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Relevant Indirect Tax provisions
Vikas Gupta
Indirect Tax system in India
*Custom Duties *Central Excise Duty *Service Tax etc.
*Sales Tax / VAT *State Excise Duty *Entry Tax etc.
By The Central Govt.
By The State Govt.
Applicable Indirect Tax
Avana being a Project organization, the following Indirect Taxes are applicable to it:
Customs Duty on Import Excise Duty on local Manufactured Products Central Sales Tax State VAT (Value Added Tax) Works Contract Tax VAT as well as Service Tax Service Tax
Customs Duty
Customs Duty applicability
Customs duty is on imports into India and export out of India. In case of imports, taxable event occurs when goods mix with landmass of India. In case of exports, taxable event occurs when goods cross territorial waters of India, Territorial waters of India extend up to 12 nautical miles inside sea from baseline on coast of India and include any bay, gulf, harbor, creek or tidal river. (1 nautical mile = 1.1515 miles = 1.853 Kms). It is Made up of various duties and Cess Effective Maximum rate approximately 26.85% of Assessable value
Various Duties and Cess involved in Customs Duty
Basic Custom Duty Basic Custom Duty levied under the Custom Act for import of goods into India . Basic customs duty levied u/s 12 of Customs Act is generally 10% on non-agricultural goods, w.e.f. 1-3-2007 Countervailing Duty CVD equal to excise duty is payable on imported goods u/s 3(1) of Customs Tariff Act to counterbalance impact of excise duty on indigenous manufactures, to ensure level paying field Equal to excise duty levied on like product manufactured or produced in India . CVD is payable equal to excise duty payable on like articles if produced in India. It is payable at effective rate of excise duty. General excise duty rate is 10.30% w.e.f. 27-2-2010 (10% basic plus 2% education cess and SAH Education cess of 1%). CVD is payable on assessable value plus basic customs duty. CVD can be levied only if there is manufacture
Various Duties and Cess involved in Customs Duty
Special CVD Special CVD is payable @ 4% on imported goods u/s 3(5) of Customs Tariff Act. This is in lieu of Vat/sales tax to provide level playing field to Indian goods. Traders importing goods can get refund. CVD is not payable if goods are covered under MRP valuation provisions Education Cess Education cess of customs @ 2% and SAH Education cess of 1% is payable Total duty Total import duty considering all duties plus education cess on non-agricultural goods is generally 26.85% of Assessable value
Methodology of Custom Duty Calculation
S. No. Particulars Amount (Rs) Percentage
A CIF 10,00,000 100%
B Landing cost @ 1% of CIF 10,000 1%
C Assessable Value 10,10,000 101%
D Basic Customs Duty @ 10% of Assessable value 1,01,000 10%
E Sub Total for Calculating CVD (C+D) 11,11,000 111%
F CVD @ 10.3% on E (10% plus education Cess @3%) 1,14,434 10.3%
G Total of Duties (D+F) 2,15,433
H Education Cess (@3% on G) 6,463 3%
I Special CVD (@4% on (C+D+F+H) 49,276 4%
J Total Duties Payable 2,71,172 27.12%
CENVAT Credit available out of various components of Customs Duty
Buyer who is Manufacturer Such importer is eligible to avail CENVAT Credit of: Countervailing duty (CVD) including education cess on the same Special CVD Buyer who is Service Provider Such importer is eligible to avail CENVAT Credit of: Countervailing duty (CVD) including education cess on the same Buyer who is Trader of imported goods Such importer is eligible to get Refund of: Special CVD
Excise Duty
Excise Duty applicability Central excise duty is an indirect tax which is charged on such goods that are
manufactured in India and are meant for domestic consumption.
The term 'excisable goods' means the goods which are specified in the first
schedule and the second schedule to the Central Excise Tariff Act, 1985, as
being subject to a duty of excise and includes salt
The taxable fact is "manufacture" and the liability of central excise duty arises
as soon as the goods are manufactured.
The tax is on manufacturing, it is paid by a manufacturer, which is then passed
on to the customer
This tax is now known as the Central Value Added Tax (CENVAT)
Types of Excise Duty There are three different types of central excise duties which exist in India: Basic - Excise Duty, imposed under section 3 of the 'Central Excises and Salt Act' of 1944 on all excisable goods other than salt produced or manufactured in India, at the rates set forth in the schedule to the Central Excise tariff Act, 1985, falls under the category of basic excise duty in India. Additional - Section 3 of the 'Additional Duties of Excise Act' of 1957 permits the charge and collection of excise duty in respect of the goods as listed in the schedule of this act. This tax is shared between the central and state governments and charged instead of sales tax. Special - According to Section 37 of the Finance Act, 1978, Special Excise Duty is levied on all excisable goods that come under taxation, in line with the Basic Excise Duty under the Central Excises and Salt Act of 1944. Therefore, each year the Finance Act spells out that whether the Special Excise Duty shall or shall not be charged, and eventually collected during the relevant financial year.
