rediff.com Budget 2000: The FM's Speech


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February 29, 2000

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Finance Minister Yashwant Sinha's Budget Speech

BUDGET
2000

Part 4

Sir, I now present my tax proposals. I take up indirect taxes first. Hon'ble Members are aware that both the Centre and the States depend heavily on indirect taxes. While I did carry out a major restructuring of the excise rates last year, the process needs to be taken further. We need to overhaul the rate structure, rationalise and simplify the procedures to reduce the compliance cost for the tax payer. We must ensure that we concentrate on increasing production and absorbing new technologies rather than frittering away our energies on tax disputes.

Sir, my proposals in excise intend to establish a single rate Central Value Added Tax (CENVAT) at the Centre. I am convinced that nothing short of this can provide long term stability, remove uncertainties in the mind of industry, and eliminate disputes of classification. This will also encourage the States to implement their agreed programme for converting their sales taxes into VAT by 1.4.2001.

The House may recall that in my last budget, I had introduced three ad-valorem rates of basic excise duty, viz., 8%, 16% and 24%. I propose to converge these three ad-valorem rates to a single rate of 16% CENVAT.

The 8% excise rate is therefore being abolished and most of the items at this rate are being moved to 16%. However, certain items, essentially covering medicare and items of use by the common man, are being exempted from the excise duty.

These are: Medical Items:

Medicinal grade oxygen
Medicinal grade hydrogen peroxide
Anaesthetics
Potassium iodate
Medical and surgical gloves; and Items of common use - Cutlery and knives
House hold glassware, including glassware produced by mouth blown process
Electric bulbs of MRP up to Rs.20 per bulb
Clocks and watches of MRP up to Rs.500 per piece
Tooth powder
Sanitary towels, napkins for babies, etc, and Soap for distribution through PDS

I am including roasted chicory in the list of exempted items as coffee itself is free from excise duty.

I have also decided to exempt specified cold chain equipment, which had been provided a low rate of 8% in the last budget, from excise duty in the larger public interest.

Some items, on account of their exceptional nature and sensitivity to price increases, deserve special treatment, at least for the present. These are Kerosene, LPG, Laundry soap, Cotton yarn, including cotton sewing thread, and some other varieties of yarns and Diesel engines up to 10 HP. The rate structure for these is, therefore, being so designed that there is no increase in the incidence of excise from the current level of 8%, and thus there will be no price increase on this account.

I have not made any change in the list of items that are currently charged to 16% excise duty.

In addition to the 16% Cenvat rate, I propose to have three rates of special excise of 8%, 16% and 24%. Unlike the CENVAT rate, the special excise duties will not generally be modvatable, that is, users will not be able to avail of MODVAT credit of these duties.

For the items that are mainly in the nature of raw materials or intermediates, the 16% CENVAT rate is appropriate. I, therefore, propose to include items like plastic materials, films and sheets of plastic, tread rubber, cellular rubber, articles of rubber, nylon filament yarn, transmission and conveyor belts of textile materials, and sacks and bags made of synthetic textile materials in the list of 16% CENVAT, from the current level of 24%. I am also including tyres for OE supplies and parts of air conditioning and refrigerating machinery in the list of 16% CENVAT, without subjecting them to any special excise duty, since they are intermediate goods in the chain of production.

In addition, I am reducing the duty burden on a few other products that are also currently charged to 24% duty. These items are sterile contact lens solution, shikakai powder without additives, and cars for physically handicapped persons. I feel that these items should not be loaded with a duty burden of more than 16% CENVAT.

Ambulances purchased by registered hospitals are currently charged to a concessional rate of excise duty of 16%. I am extending the same treatment to ambulances purchased by Indian Red Cross Society.

The other items that are currently charged to 24% duty shall continue to bear the same incidence, comprising 16% CENVAT and 8% special excise duty. In my new design of excise duty structure, the items that are now charged to a total duty of 30% would be subjected to a total duty of 32%, composed of 16% CENVAT and 16% special excise duty. This is only a marginal increase of 2%, which, I am sure, the consumers of these commodities can afford to bear.

Items presently charged to a total duty of 40% will now be composed of 16% CENVAT and 24% special excise duty. However, soft drink concentrate supplied to bottlers will be charged to CENVAT at 16% only, being modvatable.

Let me now take up the MODVAT scheme and the changes that I plan to bring about. MODVAT scheme shall now be known as CENVAT scheme

Over the years, disputes between the department and assessees on the interpretation of MODVAT rules and procedures have plagued the system. I propose to put an end to this situation. With effect from 1st April 2000, the plethora of existing rules will be replaced by a small set of simple and transparent rules, which, I am sure , shall reduce disputes to a minimum.

I also propose to expand and rationalize the scope of the MODVAT scheme. All inputs and all capital goods are now included in the eligible list of MODVAT scheme. The only exception will be High Speed Diesel Oil and Petrol. However, I propose that the availability of MODVAT credit on capital goods will be spread over a period of two years, with effect from 1st April 2000.

My proposals include full extension of MODVAT scheme to cigarettes for the first time, which should cheer the industry. However, the good news for the cigarette manufacturers ends here. I propose to enhance the rates of excise duty on all categories of cigarettes by 5 %.

At present, MODVAT credit of CVD paid on project imports is restricted to the extent of 75%. This has been an irritant. This credit shall now be available for 100% of the CVD. I have also decided to do away with the condition of installation as a pre-requisite for taking credit on capital goods.

Now I shall deal with some sector specific proposals. I take up steel first.

Mr. Speaker, Sir, an ad-valorem structure of taxation is largely free from distortions, equitable and automatically buoyant. For the present, I propose to restore ad-valorem excise duty structure on steel produced by re-rollers and also to steel produced by induction furnaces. These goods would be subjected to CENVAT of 16%, with MODVAT benefit, from 1st April 2000. I may add that capacity based tax applicable to re-rollers and induction furnaces has created more problems than it has solved.

Under the existing law, excise duty on goods sold from the depots is charged on the basis of depot price and not the factory gate price. I have received representations that this has caused distortion in the marketability and distribution of steel. Deliveries of steel by integrated steel plants, whether from the plant or stockyard, will henceforth be assessed to duty at the factory gate price.

Continued

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