DEFINATION OF INCOME TAX LAW What Does Income Tax Mean?

A tax that governments impose on financial income generated by all entities within their jurisdiction. By law, businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund. Income tax is a key source of funds that the government uses to fund its activities and serve the public. IMPORTANCE The tax levied by the government form a pool of resources to be used for the collective solution of individual problems. The state takes upon itself the duty of solving the problems of the underprivileged and needs finance for this purpose. The Government can mobilize resources by imposing taxes on the privileged ones. The taxation structure of the country can play a very important role in the working of our economy. Some time back the emphasis has shifted to decrease in rates of taxes and withdrawal of incentives. While design the taxation structure it has to be seen that it is in conformity with our economic and social objectives. It should not impair the incentives to personal saving and investment flow and on the other hand it should not result into decrease in revenues for the state. In our present day economic structure income tax plays a vital role as a source of revenue and a measure of removal of economic disparity. Our taxation structure provides for two type of taxesdirect and indirect; the income tax, wealth tax and gift tax are direct taxes whereas sales and excise duties are indirect taxes. HISTORY OF INCOME TAX .The Income Tax history in modern India dates back to 1860 when it was introduced in India for the first time in 1860 by British rulers following the mutiny of 1857.The period between 1860to1866 was a period of experiments in the context of income tax . This period ended in 1886 when first income-tax Act came into existence.. This Act of 1886 was the improved version. The pattern laid down in it for levying of tax continues to operate even to-day though in some changed form .It introduced the definition of agricultural income and the exemption it granted in respect of agricultural income has continued to be a feature of all subsequent legislations. The year 1918 saw the introduction of Act VII of 1918, it recasted the centre tax laws. This Act was designed keeping in mind the remedy to certain inequalities in the assessment of individual tax payers under the 1886 Act. The Act introduced the scheme of aggregating income from all sources for the purpose of determining the rate of tax. but it was short lived and was replaced by income-tax act 1922 . The Indian Income Tax Act, 1922 which came into being as a result of the recommendations of the All India Income Tax Committee is a milestone in the evolution of Direct Tax Laws in India. Its importance lies in the fact that the administration of the Income Tax hitherto carried on by the

Provincial Governments came to be vested in the Central Government. The Act of 1922, similar to the Act of 1918, applied to all incomes "accruing or arising", or received in British India, or deemed to be accrued, arisen or received. This Act marked an important change from the Act of 1918 by establishing the charge in the year of assessment on the income of the previous year instead of merely adopting the previous year's income as a measure of income of the year of assessment. The Act made a departure by abandoning the system of specifying the rates of taxation in its own Schedules. It left the rates to be announced by the Finance Acts, a feature which survives to this day. It also enabled loss under one head of income to be set-off against profits under any other head, so that the tax was chargeable only on net income. The Act of 1922 remained in force till the year 1961. In 1956 the Government had referred the Act to the Law Commission to recast it on logical lines and to make it simple without changing the basic tax structure. The present Income Tax Act is the Act of Sept., 1961.

INCOME TAX TIMELINE IN INDIA The important events in the history of tax laws in India can be summarized as bellow: 1860 Introduced for the first time for a period of five year to cover the mutiny expense. It was abolished in 1866 Introduced as Act II of 1886. It laid down the basic scheme of income tax that continues till the present day. Introduced as Act VII of 1918. It had features like aggregation of income from various sources for the determination of the rate, classification of income under six heads and application of the Act to all income that accrued or arose or was received in India from whatever source in British India. On the recommendations of the All-India Income Tax Committee, the father of the present act was introduced. The central government was vested with the power to administer the tax. The Act came into force from 1 April 1962, it extended to the whole of India. Establishment of the Tax Reform Committee under the chairmanship of Dr. Raja J. Chelliah. It was followed by restructuring the income tax with parameters like lower taxes, fewer slabs, higher exceptions, etc. The Kelkar Task Force, which was followed by outsourcing of PAN/TAN, exemption of dividend income, compensated by levy of the dividend distributed tax to be paid by the company.

1866

1918

1922

1961 1997

2003

EVOLUTION OF INCOME TAX The field of income tax has come a long way from the time it was introduced till 2011 major development have occur in the field of income tax especially after independence. The British introduced it for the its own benefit. But after independence the ruling govt . used the money for the benefit of people. Earlier most of the citizen didnt filed their income tax either they were ignorant or to save their money as the taxes in those days were high..thus resulting in losing lot of money. But with the onset of e govt the scenario has completely changed. now people know how to file their income tax how much of their money will be taxed and how much return they will get. with everything being online there is more transperncy.this is one of the main reason why I chose the topic had done my internship with a charted firm whose main work was to file online income tax. during my internship I realized the changes that have occurred in the field of income tax. now days people outsource their filling to various firms. New it return form sahaj&sugam which a citizen can print as per color specification income tax field has come a long way and still has enough scope in it to develop further History of Taxation post 1922 1. Preliminary ; The rapid changes in administration of direct taxes, during the last decades, reflect the history of socio-economic thinking in India. From 1922 to the present day changes in direct tax laws have been so rapid that except in the bare outlines, the traces of the I.T. Act, 1922 can hardly be seen in the 1961 Act as it stands amended to date. It was but natural, in these circumstances, that the set up of the department should not only expand but undergo structural changes as well. 2. Changes in administrative set up since the inception of the department: The organizational history of the Income-tax Department starts in the year 1922. The Income-tax Act, 1922, gave, for the first time, a specific nomenclature to various Incometax authorities. The foundation of a proper system of administration was thus laid. In 1924, Central Board of Revenue Act constituted the Board as a statutory body with functional responsibilities for the administration of the Income-tax Act. Commissioners of Income- tax were appointed separately for each province and Assistant Commissioners and Income-tax Officers were provided under their control. The amendments to the Income tax Act, in 1939, made two vital structural changes: (i) appellate functions were separated from administrative functions; a class of officers, known as Appellate Assistant Commissioners, thus came into existence, and (ii) a central charge was created in Bombay. In 1940, with a view to exercising effective control over the progress and inspection of the work of Income-tax Department throughout India, the very first attached office of the Board, called Directorate of Inspection (Income Tax) - was created. As a result of separation of executive and judicial functions, in 1941, the Appellate Tribunal came into existence. In the same year, a central charge was created in Calcutta also.

