NTPC - Cement Manufacturers Association

181(PBM)/ 418 /2012 8th November, 2012
SHRI P. CHIDAMBARAM,
HONBLE FINANCE MINISTER,
GOVT. OF INDIA
NORTH BLOCK,
NEW DELHI 110 001
Dear Sir,
SUB: PRE-BUDGET MEMORANDUM 2013-14
CEMENT INDUSTRY
The Cement Manufacturers Association presents its compliments and
congratulates you on the remarkable and bold steps that you have taken since
your assuming the Office of Finance Minister to bolster the growth of Indian
economy. Your latest idea of setting up of National Investment Board is
especially commendable. We are sure that with your vast experience and
dynamic leadership the economic growth of the country will register significant
improvement in the coming months.
Indian Cement Industry has a total capacity of around 340 million tonnes
as on 31.03.2012 and ranks second in the world, producing quality cement that
matches the worlds best and has its footprints in around 30 countries of the
world through Cement/Clinker exports.
The Working Group on Cement Industry for the XI Five Year Plan (2007-
12) had set a target of cement production at 269 mn.t. and the capacity needed at
298 mn.t. at the end of the Plan i.e. 2011-12. Against this, the Cement
Industry surpassed the target and created an installed capacity of over 340 mn.t.
by the terminal year of the 11th Plan resulting in surplus capacity situation.
Though Cement is the most essential infrastructure input, the tax on

cement continues to be the highest among the items required for building
infrastructure. The levies and taxes on cement in India are far higher compared
to those in countries of the Asia Pacific Region. Average tax on cement in the
Asia Pacific Region is just 11.4% with the highest levy of 20% being in Sri
Lanka.
In this backdrop, the Cement Industry would like to submit the following
suggestions for your kind consideration in order to help Cement Industry sustain
a healthy growth:
Cement Manufacturers Association
1. Uniform and Specific Rate of Excise Duty on Cement

Till 28-2-2007, specific rate of Excise duty was applicable on cement;
and thereafter, up to 28.2.2011 different rates of Excise duty based on
Retail Sale Price were levied for Cement. However, in the Union Budget
2011-12 the Excise Duty Rates on Cement were replaced with composite
rates having a 10% ad valorem and specific component of Rs.80 and Rs
160 per tonne, based on Retail Sale Price. In the Union Budget 2012-13
the Excise Duty on Cement increased from 10% to 12% ad valorem
whereas specific duty was at Rs.120/- per tonne of cement. Cement has
also been notified under Section 4A of the C.E. Act. Accordingly, the
value for the purpose of charging duty on packaged cement is determined
on the basis of the Retail Sale Price (RSP). Abatement of 30% from the
RSP has also been notified. The existing rates of Excise Duty on Cement
are as under:
Particulars New Duty Structure from 17.03.2012 vide

Notification 12/2012 read with entry no. 52 of
notification 12/2012 Dt. 22.03.2012
(packaged cement) - [ (RSP Less 30% of RSP) x
12%] Add Rs. 120 PMT
(Packaged Cement on Cement cleared in 12% of Transaction Value
which MRP is not Bulk to Industrial /
required to be declared Institutional buyers
and thus not declared)
Loose Cement - 12% of Transaction Value
Clinker - 12% of Transaction Value
It is clear from the above that the incidence of Excise Duty on cement is
still on the higher side for consumers other than industrial/institutional as
an additional specific rate of duty of Rs.120/- per tonne is payable by
them. Also the basis of levying Excise Duty is different i.e. 12% on RSP
less 30% of RSP (as abatement) and 12% on Transaction Value for sale to
industrial/institutional consumers. Thus, the current regime makes for
different sets of duties per tonne of cement payable by a producer on any
given day.
Excise duty rates on Cement are one of the highest and next only to
luxury goods such as cars. Other core industries such as coal steel attract
duty at around 5%. Cement is one of the core infrastructure industries and
it requires large-scale investments and capacity additions in view of the
expected GDP growth and projected demand for cement over the medium
to long term.
It is well-known that today the industry suffers from excess of surplus

capacity of cement in the country and cement market is on bearish trend.
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Therefore, for growth of cement industry Government may kindly reduce

excise duty on cement and clinker.
To encourage cement industry and to bring it at par with other core and
infrastructure industries, the excise duty rate be rationalized from 12%
to 6-8% and a holistic view may be taken to scrap the specific rate of
duty of Rs.120/- per tonne in the interest of common mans housing
needs. Also, the duty structure be simplified to be either on specific rate
per MT or on advalorem basis and without relating to MRP etc.
2. Excise Duty on Coal, Lignite, Coke, Fly Ash etc.

In the Budget for the year 2011-12, 1% Excise duty was levied on various
items including items like Coal, Lignite, Coke, Fly Ash etc. which are
important for Cement industry. The aforesaid duty was increased to 2%
(except on coal, on which 1% duty continued) in the budget for the year
2012-13. As no Cenvat Credit is available for aforesaid 1% / 2% Excise
duty paid, it has increased the cost for the manufacturers. It is also
worthwhile to mention that the prices of coal have increased sharply and
the industry is already absorbing Clean Energy Cess levied earlier.
It is suggested that levy of aforesaid duty may be withdrawn or Cenvat

credit be made available for the duty paid.
3. Customs Duty on Pet Coke, Gypsum & Other Inputs

Cement Industry has been subject to perennial shortages of coal, the main
fuel. Approx, only 39% of linked coal is received by the member cos.
against their total fuel requirement for kiln under the Coal Linkage
Scheme. This adversely impacts the Cement Industry through increased
fuel cost, as the balance requirement of fuel has to be necessarily
procured from open market/e-auction, import of coal and use of
alternative fuel like Pet coke at a substantially higher rate than linked
coal.
In the Union Budget 2012-13, steam coal was fully exempted from the
basic custom duty. This provided some much-needed relief to the cement
industry on import of coal. However, this relief alone cannot fully meet
the fuel shortage for the cement industry.
Pet coke is an important material as fuel, which is used in the cement

industry. In view of the reducing availability of coal, the cement industry
has been resorting to increased usage of pet coke. The indigenous
availability of pet coke being short, more and more pet coke is imported
to make up shortage of coal.
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Gypsum is another important input. Because of the limited availability of

indigenous Gypsum, the Cement Industry is depending on imported
Gypsum.
Pet-coke & Gypsum attract 2.5 % duty, if imported, while there is no

import duty on cement import. This leads to an anomaly situation that
Import Duty on inputs is higher than a finished product.
Therefore, it is requested that Government may kindly scrap import

duty on pet coke, gypsum and other input materials used in production
of cement.
4. Levy of Customs Duty on Cement Imports

Presently, import of cement into India is freely allowed without having to
pay basic customs duty. However, all the major inputs for manufacturing
cement such as Limestone, Gypsum, Pet coke, Packing Bags etc. attract
customs duty. In this situation duty-free imports cause further hardship to
the Indian cement industry apart from the security concerns that are
caused by import of cement from Pakistan.
Therefore, it is requested that to provide a level- playing field, basic

customs duty be levied on cement imports into India.
Alternatively,
Import duties on goods required for manufacture of cement be

abolished and freely allowed without levy of duty.
5. Withdrawal of Excise Duty on Fly Ash

Excise duty has been levied on fly ash, which is a waste product
generated on burning of coal in the boiler of power plant vide notification
no. 1/2011 CE & 2/2011 CE.
In this regard the decision of the Honble Supreme Court in case of

Union of India Vs. Ahmadabad Electricity Co. Ltd., in 2003 (158)
ELT 3 (SC) has settled the issue that use of coal as fuel to produce steam
resulting in fly ash as a byproduct cannot amount to manufacture. The
relevant headnote of the judgement is reproduced below for clarity:
MANUFACTURE BURNING OF COAL NOT AS RAW MATERIAL BUT AS

FUEL TO PRODUCE STEAM NO TEMPERING WITH IT,MANIPULATION OR
TRANSFORMATION INTO END PRODUCT WITH NEW IDENTITY OCCURRING
HELD: SUCH ACTIVITY CANNOT AMOUNT TO MANUFACTURE AND
NEITHER THE UNBURNT COAL VIZ. CINDER NOR ASH EMERGING
THEREFROM CAN BE SAID TO BE MANUFACTURED PRODUCTS AT BEST,
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THEY COULD CALLED AS BY-PRODUCT OF FINAL PRODUCT APPEAL

DISMISSED SECTION 2(F) OF CENTRAL EXCISE ACT, 1944. [PARA 6, 24,
25, 26]
MANUFACTURE FUEL IS NOT RAW MATERIAL FOR END PRODUCT AND

WOULD NOT BE PRESENT IN IT EITHER VISIBLY OR INVISIBLY QUESTION
OF IT GETTING NEW IDENTITY AS END PRODUCT DUE TO MANUFACTURING
PROCESS DOES NOT ARISE, EVEN IF SOME CHANGE IN ITS CHARACTER
TAKES PLACES DURING THE PROCESS USE OF ITEM AS FUELS CANNOT
BE PART OF MANUFACTURING ACTIVITY IN RELATION TO THE END
PRODUCT SECTION 2 (F) OF CENTRAL EXCISE ACT, 1944. [PARA 24,
25]
There is no change in the process generation of fly ash viz. a waste

generated on burning coal in the boiler, therefore, the above judgment
still holds good & hence fly ash generation should not be treated as
manufacture and no Excise Duty on fly ash be levied.
6. Treatment of Waste Heat Recovery as Renewable Energy Source

Energy cost is a very substantial part of the cost of producing cement, as
indeed, it is for many other industries. The prices of conventional energy
resources are rising higher and higher and further, greater use of these is
adversely affecting the environment. Also, various Govts. are imposing
renewable energy obligations on the industry.
Looking at all the above, the cement industry has been putting up Waste
Heat Recovery plants so as to derive more energy from the same energy
resource. In a way, this is akin to green energy. All of this requires further
substantial capital investments.
To help the industry in its endeavor to produce more such environment-

friendly energy, it is requested that such energy generation be treated
as Renewable Energy Source.
7. Abolition of Import Duty on Tyre Chips

Cement industry is an energy-intensive industry and requires huge
amounts of energy resources. However, it does not get adequate supplies
of domestic coal and hence has to resort to expensive imported coal.
To meet its requirements, the industry has been developing alternative

energy sources like tyre chips etc. However, tyre-chips is presently put
under the negative list of imports, whereby the same cannot be
imported into India.
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To increase supply of energy sources as well as for conserving the

domestic energy sources it is necessary, in the National Interest, that
tyre chips be allowed to be imported by removing it from the Negative
list and by reducing import duty on the same to ZERO.
8. Classifying Cement as Declared Goods

Cement industry is one of the basic and core infrastructure industries.
However, unlike other similar industries/goods, cement is subject to
higher rates of taxation.
It is requested that Cement be stipulated as Declared Goods under

Section 14 of Central Sales Tax Act, so that it is put on an equal footing
with other core sector goods like coal & steel.
9. Tax exemption to Certified Emission Reduction (CER) credits

under Clean Development Mechanism
The Clean Development Mechanism (CDM) allows industrialised
countries to meet their emission reduction commitments under the Kyoto
Protocol by purchasing carbon credits from developing countries.
India does not have any carbon emission obligations under Kyoto
Protocol. However, Indian enterprises are entitled to earn carbon credits.
As per proviso (ii) to Sec-28(va), any sum received as compensation,

from the multilateral fund of Montreal Protocol on substances that deplete
the Ozone Layer under United Nations Environment Program, in
accordance with the terms of agreement entered into with the Govt. of
India, is not taxable.
To motivate the corporate sector for reduction in carbon emission,

receipt from CER credit should be exempted from tax.
10. Exemption to Cement Industry u/s 80-1A

As per provision of Sec. 80-IA(4), deduction is allowed on income
derived by any enterprise carrying on the business of (i) developing, or
(ii) operating and maintaining or, (iii) developing, operating and
maintaining any infrastructure facility.
Since for developing infrastructure facility, cement Industry plays a

major role by providing basic material i.e. cement, 80-IA benefit should
also be extended to cement Industry.
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It is also justifiable for the survival of cement sector which is adversely

affected due to increase in cost of production and surplus of capacity as
compared to demand, resulting in prices being under pressure.
11. Exemption to Power Plants U/S 80-IA

