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AProject Report on
Direct and Indirect taxes
By
Nisha Parmar
MBA 1st Year
A report submitted to Nis Academy
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Nis Academy
PROJECT COMPLETION CERTIFICATE
This is to certify that Nisha P Parmar, 1st year student ofNis
Academy, VADODARA, has completed her project work from
15-06-2010 to 24-07-2010 successfully and satisfactorily on
Direct & Indirect tax at RIL, Vadodara Manufacturing
Division for partial fulfillment of the course of MBA degree.
Date:- 24/07/2010
Place:- Vadodara
PREFACE
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TO BE AN MBA student is a matter of pride because you are in field, which
helps you to develop from a normal human being into a disciplined, and
dedicated professional. In the management field you cannot create success
stories if you are not a good learner. You need to be a good learner to sharpen
your knowledge in the particular field to achieve and attain the desired goalsand heights.
Mere bookish or theoretical knowledge cannot help you in any field whether it
is management, technology, research, or any other field. The only thing that can
help you is having a sound practical knowledge of the concerned field. As a part
of our learning in management field and also a requirement of the MBA
programmed, we have been very fortune to receive practical knowledge in one
of our countrys premier organization RELIANCE INDUSTRY (BARODA
COMPLEX)
I received our training at RIL as a requirement of the MBA curriculum. This
training has made us clear the difference between the theoretical knowledge and
the practical scenario, making us aware of the importance of practical working
conditions.
I have tried to present whatever knowledge, I gained and learned at RIL during
our training period in a very systematic manner.
ACKNOWLEDGEMENT
Nothing concrete can be achieved an optimal combination of inspiration
and perspiration. No work can be accomplished without the guidance of
the experts. It only the critiques from ingenious intellectuals that help
transform a product into a quality product.
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First, I would like to express my gratitude towards
Mr.A.K. Rastogi and Ms Chitra shah my faculty guide who always
helped and provided guidance during the course of my project.
Finally I am grateful to to Mr. SAWANT (Training Officer) who
provided all the necessary suggestions, information and guidance to
complete this project.
At last but not the least, I take an opportunity to appeal my profound
gratitude to my adorable and beloved parents for their everlasting love,
strong moral support, encouragement and personal sacrifice without which
I was unable to reach the present status of education
Nisha Parmar
History
1969
- The Corporation was incorporated on 22nd March, to manufactureand distribute synthetic organic chemicals, plastics, fibre andfibre intermediates from petroleum feedstock. It is thecountry's first petrochemical complex in the pubic sector. The
corporation was converted into a public limited company on 21stMarch, 1986.
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2000
- The Company has won British Safety Council's safety award forthe year 1999-2000 for recording the lowest number of accidents.
- Indian Petrochemicals Corporation Ltd (IPCL) has entered intoa long term agreement with Oil and Natural Gas Corporation(ONGC) Ltd for the supply of nearly 5,70,000 tonnes per year offeedstock for its 4,00,000 tonne ethylene cracker at Nagothane.
- IPCL has been awarded excellent performance certificate' bythe Ministry of Heavy Industries and Public Enterprises for
achieveing competitive targets for the year 2000-2001.
- Operations at State-run Indian Petrochemicals CorporationLtd.'s plant in Baroda were partly affected after a minor fire
broke out near one of its units. A minor fire broke out in anelectrical sub-station near the Vinyl Chloride Monomer plant on20th of November.
2001
- Indian Petrochemical Corporation Ltd. said it will sell itsVadodara plant to Indian oil Corporation by next month.
- Indian Petrochemicals Corporation has signed memorandum ofunderstanding with the Government of India, department ofchemicals and petrochemicals for fiscal 2001-02.
- Indian Petrochemical Corporation has registered a 70 per centincrease in export turnover in fiscal 2000-01. The exportturnover was Rs 291 crore against Rs 171 crore in the previousfiscal. The combined capacity utilisation of all operating
plants of IPCL located at Baroda, Gandhar and Nagothane was over98 per cent.
2002
-RIL acquired 26% stake and management control in its major rivalIPCL which created a monopoly in the domestic market and also a
major force in the petro industry.
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-IPCL appoints Manjula Subramaniam as part time official directorto the board.
-GOI to divest 26% equity in IPCL to the strategic partner by
march-02.
-IPCL signs long term wage revision agreement with labour unionsin its petrochemical complexes and chalks out wage hike package.
-IPCL redeemed FCCB of US 6m, which is one of the highestredemption in US dollars at a stroke for any foreign currency issue
by an indian corporate.
- ONGC refuses to supply gas to IPCL as per existing contact after
its sell-off.
2003
-Net profit of the company increased by 90% due to the cut ininterest cost.
-IPCL sacks 167 employees at Vadodara plant.
-Company has registered 18% growth in the production in its firstyearunder Reliance group.
-Company announced one time Voluntary Retirement Schemeto all its employees on medical ground, which cost thecompany over Rs.150cr.
-IPCL and RIL mandated SBI and ANZ for raising 0m loanthrough ECB route and succeeded in baging the loan
for a term of 5 years.
2005
- Shri Anil D Ambani has January 03, 2005, addressed a letter to ShriMukesh D Ambani, Chairman of the Company, tendering his resignation asVice Chairman and Director of the Company with a request to accept hisresignation.
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VISION
Be a globally preferred business associate With responsible concern for
ecology,Society and stakeholders value.
MISSION
Continuously innovate to remain partner in human Progress by harnessing
science and technology In the petrochemicals domain.
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Board of Directors of Reliance Industries Limited
Founder chairman Reliance group
Board of Directors of Reliance Industries Limited
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Shri Mukesh D. Ambani
Chairman & ManagingDirector
Shri Nikhil R.Meswani
Executive Director
Shri Hital R. MeswaniExecutive Director
Shri PMS PrasadExecutive Director
Shri P.K.KapilExecutive Director
Shri Ramniklal H.Ambani
Shri Mansingh L.Bhakta
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Shri Yogendra P.Trivedi
Dr. D. V. Kapur Shri M. P. Modi
Prof. Ashok Misra Prof. Dipak C Jain Dr. Raghunath
Major Milestones
2009
RIL joins the league of global deepwater oil and gas operators - RILcommenced production of hydrocarbons in its KGD6 block in theKrishna Godavari basin with the production of sweet crude of 420 API.The production of oil in KG-D6 was commissioned in just over two
years of its discovery, making it the worlds fastest green-field
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deepwater oil development project.
With the commissioning of the new refinery in its Special EconomicZone (SEZ), Jamnagar has now become the petroleum hub of the world.
With 1.24 Million Barrels Per Day (MBPD) of nominal crudeprocessing capacity, it is the single largest refining complex in theworld.
RPL merger with RIL: Value creation through scale and synergies - Themerger of Reliance Petroleum Limited (RPL) with Reliance IndustriesLimited (RIL) has enabled seamless integration of operational scale andfinancial synergies that existed between the two Companies. Assets andliabilities of RPL have been transferred to RIL with effect from 1stApril 32008, as per the approval granted by the Hon. High Courts of
Mumbai and Gujarat. Shareholders of RPL received 1 share of RIL inlieu of every 16 shares of RPL held by them, as per the scheme ofmerger. Accordingly, 6.92 crore new equity shares of RIL have beenallotted to the shareholders of RPL.
2008
During the year, Reliance signed an agreement to acquire certainpolyester (capacity) assets of Hualon, Malaysia.
In the Refining & Marketing business, Reliance took over majoritycontrol of Gulf Africa Petroleum Corporation (GAPCO) and startedshipping products to the East African markets.
Reliance also signed MoU with GAIL (India) Limited to exploreopportunities of setting up petrochemical plants in feedstock richcountries outside India.
Reliance Petroleum Limited (RPL) continued the second year of
implementation of its refinery project with an overall project progress of90%.
