer pricing litigation.
The APA and roll-back related provisions can be an effective way of resolving
transfer pricing issues and achieving certainty for a number of past and future
years in a single process.
Roll-back provisions already exist in other global jurisdictions like Canada, China,
Germany, Japan, UK and USA.

Introduction of range concept for determination of arms length price
Amendment Proposal to introduce range concept for determination of ALP.
However, the concept of arithmetic mean will still continue to apply where
number of comparables is inadequate.
Appropriate rules are to be prescribed with regard to the same.

UNION BUDGET 2014

ELPs Comments Since transfer pricing is not a mathematical or scientific calculation, but a
subjective commercial analysis, computation of single arms length price
(computed under arithmetic mean methodology) has posed many difficulties in
the past.
The OECD regulations, UN Manual and most regulations globally accept the
conceptual framework of a range as compared to an arithmetic mean. This
amendment is in line with global best practices.

Amendment proposed to allow use of multiple year data for comparability analysis vis--vis single year
data
Amendment Amendments are proposed to allow use of multiple year data for comparable
analysis.
As per existing provisions only single year data is allowed for comparable
analysis.
ELPs Comments The transfer pricing regime has been further rationalized with the removal of
restrictions on the use of multiple year data for the purpose of carrying out
comparability or benchmarking analysis.
The main purpose of using multiple year data is to ensure that the outcomes for
the relevant year are not unduly influenced by abnormal factors. In attempting
to determine an arms length outcome for international dealings between AE(s),
the results of any one year may be distorted by differences in economic or
market conditions and the features and operations of the enterprise, affecting
the controlled or uncontrolled dealings. However, the use of such data had
been overlooked time and again by the tax authorities in the course of transfer
pricing audits. The practical drawbacks owing to this will be addressed with this
amendment.
Approach of using multiple year data is consistent with the revised OECD
Guidelines on Transfer Pricing (Paragraphs 3.76 to 3.77 of the Revised OECD
Report Transfer Pricing and Multinational Enterprises, July 2010).
The Delhi Tribunal in the case of Verizon Communication India (P.) Ltd. v. Deputy
Commissioner of Income-tax, Circle 17(1), {[2012] 27 taxmann.com 328 (Delhi)},
has inter alia held that the use of multiple year data by the assessee for arriving
at arm's length price is a bona fide exercise.

UNION BUDGET 2014

Chapt er 8 Banki ng, Fi nanci ng, Inf rast ruct ure, Capi t al Market s
and Invest ment Updat e
Managing expectations and addressing the current economic issues of the country (including the fiscal deficit and
requirement of industrial growth) has been the clear outlook of all the policy decisions taken in the first Budget of
the new Government. Considerable portions of the changes proposed would be effective pursuant to subsequent
press notes, notifications or circulars, to be released by the relevant departments. Such documents may have
detailed conditions on the issues or facilitations indicated in this Budget. The proposed changes need to also be
reviewed in light of recent changes to regulations and circulars released by the RBI on July 1, 2014.
This section of the analysis has been further divided, as follows:
1. Banking
2. Financing
3. Infrastructure
4. Capital Markets
5. Investments
6. Miscellaneous
1. BANKING
While the discussions and finalization of policy measures pursuant to the suggestions of the Financial Sector
Legislative Reforms Commission continue, the Finance Minister today has outlined certain key policy measures
for the banking sector.
(a) Capital Requirement of Public Sector Banks
The Finance Minister has recognized that one of the primary requirements of growth is a stable banking
system. One important factor contributing to such stability is adherence with Basel III norms. Banks would
require capital to be able to align themselves with Basel III norms. The Budget indicates that one of the ways
for raising this additional capital would be by sale of shares in such public sector banks through retail to
common citizens of the country. However, the Government ownership of these banks would be preserved.