Liability to pay Excise Duty
The liability to pay tax excise duty is always on the manufacturer or producer of goods. Three types of parties who can be considered as manufacturers: Those who personally manufacture the goods in question Those who get the goods manufactured by employing hired labour Those who get the goods manufactured by other parties it is mandatory to pay duty on all goods manufactured, unless exempted. For example, duty is not payable on the goods exported out of India. Similarly exemption from payment of duty is available, based on conditions such as kind of raw materials used, value of turnover (clearances) in a financial year, type of process employed etc. Under the different sections of the central excise act, the fines for evading tax can range from twenty-five to fifty per cent of the amount of duty evaded.
Manufacture under Excise Duty
The term "manufacture" refers to any process: Related or supplementary to the combination of a manufactured
product. Which is specified in relation to any goods in the Section or Chapter
Notes of the First Schedule to the Central Excise Tariff Act 1985 as amounting to manufacture or
Which in relation to the goods specified in the Third Schedule involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer.
Excise Duty applicability
Presently Excise Duty Rates vary from 0% to 10.3% depending upon the commodity There are four basic conditions for levy of Central Excise Duty: The duty is on Goods The goods must be excisable The goods must be manufactured or produced Such manufacture or production must be India
Chart showing Excise Duty Liability
Central Sales Tax
Sales Tax Basic Concepts Sales can be broadly classified in three categories:
Inter-State Sale Sale during import/export Intra-State (i.e. within the State) sale Sale tax on Inter State sale is levied by Union Government under Entry 92A of List I (Union List), while sales tax on intra-State sale (sale within State) (now termed as Vat) is levied by State Government under Entry 54 of List II (State List) of Seventh Schedule to constitution of India
Even if CST is levied by Union Government, the revenue goes to State Government. State from which movement of goods commences gets revenue. CST Act is administered by State Government
Goods under Central Sales Tax (CST) CST is on Goods Goods include all kinds of Movable property but not:
News Paper
Actionable Claims e.g. Lottery Tickets
Stocks, Shares and Securities
Electricity is goods. Newspapers are goods but sales tax cannot be imposed in view of specific exclusion from definition of goods
Intangible or incorporal articles are goods e.g. patent, copyright
DEPB and Advance Authorisation are goods and are taxable
Plant and machinery erected at site is not goods
Software (branded as well as unbranded) is goods - TCS v. State of Andhra Pradesh (SC 5 member Constitution bench)
Simple sale of SIM card can be taxed, but not when supplied as incidental to service
Dealer under Central Sales Tax (CST) Dealer means any person who carries on (whether regularly or otherwise) the business of buying, selling, supplying or distribution of goods, directly or indirectly, for cash, or for deferred payment, or for valuable consideration
Definition of dealer is wide, but only those who effect sale are liable to register and pay CST
Government is dealer if it carries on business. Railways are dealers. Insurance company is also dealer
Bank can be dealer in respect of sale of pledged goods
A club can also be dealer
An auctioneer is not a dealer, if he does not transfer the property in the goods to the successful bidder
Central Sales Tax (CST) applicability
This Act Applicable to Sales/Purchases taking place in Course of Inter-state Trade & Commerce There is no threshold Limit for registration-Even a Single
Transaction will make Liable for registration. Interest/Penalty/Return/assessment provision applicable under
Local Act are also applicable to CST Act.
Two basic conditions for deciding whether C Form can be issued or not: Item being purchased is used in the process of manufacture or
used for Trade & Commerce Item is stated in the Registration certificate as an item for used
in the process of manufacture or used for Trade & Commerce
Present Interstate System
MA
NU
FAC
TUR
ER (H
ARYA
NA
)
State Delhi
Customer
S2
State Haryana
Stock Transfer
Inter State Sales
Inter State Sales
2% CST C Form
State Delhi Dealer
S1
State UP
State
Delhi Depot
State
Delhi Dealer
State Delhi
Customer
State Delhi Dealer
UK
Inter State Sales
0% CSTH Form
Export
Local Sale
VAT
0% Tax
0% CST F Form
Local Sale
Local Sale
VAT VAT
2% CST
C Form
Local Sale
VAT
Central Sales Tax (CST) Rate of Tax
From 1st June 2008 onwards
S. No. Local VAT rate Supported by Form C Without Form C