During the year, Reliance Retail Limited (RRL) continued its rollout ofstores across various verticals and formats. Reliance Retail todayoperates over 590 stores in 57 cities, spanning 13 states, with over 3.5million square feet of trading space.
2007
Value creation through integration - A landmark merger of IndianPetrochemicals Corporation Limited (IPCL) with Reliance Industries
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Ltd. (RIL) has been completed.
Reliance Retail entered the organised retail market in India with thelaunch of its convenience store format under the brand name of
Reliance Fresh.
The worlds largest polyester expansion project commissioned duringthe year. We brought a Polyester capacity of 550 KTA on stream atglobally competitive costs in a record time of eighteen months. Withthis expansion, our polyester capacity has been augmented to 2 milliontonnes per year. Subsequently, Reliance now have 4% of global
polyester capacity and 6% of global production.
During the year, we expanded our polypropylene (PP) capacity by 280
KTA at Jamnagar that increased the combined capacity to 1,710 KTA.With this expansion, we now have 3.5% of global PP capacity and 3.6%of global PP production.
2006
RIL commences the setting up of a new export-oriented refinery throughits subsidiary, Reliance Petroleum Limited (RPL). The refinery willhave a total atmospheric distillation capacity of approximately 580,000
barrels per stream day with a Nelson Complexity of 14.0 and anintegrated polypropylene plant with a capacity of 0.9 Million TPA. Thecapital cost of the RPL project is estimated at Rs 27,000 crore(approximately US$ 6 billion). RPL completes its US$ 1.2 billion InitialPublic Offering of equity shares which received an overwhelmingresponse across different classes of investors.
Reliance's debt ratings from S&P and Moody's pierce India's sovereignratings.
Reliance becomes India's first private sector enterprise to cross US$2billion profit mark.
2005
The Mumbai High Court, shareholders and creditors approve demergerproposal
2004
Reliance Industries Limited (RIL) emerged as the 'Petrochemicals
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Company of the Year' at the prestigious sixth annual Platts GlobalEnergy Awards ceremony in New York, USA
The Board of Directors of Reliance Industries Limited approved the
buyback of its fully paid up equity shares of Rs.10 each, at a price notexceeding Rs 570 per share, payable in cash, up to an aggregate amountnot exceeding Rs 2,999 crore. This amount represents the limit of 10%of the total paid up equity share capital and free reserves of theCompany as on March 31, 2004.
The European Commission approved the acquisition of the Germanspecialty polyester manufacturer 'Trevira' by Reliance.
Reliance Industries emerged as the first and only private sector company
from India to feature in the 2004 Fortune Global 500 list of World'sLargest Corporations.
Reliance announced it had struck gas off the Orissa Coast in the Bay ofBengal.
RIL became the first private sector company in India to record a netprofit of US dollar of over 1 billion.
Reliance Associate, Sunbright, signed a Memorandum of Understanding
(MoU) with National Organic Chemicals Industries Limited (NOCIL) totake over its Petrochemicals and Plastics Products Divisions.
2003
Reliance announces Strategic Alliance with Bongaigaon Refinery &Petrochemicals Ltd. (BRPL) to restart PSF manufacturing at BRPL.
Reliance Infocomm acquires FLAG Telecom, a multinational telecomcompany providing bandwidth through its undersea cable network
comprising of over 50,000 kms of undersea fiber optic cable that spansfour continents and connects the key regions of Asia, Europe, MiddleEast and the USA.
State-of-the-art Research and Technology Centre is inaugurated atReliance's Patalganga complex to develop differentiated polyester
products.
Reliance strikes oil in an onshore block in Yemen, where it has anequity oil position.
Reliance's refinery at Jamnagar was ranked best in Shell Benchmarking
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for the third consecutive year in 'Energy and Loss' performance fromamongst 50 refineries worldwide.
Reliance dedicates 23rd January as Shareholder's Day on the occasion of
25 years of the company going public - A story of Relationship andTrust.
BSES, one of the premier utility companies of the country, engaged inthe generation, transmission and distribution of electricity becomes partof the Reliance Group and Mr. Anil D Ambani is appointed itsChairman.
2002
Reliance Infocomm to launch various telecom services on 28thDecember - beginning with Gujarat, the Infocomm revolution will coverthousands of villages and hundreds of cities across the country. RelianceInfocomm will become a major catalyst for changing the face of Indiaand improving the quality of life of Indians.
Reliance announced India's biggest gas discovery in nearly threedecades and one of the largest gas discoveries in the world during 2002.The in place volume of natural gas is in excess of 7 trillion cubic feet,
equivalent to about 1.2 billion barrels of crude oil. This is the first everdiscovery by an Indian private sector company.
Reliance acquired control of Indian Petrochemicals Corporation Limited(IPCL) - India's second largest petrochemicals company.
Reliance signed MOU with DuPont Polyester Technologies to licensethe revolutionary resin technology NG-3 from DuPont. Relianceannounced its plan for the expansion of PET capacity by 220,000 tonnes
per year.
The merger of Reliance Petroleum Limited with Reliance IndustriesLimited was announced - largest ever merger in India - RelianceIndustries became the largest private sector company in India on allmajor financial parameters including sales, profits, net worth, assets,and exports.
2001
Reliance Industries Ltd. and Reliance Petroleum Ltd. became India's
two largest companies in terms of all major financial parameters
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Dhirubhai Ambani was conferred The Economic Times Award forCorporate Excellence for Lifetime Achievement
1999-2000
Jamnagar Petrochemicals complex and bulk of integrated refinerycomplex commissioned comprising:
World's largest grassroots refinery
India's largest port with capacity of 50 million tpa
World's largest PX Plant of 1.4 million tpa
World's largest PP plant of 0.6 million tpa
Captive power plant of over 300 MW
World-class product handling, storage, and despatch facilities
Reliance started commercial production of 27 million tpa refinery, the5th largest in the world
1998
Dhirubhai Ambani was awarded the Dean's Medal by the WhartonSchool, University of Pennsylvania, USA, for setting an outstandingexample of leadership.
Reliance completed phase-II expansion of Hazira Petrochemicals
Complex including world's largest multifeed cracker, PET plant, MEGplant, PTA plant, PE plant
1996-1997
First corporate in Asia to issue 50 and 100 years bond in US debt market
Reliance became the first private sector company to be rated byinternational credit rating agencies. S&P rated BB+, stable outlook,
constrained by the Sovereign Ceiling. Moody's rated Baa3, Investmentgrade, constrained by the Sovereign Ceilings.
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1995
Net profit crossed the Rs 1,000 crore mark (Rs 1,065 crores or US$ 338million), unparalleled in the Indian Private sector
1994
Reliance offered the second Euro issue of GDR
1993
Reliance Petroleum Limited public issue - India's largest public offering.
Reliance pioneered the first ever Euro Convertible Bond issue by anIndian company.
1992
Reliance raised funds by pioneering foray into overseas capital marketswith first ever international GDR offering by an Indian corporate.
Reliance commenced the production of High Density Polyethylene(HDPE) at Hazira.
1991
Reliance commissioned phase-I of Hazira Petrochemicals Complex -consolidated its position in polyesters and entered into attractive
polymers business - started VCM and PVC plants.
1988
Reliance started the PX plant at Patalganga
1987
Reliance commenced the Linear Alkyl Benzene (LAB) plant atPatalganga
1986
Reliance started PTA plant at Patalganga.
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Reliance commissioned Polyester Staple Fibre (PSF) plant atPatalganga.
1985
Reliance entered phase-II of the Polyester Filament Yarn (PFY) plant atPatalganga.
1982
Reliance launched phase-I of the Polyester Filament Yarn (PFY) plant at
Patalganga.
1977
Reliance went public with IPO - Dhirubhai Ambani introduced equitycult in India, a new model of business leadership from a base of the
broadest public shareholding.
EXECUTIVE SUMMARY
I,Nisha P Parmar student of NIS ACADEMY, Vadodara, have completed
summer training as a part of MBA programme of 6 weeks at RIL Vadodara.