UNION BUDGET 2014

Presumably, the intent of the banks would be to reinvest the proceeds thereof back in the respective public
sector banks.
(b) Separate entities doing banking activities
There has been an effort to review the banking policy existent in the country with a concerted effort to both
widen and deepen the penetration of the banking system in India. One of the initial efforts has been
provision of new banking licenses in the country. IDFC and Bandhan Financial Services Private Limited were
the two entities that have been recently provided banking licenses by RBI. Additional suggestions were
implementation of certain practices followed in certain jurisdictions like Germany, Japan and China, which
included creating different entities for focused services for specific sectors. RBI will create a framework for
licensing small banks and other differentiated banks. Differentiated banks would be serving niche interests
and would include local area banks, payment banks etc. Such small banks, differentiated banks or similar
entities are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low
income households, farmers and migrant work force.
2. FINANCING
(a) Encouraging long term financing for the infrastructure sector
The Finance Minister has indicated that adequate allowances would be given to banks to enable them to
provide long term loans to the infrastructure sector. It has been indicated that adequate flexible structuring
would be introduced to absorb the adverse contingencies for providing long term funding. This would mostly
indicate that there may be adequate flexibility provided in the provisioning norms for restructuring of such
loans. The Finance Minister has mentioned that they will be looking at structures like the 5/25 structures.
This would ideally mean provision of a loan for a period of around 25 years with an option to refinance
within 5 years. Such examples would indicate that adequate flexibility is being adopted in line with global
best practices. Additionally, it has been indicated that there will be allowances provided to banks for
procurement of such long term funding for onward lending to the infrastructure sector, with minimal
regulatory hindrances. It would be interesting to understand the manner in which the above would be
implemented. Apart from the regulatory hassles that banks presently face, there are also issues surrounding
over exposure to specific borrowers and thereby internal risk management issues, which the banks will have
to overcome to provide such loans.

UNION BUDGET 2014

(b) Addressing additional NPAs introduction of DRTs
With a view to curb the increasing number of NPAs in India, the Budget changes proposes setting up of six
new benches of the DRT in separate cities. It would be important to understand whether such DRTs alone
would be able to address the issue of rising NPAs. It may also be considered necessary to have a considerable
review of the DRT processes to allow faster resolution of such issues. Banks would definitely require a faster
resolution of such cases by the respective DRTs. On the other hand, establishment of such DRTs would not
address the situation over stressed assets being faced by non-banking financial institutions and other
financial institutions which dont have recourse under the RDDB Act. There have been discussions on
including additional financial institutions to whom the RDDB Act may apply. There has already been an
amendment to include multi-state cooperative banks. This may merely increase the number of accounts over
which the dispute resolution mechanism may be more streamlined. However, there is no clear policy
initiative to provide any form of assistance to companies having over-leveraged and being unable to service
their debt. The Finance Minister merely indicates that the Government will work out effective means for
revival of other stressed assets.
(c) Financing Requirements
Apart from concepts such as long term infrastructure finance and setting up of Infrastructure Investment
Trusts (which have been detailed in earlier sections), the Budget has provided the following solutions to
provide funding to the infrastructure sector:
Rural Infrastructure Development Fund: The corpus of the fund was raised to INR 25,000 Crore for the
current financial year, which would be used for lending to the priority sector which helps in creation of
infrastructure in agriculture and rural sectors across the country.
Warehouse Infrastructure Fund: An amount of INR 5,000 Crore was allocated to the fund for the year 2014-
15 to increase the availability of scientific warehousing infrastructure and increasing the shelf life of agro
produce.
(d) Micro, Small and Medium Enterprises (MSMEs)
The Finance Minister recorded that MSMEs and new entrepreneurial ventures are like the backbone of the
Indian economy. Accordingly, he mentioned that there is a requirement to review the financial architecture
applicable to the sector. In relation to new ventures by entrepreneurs, he mentioned that there will be a