2.1 World War II brought unusual profits to businessmen. During 1940 to 1947, Excess Profits Tax and Business Profits Tax were introduced and their administration handed over to the Department (These were later repealed in 1946 and 1949 respectively). In 1951, the 1st Voluntary Disclosure Scheme was brought in. It was during this period, in 1946, that a few Group 'A' officers were directly recruited. Later on in 1953, the Group 'A' Service was formally constituted as the 'Indian Revenue Service' 2.2. This era was characterized by considerable emphasis on development of investigation techniques. In 1947, Taxation on Income (Investigation) Commission was set up which was declared ultra virus by the Supreme Court in 1956 but the necessity of deep investigation had by then been realized. In 1952, the Directorate of Inspection (Investigation) was set up. It was in this year that a new cadre known as Inspectors of Income Tax was created. The increase in 'large income' cases necessitated checking of the work done by departmental officers. Thus in 1954, the Internal Audit Scheme was introduced in the Income-tax Department. 2.3As indicated earlier, in 1946, for the first time a few Group A officers were recruited in the department. Training them was important. The new recruits were sent to Bombay and Calcutta where they were trained, though not in an organized manner. In 1957, I.R.S. (Direct Taxes) Staff College started functioning in Nagpur. Today this attached office of the Board functions under a Director-General. It is called the National Academy of Direct Taxes. By 1963, the I.T. department, burdened with the administration of several other Acts like W.T., G.T., E.D., etc., had expanded to such an extent that it was considered necessary to put it under a separate Board. Consequently, the Central Board of Revenue Act, 1963 was passed. The Central Board of Direct Taxes was constituted, under this Act. 2.4The developing nature of the economy of the country brought with it both steep rates of taxes and black incomes. In 1965, the Voluntary Disclosure Scheme was brought in followed by the 1975 Disclosure Scheme. Finally, the need for a permanent settlement mechanism resulted in the creation of the Settlement Commission 2.5A very important administrative change occurred during this period. The recovery of arrears of tax which till 1970 was the function of State authorities was passed on to the departmental officers. A whole new wing of Officers - Tax Recovery Officers was created and a new cadre of post of Tax Recovery Commissioners was introduced w.e.f. 1-1-1972. 2.6 In order to improve the quality of work, in 1977, a new cadre known as IAC (Assessment) and in 1978 another cadre known as CIT (Appeals) were created. The Commissioners' cadre was further reorganized and five posts of Chief Commissioners (Administration) were created in 1981. 2.7Tax Reforms : Certain important policy and administrative reforms carried out over the past few years are as follows :(a) The policy reforms include :-

Withdrawals/reduction of major incentives; Lowering of rates; introduction of measures for presumptive taxation; simplification of tax laws, particularly relating to capital gains; and widening the tax base-

(b)The administrative reforms include :

Computerization involving allotment of a unique identification number to tax payers which is emerging as a unique business identification number; and realignment of the available human resources with the changed business needs of the organization 2.8. Computerization : Computerization in the Income-tax Department started with the setting up of the Directorate of Income tax (Systems) in 1981. Initially computerization of processing of challan was taken up. For this 3 computer centers were first set up in 198485 in metropolitan cities using SN-73 systems. This was later extended to 33 major cities by 1989. The computerized activities were subsequently extended to allotment of PAN under the old series, allotment of TAN, and pay roll accounting. These computer centers used batch process with dumb terminals for data entry.

In 1993 a Working Group was set up by the Government to recommend computerization of the department. Based on the report of the Working Group a comprehensive computerization plan was approved by the Government in October, 1993. In pursuance of this, Regional Computer Centers were set up in Delhi, Mumbai, and Chennai in 1994-95 with RS6000/59H Servers. PCs were first provided to officers in these cities in phases. The Plan involved networking of all users on LAN/WAN. Network with leased data circuits were accordingly set up in Delhi, Mumbai and Chennai in Phase-I during 1995-96. A National Computer Centre was set up at Delhi in 1996-97. Integrated application software were developed and deployed during 1997-99. Thereafter, RS6000 type mid range servers were provided in the other 33 Computer Centers in various major cities in 1996-97. These were connected to the National Computer Centre through leased lines. PCs were provided to officers of different level up to ITOs in stages between 1997 and 1999. In phase II offices in 57 cities were brought on the network and linked to RCCs and NCC. 2.9 Restructuring of the Income-tax department : The restructuring of the Income-tax Department was approved by the Cabinet in its meeting held on 31-8-2000 to achieve the following objectives :

Increase in revenue collection; Increase in effectiveness and productivity; Improvement in services to tax payers; Reduction in expenditure by downsizing the workforce; Improved career prospects at all levels; Induction of information technology; and Standardization of work norms

The aforementioned objectives have been sought to be achieved by the department through a multi-pronged strategy of : (a) redesigning business processes through fictionalization; (b) increasing the number of officers to rationalize the span of control for better supervision, control and management of workload and to improve tax-payer services and (c) re-orient, retrain and redeploy the workforce with appropriate incentives in the form of career advancement. 3. Important events affecting the administrative set up in the Income-tax department-: 1939-Appellate functions separated from inspecting functions a class of officer known as aac came into existence Jurisdiction of Commissioners of Income tax extended to certain classes of cases and a central charge was created at Bombay.

1940-Directorate of inspection (income tax) came into being Excess profit tax was introduced w.e.f. 1-9-1939

1941-Income-tax Appellate Tribunal came into existence central charge created at Calcutta.

1943- Special Investigation Branches set up. 1946- A few officers of Class-I directly recruited. Demonetization of high denomination notes made. Excess Profits Tax Act repealed. 1947- Business Profits Tax enacted (for the period 1-4-1946 to 31-3-1949). 1951- Report of Income-tax Investigation Commission known as Vardhachari commission received Voluntary Disclosure Scheme introduced. 1952-Directorate of Inspection (Investigation) set up. Inspector of Income-tax declared as an I.T. authority. 1953-Estate Duty Act, 1953 came into existence w.e.f. 15-10-1953. Act XXV of 1953 gave effect to the recommendations of Commission appointed under Taxation of Income (Investigation Commission) Act, 1947.

1954-Internal Audit Scheme in the Income-tax Department introduced. Taxation Enquiry Commission known as John Mathai Commission set up. 1957-The Wealth tax Act, 1957 introduced w.e.f. 1-4-1957. I.R.S.(DT) Staff College started functioning at Nagpur and much at Bombay, Calcutta, Bangalore and Lucknow opened. 1958-LI>The Gift-tax Act, 1958 introduced w.e.f. 1-4-1958. Report of Law Commission received. 1959-Direct Taxes Administration Enquiry Committee submitted its report 1960-Directorate of Inspection (Research, Statistics & Publications)was set up. Two grades of Inspectors - selection and ordinary grades merged into one single grade. 1961-Direct Taxes Advisory Committee set up - Direct Taxes Administrative Enquiry Committee constituted. Income-tax Act, 1961 came into existence w.e.f. 1-4-1962. Revenue Audit introduced for the first time in the Department. New system for evaluation of work done by Income-tax Officers introduced. 1963-Central Board of Revenue bifurcated and a separate Board for Direct Taxes known as Central Board of Direct Taxes (CBDT)constituted under the Central Board of Revenue Act, 1964-For the first time an officer from the department became Chairman of the CBDT w.e.f. 1-1The Companies (Profits) Sur -tax Act, 1964 was introduced. Annuity Deposit Scheme, 1964 introduced. 1965-Voluntary Disclosure Scheme came into operation. 1966-Functional Scheme introduced. Special Recovery Unit created. Intelligence Wing created and placed under the charge of Directorate of Inspection (Investigation). 1968-Valuation Cell came into existence in the Income tax Department. later four R.T.Is. stationed

Report of rationalization and simplification of tax structure (Bhoothalingam Committee) received. Administrative Reforms Commission set up. 1969-Direct Recruitment to Class II Income-tax Officers made. The post of IAC (Audit) created in the Income-tax Department. 1970-The posts of Addl. Commissioner of Income-tax created and abolished after one year. Recovery functions which were hitherto performed by Income- tax Officers, given to Tax Recovery Officers. Prior to that State Government officials exercised the functions of a Tax Recovery Officer. 1971-A new cadre of posts known as Tax Recovery Commissioners 1.1.1972. Report of Direct Taxes Enquiry Committee received. Summary Assessment Scheme introduced w.e.f. 1-4-1971. 1972-A Special Cell within the Directorate of Inspection (Investigation) created to oversee the cases of big industrial houses. A new cadre of posts known as IAC(Acq.) created and IAC appointed as Competent Authority with the insertion of new Chapter XXA in the Income Tax Act, 1961 on the acquisition of immovable properties in certain cases of transfer to counter evasion of tax. Directorate of Organization & Management Services (Income- tax) created. The post of I.T.O. (Internal Audit) created. Bradma Scheme in the Income-tax Department introduced. System of Permanent Account Number introduced. Valuation Officers given statutory powers under the Income-tax Act, 1961 and Wealth-tax Act, 1957 1974-Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 introduced. Action Plan for the Income-tax Officers introduced for the first time. Concept of M.B.O introduced. 1975-Voluntary Disclosure Scheme for Income and Wealth implemented. introduced w.e.f.

