Detailed Circular on Union Budget 2004-05

• There has been no new announcement in regard to income tax exemption on the export profits. The benefit of income tax exemption on export profits under Sec 80HHC has already been fully phased out.
• Deduction of export profits allowed to certain units such as EOU and EPZ units under Sections 10A & 10B of the Income Tax Act continues. 
• Additional depreciation of 15% hitherto allowed on new plant and machinery acquired or installed in an existing undertaking continue to be available. The condition of required increase in installed capacity has now been fixed at 10%, instead of previous level of 25%.
• 100% tax exemption was hitherto available to new industrial undertakings in J & K if the production is commenced before March 31, 2004. This facility has now extended to those new industrial units which commence production before March 31, 2005
• There is no change in the income tax structure.

II INDIRECT TAXES

a) CUSTOMS DUTY

• The Government's intention is to align the tariff structure to those of ASEAN countries. Eventually, there would be a uniform rate of tax on goods & services 
• Exemption from CVD hitherto available to a few imported goods, where there is no corresponding exemption from Central Excise duty on domestically produced goods, have now been withdrawn
• The peak rate of Basic Customs duty has been maintained at 20%. 
•  Raw hides & skins falling under Customs Tariff heading No.41.01 & 41.02 & 41.03 continue to be exempted from import duty.
• 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 as amended from time to time.
• Patent leather falling under Tariff Heading 4114 20 10, has been exempted from import duties (Ref: Sl No.455 of Customs Notification No.21/2002 dated March 1, 2002 as amended by Customs Notification No.66/2004 dated July 9, 2004) 
• Concessional import duty of 5% on machinery & equipments used by the leather & leather products Industry continues. This concessional duty has now been extended to non-leather footwear industry also, by virtue of amendment to Sl.No.257 of Customs Notification No.21/2002 dated March 1, 2002, which reads as under:
  
  Chapter No: 84 or 90 
  Description: Goods specified in List 34, designed for use in the leather industry or the footwear industry 
  
  This concession is available to 265 machinery & equipment specified in List 34 of the said notification as before. However, by virtue of withdrawal of CVD exemption, the import of listed machinery and equipment would now been subject to 16% CVD (Ref: Customs Notification No.66/2004 dated July 9, 2004) 
• 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 import of wattle extract continues to be exempted from 16% CVD, since this item enjoys excise duty exemption in terms of Sl.No.59 of Central Excise Notification No.6/2002 dated 1.3.2002 as amended. However, the CVD on other vegetable tanning extract like quebracho extract, chestnut extract, gambier extract etc falling under Chapter 32 would continue to be levied as no Central Excise duty exemption is available for such goods.
• 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. These goods continue to be exempted from CVD.
• The duty free facility to the extent of 3% of the previous year's FOB export value, available to the manufacturer-exporters of leather garments, continue to be available in terms of Sl.No.167 & 168 of Customs Notification No.21/2002 dated 1.3.2002 as amended. However, by virtue of general withdrawal of CVD exemption, the items namely lining and interlining materials specified under Sl.No.168 of the said Notification would now be subjected to 16% CVD. As such, while the Basic Customs duty continues to be exempted under the scheme, the lining and interlining materials would be levied 16% CVD 
• The duty free import facility to the extent of 1% of the previous year's FOB export value, to the manufacturer-exporters of various leather products continues to be available in terms of Sl.No.167A of Customs Notification No.21/2002 dated 1.3.2002 as amended. 
• All goods falling under Chapter 43.01 & 43.02 ie., raw, tanned, dressed furskins have been exempted from Basic Customs duty in terms of Sl No.150 of the Customs Notification No.21/2002 dated March 1, 2002

b) CENTRAL EXCISE DUTY

• Central Excise duty of 16% on footwear components, leather chemicals, articles of furskins etc remain unchanged. 
• As stated above, wattle extract continues to be exempted from Central Excise. 
• SSI units continue to be fully exempted from Central Excise duty for first clearances upto an aggregate value of Rs.1 crore, when CENVAT facility has not been availed, vide Central Excise Notification No.8/2003 dated March 1, 2003 as amended
• 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 of Central Excise Notification No.9/2003 dated March 1, 2003 as amended.
• The present Central Excise exemption for footwear of retail sale price (MRP) not exceeding Rs.125 per pair has been extended to footwear of MRP not exceeding Rs.250 per pair. However, the exemption will be available only when the MRP is indelibly marked or embossed on the footwear itself. Marking of MRP only on the package containing the footwear will not be sufficient for the purpose of availing this exemption (Sl.No.157 of notification No.6/2002-CE refers as amended by notification No.23/2004-CE)
• 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 as amended

c) SERVICE TAX

• Rate of Service Tax is being raised from 8% to 10% 
• Service tax is being imposed also on certain services such as business exhibition services, transport of goods by road, by a goods transport agency (only applicable to commercial concerns issuing the consignment note), Transport of goods by air etc 
• These changes will come into effect on enactment of Finance Bill (No.2), 2004.

d) EDUCATION CESS

• An Education Cess at the rate of 2% of the aggregate of duties of customs, excise and service tax has been imposed
• This Cess will be levied in respect of customs and excise duties with effect from 9.7.2004. In respect of service tax, the Cess will come into effect only on enactment of the Finance Bill 
• The Education cess will also be applicable on Income Tax and Corporate Tax 
• The following illustration explains the calculation of Education Cess in respect of Customs duty: 
  
  Landed Value (CIF) Rs.1000.00
  Customs Duty @ 20% Rs. 200.00
  Landed Cost Rs.1200.00
  CVD @16%+2% Education Cess thereon Rs . 195.84 (192+3.84)
  (aggregate percentage 16.32%)
  Total Customs duty Rs . 395.84
  Total Education Cess (2% of 395.84) Rs. 7.92

III OTHER ANNOUNCEMENTS

• Focus has been given to the regeneration of traditional industries, with an initial fund allocation of Rs.100 crore. The leather industry has been recognized as one of the traditional industries having great potential for growth and export. The Government would be working out the details including mechanism for utilization of the funds in consultation with the industries concerned. 
• An 'Investment Commission' would be established to make India an attractive destination for investment, and also to suggest measures for attracting domestic and foreign investments
•  Foreign Investment Promotion Board (FIPB) to be made a one-stop service centre
• National Manufacturing Competitiveness Council (NMCC) would be set-up, which would be a 'forum' for policy dialogue to energize and sustain the growth of manufacturing industries. The Council would also be suggesting industry- specific or sector-specific measures for enhancing competitiveness in the manufacturing sector. 
• Separate Bill for regulating Special Economic Zone would be introduced shortly, which would be a significant milestone to make India a major hub for manufacturing and exports.
• A broad consensus among the States to implement VAT with effect from April 1, 2005