Power is the critical infrastructure on which the socio-economic
development of the country depends. The growth of the economy and its
global competitiveness hinges on the availability of reliable and quality
power. The demand of power in India is enormous and is growing
steadily. India is the world's sixth largest energy consumer, accounting for
about 3.5% of the world's total annual energy consumption.
In view of the emphasis by Planning Commission to increase the power

generation in India, it would be in line with the vision of Planning
Commission to continue the exemption to power plants till the demand-
supply gap gets bridged.
As per provision of Sec. 80-IA (4) (iv), profit earned by an undertaking

which is set-up for generation or generation and distribution of power, if
it begins to generate power up to 31st Mar-2012, is exempted.
In view of the scarcity of power & to promote the Power Plants, it is

suggested to continue the exemption if the power plants are
commissioned by 31st Mar-2015.
12. Goods & Service Tax (GST)

Central Government is seriously considering introducing GST w.e.f.
1.4.2013. In this regard, the following suggestions may kindly be
considered before introduction of the new tax regime:
a) Single Rate of Tax: Central Government has made a proposal to State

Government for dual rate under GST which would be brought to
single rate over a period of 3 years. However, it is suggested that
single rate may kindly be introduced from the first year itself, so that
all disputes/litigation towards classification can be avoided from the
first year itself.
b) Common Law & enforcement: The Basic purpose behind

introduction of GST is simplicity and uniformity of the tax law
throughout India. Though the Empowered committee of State Finance
Ministers (EC) has agreed to introduce Dual GST with separate Act
for SGST to be levied by each state, it may be ensured that there is
uniformity in the law to be enacted by various states and
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process/procedures of different states are similar, as otherwise, the

basic purpose behind the introduction of GST would get defeated.
In this regard, it is suggested that any change in the statute of any

state, after introduction of GST, be made only with the concurrence
of all states.
c) Cenvat/Input tax Credit : Input Tax Credit of tax paid is available

under present Excise/Service Tax/VAT laws and the same is presumed
to be continued under GST regime. However, this area attracts most of
the litigation and hence the criteria/process for availing Input tax
credit be simple and unambiguous. To achieve this purpose, the
following suggestions are submitted:
i) Input tax credit may be made available for all the inputs and
capital goods in or in relation to manufacturing and business
activities.
ii) No condition be imposed for availing Input tax credit as long as
it relates to the business or industrial activity.
iii) Exclusion (negative list) for availment of Input Tax Credit in
respect of items used for or in relation to manufacture be
abolished.
iv) 100% Input tax credit may be allowed on Capital Goods in the
year of purchase itself and conditions like capitalization/put to
use not be imposed.
d) Common dispute resolution mechanism: To reap the full benefit of

GST, it is suggested that the mechanism for dispute resolution
prescribed may be common throughout all the states so that
unnecessary litigation can be avoided.
Further, one common authority for all the states may be established
for Advance Ruling.
e) Continuance of Exemptions/Incentives: It must be ensured that

after the implementation of GST, various Central/State level
exemption and Incentives which are currently being enjoyed under
the Excise/VAT laws be continued for the remaining unexpired
period.
Therefore, the above unintended consequences can be done away with

by recasting the contentious provisions and restoring the earlier
provisions for waste and scrap.
13. Project Import

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As the industries in India are on a major expansion drive, it is requested

that Basic Custom Duty rate in case of Project import be brought down
to 3% from the current 5%, so that Capital Goods for projects can be
imported at concessional duty and thereby bring down the project cost.
In addition, the Cement Industry has been facing several other problems
not included above. Such problems requiring urgent attention are at
Annexure-I.
Our other suggestions regarding Direct Taxes and Industrial Policy are
included in Annexure-II and III respectively.
We strongly, urge and request that our submissions above be duly
considered by the Govt. to help the core sector Cement Industry sustain a
healthy growth of around 9% that is essential to achieve the planned GDP
growth of 8.2% during the XII Plan period.
Thanking you,
Yours faithfully,
for Cement Manufacturers Association
(N.A. Viswanathan)
Secretary General
Encl: As above.
Copy to: - Shri P. K. Mohanty, Joint Secretary (TRU-I), Ministry of Finance
- Shri V K Garg, Joint Secretary (TRU-II), CBEC, Ministry of Finance
- Shri Sunil Gupta, Joint Secretary, Tax Policy and Legislation (TPL),
CBDT, Ministry of Finance
Copy to: Shri Saurabh Chandra - With a request to make due

recommendations
Secretary (DIPP), MOC&I to the Finance Ministry
Copy for information to : - President, Vice President,

- Members of the Managing Committee
- Top Executives of Cement Cos.
- Chiefs of Cement Plants
- CMA Committees
- Local Offices
- CMA Mumbai Office, and
- CMA Hyderabad Office
A copy of the Memorandum is also being forwarded to

- Secretary General, FICCI With a request to include these
points
- Secretary General, ASSOCHAM in their Pre-Budget Memorandum.
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- Director General, CII
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Annexure-I to Letter No.181(PBM)/418 /2012

dated 8th November 2012
OTHER ISSUES OF CEMENT INDUSTRY

REQUIRING URGENT ATTENTION
1. Steps for Promotion of Exports

With capacity additions, the country is facing a surplus capacity
situation. However, cement exports are negligible and further going
down. It is hence necessary to hold on to the export markets already
developed and also develop more export opportunities. Towards this
end, it is necessary that the Govt. provides incentives to sustain and
promote exports of the cement industry.
Export benefits such as Focus Product Scheme (FPS) are not allowed to
cement industry. It is requested that FPS benefits be also allowed to the
Cement Industry.
2. Duty Drawback benefits

With substantial capacity additions having taken place in the cement
industry, the cement industry is facing a surplus capacity situation. The
present Duty Drawback rates of 1.5% do not cover the import duty
content of imported items used in manufacture and thus adversely affects
exports.
To neutralize the incidence of import duties, it is requested that Duty

Drawback should be enhanced to 3% (i.e. erstwhile DEPB rates) to
sustain exports.
3. Reduction of Customs Duty on Imports under EPCG Scheme

The EPCG Scheme is meant to encourage exports. Hence, the scheme
allows import of capital goods at concessional duty rate of 3% and export
obligation is also attached along with it. Presently, the normal customs
duty is in the range of 5% - 7.5% unlike 15% -20% earlier. The customs
duty under Project Imports is also 5%. The real incentive in terms of duty
differential is quite less (2.0-4.5%).
In a country like India requiring massive investments in all industries to

step up and maintain a high growth rate, it is suggested that the 3% duty
on imports under EPCG scheme should also be abolished to promote
export growth and investment. Recognizing this, the Govt. has already
reduced duty to 0% for certain sectors and this benefit be extended to
cement industry as well.
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4. Calculation of Custom Duty

In the last Budget, the system of calculation of Custom Duty has been
simplified and calculation of Education Cess & HSEC on CVD portion
has been done away with, which is a welcome measure.
In this regard, it is further suggested that calculation of CVD & SAD

should also be simplified and all duties viz. Basic Duty, CVD, SAD
should be computed on Assessable Value only, so that cascading effect
is avoided.
5. Royalty as part of Drawback

Royalty is one of the levies for which credit is not allowed at present.
This results in cascading effect as various taxes get levied on this element
also at every stage and as a result, the ultimate burden of taxes is
increased. The Govt. has already acknowledged that levies and duties
should not be exported.
In line with this principle, it is requested that the element of royalty be

included in the calculation of Drawback rates. It may be pointed out
that royalty on limestone alone constitutes around 3.5% of cement value
and 5% of clinker value. Inclusion of the same in Drawback rates would
go a long way in encouraging international competitiveness for the
countrys cement industry.
Alternatively,
Exemption from royalty should be allowed on limestone which is used

in manufacturing exported goods.
6. Cenvat credit on items such as steel, cement, gases etc.

The purpose of Cenvat scheme is to give credit of input tax so as to
remove the cascading effect of taxes. Hence, the input credit provision
has to be wide. This is more pertinent, given that now we are moving
towards a Goods and Services Tax regime. In such a scenario, restricting
input tax credit on certain items such as steel and cement defeats the
purpose and principle of input credit scheme.
It is, therefore, urged that suitable amendments are made or

Notification is issued to state that Cenvat credit is eligible on all items
used in relation to business activity if the same is liable to either excise
duty or service tax.
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7. CENVAT Credit on Clean Energy Cess on Coal

The Govt. has levied this new cess on coal peat and lignite w.e.f.
1.7.2010. Energy is one of the major cost drivers for cement. Though
levied as a duty of excise, no cenvat credit is being allowed against this.
Further, now even Excise Duty has been levied on coal. This cess, along
with state VAT etc. is putting further pressure on an industry faced with
surplus capacity, falling realizations and increasing costs.
It is requested that Cenvat credit be allowed on Clean Energy Cess so

as to mitigate the impact on costs.
8. Cenvat on removal of waste & scrap of capital goods

Refractory bricks are one of the major items used in the cement factories.
They have a useful life of only 6-9 months. Under the Cenvat Credit
Rules, these are classified as Capital goods.
The Cenvat Rules permit cenvat credit on capital goods received by a

manufacturer/ service provider. The Credit Rules also provide for
treatment in situations where the capital goods are removed after use or as
waste & scrap.
Prior to the Union Budget, 2012, Cenvat Rules required an assessee

removing used capital goods to pay cenvat credit as reduced by 2.5%
(differential rates for computers and computer peripherals) for each
quarter on straight line basis. The Cenvat Rules also provided that an
assessee removing capital goods as waste & scrap, has to pay the duty
leviable on the transaction value of such waste & scrap.
Thus, prior to Union Budget, 2012, the assessee used to pay the duty
leviable on the transaction value on removal of waste & scrap of capital
goods.
After the amendments in Union Budget, 2012, if a assesse removes used

capital goods (other than computers and computer peripherals) or waste
& scrap of capital goods, then he will have to pay the cenvat credit
availed by him after reducing 2.5% for each quarter on straight line basis
or the duty payable on transaction value, whichever is higher [Rule 3(5A)
of the Cenvat Rules].
This amendment has created many practical difficulties and genuine

hardship on the assessees. The following illustrations explain these
issues:
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There are a number of capital goods (like refractory material,

conveyor belts, spares/ parts of capital goods, etc.) which have a
very short shelf life because of the nature of such goods. Say, the
life of a capital good is one year and within one year, it is fully
used by the assessee and the same outlives its utility e.g. refractory
bricks which have a life of 6-9 months only. Applying the new
provisions, an assessee would have to reverse 90% - 95% of the
cenvat credit which is more than the sale price of refractory scrap.
This defeats the whole objective of scheme of cenvat credit i.e. to
avoid cascading effect of taxes on capital goods used by an
assessee for his manufacturing operations.
Further, the new system will create endless problems and disputes
where an assessee is supposed to work out the credit based on the
depreciation method. A few of such practical difficulties are
highlighted below:
A. Practically, one type of capital goods (mostly in nature of

consumables) would be purchased by the assessee under
different invoices and such goods purchased under each of
the invoice may in turn be used in different machines. In
such a case, it is impossible to correlate the capital goods
with the invoice under which such goods were received.
B. For most of the capital goods, the unit of measurement

