Indirect tax

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INDIRECT TAXProf. Mohasin A. Tamboli

Mob: 9766010560e-mail : [email protected]

Indirect Tax by Prof. Mohasin Tamboli

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The Constitution of India (COI) has given power to levy tax to central and State.

Central Government will levy and collect tax revenue from Income Tax (exception Agricultural Income), Excise (except on alcoholic drinks, Etc.) and Customs.

State Government will get tax revenue from Local Sales Tax, Excise on liquor and tax on Agricultural Income and the Municipalities will get tax revenue from Octroi and Property Tax.


INTRODUCTION OF TAXATION SYSTEM

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Direct Tax is the tax, which is paid directly by people to the government.

Indirect tax is paid indirectly by people to the government through registered government representatives.

Eg. Income Tax is paid directly to the government therefore it is a direct tax while excise duty is paid by people to the manufacturer who pays it to the government, therefore it is an indirect tax


Direct Taxes and Indirect Taxes.

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CENTRAL EXCISE VAT SERVICE TAX


Indirect Taxes

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Central Excise is an indirect tax which is levied and collected on the

goods/commodities manufactured in India.Central Excise Law is a combined study of: Central Excise Act (CEA), 1944; Central Excise Tariff Act (CETA), 1985; Central Excise Rules, 2002; and CENVAT Credit Rules, 2004


CENTRAL EXCISE

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As per section 3 of Central Excise Act (CEA) excise duty is levied only if the following all conditions are satisfied

◦ There should be goods.◦ Goods must be moveable◦ Goods are marketable◦ Goods are mentioned in the Central Excise Tariff Act

(CETA).◦ Goods are manufactured in India.


HOW TO DECIDE DUTIABILITY/EXCISABILITY

7Indirect Tax by Prof. Mohasin Tamboli

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"Goods" have not been defined in Central Excise Act.

As per Article 366(12) of Constitution of India:Goods include all material commodities and articles.

Sale of Goods Act defines Goods means: "every kind of movable property other than actionable claims and money;


What is goods?

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Goods must be: 1) Movable2) Marketable


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Moveable means goods, which can be shifted from one place to another place, e.g., motor car, mobile phone, computer etc.

The goods attached to earth are immovable goods, such as, Dams, Roads, and Buildings etc.

Moveable Goods are manufactured or produced but immoveable goods are constructed. Due to this Movable aspect under central excise, although flat is manufactured by builder it is not an excisable commodity


WHAT IS MOVABILITY?

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Marketable means goods which are capable of being sold, there should be at least one buyer for the commodity in the market is sufficient to call the good as marketable.

e.g., Molten iron ore at 1300 degree to 1400 degree Celsius is not marketable, therefore not a good. Similarly, flour produced in own factory for use as raw material in own factory for further production of bread is a good because it is marketable. Actual sales are not relevant for calling any item as goods


WHAT IS MARKETABILITY?

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Goods specified in the Schedule to Central Excise Tariff Act, 1985 as being subject to a duty of excise and include salt’. Thus, unless the item is specified in the Central Excise Tariff Act as subject to duty, no duty is leviable.

Some goods like wheat, rice, soya beans etc. are not mentioned in Central Excise Tariff at all and hence they are not ‘excisable goods’, though they may be ‘goods’.


GOODS MUST BE MENTIONED IN CENTRAL EXCISE TARIFF ACT (CETA)

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Excisable goods must be manufactured or produced in India.

Thus, excise levy cannot be imposed on

imported goods or goods manufactured in Nepal.


GOODS MUST BE MANUFACTURED "IN INDIA"

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Immovable goods such as roads, bridges and buildings.

Non-Marketable goods, i.e., goods for which no market exists, e.g., melted iron

Goods that are not mentioned in CETA

Goods manufactured or produced out of India.


Excise Duty is not levied on:

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1. Manufacturer2. Wholesaler 3. Warehouse owner4. Job contractor (sub-contracting)


PERSONS REQUIRING TO GET REGISTERED UNDER CENTRAL EXCISE

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Manufacturer is a person who actually manufacturing or producing the excisable goods

The term manufacturing includes: - a) Manufacturingb) Deemed Manufacturingc) Productiond) Assembling


1.Manufacturer

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Central excise Act defines manufacture as a group of process:-

1.which is ancillary and incidental for manufacture2.Is a process which convert raw material into

finish product3. Is the process which declared under SETA

Note : Any process which convert raw material into finished product is known as manufacture but character of F.G. must require different from F.G. Otherwise there is manufacture.


a.Manufacturing/b.Deemed Manufacturing

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c. Production Production has also not been defined in CEA but production is used to cover items like coffee, tea, tobacco, etc.

d. Assembly Assembly of various parts and components amount to manufacture provided it result in movable goods which have distinctive identity, use, character, name etc. e.g., assembly of computer is manufacture.


