Basic Taxation

Deepak Wagholikar PRAJ Industries Ltd. ,Pune

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Contents

Scope Theory of TaxationExcise DutyVATCSTTaxation in PRAJ groupManufacturing

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Contents ..

TradingEOUSEZTaxation logic in SAPConclusionQuestions & Answers

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Scope of this Presentation

This presentation shall deal with basics of Excise Duty Sales Tax – VAT & Central Sales Tax

with reference to Procurement Function.

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Theory of TaxationTheory of Taxation• A Government levies various taxes on

individuals and organizations to earn revenue for its functioning and development work .

• Taxes can broadly be classified into two types.• Direct Taxes & Indirect Taxes• Direct taxes are those which are paid directly

include. eg-Income Tax ,Corporation tax etc,• Indirect Taxes are those which are levied

indirectly. eg- Excise Duty , Customs duty, Sales tax etc

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Taxation in IndiaTaxation in IndiaTaxation under Constitution - In the basic scheme of

taxation in India, it is envisaged that

(a) Central Government will get tax revenue from Income Tax (except on Agricultural Income), Excise (except on alcoholic drinks) and Customs

(b) State Government will get tax revenue from sales tax, excise on liquor and tax on Agricultural Income

(c) Municipalities will get tax revenue from octroi and house property tax.

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Taxation In India ..Taxation In India ..

• Income Tax, Central Excise and Customs are administered by Central Government.

• Central Sales Tax is levied by Central Government while State Sales Tax is levied by individual State Governments.

• Though Central Sales Tax is levied by Central Government, it is administered by State Governments and tax collected in each State is retained by that State Government itself.

• Taxation in India is complex.

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Excise DutyExcise Duty Definition – It is an indirect Tax on Definition – It is an indirect Tax on

manufacturemanufacture of certain goodsof certain goods in India. in India. It consists of various Acts, Rules, It consists of various Acts, Rules,

Notifications, circulars. Notifications, circulars. Notable among them areNotable among them are Central Excise Act-1944 & Central Excise Act-1944 & Central Excise Tariff Act-1985Central Excise Tariff Act-1985

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Excise Dept -StructureExcise Dept -Structure It is administered by CBEC- Central Board of It is administered by CBEC- Central Board of

Excise and Customs reporting to Revenue dept Excise and Customs reporting to Revenue dept in Finance Ministry of GOI.in Finance Ministry of GOI.

India is divided into zones, then India is divided into zones, then Commissionerates ,Divisions and Ranges.Commissionerates ,Divisions and Ranges.

These formations are headed by Chief These formations are headed by Chief Commissioner, Commissioner, Deputy/Asst Commissioner, Commissioner, Deputy/Asst Commissioner and Superintendents Commissioner and Superintendents respectively.respectively.

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Excise RegistrationExcise Registration A organization upon application , is allotted a A organization upon application , is allotted a

ten-digit Excise Control Code ten-digit Excise Control Code i.e ECC number.i.e ECC number. This is very Important number and must be This is very Important number and must be

mentioned on documents like Tax Invoice, mentioned on documents like Tax Invoice, Returns etc.Returns etc.Unit Unit ECC numberECC number

SSW- Trading SSW- Trading AAACP6090QXD003AAACP6090QXD003 SSW -Mfg SSW -Mfg AAACP6090QXM001AAACP6090QXM001

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Excise –Tariff HeadingExcise –Tariff Heading Based on Harmonic System of Nomenclature various Based on Harmonic System of Nomenclature various

Items / commodities are classified into total 96 Chapters.Items / commodities are classified into total 96 Chapters.

Eg. Chapter 73 deals with articles of Iron and Steel.Eg. Chapter 73 deals with articles of Iron and Steel.

A item is further classified into 8 digit Central Excise Tariff A item is further classified into 8 digit Central Excise Tariff code starting with Chapter number.code starting with Chapter number.