(UoM) at the time of purchase of invoice and UoM at the
time of selling them as scrap differs. Also, practically, the
scrap of a number of capital goods is sold in a single lot.
Most parts are received in numbers as UOM. However, their
scrap e.g. MS scrap is sold by weight basis in MTs. In such a
case, it is impossible to correlate the scrapped material with
the invoice under which it was purchased.
C. Another situation can be where a capital good is purchased

and during the life of such capital good, some of its parts are
worn out and are required to be replaced. In such a case, it
would be impossible to determine the amount of cenvat
credit attributable to such part.
The aforesaid illustrations are a few amongst the various problems and
litigations that can arise out of the present amendment. Further, the
provision requiring payment of duty on used capital goods based on
Transaction Value is against the basic principle of Cenvat Rules which
requires the assessee to reverse credit (fully or on depreciated basis).
Similarly, the requirement of reversing cenvat credit on waste & scrap of
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capital goods based on depreciated value is incorrect, particularly, when

the capital goods are used to their fullest economic life. In the past also,
the Cenvat Rules or erstwhile Central Excise Rules, 1944 had similar
provisions linking the payment to duty leviable. However, the same were
withdrawn considering the aforesaid problems.
In light of the above discussions, it is humbly requested that the

amendment in Rule 3(5A) of the Cenvat Rules be withdrawn and the
position be restored as was in vogue prior to Union Budget, 2012.
9. Certain items need to be classified as Inputs

There are many items such as Refractory bricks which have a useful life
of about one year or less. However, these items are classified under
Capital goods and hence the cenvat credit is only available in instalments
over two years i.e. credit is delayed beyond their useful life.
It is suggested that such items which have useful life of around one year
only or which get consumed should be classified as Inputs instead of
Capital goods. Necessary clarification / notification may be issued for
the purpose.
10. Cenvat Credit on Capital Goods

The Central Govt. has allowed the assessee to take only 50% Cenvat
Credit on the Capital Goods in a given financial year when Capital Goods
are received in the factory and the balance 50% Cenvat Credit can be
taken in any financial year subsequent to the financial year in which the
Capital Goods were received in the factory of the manufacturer.
Due to the above provision, clerical and unproductive work has increased
for the assessee, Excise Dept., Excise Audit and AG Audit.
Therefore 100% credit may kindly be allowed on Capital Goods in the

first financial year itself.
11. Facilitation scheme as Large Tax Payer Unit (LTPU) under

Central Excise: - option to avail the Procedures and facilities, as
applicable to a LTPU
Government of India has been framing a number of schemes to simplify
the tax laws in the Country and make them payer-friendly. Amongst these
several schemes and the measures, one of the most pioneering schemes as
introduced in the Budget was LTUs i.e. Large Tax payer Units under Rule
12bb of the Central Excise Rules, 2002/under rule 12a of the Cenvat
Credit Rules, 2004.
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However, the above scheme is limited to only those Units, whose

Registered office is located at any places at Bangalore, Chennai, Delhi,
Kolkata or Mumbai. Hence, if any unit fulfills all other conditions, but its
registered office is not located at any or these places, mentioned above, it
can not apply for LTU facility.
To simplify the procedures and compliance of law, it is suggested

that the LTU facility be available at all Commission rates.
12. Cenvat Credit on HSD/LDO

The Government has been liberalizing CENVAT Credit norms on all
inputs and input services used directly or indirectly in or in relation to
manufacture of final products. However, under the CENVAT Credit
Rules, 2004 credit cannot be availed on High speed Oil (HSD) and Light
Diesel Oil (LDO). In other words, HSD and LDO although are inputs the
facility of Cenvat credit is denied to the manufacturer. In an Industry
HSD & LDO is widely used as fuel for the purposes of generation of
Electricity and the electricity so generated in turn is used in or in relation
to manufacture of dutiable final products. As the Government itself is
encouraging captive generation of power to tackle growing energy needs
of the country, allowing CENVAT credit on such essential inputs will be
in the right direction and in line with the Governments intention.
It is, accordingly, suggested that the HSD & LDO may be deleted from
the exclusion list in Rule 2(k) of Cenvat Credit Rules, 2004.
13. Parity of Interest Rates between Sections 11AA, 11AB and 11BB
Interest for any delayed payment is charged @ 18% p.a. under Sections
11AA and 11AB, while the interest on any delayed refund under Section
11BB is only @ 6%. There is no logic for this disparity and is, In fact,
unfair.
There is a need to restore parity between the interest rates and all the
rates be @ 10% p.a.
14. Status Holder Incentive Scrip (SHIS) benefit for cement

Various industries are allowed benefit of Status Holder Incentive Scrip
under the Foreign Trade Policy. Unfortunately, cement industry does not
figure in the eligible industries.
Cement industry is facing unprecedented challenges, both domestically as

well as internationally. In fact, the exports from cement industry have
been falling as the industry is unable to compete internationally in the
16
face of high cost structure in India. Given the surplus capacity scenario in
India, it is imperative that exports of the cement industry are vigorously
promoted to arrest the decline and spur growth. It would also be equitable
that a core infrastructure sector such as cement industry be treated equally
with other industries and similar benefits be extended to this sector as
well.
It is, therefore, requested that the benefit of SHIS scrip be extended to

cement industry.
15. Limitation on validity of stay granted by CESTAT be withdrawn

Under the provisions of Sc 35C of the C.E. Act, 1944, stay granted by
the CEGAT shall automatically be vacated, if the appeal itself shall not be
decided within 180 days from the date of stay order. Immediately on the
expiry of the period of 180 days, the department attempts to make the
recovery, in spite of the fact that the assessee is not responsible for the
delay in decision on the appeal.
The above provisions are not in favour of justice and arbitrary in

favour of Revenue. They need to be removed.
16. Independence of adjudication wing

The Adjudicating authority, namely, Asst. Commissioner/Dy.
Commissioner/ Commissioner has to play a dual role of tax collector as
well as adjudicator of the disputes. There is always pressure of
maximizing revenue since yearly targets for collection of duties are
assigned to each such officer. Under the circumstances, when he is
required to adjudicate excise duty disputes, it is practically impossible for
him to remain impartial and do justice to the assessee even in deserving
cases. This result in show cause notice/demands getting confirmed even
when the same are legally untenable. Consequently, the assessees are
required to carry the matter in appeal, thereby, increasing litigation.
It is, therefore, suggested that the Adjudicating Wing be separately

established in each Division and Commissionerate. The adjudicating
officers be disengaged from the duties of revenue collection. If this
suggestion is implemented, it is felt that the Adjudicating authorities
will not have any revenue bias and will pass orders with a judicious
mind and as per the law laid down by various Appellate authorities,
thereby reducing needless litigation arising from high pitched
assessments.
17. Central excise returns to be permitted to be filed on quarterly

basis
17
The CE Return (ER-1) is required to be filed on monthly basis, as per

Rule 12 of the Central Excise Rules, 2002. Only SSI assesses are
permitted to file return on quarterly basis.
Filing of Return every month creates hardship to the assesses & it is

submitted that instead of monthly return, quarterly returns may be
desired.
Therefore, it is suggested that parity be made in this procedural aspect

and every assessee be asked to submit Quarterly Return instead of
Monthly Return.
18. Separate levy of 2% Education Cess (EC) and 1% Secondary &

Higher Education Cess (SHEC) be abolished
These levies are causing innumerable complications in documentation,
credit availment and accounting. To overcome such hardships, it is
suggested that the rates of the main duty be rationalized to the extent of
EC and SHEC and levy of these cesses separately be abolished. For
example, instead of the present excise duty structure of BED 12% + EC
2% + SHEC 1% = Total 12.36% duty, it can be simplified as single
Basic Excise Duty rate of 12.36%.
19. Levy of Education Cess (EC) and Secondary & Higher

Education Cess (SHEC) on Countervailing Duty (Clean Energy
Cess) on Coal
The Govt. had exempted by way of Notifications that Education Cess and
SHE Cess shall not be levied on Clean Energy Cess. Clean Energy Cess
is being levied on imported coal as Countervailing Duty. However, in
such cases, the Customs Deptt. is demanding and collecting Education
Cess and SHE Cess on the CVD portion saying that the EDI system
automatically provides for levying the same.
It is requested that the EDI system be modified immediately to rectify

the anomaly. Further, a Circular may kindly be issued clarifying that
Education Cess and SHE Cess is not leviable and that such cesses, if
collected, be immediately refunded.
20. Levy of Education Cess and SHE Cess on Countervailing Duty

(Excise Duty) on Coal
18
Levy of both Education Cess and SHE Cess on Excise Duty have been
exempted through Notification nos. 28/2010 CE & 29/2010 CE.
However, the same is being levied on imported coal at various ports on
Countervailing Duty of Excise Duty as well as Clean Energy Cess.
It is requested that the EDI system be modified immediately to rectify

the anomaly. Further, a Circular be issued clarifying that Education
Cess and SHE Cess is not leviable and that such cesses, if collected, be
immediately refunded.
21. Credit distribution by Input Service Distributor

In the last budget changes have been made in Rule 7 of Cenvat Credit
Rules, 2004 relating to distribution of credit of input services by an Input
Service Distributor to ensure their scientific allocation on the basis of
turnover. This system of allowing credit is defeating the very purpose of
Input Service Distributor concept which is intended to allow cenvat credit
on input service invoices received by the office of the manufacturer of the
final product for distribution of same to the manufacturing units of the
assessee. Cenvat scheme is a beneficial scheme the benefit of which
should not be restricted for technical reason.
It is suggested that credit should be allowed to be taken based on

overall eligibility as per Cenvat Credit Rules and turnover criteria
should not be used to restrict the distribution of Cenvat Credit.
22. Abatement on various Services

There are various services which are used by industry on day to day basis
and are vital for business, however present high rate of service tax of
12.36% increases the operating cost of companies significantly and have
negative impact on business. It is suggested that proper abatement
should be allowed on services given below:-
Name of Service Indicative rate of abatement
a) Renting of Immovable Property 50%

b) Renting of Hotel 40%
c) Services by Director 40%
23. Cenvat Credit of services used for construction
19
In the last budget, the definition of Input Service was amended so as to

exclude availability of Cenvat Credit in respect of services used in
construction of buildings or civil structures and goods used for laying of
foundation or making of structures for support of capital goods. This
amendment is causing a lot of hardship to the industry as the services in
the nature of construction etc. are essential for enhancing capacity as also
for setting up the infrastructure projects and the non-availability of
Cenvat Credit of Service Tax paid on such services would escalate cost
of projects and would have negative impact on upcoming projects.
It is suggested that Cenvat Credit of Input Service used for setting up

of factory should be allowed as per earlier definition.
24. Cenvat Credit on Dumper/Tippers etc.

Vide notification no. 28/2012- CE (NT) dt. 20.06.2012, Cenvat credit has
been allowed on Dumpers & Tippers, which is a welcome measure. As
per one of the criteria for availing Cenvat credit is that Capital Goods, as
mentioned above, must be used in the factory. It is common knowledge
that dumpers and tippers are used in mines and by restricting the use in
the factory is defeating the whole purpose of amendment.
It is suggested that a clarification in this regard is issued so that

Cenvat credit can be availed without any restriction with respect to
place of use.
25. Cenvat Credit for Welding Electrodes, Iron & Steel and Gases
Cenvat Credit of Excise Duty is allowed on goods used within the factory
premises of manufacturers, directly or indirectly in the manufacture of
final goods, without any restriction/condition. Cenvat Credit of Excise
Duty paid on Welding Electrodes, Iron & Steel and Gases used in repair
and maintenance of existing machineries is eligible as held by various
High Courts but is still disputed by Deptt. To end this confusion, a
Circular be issued clarifying that Cenvat Credit is eligible.
26. Reversal of Credit on Inputs and Capital Goods when Written

Off
Notification No. 26/2007-CE (NT), Sub Rule 5B was inserted in Rule 3
of Cenvat Credit Rule 2004 to provide for reversal of Cenvat Credit in
respect of Inputs or capital goods which are written off fully before the
same are put to use. Sometimes, in spite of all precautions taken by the
assessee for proper safeguard of the capital goods and the inputs on
which Cenvat Credit is taken, loss of inputs/capital goods takes place
before they are put to use on account of natural calamities, fire etc.
20
Necessary provisions in the above Rules may kindly be made so that

reversal is not required in such events which are beyond the control of
the assessee.
27. Royalty on Limestone

Limestone is the basic raw material in manufacture of cement.
Royalty on limestone has increased sharply over the years. As no credit

is presently available for the royalty payment, the same results in
cascading effect to tax which ultimately results in increasing the tax
burden.
In order to avoid such cascading effect of tax, it is suggested that

