indirect taxes283742834

INDIRECT TAXES

INDIRECT TAXES Excise duty Import duty VAT CST Octroi Service Tax GST

Share of Direct and Indirect Taxes in Total Tax Revenue

2008-09 2009-10 2010-11

(Rs. In crores)

Direct taxes 327,447 363,525 421,897

Indirect Taxes 269,982 269,477 315,000

Total 597,429 633,002 736,897

Share of Direct and Indirect Taxes in Total Tax Revenue

0

10

20

30

40

50

60

70

80

90

100

2008-09 2009-10 2010-11

Indirect tax

Direct tax

Source: Economic Survey 2010-11

55%

45 %

43%

57%

43%

57%

EXCISE DUTY

Levy Excise duty is leviable on all excisable

goods which are manufactured or produced in India

Meaning of ‘manufacture’ ‘Manufacture - emergence of a new commercial product, different from the raw material used In other words, it must be an article with different name, character or use

Notification 179/77 CE, dated 18.06.1977. Exempted goods in or in relation to

the manufacture of such goods no process is ordinarily carried on with the aid of power.

Sr. No.

Specified Processes Goods

1 Repacking from bulk to retail packs, labelling or re-labelling of containers or adoption of any other process to render the product marketable

Beverages, spirits and vinegar

2 Conversion of ores into concentrates

Ores, slag and ash

3 Galvanisation process Iron and steel

4 Refining of gold ore bars Precious metals, metals clad with precious metals

5 Affixing a brand name on the product, labelling or re-labelling of containers or repacking from bulk packs to retail packs or adoption of any other treatment to render the product marketable

Textile articles, wornclothes and worntextile articles etc

Rates of Excise duty a) Specific amount- items

such as liquor, cigarettes,

cement b) Specific rate (% of

value) at present 12%

c) Education and higher and secondary education cess- 3% of duty

Effective rate- 12.36%

Valuation

1. Tariff value-Readymade garments, pan masala – 60% of retail sale price

2. M.R.P. value –packaged goods where MRP is mandatory less notified amount of abatement having regard to excise, VAT and other local taxes-mineral water 45%

3. Transaction value

Duty– when payable ?

Removal of goods

1) from factory gate

2) from warehouse

CENVAT CREDIT

Inputs – Raw materials and intermediaries Capital goods CVD and SAD on imports Service tax

Manufacturer’s Liability for Excise

Rs.

Basic Sales Price – Rs. 1,00,000

Excise @ 12.36% on the sales price 12,360

Less: Input credit

Excise on raw materials –Rs. 50,000 6,180

Service Tax charged by service provider- Rs. 10,000 1,236 7,416

Net Excise duty Payable 4,944

Exemptions

1. Exports

2. Deemed exports- SEZs, STPIs, EOUs

3. Notified goods

PRACTICAL ASPECTS

SSI units Labour job for others Samples Warranty clearances

IMPORT DUTY

DIFFERENT TYPES OF DUTY

Basic Custom duty It is a standard rate or in the case of import from

some countries, at the preferential rate. Maximum rate is 10%

Additional duty (commonly known as CVD) It is equal to the Central Excise duty leviable on

similar product if manufactured in India. If the same product is not manufactured in India, then on the like product manufactured in India

Anti dumping/safeguard duty It is leviable with a view to protect domestic

industry from unfair injury

Education cess and Secondary and HigherEducation cess

@ 2% and 1% respectively on aggregate of basic custom duty and additional custom duty

Special Additional duty (SAD)

To provide a level playing field to indegenous goods which have to bear VAT. It is 4% of assessable value + all duties

RATE OF DUTY AND VALUATION

The rate of duty and tariff valuation shall be as applicable on

a) The date of presentation of the bill of entry, in case of goods directly cleared for home consumption

b) In the case of goods cleared from bonded warehouse, the date of presentation of bill of entry for home clearance of such goods from the warehouse

CIF Value FOB + Freight + InsuranceCurrency Conversion rate Announced by Central Board of Excise and Custom on the 1

st day of each monthFreight Actual freight. 20% of FOB if freight not determinableInsurance 1.125% of FOB, if insurance is not ascertainableLanding charges 1% of CIF, added only for duty calculation purposes

IMPORT DUTY WORKING

Sr. No.

1 CIF Value in Rs. 100

2 Add Landing charges 1% of item 1 1

3 SubTotal (1+2) 101

4 Basic Custom duty 10% of item 3 10.10

5 SubTotal (3+4) 111.10

6 Additional Duty (CVD) 12% of item 5 13.33

7 SubTotal (5+6) 124.43

8 Education Cess on Basic & CVD 3% of (4+6) 0.70

9 Sub Total (7+8) 125.13

10 Special Additional duty (SAD) 4% of item 9 5.00

11 Total Landed Cost (9+10-2) 129.13

IMPACT OF IMPORT DUTY- MANUFACTURER

If the imported goods - an input in manufacturing excisable goods, then CVD and SAD paid on imported goods can be set off against excise duty collected

When Manufacturer sells the goods to the consumers the position would be as under

Sl. No. Particulars Rs.