Eg. 7307 2100 is tariff heading for Iron /Steel FlangesEg. 7307 2100 is tariff heading for Iron /Steel Flanges

Excise Tariff Manual gives a entire list of Items and their Excise Tariff Manual gives a entire list of Items and their Tariff heading with rate of duty applicable. eg. Flanges have Tariff heading with rate of duty applicable. eg. Flanges have 14% duty + 2% Ecess+ 1 % SE cess – total -14.42%14% duty + 2% Ecess+ 1 % SE cess – total -14.42%

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Excise Duty RatesExcise Duty Rates The Excise Duty is categorized into three types :The Excise Duty is categorized into three types :

Ad valorem – means according to Value ( Percentage Ad valorem – means according to Value ( Percentage of value) eg- Duty on Electric Motors (Tariff – of value) eg- Duty on Electric Motors (Tariff – 85011020) is 14.42 % .Thus if the Price of a Motor is 85011020) is 14.42 % .Thus if the Price of a Motor is Rs. 10000/- , then excise duty payable will be Rs. Rs. 10000/- , then excise duty payable will be Rs. 1442/-1442/-

Specific Duty – means a specific amount per certain Specific Duty – means a specific amount per certain quantity – eg . total excise duty on petrol is Rs.14.35 quantity – eg . total excise duty on petrol is Rs.14.35 per litre .per litre .

Combination duty – Excise duty on Diesel was 6% (of Combination duty – Excise duty on Diesel was 6% (of price) + Rs. 3.25 per litre earlierprice) + Rs. 3.25 per litre earlier

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Excise – Credit on InputsExcise – Credit on Inputs Excise duty paid on Inputs is setoff ( i.e. Excise duty paid on Inputs is setoff ( i.e.

credit is obtained ) credit is obtained ) In case of Manufacturing Credit is In case of Manufacturing Credit is

obtained on gross level – Input vs. obtained on gross level – Input vs. OutputOutput

In case of Dealer credit is obtained but In case of Dealer credit is obtained but only that credit is passed on while selling.only that credit is passed on while selling.

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Excise RegistersExcise Registers An Excise registered Unit has to maintain An Excise registered Unit has to maintain

certain Registers like RG-23 A (Mfg ), certain Registers like RG-23 A (Mfg ), RG-23 D(Dealer), RG-23C (Capital) etcRG-23 D(Dealer), RG-23C (Capital) etc

Certain data in prescribed format is to be Certain data in prescribed format is to be submitted to Excise department , which is submitted to Excise department , which is called as “Returns”.called as “Returns”.

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Value Added TaxValue Added Tax Value Added Tax (VAT) is a modern and Value Added Tax (VAT) is a modern and

progressive form of sales tax. It is charged and progressive form of sales tax. It is charged and collected by Mfg / Dealers on the price paid by collected by Mfg / Dealers on the price paid by the customer. the customer.

VAT paid by Mfg /Dealers on their purchases VAT paid by Mfg /Dealers on their purchases is usually available for set-off against the VAT is usually available for set-off against the VAT collected on sales. collected on sales.

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VAT : AdvantagesVAT : Advantages1. 1. It is simple, transparent and progressiveIt is simple, transparent and progressive2. 2. Business friendly system of taxation Business friendly system of taxation 3. 3. Reduction in the number of tax rates to only 5 slab Reduction in the number of tax rates to only 5 slab

rates -0%,1%, 4% ,12.5% & 20%rates -0%,1%, 4% ,12.5% & 20%4.4. Elimination of “tax on tax” in tax system Elimination of “tax on tax” in tax system 5.5. Full set-off available for VAT paid on most Full set-off available for VAT paid on most

business purchases business purchases 6.6. Simplification of tax forms and proceduresSimplification of tax forms and procedures7. 7. Greater reliance on self assessment and voluntary Greater reliance on self assessment and voluntary

compliance by dealers compliance by dealers

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VAT LogicVAT Logic All registered dealers, regardless of where they are in the chain of All registered dealers, regardless of where they are in the chain of

manufacture or distribution, must charge VAT on their sales of manufacture or distribution, must charge VAT on their sales of taxable goods and collect it from their customers. taxable goods and collect it from their customers.

Registered dealers must issue a tax invoice to other registered Registered dealers must issue a tax invoice to other registered dealers showing the VAT amount being charged as a separate dealers showing the VAT amount being charged as a separate amount. amount.

Registered dealers who pay VAT on their purchases can normally Registered dealers who pay VAT on their purchases can normally claim a “set-off” for the VAT paid to their suppliers. As a result, claim a “set-off” for the VAT paid to their suppliers. As a result, Tax is on “Value Added” by the dealer. Tax is on “Value Added” by the dealer.

Dealers must ensure that tax is charged separately in their Dealers must ensure that tax is charged separately in their purchase invoice in order to be eligible to claim set-off. purchase invoice in order to be eligible to claim set-off.