Special Cell for dealing with Smugglers' cases created. 1976-Settlement Commission created and Taxation Laws (Amendment) Act,1975 inserted a new Chapter XIXA in the Income Tax Act w.e.f.1-4-1976. Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 introduced w.e.f. 25-1-1976. A new scheme for departmentalization of accounts introduced. Chokshi Committee submitted its interim report. 1977-A new cadre of posts known as IAC (Assessment) created. 1978-Appellate functions given to a new cadre of Commissioners known as Commissioner (Appeals). Directorate of Inspection (Recovery) set up. A new directorate known as Directorate of Inspection (Vigilance) came into existence by bifurcating the functions of Directorate of Inspection (Investigation). Chokshi Committee submitted its final report 1979-A new directorate designated as Directorate of Inspection Relations) created out of the Directorate of Inspection (RS&P). 1980-Hotel Receipt Tax Act, 1980 came into force w.e.f. 1.4.1981 1981-Economic Administrative Reforms Commission set up. Three new Directorates viz. Directorate of Inspection (Intelligence), Directorate of Inspection (Survey) and Directorate of Inspection (Systems) created. Within the Directorate of Inspection (Income Tax and Audit), a Inspection (Audit) appointed. separate Director of (Publication & Public

Directorate of Inspection (RS&P) re-organized and Directorate of Inspection (P&PR) redesignated as Directorate of Inspection (Printing & Publications). I.R.S.(DT) Staff College, Nagpur, re-designated as National Special Bearer Bonds (Immunities & Exemptions) Act Academy of Direct Taxes.

promulgated.

Director General (Special Investigation) and Director General (Investigation) appointed to control the functioning of various Directorates under the control of Central Board of Direct Taxes.

Five posts of Chief Commissioner (Administration) created. A few posts of Commissioner of Income-tax were earmarked as (Inv.) and Commissioner of Income- tax (Recovery). Commissioner of Income-tax

1982-Special Cell within the Directorate of Inspection (Investigation) converted into a separate Directorate and re-designated as Directorate of Inspection (Special Investigation). DIT (Systems) appointed in the Directorate of Income-tax (Organization and Management Services) to coordinate efforts in introducing electronic data processing in the IT Depts. A microprocessor based EDP system along with data entry system was installed heralding the era of computerization. Levy of Hotel Receipts Tax discontinued. Regional Training Institute at Nagpur started functioning under Academy of Direct Taxes. the control of the National

1983-The vigilance set up reorganized and the strength of Dy. Director (Vigilance) and Asset. Director(Vigilance) augmented. Computerized systems for processing challan and PAN designed and developed. 1984-Taxation Laws(Amendment) Act 1984 passed to streamline procedures in the interest of better work management; avoid inconvenience to tax payers; reduce litigation; remove anomalies and rationalize some provisions. 1985-Post of Director General (Investigation) created for more effective checking of tax evasion. E.D.(Amendment) Act 1985 discontinues levy of estate duty on deaths occurring on or after 16.03.1985. Compulsory Deposit Scheme (Income Tax Payers) Act 1974 discontinued w.e.f. 1.4.1985. Interest Tax Act, 1974 discontinued w.e.f. 31.3.1985 A new "Reward Scheme" for motivating officers introduced w.e.f. 1.4.1985. 1986-The I.T. Act and W.T. Act amended by Taxation Laws(Amendment and Miscellaneous Provisions) Act :Established Settlement Commission. Introduced Block assets concept for depreciation.

Four offices of Appropriate Authority for acquiring property in which unaccounted money is invested set up in metropolitan cities. 1987-Government's approval obtained to set up three new benches of Settlement Commission. L.K. Jha Committee set up for simplification and rationalization of tax laws. Office of Directorate General (Tax Exemption) set up at Calcutta. The Direct Tax Law(Amendment) Act 1987 introduced uniform previous year and redesignated the following authorities :Director of Inspection Insp. Asset. Commissioner of I. Tax Appellate. Asset. Commissioner Income tax Officer Gr. A Income tax Officer Gr. B Director of Income Tax Dy. Commissioner of Income Tax. -Do- (Appeals) Asset. Commissioner of I. Tax Income tax Officer

Expenditure Tax Act 1987 brought into force. 1988-Benami Transactions Prohibition Act 1988 introduced. The Government announced a "Time Window Scheme" which allowed tax payers 50% rebate of interest u/s 220(2) if they pay the tax and balance interest. The scheme was in operation between 1.7.88 to 30.9.88. CIT (Central) placed under the control and supervision of Director General (Investigation). Government decided that cadre control for Group 'C' and 'D' posts would be with Chief Commissioner and with CBDT for Group 'A' and 'B'posts. Extension of Direct Tax Law to the State of Sikkim by a notification of the President of India dated 7.11.1988. 1989-Creation of an attached office of DGIT(Management Systems) to supervise Directorate of I. Tax(Research, Statistics, Publication & Public Relations) and Directorate of I. Tax (Organization and Management Services) from Sept. 1989. 1990-Gift tax Bill introduced on 31.5.1990. Creation of 65 posts of Dy. Commissioner of I. Tax by up gradation of equal number of posts of Asset. Commissioner of I. Tax.

1991-Interest Tax Act, 1974 revived. Directorate of I. Tax(Systems) started reporting directly to Board. 1992-Rs. 1400 Presumptive Taxation scheme introduced as a measure to widen tax base. The post of Director General of Income-tax (Management Systems) was abolished. 1993-40 additional posts of Commissioner of Income-tax (Appeals) created. Authority for Advance Rulings set up. A comprehensive phased cadre review for Group B, C and D initiated. 1994-2068 additional posts in Group B, C and D sanctioned. New PAN introduced. Regional Computer Centers (RCCs) were set up in Chennai, Delhi and Mumbai. 1995-New procedure for search assessment introduced. 50 years of training commemorated and "Seminar Twenty Five introduced by National Academy of Direct Taxes. 1996-77 posts of Commissioners of Income-tax created. Infrastructure for operational needs strengthened. Study report on 4th cadre review of Group 'A' officers (IRS) of the Department prepared b y Directorate of Income Tax (Organization and Management 1997-Rates of Income-tax reduced significantly Legal measures to widen tax base on certain economic indicators introduced in selected cities. Presumptive tax scheme discontinued. Voluntary Disclosure Scheme 1997 introduced. Minimum Alternate Tax introduced. National Computer Centre (NCC) was set up in Delhi. 1998-Sec. 260A introduced enabling direct appeals to High Court. 1/6 Scheme & penalty for non-filing of return introduced to widen tax base. Gift-tax abolished for gifts made after 1.10.1998.