Government may consider to allow the industry to take Cenvat/VAT
credit for the royalty payment.
28. Definition of Input Service

In budget for the year 2011-12, definition of Input Service was changed
and the words activities relating to business such as were deleted,
consequently illustrative list of items eligible for Cenvat Credit of
Input Service was converted into exhaustive list. This resulted into
narrowing down the scope of the Input Service significantly. After the
aforesaid change in definition, various Input Services are not eligible for
Cenvat Credit any more, causing undue hardship to the assesses as
substantial amount of Cenvat Credit, which was earlier available, is not
available any more. The definition of input service should be amended
to include activities relating to business so that many important
business related activities not directly used in manufacturing are also
covered.
29. Coercive Demands raised by Deptt. pending hearing of Stay

Application before CESTAT etc.
Often the Deptt. raises threats to take coercive steps for recovery of
disputed amounts against which Appeal-cum-Stay-Application has been
filed before appropriate authorities and Stay Hearing is awaited.
It is suggested that necessary Circular be issued clarifying that till the

Stay Application is decided, no steps for recovery should be taken by
Deptt.
30. Rule 6 of Cenvat Credit Rules, 2004 needs simplification

Rule 6 of CENVAT credit Rules, 2004, provides that CENVAT credit
shall not be allowed on such quantity of inputs used in or in relation to
21
manufacture of exempted goods. The provisions of the Rule are quite

complex and cumbersome and controversies often occur regarding
interpretation of provision. At times, it becomes very difficult to derive
the amount of CENVAT Credit attributable to the inputs consumed for
manufacture of exempted goods. The Rule needs simplification so that
the amount of Cenvat Credit relating to the inputs used in manufacture of
exempted goods can be worked out in a hassle-free manner.
31. Multiple Notices/Enquiries from the Department pertaining to

Service Tax and Excise
Inquiry letters / Notices demanding details of service tax paid on foreign
Remittances for 5 years are being issued each time by different
jurisdictional officers of the same department and the assessee has to
submit the required details and replies to such notices for the same years
each time to such different officers. For example, details of service tax
paid on ECB borrowings are asked for by different Service Tax offices.
This leads to increase in administrative cost and wastage of time of the
assessee as well as of the departmental personnel as these details are
already with Deptt.
It is suggested that necessary instructions / clarification are issued to

prevent such avoidable duplicities and wastage of resources.
32. Issue of separate Notices for different items or multiple Notices

on same issue for different periods
This leads to multiplicity of notices and avoidable harassment of assessee.
This also leads to wastage of Department resources.
It is suggested that a single combined Notice for all issues should be

raised in a year to prevent wastage of precious resources of the assessee
as well as the Department.
33. Reverse charge of payment of Service Tax on certain services

Under reverse charge mechanism, certain amendments were implemented
for specified services. In relation to these services, the liability to pay
service tax will be partly on the service provider and partly on the service
receiver. This simply means for the same service, one return is to be filed
by the service provider hence there will be multiple returns as more
number of persons are required to obtain registration, pay service tax and
comply with all the statutory requirements as recipients of service.
This will consume a lot of time of not only the taxpayers, but the
departmental officers also as there will be inflow of multiple returns. The
22
verification of tax payment during audit etc. is also going to be difficult

as the correctness of payment of service tax requires verification at the
service providers' end and also the receivers' end. Further, if any demand
is issued on the dispute of taxability of service, show cause notices need
to be issued to multiple taxpayers in respect of the same service/dispute.
Often the service provider and service receiver do not fall under the same
territorial jurisdiction and there is a scope of divergent and conflicting
decisions on the same issue in different jurisdictions. Board may even
have to appoint common adjudicating authorities in such cases.
Another issue in such reverse charge mechanism is, many of the services
operate under conditional exemptions and the conditions attached to the
notification are to be fulfilled by the service providers while the service
tax liability is on the service receiver. In this type of cases, the quantum
of liability of service tax on the recipient will depend on the compliance
of the conditions by the service provider and the service receiver has to
be penalized for non-compliance by the service provider.
In view of the above it is suggested that Government should consider to

withdraw reverse charge mechanism.
34. Service Tax on Railway Freight

Though the Service Tax on Railway Freight was proposed in the Budget
for the year 2009, the levy of tax was deferred by way of issue of
exemption notifications from time to time. The exemption which was
available up to 30.09.12 has been suddenly withdrawn and Service Tax is
leviable on Railway Freight w.e.f. 01.10.2012.
This levy of Service Tax would put extra tax burden on the cement
industry and it is suggested that the exemption as was available earlier,
should be continued.
In any case, the abatement on the value of Railway Freight should be

allowed @75% in order to bring the same at par with the abatement
available in respect of the goods moved through road transport.
35. Service Tax on Declared Services

On various types of services such as works contract, restaurant service
covered under Declared Service, both service tax as well as VAT is
payable. In cases where it is not possible to segregate material portion in
23
total invoice, service tax and VAT both are paid on specified percentage
of invoice which results into payment of tax on value exceeding total
invoice value, which is not justified.
It is suggested that service tax should be levied only on that portion of

total invoice value, which is not subject to VAT.
36. Separate act should be codified for the provisions governing

Service Tax
Presently, the provisions are being governed by the Finance Act, 1994.
However, separate Act should be legislated for this levy also, as for
other taxes/levies like Income tax, Customs, Excise etc.
37. Credit should be allowed on Rent-a-cab services, Catering

services, and Insurance related to Employees
W.e.f 1.4.11, cenvat credit on rent a cab services and catering services
(the phrase business related activities as such has been removed) has been
withdrawn. These services utilized for availing service of bus providers
for transportation of employees from their residence to factory and vice-
versa, as well as various services availed in the employee township
maintained by the factory adjacent to factory. It is needless to say that
such services are taken and are mandatory to run a factory of large scale
and accordingly such services have to be treated as being used or activity
relating to business having direct nexus with manufacture.
Canteen is required in the factory premises, and as per Factory Act, 1948,
it is mandatory for employer to provide canteen services to staff. Under
Factories Act, 1948 it is indispensable for manufacturer to run factory
without canteen; hence it is an activity related to business. Hence Credit
should be allowed on the same.
Insurance of employees/labours is taken to provide them social security.

These expenditures are clearly in the course of business activities
covering possible risks involved which may result in payment of huge
sum.
Such an approach is part of business activities and therefore should be

treated as input service.
38. Annual audit of service providers

Service tax is a new law which has not attained complete maturity in
understanding. The ambiguities have been enhanced by frequent
24
overhauling of laws such as the introduction of the concept of negative

list of services w.e.f. 01.07.2012.
The sea-changes made in law have only been for enhancing revenue
collection. Changes are also sought in audit frequency.
For reducing additional burden on administrative machinery of

department it is suggested that a mechanism be introduced like audit
under income tax wherein Chartered Accountants be allowed to
conduct audit. The mechanism should be designed by joint discussion
of Board with Institute of Chartered Accountants of India.
39. Central Sales Tax

Gradual reduction of CST from 4% to 2% is a welcome measure. Present
rate of 2% is effective from 01.06.2008 and the same was expected to be
reduced to 1% w.e.f. 01.04.2009 and to nil w.e.f. 01.04.2010. However,
the CST rate continues to be 2 %.
In view of the fact that Input Tax Credit is not available in respect of CST
paid by the industry, it is suggested that the rate should be brought
down to zero. This would bring the cost of Inter-State purchased goods at
par with the local purchases.
As per rule 12(7) of CST ( Registration & Turnover ) Rules 1957,
declaration in Form C & F are required to be furnished within 3 months
from end of the quarter which causes great hardship to the dealer as, for
goods dispatched at the end of period, considerable time elapses in
transport, testing & approval of goods at factory etc. Further,
considerable time is wasted in procuring forms from department by the
purchasing dealer; and the selling dealer also needs some time for
producing the forms collected from various parties.
It is suggested that aforesaid time limit for producing the forms should
be raised to at least one year from the end of the relevant period.
Earlier, various Declaration Forms under CST Act were required to be

procured and issued on an annual basis. However, frequency of issuing
the same has been changed to quarterly basis, which involves duplication
of work, and causes undue hardship to the dealer.
It is suggested that earlier system of issuing declaration forms on

annual basis should be restored.
25
Annexure-II to Letter No.181(PBM)/418 /2012

DIRECT TAXES
1. Disallowance under Section 14-A read with Rule 8D

The principle of disallowing the expenditure incurred by the assessee in
relation to exempt income is acceptable. But the mode of its
implementation and inclusion of indirect expenditure into the scope of
disallowance is contrary to the main principle for which this provision
was enacted and is very harsh. The Central Board of Direct Taxes had
provided Rule 8D in exercise of its power given U/s 14A (2) of the Act.
Presently, corporate expansion requires huge Capex which is built up

through Domestic as well as Overseas Investment which results in to
huge interest outgo. As per Rule 8D, average interest paid is considered
which also includes interest on this capex.
Moreover, as prescribed under the rule, disallowance of an amount equal

to % of the average value of investment, income from which does not
or shall not form part of the total income, results in an artificial
disallowance. In case of an assessee who has invested in quoted equity
shares not yielding any dividend and carries on the same investment
without any change from year to year for say 10 years will have to bear
with an artificial disallowance of % of the average value of investment
in each year, in spite of the fact, that the assesse, has neither incurred any
expenditure year after year on the said investment nor earned any exempt
income.
Rule 8D determines the notional cost for holding investments which may
or may not yield an exempt income. Such notional cost for holding the
investment has no relationship with actual expenditure incurred and
claimed by assessee.
The corporates which have a huge net worth in their books also raise
debts to align the Weighted Average Cost of Capital & also to part
finance ongoing capex and working capital. The strategic investments are
made by Corporates out of accumulated profits included in net worth.
Hence Rule 8D should either suitably be modified or should be
scrapped.
This section is hampering growth of Corporates at a time when Corporate

India (i) has big plan of expansion and (ii) has severe competition from
Macs.
26
2. Corporate Tax Rate to be Reduced from 30% to 25%.

Presently the effective tax rate is 32.45% including surcharge @ 5% &
Cess @ 3% which is high as the tax base is increasing in India.
Hence tax rate for corporate be liberalized reducing to 25% as

demanded since long back.
3. Dividend distribution tax rate u/s 115-o to be reduced from 15%

to 10%
Presently effective tax rate is 16.22% including surcharge & cess. If it is
reduced to 10.82% (10%+0.50%+0.32%) then corporate may declare
higher dividend, resulting increase in Dividend Distribution Tax.
4. Allowability of Expenses to meet Social Obligations

If the expenditure is incurred wholly & exclusively for the purpose of
business then the same is allowable as deduction u/s 37(1) of IT Act.
For smooth & hurdle-free operation of business, an assessee has to incur

expenses for surrounding social development.
Apart from above, an industry has to fulfill the responsibility of social

obligations of the society who support the growth of the industry also.
In view of above, & being the mandatory provisions for CSR expenses
under proposed Companies Act, it is suggested to allow such expenses
incurred for the purpose of business, to satisfy the Environment &
Social Governance (ESG).
5. Applicability of Section 92F on eligible undertakings under 80-IA

Prior to Finance Act, 2012, provisions of section 92F determining transfer
price were applicable to international transactions only.
Finance Act, 2012 substituted explanation to section 80IA(8) by which,

provision of section 92F for determining transfer price was made
applicable to domestic transaction also.
Looking to the disputed issue and to avoid further litigation for

determining transfer price, it is suggested to delete the explanation to
section 80IA(8) for non applicability of determining transfer price for
domestic transaction as per provision of section 92F.
27
6. Credit of Cess & Surcharge payable on MAT

As per provision of section 115 JAA (2A), tax credit to be allowed for
difference of tax paid under section 115JB (1) and the amount of tax
payable on total income. The tax u/s 115JB is payable @ 18.5%.
Therefore, MAT credit is not allowed for surcharge and cess payable on
tax u/s 115AA (2A).
Since surcharge and cess is leviable on MAT, the same should be

considered for allowing credit also.
7. Inclusion of Mining Land in block of assets under rule 5