Certain dealers who sell mainly to consumers at retail level can Certain dealers who sell mainly to consumers at retail level can opt for a simplified system of VAT calculation and payment under opt for a simplified system of VAT calculation and payment under a Composition Scheme. Under the Composition Scheme, dealers a Composition Scheme. Under the Composition Scheme, dealers will not issue a tax invoice or show VAT as a separate amount on a will not issue a tax invoice or show VAT as a separate amount on a bill or cash memorandum. bill or cash memorandum.

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VAT - Legal FrameworkVAT - Legal Framework Maharashtra Value Added Tax Act -2005Maharashtra Value Added Tax Act -2005 Applicable to entire Maharashtra state and is Applicable to entire Maharashtra state and is

effective 01.04.2006effective 01.04.2006 Comprises of Act, Rules, Circulars, Comprises of Act, Rules, Circulars,

Notifications, Schedules –Notifications, Schedules –A(0%),B(1%),C(4%),D(20%),E(12.5%)A(0%),B(1%),C(4%),D(20%),E(12.5%)

Similar legal framework is there for other Similar legal framework is there for other States in India.States in India.

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VAT RegistrationVAT Registration VAT applies to all types of businesses including VAT applies to all types of businesses including

Importers ,Manufacturers ,Distributors ,Wholesalers, Importers ,Manufacturers ,Distributors ,Wholesalers, Retailers ,Works Contractors, Lessors Retailers ,Works Contractors, Lessors

VAT Registration Nos are called as TAX Indentification VAT Registration Nos are called as TAX Indentification Number.( TIN ) Number.( TIN ) VAT TIN -Transactions in Maharashtra;VAT TIN -Transactions in Maharashtra;CST TIN - Transactions Out of Maharashtra.CST TIN - Transactions Out of Maharashtra.Eg. Eg. 27880000531V wef 1.4.06 is VAT TIN27880000531V wef 1.4.06 is VAT TIN

27880000531C wef 1.4.06 is CST TIN27880000531C wef 1.4.06 is CST TIN This nomenclature of TIN is different in different StatesThis nomenclature of TIN is different in different States

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VAT - Important PointsVAT - Important Points ““TAX INVOICE ”, along with declaration must be TAX INVOICE ”, along with declaration must be

issued.issued. VAT must be shown separately.VAT must be shown separately. Registration numbers (TINs) must be printed on Tax Registration numbers (TINs) must be printed on Tax

invoice.invoice. Returns are to be filed along with VAT payable, if any Returns are to be filed along with VAT payable, if any

( after setoff )( after setoff ) There is a negative list for VAT credit for certain There is a negative list for VAT credit for certain

items which go in immovable Property. eg. Cement items which go in immovable Property. eg. Cement procured for a constructing a building .procured for a constructing a building .

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Central Sales TaxCentral Sales Tax

CST is a plain sales tax (unlike VAT) & is CST is a plain sales tax (unlike VAT) & is applicable for Interstate Sales.applicable for Interstate Sales.

CST Act 1956 provides the backbone.CST Act 1956 provides the backbone. It is administered by respective State It is administered by respective State

Govts.Govts. The Tax is collected by state where the The Tax is collected by state where the

goods movement commences, first.goods movement commences, first.

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Central Sales Tax ..Central Sales Tax .. Definition of Sale -A sale or purchase of “goods” shall be Definition of Sale -A sale or purchase of “goods” shall be

deemed to take place in the course of inter-State trade or deemed to take place in the course of inter-State trade or commerce if the sale or purchase (commerce if the sale or purchase (aa) occasions the ) occasions the movement of goods from one State to another movement of goods from one State to another oror ( (bb) is ) is effected by a transfer of documents of title to the goods effected by a transfer of documents of title to the goods during their movement from one State to another during their movement from one State to another

CST Act defines that ‘goods’ includes all materials, articles, CST Act defines that ‘goods’ includes all materials, articles, commodities and all kinds of movable property, but does commodities and all kinds of movable property, but does not include newspapers, actionable claims, stocks, shares not include newspapers, actionable claims, stocks, shares and securities and securities

A stock transfer to own Branch outside state , is A stock transfer to own Branch outside state , is notnot a Sale. a Sale.