Kar Vivad Samadhan Scheme 1998 introduced. Silver Jubilee of Regional Training Institutes celebrated. Designation of Asset. Commissioner (Senior Time Scale) changed to Dy. Commissioner and that of Dy. Commissioner (Junior Administrative Grade) to Joint Commissioner. 1999-Furnishing details of bank account and credit cards in the prescribed form made mandatory for refund purpose. Prima-facie adjustments to return done away with; acknowledgments to serve as intimations. Samman Scheme introduced in 1999 to honour deserving tax payers. 2000-The process of implementation of restructuring of the Department commenced to increase efficiency and to deal with increased workload. Total sanctioned work force reduced from 61,031 to 58,315. Certain rationalization measures at structural levels introduced. Interest-tax Act terminated with effect from 1-4-2000. 2001-The restructuring of the Department resulted in reducing the stagnation at all levels and large number of personnel were promoted in various grades. Jurisdiction pattern was revamped. New posts were created at the level of DGIT/DIT in the areas of Research, International Taxation and Infra 2002-Computerised processing of returns all over the country introduced Kelkar Committee Report, inter alia, recommended :i. Outsourcing of non-core functions of the department ; ii. Reduction in exemptions, deductions, reliefs, rebates etc.

Changing face of Indias Income Tax Department

Under the National e-Governance Plan (NeGP) of Government of India, the Income Tax Department of Central Board of Direct Taxes (CBDT) has initiated one of the major eGovernance initiatives of India. Under this initiative, the entire department along with the gamut of services that it offers has been automated through a system of web-based, single-window, 24X7 service delivery model. In order to achieve an all-round e-Governance capability, the department has taken up a threepronged approach to develop its electronic infrastructure. This involves three major components: (1) e-Delivery of Tax Payer Services (2) Augmentation of Departmental Computer Infrastructure (3) Setting up of Tax Information Network (TIN) Since inception of online services through the department's official portal (www.incometaxgov.in)there has been an overwhelming response with nearly 5 lakh visitors visiting the portal each day. Each component of IT infrastructure of the Department of Income Tax deals with a specific set of services under them. In turn, all these components and their constituent services are integrated with each other for achieving complete automation . (1) e-Delivery of Taxpayer Services: In case of 'e-delivery of tax payer services', 8 distinct services have been identified. A schematic illustration of such service modules has been shown as under:

 Dissemination of Tax Related Information: The official portal of the Income Tax Department acts as a single-point source of all tax related information for citizens. A wide range of information covering Tax Laws, Acts, Rules, Regulations, Tax filing procedures, Notifications, Circulars, House property and Capital gains taxes, Tax deduction and rebates, Depreciation rates, TDS rates, Forms, Due dates, Tax Commissioner jurisdiction, International Taxation, as also customized and personalized taxpayer specific announcements and e-mail alert facilities are provided on-line for registered users. In addition, taxpayers can avail the facility of using web-based Tax calculator and free-downloadable Return Preparation software Sam park 2005 and e-filing software Suvidha from the Department's portal. Dissemination of Taxpayer Specific Information: Taxpayers can avail limited access to view personalized tax-related information on the Internet. Currently, taxpayers can get on-line information relating to their PAN, track status of their PAN application (using application acknowledgement number), download Challan forms for tax payment with pre-printed PAN and check transaction status of tax payments made through banks. PAN & TAN Related Services: A major portion of PAN and TAN related services have been made on-line and simplified by outsourcing certain services to external agencies like UTITSL (UTI Technology Services Limited) and NSDL (National Securities Depository Limited). PAN application centers have been set up in over 500 cities for facilitating operations on a national scale. Application for PAN and TAN can be filed online, along with facilities of tracking application

status, availing fee-based 'Tatkal' (Immediate) services for PAN/TAN allotment and requisition for correction in PAN/TAN. According to the latest figure as on June 27, 2005, around 3.91 crore of PAN cards have been issued and the average waiting time for applicants is below 10 days. Moreover, all PAN/TAN related information and services could be availed through a call centre 'Aaykar Sam park Kendra' (ASK), at the number 0124 24380000. Preparation of Returns of Income: Non-business taxpayers can make use of the free Return Preparation software called 'Sam park' to prepare their return online or download the program to do it offline. This software is updated every year to include the relevant changes in Tax laws and make return filing easier. e-filing of Returns of Income: Starting from July 2005, taxpayers assessed at any one of the 60 stations on the Tax Information Network can avail the facility of e-filing their returns either through approved e-Return Intermediaries or directly (subject to fulfilling eligibility criteria for individual taxpayers) under 'digital signatures'. In order to encourage on-line filing of Returns the Department has adopted a policy of processing e-filing on a priority basis. e-Payment of Taxes: Payment of taxes have been simplified by introducing e-payment mode through Online Tax Accounting System (OLTAS). Under this system taxpayers can pay taxes electronically using net-banking facility of authorized banks like IDBI, SBI, Central Bank of India and Bank of Maharashtra. To facilitate this process, new and simplified Challan forms (ITNS 280, 281 and 282) have been introduced having fewer columns and single copy sufficiency, as against four copies needed earlier. Details of this process is available at the TIN website (www.tin-nsdl.com). Computerized Processing of Returns/Refunds: All Returns are being processed on computers to reduce the time taken for sending taxpayer's returns or refunds. Currently, Returns are being processed in less than 4 months time from the time of filing. Over 2 crore returns were processed during F.Y. 2004-05, resulting in issue of more than 39 lakh refund cheques. Faster processing of returns has also improved time-efficiency of taxpayer service and lower interest outgo on refund for the Department. This has also facilitated in creating a database system called 'Computer Assisted Selection of Cases for Scrutiny' (CASS) needed for identifying cases for scrutiny, identification of stop filers and supporting data for decision making on tax policy issues. In addition, electronic credit of refunds to taxpayer's bank account has been introduced in 12 cities across the country. e-filing of TDS and TCS returns: TDS and TCS return mechanisms has been automated and e-filing has been made mandatory for Corporate and Government deductors, using legal provisions. Free return preparation software for TDS and TCS returns have been provided on the website of TIN. 760 Facilitation Centers have been set up by TIN in 265 cities for receiving applications for allotment of TAN and e-TDS/TCS returns. Till June 27, 2005 a total of 13, 96, 150 TANs have been allotted while 1,11,357 e-TDS return particulars have been received. (2) Augmentation of Departmental Computer Infrastructure:

The second component of process automation initiative of the Department of Income Tax involves setting up of (i) a National Data Centre (NDC) (ii) an All India Virtual Private Network (VPN) The National Data Centre will act as a central information warehouse for all Income Tax offices across the country. It is supposed to house data servers dedicated for Income Tax Department and accessible for registered and authenticated users. In order to supplement the National Data Centre and provide its connectivity to multi-location Income Tax offices, a nation-wide Virtual Private Network is under development for interlinking all Income Tax offices of the country. (3) Setting up of Tax Information Network The Tax Information Network (TIN, www.tin-nsdl.com), which forms the backbone of eGovernance initiative of the Department of Income Tax has been set up and hosted by NSDL. TIN acts as a repository of information relating to: (a) Tax payments (through OLTAS) (b) Tax deductions from TDS returns (both electronically as well as on paper (c) High value financial transactions coming through Annual Information Returns Under OLTAS (functional from June 1, 2004) nearly 11,900 branches of 32 designated banks authorized to collect direct taxes are transmitting information of tax payments online through TIN. The TIN is also facilitating in e-filing of TDS /TCS returns, digitization of paper TDS returns and storage of information with respect to deduces available in TDS returns for widening of tax base, using PAN as the principal identifier. Apart from this, TIN has also initiated e-filing of high value financial transactions. The information base generated through these returns would be used for improving tax base and developing an intelligent system of tax information for multicriteria, multi-level scrutiny and search.