1 Declared Goods 2% 4%
2 Exempted Goods Exempt Exempt
3 1% 1% (No C form required) 1%
4 4% 2% 4%
5 12.5% 2% 12.5%
No CENVAT credit is available against CST irrespective of whether with or without C Form or tax payable at whatever rate
Central Sales Tax (CST) Various Forms
S. No. Forms Purpose / Reason to Submit
1 C When Inter-State Transaction takes place by transfer of document of title of goodsobtain C FORM from BUYER
2 E-I & E-II Dealer to Claim Exemption on above Clause must obtain FORM E-I from Vendor if Such vendor is 1st Seller else FORM E-II
3 J Sale to notified foreign Diplomat authorities
4 H Sale to a dealer for export by the dealer
5 I Inter State sale to units situated in SEZ
Sample of C Form under CST
Value Added Tax (VAT)
Status of VAT in India
Tamil Nadu
J & K
Orissa
Bihar
Jharkhand
Chattisgarh
Uttaranchal
Pondicherry
Gujarat WB
Punjab
Assam
Kerala
Delhi Haryana
MP
UP
Maharashtra
Goa
Rajasthan
AP
Karnataka
Chandigarh
20 States VAT live April 1, 2005
2 State/ UT implementing VAT between the period April 1, 2005 to March 31, 2006
5 States implementing VAT wef April 1, 2006
2 State/UT implementing VAT on or after January1 ,2007
Applicability of VAT / CST
State Sales Tax Act
Sales tax is a tax on sales of movable goods
CST ACT
State VAT Act
State Delhi
State Haryana
State Sales Tax Act
State VAT Act
Concept of VAT
No way different from Local Sales Tax (LST) with respect to the fundamentals, however, method of levy differs in the two system The traditional system of levying tax- First Point Tax - Avoid cascading effect but Govt. loses its control on last point sales with added value - leakage of revenue due to various tax management in the subsequent sales after First Point. Next Point Tax (especially for banded goods) - Burden of tax is shifted to the next point Last Point Tax- Govt. gets revenue on value addition up to last point but loses its control on origin of manufacture - possibility for leakage of revenue / escaped taxation Not popular with Govt. Multipoint Tax- The Govt. keeps control on overall sales but cost increases due to cascading nature of taxation
Concept of VAT
VAT is a solution to overcome all the above problems and acceptable
both to the Assessor (Govt.) and the Assessee (Dealer)
VAT in common man's language is a tax levied on the value added to
any product or service AT EVERY STAGE
Destination based tax system
Sales to Registered Dealer by a Registered Dealer
Provision for input tax credit paid at the previous point of purchase.
The tax paid by a registered dealer is netted.
Tax is ultimately borne by the consumer
VAT Chain
Purchase Full Tax credit
Manufacturer Wholesaler
VAT Full Tax credit
Wholesaler to Retailer
VAT
Retailer
Full Tax credit
Retailer to Consumer
No Tax credit
Consumer
VAT Chain
0.5 5 155 4th
1 10 150 3rd
4 40 140 2nd
10 - 100 1st
VAT @10
%
Value addition
Sale price
Stage
State 1 State 2
Inter State purchase (CST)
Local purchase (Local sales tax)
(Local sales tax)
(No sales tax)
Interstate sale (CST)
(Local sales tax)
Imports (No sales tax)
Stock transfer (No tax)
Retail sales (Local sales tax
after limited credit of LST)
Manufacturer
Distributor
Depot/CSA Retailer
Retail sales
Stockist
Stock transfer (No sales tax)
Customer (No sales tax)
Customer
(No sales tax)
Customer
(No sales tax)
VAT in India Pre VAT Scenario
State 1 State 2
Inter State purchase (CST) + Possible Entry
Tax Local purchase (Local sales tax)
VAT
(Local sales tax)
(No sales tax)
Interstate sale (CST)
(Local sales tax)
Imports (No sales tax)
Possible Entry Tax
Stock transfer (No tax) (Possible entry tax in State 2. Possible denial of credit in State 1
Retail sales (Local sales tax
after limited credit of LST) VAT after full Credit
Manufacturer
Distributor
Depot/CSA Retailer
Retail sales
Stockist
Stock transfer (No sales tax) (Possible entry tax & Possible denial of credit in exporting State
Customer (No sales tax)
VAT after Credit
Customer (No sales tax)
Customer
(No sales tax)
VAT in India Post VAT Scenario
(Possible tax on entry in State 2) (VAT after credit of
entry tax)
(VAT after credit)
(VAT after credit of entry tax)
(VAT after credit)
(VAT after credit)
VAT Credit
Full VAT credit paid within state
Tax paid on inputs both for intra-state & inter-state sale
Total Input tax for a period and not based on input/ output ratio (variation among States)
Credit for unsold stocks allowed
Exclusions from VAT Credit
Petrol
Diesel
Aviation Turbine Fuel
Non VAT Taxes (SAT ? & Entry Tax)
VAT Credit Utilization
Within the same month / quarter
Excess C/F up to next financial year end
Refund of unutilized credit at next year end
Capital goods credit in 36 monthly installments
In respect of Export tax payment within the state will be refundable at the
Month / quarter end.