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CST ..CST .. What constitutes a What constitutes a SaleSale ? ? Essential requirements of Essential requirements of salesale are are There must be transfer of There must be transfer of goodsgoods General propertyGeneral property in the goods should be in the goods should be

transferred to buyer from seller transferred to buyer from seller ConsiderationConsideration i.e. price must be paid or agreed i.e. price must be paid or agreed

to be paid. It may be cash, deferred payment to be paid. It may be cash, deferred payment or any other valuable consideration or any other valuable consideration

‘‘Sale’ includes hire purchase, goods involved in Sale’ includes hire purchase, goods involved in works contract, lease or sale of food articles. works contract, lease or sale of food articles.

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CST ..CST .. Location of Buyer or Seller is Immaterial - Location of Buyer or Seller is Immaterial - EEven ven

though the Buyer and Seller are from same State , but though the Buyer and Seller are from same State , but the Goods Movement occurs from one state to the Goods Movement occurs from one state to another , CST will be applicable.another , CST will be applicable.

Temporary movement through another State is not Temporary movement through another State is not Inter State sale - IInter State sale - If movement of goods starts from f movement of goods starts from one State and ends in the same State, it will not be one State and ends in the same State, it will not be deemed to be movement of goods during ‘inter State deemed to be movement of goods during ‘inter State sale’; even if during transit goods pass through other sale’; even if during transit goods pass through other State.State.

Goods Transfer to Job Worker (subcontracting) outside Goods Transfer to Job Worker (subcontracting) outside state does not become a Sale.state does not become a Sale.

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CST Rates.CST Rates.Sales tax rate for sale within

the State ( VAT )CST rate in case

of sale to registered dealers

CST rate in case of sale to unregistered dealers

Nil Nil Nil

1% 1% 1%

3% 3% 3%

12.50% 3% 12.50%

20% 3% 20%

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CST – FormsCST – Forms A dealer has to issue certain declarations in prescribed A dealer has to issue certain declarations in prescribed

forms to buyers/sellers. These forms are prescribed in forms to buyers/sellers. These forms are prescribed in Central Sales Tax (Registration and Turnover) Rules, Central Sales Tax (Registration and Turnover) Rules, 1957. 1957.

Out of these forms, forms C, E-I, E-II, F and H are Out of these forms, forms C, E-I, E-II, F and H are printed and supplied by Sales Tax authorities. printed and supplied by Sales Tax authorities.

Dealer has to issue declarations in the forms printed Dealer has to issue declarations in the forms printed and supplied by the Sales Tax authorities only. These and supplied by the Sales Tax authorities only. These forms are in triplicate. forms are in triplicate.

Eg. If a Buyer , buys material from outside state, he will Eg. If a Buyer , buys material from outside state, he will issue a C form to seller against payment of CST @ 3%issue a C form to seller against payment of CST @ 3%

This C form issued contains details pertaining to Seller This C form issued contains details pertaining to Seller –like Tax Invoice number, invoice date, Invoice Amount –like Tax Invoice number, invoice date, Invoice Amount etc and thus establishes occurrence of interstate etc and thus establishes occurrence of interstate transaction.transaction.

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Form Form TypeType

Tax rateTax rate Purpose : Establish Interstate Purpose : Establish Interstate transaction betweentransaction between

CC 3 % 3 % Two Registered dealers-Buyer Two Registered dealers-Buyer & Seller& Seller

E-IE-I 3%3% Sale in transit between Buyer Sale in transit between Buyer and Seller (who is and Seller (who is Manufacturer- First Sale)Manufacturer- First Sale)

E-IIE-II 0 or 3%0 or 3% Sale in transit between Buyer Sale in transit between Buyer and Seller (who is Dealer-and Seller (who is Dealer-Second Sale)Second Sale)

HH 0%0% Between Buyer and seller , Between Buyer and seller , wherein the Material is wherein the Material is Ultimately Exported by BuyerUltimately Exported by Buyer

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CST ..CST .. Exemption from CST if sale to SEZExemption from CST if sale to SEZ - CST Act - CST Act

provides that inter state sale made to a unit in provides that inter state sale made to a unit in SEZ (Special Economic Zone) will be exempt SEZ (Special Economic Zone) will be exempt from CST agnst form I.from CST agnst form I.

CST is Refundable for supply to EOU unit. (but CST is Refundable for supply to EOU unit. (but first it has to be paid)first it has to be paid)

This Tax is being phased out .This Tax is being phased out . In FY-0607 it was 3 % , This year it will be 2% , In FY-0607 it was 3 % , This year it will be 2% ,

so on so forth.so on so forth.