Important features of Changes/Amendments made in Budget -2011-12 pertaining to Excise, Service Tax and Cenvat Credit
I Central Excise Duty. 1.1 The interest payable, under section 11AA and 11AB of CEA44 on delayed payment of excise duty on clearances from the date due till the date of actual date of payment (as against the existing provision of payment from the first date of the month succeeding the month in which the duty ought to have been paid) is increased to 18% per annum in lieu of 13% which exists up to 31-03-2011. Hiked rate of interest is effective from 01-04-2011. 1.2.1 A new category has been created from the cases involving extended period of limitation (fraud, collusion, willful mis-statement etc,). A lower rate of mandatory penalty of 50% of the duty is proposed instead of 100% of the duty. This is applicable to those cases where it is noticed during the verification or investigation or audit that the duty has not been levied, short levied, not paid or short paid or erroneously refunded and the related accounting records contains proper entries of these transactions. 1.2.2Even in the cases where the issuance of show cause notice under the provisions of section 11AC invoking the extended period of limitation (fraud, collusion, willful mis-statement etc,) is contemplated, the penalty equivalent to 50% of the duty can be remitted subject to the view/opinion of the Central Excise Officer that the details of the transactions in respect of which above show cause notice is contemplated have been properly entered in the books of accounts/specified records by the assesses. 1.2.3The facility of compounding the penalty amount is confined only to the above new category. If the assesses chargeable with duty (for extended period) pays the duty in full or part along with interest before the issuance of show cause notice, the penalty shall stand reduced to 1% per month but not exceeding 25% of the duty. 1.2.4However, if the assesses pays the duty along with interest within 30 days of the issuance of adjudication order, the penalty would be 25% of the duty. 1.3 A new section 11E is being inserted in the Central Excise Act to create a first charge on the property of a defaulter for recovery of Central Excise dues subject to the provisions of the Companies Act, Recovery of Debt due to Bank and Financial Institution Act, 1993 and Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This implies that after the dues, if any, owing under these provisions, dues under the Central Excise Act shall have a first charge. 1.4 The first schedule to the Central Excise Tariff is being amended to carry out following changes, with immediate effect i.e., from 01-03-2011:

The process of repacking from bulk to retail packs, labeling or relabeling of containers or adoption of any other process to render the product marketable shall be a process amounting to manufacture. The process of conversion of ore into concentrates shall be a process amounting to manufacture. The process of refining of gold Dore bars shall be a process amounting to manufacture. The process of galvanization shall be a process amounting to manufacture. II.Service Tax 1. Following two new services are proposed: A. Services by Air Conditioned restaurants having license to serve liquor. A.1 Restaurants provide a number of services normally in combination with the meal and/or beverage for a consolidated charge. These services relate to the use of restaurant space and furniture, air-conditioning, well-trained waiters, linen, cutlery and crockery, music, live or otherwise, or a dance floor. The customer also has the benefit of personalized service by indicating his preference for certain ingredients e.g. salt, chilies, onion, garlic or oil. The extent and quality of services available in a restaurant is directly reflected in the margin charged over the direct costs. It is thus not uncommon to notice even packaged products being sold at prices far in excess of the MRP. A.2 In certain restaurants the owners get into revenue-sharing arrangements with another person, who takes the responsibility of preparation of food, with his own materials and ingredients, while the owner takes responsibility for making the space available, its decoration, furniture, cutlery, crockery and music etc. The total bill, which is composite, is shared between the two parties in terms of the contract. Here the consideration for services provided by the restaurants is more clearly demarcated. A.3 Another arrangement is whereby the restaurant separates a certain portion of the bill as service charge. This amount is meant to be shared amongst the staff who attend the customers. Though this amount is exclusively for the services it does not represent the full of value of all services rendered by the restaurants. A.4 The new levy is directed at services provided by high-end restaurants that are air Conditioned and have license to serve liquor. Such restaurants provide conditions and ambience in a manner that service provided may assume predominance over the food in many situations. It should not be confused with mere sale of food at any eating house, where such services are materially absent or so minimal that it will be difficult to establish that any service in any meaningful way is being provided.

A.5 It is not necessary that the facility of air-conditioning is available round the year. If the facility is available at any time during the financial year the conditions for the levy shall be met. A.6 The levy is intended to be confined to the value of services contained in the composite contract and shall not cover either the meal portion in the composite contract or mere sale of food by way of pick-up or home delivery, as also goods sold at MRP. Finance Minister has announced in his budget speech 70% abatement on this service, which is, inter-alia, meant to separate such portion of the bill as relates to the deemed sale of meals and beverages. The relevant notification will be issued when the levy is operational zed after the enactment of the Finance Bill. B. Short-term accommodation in hotels/inns/clubs/guest houses etc,. B.1 Short term accommodation is provided by hotels, inns, guest houses, clubs and others and at camp-sites. This service is proposed to be taxed where the continuous period of stay is less than 3 months. B.2 Actual levy will be restricted to accommodation with declared tariff of Rs. 1,000 per day or higher by an exemption notification. Once this requirement is met, tax will be chargeable irrespective of the fact that actually the amount charged from a particular customer is less than Rs. 1,000. The tax will also be charged on the gross amount paid or payable for the value of the service. B.3 Finance Minister has announced 50% abatement from the value of service. Details of the exemption will be announced at the time when the levy is operational zed after the enactment of the Finance Bill. 2. Expansion of scope of following existing services: 1.Authorized Service Stations Services [section 65 (105) (zo)]: The existing service is being substituted with a new definition to cover: a) Services provided by any person i.e. whether authorized service station or otherwise; b) All motor vehicles, other than vehicles used for goods transport and three-wheeler autorickshaws; and c) Repair, re-conditioning or restoration - which are already taxable and services of decoration and any other related services. 2. Life Insurance business [section 65 (105) (zx)]: 2.1 Life insurance companies provide services relating to risk cover and managing investment for the policy holders. The former is already subjected to service tax. The latter is now being

brought into the tax net. Similar services rendered by way of ULIP are already subject to service tax since 2008. 2.2 When the entire premium is only for risk cover the same shall continue to be taxed even in the revised definition. However in the case of other schemes, a significant portion of the premium is used towards investment, while the rest is allocated towards various overheads and mortality. IRDA in its circular Ref: IRDA/ACT/CIR/VIP/171/2010 dated November 21, 2010 has made it mandatory for the insurance companies to share this break-up with the policy holders in the case of Variable Insurance Policies under the heads: premium received, deductions towards mortality, commission and expenses, interest added and closing balance. Thus amounts relating to deductions for mortality, commission and expenses are not available for investment. After the enactment of the new levy, it is proposed to amend the Service Tax Rules to give the option to pay tax at the standard rate on that portion of the premium that has not been invested and is so indicated in any of the documents given to the policy holder. Where the break-up is not indicated in any document issued to the policy holder, option will be given to pay tax @ 1.5% of the gross amount of premium. 3. Commercial Training or Coaching Service [section 65 (105) (zzc)]: 3.1 The levy in its present form keeps outside its purview unrecognized education which is imparted by an institute that issues any certificate or diploma or degree or any educational qualification recognized by law. Thus two identical courses may be treated differently merely because one of the institutes also conducts another course that is recognized by law. This anomaly is proposed to be corrected by subjecting all such unrecognized education to tax. 3.2 In the Finance Bill the definition of commercial training coaching centre has been amended. Suitable exemption will be given after the enactment of the Finance bill to preschool coaching and training and to coaching or training relating to educational qualifications that are recognized by law. 4. Club or Association [section 65 (105) (zzze)]: 4.1 Services provided by a club or association to its members are already subjected to tax since 2005. When a member avails the facilities for his guest, he is already covered by the existing definition as the services are paid for by the member and not by the guest. However a number of clubs or associations allow non-members to use their facilities in their own capacity for a separate charge. Clubs also entertain members of other affiliated clubs. Such services are proposed to be brought within the revised definition. 5. Business Support Service [section 65 (105) (zzzq)]: 5.1 The scope of the service is being expanded to include operational or administrative assistance of any kind. The scope will cover all support activities for others on a contract fee, that are