VAT Rates
Few exempted goods
4% for Agriculture / industrial inputs & some essentials
12.5% general VAT rate
Liquor - 20%
Gold, Silver, precious & semi-precious stones - 1%
VAT in UP
Value Added Tax (VAT) was adopted by UP on 1st April 2006 Registration 1. Threshold limit Rs 5 Lacs 2. Auto Registration for Registered Dealer Form VII & VIII within 60 days. 3. Compulsory for Transporters, Carriers, Forwarding Agents, Railway Agents
etc. transporting / storing goods. Tax Payers Identification No (TIN):- Allotted on Form number 15 Mandatory to quote on all Correspondences / Return / Challan / Tax invoice etc. Composition Scheme :- Specified for Small Traders - 5 to 50 Lakhs @ VAT 1%.
VAT Rates in UP
Four rates have been prescribed
Schedule: I - 0% for exempted goods.
Schedule: II - 4%: for manufacturing inputs & IT Products & GSM.
Schedule: III -1%: for gold and precious stone.
Schedule: IV 20% to 32.5% for Petrol, Diesel oil, Furnace Oil.
Schedule: V RNR - 12.5%: for goods not specified under any schedule
RNR Revenue Neutral Rate
Input Tax Credit (ITC)
Allowed For intra-State purchase of goods for resale or use in manufacture.
Not allowed in respect of Non-VAT goods, captive power plant and other
specified capital goods like office equipment, furniture, air conditioners etc.
Input tax credits are not available for inter State (CST) procurement of goods.
Stock transfers outside the State attract a reversal of input tax credit (ITC) to
the extent of 3%.
Developers, co-developers and units in SEZ eligible for ITC on taxable goods for
specified operations.
Input Tax Credit (ITC)
Specified goods to be notified under Schedule IV to be taxable at first point.
Provisional refund of ITC to exporters.
Refund of excess ITC to other dealers at the end of the assessment year next
to the assessment year in which it falls due.
ITC on capital goods (other than non creditable capital goods): Capital Goods
means plant, machine, machinery, equipment, apparatus, tools appliances,
electrical installation used for manufacture or processing of any goods for sale by
the dealer and includes components, spare parts, accessories, mould dies etc.
ITC on capital goods - in 3 annual installments.
No ITC on capital goods held in stock on the date of commencement of Act.
VAT Chart
State Existing VAT RatesVAT is
Payable on PTS / MRP
Entry Tax, if applicable
Return Filing Rate Revision
Andhra Pradesh 4% / 14.5% PTS NA Monthly Increase in VAT wef 15-01-2010Assam 5% / 13.5% PTS NA Monthly Increase in VAT wef 31-10-09Bihar 4% / 12.5% MRP Applicable QuarterlyChandigarh 4% / 12.5% PTS NA QuarterlyChatisgarh 4% / 12.5% PTS Applicable QuarterlyGoa 4% / 12.5% PTS Applicable QuarterlyGujarat (4%+1%) / (12.5% + 2.5%) PTS NA Monthly Additional Cess wef 01-04-08Haryana 5% / 12.5% PTS NA Quarterly Increase in VAT wef 15-02-2010Jharkhand 4% / 12.5% MRP NA MonthlyKarnataka 5% / 13.5% PTS NA Monthly Increase in VAT wef 01-04-2010Kerala (4%+1%) / (12.5%+1%) MRP NA Monthly SSC wef 01-04-08Madhya Pradesh 5% / 12.5% PTS Applicable Quarterly Increase in VAT wef 01-08-09Maharashtra 5% / 12.5% PTS NA Monthly Increase in VAT wef 01-04-2010 to 5%New Delhi 5% / 12.5% PTS NA Monthly Increase in VAT wef 14-01-2010Orissa 4% / 12.5% MRP Applicable MonthlyPunjab 5% / 12.5% (10% Addl Tax/Surcharge) PTS NA Quarterly Increase in VAT wef 29-01-2010 & Addl Tax wef 05-02-2010
Rajasthan 5% / 14% MRP NA Quarterly Increase in VAT wef 08-07-09 for 12.5% and Increase of 4% to 5% wef 09-03-2010
Tamil Nadu 4% / 12.5% PTS NA MonthlyUttar Pradesh (4%+0.5%+0.5%) / (12.5%+1%) PTS NA Monthly Additional Cess wef 01-06-09/Additional Cess of (4+0.5%)+0.5% wef 20-02-10Uttarakhand 4%+0.5% / 12.5%+1% PTS NA Monthly Surcharge of (4+0.5%) & 12.5%+1% wef 01-03-2010 postponed 01-04-2010West Bengal 4% / 12.5% MRP NA QuarterlyPondicherry 4% / 12.5% PTS NA MonthlyHimachal Pradesh 5% / 12.5% PTS Applicable Monthly Increase in VAT wef 29-03-2010 to 5%
REVIEW OF VAT / CST AS ON 01-APRIL-2010
Works Contract Tax
What is a Indivisible Works Contract ?
It is a Works Contract (WC) & Not a Normal Sale. The Indivisible Works Contract is:
A Composite (Turnkey Jobs) work where both Labour & Material is involved, breaking of Price for Supply (Material) & Labour may not be separate Sale of Materials & Labour Contract.
Contract where the Contractor / Seller gets the order from the customer for definite goods or for WC.