Mining land has limited useful life resulting in diminution of value in
future. Still it is not included in block of assets under rule 5 for
depreciation purpose.
Since, mining land is useful till operation of plant & machinery,

therefore depreciation rate under rule 5 should be equivalent to plant
& machinery.
8. Benefit U/S 80-IA shall be allowable to the Resulting/

Amalgamated Company in Case of Demerger / Amalgamation
Section 80-IA of the Income Tax Act provides exemption from Income
Tax on infrastructure projects subject to specified conditions in order to
encourage investment in these areas. Sub-section (12) of the Act provides
that in case of demerger or amalgamation, the benefits to the undertaking
under Section 80-IA will continue in the hands of the transferee company
and will cease in the hands of the transferor company.
However, a new sub-section (12A) was inserted by the Finance Act 2007
as per which the benefits will cease, if there is a transfer in a scheme of
amalgamation or demerger, on or after 1st April, 2007. The unfortunate
result of this amendment is, that neither the transferor nor the transferee
company, will enjoy the benefit of 80-IA, in case there is an
amalgamation or demerger.
The original position, under which the transferee company will enjoy the
benefit in case of a demerger or amalgamation, needs to be reinstated
based on the following reasons:
i) Incentives of this nature have been traditionally linked to a

unit/undertaking/ investment, and not to an entity. We would
submit that it is logically so, because the objective is to incentivize
an investment regardless of which entity houses that investment.
28
ii) Amalgamations or demergers are restricted forms of transfer which

are also subject to (i) stringent guidelines as prescribed in the
Income Tax Act and (ii) Court supervision and approval. The
benefits under 80IA used to be allowed in the hands of the
transferee companies in such restricted forms of transfer. Such
rationale remains valid even now and the benefits under Section
80IA may therefore continue to be available in the hands of the
transferee, like in the past, prior to insertion of Sub-section 12A in
the Finance Act 2007.
iii) The benefits of this section, rightly, covers a long span of 15/20
years as infrastructure projects, by nature, take a long time to give
economic returns corresponding to their risks. In such a long span
of time, the dynamic and ever-changing market place, especially in
a growing economy like India, will necessitate a company to
undergo many changes (amalgamation or demerger being some of
these) in order to continue to operate efficiently. Removal of
benefits like that of 80IA would lead to economic inefficiencies by
preventing necessary amalgamations or demergers.
iv) The amendment, therefore, is an undue constraint and may even

defeat the original purpose of encouraging infrastructure projects
(especially given the long span of time), which are the necessary
building blocks of our economy.
v) The concept of an amalgamation or demerger deserving

appropriate treatment is well-recognized under the Income Tax Act,
which rightly provides for several benefits for such transactions,
including exemption from capital gains tax. Further, fiscal benefits
similar to 80IA like those under Sections 80IB, 80IC or 10A of the
Income Tax Act continues to be available, rightly, even after any
amalgamations or demergers, and these have not been deleted.
Extending the timelines for some of these benefits years, in the
Finance Act of 2011 clearly underscores and reiterates their
importance.
9. Tax Benefits to be claimed in Return only - Section 80A (5)

The Finance Act 2010 has inserted sub-section (5) in section 80A to
provide that no deduction shall be allowed to an assessee u/s 10A, 10AA,
10B, 10BA or under any provision of Chapter VIA under heading C-
Deduction in respect of certain incomes if the assessee fails to make a
claim in respect of the benefit in the Return of income. This amendment
is retrospective and will be effective 01.04.2003.
29
A failure to make claim in the Return will disentitle an assessee to a

legitimate claim otherwise legally allowable. This amendment will
possibly impact a large number of tax payers on genuine tax benefits
available to them. In many cases failure to make claim in return may be
erroneous. This proposal is very harsh. Under the IT Act, there are
various sections giving power to the IT Officials to rectify assessment or
re-open / review complete assessment if found erroneous or prejudicial to
the interest of the Revenue.
Therefore, it is requested that
a) the said amendment inserted by way of sub-section (5) in

section 80A be preferably dropped;
or
b) Claims made by letter during the assessment proceedings

at least be allowed to the assessee.
10. Valuation of Inventories U/S 145A

Corporate assessees are valuing their purchases and inventory on the
exclusive method by claiming CENVAT and VAT credit.
However, the Finance Act 1999 introduced section 145A, which requires
the valuation to be done by adopting the inclusive method (i.e., by
including CENVAT and VAT for which assessee claim credits.
As per guidelines of The Institute of Chartered Accountants of India, the

profits derived under both the inclusive method and the exclusive
method remains the same.
In view of neutral impact under both the method, it is suggested that

provision of section 145A may be deleted.
11. Disallowance of Expenses under Section 40A (3) and 40A (3A)
As per section 40A (3) read with Rule 6DD, every person is required to
make aggregate payments exceeding Rs. 20,000/- & Transportation
where limit is Rs.35,000/- by way of an account payee cheque or account
payee draft, failing which certain disallowances would be made in
computing taxable income.
The threshold limits of Rs. 20,000/- has been in existence since FY 89-90.
This provision is causing enormous difficulties in the day-to-day
functioning of corporates as the cost of goods have increased abnormally
30
but the proportionate increase in the threshold limits has not been looked
into.
In addition to the difficulty already faced by the corporates, the Finance

Act 2008 has amended section 40A(3) to the effect that payment
exceeding Rs. 20,000 to a person in a day otherwise than by an account
payee cheque/ draft, shall not be allowed as deduction.
Further, Section 40A(3A) which was introduced by Finance Act 2008,

seeks to disallow payments exceeding Rs. 20,000 pertaining to earlier
years liability, if made otherwise than by an account payee cheque/ draft.
It is requested to enhance the threshold limits to Rs. 50,000/-, and

restore the quantum of disallowance to 20 per cent of the total payment
in excess of Rs. 50,000 (even based on the revised inflation the
enhancement proposed is justified)
12. Specified Domestic Transfer Pricing (Sec. 92BA)

The Newly introduced Section on applicability of Transfer pricing
regulations to Specified Domestic Transaction is a step towards creating
undue hardship to the Assessee. The assessment of Domestic transactions
is already getting covered under Sec. 40A(2b). Hence there is no need
to link it with the Transfer pricing provisions under Chapter X. This
will result in a lot of procedural documentation and litigation. Further,
this will lead to Double tax effect in case AO makes adjustment in the
Assessment of payer. Deptt. should provide relief of co-relative
adjustment to avoid the aforesaid Double taxation impact.
Also, in the case of Domestic TP, the applicability of Rule 10D is not
justifiable, since both the parties to the transactions have similar
geographic conditions and are related to India. In domestic business,
different States give different fiscal incentives, due to which the cost of
production may vary, which may lead to litigation for determining Arms
Length Price. Also, considering the vast differences across the states in
the country, comparability of the transactions becomes difficult in view of
differences in levy of state taxes, economic environment,
competitiveness, logistics etc.
13. Arms Length Price vs. Ordinary Profits
31
Section 80IA(8) deals with ordinary profits whereas transfer pricing

compliance refers to the Arms Length Price of the transactions.
Conceptually, price principles cannot apply for benchmarking of
profits.
14. Correlative Adjustments

Presently, in the DTP provisions there is no provision relating to
correlative adjustment. It is very important that in a case covered under
the domestic transfer pricing provisions, if any adjustment [upward or
downward] is made, then correlative adjustment in the hands of the other
party should invariably be made. Necessary amendment should be made
in the DTP provisions to provide for the correlative adjustments.
15. Increase in the threshold limit of Rs. 5 crore

The threshold limit of Rs. 5 crore is too low for applicability of the
Domestic Transfer Pricing Provisions. In order to ensure that only
substantial transactions are covered under the DTP provisions, the
threshold limit should be raised to Rs. 25 crore.
16. Provisions of Advance Pricing Agreement [APA] to be made

applicable to Domestic transfer Pricing (DTP)
The proposed APA provisions are being made applicable to only
international transactions. The same should also be made applicable to
domestic transactions covered by DTP provisions.
17. Exclusion of Expenditure of a Capital Nature

The term specified domestic transaction has been defined to mean any
expenditure in respect of which payment has been made or is to be made
to a person referred to in clause (b) of sub-section (2) of section 40A.
Such expenditure would possibly include capital expenditure made to
such a related person, even though section 40A(2)(b) does not apply to
capital expenditure. It is, therefore, suggested that it may apply to
expenditure referred to in section 40A(2)(a), and not to payments made
to persons specified in section 40A(2)(b).
18. Documentation Requirements

Where the volume of specified domestic transactions is below the
threshold limit, the maintenance of documentation as required for
transfer pricing should not be applicable.
19. Corporate Guarantee transactions

32
Indian Companies are looking for assets outside India for which they
provide Corporate Guarantee for raising resources. The levy of arbitrary
Corporate Guarantee commission is a big dampener as Companies can
raise cheaper resources in overseas markets than borrowing in India. The
levy of income tax on Corporate Guarantee will discourage M&A as the
required resources are not available in the domestic market. The object of
guarantee is to provide security / surety for borrowings and is in the
nature of Shareholders function of the Assessee. The corporate guarantees
are incidental to the assessee business and are mere assurance to the
Bankers providing loan facility to the AEs, and hence should definitely
not fall within the definition of the International Transaction.
Without prejudice to above, further the practice followed by the Deptt. for
valuation of Guarantee Commission in Transfer pricing assessments, is
generally linked to Interest Savings of Target Co. which is the extreme
method which ignores various other economic parameters of the borrower
country which has direct impact on such adhoc valuation. It is requested
that the valuation adopted should be reasonable and realistic and
moreover the same should be benchmarked with guarantee commission
payable for similar quantum of Guarantee, if issued by a Reputed Bank
of the Guarantor country.
20. Safe Harbour Rules

As envisaged in Finance bill 2011 Safe Harbour Rules have till date, not
been framed. Major countries have defined rules to find out the ALP.
India should also come up with the Safe Harbour Rules to bring clarity
in the Assessments of Transfer Pricing.
21. Provision of Sec 206AA(Mandatory Requirement of PAN)

Insertion of S. 206AA by Finance Act 2009 (applicable w.e.f. 1.4.2010),
creates undue hardship on the Indian payers/Domestic companies since in
most of the cases of payments to Non-Residents, the With Holding Tax is
borne by the Indian company/payer by grossing up the payments.
Normally, Non-residents are reluctant to take PAN in India since they do
not have any establishment in India. The higher rate of WHT is leading to
severe increase in Cost of transaction and ultimately leading to increase
in Inflation for general public.
22. No TDS on services to Residents by Non Residents outside India
33
As per explanation to Sec 9(2), income of non-resident shall be deemed

to accrue or arise in India even if the non-resident provides services from
outside India to the resident in India.
Indian domestic companies are exploring opportunities globally and in

the process, avail services of non-residents outside India. Hence,
subjecting the same to tax in India is a hardship to Indian domestic
industries.
Non-resident never agree to such withholding tax deduction, since they

take the plea that they have never visited India for providing any service
and hence their income may not be subjected to tax in India. Since non-
residents do not have PAN, the Indian companies are required to pay tax
on this transaction at a higher rate of 20%.
TDS on such services, has to be borne by Indian companies which create

undue litigation and hardship ultimately leading to increase in cost.
Hence TDS on services provided by non-resident from outside India
should be exempted from tax.
23. Double Taxation Avoidance Agreements [DTAA] - Sections 90 &