ongoing business support functions that businesses and organizations commonly do for themselves but sometimes find it economical or otherwise worthwhile to outsource. 5.2 The words operational and administrative assistance have wide connotation and can include certain services already taxed under any other head of more specific description. The correct classification will continue to be governed by Section 65A. 6. Health services [section 65 (105) (zzzzo)]: 6.1 The existing service is being substituted with a new description as follows: a) Services provided by a clinical establishment having the facility of central air-conditioning in whole or any part of the establishment and more than 25 beds for in-patient treatment at any time of the year; and b) Services provided by a clinical establishment in relation to diagnostic tests of any kind or investigative services with the help of a laboratory or medical equipment c) Service provided by doctors, who are not employees, from the premises of a clinical establishment. 6.2 The head will not cover an establishment under the ownership or control of government or a local authority including Primary Health Centre and ESIC hospital. Autonomous medical institutes set-up by the government by a special act of parliament are also outside the levy. 6.3 Only such doctors will be covered who provide services from the specified premises of a clinical establishment in a capacity other than as employee of such establishment. 6.4 Finance Minister has announced 50% exemption from the value of this service. The exemption notification will be issued when the new levy is enacted. 6.5 Parliament has already passed The Clinical Establishment (Registration and Regulation) Bill, 2010. The Act will apply to such States as have given their consent for the same. The Act prescribes registration of all Clinical Establishments and maintenance of prescribed records and other reporting requirements. These can be referred to the extent they are relevant for the purpose of this levy. 7. Money changing services [section 65 (105) (zm and zzk)]: 7.1 There is no change in the scope of the levy of these services. However the following changes have been made in the actual collection of tax: a) A new rule (2B) has been introduced in the Service tax (Determination of Value) Rules, 2006 prescribing the value of the service in terms of Section 67 of the Act. The value shall be as follows:

(I) The difference between the buying rate or the selling rate, as the case may be, and the RBI reference rate for that currency for that day multiplied by units of currency exchanged; (ii) If RBI reference rate is not available the value shall be 1% of the value of money exchanged in Indian rupees; (iii) When both the currencies are not Indian rupees, 1% of the lesser of the amounts receivable if the two currencies are converted at RBI reference rate. b) The rate of composition under rule 6(7B) has been lowered from 0.25% to 0.1% of the gross amount of money exchanged. However, the proviso relating to paying tax on billed charges has been deleted. Thus now the assesses will have the option to pay tax @0.1% of gross amount exchanged or else at standard rated on the value of service in terms of rule 2B, as mentioned above. 3. Changes in penalties and compliance. Many numbers of changes are being introduced in order to: encourage voluntary compliance and self correction wherever deviations/omissions took place unintentionally; reduced penalties would be considered if the transactions are captured fully and truthfully in records and further abated if timely admission and payment is made, and intentional and unrecorded violations/deviations should be dealt with severely with no concession whatsoever with a sole motto of voluntary compliance. All these changes are being considered only to respect the honest tax payers and to stop deriving benefit by carrying surreptious activities of unscrupulous business persons/entities . It is very much advisable to keep the department informed about the changes in the decisions taken, relating to taxes and duties, before the department comes to know while conducting any audit or investigation or verification. Maximum penalty for delay in filing of return under section 70 is proposed to be increased from Rs. 2,000/- to Rs. 20,000/-. The penalty of Rs. 20,000/- would attract only when the delay is beyond 40 days. For the delays below 40 days, the earlier provisions of Rs. 500/- for first 15 days, Rs. 1000/- for 16 to 30 days and Rs. 2000/- to 31 to 40 days of delay. The interest to be paid on delayed remittances of service tax is being enhanced from 13% to 18% per annum. But for those service providers whose turnover in the preceding year or any year covered in the show cause notice is below Rs. 60/- lakhs, the applicable interest rate is 15% per annum only.

 The beneficial provisions of section 73 (1A) and both the provisos of section 73 (2) are proposed for deletion. As a result, the benefit of reduced penalty shall not be available in cases of fraud, mis-statement, suppression, collusion etc. in the ordinary course. However, revised benefit will be available under the new sub-section 4A of section 73 in situations where the true and complete account of transactions is otherwise available in the specified records and the assesses during the course of audit, verification or investigation pays the tax dues, together with interest and the reduced penalty. It is clarified that the assesses can also avail this benefit on his own also. The extent of penalty is being further reduced to 1% per month of the tax amount for the duration of default not exceeding 25% of the tax amount. The penalty for failure to pay tax as per the provisions of Fin. Act, a penalty of Rs. 200/- per day of delay or 2% of the service tax amount, whichever is higher is payable under section 76. Now, the penalty under this section is being reduced to half. The existing penalty for violations of various provisions attract levy of penalty of Rs. 5000/or Rs. 200/- per day of delay, whichever is higher under section 77. The penalty of Rs. 5000/- is being enhanced to Rs. 10,00/- while retaining all other provisions of section 77. Penalty under Section 78 is being reduced from up to twice the amount of tax to an amount equal to the tax. Moreover, in situations where the taxpayer has captured the true and complete information in the specified records, penalty shall be 50% of the tax amount. The latter penalty (only) shall be further reduced to 25% if the tax dues are paid within a period of one month together with interest and reduced penalty. For assesses with turnover up to Rs. 60 lakh the period of one month shall be increased to ninety days. Where the transactions are not captured properly in the specified records in those cases where suppression, fraud etc, are present, such cases would attract levy of penalty equal to the service tax amount under section 78. Provisions relating to prosecution are proposed to be re-introduced and shall apply in the following situations: (I) Provision of service without issue of invoice; (ii) A ailment and utilization of Cenvat credit without actual receipt of inputs or input services; (iii) Maintaining false books of accounts or failure to supply any information or submitting false information; (iv) Non-payment of amount collected as service tax for a period of more than six months. 4. Changes in Service Tax Rules, 1994

Following changes in Service Tax Rules are being made which are effective from 01-04-2011. v A provision is being inserted that when an invoice has been issued or a payment received for a service, which is not subsequently provided, the assesses may take the credit of the service tax earlier paid when the amount has been refunded by him to the recipient or by the issue of credit note, as the case may be. v The amount of adjustment of excess amount paid by an assesses is being enhanced from Rs. 1 lakh to Rs. 2 lakhs retaining other condition such as intimation to the jurisdictional Superintendent within 15 days from the date of such adjustment is made. (Rule 6 (4B). v A new sub-rule 6A has been introduced in rule 6 to provide that if an amount of service tax has been self-assessed but not paid, the same shall be recoverable along with interest under section 87 of the Act. Thus, there shall be no need to resort to the requirements of section 73 for the recovery of such self-assessed amounts. v The composition rate in sub-rule 7B of rule 6 applicable to in relation to purchase or sale of foreign currency, including money changing, has been reduced from 0.25% to 0.1% and the Proviso has been deleted. Thus, in the case of these services, option of paying service tax on billed charges will not be available. 5. Point of Taxation Rules,2011 A new set of rules have been framed, keeping in view the roll out of GST in near future, determining the point in time when the services shall be deemed to be provided for levy of service tax. The general rule will be that the time of provision of service will be the earliest of the following dates: I. Date on which the service is provided or to be provided. ii. Date of Invoice. iii. Date of payment. These provisions will come into effect from 1st April,2011. The Service Providers should remit tax based on the above earliest date as against the present system of considering the date of receipt of payment for discharge of service tax liability. A provision is being made to adjust the amount of tax paid on receipt of payment and service is not finally provided. 6. Amendments of Export of Service Rules,2005. Certain services are being rearranged in order to catch up the increasing trend of providing destination based services in respect of B2B services and Origin based levy on B2C services.