The Clauses in the Agreement between the Contractor & the Contractee are the key factors for determining whether the Contact is of sale of goods or WC.
If the Contract is divisible then, the supply of material is a Sale Contract and the labour portion is WC. If in the Labour portion, material is also used then VAT (WC) is applicable.
Local WC are covered under the Local VAT Act & Inter-state WC are covered under the Central Sales Tax Act.
Sale Vs. Works Contract Concept)
If the thing to be delivered has any individual existence before the delivery as the property of the party who is to deliver it, then it is a Sale. If the main object of the work undertaken is not the transfer of a chattel qua chattel, the contract is one for work & labor (Hindustan Shipyard 119 STC 533 SC).
In a Contract of Sale, the main object is the transfer of property and delivery of the possession of Chattel as a Chattel to the buyer, where it is not so, it is a contract of Works & Labour (Hindustan Aeronautics Ltd. 55-STC 314 -SC)
It is made clear that contract of building buses, ships are that of the Sale even if they are manufactured as per the specifications and under strict supervision of the buyer. (Hindustan Shipyard 119 STC 533 SC).
The test therefore is as to whether in a particular case, it is a Contract of Sale (Chattel as a Chattel) or WC, neither the ownership of the material nor the value of skill or labour as compared with the value of the material is conclusive, although such matter may be taken into consideration depending upon the facts and circumstances of the particular case.
Works Contract is a Deemed Sale
The Scenario before the 46th Constitutional Amendment (Before 2nd Feb, 1982) The Sales of goods covered under the sale of goods Act were only liable for
Sales tax (only normal sales were covered)
The Supreme Court Judgment of Gannon Dunkerely (9 STC 353) The Indivisible WCs were not covered under the State Sales tax Laws. The
states were not empowered to levy Sales tax on Indivisible WCs.
The 46th Amendment to the Constitution of India Sub-article (29-4) reads as under: (b) a tax on the transfer of property in goods (whether a goods or in some other form) involved in the execution of a Works Contract
The concept of Deemed Sale under the State VAT / CST Acts: The Sales tax/VAT/CST is applicable only on the value of the goods and
not on labour portion of the Contract. Alternatives are prescribed for arriving at the material value of the
Contract.
The States are empowered to levy Sales tax/VAT/CST on such deemed sales only after the 46th Amendment to the Constitution of India
Divisible & Indivisible Works Contracts
(A) Divisible Contract :
Two separate contracts, one for supply portion and other for labour work, two separate companies, preferable.
No artificial break of sale price to avoid VAT (WC) on labour portion.
The clauses in the Agreement and intentions of the two parties is an important factor.
State A Contractor
X
Supply Normal Sale
VAT 4% / 12.5%
State A Contractee
Y
State A Contractor
X or X1
Erection & Commissioning
Labour Job (WC) (if material used, the WC provisions are
attracted, otherwise pure Labour Job
State A Contractee
Y
Divisible contracts are more litigation prone
Divisible & Indivisible Works Contracts
(B) Indivisible Contract :
Only one Indivisible WC. (Single P.O. by the Contractee)
The clauses in the Agreement and intentions of the two parties is an important factor.
VAT (WC) applicable only on the material value of the Contract determined by the three methods (options) under State VAT Act.
State A CONTRACTOR
X
Deemed Sale (WC)
VAT (WC) is applicable on contract value as per
the three options available.
State A Contractee
Y
More options of levy of VAT/Composition tax available in Indivisible Works Contracts)
Activities covered under Works Contract
1. Construction Jobs 2. Civil Work 3. Erection of Plant and Machinery 4. Processing conversion jobs. 5. Repair Jobs 6. Annual Maintenance Contracts (AMCs) 7. Customized Printing Jobs. 8. Building of bodies on chassis. 9. Electrical fittings. 10. Installation of lift / elevator in the building. 11. Air-conditioning installations. 12. Painting jobs. 13. Repairs of vehicles. 14. Re-treading of old Tyre. 15. Electro-plating, electro-galvanizing, anodizing and the like.
Applicability of VAT on various Works Contracts
Indivisible / Composite Works
Contracts Job Works Pure Labour Jobs Art Works
Construction Contract
Erection of Plant & Machinery
EPC Contracts Installation &
Commissioning of Lifts / Elevators
Civil Works
Processing Conversion Jobs
Repair of Vehicles
Repair Jobs Electro Plating,
Electro galvanizing, anodizing and like
Customized Printing Jobs
Pure Labour Jobs where no own material is used by the Contractors (Consumables, Chemicals which evaporate during the process are allowed).
Work of Art & Labour (Art Work)
Photography Paintings by
the Artist
VAT Applicable VAT Applicable No VAT Applicable No VAT Applicable
Basic Concepts of Levy of VAT / CST On Works Contracts
1. No VAT/CST is applicable on pure labour jobs where no material of his own is used / added by the job worker (vendor).
2. VAT / CST is applicable on Material Value of the Work Contract.
3. To arrive at the Material Value in the Contract, three methods are adopted under the State VAT Acts namely : i. Actual Non-material Deduction Method ii. Standard Deduction Method iii. Composition Tax Method (Non-legal Method.)