UNION BUDGET 2014

friendly legal bankruptcy framework. It will be interesting to understand how a distinction would be made
for such entities and accordingly how this would be implemented.
3. INFRASTRUCTURE SECTOR
As expected, apart from providing the required impetus to Indias infrastructure sector, this Budget has brought
along with it redressal of certain practical issues being faced in this sector. It has recognized the requirement
addressing appropriate timelines and contractual issues being faced in the sector. The Budget further recognizes
the need for ensuring availability of long term funds for infrastructure projects and the role of PPP as a
procurement model for meeting the infrastructure demand.
(a) New Institutions
3P India: would be set up to provide support to mainstreaming PPPs, which would include the development
of nuanced and sophisticated models of contracting and development of dispute redressal mechanisms.
There is no clarity on the nature of the entity and the powers that such an entity will have.
National Industrial Corridor Authority, is being set up with a corpus of Rs.100 Crore to coordinate the
development of the industrial corridors, with smart cities linked to transport connectivity, which will be the
cornerstone of the strategy to drive Indias growth in manufacturing and urbanization.
(b) Development of Smart Cities
As had been clearly indicated in its agenda, the new Government has always mentioned the requirement to
develop smart cities, such as Gandhinagar in Gujarat. With a vision of setting up approximately 100 (one
hundred) smart cities, as satellite towns of larger cities and by modernizing the existing mid-sized cities, the
Budget provides for Rs.7060 Crore for this financial year. Such a measure has been supplemented by the
Governments push towards low cost housing to address the requirements of the neo middle class having an
aspiration of better living standards.
(c) Public Private Partnership (PPP)
Post identifying that there is a requirement of an agency to settle contractual issues being faced by the PPP
projects, the Budget has gone ahead and highlighted the importance of such a model and has identified
specific sectors where such a model is to be used.
New Airports - new airports in Tier I and Tier II cities are proposed to be launched either in association with
the Airports Authority of India or through implementation of the PPP model.

UNION BUDGET 2014

Gas Pipelines - it is proposed to develop additional 15,000 kilometers of gas pipelines through appropriate
PPP models.
Urban transport the Budget recognized the requirement of better infrastructure and transport and success
of metro projects in decongesting cities and the Government announced that it would encourage
development of metro rail systems, including light rail systems, in the PPP model, which will be supported by
the Central Government through viability gap funding.
Rural infrastructure - Shyama Prasad Mukherji Rurban Mission will be launched to deliver integrated project
based infrastructure in rural areas, which will also include development of economic activities and skill
development. This is proposed to be carried out using the PPP model.
Urban development The Government is planning 500 new habitations over 10 years through usage of the
PPP model, which would have provision of safe drinking water and sewerage management, use of recycled
water for growing organic fruits and vegetable, solid waste management and digital connectivity.
(d) Roads
It has been announced that a target of 8,500 kilometers of national highways construction would be
achieved in the current financial year. Further, it has been stated that an investment of Rs.37,880 Crore
would be made in National Highways Authority of India and State Roads, of which Rs.3,000 Crore would be
earmarked for the North East. The NHAI would initiate work on select expressways in parallel to the
development of the Industrial Corridors.
(e) Ports and Inland Waterways
The Government has stated that 16 (sixteen) new port projects are proposed to be awarded this year with a
focus on port connectivity. It has announced that Rs.11,635 Crore will be allocated for the development of
Outer Harbour Project in Tuticorin for Phase I.
A comprehensive policy will also be announced to promote Indian ship building industry in the current
financial year.
A project on the river Ganga called JalMargVikas (National Waterways-I) will be developed between
Allahabad and Haldia to cover a distance of 1620 kilometers, which will enable commercial navigation of at
least 1500 tonne vessels.