(I) Service provided by builders in respect of Preferential location etc, [section 65(105)(zzzzu)] is being added to sub-rule 1(I) and will thus be considered as exported, subject to compliance with other conditions, if the immovable property is situated outside India. (ii) Rail travel agent [ 65(105)(zz)] and health check-up or preventive care [65(105)(zzzzo)] are being added to sub-rule 1(ii) and will thus be considered as exported, subject to compliance with other conditions, when they are performed outside India; and (iii) Services of credit rating agency [65(105)(x)], market research agency [65(105)(y)], technical testing and analysis [65(105)(zzh)], transport of goods by air [65(105)(zzn)], goods transport agency [65(105)(zzp)], opinion poll [65(105)(zzs)] and transport of goods by rail [65(105)(zzzp)] are being deleted from sub-rule 1(ii) and thus the additional condition of performance outside India will stand removed. Thus they will be considered as exported, subject to compliance with the relevant conditions, if the recipient is located abroad. 7. Amendments to Import of Services - Taxation of Services(Provided from Outside India and Received in India) Rules, 2006. Corresponding changes, as indicated in respect of Export of Services Rules, 2005, have been carried out by way of rearrangement of the stated services under respective sub clauses of rule 3 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. The changes will, inter-alia, make certain services taxable if the recipient of the service is located in India even when the service is performed outside India. In order to avoid inconvenience in respect of certain services, exemption has been granted vide notification 8/2011-ST to services of transportation of goods by air or road or rail provided to a person located in India when the goods are transported from a place outside India to a destination outside India. Exemption has also been given vide notification 9/2011-ST to the transportation of goods by air service to the extent air freight is included in the customs value of goods in order to avoid taxing this service twice. 8. Amendments to Service Tax (Determination of Value) Rules,2006. A new rule (2B) has been inserted vide Notification 2/2011-ST to prescribe the value of service rendered in relation to money changing. This amendment shall come into force on 01.04.2011. An explanation has been added after rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 clarifying that for the purpose of telecommunication service [Section 65(105)(zzzx)] the value shall be the gross amount paid by the person to whom the service is provided by the telegraph authority. Thus in case of service provided by way of recharge coupons or prepaid cards or the like, the value shall be the gross amount charged from the subscriber or the ultimate user of the service and not the amount paid by the distributer or any such intermediary to the telegraph authority. This amendment shall come into force on 01.03.2011.

9. Amendments to Works Contract (Composition Scheme for Payment of Service Tax) Rules,2007. A new sub-rule (2A) is being added in rule 3 in the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 vide Notification 1/2011-ST so as to restrict the Cenvat credit to 40% of the tax paid on services relating to erection, commissioning & installation; commercial or industrial construction and construction of residential complex, in case tax has been paid on full value of the service after availing Cenvat credit on inputs i.e. without availing exemption notification 1/2006-ST dated 01.03.2006. This has been done to ensure that the credit on inputs is not availed of indirectly while availing of the composition scheme. 10. Exemptions: Notification 26/2010-ST dated 22-6-2010 is being amended by Notification 4/2011-ST and the service tax applicable in respect of Transport of passengers by air service is being revised as follows: (a) Domestic (economy) : From Rs. 100 to Rs. 150 (b) International (economy) : From Rs. 500 to Rs. 750 (c) Domestic (other than economy) : Standard rate of 10% 10.2 Exemption is being given to services rendered to an exhibitor participating in an exhibition held outside India (Notification No. 5/ST-2011). 10.3 Exemption from service tax is being provided to Works contract service when rendered for the construction of residential complexes or completion and finishing services of a new complex under Jawaharlal Nehru Urban Renewable Mission (JNURM) and Rajiv Awaas Yojana (Notifications No. 6/ST-2011). 10.4 Exemption has been given to the taxable service of general insurance when provided under Rashtriya Swashya Bima Yojana (Notifications No. 7/ST-2011). 10.5 Exemption from service tax is being provided to works contract service rendered within a port, or other port or airport in specified areas (Notifications No. 10&11/ST-2011). 10.6 An exemption of 25% from the taxable value is being provided in respect of services rendered in relation to transport of coastal goods and goods transported through national waterways or inland water (Notification No.16/ST-2011). 10.7 Exemptions with retrospective effect have been given by the Finance Bill:

(a) To an association or chamber representing commerce or industry in respect of membership fee under the Club or Association Service for the period from 16.06.2005 to 31.03.2008; and (b) To inter-state or intra-state transportation of passengers, in a vehicle bearing contract carriage and tourist vehicle permit for the period from 01.04.2000 to 06.07.2009 These changes will come into effect on the dates mentioned in the respective notifications or when the bill is enacted and notified, as the case may be. 11.Small scale sector Finance minister has announced in his budget speech that individual and sole proprietor assesses with a turnover up to Rs. 60 lakhs shall not be subject to audit. Interest rate for all assesses (including firms and corporate) up to a turnover of Rs. 60 lakhs shall be 3% less than the prescribed rate via, 15% per annum. The period for making the payment in order to avail the benefit of reduced penalty under the second proviso to Section 78 shall be 90 days for assesses with turnover of Rs. 60/-lakhs. 12. SEZ Refunds: Notification No. 17/2011-ST has been issued superseding notification 9/2009-ST dated 03.03.2009. The new notification has the following unique features: (a) Criteria for the determination of wholly consumed services have been laid down in the notification, borrowing from the Export of Services Rules, 2005. It has also been specified that all services received by an entity in a SEZ, which does not have any other DTA operations, will constitute wholly consumed services. (b) No service tax is required to be paid ab-initio if the same are meant to be wholly consumed within SEZ, including services liable to tax on reverse charge basis under section 66A. (c) Refund of the remaining services i.e. which are not wholly consumed shall be available on pro rata basis i.e. ratio of SEZ turnover to total turnover. (d) Suitable rule has been introduced in Cenvat Credit Rules, 2004 to waive the requirements of rule 6 in case of services provided, without payment of tax, to a SEZ unit for its authorized operations.

III.CENVAT CREDIT RULES.

3.1 The definition of input contained Rule 2 (k) is totally revised. The new definition would be as under (with effect from 01-04-2011): (k) input means (i) all goods used in the factory by the manufacturer of the final product; or (ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or (iii) all goods used for generation of electricity or steam for captive use; or (iv) all goods used for providing any output service; but excludes(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol; (B) any goods used for(a) construction of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods, except for the provision of any taxable service specified in sub-clauses (zn), (zzl), (zzm), (zzzq), (zzh) and (zzzzas) of clause (105) of section 65 of the Finance Act; (C) capital goods except when used as parts or components in the manufacture of a final product; (D) motor vehicles; (E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and (F) any goods which have no relationship whatsoever with the manufacture of a final product. Explanation. For the purpose of this clause, free warranty means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer; The earlier definition included all such goods which are directly or indirectly in relation to the manufacture of the final products used were deemed as input materials and credit was allowed. Now this is removed.