90A
As per sub-section (4) of section 90 & 90A an assessee, not being a
resident, to whom an agreement referred to in sub-section (1) applies,
shall not be entitled to claim any relief under such agreement unless a
certificate, containing such particulars as may be prescribed, of his being
a resident in any country outside India or specified territory outside India,
as the case may be, is obtained by him from the Government of that
country or specified territory.
Considerable difficulties are likely to arise to non-residents as the

governments of those countries where they are resident may not agree to
provide a certificate, containing such particulars as are prescribed. There
could be differences in respect of the formats as well as the details of
prescribed particulars, which may lead to denial of the beneficial
provisions of the DTAA. Suitable provisions containing flexibility in
respect of particulars and the formats of the certificate are to be made
to ensure that the relief under the DTAA is not unjustly denied on this
account.
No threshold limit for obtaining the Certificate is provided which would

mean that every small payment to any non-resident would also require a
certificate in the prescribed format which would lead to unnecessary
hardships, delays and avoidable costs without any constructive benefit to
the revenue. It is therefore strongly suggested that the requirement of
34
obtaining the certificate should be made only in cases where the total
payments to any non-resident exceeds Rs. 1 crore in any financial year.
Memorandum explaining the provisions of the Finance Bill 2012 explains

the rationale behind introducing this provision as
Therefore, it is proposed to amend Section 90 and Section

90A of the Act to make submission of Tax Residency
Certificate containing prescribed particulars, as a
necessary but not sufficient condition for availing benefits
of the agreements referred to in these Sections.
It is not clear as to in addition to Tax Residency Certificate [TRC] what

more would be required to make the same as sufficient condition for
availing benefits of the agreements referred to in these Sections.
Necessary clarification may be provided to avoid uncertainty in this
regard.
It is also not clear as to for what period a TRC would be valid once it is
obtained and whether the non-resident would be required to obtain TRC
in respect of each payment. If a fresh TRC is required in respect of each
payment, then in cases of payments of recurring nature to the same non-
resident payee with very short interval, would pose considerable
difficulties. It is suggested that once a TRC is obtained, the same is to
be considered as valid at least for the entire financial year or a period
of six months from the date of the certificate, whichever is later.
24. Amendment in Sec 9(1) r.w. Sec 195

Insertion of Explanations to Sec. 9(2) by the Finance Act 2010 provides
that income of Non-Resident shall be deemed to accrue or arise in India
even if the Non-resident renders services outside India.
Indian domestic companies are exploring opportunities globally and in

the process, avail services of Non-residents outside India. Hence,
subjecting the same to tax in India is a hardship to Indian domestic
industries.
Non Residents never agrees to such With Holding Tax deduction, since
they take the plea that they have never visited India for providing any
service and hence their income should not be subjected to Tax in India.
Further, as per insertion of Sec. 206AA, as the non-residents do not have
PAN, the Indian payer / Domestic Co./Firms are required to pay Tax on
this transaction at a higher rate of 20%.
35
This entire cost of TDS on these transactions, has to be borne by Indian

payer/Domestic Companies, which creates undue litigation & hardship
and, ultimately, leads to severe increase in Cost of transaction and
reduction in profits.
25. Provision for Leave Encashment under section 43B

Section 43B of the I.T. Act was introduced in order to curb the practice of
tax payers claiming deduction in respect of statutory liabilities on
provision basis, and not discharging these liabilities for long period of
time.
Provision for leave encashment is not a statutory liability. As such,

clause (f) in section 43B, dealing with provision for leave encashment
should be deleted.
26. Tax Exemption to Incentives based on Investments

State/Central Government provide grants to promote investment and to
generate new employment.
There are ambiguities in considering the grants / incentives as Capital

Receipt.
It is suggested that there should be clear guidelines from competent

authority to consider such incentives as Capital Receipt for the purpose
of normal tax as well as MAT.
27. Credit of Cess & Surcharge payable on MAT

As per provision of section 115 JAA (2A), tax credit is to be allowed for
difference of tax paid under section 115JB (1) and the amount of tax
payable on total income. The tax u/s 115JB is payable @ 18.5%.
Therefore MAT credit is not allowed for surcharge and cess payable on
tax u/s 115AA (2A).
Since surcharge and cess is leviable on MAT, hence it is suggested same

should be considered for allowing credit also.
28. Interest on Income Tax Refunds U/S 244A

In a lot of cases TDS has been deducted by deductor & at the time of
final computation of Tax, No Tax is payable by assessee or the tax
payable by the assessee is quite lower than the TDS amount deducted. In
these cases the amount is kept with the department till the finalization of
Assessment, which takes at least one year period.
36
To avoid the financial hurdles to the assessee, interest may be paid at @

10% (or prevailing bank interest rate) at the time of IT refund, whereas
Interest on IT refunds were gradually reduced from 15% p.a. in 1991 to
6% p.a. in 2003.
Looking to the present scenario of Bank Lending Rates, interest on IT

refunds be increased from 6% p.a. to 10% p.a. & interest be calculated
from the date of deposit instead of 1st day of Assessment year.
29. Minimum Alternative Tax (MAT)

i) Exclusion of profit generated from Power undertaking
Till April 2001, profit derived by an industrial undertaking from

the business of generation or generation & distribution of power
was allowed as deduction from Profit & Loss Account under Sec
115JA (1) (iv).
Similar provisions should be continued u/s 115JB while

computing book profit to encourage the power plant &
transmission line to cop-up with shortage of power.
ii. Exclusion of Capital Profits
Following income credited to P&L, being in the nature of Capital

Receipts, should be excluded while computing Book Profit u/s
115JB of I.T.Act.:-
Profit on sale of investments;
Profit on sale of Fixed Assets;
iii. Exclusion of Dividend Distribution Tax & Deferred Tax
Till Assessment year 08-09, Dividend Distribution Tax and

Deferred Tax were allowed as deduction while computing book.
After amending retrospectively w.e.f. 01.04.2001 by Finance Act,

2008 inserting Explanation 1(h) & 2(i) to Sec-115JB, the same is
to be added in book profit.
Since Dividend Distribution Tax & Deferred Tax are neither

payable nor to be paid as income tax, the same should be
excluded while computing book profit as allowed till assessment
year 2008-09.
37
iv. Rate of MAT
The Basic idea to introduce MAT was minimum tax to be deposited

in absence of taxable profit in the hands of assessee.
Tax under MAT was 7.5% in assessment year 2006-07 which was
gradually increased and is now 18.5% for 2013-14 i.e. increased by
147%; whereas normal income tax rate for domestic company has
been reduced from 36.6% in assessment year 2006-07 to 32.45% in
2013-14.
Therefore, MAT should also be reduced to 7.50% to

commensurate with percentage of decrease in normal income tax
rate.
30. Treating the vocational training as Education for the purpose of

Section 2(15)
Under section 2(15) of the Act, the charitable purpose includes relief to
poor, education, medical relief, preservation of environment including
watersheds, forests and wildlife and preservation of monuments or places
or objects of artistic or historic interest and advancement of any other
object of general public utility.
Different views are expressed by various experts with respect to

vocational training activity as to whether the same amounts to
education or not. Some views are expressed that since it is systematic
process of learning which enables an individual to earn his livelihood,
therefore it is education. However since there is no clear-cut
jurisprudence on this issue, others take a cautious approach and do not
term it as education.
The Government of India is putting lot of emphasis on skill development

programme for the masses and therefore vocational training is nothing but
education.
It is, therefore, imperative that necessary clarification be made in the

definition of education u/s 2(15) of the Act to clarify that
education includes vocation training.
31. Long Term Capital Gains Bonds under Section 54EC

The Income Tax Law has stipulated a limit of Rs.50 lacs per assessee in
respect of the long term capital gains tax saving bond under section
54EC. Currently, huge amounts are required to be deployed in the
infrastructure sector and this vehicle could be used for raising such
38
infrastructure development funds. Moreover, the interest income on such

bonds is fully taxable.
It is suggested that this limit may either be removed or increased to at

least Rs 2 crore.
32. Deduction in respect of health insurance premia - Section 80D

Section 80D of the Act provides for deduction up to Rs. 15,000 in respect
of insurance premium paid on the health of an individual or his family.
The aforesaid limit was fixed by the Finance (No. 2) Act, 1996 w.e.f. 1-4-
1997.
In view of the high level of inflation and overall increase in premium

rates on Mediclaim Policies over the last 5 years, the limit of deduction
under section 80D may be considered for substantial increase. The Cost
inflation index notified by CBDT has increased from 331 in 1997-98 to
852 in 2012-13 i.e. an increase of 2.57 times. Accordingly, even to bring
the deduction of the insurance premia on parity with increase in cost
inflation index, the overall limit may be increased to Rs. 38,000.
The amount paid for the preventive health checkup is allowed as

deduction up to Rs. 5,000.
It is suggested, as explained above, that the aforesaid proposed limit for

preventive health checkup to be increased to Rs. 10,000/-, within an
overall limit of Rs. 38,000.
33. Amendment of Section 80 TTA

Interest on time deposits may also be included within the scope of
Section 80TTA.
34. Guidance in respect of benchmarking of Directors

remuneration
Presently, there is no guidance in respect of benchmarking of the
Directors remuneration. Since payment of directors remuneration is
subject to DTP provisions, necessary guidance for benchmarking in
respect of the same may be provided.
35. Alternate Minimum Tax (AMT) on all Persons other than

Companies Sections 115JC, 115JD, 115JE, 115JEE & 115JF
AMT is applicable to all non-corporate entities. Exemption is provided to
an individual or a Hindu undivided family or an Association of persons or
39
a body of individuals, or an artificial juridical person, if the adjusted total

income of such person does not exceed Rs. 20 lakh.
The limit of Rs 20 lakh is inadequate, and would affect even small firms,
and may, therefore, be raised to at least Rs 1 crore, similar to the limit
under section 44AB.
36. Compulsory filing of return in relation of assessee located

outside India Section 139(1)
Many executives of a company are appointed as authorized signatory of
the companys operations set up outside India while discharging there
duty as an employee of that company. Details of such accounts may or
may not be available with such executives as it is not administratively
convenient to report such details. It is mandatory for every resident
having assets (including financial interest in any entity) located outside
India or signing authority in any account located outside India to file its
tax return in India.
It is suggested that in case of an employee of a company who is

authorized to sign the employers account located outside India may be
exempted from this provision.
37. Applicability of Section 194C to Manufacturing/ Supplying

Product by using material purchased from Same Party only if
such material purchase is substantial.
Under section 194C, TDS is applicable in respect of contracts for
manufacturing or supplying a product according to the requirement or
specification of a customer by using material purchased from such
customer. However, in a large number of instances, it is observed that the
material which is purchased from the customer represents a small fraction
of the total cost and this provision has created huge operating problems
since the transaction may be a principal to principal contract for
purchase and sale of goods and the profit margin may be very small.
It is, therefore, suggested that the provisions of section 194C be only

made applicable in cases where the material purchased from the
customer is substantial in nature, i.e., say it exceeds 40% of the total
material cost (inclusive of raw materials and packing materials).
40
38. Enhancement of Limits for TDS u/s 194C for payment to

Contractors
Currently any payment for contract services rendered which exceeds Rs.
30,000 at a time or Rs. 75,000 per annum requires the persons
responsible for making such payments to deduct tax at source u/s 194C.
It is suggested that the threshold limit may be enhanced to Rs. 50,000

for single payment and Rs. 1,00,000 for aggregate annual limit as the
limits of Rs. 30,000 and Rs. 75,000 are meager in the context of rising
inflation. The deduction of tax at source on such small amounts
involves deployment of relatively large amount of resources in terms of
manpower, systems and other costs at the assessees end without any
significant benefits to the revenue.
39. Non-Applicability of TDS on Estimate Basis

Presently, tax is deductible even in cases where payment is not made and
the amount is merely credited in the books of the assessee as provision
for expenses or as suspense account or by any other name. Very often,
such provisions or credits are made by the assessee to follow accrual
system of accounting so that true and fair state of affairs of the business
is reflected in the books and to ensure that all revenues and expenses are
appropriately matched. This does not necessarily mean liability has
crystallized or the amount has become due.
Very often exact numbers are not available and the provisions / credits are
made based on best estimates available with the assessee. As per the
current position, the assessee is required to deduct tax on such provisions
even before the bill/invoice has been received. This often leads to excess
deduction of tax, disputes with the vendor and extensive reconciliation.
Further, this causes great amount of confusion between the assessee and
the vendor, if the provisioning by the assessee and invoicing by the
vendor fall in two different financial years.
It is, accordingly, suggested that TDS should not be applicable on

entries made by assesse, which are merely provision for expenses for
work completed / services rendered, but for which bills have not been
received and, therefore, TDS may be imposed only on such credit
entries to the party accounts which are supported by bills / invoices.
41
40. Applicability of TDS to be determined Net of Service Tax