UNION BUDGET 2014

The above mentioned suggestions will go a long way to promote trade and internal transportation of
material within India. Since, one of the major issues being faced by industries is reduced access to ports and
thereby costlier transportation for their materials.
(f) Power and Energy
In order to provide a greater impetus to cleaner and renewable sources of power, the Government has
stated that :
(i) a new scheme Ultra-Modern Super Critical Coal Based Thermal Power Technology would be
prepared;
(ii) domestic coal production would be enhanced, with stringent mechanism for environmental
protection and quality control. Additionally, exercises to rationalize coal linkages which will optimize
transport of coal and reduce cost of power is being implemented and adequate coal would be
supplied to power plants that are commissioned or near to commission;
(iii) Ultra Mega Solar Power Projects would be implemented in Rajasthan, Gujarat, Tamil Nadu, and
Ladakh in Jammu and Kashmir. Schemes are being launched for solar power driven agricultural pump
sets, water pumping stations and solar parks along banks of canals;
(iv) The implementation of the Green Energy Corridor Project would be accelerated to facilitate
evacuation of renewable energy across the country.
The above measures are coupled with certain tax benefits, which have specifically been provided for solar
power plants.
(g) Industrial Corridors
In pursuance to the attempts made in the previous Budget, the new Government seems to have raised the
tempo qua development of industrial corridors. The Government has stated that master plans for three new
cities; the Chennai-Bengaluru Industrial Corridor region, viz., Ponneri in Tamil Nadu, Krishnapatnam in
Andhra Pradesh and Tumkur in Karnataka will be completed. It also stated that the perspective plan for the
Bengaluru Mumbai Economic corridor (BMEC) and Vizag-Chennai corridor would be completed with the
provision for 20 new industrial clusters. Such industrial corridors are being viewed as a source of
employment for the people in India and a source of development for the Indian economy.

UNION BUDGET 2014

(h) Special Economic Zones
The Government announced that steps would be undertaken to operationalize the SEZ and revive the
investors interest to develop better infrastructure and to effectively and efficiently use the available
unutilized land within SEZs. The Finance Minister also announced that SEZs will also be developed in Kandla
and JNPT. There will be a lot of assistance required from the respective State Governments for the Central
Government to effectively implement the above. This is primarily because a lot of the subjects to be dealt
with in an SEZ falls within the State list, as provided in the Constitution of India.
(i) Mining
The Government announced that it would encourage investment in the mining sector and balance the
requirements of industry and the protection of the environment and that it would carry out necessary
changes in the Mines and Minerals (Development and Regulation) Act, 1957 to facilitate this. Some of the
issues being faced by the companies in the mining sector were that portion of the profits of the company
was required to be provided to the people displaced for mining operations. Further, there was a concept of a
single non-transferable share of the relevant company to be provided to every displaced person. There were
also certain issues in relation to allocation of mines. All such issues were acting as road-blocks for investment
in the sector.
The Finance Minister suggested that considering the revision of rates of royalty on minerals is due, there
would be adequate revision, provided such that there would be an increase in the revenue for the respective
State Governments.
4. CAPITAL MARKETS
(a) Indian Financial Code
The Finance Minister has proposed that some of the important recommendations of the FSLRC, provided in
its report submitted to the Government on 22 March 2013, like the enactment of the Indian Financial Code
(replacing existing Indian financial laws) considered necessary for better governance and accountability will
be completed in consultation with all the stakeholders expeditiously. The Government, in close consultation
with the RBI, will put in place such a framework.
This proposal of consultation with the RBI appears to be in response to the concerns highlighted by the
present RBI Governor, who had reacted to some of the recommendations of FSLRC as "somewhat
schizophrenic".