I have completed my training at material (finance) department. My area of work
was on direct and indirect taxes .I undertook a unique, step-by-step
methodology for preparation of the report. Reference books, RIL internal portal,
website, and the data available at central stores really help me to make this
report valuable.
In this report first I have given the general information regarding the company.
It includes the history of company; its disinvestments, milestones, board of
directors, quality policy, financial position of the company, and the products. I
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have also given the functional department of the company like Production
department, stores, finance department, etc.
In the second part, I have focused on my core project regarding the direct and
indirect taxes at RIL. In the end, the conclusion and the bibliography are given.
The report totally depends on the secondary data and it may be possible that the
data from which the report is made may not appear in the report because some
data is confidential for the company.
Nisha Parmar
DECLARATION
I,Nisha Parmar, hereby declare that the report on Summer
Training entitled Direct and Indirect taxes is a result of
my own work and my indebtedness to other work
publications, if any, have been duly acknowledged.
Place: Baroda
Date: 3/8/2010 Nisha Parmar
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Products & Brands
The Company expanded into textiles in 1975. Since its initial public offering in1977, the Company has expanded rapidly and integrated backwards into otherindustry sectors, most notably the production of petrochemicals and the refiningof crude oil.
The Company from time to time seeks to further diversify into other industries.The Company now has operations that span from the exploration and
production of oil and gas to the manufacture of petroleum products, polyesterproducts, polyester intermediates, plastics, polymer intermediates, chemicalsand synthetic textiles and fabrics.
The Company's major products and brands, from oil and gas to textiles aretightly integrated and benefit from synergies across the Company. Central to theCompany's operations is its vertical backward integration strategy; rawmaterials such as PTA, MEG, ethylene, propylene and normal paraffin that were
previously imported at a higher cost and subject to import duties are nowsourced from within the Company. This has had a positive effect on the
Company's operating margins and interest costs and decreased the Company'sexposure to the cyclicality of markets and raw material prices. The Company
believes that this strategy is also important in maintaining a domestic marketleadership position in its major product lines and in providing a competitiveadvantage.
The Company's operations can be classified into four segments namely:
Petroleum Refining and Marketing business
Petrochemicals business
Oil and Gas Exploration & Production business Others
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The Company has the largest refining capacity at any single location.
The Company is:
Largest producer of Polyester Fibre and Yarn
4th largest producer of Paraxylene (PX) 5th largest producer of Polypropylene (PP)
7th largest producer of Purified Terephthalic Acid (PTA) and MonoEthylene Glycol (MEG)
PLANTS
The Vadodara Complex houses 21 plants on over nearly 500 hectares of land
and produces large variety of products consisting of Linear Alkyl Benzene,Acrylic Fibers, Acrylic Esters, Ethylene Glycol, Polyvinyl chloride,
Polyethylene, polypropylene, Butadiene rubber, etc. The company's registered
office is located in Vadodara Complex and that was the first manufacturing
facility setup by the company.
NAME OF PLANTS CAPACITY (MT)
Naphtha cracker (ethylene) 130000
LDPE plant 110000
Ethylene glycol 20000
VCM plant 57300
PVC plant 60000
PPCP plant 25000
PP4 plant 75000
Acrylonitrite plant 30000
Acrylates plant 10000
Butadiene extraction plant 54000
Poly butadiene rubber plant -| 20000
Poly butadiene rubber plant - || 30000
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COMPANY LOGOS
The first logo, which consisted of a tetrahedron -
representing the molecular structure of the simplest organic chemical, methane -
in a circle.
This decision of the government, Everything under one
roof inspired the second logo of IPCL. IPCL took up the challenge of setting
up the entire integrated complex at Vadodara. IPCL, as a
corporate entity, is and what it shall strive to be. This symbol, or logo, reflects
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what IPCL is a single matrix of the many; a diversity of activities and products,
emerging from one sourceand branching out in different directions, yet retaining
its unity and identity. The lines flow upwards and outwards from a common
base into infinity, reaching for unending growth, universal goodwill, general
prosperity and excellence in everything. The green colour used in the design
reinforces the theme - aspiration and growth, rooted in the earth and in harmony
with the other elements - water, light, air and space.
The government of India handled over management control to Reliance group
on June 4, 2002, since then the company is being managed by reliance.
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Organizational Hierarchy of Finance of RIL(VMD)
DEPARTMENTS UNDER FINANCE DEPARTMENT:
Finance and Accounting- head MIS Material Costing Salary payments Budgeting
SWOT ANALYSIS OF RELIANCE INDUSTRIES LTD.
Strengths:
Consolidation: The Indian petrochemicals industry has witnessed
consolidation over the last few years and nearly 85% of the polymer
capacity in the domestic market is with the top three participants
(Reliance, IPCL and Haldia Petrochemicals (HPL)). Of the three
companies mentioned, IPCL forms a part of the Reliance stable while
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GAIL is set to pick up stake in HPL. Such high concentration is likely to
benefit these players, as this would help reduce duplication of production.
Synergies: Most of the petrochemical players have integrated facilities,
thereby reducing external dependence to a large extent. To put things inperspective, Reliance Industries uses naphtha from its own Jamnagar
refinery as a feedstock for the petrochemicals production. IPCL uses
Reliance's vast and widespread marketing network to reach out to global
consumers. On the other hand, GAIL utilizes natural gas for its
petrochemicals capacity. Rich natural gas is evacuated into the pipelines
and after separation of the hydrocarbons such as ethane, propane and
butane, the lean gas is transmitted to consumers such as power and
fertilizer industry. Further, petrochemicals business being a high value
add, would add further to the profitability of these integrated companies.
Weaknesses:
Low bargaining power vis--vis the suppliers: Input costs form nearly
50% to 60% of the raw material costs. Further, gas prices are regulated
but in short supply, while naphtha is an expensive source of feedstock.
Refineries realize the import parity prices on naphtha produced and in
case of high feedstock prices, petrochemical players have little bargaining
power against the suppliers. These players are therefore vulnerable to rawmaterial prices.
Low Bargaining power vis--vis customers: In case of increase in input
costs, the companies might not be able to pass on the rise to the
consumers as the prices of products is highly influenced by factors such
as international prices and supply.
Opportunities:
Low per capita consumption: Currently, domestic per capita polymer
consumption is nearly 4 kgs while the global average is nearly 20 kgs.
This underlines the fact that there is immense scope of capacity
expansion in the country as the market to be tapped is huge. Further,
spending on R&D activities is around 2% of sales as compared to an
international average of 18%. This leaves enough room for product
development. Also, currently, India has a chemicals trade deficit of about
US$ 1.5 bn a year, which leaves enough investment opportunities in theindustry.
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Increased economic activity:The government has set aside nearly Rs
400 bn for infrastructure projects such as roadways, airports and
convention centers and also towards rural housing augur well for the
petrochemicals industry as this is likely to increase demand for various
products (high density polyethylene, low density polyethylene amongothers) for the purpose of road development, packaging, cables and
wiring. Also sustained growth in the auto sector is likely to keep the
demand for petrochemical products high. As per our estimates, the auto
sector is likely to grow at nearly 12% over the next few years.
Threats:
Customs duties: Historically, the domestic industry has been protected
from overseas competition by high import duties imposed by the
government. However, of late, Import duty on polymers has been steadilyreduced and is currently at 20%. As part of its commitment to various
multilateral and bilateral trade agreements, the government is likely to
reduce duties going forward and this is likely to reduce the cushion
enjoyed by the domestic players as against the landed cost of imported
products.
Growing competition: The domestic industry is likely to witness
immense competition going forward with IOC all set to enter the segment
with its Rs 64 bn project in FY06. Further, ONGC is also venturing intopetrochemicals business. With commitments to reduce and eliminate
tariff and non-tariff barriers, India, with huge market potential, might
witness entry of global majors such as ExxonMobil, Dow Chemicals and
Shell into the business. These global majors with deep pockets can
actually lead into a pricing war, which could result in squeezing margins.