4. VAT Setoff / Credit is available under the State VAT Acts to both the Contractor & Contractee except for the Negative List items purchased
5. For Divisible Contract, supply of material is a Normal Sale Contract and the Labour Contract is subject to VAT (WC) provisions, only if the own material is used by the Contractor.
6. If the Contractor dispatches his own materials from one state to another, directly to the customer under the Indivisible WC, then it is a deemed inter-state sale of material subject to levy of CST by the state of dispatch.
Works Contract Taxation under State VAT Act
OPTION A (LEGAL) OPTION B (COMPOSITION)
A1 [VAT paid on Inputs Rs.2.00] A2 [VAT paid on Inputs Rs.2.00] VAT paid on inputs Rs.2.00 (Credit 64%) Rs.1.28
Contract Price Rs.100.00 Contract Price Rs.100.00 Contract Price Rs.100.00
(-) Actual Non-material Value
Rs. 80.00 Standard Deduction (Non-Material)
Rs. 25.00 @ 8% Composition Tax on Rs.100
Rs. 8.00
Material Value Rs. 20.00 Material Value Rs. 75.00 Rs.108.00
@ 12.5% VAT on Rs.20.00
Rs. 2.50 @ 12.5% VAT on Rs.7.00 Rs. 9.38 INVOICE
TAX INVOICE Rs.100.00 TAX INVOICE Rs.100.00 Contract Price Rs.100.00
VAT @ 12.5% on Rs.20.00 Rs. 2.50 VAT @ 12.5% on Rs.75.00 Rs. 9.38
@ 8% Composition Tax Rs. 8.00
Rs.102.50 Rs.109.38 @ 5% Composition Tax ( 20-6-06) Rs.108.00
VAT PAYABLE (2.50 2.00) Rs. 0.50
VAT PAYABLE (Rs.9.38 Rs.2) Rs. 7.38
VAT PAYABLE (Rs.8.00 1.28)
Rs. 6.72
2% TDS Deduction by Contractee A2 [VAT paid on Inputs Rs.2.00] 2% TDS Deduction by Contractee
Service Tax
What is Service Tax
Service tax comes under powers of Entry 97 of List I of Seventh Schedule to
Constitution of India. Service tax was introduced w.e.f. 1-7-1994 and its
scope is being expanded every year. Service tax is not payable if service is
provided in J&K or if provided outside India
Service tax is imposed under section 66 of Finance Act, 1994, which is the
charging section [There is no separate Service Tax Act as such]. Service
provided or to be provided is taxable event. Thus, service tax is payable
when advance is received
Service requires two parties. One cannot give service to himself
Service tax cannot be levied on value of goods. Service tax and Vat are
mutually exclusive
Rate & Liability of Service provider General rate of service tax is 10.30% (including education cess and SAH
education cess) w.e.f. 24-2-2009 [During period 11-5-2007 to 23-2-2009, it was
12.36%]. In some cases, abatement is available
Education cess and SAHE cess should be shown separately in invoice and
should be paid under separate accounting head
Service tax is payable by service provider. In few cases, tax is payable by
service receiver, under reverse charge method [Section 68(2)]
In case of Goods Transport Agency (GTA), Import of Service, Sponsorship
service and Agent of mutual fund and insurance, service tax is payable by
service receiver
Value for purpose of Service Tax Service tax is payable on gross amount charged for taxable service provided
or to be provided [section 67] (excluding material cost)
Tax is payable on reimbursement of expenses which are part of service, but
not on payments made by service provider as pure agent of service receiver
Service tax is not payable on amounts collected by service provider from
service receiver which are not part of service but are paid by service provider
to third parties for administrative convenience and then recovered from
service receiver, even if all requirements of definition of pure agent are not
satisfied
If value is not ascertainable, valuation can be on basis of similar service or on
basis of value which shall not be less than cost
Exemption from Service Tax Small service providers whose total value of services provided (including
exempt and non-taxable services) is less than Rs 10 lakhs in previous year
are not required to pay service tax in current financial year till they reach
turnover of Rs 10 lakhs. Clubbing provisions can apply. Registration is
required if turnover exceeds Rs 9 lakhs per annum
The exemption is not available if service is provided under brand name of
other person
This exemption is not available when service tax is payable by service
receiver under reverse charge method
Services provided to SEZ unit or developer are exempt if wholly consumed
within SEZ. In case of services consumed by SEZ outside SEZ, refund claim
has to be filed
Classification of Services If prima facie, a taxable service is classifiable under two or more sub-clauses
of section 65(105), classification shall be effected as per following rules
Specific description to be preferred over a general description [section 65(2)(a)]
Classification should be as per essential character in case of composite services [section 65(2)(b)]
Service which appears earlier in list of section 65(105), if service cannot be classified on above basis [section 65(2)(c)]
Service should be predominantly a taxable service. A composite contract
consisting various services cannot be vivisected. An indivisible/composite
contract of goods and services can be vivisected and service part of it is
subject to service tax
CENVAT Credit
Service provider can avail CENVAT credit of service tax paid on input services
and excise duty paid on inputs and capital goods. The credit can be utilised
for payment of service tax on output services
Definition of input service is wide. Any service in relation to business is input
service
Credit can be availed on basis of proper and complete specified original duty
paying documents
If assessee is providing both taxable and exempt services and if input
services are common, CENVAT credit can either be taken on proportionate
basis or 6% amount is required to be paid on value of exempted services
Registration
Service provider should register within 30 days from date of commencement of
providing taxable service. Application should be in form ST-1 [Rule 4(1)]. Income
Tax PAN, address proof, evidence of constitution of firm/company, list of
directors/partners are the most important document required.
