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Central Sales Tax (CST) & Value Added Tax (VAT) Central Excise Tariff
Custom Duty
Service Tax
Provisions Definition of sale, goods, declared goods, turnover etc When a sale/purchase amounts to an inter-State sale/purchase When a sale/purchase is said to have taken place outside a State When a sale/purchase is said to have taken place in the course of import/export & high seas sale In-transit sales Rates of tax, State specific exemptions Determination of turnover
State sale cannot be effected, no imports or exports, sale or purchase through commission
agent.
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The dealer in Hyderabad returned goods worth Rs. 20,000 while Rs. 50,000 worth of sale within Hyderabad was of exempt items. At the time of local sales (liable to tax) to dealers in Hyderabad, Bharat allowed a cash discount of 5% on the local sales liable to tax.
Amount
10,00,000 3,00,000 5,00,000 50,000 20,000
Less:
Export Sales Inter-State Sales Exempt Sales Sales Returns
1,30,000
6,500 1,23,500 12,350
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Central Excise
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Basic Concepts
Excise Duty The power to levy Excise Duty lies with the Central Government under Entry 84, Union
Under the Central Excise Tariff Act, 1985 (CETA) excise duty shall be levied on all goods
prescribed under Schedule I and II. Excise Duty liability is generally on the manufacturer. Excisable Goods- Specified in First and Second Schedule of CETA. Basic Conditions- Conditions for levy of excise duty as mentioned in Section 3 of Central Excise Act, 1944.
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Basic Concepts
Manufacture
Section 2(f) of Central Excise Act, defines and lays down the scope of manufacture. It means any process which is: Incidental or ancillary to the completion of a manufactured product. Specified in relation to goods in any section or Chapter notes of The Central Excise Act, 1944 as amounting to manufacture. With respect to any goods mentioned in the Third Schedule, packing, repacking, labelling, re-labelling, declaration or alteration of retail sale price on it, adoption of any other treatment which makes the product marketable to the consumer.
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Basic Concepts
As laid down by The Honble Supreme Court in a case, the test to determine what goods
amount to manufactured goods is to see if the new substance has emerged as a distinct name, character and use. Activities Amounting to Manufacture Making a chair out a planks of wood
Basic Concepts
Steps in Classification
1. Reference can be made to the sections, chapters and HSN classification by an assessee to ascertain the goods for which the Excise duty rates are to be determined. 2. After determination of goods from the relevant chapter, an assesse has to next find out the rate of duty for the relevant product. 3. Reference has to be made to the tariff heading, sub-heading of the Schedules and along with the corresponding Section and Chapter Notes. 4. In the absence of any ambiguity or confusion the classification is final. 5. In case of confusion, reference has to be made to the Rules for interpretation of tariff. 6. To determine classification there are about 6 Rules which need to be borne in mind.
7. In case doubts persists, then reference may be made to funtional utility, design etc.
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Valuation
The valuation rules under excise are known as Central Excise Valuation (Determination of
Price of excisable Goods) Rules, 2000 notified pursuant to section 4(1)(b) of Central Excise Act, 1944. Excise Duty is payable on the basis of the Transaction Value if the following conditions are satisfied Goods are sold at the time and place of removal Assessee and buyer are not related The consideration for the transaction of sale should be more than just the price. The valuation Rules will be applicable when any of the conditions mentioned above are not satisfied.
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Valuation
Certain Key Rules
Rule 4- When goods are not sold at the time of removal Rule 5- Goods sold at different place Rule 6- Valuation when price is not the sole consideration Rule 7- Sale through depot/consignment agent Rule 8- Valuation in case of captive consumption Rule 9- Sale to/through a related person other than an ICU Rule 10- Sale to/through Inter connected undertakings (ICU) Rule 10A- Valuation in the case of job work Rule 11- Best Judgment assessment
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Export Procedure
Exports are free from taxes and duties.