The above analysis is just to provide a view of the sector and by no way
advocates any opportunities to invest in the petrochemicals sector. Taking a cue
from their global counterparts, Indian majors such as IOC and ONGC are
entering into this value add business in a huge way and this is likely to change
the entire business dynamics of the companies, not only in India but Asia as
Asia is fast becoming the largest petrochemicals manufacturing hub. Going
forward, investors need to be aware of this reality and make informed
investment decisions in the energy sector.
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TDS
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&TCS
What is TDS?
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TDS is Tax Deducted At Source.
When an employee is drawing a salary of Rs. 1,50,000, his employer is liable
to deduct TDS (read Income Tax) on his salary part above Rs. 1,50,000 once theemployee claims all his/her savings done through LIC, Insurance schemes, PPF,
Children School Fees, EPF, House Loans etc.
At the end of the year, the employer issue TDS Certificate in the form 16A
which employee submit with the Income Tax Return to the Income Tax
department while filing ITR.
Assesses pays tax in the assessment year on income earned in previous year.
Due to this rule the tax collection is delayed till the completion of the previousyear. Even sometimes people conceal their income and the tax is not paid at all.In order to overcome these problems, government started to deduct someamount of tax from the amount which is receivable by the assessee. The amountof tax so deducted is called as "Tax Deducted At Source" or TDS in India.
AdvanceTax In some cases, the assessee is required to make a payment ofadvance tax. Such taxes paid in advance are called prepaid taxes.
Tax deduction is mainly done to reduce ones taxable income. In a way taxdeductions can reduce the taxable income and thus provide tax relief.
Tax deducted in this manner needs to be deposited in the Government treasuryand assigned to the Central Government, within a stipulated time period. IndianGovernment is adhering to the policy of TDS to broaden its tax bracket in thecountry. Income gained through several sources falls under the tax deduction atsource or TDS scheme. Some of such income that is subjected
Salary.
Interest.
Rental fee.
Interest on Securities.
Insurance commission.
Dividends from shares and UTI/Mutual Funds.
Commission and brokerage.
Prize money won from lotteries, horse races, etc.
Payments to non-resident sportsmen or sports associations.
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Commission on sale of lottery tickets.
Fees for professional and technical services and the like.
Compensation for compulsory acquisition.
Income from units of an offshore fund. Income from foreign currency bonds or shares of Indian Companies
(unless specified as tax-free).
TDS rates for Financial Year 2010-11
Male Female Senior CitizenTax
(%)
For Income Between 0
to 1,60,000
For Income Between 0
to 1,90,000
For Income Between 0
to 2,40,000 0
For Income Between
1,60,001 to 5,00,000
For Income Between
1,90,001 to 5,00,000
For Income Between
2,40,001 to 5,00,000
10
For Income Between
5,00,001 to 8,00,000
For Income Between
5,00,001 to 8,00,000
For Income Between
5,00,001 to 8,00,000
20
For Income above
8,00,001
For Income above
8,00,001
For Income above
8,00,001
30
Surcharge 0
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Education Cess 3
For Example:--
If salary of an employee is 20,000 p.m. then 1,60,000 will be exempted from tax
and his remaining salary i.e. 80,000 will be taxable.
2,40,000
- 1,6 0,000
80,000
TDS should be paid in 7th of the next month,
If TDS is paid after 7th then interest will be charged,
TDS certificate is issued to employee on quarterly basis,
TDS is deducted either, At the time of payment or
At the time of credit {whichever is earlier}
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How to record journal entry for TDS on salary on quarterly basis?
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Date
Particular L
f
n
o
De
bit
(Rs
)
Credit
(Rs)
1 Salary A/C. . . ..
Dr
30,
000
To TDS A/C 5,000
To salary payable A/C 25,000
(Due entry)
2 TDS A/C.
Dr
5,0
00
Salary payable A/C.
Dr
25,
000
To Bank A/C 30,000
(Payment entry)
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What is TCS?
TCS is tax collected at source. When company sells its scrap then it collects tax
from vendor it is TCS.
For Example
If company sells its scrap worth Rs 1oo and if TCS is 1% then company will
collect Rs101 from vendor,
100 (Sale)
+ 1 (TCS)
101 (collected from vendor)
TCS is not collected on all scrap it depends on different products.
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e-Payment
Income Tax Department
Tax Applicable*(Tax Deducted/Collected At Source From)
(0020)COMPANY
DEDUCTEES
(0021)NON-
COMPANY DEDUCTEES
Challan No./
ITNS
281
Tax Deduction
Account No*
Assessment
Year*
Assess ment Year
Full Name*
Flat/Door/BlockNo. Name ofpremises/Building/
Village
Road/Street/Lane Area/Locality
City/District* State*State
Pin Code *
Email ID
Mobile No.
Type Of Payment*
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(200)TDS/TCS Payable by Taxpayer(400)TDS/TCS Regular
Assessment (Raised by I.T. Deptt.)
Nature
Of
Payme
nt*
1 9 3 - In t e r e s t o n S e c u r i tie s
Bank Name*Bank Name
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SERVICE TAX
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What is service tax?
The scheme of the taxation in India for long concentrated only taxation of
goods whether it was excise duty or customs duty.
Only marginally the states used to levy some cess / surcharge etc. on
water or electricity.
But the union government was constrained in the nineties to look for
scope for taxation of service as the requirements of revenue for meeting
various expenditure of the government.
Services are necessary adjunct to any distribution of goods primarily.
Even otherwise there are many services which have no link with the
manufacture / distribution of goods.
But services have a positive nexus with the growth and development the
economy.
Roughly over 50% of the contribution to GDP in India comes from the
service sector.
The Tax Reforms Committees recommended for the first time tax onservices primarily as a measure of broadening the base of indirect taxes.
Even the expert group on Taxation of services constituted by the
Government of India recommended that there should be a revenue
generating tax reform & service sector was stated to be the engine if
economic growth in number of growing economics.