Application for registration is to be filed electronically. The PAN based registration
number is generated by system immediately. However, registration certificate is
issued by Superintendent in form ST-2 after the documents are submitted.
Registration will be deemed to have been granted if not received within seven days
[Rule 4(5)]
Person providing services from more than one premises or offices can apply for
centralised registration, if he has centralised billing system or centralised
accounting system [Rule 4(2)]
Procedure to be followed
Assessee should prepare invoice in respect of his services. The Invoice should be
prepared within 14 days from date of completion of taxable service or receipt of
payment towards the value of taxable service, whichever is earlier. Invoice should
contain prescribed details [Rule 4A]
If the assessee is an individual or proprietary firm or partnership firm, the tax is
payable on quarterly basis within 5 days at the end of quarter (within 6 days in
case of e-payment) except in March. Service tax is payable by other assessee by
5th of the month following the month in which payments are received toward value
of taxable services (by 6th in case of e-payment) except in March [rule 6(1) of
Service Tax Rules]
Service tax on value of taxable services received during month of March or quarter
of March is required to be paid by 31st March in case of all the assessee
Import of Services
In case of import of service, tax is payable by recipient of services under
method of reverse charge. Tax should be paid by cash i.e. GAR-7 Challan and
then Cenvat credit can be availed of the tax so paid, as it is his input service
Tax is payable only when service is received in India. Services provided and
used outside India cannot be taxed in India
To determine the issue whether a provision of service is import of service,
services have been classified in three categories. Criteria for each category
has been specified e.g. immovable property India, service performed in India,
recipient is located in India
Some Illustrations of Tax computation
Case 1: Avana is Importer and Sells within State of Delhi
S. No. Particulars Amount
A. CIF 10,00,000.00 B. Landing Cost @ 1% of CIF 10,000.00 C. Assessable Value 10,10,000.00 D. Basic Custom Duty @ 10% 1,01,000.00 E. Sub Total for Calculating CVD (C+D) 11,11,000.00 F. CVD @ 10.30% on E (10% plus education Cess @3%) 1,14,433.00 G. Total of Duties (D +F) 2,15,433.00 H. Education Cess (@ 3% on G) 6,463.00 I. Special CVD @ 4% (C+D+F+H) 49,276.00 J. Total Duties Payable (D+F+H+I) 2,71,172.00 K. Transportation Cost 1,00,000.00 L. Total Cost to Avana (A+K+J) 13,71,172.00 M. Avana Margin (Say) 2,00,000.00 N. Sale Price (L+M) 15,71,172.00 O. Delhi VAT @ 12.5% 1,96,397.00 P. Invoice Amount 17,67,569.00
Note: Buyer will get the Cenvat Credit of CVD & Special CVD as well as VAT Credit Net Cost to Buyer ( P-O-I-F ) 1,407,463
Case 2: Avana is Importer and Sells to Buyer of UP
Note: Buyer will get the Cenvat Credit of CVD & Special CVD as VAT Credit Net Cost to Buyer ( P-I-F ) 14,38,886
S. No. Particulars Amount
A. CIF 10,00,000.00 B. Landing Cost @ 1% of CIF 10,000.00 C. Assessable Value 10,10,000.00 D. Basic Custom Duty @ 10% 1,01,000.00 E. Sub Total for Calculating CVD (C+D) 11,11,000.00 F. CVD @ 10.30% on E (10% plus education Cess @3%) 1,14,433.00 G. Total of Duties (D +F) 2,15,433.00 H. Education Cess (@ 3% on G) 6,463.00 I. Special CVD @ 4% (C+D+F+H) 49,276.00 J. Total Duties Payable (D+F+H+I) 2,71,172.00 K. Transportation Cost 1,00,000.00 L. Total Cost to Avana (A+K+J) 13,71,172.00 M. Avana Margin (Say) 2,00,000.00 N. Sale Price (L+M) 15,71,172.00 O. CST Against C Form @ 2% 31,423.00 P. Invoice Amount 16,02,595.00
Case 3: Avana Maharashtra Branch (Assumed) is Importer, Buyer is located in Delhi, Avana gives the delivery to Transporter of Buyer in Mumbai