Goods can be exported without payment of excise duty under bond under rule 19 or under claim of rebate of duty under rule 18. Container containing export goods should be sealed by excise officer. Self-sealing is permissible. Excisable Goods should be exported under cover of Invoice and ARE-1 form. Export should be within 6 months from date of clearance from factory. Merchant exporter has to execute a bond and issue CT-1 so that goods can be cleared without payment of duty. Manufacturer has to issue Letter of Undertaking. Rebate under rule 18 can be either of duty paid on final products or duty paid on inputs
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Clubbing of Turnover: When goods are cleared from one or more factories by the same
manufacturer then the turnover may be clubbed together to calculate the exemption limit. Where the specified goods are cleared by one or more manufacturers from the same factory, the exemption shall apply to the aggregate value of clearances of all the manufacturers from that factory.
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Adjudication
Under the Central Excise Act, 1944 where any confiscation is legally provided for or any
penalty is to be imposed, such confiscation or penalty can be imposed by the Commissioner of Central Excise. Procedure- The Adjudicating Authority has to give the party an opportunity to be heard if the party so desires. The Adjudicating Authority has the power to adjourn proceedings if sufficient cause is shown.
The Adjudicating Authority cannot adjourn the proceedings for more than 3 times.
When confiscation is adjudged, the adjudicating authority has the obligation to offer the owner an option to pay fine of such amount which he thinks fit.
Confiscation or penalty in one proceeding cannot interfere with any other parallel
proceeding under the same Act.
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Appeals
Under the Central Excise Act, 1944 appeal is allowed against orders passed by the Excise
authorities i.e. Superintendent, Assistant Commissioner, Deputy Commissioner, Joint Commissioner, Additional Commissioner and Commissioner of Central Excise. Such appeal will lie to the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Against order passed by Superintendent, Assistant Commissioner, Deputy Commissioner, Joint Commissioner, Additional Commissioner of Central Excise: First Appeal lies with Commissioner Second Appeal lies with CESTAT CESTAT is the final fact finding authority and such orders passed by it are final & binding. In cases of substantial questions of law, appeals can be made to either the High Court or
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Basic Concepts
First Stage Dealer-dealer who directly purchases goods
Second Stage Dealer-dealer who purchases goods from a first stage dealer CENVAT ( Central Value Added Tax) Credit CENVAT Scheme allows the credit of duty paid on inputs and capital goods and service tax paid on input service. One of the aims of introducing CENVAT is to reduce the cascading effect of taxation and therefore the duty paid on inputs can be adjusted against the payment of excise duty on the final products or service tax on output service. Under CENVAT set-off is allowed only in cases of excise duty paid on inputs and capital goods AND service tax paid on input service against the duty of excise and NOT for all
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Basic Concepts
Salient Feature of CENVAT Credit Rules
Under Rule 3(1) of the CENVAT Credit Rules, all the taxes and duties mentioned therein are very significant for purposes of availing the credit rule benefits. Maintainance of separate accounts is required under Rule 3. For Inputs, they are Receipts, Consumption & Inventory For Input Service, they are Receipt & Use CENVAT Credit Scheme benefits do not extend to final products which are exempt. CENVAT credit advantage cab be availed in case of input services only post payment of service tax. One-to-one relation is not required under CENVAT.
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Basic Concepts
Budget 2012 Proposals
Due to increase in general excise duty rate from 10% to 12%, the merit rate of 5% increased to 6%. Rule 3(5) & 3(5A) amended which pertains to amount payable after credit has been taken and cleared after use.
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Customs Duty
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Basic Concepts
Background
The power to levy customs duty lies with the Central Government (Entry 83, Union List, VIIth Schedule) Customs duty is generally levied on all the goods imported to India and very few goods exported from India. Reasons for such Levy: Protection of domestic industry in India Regulations of imports and exports Collection of revenue Legal Framework
3. Customs Valuation
Basic Concepts
The Customs Act, 1962 provides for three kinds of provisions:
a. Provisions concerning levy of duty b. Provisions concerning various procedures c. Provisions which are regulatory in nature d. Miscellaneous Provisions
Types of Duties
Safeguard Duty
AntiDumping Duty
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Valuation
The Legal Framework for Valuation are as follows:
The Customs Act, 1962; Provisions for valuation for export and import of goods.