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Taxation ProceduresTaxation Procedures Procedures are very important for any Procedures are very important for any

taxation law. taxation law. Often valuable tax concessions are lost Often valuable tax concessions are lost

or penalties are imposed only because or penalties are imposed only because prescribed procedures are not followed. prescribed procedures are not followed.

Proper Understanding and administration Proper Understanding and administration of Tax laws is of prime importance.of Tax laws is of prime importance.

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Taxation in Praj GroupTaxation in Praj Group Praj Group operates in every single Praj Group operates in every single

category as regards taxation.category as regards taxation. Mfg , Trading, EOU, SEZ, STPI .Mfg , Trading, EOU, SEZ, STPI . A variety of transactions are done like A variety of transactions are done like

Sale in Transit , High seas Sale , Third Sale in Transit , High seas Sale , Third country sale, apart from normal Buy-sale country sale, apart from normal Buy-sale transactions.transactions.

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Mfg–Excise-Domestic JobsMfg–Excise-Domestic Jobs Excise is paid and credit taken for material Excise is paid and credit taken for material

received. Excise is also called as “cenvat”received. Excise is also called as “cenvat” Excise is charged on Sales Value of Finished Excise is charged on Sales Value of Finished

goods goods Eg. An item- X is purchase at Rs. 100 , with Eg. An item- X is purchase at Rs. 100 , with

Excise –Rs.14.42 , while selling item Y(x is one Excise –Rs.14.42 , while selling item Y(x is one of the component of Y) at Rs.200, Duty of the component of Y) at Rs.200, Duty charged will be 28.84 (14.42% of sales value)charged will be 28.84 (14.42% of sales value)

VAT -100 % Setoff is applicable in most cases.VAT -100 % Setoff is applicable in most cases.

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Trading - Domestic ProjectTrading - Domestic Project Excise / Cenvat credit is taken based on Excise / Cenvat credit is taken based on

Excise Invoice – Duplicate for Transporter Excise Invoice – Duplicate for Transporter (which is received along with Material)(which is received along with Material)

Exactly same amount of Cenvat is charged Exactly same amount of Cenvat is charged ( passed on ) in Invoice raised on client, ( passed on ) in Invoice raised on client, irrespective of Sales Price.irrespective of Sales Price.

Eg. An item purchased at Rs.100, will have Eg. An item purchased at Rs.100, will have excise Rs. 14.42 and the same will be charged excise Rs. 14.42 and the same will be charged while selling, even though the sales price is Rs. while selling, even though the sales price is Rs. 200/-200/-

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Trading : Export Jobs-ExciseTrading : Export Jobs-Excise

For export Jobs excisable goods can be For export Jobs excisable goods can be directly despatched from Vendor to Sea / directly despatched from Vendor to Sea / AirPort, without payment of excise duty, under AirPort, without payment of excise duty, under CT1 Bond.CT1 Bond.

Non-excisable goods can also be sent to port Non-excisable goods can also be sent to port directly.directly.

If Excisable material is received at Stores & If Excisable material is received at Stores & then exported, Duty Drawback is used to get then exported, Duty Drawback is used to get some part of duty back with proper some part of duty back with proper documentation.documentation.

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CT1-ARE1 ProcedureCT1-ARE1 Procedure1.1. PO raise for Export job with proper tax codes.PO raise for Export job with proper tax codes.2.2. Give signed PO copy to EXL dept for CT1 Give signed PO copy to EXL dept for CT1

form.form.3.3. EXL checks & obtains excise Authorities EXL checks & obtains excise Authorities

signature on CT1 (against B-1 Bond signature on CT1 (against B-1 Bond executed earlier).executed earlier).

4.4. EXL gives approved CT1 in duplicate to EXL gives approved CT1 in duplicate to Buyers, along with pre-authorised Blank Buyers, along with pre-authorised Blank ARE1 form.ARE1 form.

5.5. Despatch Instructions are given to Buyer.Despatch Instructions are given to Buyer.

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CT1-ARE1..CT1-ARE1.. Buyer forwards the CT1,ARE1 & Despatch Buyer forwards the CT1,ARE1 & Despatch

Instructions to Vendor.Instructions to Vendor. Vendor submits Packing List ,along with Draft Vendor submits Packing List ,along with Draft

ARE1 form to Buyer.ARE1 form to Buyer. Buyer forwards the same to EXL dept.Buyer forwards the same to EXL dept. EXL checks & prepares Pre-shipment invoice EXL checks & prepares Pre-shipment invoice

and forwards its to vendor through buyer. Draft and forwards its to vendor through buyer. Draft ARE1 is also approved by EXL.ARE1 is also approved by EXL.

