Indirect tax

Prof. Mohasin A. Tamboli
Mob: 9766010560
e-mail : mohasinat@.com
Indirect Tax by Prof. Mohasin Tamboli 1

 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.
Indirect Tax by Prof. Mohasin Tamboli
2

 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

 CENTRAL EXCISE
 VAT
 SERVICE TAX

 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

 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.

 "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;

 Goods must be:
1) Movable
2) Marketable

 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

 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

 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’.

 Excisable goods must be manufactured or
produced in India.
 Thus, excise levy cannot be imposed on
imported goods or goods manufactured in
Nepal.

 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.

1. Manufacturer
2. Wholesaler
3. Warehouse owner
4. Job contractor (sub-contracting)

 Manufacturer is a person who
actually manufacturing or producing the
excisable goods
The term manufacturing includes: -
a) Manufacturing
b) Deemed Manufacturing
c) Production
d) Assembling

 Central excise Act defines manufacture as a group
of process:-
1.which is ancillary and incidental for manufacture
2.Is a process which convert raw material into finish
product
3. 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.

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.

 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

 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.

 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 "

 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”

 The details contain under form A-1 :
I. Name of the business.
II. Address of business
III. 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.

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

 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

I. Name of the business.
II. Address of business
III. 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..

 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 business
II. Fail to pay excise duty
III. Fail to maintain account
IV. Fail to submit returns
V. Carrying illegal business

 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.

 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

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

 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.

 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.

 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.

 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.

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.

 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.

 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

 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.

 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
Sales
21,000
(10000+1000+
10000)
2,100
(21,000*10%)
23,100
(21,000+2100)
2,100
Total Excise Duty Paid 3,100

 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

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 Manufacturer
Purchase 10,000 1,000 11,000
Sales
20,000
(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

 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

 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

 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.

 Under SENVAT materials are classified under two
heads :
1. Inputs
2. 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

 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 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

 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

 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)

 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

 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

 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
55

 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

 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

 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

1. Concession under notification 8 issued in
2003
2. Concession under notification 9 issued in
2004

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

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

 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.

64

Indirect tax

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (20)

Ähnlich wie Indirect tax

Ähnlich wie Indirect tax (20)

Mehr von Dr. Mohasin Tamboli

Mehr von Dr. Mohasin Tamboli (15)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Indirect tax