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Wholesaler means a person who buys or sells excisable goods wholesale for the purpose of trade or manufacture, and includes a broker or commission agent who, in addition to making contracts for the sale or purchase of excisable goods for others


2. Wholesaler

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warehousing of certain goods in warehouses without payment of duty.

E.g., coffee, petroleum products, benzene, etc.

In such cases, the duty liability is on the person who stores the goods.


3.Warehouse owner

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A large number of industries are dependent on outside support for completing their manufacturing activities. The activity undertaken by small industries to complete the process on raw material/semi-finished goods as desired by principal manufacturer is known as "Job Work/ sub-contracting "


4. Job contractor (sub-contracting)

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If a manufacturer manufacture excisable goods means the goods declared under SETA is excisable goods and registration under excise require within 30 days from 1st excisable goods manufactured.

Application form:-Under excise for registration specific form is required i.e. “FORM A-1”


Registration Process Under Excise

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The details contain under form A-1 :I. Name of the business.II. Address of businessIII. Name of owner.IV. Address of owner.V. Location of premise.VI. Details about goods manufactured.VII. Any other registration.

No specific fee is require for registration.

Submit form to district authority i.e. superintendent of excise.


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Business Authority for sign.

Sole proprietor Proprietor himself

Partnership firm Any partner or managing partner

Company Any director or MD

Govt. Any officer appointed for it


Authority for signature

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District authority can issue registration certificate in specific form “FORM B”

Authority also give registration number.

Known as ‘Excise Central Code (ECC)’

ECC contain 15 digit. First two digit indicate state Second three digit for district. Last ten digit are PAN for excise

Registration number must issue within 7 days


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I. Name of the business.II. Address of businessIII. Name of owner.IV. Address of owner.V. Location of premise.VI. Details about goods manufactured.

Certificate have to publish at factory premise.

If warn out or misplace there is provision for duplicate certif..


Contain of certificate

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If any change in certif., have to communicate to proper authority.

Any failure may liable to penalty up to maximum Rs.5000

Cancelation of Registration:1. Voluntary cancelation 2. Compulsory cancelation

I. Cease to carry businessII. Fail to pay excise dutyIII. Fail to maintain accountIV. Fail to submit returnsV. Carrying illegal business


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Excise duty is levied on production of goods but the liability of excise duty arises only on removal of goods from the place of storage, i.e., factory ,where excisable goods are manufactured.

As Excise duty is levied at the time of removal of goods.

The date of removal is relevant and the rate of excise duty applicable on the date of removal

Hence the date of its actual production is not relevant.


CHARGEABILITY OF EXCISE DUTY

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The records have to be maintained by manufacturer indicating particulars regarding:

1. Description of goods manufactured or produced

2. Opening Balance of goods manufactured or produced

3. Quantity produced or manufactured

4. Stock of goods

5. Quantity of goods removed

6. Assessable Value

7. Amount of duty payable; and

8. Amount of duty actually paid


RELEVANT RECORDS


TYPES & RATES OF THE EXCISE DUTIES


VALUATION OF GOODS

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Items Basic of specific Excise Duty

Cigarettes Length of Cigarette

Matches Per 100 Boxes

Sugar Per Quintal

Marble slab & Tiles Square meter

Color TV Screen size in cm

Cement Per Tone


1. SPECIFIC EXCISE DUTY

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Tariff Value is the value fixed by government from time to time. Government can fix different tariff value for different classes.

Presently only two items placed under the head of tariff valuation.

Tariff Value is fixed only for Pan Masala, Ready Made Garments.


2.EXCISE DUTY ON TARIFF VALUE

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Government can specify the goods on which excise duty will be based on MRP.

MRP shall be the maximum price at which excisable goods shall be sold to the final consumers.

It includes taxes, freight and transport charges, commission to dealers etc.

In case multiple MRP’s are printed on product, the maximum MRP among all will be considered for valuation purposes.