UNION BUDGET 2014

(b) Bharat Depository Receipt
The Finance Minister proposes a complete revamp of the IDR and to introduce a much more liberal and
ambitious BDR. This is in line with the proposals of the Sahoo Committee, which had proposed that the
complete gamut of securities available for issuance to foreign companies, be brought under the BDR
framework, which recommended creation of two levels of BDRs, with Level-I being restricted to
sophisticated investors and Level-II being made available to all investors including Indian retail investors.
(c) Liberalisation of ADR/GDR regime
The Finance Minister has proposed to liberalize the ADR/GDR regime to allow issuance of depository receipts
on all permissible securities.
(d) Corporate bond market and Currency Derivatives market
The Finance Minister has proposed steps to be taken for a vibrant, deep and liquid corporate bond market,
including deepening of the currency derivatives market by eliminating impediments which have hindered the
development of the bond market.
This is in line with the pre-budget economic survey, which had pitched for developing an integrated bond,
currency and derivative market at par with equities.
(e) Real Estate Investment Trust
The Finance Minister has proposed to provide certain incentives for REITs which are designed to attract long
term finance from foreign and domestic sources. These are based on consultative paper issued by SEBI on 10
October 2013. This is a welcome measure as it provides an opportunity for retail investors to participate in a
high growth sector of the economy, which was hitherto unavailable because of the lack of regulatory clarity.
(f) Infrastructure Investment Trust (IIT)
In addition to REITs, the Finance Minister has proposed to provide conducive tax regime for IITs, in line with
the consultative paper issued by SEBI on 20 December 2013 on IITs, to revive growth in the infrastructure
and construction sector to boost the economy. According to the 12
th
Five Year Plan, India requires an
investment in infrastructure sector of around Rs. 65 lakh Crore over the duration of 2012-2017. Accordingly,
the proposal of the Finance Minister will provide significant boost in the infrastructure sector.

UNION BUDGET 2014

This is in addition to the various steps that SEBI has taken to provide a framework for Infrastructure Debt
Fund under SEBI (Mutual Funds) Regulations, 1996 and Category I AIF Infrastructure Fund under SEBI
(Alternative Investment Funds) Regulations, 2012.
The framework suggested by SEBI in the consultative paper for IITs is on the lines of the business trust model
followed by Singapore and Hong Kong and master limited partnerships in the United States.
(g) International Settlement of Indian Debt Securities
Rupee bonds for an international investor base needs to be settled in one of foreign currencies, and it is
expected that there will be measures to facilitate such settlements. This will enable India to woo
international investment also in sovereign debt. The Euroclear Bank SA for example provides such a
settlement platform.
(h) Uniform KYC norms
The centralized KYC system introduced by SEBI has evolved and stabilized with data of about INR 1.95 Crore
KYCs of investors. Accordingly, clients who have already done the KYC with any SEBI registered intermediary
need not undergo the same process again when approaching another intermediary. The system has
benefited the investors. The facility of sharing of KYC information is available only among SEBI registered
intermediaries.
SEBI at its board meeting held on 19 June 2014 had approved the amendment to SEBI {KYC (Know Your
Client) Registration Agency} Regulations, 2011 for sharing of KYC information available on the centralised
system with the entities regulated by other financial sector regulators. This will further facilitate the KYC
process for the investors in the entire financial sector.
(i) Single Operating Demat Account for all Financial Products
The Finance Minister has proposed creating a single operating demat account for all financial products. The
sub-committee of the FSDC, a forum of regulators monitoring financial stability and inter-regulatory co-
ordination has been working on this initiative after former Finance Minister P. Chidambaram announced a
single demat account for all financial investments in the interim Budget.

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(j) New Indian Accounting Standards
The introduction of Ind IAS is Indias assurance to convergence with the IFRS. The Council of the ICAI, at its
last meeting held on 20-22 March 2014, finalised the roadmap for implementation of the Ind IAS. The
revised roadmap recommended that the Ind IAS be implemented for the preparation of consolidt. financial
statements of the listed companies and unlisted companies having net worth in excess of INR 500 Crore from
the accounting year beginning on or after 1

April, 2016, with the previous year comparatives in the Ind IAS
for the year 2015-16.
According to the Finance Minister, based on the international consensus, the regulators will separately notify
the date of implementation of the Ind IAS for the banks, insurance companies, etc. and the standards for
the computation of tax would be notified separately.
(k) Lending to farmers Against Warehousing Receipts
In line with the launch of the Negotiable Warehouse Receipt System on 26 April 2011 by Minister of
Consumer Affairs, Food and Public Distribution, which helped the farmers to avoid distress sale and become
a tool of trade and to facilitate finance to the farmers, the Finance Minister has proposed to extend loan to
farmers against negotiable warehousing receipts. It has also allowed the banks to improve the quality of
their lending services in agriculture sector, increase the liquidity in rural areas and encourage better price
risk management in agriculture commodities.
5. FOREIGN DIRECT INVESTMENT
(a) Defence
As expected, the FDI limit in defence has been raised from 26% to 49% (with FIPB approval). The control of
all the existing joint ventures will continue to vest with Indian companies.
While the precise contours of the Government policy on FDI in defence are yet to be disclosed, the increase
in the FDI limit is certainly a step in the right direction given that India is the largest buyer of defence
equipment in the world. This policy change is widely expected to attract investment in to defense
manufacturing in India.
(b) Insurance
The Finance Minister has announced an increase in the composite cap in insurance sector from the existing
26% to 49%, through the FIPB route. This enhancement in the cap is aimed to provide huge relief to the