Customs Valuation ( Determination of Price of Imported Goods) Rules, 2007 ('The Import Valuation Rules')
Customs Valuation ( Determination of Price of Exported Goods) Rules, 2007 ('The Export Valuation Rules)
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Valuation
Step I Under Rule 4 & 5, the price at which such goods are sold to unrelated buyers in India are taken into account. Under Rule 7, the price given to unrelated buyers is taken into account as the base price including deductions such as profit margins, general expenses, freight &insurance duties etc. Under Rule 8, the profit margin earned by the seller over the total cost of the export goods has to be justified. Under Rule 9, the Customs Value is arrived at based on the information available along with the best judgment of the SVB
Step II
Step III
Step IV
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Valuation
Export Valuation Rules
The Export Valuation Rules was introduced under Section 14 (1) of The Customs Act, 1962 The rationale behind introduction of such rules is to prevent deliberate over-valuation of goods to claim higher export incentives In cases of related party transactions, the given set of Rules need to be applied. Key Rules of The Export Valuation Rules Rule 3: Determination of the method of valuation Rule 4: Export value by comparison Rule 5: Computed value Method
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Valuation
Rule 6: Residual Method
Rule 7: Declaration to be filed by the exporter Rule 8: Rejection of declared value Classification
Section
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iii. Duty deferment iv. Power to take samples v. Liability of principal and agent
vi. Amendment of documents vii. Liability of agents appointed by the person in charge of the conveyance. viii. Correction of clerical orders ix. Publication of information respecting persons in certain cases x.
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Advance Ruling
The idea behind introducing Advance Ruling is to give findings on the question of law or
fact regarding the specified provisions of The Customs Act, 1962 pertaining to any activity which is proposed to be undertaken by the importer/exporter. Any non-resident of India, resident setting up a joint venture in collaboration with a nonresident, any joint venture for India or any wholly owned subsidiary of a parent foreign company can apply to AAR for determination of any question of law. AAR can be approached on questions pertaining to any classification of any goods,
Advance Ruling
Advance Ruling can be sought in respect of the following:
Classification of goods under the Act, applicability of exemption issued under S. 25(1) Principles of valuation of goods under the Act, applicability of notifications issued in respect of duties under the Act, determination of origin of goods in terms of the Rules under the Tariff.
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Settlement Commission
Central Government has constituted Settlement Commission for the purposes of settlement
of cases Pre-Conditions for making application: Firstly a show cause notice has to be issued to the applicant regarding import or export of certain goods and the relevant Bill of Entry (BoE) or the shipping Bill for such import or export must be filed with the application. The additional amount of duty accepted by the applicant exceeds three lakh rupees. The applicant has paid the additional amount of Customs duty. There must not be a parallel proceding pending with any other Tribunal or any Court Application cannot involve issues regarding classification of goods
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Settlement Commission
Commission is empowered to grant immunity from prosecution, penalty, fine and interest.
(wholly or in part) Immunity may be withdrawn when: Applicant fails to pay any sum due within prescribed time. Commission is conviniced that the applicant has concealed any material fact or provided false evidence. Commission in exercise of its discretionary power may send the case back to the Adjudicating Officer.
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Service Tax
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Basic Concepts
Legal Framework
Governing Legislation
1. Chapter V of The Finance Act, 1994
Regulatory Rules
1. Service Tax (Determination of Value) Rules, 2006 2. Service Tax Rules, 1994 3. Place of Provision of Service Rules, 2012 4. Point of Taxation Rules, 2011
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Registration
Payment
Returns
Invoicing
Records
Audit
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Valuation
Valuation of taxable services for charging service tax is mentioned in Section 67 of Chapter V of The Finance Act, 1994. The value of taxable service (on which service tax is applicable) is the gross amount
The Service Tax (Determination of Value) Rules, 2006 (Valuation Rules) provide for the
methodology to determine the value of services where the consideration is not received in money. The method prescribed are as follows: Where the value is unascertainable, then value is the equivalent consideration in money which should not be cost of provision of service. The value will be equivalent to the gross amount charged for provision of similar service to another person in the ordinary course of trade.
