India Localization with respect to INDIA

Modus Operandi

Session I

Introduction to Indian Taxes.

Different Sales Process.

CENVAT concept.

CENVAT rules and terminologies.

CENVAT and sales process.

Base for the CENVAT credit.

Tax Procedures.

Registers.

India Localization Configuration in SD.

Master Data.

SAP Easy access settings relevant for India Localization.

Q&A.

Conclusion.

Introduction

Let us discuss, what are India taxes and how they are differentiated.

Indian Tax Procedure

It is of two types.

1. Direct Tax

2. Indirect Tax

Direct Tax:

It consists of the capital tax and Personnel income tax.

Indirect Tax:

Indirect Tax constitutes Excise duties, Sales Taxes and Service Taxes.

Excise duties:

+ Excise Duty must be a duty on the goods;

a. The goods must be excisable;

b. The goods must be manufactured or produced;

c. The Manufacture or Production has to be within India;

+ Excise Duty is Mainly based on 4M's

a. It must be mentioned in Excise Laws

b. It must be movable

c. It must be manufactured

d. It is valuable to money

+ Excise duty is a duty on production or manufacture of goods. It is a tax

levied on manufacture of goods and the liability to pay excise duty arises

immediately on manufacture or production of goods.

+ Once manufacture of goods is complete, excise duty is payable, whether

the goods are sold or self-consumed. Excise duty does not depend on the

end use of the goods.

+ Excise duty is a tax on manufacture of goods but for the sake of

administrative convenience, it is collected only on removable of goods from

the factory.

Sales Tax:

Sales Tax is a tax on Sales and can be imposed only when there is a

sale.

Difference between Excise duty and Sales Tax.

Central Excise duty has to be distinguished from sales Tax. Sales Tax is a

tax on sales and can be imposed only when there is a sale. On the other

hand, Excise duty is a duty on the manufacture of the goods. So, duty can

be imposed immediately after goods are manufactured. Whether these

goods are sold are not is immaterial.

For Example: If a company manufactures soap within the factory for its own

use, there will be no sales tax on the soap. However, the soap will be liable

to pay excise duty as it has been manufactured.

Types of Excise Duties:

Under the Excise laws, the following are the various types of duties, which

are levied:

Basic Excise Duty: Excise duty that is levied at the time of the goods

removal, either it is for sales or for own consumption.

Additional Excise Duty: Excise duty that is levied to protect the local

industries. This is varies depending on the products.

Special Excise duties: Excise duty that is levied in order to control the

competition between the states, for example, one state may give more

subsidies in order to attract the investments or to encourage the industries

of that state.

Additional duty on specified items under the Act: If the tariff

Commission set up by law recommends that in order to protect the interests

of industry, the central government may levy additional duties at the rate

recommended on specified goods.

Different Sales Process

A. Sales from Factory

B. Stock Transfers

C. Sales from Depot

D. Scrap Sales

E. Auction sales especially for scrap

F. Job Works

G. Exports

A. Sales from Factory

In the process of Manufacturing the Factory uses two kinds of

materials.

Input Material:

Is defined as the one which loses its own identity in the finished

product.

Capital Goods:

Is defined as the one which does NOT lose its own identity in the

finished goods.

B. Stock Transfers

In Stock Transfers we will transfer the materials from plant to plant

and plant to Stock yards.

Usually in the stock transfers we create the excise invoice while the

goods is moving from plant to stock yard.

From stockyard to customer usually we are not going to create the

Excise invoice, because stock which is coming into the stock is not an

input, it is just a transfer from one place to other.

There is no price escalations here.

C. Depot Process(Sales from Depot)

For doing goods receipt:

Scenario 1: Stock Transfer

Step 1: Do GR (Transaction code: MB01)

Step 2: Excise Invoice Capture at Depot (Transaction code:

J1IG)

Scenario 2:

Step 1: Do GR (Transaction code: MIGO)

Step 2: Excise Invoice Capture at Depot (Transaction code:

J1IG)

At the time of sale:

=> Sales Order -> Delivery -> J1IJ (Always require a delivery

number) -> PGI -> Billing

D. Export Process

In the process of Exports Duty under bond is not payable and the

goods move out from the factory against an ARE1.

However, goods not under bond move out of the factory by paying the

duty and refund is separately claimed on showing proof of export i.e.,

Shipping bill.

Incase of deemed Exports, the same procedure is followed as in

exports, however, the form used is ARE3.

What is CENVAT........!?

Commonly used word, whenever discussing on India Tax.

CENVAT: Amount that is paid on the value that is added at that time of

sale to the government.

For Example:

.....CENVAT......!?

WHEN AND HOW MUCH CREDIT CAN BE TAKEN

The CENVAT credit in respect of inputs may be taken immediately on

receipt of the inputs.

The CENVAT credit in respect of Capital goods received in a factory at

any point of time in a given financial year shall be taken only for an

amount not exceeding 50% of the duty paid on such capital goods in

the same financial year and the balance of CENVAT credit may be

taken in any subsequent financial year.

The CENVAT credit shall be allowed even if any inputs or capital goods

as such or after being partially processed are sent to a job worker for

further processing, testing, repair etc. and it is established from the

records that the goods are received back in the factory within 180

days of their being sent to a job worker.

Where any inputs are used in the final products which are cleared for

export, the CENVAT credit in respect of the inputs so used shall be

allowed to be utilized towards payment of duty on any final product

cleared for home consumption and where for any reason such

adjustment is not possible, the manufacture shall be allowed refund of

each amount.