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List of the services:-
Sl. no. Nature of services Effective date1. Stock broker 1-7-19942. Telephone connection 1-7-19943. General insurance 1-7-19944. Paging service 1-11-19965. Advertising agency 1-11-19966. Courier service 1-11-19967. Consulting engineers 7-7-19978. Customs house agents 15-6-1997
9. Steamer agent 15-6-199710. Clearing and forwarding including consignmentagent
16-7-1997
11. Manpower recruitment agency 7-7-199712. Air travel agency 1-7-199713. Mandap keeper 1-7-199714. Tour operator 1-9-199715 Rent-a-cub operator 16-7-199716 Architects 16-10-199817 Interior decorators 16-10-1998
18 Management consultants 16-10-199819 Practicing chartered accountants 16-10-199820 Practicing cost accountants 16-10-199821 Practicing company secretaries 16-10-199822 Real estate agents/ real estate consultants 16-10-199823 Credit rating agencies 16-10-199824 Private security agencies 16-10-199825 Market research agencies 16-10-199826 Underwriting agencies 16-10-1998
27 Photography services 16-7-200128 Convention services 16-7-200129 Scientific and technical consultancy services 16-7-200130 Consulting services 16-7-200131 On-line information and data-based access 16-7-200132 Insurance auxiliary service 16-7-200133 Authorized service stations of motor car 16-7-200134 Broadcasting services 16-7-200135 Sound recording 16-7-2001
36 Leased circuit 16-7-200137 Port services 16-7-2001
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38 Telex services 16-7-200139 Facsimile services 16-7-200140 Video tape production agency 16-7-200141 Telegraph services 16-7-2001
42 Banking and other financial services 16-7-200143 Beauty parlors relating to beauty treatment 16-8-200244 Cable operators 16-8-200245 Cargo handling excluding service provided in
relation to export cargo and passenger baggage16-8-2002
46 Storage and warehouse 16-8-200247 Event management 16-8-200248 Fashion designing 16-8-200249 Rail travel agent 16-8-200250 Dry cleaning service 16-8-200251 Life insurance including insurance auxiliary
services relating thereto16-8-2002
52 Banking and financial service provided by a bodycorporate other than a banking company,including non-baking financial services
16-8-2002
53 Commercial training or coaching services 1-7-200354 Technical testing and analysis and technical
inspection and certification1-7-2003
55 Commissioning and installation service 1-7-2003
56 Maintenance and repair services 1-7-200357 Business auxiliary services 1-7-200358 Internet cafes 1-7-200359 Franchise services 1-7-200360 Repair if light motor vehicles by authorized
service stations1-7-2003
61 Forex brokers 1-7-200362 Business exhibition service 10-9-200463 Airport services 10-9-2004
64 Goods transport agency 10-9-200465 Transport of goods by air 10-9-200466 Survey and exploration of mineral 10-9-200467 Opinion poll services 10-9-200468 Intellectual property services other than copy right 10-9-200469 Forward contract services 10-9-200470 Pandal or shamiana service 10-9-200471 Outdoor catering services 10-9-200472 TV and radio program production 10-9-200473 Construction, repair, alteration or similar services
in respect of commercial building and civil10-9-2004
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structure74 Travel agents 10-9-200475 Transport of goods through pipeline or other
conduit16-6-2005
76 Site preparation and clearance, excavation, earthmoving and demolition services 16-6-2005
77 Dredging services of rivers, ports, harbors andbackwater
16-6-2005
78 Survey and map making other than bygovernment
16-6-2005
79 Cleaning services other than in relation toagriculture
16-6-2005
80 Membership of clubs or association 16-6-200581 Packing services 16-6-2005
82 Mailing list compilation and mailing 16-6-200583 Construction of residential complexes having
more than 12 residential houses16-6-2005
84 Registrar to an issue 1-5-200685 Share transfer agent 1-5-200686 Automated teller machine operations or
management1-5-2006
87 Recovery agent 1-5-200688 Sale of space or time for advertisement, other than
in print media
1-5-2006
89 Sponsorship services provided to any bodycorporate
1-5-2006
90 Transport of passengers embarking oninternational journey by air other than in economyclass
1-5-2006
91 Transport of goods on containers by rail providedby any person other than government
1-5-2006
92 Business support services 1-5-200693 Auctioneers services other than in relation to
auction of property under direction of a court oflaw
1-5-2006
94 Public relation service 1-5-200695 Ship management services 1-5-200696 Internet telephony services 1-5-200697 Transport of persons by cruise ship 1-5-200698 Credit card, debit card or other card related
services1-5-2006
99 Services in relation to the execution of woks
contracts
1-6-2007
100 Renting of immovable property for use in the 1-6-2007
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course of business101 Services in relation to the execution of works
contracts1-6-2007
102 Development and supply of content service for
use of telecom service providers
1-6-2007
103 Asset management including portfoliomanagement and all forms of fund management
1-6-2007
104 Design services 1-6-2007105 Telecommunication services 1-6-2007106 Services provided in relation to information
technology software for use in business16-5-2008
107 Services provided in relation to management ofinvestment under VLIP scheme
16-5-2008
108 Services provided by recognized stock exchange
in relation to securities
16-5-2008
109 Services provide by commodity exchanges inrelation to sale or purchase of any goods
16-5-2008
110 Services provided by a processing and clearinghouse in relation to securities / goods / forwardcontracts
16-5-2008
111 Services provided in relation to supply of tangiblegoods without transferring right of possession andeffective control of goods
16-5-2008
112 Internet telecommunication services 16-5-2008113 Transport of good through rail 1-9-2009114 Transport of coastal goods, gods transported
through inland water / national waterways1-9-2009
115 Legal consultancy services 1-9-2009116 Cosmetic and plastic surgery services 1-9-2009
REGISTRATION
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Single Service Multiple Service
One Premise Multiple Service One Premises Multiple
Service
Centralized Independent Single Multiple Centralized
Independent
A/C & A/C & Brand Brands A/C & A/C
&
Billing Billing Name Names Billing
Billing
Single Centralized Independent Single Multiple Centralized
Independent
Reg. Reg. Reg. Reg. Reg. Reg. Reg.
PROCEDURE FOR REGSTRATION OF SERVICE TAX:-
1. FORM: the application should be submitted in form no ST-1.
2. TIME LIMIT: WITHIN THE 30 DAYS FROM THE DATE ON
WHICH-
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a. service tax is levied, or
b. Business is commenced, whichever is later.
1. SUBMISSION: the application should be submitted to the Superintendent
of Central Excise or such other person notified by the Central Governmenthaving jurisdiction over the place of business of the service provider.
2. DOCUMENT TO BE ENCLOSED:
GENERAL CENRALISEDREGISTRATION
a) Proof of address.b) Copy of Permanent
Account Number (PAN)card or PAN allotmentletter.
c) Articles of association andmemorandum of association(for companies).
d) Copy of partnership deed(for partnership firms).
e) In case of professionals likeCAs, CS, etc. who aremembers of professionalinstitutes and have beengranted certificate of
practice, a copy of suchcertificate may also beattached.
f) Extract of board resolutionauthorizing any of thedirectors / employees of the
company to sign, deal andcomply with service taxprovisions.
a) Residential address of theproprietors / partners.
b) Name and address of theauthorized signatory
c) Address and telephone nos.of the premises / officewhere centralizedaccounting / billing is beingcarried out.
d) Proof of address of thepremises / office sought tobe centrally registered.
e) PAN / TAN No. of theassesses.
f) Whether the application ison the basis of Centralized
billing or centralizedaccounting system.
g) List of taxable services /services to be rendered.
h) List of branches, offices or
premises of the assessesalong with postal addresses,e-mail addresses andtelephone numbers.
i) Information whether recoveries are affectedthrough credit / debit notes.
j) previous years auditedbalance sheet, if any
k) Reasons for seeking
centralized registration.
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1. Certificate Of Registration:
a) The Jurisdictional Superintendent of Central Excise, after due
verification of the application, will issue the certificate of registration
in FORM ST-2 within 7 days from the date of receipt of the
application.
b) If the registration certificate is not granted within 7 days, the
registration applied shall be deemed to have been granted. [Rules
4(5)].
c) Where the application for registration submitted by the assesses
contains more than one taxable service, the Certificate of registrationshall also indicate details ofall taxable services provided by him.
What is service tax code number:-
1. SCT is a 15 digit alpha numerical code obtained by the service provider
on an application made to Jurisdictional Superintendent of the central
excise.2. It is a combination of Permanent Account number (PAN) + alpha code
(ST) + Numeric code Example: AABCC5588K-ST-001.
3. SCT code will be allotted within 3 working days from the date of
application in the prescribed format by the Assistant Commissioner /
Deputy Commissioner.
4. It is mandatory to quote the STC number on all documents relating to
service tax.
5. In respect of e-filling of service tax returns, STC is referred to as STPcode without which e-filling is not possible.
Checklist for validation of vendor service tax invoice:-
Sr.No.
Particular
1 Pre printed / computer generated / typed serial No. and date. Invoiceserial number should not contain any alpha-prefix/alpha-suffix, e.g. 113-A, 1134-A/1. It should be purely numerical.
2 Name, address and the registration no. of the service provider3 The name and address of the person/company receiving taxable service.
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4 Description and category of taxable service provided.5 Value of taxable service provided, with abatements applicable, if any,
with relevant notification No. and date / declaration, for the same.6 Rate of the service tax and amount payable.
7 Rate of Education cess / SHE cess & amounts payable [ should be shownseparately]8 Bill should be raised from the office of the service provider for which
service tax registration is obtained.9 Corrections in the bill / invoice / challan, if any, should be made neatly
under the signature of a person who has signed the invoice. Use ofcorrection fluid is not permitted.