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Valuation
Valuation Rules also prescribe that the computation of tax shall also include any cost or
expenditure incurred to provide a taxable service. But cost or expenditure incurred as pure agent on behalf of the service recipient shall be excluded on certain conditions. Such conditions pertain to: How and in what manner such service is to be provided What qualifies as a pure agent
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60000
40000 20000 0
Revenue in Crores
Service Tax collections have shown a steady increase in revenue from inception Under the negative list regime, collections are budgeted to be Rs.124000 crores
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Negative List
Any service other than those mentioned in negative list shall be subject matter of taxation. Independent appraisal of service sector prior to introduction of GST Smooth transition of GST Clarity to reduce quantum of tax controversy
Unspecified services were not liable to tax Neither beneficial from tax administration nor compliance perspective Various disputes. Possible of overlap amongst categories.
Possibility of significant jump in tax revenues as services hitherto not taxed come under tax net
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Consideration
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Declared Services
The definition of service under Section 65B includes Declared Services
The term Declared Service has been defined under Section 66E as, an activity carried out by a person for another for consideration and specified in Section 66E of the Act 9 Declared Services
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Comments
Renting of residential dwellings covered under Negative List No exemptions granted for non commercial uses like private schools, hospitals etc.,
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PSUs/autonomous institutions set up by special Acts are not covered. Those services where Government competes with private players also not covered eg., life insurance, security services. Services provided by RBI not taxable
Process which does not alter the essential character of the agricultural produce, included in the negative list. Services provided by APMC or commission agents for sale or purchase of agricultural produce covered. Handling, storage and warehousing of agricultural produce covered Leasing of vacant land for agricultural purpose covered
Trading of Goods
Services auxiliary for trading of goods like activities of a commission agent or a clearing and forwarding agent who sells goods on behalf of another for a commission, would attract service tax, since, only the trading of goods has been included in the negative list.
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Transportation of passengers
Transport of passengers in public transport, metered taxis, metro, monorail covered. Charter vessels, cruises not covered.
Service provided by a vessel in inland waterways covered Services provided by railways, air, GTA, coastal waterways transport not covered. Goods and value specific exemptions also available
Process amounting to manufacture, even where exempted, under the Central Excise Law, would not attract service tax.
Non taxable sale of space for advertisement in bill boards, public places, buildings, conveyances, cell phones, automated teller machines, internet, aerial advertising, sale of space for advertisement in print media. Taxable Sale of space or time for advertisement to be broadcast on radio or television
Toll charges
National highways and State highways are covered. Collection charges or service charges paid to any toll collecting agency, not covered in negative list.
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Membership of club not covered in amusement facility. Event manager organizing an entertainment event not covered in this entry.
Only Government utilities / licenses covered Services provided by way of installation of gensets or similar equipment by private contractors for distribution of electricity not covered in this entry. Charges collected by developers/housing society not covered
Normal trade parlance guest house, hotel, motel, inn, campsite, lodge, house boat, not included. Mixed usage of dwellings to be tested on a case to case basis.
Financial Sector
Services in relation to loans, advances or deposits consideration represented by interest/discount covered. Any service charges or administrative charges or entry charges, recovered in addition to interest on loan not covered in negative list.
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No categorization of Services Single code for payment of service tax (old codes continue to be valid for the purpose of statistical analysis) Exemptions to education and health services.
Service Tax applicability on a reverse charge mechanism Wider tax coverage Issues pertaining to double taxation still prevail
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Bundled Services
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Bundled Services
Section 66F
Concept Bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. Determination of service category Reference to a service not to include reference to a service used for providing main service. Specific description to be preferred over general description If various elements of service are naturally bundled in the ordinary course of business service which gives the essential character. If various elements of service are NOT naturally bundled in the ordinary course of business service which gives the highest service tax liability.