Note: Buyer will get the Cenvat Credit of CVD & Special CVD but not of Maharashtra VAT, as buyer is not registered with Maharashtra VAT Net Cost to Buyer (P-I-F) 16,03,860
S. No. Particulars Amount
A. CIF 10,00,000.00 B. Landing Cost @ 1% of CIF 10,000.00 C. Assessable Value 10,10,000.00 D. Basic Custom Duty @ 10% 1,01,000.00 E. Sub Total for Calculating CVD (C+D) 11,11,000.00 F. CVD @ 10.30% on E (10% plus education Cess @3%) 1,14,433.00 G. Total of Duties (D +F) 2,15,433.00 H. Education Cess (@ 3% on G) 6,463.00 I. Special CVD @ 4% (C+D+F+H) 49,276.00 J. Total Duties Payable (D+F+H+I) 2,71,172.00 K. Transportation Cost 1,00,000.00 L. Total Cost to Avana (A+K+J) 13,71,172.00 M. Avana Margin (Say) 2,00,000.00 N. Sale Price (L+M) 15,71,172.00 O. Maharashtra VAT @ 12.5% 1,96,397.00 P. Invoice Amount 17,67,569.00
Case 4: Avana Maharashtra Branch (Assumed) is Importer, Buyer is located in Delhi, Avana gives the delivery to Buyer in Delhi S. No. Particulars Amount
A. CIF 10,00,000.00 B. Landing Cost @ 1% of CIF 10,000.00 C. Assessable Value 10,10,000.00 D. Basic Custom Duty @ 10% 1,01,000.00 E. Sub Total for Calculating CVD (C+D) 11,11,000.00 F. CVD @ 10.30% on E (10% plus education Cess @3%) 1,14,433.00 G. Total of Duties (D +F) 2,15,433.00 H. Education Cess (@ 3% on G) 6,463.00 I. Special CVD @ 4% (C+D+F+H) 49,276.00 J. Total Duties Payable (D+F+H+I) 2,71,172.00 K. Transportation Cost 1,00,000.00 L. Total Cost to Avana (A+K+J) 13,71,172.00 M. Avana Margin (Say) 2,00,000.00 N. Sale Price (L+M) 15,71,172.00 O. CST Against C Form @ 2% 31,423.00 P. Invoice Amount 16,02,595.00
Note: Buyer will get the Cenvat Credit of CVD & Special CVD as VAT Credit Net Cost to Buyer ( P-I-F ) 14,38,886
Relevant Indirect Tax provisionsIndirect Tax system in IndiaApplicable Indirect TaxCustoms DutyCustoms Duty applicabilityVarious Duties and Cess involved in Customs DutyVarious Duties and Cess involved in Customs DutyMethodology of Custom Duty CalculationCENVAT Credit available out of various components of Customs DutyExcise DutyExcise Duty applicabilityTypes of Excise DutyLiability to pay Excise DutyManufacture under Excise DutyExcise Duty applicabilityChart showing Excise DutyLiabilityCentral Sales TaxSales Tax Basic ConceptsGoods under Central Sales Tax (CST)Dealer under Central Sales Tax (CST)Central Sales Tax (CST) applicabilityPresent Interstate SystemCentral Sales Tax (CST) Rate of TaxCentral Sales Tax (CST) Various FormsSample of C Form under CSTValue Added Tax (VAT)Status of VAT in IndiaApplicability of VAT / CSTConcept of VATConcept of VATVAT ChainVAT ChainVAT in India Pre VAT ScenarioVAT in India Post VAT ScenarioVAT CreditVAT Credit UtilizationVAT RatesVAT in UPVAT Rates in UPInput Tax Credit (ITC)Input Tax Credit (ITC)VAT ChartWorks Contract TaxWhat is a Indivisible Works Contract ?Sale Vs. Works Contract Concept)Works Contract is a Deemed SaleDivisible & Indivisible Works ContractsDivisible & Indivisible Works ContractsActivities covered under Works ContractApplicability of VAT on various Works ContractsBasic Concepts of Levy of VAT / CST On Works ContractsWorks Contract Taxation under State VAT ActService TaxWhat is Service TaxRate & Liability of Service providerValue for purpose of Service TaxExemption from Service TaxClassification of ServicesCENVAT CreditRegistrationProcedure to be followedImport of ServicesSome Illustrations of Tax computationCase 1: Avana is Importer and Sells within State of DelhiCase 2: Avana is Importer and Sells to Buyer of UPCase 3: Avana Maharashtra Branch (Assumed) is Importer, Buyer is located in Delhi, Avana gives the delivery to Transporter of Buyer in MumbaiCase 4: Avana Maharashtra Branch (Assumed)is Importer, Buyer is located in Delhi, Avana gives the delivery to Buyer in DelhiSlide Number 68