1 Sale price of goods 200

2 Excise duty on the above @ 12.36% 24.72

3 Invoice value charged to the consumers 224.72

Manufacturer’s liability for Excise duty

Rs.

Excise duty on the sales price 24.72

Less: Set-off of CVD and SAD (13.72+5.00) 18.72

Net Excise duty Payable 6.00

IMPACT OF IMPORT DUTY- TRADER

If the goods are imported by a trader for resale to manufacturer of excisable goods, and

The trader is registered under Excise duty He has shown in his invoice, CVD and SAD

charged , The manufacturer can set off CVD and

SAD against Excise duty collected and pay the net amount to Govt.

IMPACT OF IMPORT DUTY- TRADER

If the goods are imported by a trader for the purpose of resale, and

He has charged VAT to his customers and paid the same ,

entitled to a refund of SAD paid on imports.

EXEMPTIONS FROM DUTY

Pilfered goods Damaged or deteriorated goods Lost or destroyed goods Goods abandoned by the importer Denatured or mutilated goods Goods notified by Government

SOME PRACTICAL ASPECTS

Transshipment- if no urgency Small quantity – direct on the shop floor-

additional freight v/s storage cost of warehousing + loading/unloading

High Seas / Bond Sales Customs Valuation

VAT RATES

State subject Classification of goods Rates – 4%, 5%, 8%, 12.5%

TAXANOMY OF VAT

Trader Manufacturer Wholesaler

Retailer Consumer


1 A's cost of raw material ( from other state) 10000

( A will deposit Rs. 1250 duty on the above. Since this is not a 1250

State VAT it will form a cost of input)

2 A's cost of local materials 20000

(VAT charged by local suppliers Rs. 2,500. Since the credit of this

would be available it will not be included in cost of input)

3 Other expenditure ( such as for storage transport, interest etc. 8750

incurred and profit earned by A)

4 Sales price of goods 40000

5 VAT on the above @ 12.50% 5000

6 Invoice value charged by A to the manufacturer, B 45000

A’s Liability for VAT

Rs.

Tax on the sales price 5000

Less: Set-off of VAT paid on purchases

On imported goods Nil

On local goods 2500 2500

Net Tax Payable 2500

B manufactures finished products from the raw materials purchased from A and other materials purchased from other suppliers.


1 B's cost of raw materials 40000

(VAT recovery by A Rs. 5000)

2 B's cost of other materials

Local Purchases 20000

(VAT charged on the above Rs. 2500)

Inter State Purchases 10200

(CST paid Rs. 200 included in purchases value since credit is not available)

3 Manufacturing and other expenses incurred and profit earned by B 29800

4 Sale price of finished products 100000

5 VAT on the above 12500

6 Invoice value charged by B to the wholesalers, C 112500

B’s Liability for VAT

Rs.



To A 5000

To other suppliers 2500 7500


C, after repacking the goods into other packing, sells the finished product to a retailer.


1 C's cost of goods 100000

(VAT recovered by B Rs. 12500)

2 Cost of packing material 2000

(VAT charged on the above Rs.250)

3 Expenses incurred and profit earned by C) 18000



6 Invoice value charged by C to D, a retailer 135000

C’s Liability for VAT

Rs.



To B 12500

To other suppliers 250 12750


When D sells the goods to the consumers the position would be as under


1 D's cost of goods 120000

(VAT recovered by C Rs. 15000)

2 Expenses incurred and profit earned by D) 20000



5 Invoice value charged by D to the consumers 157500

D’s liability for VAT

Rs.


Less: Set-off of VAT paid to C 15000


ELIGIBLE PURCHASES FOR INPUT TAX CREDIT

Raw materials Capital goods (if not for 36 months,

withdrawal) Consumable stores Packing materials Finished goods for resale

PURCHASES NOT ELIGIBLE FOR INPUT TAX CREDIT

Purchases from unregistered dealers Purchases from other States Invoice does not show tax amount

separately High-seas purchases Motor cars Motor spirit Building material

EXEMPTIONS/REFUNDS

Exporters SEZ EOU Stock transfers High seas sales Bond sales Consignment sales

VAT on hire purchase transactions- legal position

CENTRAL SALES TAX (CST)

Tax on inter-State sale of goods Tax Rate = local (as per the State from

where sale is effected) VAT rate applicable to the goods -4%, 5% or 12.5%

Inter-State purchase - for resale or for use in the manufacture of goods- concessional rate of 2% against Form ‘C’

Cascading of taxes –since inter-State purchases liable to CST are not eligible for input tax credit

Trade becomes uncompetitive for the States that are net importers because in those States consumer prices will be high

Contrary to basic objective of VAT system viz. lowering of prices

CST is an origin-based tax collected by exporting State and VAT is a destination based consumption tax, hence both cannot go together

However, when liability of CST arises on a inter-State sale, the input tax credit (local VAT) can be used for set-off.

