To minimize losses during the transport of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat, project import status (which entails concessional customs duty and easier import formalities) has been granted to:

• The initial setting up or substantial expansion of cold storage facilities.

• Mechanized handling systems and pallet racking systems in wholesale markets or warehouses for foodgrains and sugar.

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Exemptions have also been provided for truck refrigeration units and specified agricultural machinery. Customs duty of 5% has been reimposed on crude oil and has been increased to 7.5% on diesel and petrol and 10% on other refined products. The excise duty on petrol and diesel has been increased by Re1 per litre.

The one area of taxation that has gone through significant changes is service tax. The finance minister chose not to increase the rates from the current 10% level. This development brings the service tax and excise duty rate on a par, and as stated by him, would pave the way forward for GST. Having said this, the changes in service tax are likely to have far-reaching impact on businesses.

It has been provided that the activity of construction is a taxable service provided by the builder, promoter or developer to the prospective buyer unless the entire consideration is paid after the completion of construction. This is contrary to the clarification that was issued in 2008 and, hence, signals possible change in the government’s stand.

Also, given that most of the properties are purchased while under construction, a 10% addition would have a significant impact on property prices. This would also lead to multiple taxes such as stamp duty, value-added tax and service tax.

It has also been provided retrospectively that the activity of renting itself is a taxable service in a bid to overrule a judgement of Delhi high court, which doesn’t hold renting as a service. Also, lease of vacant land, where the agreement or contract between the lessor and lessee provides for undertaking construction of buildings or structures for business or commerce during the tenure of the lease, would be liable to service tax.

Historically, the position of the department has been that credits of service tax on construction services cannot be availed against renting. If this thought process continues, it is likely that credit of service tax paid on lease of vacant land would be locked, leading to a further hike in the cost of ownership of a property.

Medical services have been brought under the service tax net by including corporate medical health check-ups and corporate medical health insurance—payments made by insurance companies to hospitals—into the service tax net. Further, services provided to maintain medical records of employees of a business entity have also been introduced.

It would be interesting to see the treatment applied to cash-less insurance. In such cases, would an individual paying and then claiming the amount from insurers would escape service tax? Or, does the benefit accurues in case of a claim where the insurer pays directly to the hospital?

The scope of transport by air has been enhanced to include international travel and domestic travel in any class. Therefore, all airline travel is now covered for the purposes of service tax. Statutory taxes would be excluded from taxable value in such cases. Given that the airlines issue tickets with such taxes being shown separately, this measure would avoid double taxation.

Promoting of a brand of goods, services, events, or a business entity have been brought into the service tax net, which is likely to have an impact on celebrity endorsements as well as the Indian Premier League cricket tournament, among others. Also, the exclusion relating to sport sponsorship has been removed from the taxable category of sponsorship services. These changes lead to significant revenue earnings.

In the area of reforms, the government has removed a condition with respect to use of services outside India to determine export. This is a welcome step, since it reduces the possibilities of further litigation on the issue of use of services outside India.

The government has further sought to clarify as well as expand the scope of service tax to installations, structures and vessels with or in exclusive economic zones for prospecting or extraction or production of mineral oil and natural gas.

The direction of this Budget has been to correct anomalies, to facilitate and remove the challenges faced by the assessee, and encourage compliance. A strong commitment to GST with an indication of date has been made, which is a welcome move.

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