The CBDT has clarified vide Circular no. : 4/2008 dated 28/4/2008 that
the computation of TDS net of service tax is to be done in respect of
section 194-I for rental income only. However, for TDS under other
sections like section 194C, 194J etc. the law has not spelt out whether
TDS has to be determined, inclusive of service tax, or net of service tax.
It is suggested that the provisions of Chapter XVII-B should be made
applicable net of service tax, since the same represents a tax and not
any income.
41. Penalty for failure to keep and maintain information and

document etc. in respect of certain transactions
As per section 271AA a penalty equal to 2% of the value of each
international transaction has been prescribed.
271AA. without prejudice to the provisions of section 271 or section

271BA, if any person in respect of an international transaction:-
(i) fails to keep and maintain any such information and
document as required by subsection (1) or sub-section (2)
of section 92D;
(ii) fails to report such transaction which he is required to do so;
or
(iii)maintains or furnishes an incorrect information or document,
the Assessing Officer or Commissioner (Appeals) may direct
that such person shall pay, by way of penalty, a sum equal to
two per cent of the value of each international transaction
entered into by such person..
While the quantum of addition itself is disputable in transfer pricing

assessments, fixing the penalty on the assessed income would increase
the burden of the taxpayer considerably.
Due to retrospective extension of scope of international transaction, the

Transfer Pricing Officer (TPO) can ask the taxpayer to pay penalty under
the said section 271AA at the rate of 2% of value of international
transaction due to failure to keep information. in addition to another 2%
under section 271G. for not furnishing the information. besides regular
penalty under section 271C. This would result in multiple tax demand on
arbitrary values.
It is, therefore, suggested that penalty is to be restricted to tax in dispute

and not linked to the value of transaction.
42
42. Hardship arising out of the Supreme Courts decisions in Goetze

(India) Ltd. vs. CIT 2006 (284) ITR 323 (SC)
In the above mentioned case, it was held by the Apex court that the Apex
courts decision in National Thermal Powers Company Ltd. vs. CIT 1998
(229) ITR 383 does not anywhere relate to the power of Assessing Officer
to intend a claim for deduction otherwise, than by filing a revised return.
Therefore, the assessee can claim deduction, it was held by the Apex
court, only by filing the revised return.
The above mentioned decision of Apex court has unsettled the various
judicial pronouncements settling this controversy in the past. The above
verdict has caused unintended hardship to the assessee.
Appropriate amendments may kindly be made to enable the assessee to

get relief during the assessment proceedings by methods otherwise than
by way of filing the revised return.
43. Advance ruling for resident Indians

In order to determine the tax liability of non-residents in advance and
with a view to avoiding disputes in respect of assessment of income tax
liability in case of non-residents, a scheme of advance ruling is in vogue
in the Act. The scheme enables the non-residents to obtain, in advance, a
binding ruling authority for advance ruling on issues which could rise in
determining their tax liabilities. Time consuming and exclusive litigation
is avoided. Such issues may relate to the transactions undertaken or
proposed to be undertaken by the non-resident applicant. The scheme has
been tremendously successful in avoiding tax litigation in case of non-
resident.
It is suggested that the same scheme should be extended to the resident

Indians also. In case of residents also, it has been experienced that
assessee takes one interpretation of law and executes the transactions
which is negated by the department, causing undue hardship of paying tax
while resident assessee takes a position that tax is not actually payable.
This will go a long way in reducing the litigation by the resident Indians
with tax department.
43
44. Time limit for granting of refunds and interest on appeal effects
It is experienced that when any order of appellate authorities is received,
the assessing officer delays in issuing the order giving effects to such
appellate orders. Due to this delay, the refund arising from such appellate
order also gets delayed.
This results in, assessee being deprived of interest on the delayed refunds,
and also the assessee is not granted any interest on the refund for the
period of such delay of issuing of refund warrants by the assessing
officers.
Therefore, time limit for granting refunds and interest should be

stipulated.
45. Taxation of Contribution to Superannuation Fund in excess of

Rs.1 Lakh
Tax is imposed on employees in respect of the companys contribution to
Superannuation Fund in excess of Rs.1 lac. This provision was similar to
that which was earlier applicable to Fringe Benefit Tax.
It may be noted that there are various types of superannuation funds. In

case of the new pension scheme and similar superannuation funds, the
contributions made by the employer vests with the employee and he can
transfer it from one employer to another. However, in other cases,
contributions made by the employer to a Superannuation Fund do not
accrue to the benefit of the employee, till such time he retires upon
superannuation, when the Fund is used to purchase annuities and/or to
pay the commuted pension to the retired employee. Such contributions
may or may not result in superannuation benefits to the employees since
there are various conditions to be fulfilled by the employees, like serving
a stipulated number of years, reaching a certain age etc.
In view of the pension payments, it is suggested that contribution to

superannuation fund may not be taxed as perquisite, as per the ratio of
decision laid down by the Honble Supreme Court in CIT vs. L W Russel
[2002-TIOL-686-SC-IT] being subjected to tax at the time of actual
receipt by the employee.
As such, employees should not be made liable to pay tax on such

contributions, the benefit for which may or may not arise and the
benefit is subjected to tax at the time of actual receipt.
44
46. Exemption for Payment of Leave Encashment to be raised to

Rs.10 lacs.
The exemption limit for payment of leave encashment is notified by the
CBDT in accordance with the powers given under section 10(10AA). The
current limit of Rs. 3 lacs is very old (since 1998) and needs to be raised
substantially with immediate effect. It is suggested that the limit should
be raised to Rs.10 lacs.
47. Wealth Tax

Presently Wealth Tax is applicable for companies in respect of Motor
Cars and Residential Housing Property for employees with gross salary
up to Rs.10 lacs.
Following are suggested for kind consideration:
Motor cars should be excluded if it is below Rs.15 lacs
Exemption Limit for taxability of residential

accommodation provided to employees having gross
annual salary of Rs. 5 Lac u/s 2(ea)(i)(1) to be increased
to Rs. 25 Lac, which has lastly been reviewed in 2004-05.
Further, for individuals, the exemption in respect of one house property

may be enhanced to two properties to give a fillip to the housing sector
in the country.
Presently, exemption limit of unused urban land purchased for industrial

purpose is 2 years. It has to be increased to 4 years, as starting industry
at a new location, needs substantial time due to various approvals &
hurdles from local public.
Minimum Limit of exemption from wealth tax to be increased from Rs.

0.30 Cr. to Rs. 10.00 Crs. u/s 3(2) of Wealth Tax Act, considering
inflation and indices impact.
Without prejudice to the above, it may be noted that the amount of

revenue collected on account of wealth tax is very meager currently.
Therefore, it appears that there is no purpose served in continuing
with this tax, especially, when one considers the indirect costs
incurred in the areas of assessments and appeals by the Income Tax
Authorities, as well as the large number of litigation involved.
45
Issues relating to Tax Administration

48. Issuance of TDS certificates (Form 16A) should be made on TAN
address instead of PAN Address
The IT department has made it mandatory w.e.f. 01/04/2011 for all the
deductors to process Form 16A only through TIN-NSDL site, due to this
all the certificates are getting issued on the PAN address of the deductee.
This has resulted into severe hardship for the Companies which have a
Multi locational set up since, all the TDS certificates gets dumped at the
Registered office of the company (being PAN based address) and it
becomes difficult to co-relate them with the Accounts which are
maintained at different locations. Also the units / plants are not able to
identify whether the TDS certificate is received from the party or not.
The system of processing all the TDS certificates through single platform
seems to be effective. However, due to above hardships, it is requested
that the TDS certificates should bear the TAN numbers & TAN address
of the deductee and not the PAN address. This would help to have a
better control over TDS certificates received / receivable from the parties
by the multi-location Assessees.
49. Delay by Assessing Officer in giving Order Giving effects to

Orders of higher Appellate authorities, and also delay in issuing
refunds arising out of such Order giving effects
It has been experienced that when any order of higher appellate
authorities is received, and moresoever, when the order is in favour of the
assessee, the Assessing officer delays in issuing the Order giving effects
to such appellate orders. Due to this delay, the refund arising from such
appellate orders also gets delayed.
Secondly it is also observed that in many of the cases the issuing of

Refund Cheques / Warrants are delayed and the interest on such refunds,
as per the provisions of the Income-tax Act, is calculated only up to the
date of issue of Assessment order / Order Giving effects to appellate
orders. This results in, assessee being deprived of Interest on the delayed
refunds and also assessee does not earn any interest on the Interest on
Refunds for the period of such delay of issuing of refund warrants by the
Assessing officers.
It is suggested that time limits for issuing the Order giving effects and
Refund Orders be stipulated in the Act and also the Interest on
Refunds be calculated up to the date of actual issuing of Refund
warrants and not only up to the date of granting the refund/date of
Order (as per the existing provisions of the Act).
46
50. Judgments of Higher Authorities to be binding on Assessing

Officers & lower appellate authorities to avoid litigation on same
issues every year
It has been observed that whenever any issue has been heard in favour of
the Assessee pertaining to any earlier years, by any higher Authorities
(viz CIT(A), ITAT), the cognizance of the same is not taken by the
Assessing officer while passing the Assessment orders for subsequent
years. This leads to undue hardship to the assessee to refer the same
covered matters/issues to higher authorities every year, which increases
the cost to the assessee, to the IT department and delays in refund due to
the assessee.
Hence, when the facts and circumstances are the same the AO & first
appellate authority be directed to adhere to the judgments of higher
authorities.
51. Unwarranted adjustments of Refunds of earlier years against

demands of subsequent years on assumption basis
Refunds arising due to Order giving effect of appeals to higher
authorities orders, may not be held up for adjusting the same against the
subsequent uncompleted assessment years merely on the assumption
that there will be demand in the subsequent assessment years.
52. Amendments to the provisions of the Act to be Prospective and

not Retrospective
It is requested that any rules/notification or amendment to the Act by
CBDT be Prospective rather than retrospective as it causes undue
hardship on assessee for revision of previous years assessment for
applying the amendments. It also results in creation of unknown liabilities
and impacts the business.
53. Number of Notices from Department pertaining to TDS &

foreign remittances
Notices demanding details of Foreign Remittances and TDS made on
such remittances for around 3 years are being issued each time by
different officers of the same department and the assessee has to submit
the required details and answer to such notices for the same years each
time to such different officers. This leads to increase in administrative
cost along with consumption of additional time of the assessee as well as
of the departmental personnel as these details are already with Deptt.
database.
47
54. Specific guidelines by IT Dept. to be provided on applicability of

TDS/ TCS on various nature transactions
Department should provide extensive guidelines on interpretation of
provisions relating to applicability of TDS on various transactions. This is
required since there are different interpretation made by different assessee
and even the IT department has its own interpretation which most of the
time conflicts with that of Assessee. This will reduce litigation with the
department and help in reducing cost of Assessee as well as of
department. It will also streamline the system of TDS/TCS collection
procedure.
55. Initiation of penalty proceeding in every assessment orders

Assessing officers initiate penalty proceedings in each and every
assessment order irrespective whether there is any actual concealment of
Income or fact by the assessee. It has been noticed that even in cases
where there is difference in interpretation of provisions or wherever there
are two views arising, penalty proceedings are initiated. This causes
undue hardship to the assessee and is unwarrantedly stretched for
litigation with the department & file a separate appeal for dropping of
such penalty proceedings.
56. No penalty proceeding for difference in interpretation of Law.