3.EXCISE DUTY ON MRP

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For charging excise duty under this rule, following are the main condition :-

1. Manufacturer must registered under weight and measure Act. 1981

2. The goods on which excise duty is charge on MRP basis must registered with central govt.

3. Central govt. must declared that item in official gazette.

4. When two or more MRP show on the product higher of that is use for valuation under the Act.


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Assessable Value is the value of transaction

i.e., the value at which transaction takes place.

In other words it is the price actually paid or payable for the goods on sales.

It is also called transaction value.

It includes freight and transportation charges, commissions to dealer etc.


4.EXCISE DUTY ON ASSESSABLE/TRANSACTION VALUE

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1. There is no relationship between buyer and seller

2. Amount paid to seller is sole consideration to the buyer

3. Possession of goods must be transfer to buyer at factory gate.


CONDITIONS FOR TRANSACTION /ASSESSABLE VALUE BASE

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When duty of central excise or customs is levied by applying the given percentage of value of the goods, then, it is known as AD-VALOREM rate.

In other words, Ad-valorem rates have inbuilt elasticity and quantum of duty levied automatically varies as the value of the goods vary.


5.AD-VALOREM DUTY

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E.g. : - If Excise duty rate is 14.42% and ad-valorem and the assessable value of the goods is Rs. 1,00,000 then, the excise duty works out to be Rs.14420

If Excise duty rate is 14.42% and ad-valorem and the assessable value of the goods is Rs. 2,00,000 then, the excise duty works out to be Rs.28840


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The CENVAT Credit system is based on the Value Added Tax concept to reduce the cascading effect

BASIC CONCEPT OF VALUE ADDED TAX (VAT) Value Added Tax means on tax on value

addition.

Cascading effect: The literal meaning of cascade is overlapping. In simple terms means Tax on Tax.


CENVAT UNDER CENTRAL EXCISE

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Ex. For simplifying the tax calculation we will assume, rate applicable is 10%

Transaction without VAT


Type of the Dealer Cost Tax Amount

@ 10% Invoice value Tax Payable

For Raw material supplier

Sales for RM supplier 10,000 1,000 11,000 1,000

For Manufacture

Purchase 10,000 1,000 11,000

Sales21,000

(10000+1000+10000)

2,100(21,000*10%)

23,100(21,000+2100) 2,100

Total Excise Duty Paid 3,100

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Summary: - Cost of the product in hands of final consumer : - Rs. 23100 Total Tax Paid to the government : - Rs. 3,100 (1,000+2,100) Tax to be paid by manufacturer : - Rs. 2,100



Transaction with VATType of the

Dealer Cost Tax Amount @ 10% Invoice value Tax Payable

For Raw material supplier

Sales for RM supplier 10,000 1,000 11,000 1,000

For Manufacturer

Purchase 10,000 1,000 11,000

Sales20,000

(10000+10000)

2,000(20,000*10%)

22.000(20,000+2000) 1,000

Total Excise Duty Paid 2,000


Summary: - Cost of the product in hands of final consumer : - Rs. 22000 Total Tax Paid to the government : - Rs. 2,000 (1,000+1,000) Tax to be paid by manufacturer : - Rs. 1,000

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CENVAT Credit scheme before 1.4.2000 was known as MODVAT credit scheme. MODVAT means modified value added Tax now it has been changed to CENVAT.

CENVAT stands for "Central Value Added Tax". This scheme is introduced with a view to remove the effect of the double taxation how this is being achieved can be understood with the help of the following example


CENVAT CREDIT SYSTEM

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E.g. A purchase raw material and on which 10% excise duty is paid. He process that RM & on his manufacture 16% excise duty is applicable then he get credit of 10% of excise duty which paid on RM of earlier manufacturer.

Now his liability to pay excise duty only 6% (16-10)

If manufactured unit has lower or nil duty then no credit or refund is available under SENVAT


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Advantages of CENVAT • It reduces the effects of taxation at multiple stages of manufacture.• It facilitates duty free exports.• It increases the tax base. Disadvantages of CENVAT • It increases paper work and leads to multiplicity of records.• It leads to corruption.• It leads to litigation.

Note : SENVAT credit is for excise duty only but not any other cost.