This is because revenue does not go to any other State

Slow phasing out of CST- 4% to 3% to 2%

OCTROI The term ‘Octroi’ has its

roots in the French word ‘Octroyer’ meaning ‘to authorise’ or ‘to grant’

It is a local tax collected on articles brought into a town for local use by various bodies like municipalities, zilla parishads etc.

Levy of octroi is based on the value, weight, length and number of articles

Octroi is levied on specified articles at their time of entry into the limits of the city or town for consumption, use or sale

Places of import for purpose of levy

1. Import by sea - Docks, wharfs

2. Import by Rail - Rly. Stations, sidings

3. Import by Air - Airport terminals

4. Import by Road - Municipal posts/naka

CALCULATION OF OCTROI At present octroi in Mumbai is 5.5% of

value of goods

Value of goods - value as per invoice including freight, all taxes and duties charged till the entry of goods in city/town

In case of samples of no commercial value,

-invoice for octroi purpose

In case parts under warranty,

- invoice for octroi purpose

VARIOUS OCTROI FORMS ‘A’ and ‘B’ Forms For payment of octroi- ‘C’ and ‘CC’ Forms For refund of octroi in the event of wrong

payment or rejection of the material by the consignee

Form ‘C’ - export of goods -by Sea or Air Form ‘CC’- export by road The Octroi paid wrongly is refunded after

deducting 6.25% as service charge

‘N’ Form application for exemption in respect of articles imported for

immediate export within 7 days

‘R’ Form It is an application for exemption in respect of goods imported

or exported into or out of city or town for demonstration, repairs etc.

The octroi amount is to be paid first. Goods to be returned

within 6 months ‘X’ Form

For exemption of octroi for articles imported into city/town by

charitable institution

EXEMPTION FROM OCTROI Units located in areas such as ‘SEEPZ’ Containers of durable nature- gas

cylinders, aerated water bottles Personal luggage Personal belongings of MPs, MLAs, Govt.

servants in case of shifting

PRACTICAL ASPECTS Goods purchased from supplier located

outside city limits for resale to customers out of city limits

Service Tax

Concept – - Service Tax is a tax on services- ‘Service’ means a useful result/product

of labour, which is intangible.- Thus, service is a value addition that

can only be felt and cannot be seen

Body of service tax law

No independent statute on service tax Chapter V of Finance Act, 1994 contains

provisions on levy and collection, registration and other procedures like appeals, interest and penalties

.

Rate of Service Tax

At present the rate is 12.36% (inclusive of 0.3% E.cess & H.E. Cess

Input Service Tax

Amount payable = Service tax collectable

Less

Service tax payable

Concept of Abatement Abatement is an exemption granted in

respect of the value of taxable service It is available in respect of some services

only, by a notification to that effect Eg – Notification No. 13/2008 grants 75%

abatement of the gross amount charged by a Goods Transport Agency.

i.e Gross Amount charged, say 1,00,000 Less : Abatement 75,000 Value of taxable service 25,000 Service tax @ 12.36% 3,090

Export of Services For the purpose of defining export of service in relation to

each service, the services have been classified under 3 categories –

- Category A - Such taxable services are provided in relation to an immovable property situated outside India. Eg – Architect services

- Category B – Such services are wholly or partly performed outside India. Eg – Credit Rating Agency services

- Category C – (a) When service is provided in relation to business or

commerce – provision of such services to a recipient located outside India

(b) When service is provided otherwise - provision of such services to a recipient located outside India at the time of provision of the service.

Eg – Banking & Other Financial Services

Import of Services

Import of taxable service is said to take place when it is –

(a) provided by a person who - (i) has established a business or(ii) has a fixed establishment from which

the service is provided(iii) has his permanent address or usual

place of residence, in a country other than India and

(b) Received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India

Issues – 1) Where the service recipient is an individual and

such service is received by him otherwise than for use in any business or commerce, the same shall not be taxable

2) Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted

GST Model

Central Level GST……

State Level GST……

Centre and State to legislate, levy and administer

GST Rates - International comparison

* CENVAT: 12.36 % + VAT;12.5 % =26.40%)

10.012.5 13.0 14.0 15.0

17.0 17.519.0 19.6 20.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

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So

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Mex

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UK

Ger

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1526.4

GST - NEW ERA OF INDIRECT TAXATION- CERTAIN HIGHLIGHTS1) A Dual GST model with appropriate binding mechanism

to harmonize the various aspects of GST2) A dual GST structure shall have two components,

Central GST (CSGT) and State GST (SGST) which would be implemented through multiple statutes.