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Gross amount charged for the works contract (excluding value added tax charged) less Actual value of property in goods transferred in the execution of the works contract.
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In the case of works contract entered into for execution of original work
In the case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods In the case of any other type of works contract
Total Amount =Gross amount charged for the works contract + Fair market value of all goods and services supplied in or relation to the execution of works contract amount charged for such goods or services Value added tax or sales tax. Original works means i. all new constructions; ii. All types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; iii. Erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or other wise;
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1. 2. 3. 4.
Works contract Any service Support Service* Supply of manpower for any purpose including security services Renting or hiring any motor vehicle designed to carry passenger Renting or hiring any motor vehicle designed to carry passenger
Individual, HUF, proprietary firm, partnership firm Any person who is located in a non-taxable territory Government or local authority Individual, HUF, proprietary firm, partnership firm
5.
Individual, HUF, proprietary firm, partnership firm Individual, HUF, proprietary firm, partnership firm
6.
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7. 8. 9.
Goods transport agency Individual and Firm of Advocates Services provided by Non Executive Directors
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Basic Concepts
Legal Framework The Foreign Trade Policy (FTP) issued by the Government of India is issued in exercise of powers under Section 5 of The Foreign Trade (Development and Regulation) Act, 1992 (FTDRA) Objective of FTP are as follows: Regulation of imports and exports through the Indian Trade Classification Encouraging exports (goods & services) To facilitate lower cost of production of mostly export goods
Basic Concepts
Basics of the Policy:
There are basically two types of benefits provided. They are:
Pre-Export Benefits: Includes schemes like Advance license, Export Promotion Capital Goods Scheme (EPCG), Export Oriented Unit Scheme (EOU), Special Economic Zone Scheme (SEZ). Post-Export Benefits: Includes schemes like Duty Entitlement Pass Book (DEPB), Duty Free Replenishment Certification Scheme (DFRC), Duty Drawback, Served from India Scheme, Vishesh Krishi Udyog Yojana, refund of terminal excise duty for deemed exports.
IEC- All importers and exporters are required to obtain an Importer Exporter Code which is a mandatory registration requirement. RCMC- Registration with the export promotion council of the relevant industry is
iii. Focus Market Scheme (FMS) iv. Focus Product Scheme (FPS) v. Duty Entitlement Pass Book (DEPB)
vi. Export Promotion Capital Goods Scheme (EPCG) vii. Export Oriented Scheme (EOU)
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Free Trade Zone (FTZ) which never saw the light of the day and finally in the year
2000 SEZ Scheme was introduced. The SEZ Scheme has developed over the year with the introduction of a statute and various Rules made under it.
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in overseas exhibitions.
Special Bonus Benefit Scheme A new scheme has been introduced to provide special assistance to certain specified
Agriculture Sector
To reduce transaction and handling costs, a single window system to facilitate export of perishable agricultural produce has been introduced. The system will involve creation of multi-functional nodal agencies to be accredited by APEDA
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Professional Opportunities
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Professional Opportunities
1. Where there are large projects in government or commercial sphere by proper tax planning. 2. Initial Registration 3. Initial Disclosures to department 4. Initial Procedures. 5. Monthly /Quarterly payment of Tax / duties. 6. Return Verification Filing of returns / filing of bill of entry 7. IDT or Customs / Excise / Service Tax Review and Quarterly Audit 8. Review just before departmental audit 9. Assistance during departmental IAP or CAG audit. 10. Opinions / Clarifications 11. Transaction structuring 12. Effect of budget/recent changes on activity 13. Refunds of Service Tax and Central Excise 14. Past errors rectification 15. Departmental letter reply 16. Show Cause Notice Reply
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Professional Opportunities
17. 18. 19. 20. 21. Representation before adjudicating authority Reply / Representation at appellate forums Assistance to advocate at High Court / Supreme Court Outsourcing of the Function Other Area
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Thank You
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