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Under SENVAT materials are classified under two heads :

1. Inputs2. Capital goods

CENVATABLE INPUTS INCLUDES FOLLOWING

Input credit on Raw Materials Input credit on Consumables Stores Input credit on Capital goods Input credit on services


MATERIAL/ GOODS UNDER SENVAT

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The input may be used directly or indirectly in or in relation to manufacture. The input need not be present in the final product.

Credit is to be availed only on the basis of specified documents as proof of payment of duty on inputs or tax on input services.

100% credit is available in same year in which raw material use.


Credit of inputs

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Credit of duty paid on machinery, plant, spare parts of machinery, tools, dies, etc., is available

However, up to 50% credit is available in current year and balance in subsequent financial year or years


Cenvat on Capital Goods

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All goods, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not

'Input' includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production


INPUT CREDIT (CENVAT) ON GOODS& CONSUMABLES/ RM:-

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Tools, hand tools falling under chapter 82 * Machinery covered under chapter 84 * Electrical machinery under chapter 85 * Measuring, checking and testing machines etc. falling under chapter 90 * Grinding wheels Abrasive powder or grain on a base of textile material.

Pollution control equipment. Components, spares and accessories of the goods

specified above. Moulds and dies. Refractories and refractory material. Tubes, pipes and fittings thereof, used in the factory. Storage Tank. Air- Conditioners, refrigerating equipments and

computers would be eligible to CENVAT credit as capital goods (Should not be used in the offices)


INPUT CREDIT (CENVAT) ON CAPITAL GOODS: -

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Any Service used by a provider of taxable service for providing an output service;

Any Service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal;

And includes services used in relation to setting up, modernization, renovation or repairs of a factory, market research


INPUT CREDIT (CENVAT) ON SERVICES

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Petrol capital goods if it is used in the offices Anything which is not used in the factory of

the manufacturer will not be eligible for the CENVAT credit

The inputs used for construction and foundation of the machinery are not qualify for input credit.

E.g. Cement was not used directly or indirectly in the manufacture of the final product


YOU CAN NOT TAKE CENVAT

Invoice of manufacturer from factory

Invoice issued by registered importer

Invoice issued by registered first stage or second stage dealer

Supplementary Invoice

Bill of Entry

Challan of payment of tax where service tax is payable by other than input service provider

Indirect Tax by Prof. Mohasin Tamboli55

CREDIT ON BASIS OF SPECIFIED DOCUMENTS

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Job work means processing or working on raw materials or semi finished goods supplied to job worker. So as to complete a part or whole of the process resulting in to manufacture or finishing of an article or any operation; which is essential for the aforesaid process

Large industries always get some processing done from outside on job work basis. This is called ‘job work’ or sub contracting


JOB WORK & CENVAT

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If an item is only repaired of reconciled, no duty liability arises as no new product emerges

If goods are manufactured during job work, excise liability will arise, as duty is on manufacture and who has supplied the raw material is immaterial

The job worker, who is engaged in manufacturing of readymade garments on job work basis, is exempt from duty. Exemption has been made in this case


provision regarding the job work under Central Excise Act

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Criteria for SSI Unit:

Company having turnover less than 400 lakh i.e. 4 Cr. Consider as SSI

The status of SSI is not permanent but it changes with turnover.

Purpose behind concession to SSI unit is survival for SSI


Concession to SSI Unit under EX.

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1. Concession under notification 8 issued in 2003

2. Concession under notification 9 issued in 2004


CONCESSION

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1. If manufacturer select notification 8. The provision are no excise duty upto first 150 lakh.

2. Then after regular excise duty.3. In first 150 lakh exemption no SENVAT

credit is available.4. While paying regular excise duty SENVAT

credit is available


Concession under notification 8 issued in 2003

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1. No exemption for excise duty.

2. Regular and normal excise duty from beginning.

3. SENVAT credit is available from beginning.

In short normal excise duty from beginning & no exemption at all


Concession under notification 9 issued in 2004

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If manufacturer select any one of the explained, it is his duty to apply for whole year.

Selection and application is responsibility of manufacturer only.

Any change during the period is offence under the Act, and liable to pay penaulty.



AUTHORITY HIRARCHY UNDER EX FINANCE MINISTRY

C.B.E. & C

CHIEF COMMISSIONAR

COMMISSIONAR (APPEAL)

ADDITIONAL COMMISSIONAR

DEPUTY COMMISSIONAR

JOINT COMMISSIONAR

SUPRITENDANT

INSPECTOR


THANK YOU !!!

Date post:	21-Feb-2017
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