3) Applicable to all transactions of goods and services except the exempted goods / services, goods outside the purview of GST and the transactions below the prescribed threshold limits.

4) The CGST and SGST are to be paid to the accounts of the Centre and the States separately.

5) Cross utilization of ITC between the CGST and the SGST would not be allowed.

PRINCIPLES OF GST (i) Taxes or levies to be subsumed should be

primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.

(ii) Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.

(iii) The subsumation should result in free flow of tax credit in intra and inter-State levels.

(iv) The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.

(v) Revenue fairness for both the Union and the States individually would need to be attempted.

CENTRAL TAXES

GST –SGST,CGST,

IGST

STATE TAXES------ ------

CENTRAL TAXES SUBSUMED1. Excise Duty

2. Service Tax

3. Additional Custom Duty (CVD)

4. Special Additional Duty (SAD)

5. Surcharges

6. Cesses

STATE TAXES SUBSUMED

1. VAT/Sales Tax

2. Entertainment Tax

3. Luxury Tax

4. Entry Tax/Octroi

5. Taxes on lotteries

6. State surcharges and cesses relating to goods and services

PROPOSED RATE STRUCTURE UNDER GST

1. For goods- Two rate structure-

a) lower rate for necessary items and items

of basic importance

b) standard rate for goods in general

There will be a special rate for precious metals and also a list of exempted items

2. For services – a single rate for CGST and SGST

Rate Structure-CGST+SGSTGoodsLower

GoodsStandard.

Services

Year 1

12% 20% 16%

Year 2

12% 18% 16%

Year 3

16% 16%

16%

SOURCE

Finance Minister’s speech at the meeting with State Finance Ministers on July 21, 2010

GST MechanismSupply chain

Purchase Value of Input

Value addition

Value to next stage

Rate of GST

GST Amount

Input tax credit

Net GST

Manfacturer

100 30 130 20% 26 20 (20% of 100 inputs)

26-20=6

Whoesaler 130 20 150 20% 30 26 (20% of 130 inputs)

30-26=4

Retailer 150 10 160 20% 32 30 (20% of 150 inputs)

32-30=2

Total GST 20+6+4+2=32

IMPACT

Goods- cheaper Household services-Telephone, mobile,

cable, insurance will be costlier since presently the service tax @10.3%

The impact may not be 6% if service providers pass on benefit of tax on procurements

A 2% point rate difference between goods and services would mean that the classification of certain items (e.g. intangibles) as goods or services would continue to be relevant under GST.

One would hope that the GST law would provide absolute clarity on the distinction between goods and services, to ensure that there is no ambiguity over classification.

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%

N R J SEATING SYSTEMSPlot no.(24), Wagle Industrial Estate

Thane, Maharashtra 410 012

T A X I N V O I C E

Invoice No. : 360

Date : 01/04/2012

Cust. Ord. No.: TCSL/PO/POWAI /33283

Date : 01/04/2012

Quantity Rate Amount (Rs.)

50 2,000.00 100,000

Ass. Value 100,000

BED. @12 % 12,000

Ed. Cess on BED @ 2 % 240

S.& H.Ed.Cess on BED @ 1% 120

Total Rs. 112,360

S.T./C.S.T. @ 12.5% 14,045

Total Rs. 126,405

Octroi. 5.5%

Grand Total 133,357

6,952

Threshold limit

Exemption threshold and composition for small dealers-

- Threshold for both goods and services at INR 1 million for CGST and SGST.

- Composition to be made available to small dealers up to an agreed common limit under both CGST and SGST to bring

simplification and improve compliance.

Compensation for states In line with the Thirteenth Finance

Commission’s recommendations, States would be compensated for initial four years for loss of VAT and Purchase tax revenues.

This will remove the apprehension of states that GST would adversely affect their revenue and will ensure speedy implementation

Exemptions

Exemptions under Central Excise to be aligned with current exemptions under VAT which would ensure alignment of CGST and SGST exemptions.

Benefits of GST

Agriculture, industry, trade Exporters Entrepreneurs Traders Common consumers

GST CHALLENGES

1. Finance & Taxation

2. Operational

3. Documentation

4. Information Technology

5. Logistics

6. Legal

While GST is a welcome change which aims to

simplify the regulations and making businesses

more tax efficient and would be heralded as one

of the significant Tax reforms happening in India

in the recent times, the road ahead on implementation is a turbulent one. Businessentities with professional help should target to address this challenge and effectively

manage change.

“I CAN’T CHANGE THE DIRECTION OF THE WIND, BUT I CAN ADJUST

MY SAILS TO ALWAYS REACH MY DESTINATION SAFE AND SOUND”

- ANONYMOUS

THANKS

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