10 Location / plant where service is rendered need to be indicated.11 Copy of existing service tax registration certificate of the service provider
must be on our record. (and fresh copy of registration to be demanded in
case of addition of a new service category)12 It is noticed that many service providers are raising bills claiming
abatement for the rate of service tax. claim of abatement warrants certaindeclaration in the service providers invoice stating that specified credithave not been availed by them,
13 Invoice need to be original copy on Letter Head of service provider ifinvoices are not pre-printed. Invoice on plain paper is not a validdocument.
14 Period of service to be mentioned in the invoice. It should be a month of
from to date or quarterly, half yearly, yearly, as the case may be.
Journal entries of service tax (Example)
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Sr.
no.
Particular Debi
t
(Rs.
)
Cred
it
(Rs.)
1 When the service received:-
Professional service
a/c. Dr.
To Provision for liabilities for service
a/c..
100
100
2. Provision for liabilities for service
a/c. Dr.
To vendor
a/c
To TDS
a/c
100
90
10
3 Service tax receivable
a/c.... Dr.
Education cess receivable
a/c... Dr.
Secondary and higher secondary education cess
receivable a/c. Dr.To vendor
a/c
To TDS liabilities a/c (10%)
..
10
.2
.1
9.27
1.03
4 Vendor
a/c
.. Dr.
To bank
a/c
99.2
7 99.2
7
5 TDS liabilities
a/c
. Dr.
To bank
a/c
.
1.03
1.03
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Excise Duty
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CENTRAL EXCISE DUTY-1944
INTRODUCTION
An excise or excise tax (sometimes called an excise duty) is a type of taxCharged on goods produced within the country (as opposed to customsDuties charged on goods from outside the country). It is a tax on theManufacture of excisable good.Typical examples of excise duties are taxes on tobacco, alcohol andGasoline.
Definition
The New Oxford English Dictionary says the same thing: "a tax levied onCertain goods and commodities produced or sold within a countryAnd on licenses granted for certain activities
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APPLICABILITY OF EXCISE DUTYAs per section 3 of Central Excise Act (CEA) excise duty is levied if: -
If There is a good,1. Goods must be moveable2. Goods are marketable3. Goods are mentioned in the central excise tariff act (CETA).
Goods are manufactured in India. Therefore we can say that excise dutyis not levied on:
1) Services such as doctors treating the patients, accountants preparingThe accounts, in these cases service tax are levied.
2) Immovable goods such as roads, bridges and buildings.
3) Non-Marketable goods, i.e., goods for which no market exists, e.g.Melted iron ore at 1600 degree Celsius.
4) Goods that are not mentioned in CETA; and
5) Goods manufactured or produced out of India. If production orManufacture is in special economic zone then no excise duty is levied
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VALUE ADDED
TAX
(VAT)
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Introduction
CENVAT" means Central Value Added Tax. Earlier it was known asMODVAT. CENVAT is introduced to remove the cascading effect
As the stages of production and sales continue, each subsequent
purchaser has to pay tax again and again on the duty paid material. By
this process cost of product goes on increasing until it reaches to the
ultimate consumer.
By this scheme, manufacturer, 1st stage dealer, 2nd stage dealer can takethe credit commonly called as CENVAT Credit on "duty paid" on raw
material or the eligible inputs for the payment of duty on final products.
For this purpose Government has prescribed CENVAT Credit Rules,
2002
W.e.f. 10.9.2004 New CENVAT Credit Rules, 2004 has been introduced
vide which has superseded CENVAT Credit Rules, 2002.
This new cenvat credit rules,2004 has introduced inter sectoral credit
scheme.
Conditions for allowing CENVAT credit .-
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The CENVAT credit in respect of inputs may be taken immediately on
receipt of the inputs in the factory of the manufacturer:
The CENVAT credit in respect of capital goods received in a factory at
any point of time in a given financial year shall be taken only for an
amount not exceeding fifty per cent. of the duty paid on such capital
goods in the same financial year.
The balance of CENVAT credit may be taken in any financial year
subsequent to the financial year in which the capital goods were received
in the factory of the manufacturer, if the capital goods, other than
components, spares and accessories, refractories and refractory materials
and goods falling under heading No. 68.02 and sub-heading No. 6801.10
of the 1ST Schedule to the Tariff Act, are in the possession and use of the
manufacturer of final products in such subsequent years.
Illustration. - A manufacturer received machinery on April 16,
2001 in his factory. CENVAT of two lakhs rupees is paid on this
machinery. The manufacturer can take credit up to a maximum of
one lakhs rupees in the financial year 2001-2002, and the balance in
subsequent years.
The CENVAT credit in respect of the capital goods shall be allowed to a
manufacturer even if the capital goods are acquired by him on lease, hire
purchase or loan agreement, from a financing company.
The CENVAT credit in respect of capital goods shall not be allowed in
respect of that part of the value of capital goods which represents the
amount of duty on such capital goods, which the manufacturer claims as
depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961).
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Restriction on Credit
Capital Goods- Upto 50% Cenvat amount is to be availed in Current
financial year.
Balance 50% credit to be availed in next financial Year.
Capital Goods acquired in Office premises is not eligible for credit.
Capital Goods are used exclusively for exempted product not eligible for
credit.
The Cenvat Credit can be allowed only to the extent II stage dealer andnot beyond that.
Material Send for the job work must be received within 180 days or
required to pay duty.
Direct delivery of inputs to sub contractor - credit allowed only after
receipt of material.
Documents and accounts .-
The CENVAT credit shall be taken by the manufacturer on the basis of any
of the following documents, namely.
An invoice
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A manufacturer for clearance
Inputs or capital goods from his factory or from his depot or from
the premises of the consignment agent of the said manufacturer or
from any other premises from where the goods are sold by or on
behalf of the said manufacturer.
Inputs or capital goods as such.
An importer.
An importer from his depot or from the premises of the
consignment agent of the said importer if the said depot or the
premises, as the case may be, is registered in terms of the
provisions of Central Excise (No. 2) Rules, 2001.
A bill of entry.
The manufacturer or producer taking CENVAT credit on inputs or
capital goods shall take all reasonable steps to ensure that the inputs or
capital goods in respect of which he has taken the CENVAT credit are
goods on which the appropriate duty of excise as indicated in the
documents accompanying the goods, has been paid.
On the strength of a certificate given by a person with whose handwriting
or signature he is familiar; or
On the strength of a certificate issued to the manufacturer or the supplier,
as the case may be, by the Superintendent of Central Excise within
whose jurisdiction such manufafactory or the supplier has his place of
business,
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And where the identity and address of the manufacturer or the supplier is
satisfied on the strength of a certificate, the manufacturer or producer
taking CENVAT credit shall retain such certificate for production before
the proper officer on demand.
Journal entries of excise duty
SR.
NO
PARITICUARS DEBIT CREDIT
1. Inventory
a/c
.. Dr.
To provision for liabilities for material
a/c..
100
100
2 Provision of liabilities for material
a/c Dr.
To vendor
a/c
100
100
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3. Assume excise duty is 8 %
(for inputs)
RG 23A input receivable
a/c. Dr.
RG 23A Edu. cess receivable
a/c Dr.
RG 23A SHE cess receivable
a/c. Dr.
To vendor a/c
(for capital goods)
RG 23C capital goods receivable
a/c Dr.
RG 23C Edu. cess receivable
a/c.. Dr.
RG 23C SHE cess receivablea/c. Dr.
Capital credit receivable
a/c.. Dr.
To vendor a/c
8
.16
.08
4
.08
.04
4.12
8.24
8.24
4. Vendor a/c
. Dr.
To banka/c
108.24
108.24
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Utilization of credit on discharge of liabilities
Srno.
