indirect taxes – a review_defence
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Applicability of Duties / Taxes -
Excise Duty
Customs duty.
VAT / CST
Service tax
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Excise duty is manufacture of goods.
Customs duty is paid on imported goods. Along with
customs duty, other duties like CVD, Addl. Duty are
also paid.
VAT is applicable for purchase and sale within a
state.
CST is applicable for inter state purchase and sale.
Service tax is applicable for services provided.
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Modus operandi of each tax is different and everyAct is independent having its own peculiar
provisions. The Customs Act, Excise and Service tax are within
the jurisdiction of Central Govt while VAT isregulated by respective State Government.
These provisions are in the Constitution.- Union List Though every state has its own VAT Act, the rates of
VAT have been tried to be kept at uniform level ineach state, barring a few items.
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Excise duty is payable on Manufacture of
products. If the activity does not amount to
manufacture, the same will not be covered
under Central Excise.
Duty payable on manufacture of products,but collected at the time of clearance of
goods for the sake of convenience.
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Excisable Event :
Goods must be marketable being capableof being brought to the market for being
bought and sold.
Goods must be movable. Immovable goods
are not excisable.
Mentioned in the Tariff.
Manufactured / produced in India.
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Manufacture Important concept
Definition of Manufacture Sec. 2(f) A)Manufacture includes process Incidental or
Ancillary to the completion of manufacture of
product.
Incidental means occassional or casual
process. Ancillary means important
processes without which manufacuture is not
complete.
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B) Deemed manufacture processes
defined in Central Excise Tariff asamounting to manufacture. Eg. Labelling /
relabelling of containers from bulk packs to
retail packs of pan masala, yeast, soups,
sauces etc. (Chapter 21 Note 4). Strictlythese are not manufacturing processes.
However for the purpose of the goods
covered under this chapter these processes
are manufacture.
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C) In respect of goods covered under the
Weights and Measures (Packed commodityRules) where the goods are covered under
Third Schedule of the Tariff and processes
like packing, repacking, labelling, relabelling,
putting MRP, changing MRP etc. are carriedout, the goods will be charged to duty on
MRP less abatement.
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Assembly of CKD/SKD packs is not
manufacture. Assembly of various parts and components
may amount to manufacture if new product
emerges.
Plant and Machinery assembled at site Ifemerges as Immovable property not
excisable.
Fabrication of steel structure is exempt.
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Repairs does not amount to manufacture.
However, various judgements are availablewhere it has been held that if the same
operations are carried out on the product, the
same is treated as manufacture.
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Tariff contains list of all goods manufactured /
produced in India.
Based on HSN Harmonised system of
Nomenclature Internationally accepted format
suitably changed by respective countries.
The tariff contains 20 sections and 96 chapters.
Sections divided into chapters and chapters in sub
chapters.
Tariff contains rates of duty applicable to goods
manufactured.
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Similarly, the Customs Tariff contains 21 Sections
and 99 Chapters.
The Central Excise and Customs tariffs are identical
except certain items.
The Customs tariff gives the rates of customs duties
and other duties applicable for goods imported.
It also specifies exemptions to specified goods.
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Along with manufacturers, the dealers are
also registered under the Excise Act if theywant to pass on the excise duty benefit.
This is useful for manufacturers availing set
off benefit (Cenvat Scheme)
The dealers do not pay the duty as they arenot manufacturers but only pass on the
proportionate duty credit.
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First Stage Dealers and Second Stagedealers are registered and allowed to passon cenvat benefit.
The Cenvat Scheme allows to claim the setoff of duty paid on raw material, capitalgoods and it is adjusted against the liability offinished goods.
Hence, if the final product is not dutiable, theset off is not allowed.
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In Defence, wherever manufacturing activity is done,
the excise duty is applicable. However, this is
exempt vide Notification No. 62/95, 63/95, 64/95,74/93. The details of these exemption notifications
are as under :
Notfn. 62/95 Exemption to goods manufactured in
Central Govt. factories All goods produced inOrdnance Factories, Arms and Ammunition falling
under Chapter 93 etc.
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Notfn. 63/95 goods manufactured by
specified units / institutions for use by Govt.Departments or defence.
Covers goods manufactured by Hindustan
Aeronautics Ltd, Bharat Electricals Ltd,
Bharat Dynamics Ltd. BEML etc. Notfn. 64/95 Exemption to goods supplied
for defence and other specified purposes -
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This covers All goods donated for welfare
of defence personnel, donated to NationalDefence Fund, All goods other than
cigarettes if supplied as stores for
consumption on board a vessel of the Indian
Navy or Coastal Guard, Components, rawmaterial, tools etc. meant for launch vehicle
project etc.
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Notfn. 74/93 Exemption to goods
manufactured in a State Govt factory andintended for use in any of its department
Covers all goods under chapter 86 (Railway,
tramway etc.)
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Since the final product is exempt, there is no
set off benefit available to defence. Apart from manufacturing, the defence units
are also procuring the material from various
sources and supplying to their organisations
for consumption. In such cases, the goodsare duty paid and no set off is available.