Assessing officers initiate penalty proceeding in each and every
assessment order irrespective whether there is any actual concealment of
income or fact by the assessee. It has been noticed that even in cases
where there is difference in interpretation of provisions or wherever there
are two views arising, penalty proceedings are initiated. This causes
undue hardship to the assessee and unwarrantedly invites litigation with
the department.
It is suggested that no penalty proceedings be initiated when there are

different views on interpretation.
48
Annexure-III to Letter No.181(PBM)/ 418 /2012

POLICY MATTERS
1. Coal Linkage
While the cement capacity is increasing continuously, the allotment of coal
against linkage to cement industry is continuously coming down. As a result
of this, all cement companies are adversely affected by their surging fuel
cost. Following are the issues that need due and immediate consideration:-
Cement is accorded lowest priority in allocation of coal linkage vis-a-vis

power and fertilizer sector. Since cement is equally important for the
growth of the economy, therefore Priority linkage needs to be provided
for 100% requirement to all cement players at administered price. This
shall enable all players to have equitable treatment with regard to fuel
costs.
Requirement of captive power plants of cement players should be

considered in the linkage quantum. While linkages are being granted to
IPPs there has been no recent grant of linkages to cement CPPs. As power
cost forms significant proportion of total cement production cost, linkage
fuel shall protect the cost of production from International price
fluctuations and thus market prices of cement shall be reasonable and
stable.
Post 2007, no new linkage has been granted to any cement manufacturer.
Even in cases where linkage has been granted, actual supply against such
linkages is poor. Thus, unless the linkage coal is quickly increased the
fuel supply gap shall put upward pressure on cement production costs.
Even within the cement industry, there are only a few players who have
been granted coal linkage. Others have, therefore, perforce to use
imported coal/ other expensive fuel. Keeping in view of the importance of
cement industry as a core sector, it is requested that all cement
companies be granted coal linkage on an industry basis i.e., all cement
manufacturers should be granted coal linkage.
2. Coal Blocks
Cement industry is a core sector industry and directly contributes to the
economic development of the country. While power sector is accorded
top priority in allotment of captive coal blocks, cement sector has been
accorded much lower priority. The cost of Coal plays a major role in cost
49
of production in cement manufacturing as it is used both for clinker

making and captive power generation. The secondary treatment accorded
to cement is hurting investment and may slacken the pace of fresh
investment and growth of the sector.
Out of total coal reserve blocks, a proportion of high grade coal blocks
should be reserved exclusively for cement sector keeping its current
production capacity and future expansion into consideration and blocks
closer to the cement producing regions (to minimize transportation costs)
should be blocked for this category. Under the proposed bidding format,
only cement companies should be eligible as bidders for these blocks.
The present fuel requirement of the industry both for cement production
& captive power is around 58 mn. Tons per annum and if this were
expected to grow at the rate of 7% p.a. the coal reserves required to meet
the next 35 year requirement shall be around 8 billion tons.
Also Cement Industry should be included in the list of sectors entitled for
e-auctioning of coal blocks.
It is thus requested to accord the same priority to Cement as is given to

power.
3. Higher Budgetary allocation for concrete road, Infra Projects

The 340 million tonne Indian cement industry has started to witness
demand-supply mismatch as cement capacities have started exceeding
cement consumption. The widening demand-supply gap is expected to
affect the capacity utilization levels of the cement companies. Unless and
otherwise the Government comes up with new Road projects,
infrastructure project , the demand supply mismatch will only widen .
It is suggested that a Higher Budgetary allocation for concrete roads and
other infra projects may be earmarked in the ensuing budget.
4. Use of Industrial Wastes

The cement industry in India has the potential to utilize the entire
hazardous waste generation of the country, if suitable. For co-processing
to be successfully implemented, the following policy supports are
needed:
a. A cement plant which fulfils the co-processing

prequalification criteria should be issued a permit to co-
process all types of waste, while remaining within maximum
permissible emission norms.
50
b. Cement plants should be permitted to move waste from other

states with minimum restrictions if they are following
standing guidelines.
c. Ministry of Environment and Forests (MoEF) may

formulate guidelines for implementing the principle of
Polluter to pay for disposal of wastes and treatment,
storage and disposal facilities for cost-effective co-
processing of combustible industrial wastes in cement kilns,
as an alternative to incineration.
5. Environment and Health Cess on Minerals

In exercise of the power conferred by Rajasthan Finance Bill, 2008, the
Government of Rajasthan has notified imposition of environment and
health cess on mineral rights and minerals. Limestone, the basic
ingredient of cement manufacturing also falls under the said levy and
attracts a cess of Rs. 5/- per ton of limestone dispatched.
However the legality of said levy is questionable as any levy in the

nature of royalty on minerals is within the purview of Union
Government and state governments cannot impose such levies. Hence
the said levy needs to be nullified and is liable to be withdrawn.
6. Electricity Duty & Water Cess

Some of the states have imposed electricity duty on power purchased
from grid and / or power consumed from captive power generation.
Cement companies are already reeling under steep hike in their energy
and other costs. As a result of the levy of electricity duty, cost of cement
production has gone up further and has adversely affected the profitability
of the cement companies. Levy of electricity duty is acting as impediment
to the cement sector growth.
Therefore, it is requested that the electricity duty & Water Cess be

withdrawn.
7. Withdrawal of Land Tax

The levy of Land Tax as introduced in the Rajasthan Budget
announcement of 2006-07 was enhanced significantly thereafter. The
same is causing undue burden on the cement industry as large land is
required for mines, cement plant and power plant. In the light of this, it is
recommended that:
51
1. There is no such levy in nearby states.
2. Cement industry is already paying dead rent / surface rent for the
mineral bearing land and, therefore, the same can not be subjected
to land tax.
3. The land taken by cement industry is used for setting up the plant
& machinery and other associated facilities and is thus no more a
vacant land.
4. With uses of such land for industrial purpose, companies are

already contributing significant revenues to the state exchequer.
Therefore cement industry be excluded from levy of Land Tax.
8. Allotment of Gypsum Mines for Captive Use

Currently cement industry is facing shortage of gypsum leading to import
of gypsum and consequently causing drain of foreign exchange. Cement
industry requests for grant of gypsum mines for captive use.
Government may raise the applicable tax rates on gypsum to augment its
revenues.
9. Allotment of Lignite Mines for Captive Use

Rajasthan state is endowed with lignite reserves which remain unutilized.
These mines can be utilized. Cement industry requests for grant of
lignite mines for captive use. Government may suitably increase the
royalty rates on lignite to augment its revenues.
10. Permission for use of Multi Axle Truck Train Vehicle for
Transportation
Road transportation constitutes almost 60% - 70% of total transport in our
country. Road is one of the preferred modes of transport even for long
distances because of the limitations of the Rail Infrastructure in the
country. Currently, major quantity of raw material and the finished
products in all industries like Fertilizers, Grains, Fuel, Cement, Steel &
Other mineral products, etc. are being transported through trucks and
trailers of different capacities.
The Parliamentary standing Committee on Transport, Tourism & Culture

in its 67th Report as well as Transport Development Council in its 30 th
meeting on 16.01.03 have appreciated allowing tax rebates to popularize
use of Multi Axle Truck Trains vehicles for transportation which controls
the problem of overloading and has so far been implemented in the states
of Karnataka, West Bengal, Meghalaya. UP, Tripura & Gujarat
52
Considering the role of industry in nations development, It is requested

to permit the use of multi axle truck-trains with single horse under
Motor vehicle Act, 1988. This will result in the following benefits:
a. Acceleration of bulk transportation,

b. Optimisation of cost,
c. Saving of fuel,
d. reduction in carbon emission,
e. Safe carriage being ensured.
11. Supply of Free of Cost Fly Ash to Cement Industry

Cement Industrys initiative of popularizing PPC has helped thermal
power plant in overcoming the menace of fly ash. However what started
off as a free offering has now been converted into a revenue stream by
certain power plants. This is leading to a situation where in an innovator
is being penalized and a polluter is profiteering.
It is high time that cement industry is supplied fly ash free of cost on
long term basis on the worldwide principle of Polluter pays.
12. Stimulus to the sectors which are major users of cement

a. Fiscal support to housing and roads - This could accelerate the
demand for cement quite substantially. Given the housing
shortages in rural and urban areas and given the increase in the cost
of affordable house income tax relief for interest paid on the house
building loans may be extended from Rs 1.5 lakh to Rs. 4 lakh per
annum.
b. Using cement concrete technology for roads - All new expansions

in the national and state highways may be made of cement
concrete as a policy. To begin with, this could be 30% of total
allocations. All existing city roads having bitumen surface be
converted gradually to cement concrete and new ones should
preferably be constructed with cement concrete technology. All
connecting roads in villages must be done with cement concrete
technology.
*****
53

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181(PBM)/ 418 /2012 8th November, 2012

Though Cement is the most essential infrastructure input, the tax on

1. Uniform and Specific Rate of Excise Duty on Cement

Particulars New Duty Structure from 17.03.2012 vide

It is well-known that today the industry suffers from excess of surplus

Therefore, for growth of cement industry Government may kindly reduce

2. Excise Duty on Coal, Lignite, Coke, Fly Ash etc.

It is suggested that levy of aforesaid duty may be withdrawn or Cenvat

3. Customs Duty on Pet Coke, Gypsum & Other Inputs

Pet coke is an important material as fuel, which is used in the cement

Gypsum is another important input. Because of the limited availability of

Pet-coke & Gypsum attract 2.5 % duty, if imported, while there is no

Therefore, it is requested that Government may kindly scrap import

4. Levy of Customs Duty on Cement Imports

Therefore, it is requested that to provide a level- playing field, basic

Import duties on goods required for manufacture of cement be

5. Withdrawal of Excise Duty on Fly Ash

In this regard the decision of the Honble Supreme Court in case of

MANUFACTURE BURNING OF COAL NOT AS RAW MATERIAL BUT AS

THEY COULD CALLED AS BY-PRODUCT OF FINAL PRODUCT APPEAL

MANUFACTURE FUEL IS NOT RAW MATERIAL FOR END PRODUCT AND

There is no change in the process generation of fly ash viz. a waste

6. Treatment of Waste Heat Recovery as Renewable Energy Source

To help the industry in its endeavor to produce more such environment-

7. Abolition of Import Duty on Tyre Chips

To meet its requirements, the industry has been developing alternative

To increase supply of energy sources as well as for conserving the

8. Classifying Cement as Declared Goods

It is requested that Cement be stipulated as Declared Goods under

9. Tax exemption to Certified Emission Reduction (CER) credits

As per proviso (ii) to Sec-28(va), any sum received as compensation,

To motivate the corporate sector for reduction in carbon emission,

10. Exemption to Cement Industry u/s 80-1A

Since for developing infrastructure facility, cement Industry plays a

It is also justifiable for the survival of cement sector which is adversely

11. Exemption to Power Plants U/S 80-IA

In view of the emphasis by Planning Commission to increase the power

As per provision of Sec. 80-IA (4) (iv), profit earned by an undertaking

In view of the scarcity of power & to promote the Power Plants, it is

12. Goods & Service Tax (GST)

a) Single Rate of Tax: Central Government has made a proposal to State

b) Common Law & enforcement: The Basic purpose behind

process/procedures of different states are similar, as otherwise, the

In this regard, it is suggested that any change in the statute of any

c) Cenvat/Input tax Credit : Input Tax Credit of tax paid is available

d) Common dispute resolution mechanism: To reap the full benefit of

e) Continuance of Exemptions/Incentives: It must be ensured that

Therefore, the above unintended consequences can be done away with

13. Project Import

As the industries in India are on a major expansion drive, it is requested

Copy to: Shri Saurabh Chandra - With a request to make due

Copy for information to : - President, Vice President,

A copy of the Memorandum is also being forwarded to

- Director General, CII

Annexure-I to Letter No.181(PBM)/418 /2012

OTHER ISSUES OF CEMENT INDUSTRY

1. Steps for Promotion of Exports

2. Duty Drawback benefits

To neutralize the incidence of import duties, it is requested that Duty

3. Reduction of Customs Duty on Imports under EPCG Scheme

In a country like India requiring massive investments in all industries to

4. Calculation of Custom Duty

In this regard, it is further suggested that calculation of CVD & SAD