Particular Debit Credit
1 CenVAT payable (basic)
CenVAT Edu cess payable a/c
CenVAt SHE cess payable a/c
To Service tax receivable a/c
To Education cess receivable a/c
To Sec. and higher sec. edu. cess
receivable a/cTo RG 23A input receivable a/c
To RG 23A Edu. cess receivable a/c
To RG 23A SHE cess receivable a/c
To Bank / cash a/c
20.00
00.04
00.02
10.00
00.20
00.10
08.0000.16
00.08
02.06
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MERITS OF EXCISE DUTY
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Central excise revenue is the biggest single source of revenue for theGovernment of India. The Union Government tries to achieve different socio-economic objectives by making suitable adjustments in the scope and quantum
of levy of Central Excise duty. The scheme of Central Excise Levy is suitablyadapted and modified to serve different purposes of price Control, sufficientsupply of essential commodities, industrial growth, and Promotion of smallscale industries and like Authority for collecting the Central Excise duty.
Article 265 of the Constitution of India has laid down that both levy andCollection of taxes shall be under the authority of law. The excise duty is leviedin pursuance of Entry 45 of the Central List in Government of India Act, 1935as adopted by entry 84 of List I of the seventh Schedule of the Constitution of
India. Charging section is Section 3 of the Central Excises and Salt Act, 1944.
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Limitations of the excise duty
Critics of excise tax - such as Samuel Johnson, above - have interpretedAnd described excise duty as simply a government's way of levying further andunnecessary taxation on the population. The presence of "refunds of duty" underthe UK's list of excisable activities has been used to support this argument, as itresults in taxation being implemented on persons even where they wouldnormally be exempt from paying other types of taxes hence why they aregetting the refund in the first place.
INVENTORY MANAGEMENT
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Inventory is a very expensive asset that can be replaced with a less expensive
asset called information. In order to do this, the information must be timely,
accurate, reliable, and consistent. When this happens, you carry less
inventory, reduce cost and get products to customers faster.
-J. David Viale
RIL vadodara complex is the only unit in whole Asia, which is having 22 plants
in a single complex. RIL has various department like finance, marketing, human
resource, material procurement, research and development and safety and
security etc.
My focus of study is on finance (material) department. We all know that
material is required for the any organization and it cost about the 60% to 70% of
the total cost of the organization. The basic work of material management is to
procure the material to the required department and to maintain the stock. The
materials that are purchased are both indigenous and imported. The inventory
can be classified in to various categories.
Raw material, chemical and catalysts. Fuel and lubricants. Instrumentation items. Mechanical consumables. Safety and fire items. Steel and cement.
Packaging items. Scrap.
Classification of inventory
Inventory can be classified in to different types
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Raw material Work in progress Finished goods Scrap
Spares Tools Consumables.
Techniques of inventory management
1. ABC analysis2. VED analysis3. FSN analysis
4. JIT5. MRP6. MRP II
1. ABC analysis
ABC in ABC analysis stands for Always Better Control that is the control
should be there on the more costly items to less costly items.
The inventory whose cost is round about 70% of the total cost of inventory
are regarded as type A, while inventory with 20% to 25% of total cost are
known as type B and 5% to 10% cost is of type C. imported items and costly
items are included in A type. For RIL they are doing the ABC analysis every
six months and get the information.
2. VED analysis
VED means Vital Essential Desirable, by it name only it tell how it manages
the inventory. The items that is vital for the production process without
which the whole plant can be shutdown. So these types of items are known
as Vital, they can be chemicals, catalysts and spares equipments. While the
essential types of item are those, which are needed for, the production
process but they will not create the shutdown of the plant. And Desirable
items are those which is also required but that can be stocked or can be
purchased whenever required.
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3. FSN analysis
FSN stands for Fast moving, Slow moving, Non-moving inventory, it statesthe movement of the inventory, if any inventory is been not used for more
than 5 years then it is included in non moving inventory, the inventory
which are been used within the year are known as fast moving inventory, and
the inventory which is not used for 0 4 years are included as slow moving
inventory.
4. Just In Time
Just in time is also known as JIT, this type of purchasing will avoid the
overstocking. In JIT the inventory is purchased only when it is required, this
type of inventory management is used for only those inventories, which are
easily and at a time available. So that the shutdown may not arise due to its
shortage. In RIL only seals are purchased under the JIT, and all other
inventory are been stocked.
5. MRP
MRP stands for Materials Requirement Planning; this is time-phased priority
planning system. This is the tool that helps the management to forecast the
proper amount of production and on that basis purchase planning of
inventory is made.
It takes into account the valid master production planning
Materials required for the production process.
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Accurate and timely inventory status.
Order policy
Lead time for purchasing and production process.
It also comprises of following steps
1. Gross requirement of inventory.2. On hand inventory.3. Residual open orders.4. Plan new orders.
Benefits of MRP
Reduction inventory Quick response in demand and supply
RIL does not follow the MRP technique
1. MRP II
MRP II stands for Manufacturing Resources Planning, it provides thenecessary tools for effective planning controlling and managing the
resources of manufacturing organization.
It helps in various stages like resources, planning, business plan, and
production plan. It also helps in providing information to plan priorities and
respond the production changes, meet delivery schedule and material costs
under control.
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Benefits of MRP II
Optimizes the inventory investment Improves productivity Improves product quality Reduce purchase cost Reduce obsolescence
ABC ANALYSIS
PARTICULARS AMT (IN CRORE)
ITEM A 157.5
ITEM B 45
ITEM C 22.5
TOAL 225.0
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ABC Analysis
157.5
4522.5
0
50
100
150
200
ITEM A ITEM B ITEM C
Rs.
in
crores
ITEM A ITEM B ITEM C
Mechanical
Items126.0
Catalyst
Chemicals24.7 Electrical 12.73
Inst. Items 26.05
Lubes
andGrease .89
Other and
Consumer32.67
Packing
Material1.89
CONCLUSION
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ABC in ABC analysis stands for Always Better Control that is the control
should be there on the more costly items to less costly items.
The inventory whose cost is round about 70% of the total cost of inventory
are regarded as type A, while inventory with 20% to 25% of total cost areknown as type B and 5% to 10% cost is of type C. imported items and costly
items are included in A type.For RIL they are doing the ABC analysis every
six months and get the information. The above chart shows the value &
category of item according to their classification.
FSN ANALYSIS
PARTICULARS AMT IN CRORE.
MOVING MATERIAL 159.75
NON-MOVING MATERIAL 065.25
TOTAL 225.00
Above chart mention that out of total non-moving stock near about 29% of the
total stock.
BASIS OF DECIDING FSN
The general practice to decide the block of material at RIL is
Fast Moving: 2-4 years
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Slow moving: 4-6 years
Non-moving: More than 8 year
DISTRIBUTION OF NON MOVING MATERIAL
ITEMSNON-MOVING INVENT. Rs. IN
CRORE
FUEL & LUBRICANT 00.82
ADM/SAFTY 03.28
RM/CHE/CAT. 01.60
ELECTRIC STORES 01.43
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PACKAGING 05.4
INSTRUMENTS 01.99
MECH. CONSUME 50.7
STEEL/CEMENT 00.03
TOTAL 65.25
From the above chart we can conclude that a large share of 79% of mechanical
consume remains in non moving material. This is a fairly large amount. Non-movingmaterial is having I ideal time of maximum of 17 to 20 years.
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PERCENTAGE PROVISION OF NON-MOING MATERIAL
ITEMS PROVISIONS PERCENTAGE
FUEL & LUBRICANT 0.12%
ADM/SAFTY 11.63%
RM/CHE/CAT. 00.14%
ELECTRIC STORES 40.39%
PACKAGING 00.00%
INSTUMENTATION 21.51%
MECH.CONSUME 27.95%
STEEL/CEMENT 06.85%
On the above chart we see that company can able to write off 40% value of
electrical stores and 28% value of mechanical stores, but company can not writeoff any value of packaging stores. Very important matter is that purchase value
of RM/CHE/CAT is very high but company writes off its value only 0.143% it
is very low compare to other materials. There for company should take certain
steps against RM/CHE/CAT stores.
Because of the non moving nature of items mentioned in previous chart it is
mandatory to create provisions as above.