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The taxation depends upon one important
factor from whom the goods are procured ?A manufacturer, a dealer registered under
central excise or simply a dealer not
registered under central excise.
If the goods are purchased from amanufacturer, he will charge excise duty over
the basic price.
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If the goods are procured from a dealer
registered under central excise, he will passon proportionate credit. However, this is a
cost to Defence.
If the goods are procured from a
manufacturer working under SSI benefit, thetaxation will depend upon whether he is
paying full tax or claiming exemption.
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In Central Excise, the SSI units are thosewho have achieved their turnover less than4 crores during the preceding year.
If this condition is fulfilled, the SSI unit hastwo options
a) To claim exemption upto Rs. 1.50 croresturnover and pay full duty onwards. Or
b) Claim Cenvat benefit and pay full duty fromRe.1 sale.
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The above provisions will definitely make a
difference on cost of material procured fromdifferent sources.
The Customs duty is paid if the goods are
imported. Calculation of Duties is very
important. CVD, Additional duty are alsoadded and all this becomes a cost because
no set off is available.
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If the Government has issued specific
notification, the goods will be exempt underExcise / Customs.
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Similar to Excise Tariff, there is Customs
Tariff which determines the rates of customs
duty applicable for various products
imported.
If Defence is purchasing the goods from a
dealer, he will recover the duties and taxespaid by him from defence. It is a cost to
defence.
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Taxation with reference to Defence :
All goods are inclusive of all taxes, duties.
No set off benefit available.
If taxes are not charged, the reasons shouldbe analysed. The supplier may charge duty
subsequently. In such cases, the suppliershould not be compensated subsequently.The comparison should be with all inclusivetaxes.
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Service tax
Service tax is levied on services provided. About 125 services are taxable.
Major services are Repairs and
maintenance, Telephone, Consultants,
Works Contract, General Insurance, Banking
and Financial services etc.
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Service tax paid Cenvat credit is availableas set off.
The set off is available only after payment ofservices.
Service tax is also applicable for Government
organisations. Service tax on Goods Transport Agencies
The liability is on Govt. organisations.
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Service tax on Information Technology services Inthe budget for 2008, services relating to IT Software
such as development, designing, programming,upgradation, providing advice etc. were broughtunder service tax. However, it was limited to ITsoftwares used in the course of business orcommerce. However, in the budget for 2010, this has
been extended to all cases whether for business ornot. Hence, the softwares are chargeable to servicetax on the total value of service.
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Works Contract
Works Contract is chargeable under Service tax and
under VAT.
Works Contract means a contract wherein transfer of
property in goods involved in the execution of
contract is leviable as sale of goods and such
contract is for carrying out erection, commissioning,installation of plant, machinery, construction of new
building, repairs, alteration etc.
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The Works Contract is a composite contractfor supply of goods and services. A
Composite works contract is vivisected and(i) VAT / sales tax is leviable on transfer ofproperty and (ii) service tax is levied onservices provided.
The essential part is that the contractorshould be able to bifurcate the contract intwo parts material and service.
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The contractor is liable to pay service tax as
Pay full service tax @ 10.30% on the gross amount
charged less value of transfer of property in goods
involved. He is allowed to claim set off on inputs,
input services and capital goods, Alternatively
Pay service tax @ 4.12% on the total value. No set
off is allowed on inputs. Set off is allowed on inputservices and capital goods used. (Composite
Scheme)
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The value will include labour charges,
amount paid to sub-contractor, charges for
planning, designing etc., charges for
obtaining hire purchase, cost of consumables
viz. water, electricity, fuel used in execution
of works contract, cost of establishment,profit earned by service provider relating to
supply of labour and services.
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VAT is charged as per the state VAT Act.
Whenever the sale of goods is within thestate, state VAT is charged as per prescribedrate. Set off is available to the dealer /manufacturer of such VAT which is adjustedagainst the liability. Similar to Cenvat
Scheme.
When the sale of goods is outside the state,CST @ 2% is charged. This is not allowed
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as set off to the buyer. It is a cost to the buyer.
C Form The buyer can procure the goodsat concessional rate in respect of inter state
transactions. Not allowed for defence as
there is no sale of goods.
D form For Govt. purchases. Not allowedafter 1.4.2007.
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Works Contract under VAT
Where a dealer is liable to pay tax on sales effected
by way of transfer of property in goods involved in
execution of works contract, he is liable to pay lump
sum by way of composition
- Equal to 5% of the total contract value in case of
construction contracts and
- Equal to 8% in other contracts.
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Octroi It is levied on material received within the
Corporation limits. It is mandatory for all material.
The rates vary from Corporation to Corporation.PMC Rates
- 3% on all machinery parts and castings.
- 2% on stationery, diesel.
- 4% on oils.
- Exempted for material purchased for social activities
as per notified list.
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Corporation can grant exemption to material
purchased by Defence. An application to the
authorities be made and the facts should be
explained to the authorities. The Corporation
will grant exemption and this certificate can
be given to the supplier and no octroi will becharged when the material is received within
corporation limits.
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Thanks !!!!!