Vendor marks packages as given in Pre-Vendor marks packages as given in Pre-shipment Packing List.shipment Packing List.

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CT1-ARE1 ..CT1-ARE1 .. Vendor writes the package details on Vendor writes the package details on

ARE1 and his invoice.ARE1 and his invoice. Vendor despatches material under self-Vendor despatches material under self-

removal or Excise Sealing to Port as removal or Excise Sealing to Port as mentioned in Despatch Instructions, mentioned in Despatch Instructions, under intimation to Buyer.under intimation to Buyer.

Octroi Formalities (N form) are done for Octroi Formalities (N form) are done for Mumbai Port through nominated Octroi Mumbai Port through nominated Octroi agent.agent.

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CT1-ARE1 ..CT1-ARE1 .. Material is received in Warehouse near port.Material is received in Warehouse near port. Material is offered to Customs dept for Material is offered to Customs dept for

checking.checking. After Customs Clearance material is “stuffed” After Customs Clearance material is “stuffed”

into container.into container. Material is loaded into the ship.Material is loaded into the ship. Ship sails out for next port.Ship sails out for next port. Material is delivered at Port of Discharge.Material is delivered at Port of Discharge.

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Trading : Export -Sales TaxTrading : Export -Sales Tax

In case of purchase from outside In case of purchase from outside Maharashtra – CST will be 0% agsnt H Maharashtra – CST will be 0% agsnt H form.form.

In case of Purchase within Maharashtra,In case of Purchase within Maharashtra,VAT ( as applicable- 4% or 12.5%) will be VAT ( as applicable- 4% or 12.5%) will be applicable and full setoff obtained.applicable and full setoff obtained.

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EOU-Duty-Free EOU-Duty-Free ProcurementProcurement

All Material Imported by EOU unit can All Material Imported by EOU unit can be procured free of customs duty.be procured free of customs duty.

Material can be procured Material can be procured domestically ,without payment of domestically ,without payment of excise duty by CT3 / ARE3 procedure.excise duty by CT3 / ARE3 procedure.

CST has to be paid , but is refundable CST has to be paid , but is refundable for EOU.for EOU.

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EOU-CT 3 processEOU-CT 3 process In case of domestic procurement, PO is In case of domestic procurement, PO is

raised with appropriate tax codes.raised with appropriate tax codes. Application for CT3 is made ,along with Application for CT3 is made ,along with

signed PO copy submitted to Excise dept.signed PO copy submitted to Excise dept. Excise approves CT3 and gives it back.Excise approves CT3 and gives it back. Buyer sends approved CT3 copy to vendor.Buyer sends approved CT3 copy to vendor. Against this CT3 ,Vendor despatches Against this CT3 ,Vendor despatches

material , material , duty freeduty free ,along with form ARE3. ,along with form ARE3. Material is received and GRIN Material is received and GRIN

prepared.ARE-3 received is submitted to prepared.ARE-3 received is submitted to Excise dept.Excise dept.

One copy is endorsed by Excise & send One copy is endorsed by Excise & send back to vendor.back to vendor.

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Special Economic ZoneSpecial Economic Zone A A Special Economic ZoneSpecial Economic Zone ( (SEZSEZ) is a ) is a

geographical region that has economic geographical region that has economic laws that are more liberal than a laws that are more liberal than a country's typical economic laws.country's typical economic laws.

Concept originated in China in early Concept originated in China in early 80s.80s.

In India Units situated in SEZ are In India Units situated in SEZ are exempt from all taxes and duties exempt from all taxes and duties subject to certain conditions.subject to certain conditions.

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Purpose of SEZPurpose of SEZ Generation of additional economic activity Generation of additional economic activity

Promotion of exports of goods and services; Promotion of exports of goods and services;

Promotion of investment from domestic and Promotion of investment from domestic and foreign sources; foreign sources;

Creation of employment opportunities.Creation of employment opportunities.

SEZ Act 2005 and SEZ Rules 2006 form the basis SEZ Act 2005 and SEZ Rules 2006 form the basis of legal framework.of legal framework.