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(Rs in crore)
Components
%
Proportion
Amt in
Rupees
Provision
Amt in
Rupees
%
of
Provision
Fuel and
Lubrication1.28 00.82 .000984
00.12
ADM /Safety 5.05 03.28 .381464 11.63RM/ CHE/ CAT 2.47 01.60 .0024 00.14
Electric stores 2.20 01.43 .5775 40.39
Packaging 8.09 05.40 .00 00.00
Instrumentation 3.05 01.99 .4280 21.51
Mechanical
Consume
77.81 50.70 14.1727.95
Steel/ Cement 0.05 00.03 .002055 06.85
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Total 17660 Non- moving items (less than 4 years) ( valuation Rs 33.38crores) got categorized as Obsolete & Surplus.
Out of 17660 Non moving items,
10672 items (rs. 8.6 cr.) not moved since last 17 yrs. 4379 items (rs. 5.3 cr.) not mved since last 11 to 16 yrs. 1624 items (rs. 7 cr.) not moved since 7-10 yrs. 704 items (rs. 4.3 cr.) not moved since last 5-6 yrs. rest < 5 years.
Majority of the above items are the purchased ones and awaiting usageand they are not plant returns or sub store returns.
17660 obsolete items: of rs. 33.38 cr. consists, Rotating equpts, and their spares worth rs. 11. cr. stationery equipments and their pares worth rs 7.8 cr. extruder, gears, sub-assemblies and spare worth rs. 5. cr.
valves spares worth rs. 3 cr. Instruments and instimation spares worth rs. 2.8 cr Electrical items include cables worth rs 1. cr refractories (rs 48 lacs), W/S M/c and spares (rs. 30 lacs.) Gaskets (rs 10 lacs), Mec-seals (10 lacs) etc.
It can be concluded that majority of the items are not of the project- surplusnature ( Pipe, Pipe fittings, structural and valves. etc
COMPARISON OF INVENTORY FLOW METHODS
PARTICULARS WAM FIFO LIFO
Goods Available for sale 5 Barrels 2200 2200 2200
Less: Ending Inventory 2 Barrels 880 950 800
Cost of Goods Sold 1320 1250 1400
Sales were: 2100 (700 3)
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WAM FIFO LIFO
Sales 2100 2100 2100
Less: Cost of Goods sold 1320 1250 1400
Gross Profit 780 850 700
WHICH METHOD WOULD YOU CHOOSE
Life gives the lowest gross profit, therefore the lowest ta on profit.
In General when the purchase price of inventory is going down, chooseFIFO.
When the purchase price of inventory is going up, choose LIFO.
When if goes up and down, choose weighted average.
INVENTORY RELATED RATIO
In respect of Sales
\
Inventory turnover ratio
6.22
8.07 7.9 7.776.77
0
2
4
6
8
10
2005-06 2006-07 2006-07 2008-09 2009-10
Years
Inventory
turnov
ratio
The inventory turn over ratio shows how much the inventory with compare to
sales. From the chart we can say that the company has decrease its inventory
compared to past years.
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M
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C
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The material cost component shows the Material cost with respect to earning.
From the last past five-year trend, we can see that the cost of material is
fluctuating. But this year the material cost is quite high if we see the last five-
year data.
.
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Net working capital to sales
4.485.39
8.416.88 6.53
0
24
6
8
10
2005-06 2006-07 2006-07 2008-09 2009-10
Years
This ratio indicates the proportion of working capital in total sales. The lower
the ratio better for the company. From the past trend it shows that company has
tried to decrease the inventory and due to this the overall working capital is
decrease with respect to total sales.
Avg receivable Period
21.21
15.3 15.59 15.94 16.77
0
5
10
15
20
25
2005-06 2006-07 2006-07 2008-09 2009-10
Years
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Inventory Conversion ratio(days)
26.0833.01 34.09 34.08
23.45
0
10
20
30
40
2005-06 2006-07 2006-07 2008-09 2009-10
Years
C
Inventory conversion periods indicate the time in which the money invested in
inventory convert into cash. In 2006 the company has lowest conversion cycle,
which indicates the good operating cycle.
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O
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Operating cycle start with the material purchases and ends with the money
received after sales. The company has a fast operating cycle it completes in 4
months at maximum, which is considered good in such industries.
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C
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Cash conversion cycle starts with purchase of raw material and end with the
receipt of cash after sales. The negative figure shows that company avail more
credit than the credit given to their supplier.
FINDING AND RECOMMENDATION
From the study of various functional department like Production, Finance, HRand Purchase and stores department, we come to know that the company ishaving latest technology and highly educated employees are adding the value ofIndian chemical industries. It can be considered that RIL is using backwardintegration strategy .
RIL is using best technology for the production and increasing the GDP of Indiaby producing standard quality of products. The quality of products is up to the
mark as per ISO standards.RIL is giving tremendous HR activities to the employees. Employees are gettingtop class facilities like Medical, LTC, RLTE, Canteen facilities, Transportservices, children education assistance etc. Company has adapted Six sigma toimprove quality in every aspect.
Finance department is working on continuous basis and it is highly facilitatedwith SAP as its operating system. Here entries are continuously made as per themerger has proved to he boon for RIL, it is indicative thought the lifetime highturnover of Rs.1061 crore. There are other six sister concern which are merged.
Thus it is apparent that company is performing very well.
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RECOMMENDATION
The company should complete the pending inventory clean up exerciseand merge useful inventory in SAP as early as possible.
It should takeover all pending sub- stores items (only useful ones) and
eliminate sub-stores practices.
The company communize and merge more and more items across allsites.
The company should crystallize bare minimum stock control items listsand clamp on strict MRP levels to work with phased deliveries andARCs (Annual Rate Contracts.).
The company should developed and inculcate an Inventory efficientculture in the complex
Out of total inventory 28% working as non-moving, it is not to high butcompany should reduce this level, it will help for increase profit marginof company.
In non moving materials, purchase value of RM/CHE/CAT store is nearabout RS. 122.87 crore. It is 44% of total purchase value so it is veryhigh than other, company should take some steps for reduction of stockwith proper method of inventory.Company wrote provision in the balancesheet for the non moving materials as depreciation fund. Company couldwrite off 40% value of electrical store, 28% of mechanical store and 21%
of instrumentation store. But for other material company could not writeoff their value even more than 2% or 3% of their purchase value in these17 years and for packaging Materials Company could not
write off its any value. Therefore company should take some steps forprovision for the other than electrical stores.
Company calculated Rs. 55.81crore for the provision during last 17 years;it means company mention Rs.3.28 crore every year as provision. Fromthat provision company could benefited in tax saving.
From the provision company could save near about 1.62 crore rupeesevery year therefore company should also payable more 0.08 as EPS.
Company should try to remove non moving materials because of withoutnon moving materials company should increase its inventory tern overratio 1 time from 4.63 to 5.56 times in the year. It will helpful for thecompany to increase profitability of company.
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If there is no any types of non moving material in company, inventoryholding period also decrease from 78.81 to 65.60 days. It will also benefitfor the company to increase efficiency of the operating cycle.
Without non moving materials operating cycle makes also faster by 13
days and it will put very good position to the company Company has taken care to include Six Sigma in each and everydepartment but in inventory there is approximately 10% of nonmoving inventory, we can reduce this to save at least 300 crore of nonmoving inventory, it is suggested to reduce this to 5% to save at least200 to 250 crore approximately.
It is tough to have six sigma in weights thats why it is nearlyimpossible to have six sigma in this area.
BIBLOGRAPHY
Web-Sites
1. www.ipcl.co.in2. www.ril.co.in3. www.moneycontrol.com
http://www.ipcl.co.in/http://www.ril.co.in/http://www.moneycontrol.com/http://www.ipcl.co.in/http://www.ril.co.in/http://www.moneycontrol.com/7/28/2019 51237233 Internship Report
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Books:-
1. Annul Report of RIL2. Secondary data from RIL