This revised definition would allow credit on all input materials which are used in the factory by the manufacturer of final products. It is clear that it excludes those which are specified in the definition and all such goods which do not have any relationship to the manufacture of final products/output service provider. Further, any goods including accessories cleared along with the final product i.e., mandatory spares and goods used for providing warranty replacements have also been included in the above revised definition and there is no necessity to reverse the Cenvat credit availed. Any goods used for generation of electricity or steam for captive consumption also included in the term input. But any goods used for the construction of a building or a civil structure or laying of foundation or making of structure for support of any capital goods have been denied to be eligible as input. Further, any goods used primarily for personal use or consumption of any employee including food articles, goods used in guest house, residential colony, club or a recreational facility or a clinical establishment etc, have been expressly excluded from the definition. When any of these goods are used directly in the manufacture of final product or provision of output service, they will constitute as input. 3.2 The definition of Input Services has also been revamped to impart clarity and to achieve coherence between goods and services so that service related to any of the goods excluded from the definition of input are also excluded . For e.g., goods used for construction have been excluded from the term input and relative service via, construction services, works contract services etc which are used for construction have also been removed out from definition of input service. (with effect from 01-04-2011). 3.3 Cenvat credit of duty paid on capital goods used outside the factory for generation of electricity for the captive use within the factory has been permitted. (with effect from 01-042011). 3.4 Ship Breaking units have been allowed the Cenvat credit not exceeding 85% of Addl.Duty of customs paid at the time of importation of ships for breaking (with effect from 01-03-2011). 3.5 A manufacturer or Service Provider has to pay an amount equivalent to the Cenvat Credit taken in respect of inputs or capital goods in respect of these inputs/capital goods written off partially, before being put to use as against the existing provision of payment only when the value is written off fully (with effect from 01-03-2011). 3.6 Services relating to Motor Vehicles i.e., rent a cab, use of tangible goods, insurance or repair of vehicles shall not constitute an input service except in respect of output services where credit on motor vehicle is permitted as Capital Goods .

3.7 Any service meant primarily for the personal use or consumption of employees will not constitute an input service (with effect from 01-04-2011). 3.8 About 130 excisable goods which were hitherto exempted from excise duty has been withdrawn and brought to concessional excise duty of 1% advalorem subject non-availment of Cenvat credit on inputs and input services (with effect from 01-03-2011). 3.9 Cenvat Credit Rule 3 has been amended restricting the allowing of Cenvat credit of the duty paid on items that are being subjected to the levy of 1% and would not be available to a manufacturer or service provider who buys/purchases them. And also the manufacturer of these goods cannot discharge the duty of 1% by utilizing the available Cenvat Credit. This 1% duty has to be paid in cash, invariably (with effect from 01-03-2011). 3.10 The definition of Exempted service is amended to include taxable services which are partially exempted with the condition that Cenvat credit is not availed on inputs and input services. It is further amplified that exempted services also include Trading (with effect from 01-04-2011). 3.11Especially the branded readymade garments and made-up were exempted from central excise duty on the condition that no credit of duty on inputs is availed by the manufacturer. As the definition under Rule 2 of CCRs is amended to include every person who gets the goods falling under chapters 61,62,or 63 produced or manufacture on job work basis and will be liable to pay Central Excise duty at 10% (with effect from 01-03-2011). 3.12 Credit is allowed on capital goods used outside the factory for generation of electricity for captive consumption within in the factory by an amendment to Rule 4 (2)(a) of CCRs (with effect from 01-04-2011). 3.13 A proviso under Rule 4(7) of CCRs is added to allow reversal of proportionate credit by the manufacturer/service receiver who has received back the payment, either partially or fully, which has been returned by the Service provider/manufacturer (with effect from 01-04-2011). 3.14 The obligation of a manufacturer and output service provider specified in Rule 6 of Cenvat Credit Rules has been revamped as under (with effect from 01-04-2011): The nomenclature of Rule 6 has been changed to Obligation of a manufacturer or producer of final products and a provider of taxable service. The sub rule 1 is sufficiently amplified as input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance up to the place of removal or for provision of exempted services as against input or input service which is used in the manufacture of exempted goods or for provision of exempted services.

The sub rule 2 has been amended to allow credit on inputs and input services which are used in the manufacture of or provision of services which are dutiable . For this the manufacturer or output service provider should maintain separate accounts for the input materials and input services used in the manufacture/provision of output service, which are exempted and as well as dutiable. The sub rule 3 which contemplates the reversal of 6% amount on the value of taxable service, for not maintaining separate accounts in respect of dutiable and exempted services by an output service provider has been reduced to 5%, on par with the amount payable by a manufacturer of final products. As the option to maintain separate accounts only in respect of input and not together with input services has been given, allocation of credit for the purpose of reversal as per formula given in Rule 6(3) can be done only so far as credits on input services are concerned. A proviso under sub rule (3) has been inserted to clarify that if any duty of excise is paid on exempted goods, then the same will be reduced from the amount of 5% payable by the manufacturer or service provider in case of not maintaining separate accounts. A second proviso has been inserted under sub rule (3) to clarify that in case of partially exempted services, which is normally by way of abatement, on the condition that no Cenvat credit of inputs and input services used for providing such taxable services shall be taken, an amount of 5% to be paid only on the exempted portion of the value of service. As an abundant caution explanation III has been added to sub rule (3) making it clear that Cenvat credit cannot be availed on any goods and services that are not inputs or input services. A sub rule (3B) has been inserted stipulating the Banking/Financial Institutions including NonBanking Financial companies or other body corporate to pay 50% of the Cenvat credit availed on inputs and input services in that month. Another sub rule (3C) has been inserted stipulating Life Insurance or Management of ULIPS, to pay 20% of the Cenvat credit availed on inputs and input services availed during that month. A new sub rule (3D) has been inserted to clarify that even if an amount of 5% is paid by the manufacturer or service provider, who has availed any exemption notification on the condition of non-availment of Cenvat credit, not maintained separate accounts, the said amount will be treated as if no Cenvat credit was availed and accordingly, the benefit exemption notification would be available to the assesses in spite of payment of 5% of the amount stipulated in Rule 3 of CCRs. Explanations I, II and III have been added after sub rule 3D to explain as under:

 Section 3 has been added to determine the value under Central Excise Act along with section 4 and 4A. In case of taxable services if assesses avails option under Rule (7), (7B) or (7C) of Service Tax Rules,1994 or Works Contract (Composition Scheme for payment of Service Tax) Rules,2007, then the value for the purpose of sub rule (3) and (3A) would be the option availed by the assesses. In respect of Trading, which is an exempted service, the difference between the purchase value and sale value would be reckoned as the value of goods traded. The amounts stipulated in sub rules (3), (3A), (3B) and (3C) can be paid from Cenvat credit account by debit. In case the amount payable under sub rules (3), (3A), (3B) or (3C) is not paid, the same would be recovered under Rule 14 of CCRs,2004. As the concept of proportionate allocation is introduced, sub rule (5) allowing full credit of seventeen specified services used for manufacture of excisable goods and exempted goods and for providing taxable and exempted services has been omitted. 3.15 A new sub rule 6A has been inserted to allow provision of services without payment of Service Tax to a unit in SEZ or to a Developer in SEZ for their authorized operations without requirement of reversing the Cenvat credit. 3.16 An amendment is made, with effect from 01-03-2011, to the proviso under sub rule (7) under Rule 9 stipulating the SSI units who are under SSI exemption notification to file their quarterly returns within 10 days after the close of the quarter instead of 20 days to which the quarterly return relates. 3.17 Service Tax leviable under section 66A (Import of Services) has been added in the list of eligible credits under Rule 3 with retrospective effect from 18-04-2006 by contemplating a retrospective amendment in the Finance Bill.