.....CENVAT

Rule 1. Short title, extent and commencement.-

Rule 2. Definitions.-

"Act" "Capital Goods" "Customs Tariff Act" "exempted goods" "final

products" "first stage dealer" an importer "input" "manufacturer" or

"producer"

Rule 3. CENVAT Credit.-

Rule 4. Conditions for allowing CENVAT credit.-

Rule 5. Refund of CENVAT credit.-

Rule 6. Obligation of manufacturer of dutiable and exempted goods.-

Rule 7. Documents and Accounts.-

Rule 8. Transfer of CENVAT credit.-

Rule 9. Transitional Provision.-

Rule 10. Special dispensation in respect of inputs manufactured in

factories located in specified areas of north east region and kutch

district of Gujarat.-

Rule 11. Power of central government to notify goods for deemed

CENVAT credit.-

Rule 12. Recovery of CENVAT credit wrongly taken.-

Rule 13. Confiscation and penalty.

Rule 14. Supplementary provision.

CENVAT

So far.....

Overview of Indian Tax Structure.

What is Excise Duty and Types of Excise duties?

What are CENVAT rules?

What is CENVAT credit?

How and when CENVAT credit is availed?

Tax Procedures and Registers.

How we are going for the CENVAT credit in SAP and what is the Base

for IT.

Answer is Tax Procedures and Registers.

What are these.

Now we will going to discuss on Tax Procedures.

SAP Provides following std. Tax procedure for country India

Formula based Tax Procedure TAXINJ

Condition based Tax Procedure TAXINN

Currently from 4.7 we are using TAXINN.

Settings needed in SAP for TAXINN

First we need to maintain TAXINN procedure as shown in the slide.

Menu Path: SPRO -> Logistics General -> Tax on Goods Movement ->

India -> Basic Settings -> Determination of Excise Duty -> Maintain

Excise Defaults.

Then we need to assign the Tax procedure TAXINN to country India as

shown below.

Menu Path: SPRO -> Logistics General -> Tax on Goods Movement ->

India -> Basic Settings -> Determination of Excise Duty -> Select Tax

Calculation Procedure.

Sales and Distribution Pricing Procedure

What is Excise Register and how many are they?

How the Excise registers are using at Different Business Scenarios and

How these are updating?

Excise Register

Excise Laws require you to maintain a number of registers in a

specified format relating to a excise duty. They have to be printed out

monthly and shown to the authorities in the event of an audit. The SAP

captures this requirement.

Types of Registers:

RG23A PART I

RG23A PART II

RG23C PART I

RG23C PART II

RG I

RG23D

Excise Registers

RG23A: Raw Material

The entries pertaining to quantity will go into RG 23 Part I and that of

duty will go into Part II in the appropriate duty column. i.e., Basic

Excise, SED, Additional Duty, etc

RG23C: Capital Goods

RG23CI-Part I entry: Excise Stock entry at the time of GR(only

quantity)

RG23CII-Part II entry: Credit entry of capital goods(only value)

RG-I: Finished Goods (only quantity)

The finished goods (manufactured, sub-contracted or gained) and

sales or stock transfer are entered in the RG I Register.

Register RG I is updated after creation of an excise invoice while

dispatching the goods from the factory premises with reference a

commercial invoice or a pro-forma invoice.

RG23D: Depot (this indicates both the amount and the

quantity)

Factory Process - Registers

RG23 A - Part I & Part II

Material is received in the factory as "for quality inspection" or "for

direct input".

Material after "Quality Inspection" or when used as "Direct Input" will

go into the RG 23 A Registers.

The entries pertaining to quantity will go into RG 23 Part I and that of

duty will go into Part II in the appropriate duty column. i.e. Basic

Excise, SED, Additional Duty, etc

Depot Process

The RG 23 D register is used to update the excise entries in case of

Excisable Depots.

The Excise duty is payable when the goods are sent from the factory.

However, it is not levied again when the goods are sent from the

DEPOT.

However, while taking sale from the DEPOT and if price escalations

happen, then the extra excise is paid using a A certificate. These

details are entered in the RG23 D register and excise recovered from

the customer.

DEPOT Process

Transactions can happen through two scenarios:

Scenario 1: Depot receives goods from the company's factory through

stock transfer.

Scenario 2: Depot procures goods directly from external resources.

Transaction codes relevant For Registers.

Activity SAP Transactions

Register updates

RG 23 A(Part I & II and RG I)

J1I5

Register Extraction

J2I5

Register Printing

J2I6

Utilization J2IU

So far we discussed on

Tax Procedure

Pricing Procedure relevant to SD

CENVAT registers

Transaction codes

Tax/Excise Duty set up for MM & SD

Basic Settings

Master Data

Account Determination

Business Transactions

Tools

Basic Settings

Excise Registration ID's

Company Code Settings

Plant settings

Excise Groups

Series Groups

Excise Duty indicators

Excise Registration ID's

Company Code Settings

Plant Settings

Excise Groups

Series Groups

Excise Tax Indicators

Account Determination

Describe which excise accounts (for excise duty and CENVAT) are to

be posted for the various transaction types including sub transaction types if

any

During transactions system determines which G/L account to post to by

looking at the Excise Group, Company code & Chart of accounts

SD Settings relevant to India Localization

Assigning Billing types to Delivery types

Maintain Excise Defaults

Maintain the Excise Defaults in order determine Excise Group and

series Group automatically at the time of Excise Invoice creation.

Maintain Utilization Determination

Excise Rate Determination

Print the Excise Reister

Conclusion