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SEZ - IncentivesSEZ - Incentives Duty free import/domestic procurement of goods for Duty free import/domestic procurement of goods for

development, operation and maintenance of SEZ units development, operation and maintenance of SEZ units 100% Income Tax exemption on export income for SEZ 100% Income Tax exemption on export income for SEZ

units under Section 10AA of the Income Tax Act for first 5 units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. ploughed back export profit for next 5 years.

Exemption from minimum alternate tax under section Exemption from minimum alternate tax under section 115JB of the Income Tax Act. 115JB of the Income Tax Act.

External commercial borrowing by SEZ units upto US $ External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction 500 million in a year without any maturity restriction through recognized banking channels. through recognized banking channels.

Exemption from Central Sales Tax. Exemption from Central Sales Tax. Exemption from Service Tax. Exemption from Service Tax. Single window clearance for Central and State level Single window clearance for Central and State level

approvals. approvals. Exemption from State sales tax and other levies as Exemption from State sales tax and other levies as

extended by the respective State Governments.   extended by the respective State Governments.  

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SEZ-Taxation processSEZ-Taxation process Material procured free of excise duty Material procured free of excise duty

against ARE1 form ,from excisable vendor against ARE1 form ,from excisable vendor (Inside or Outside Gujarat)(Inside or Outside Gujarat)

Material procured from Vendors in Gujarat, Material procured from Vendors in Gujarat, is exempted from VAT wef 1.4.2008.is exempted from VAT wef 1.4.2008.

Material Procured from Outside Gujarat is Material Procured from Outside Gujarat is 0% CST against form I. Material supply to 0% CST against form I. Material supply to accompany Form - 403 (issued by Gujarat accompany Form - 403 (issued by Gujarat Sales Tax dept and passed on to Vendor by Sales Tax dept and passed on to Vendor by Praj)Praj)

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Tax codes in S.E.Z.Tax codes in S.E.Z. ZP- PUR-SEZ- GUJARAT VAT EXEMPT-ZP- PUR-SEZ- GUJARAT VAT EXEMPT-

SUPPLY TO SEZ UNITSUPPLY TO SEZ UNIT(procurement from Gujarat State)(procurement from Gujarat State)

andand CI-PUR-SEZ- EXCISE 0% + CST 0% CI-PUR-SEZ- EXCISE 0% + CST 0%

AGNST FORM I AGNST FORM I (Procurement from Outside Gujarat)(Procurement from Outside Gujarat)

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Taxation in SAPTaxation in SAP There is a there is a single tax Master in SAP There is a there is a single tax Master in SAP

(same master for Sales as well as purchases) (same master for Sales as well as purchases) For ease of our understanding and usage, we For ease of our understanding and usage, we

have used a logic to differentiate .have used a logic to differentiate . A two digit Numeric Code (Numbers) is given A two digit Numeric Code (Numbers) is given

for all taxes related to Sales [eg -05-Sales for all taxes related to Sales [eg -05-Sales VAT MH VAT -4 % ] (charged to our customers) VAT MH VAT -4 % ] (charged to our customers)

A two digit alphanumeric code for all taxes A two digit alphanumeric code for all taxes related to Purchases.[ eg- CA -PUR Form C Ex-related to Purchases.[ eg- CA -PUR Form C Ex-14.42 % and CST-2%]14.42 % and CST-2%]

All tax codes in Purchase will start with word - All tax codes in Purchase will start with word - “ PUR” “ PUR”

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Taxation in SAP ..Taxation in SAP .. Tax code is selected, manually, while Tax code is selected, manually, while

making a Purchase Order, based on making a Purchase Order, based on conditions applicable.( eg. Local Purchase, conditions applicable.( eg. Local Purchase, Sale in transit etc)Sale in transit etc)

SAP classifies Taxes into two parts.SAP classifies Taxes into two parts. One which can be One which can be setoffsetoff and other which and other which

cannot be setoffcannot be setoff (i.e. they are a cost) (i.e. they are a cost) System Setting are done accordingly.System Setting are done accordingly. It is very IMPORTANT to use appropriate It is very IMPORTANT to use appropriate

codes.codes.

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ConclusionConclusion It is clear that Taxation is complex and It is clear that Taxation is complex and

needs adequate knowledge.needs adequate knowledge. Usage of Appropriate tax code in SAP is Usage of Appropriate tax code in SAP is

very important with reference to type of very important with reference to type of Transaction and Plant.Transaction and Plant.

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Thank YouThank You