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In the Union Budget 2002-03 presented by Hon'ble Finance Minister Shri Yashwant Sinha on Feb 28, 2002, certain changes have been made in direct and indirect taxes. The highlight of the Budget as far as it relates to the leather & leather products Industry are outlined below:
Direct Taxes
The exemption from Income Tax on the export profits will continue to be phased out (which commenced from the year 2000-01). There has been no new announcement in this regard.
100% deduction of export profits allowed to certain units such as EOU and EPZ units under Sections 10A & 10B of the Income Tax Act, reduced to a 90% deduction for the assessment year 2003-04.
Additional depreciation @ 15% allowed on new plant and machinery acquired on or after April 1, 2002 for setting up a new industrial unit, or for expanding the installed capacity of existing units by at least 25%.
The 2% surcharge imposed last year in the wake of Gujarat Earthquake abolished.
A new surcharge of 5% across-the-board on all categories of tax payers - except individuals and HUF having total income upto Rs.60,000/- - introduced.
Individuals (proprietors) or HUF whose total sales, gross receipts or turnover for business or profession carried on by him exceeds the monetary limits specified in Sec 44AB of the IT Act (Rs.40 lakhs for business, Rs.10 lakhs for profession), shall deduct tax under the following sections - for payments / credits from 1.6.2002:
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194A Interest other than interest on securities
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194C(2) payment to sub-contractors
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194H Commission / brokerage
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194I Rent
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194J Fees for profession or technical services
Distribution tax of 10% on companies on the dividends or income distributed by them has been abolished. Such income will henceforth be taxed in the hands of the recipients at the rates applicable to them, and will be subject to tax deduction at source at 10%.
Indirect Taxes-Customs duty
The peak rate of Basic Customs duty has been reduced from 35% to 30%. There would be four major ad-valorem rates of customs duties i.e. 5%, 15%, 25% and 30%.
The raw hides & skins falling under Customs Tariff heading No.41.01 & 41.02 & 41.03 continues to be exempted from import duty.
The import of wet blue chrome tanned leather, crust leather, finished leather of all kinds, including splits and sides thereof also continues to be fully exempted from Basic Customs duty in terms of Sl.No.149 of Customs Notification No.21/2002 dated March 1, 2002.
The concessional import duty of 5% on machinery & equipments used by the leather & leather products Industry continues with nil CVD. These are specified in List 34 of the Customs Notification No.21/2002 dated March 1, 2002 under Sl. No.257. The list contains 265 machinery & equipment as before.
Certain leather chemicals, components, consumables etc., used in the leather & leather products Industry continue to enjoy concessional import duty of 25% with CVD equivalent to Central Excise duty on such inputs. These are listed under List 9A & 9B of Customs Notification No.21/2002 dated March 1, 2002 under Sl No.174.
The concessional import duty of 5% on saddle tree continues in terms of Sl.No.143 of Customs Notification No.21/2002 dated March 1, 2002.
The wattle extract continues to be exempted from any Countervailing duty. However, the countervailing duty will continue to be levied on import of other vegetable tanning extract like quebracho extract, chestnut extract, gambier extract etc falling under Chapter 32.
The import of Tags, label, printed bags, stickers, belts, buttons or hangers continue to be exempted from duty when imported by bona-fide exporters, in terms of Sl.No.140 of Customs Notification No.21/2002 dated March 1, 2002.
The duty free facility for import of fasteners, poly wadding materials and other items will continue to be available for leather garment exporters, to the extent of 3% of their previous year's export performance in terms of Sl.No.167 of Customs Notification No.21/2002 dated March 1, 2002.
Special Additional Duty of Customs (SADC) of 4% continues. The import under advance licenses, DEPB Scheme, EPCG Scheme etc would continue to be exempted from SADC, in terms of Customs Notification No.23/2002 March 1, 2002.
All goods falling under Chapter 43.01 & 43.02 ie., raw, tanned, dressed fur skins have been exempted from Basic Customs duty in terms of Sl No.150 of the Customs Notification No.21/2002 dated March 1, 2002.
The developers and manufacturing / processing units in Special Economic Zones shall be entitled to customs duty exemption on inputs and all other materials including capital goods.
Above all, it is proposed that by the year 2004-05, there would be only two basic rates of customs duties viz., 10% covering generally raw materials, intermediates and components; 20% generally covering final products. The existing rates would be adjusted and subsumed in these two basic rates with some exceptions on account of WTO bindings.
Indirect Taxes-Central Excise duty
A single rate of 16% Central Excise duty continues.
The Special Excise duty (SED) of 16% has been abolished for many of the items. Accordingly, there will be no SED 16% on manufactures of fur skin and artificial fur.
Central Excise of 16% on footwear components, leather chemicals etc remain unchanged, except articles of fur skins falling under Chapter 43 of the Central Excise Tariff.
Wattle Extracts falling under chapter 32 has been exempted from central excise duty in terms of S.No.59 of Central Excise Notification No.6/2002 dated March 1, 2002.
The SSI units continues to be fully exempted from central excise duty for first clearances up-to an aggregate value of Rs.1 Crore, when CENVAT facility has not been availed; vide Central Excise Notification No.8/2002 dated March 1, 2002.
For SSI units availing the CENVAT facility, the first clearances upto an aggregate value of Rs.1 Crore, will be subjected to 60% of the normal rate of excise duty in terms Central Excise Notification No.9/2002 dated March 1, 2002.
The footwear falling under Central Excise Tariff Heading No.64.01 whose MRP is less than Rs.125/- per pair is exempted from central excise duty in terms of Central Excise Notification No.6/2002 dated March 1, 2002 vide Sl No.157.
At present, the footwear falling under heading No.64.01 (whose MRP is more than Rs.125) is subject to 16% Central Excise duty on 60% of the MRP. The present abatement of 40% on MRP continues vide Central Excise Notification No.13/2002 dated March 1, 2002.
The central excise duty on cotton sewing thread (not containing the synthetic staple fibres) reduced from 16% to 8% in terms of Central Excise Notification No.6/2002 dated March 1, 2002 vide Sl No.104.
In the next two years, it is proposed to have only one rate of CENVAT, namely 16%.
Miscellaneous
The service tax of 5% would continue and the scope has been expanded to additional sectors.
Expenditure exceeding Rs.25,000 incurred in cash on foreign travel, purchase of bank drafts exceeding Rs.50,000 in cash, and making cash deposits exceeding Rs.50,000 in any bank account will require compulsory quoting of permanent account number (PAN).
An Expert Committee will be set up to undertake comprehensive examination of the system of indirect tax administration and make recommendations in this regard.
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