UNION BUDGET 2014

capital-starved private insurance sector, while protecting the interests of the Indian joint venture partner.
The proposal to raise the composite cap has been pending since 2008.
(c) E-Commerce by Manufacturing Units
The Finance Minister has provided an opportunity to the manufacturing sector to sell products through e-
commerce platforms. While the manufacturing sector is already open for 100% FDI under the automatic
route, now these foreign owned manufacturing units will be allowed to sell their products through e-
commerce platforms without any additional approval. This provides much-needed clarity to foreign players.
(d) Real Estate
The Finance Minister to encourage development of smart cities, has allocated INR 7060 Crore for developing
100 smart cities, thereby making development reach large number of people migrating from rural area to
cities.
To encourage such development, the Finance Minister has lowered the requirement of the built up area for
FDI from 50,000 square metres to 20,000 square metres and capital requirement from USD 10 million to USD
5 million with a three year post completion lock-in.
To further encourage housing development, projects which commit at least 30% of the total project cost for
low cost affordable housing will be exempted from minimum built up area and capitalisation requirements,
with the condition of three year lock-in.
This is a positive move and will lead to greater investments in the housing sector from the Indian and foreign
companies. This move will also help companies obtain cheaper capital for smaller projects and boost the
quality and delivery of low cost affordable housing projects, given that large numbers of projects were not
eligible for FDI due to non-fulfillment of minimum threshold conditions, which lead to FDI only in large
projects.
Additionally, the Finance Minister announced that INR 4000 Crore has been allocated to provide affordable
housing for the urban poor through National Housing Bank and extend incentives for housing loans.

UNION BUDGET 2014

6. MISCELLANEOUS
(a) Prize Chits and Money Circulation Scheme (Banning) Act, 1978
As part of the legislative initiatives under financial sector reforms, it is proposed to bridge the regulatory gap
under the Prize Chits and Money Circulation Scheme (Banning) Act, 1978, which is currently administered by
the DFS, which has constituted an Inter-Ministerial Group consisting of representatives from DFS, MCA, RBI,
SEBI and Department of Consumer Affairs and Central Economic Intelligence Bureau. Approximately 87
companies have come under the scanner for alleged irregularities related to chit fund schemes and money
circulation in the garb of multi-level marketing. The ROC and its Regional Directors have also initiated
scrutinizing the balance sheets and inspection of the books of accounts and other records of these 87
companies.
The SFIO in the past had recommended setting up of a specific central regulatory agency for the
implementation of the Prize Chit and Money Circulation Scheme (Banning) Act, 1978.
The Inter-Ministerial Group is expected to draft model rules on MLM companies and on the prohibited
schemes under this Act, and also frame clarificatory guidelines on how to distinguish between direct sales
from disguised money circulation schemes.
(b) Micro, Small and Medium Enterprises sector
The Finance Minister proposes to appoint a committee with representatives from the Finance Ministry,
Ministry of MSME, RBI to give concrete suggestions in three months to examine the financial architecture in
this sector. MSMEs form the backbone of our economy and account for a large portion of our industrial
output and employment. In order to create a conducive eco-system for the venture capital in the MSME
sector it is proposed to establish a INR 10,000 Crore fund to act as a catalyst to attract private capital by way
of providing equity, quasi equity, soft loans and other risk capital for start-up companies. Further, to
establish technology centre network to promote innovation, entrepreneurship and agro-industry, the
Finance Minister has proposed to set up a fund with a corpus of INR 200 Crore.
The definition of MSME will be reviewed to provide for a higher capital ceiling. An entrepreneur friendly legal
bankruptcy framework will also be developed for MSMEs to enable easy exit. A nationwide District level
Incubation and Accelerator Programme would be taken up for incubation of new ideas and providing
necessary support for accelerating entrepreneurship.

UNION BUDGET 2014

GLOSSARY OF TERMS
Abbreviation Meaning
AE Associated Enterprise
ALP Arms Length Price
AO Assessing Officer
AY Assessment Year
BCD Basic Customs Duty
BDR Bharat Depository Receipts
CBDT Central Board of Direct Taxes
CBEC Central Board of Excise and Customs
CE Act Central Excise Act, 1944
CE Rules Central Excise Rules, 2002
CESTAT/Tribunal Customs, Excise and Service Tax Appellate Tribunal
CETA Central Excise Tariff Act, 1985
CETH Central Excise Tariff Heading
Credit Rules CENVAT Credit Rules, 2004
CST Central Sales Tax
CTA Customs Tariff Act, 1975
CTH Customs Tariff Heading
Customs Act Customs Act, 1962
CVD Additional Duty of Customs
DFS Department of Financial Services
DRT Debt Recovery Tribunals
dt. Dt.
DTA Domestic Tariff Area
DTAA or Tax Treaty Double Taxation Avoidance Agreement entered into by India
DTC Direct Taxes Code Bill, 2010
FDI Foreign Direct Investment
FIPB Foreign Investment Promotion Board
Finance Minister Finance Minister
FSDC Financial Stability and Development Council
FSLRC Financial Sector Legislative Reforms Commission
FTDR Act Foreign Trade (Development and Regulation) Act, 1992
FTS Fees for Technical Services
FY Financial Year
GST Goods and Services Tax
HUF Hindu Undivided Family
IAS Indian Accounting Standard
ICAI The Institute of Chartered Accountants of India
IDFC Infrastructure Development Finance Company
IDR Indian Depository Receipts
IFRS International Financial Reporting Standards
IITs Infrastructure Investment Trust
Ind IAD New Indian Accounting Standards
IT Act Income Tax Act, 1961

UNION BUDGET 2014

Abbreviation Meaning
ITAT Income Tax Appellate Tribunal
JNPT Jawaharlal Nehru Port Trust
LLP Limited Liability Partnership
LLP Act Limited Liability Partnership Act, 2008
MAT Minimum Alternate Tax
MCA Ministry of Corporate Affairs
MLM Multi-level Marketing companies
MSME Micro Small and Medium Enterprises
NHAI National Highways Authority of India
NPA Non-Performing Assets
PPP Public Private Partnership
PPSR Place of Provision of Services Rules, 2012
PY Previous Year
POT Point of Taxation Rules, 2011
RBI Reserve Bank of India
RDDB Act Recovery of Debts Due to Banks and Financial Institutions Act, 1993
REIT Real Estate Investment Trust
ROC Registrar of Companies
SEZ Special Economic Zone
SEZ Act Special Economic Zone Act, 2005
SFIO Serious Fraud Investigation Office
STR Service Tax Rules, 1994
the Act Finance Act, 1994
TP Transfer Pricing
TPO Transfer Pricing Officer
Valuation Rules Service Tax (Determination of Value) Rules, 2006
w.e.f. with effect from
w.r.e.f. with retrospective effect from
WDV Written Down Value

UNION BUDGET 2014


Disclaimer: Prepared by Economic Laws Practice, Advocates & Solicitors for clients and internal use only. This document
summarizes the indirect and direct tax proposals of the Union Budget 2014 as also certain other amendments. The information
provided in this document is intended for informational purposes only and does not constitute legal opinion or advice. Readers
are requested to seek formal legal advice prior to acting upon any of the information provided herein.

UNION BUDGET 2014


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