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Indirect Tax Law Regime in India

Central Sales Tax (CST) & Value Added Tax (VAT) Central Excise Tariff

Custom Duty

Service Tax

Foreign Trade Policy (FTP)

Central Sales Tax (CST) & Value Added Tax (VAT)

Central Sales Tax (CST) & Value Added Tax (VAT)


Constitutional Framework The power to levy tax has been constitutionally divided between the Parliament and the State Legislatures. (Financial Relations between the Union and the States) Schedule VII, List I ( Union List) lays down the law making domain for the Parliament. Schedule VII, List II ( State List) lays down the law making domain for the State Legislature. Domain of Applicability of CST & VAT

Central Sales Tax (CST)


Levied on inter-State sale or purchase of goods. Power to Levy with Central Government. ( Entry 92A, Union List, VIIth Schedule)

Value Added Tax (VAT)


Levied on local sale or purchase of goods. Power to levy with State Governments. ( Entry 54, State List, VIIth Schedule)

Central Sales Tax (CST)


Legal Framework of CST I. Central Sales Tax Act, 1956 II. Central Sales Tax (Registration and Turnover) Rules, 1957 III.CST Rules drafted by separate State Governments CST Act (Important Provisions at a glance)
Section Section 2 Section 3 Section 4 Section 5 Section 6 Section 8 Section 8A
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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

Central Sales Tax (CST)


Sale under the Act should be effected by transfer of documents or title of goods during the movement from one State to another.

Thus the levy of Tax, in India, depends on the movement of goods


In case the goods remain in the same State after the sale where they were before the said sale, then VAT Act of the concerned State shall be applicable. CST is a Central levy however the administration and the revenue from CST goes to Appropriate State. Appropriate State is the State which is competent to charge and collect tax. Generally, it is the State from which the goods move into another State. Under CST tax liability lies on the dealer who sells goods in the course of its business. The tax liability commences from the very first sale.

Value-Added Tax (VAT)


VAT is a multi-point destination based system of taxation, with tax being levied on value
addition at each stage of transaction in the production/ distribution chain. The term 'value addition' implies the increase in value of goods and services at each stage of production or transfer of goods and services. Illustration: Assuming that tax rate is 10% if: i. Purchase Value of goods is Rs. 1,00,000 & ii. Sale Price of the goods after manufacturing is Rs. 3,00,000 The VAT payable is 10% of Rs. 3,00,000 (Sale Price) which is Rs. 30,000 VAT Credits ( Tax already paid on purchases) is 10% of Rs. 1,00,000 which is Rs. 10,000

Hence, net VAT Payable is Rs. (30,000-10,000) = Rs. 20,000.

Value-Added Tax (VAT)


The VAT rate in Andhra Pradesh is:
General Rate is 5% ( For goods mentioned in Schedule IV of the AP VAT Act, 2005 Residuary Rate is 14.5% ( For goods not mentioned in Schedules I, III, IV & VI) For goods like bullion, specie, platinum, VAT Rate is 1% ( Schedule III of the Act) Input Tax Credit (ITC) Its is a credit of VAT paid on local procurement of goods. The benefits of ITC are available in cases of resale, manufacture of goods for sale etc. ITC is not available in cases where it involves manufacture of exempted goods. One of the advantages of ITC is that it can be used to offset the output tax liability i.e. both CST & VAT.

The latter is primarily to remove the cascading effect of taxation.

Value-Added Tax (VAT)


Composition Scheme for Small Dealers
In order to relieve small dealers of the need to keep detailed records, the law provides provision for a simpler method of accounting for VAT known as composition scheme. This schemes make calculation of tax very easy. Small dealers whose turnover does not exceed Rs. 50 lakhs in the last financial year may opt for composition tax scheme. Advantages: saves labour in tax computation, simplified calculation of tax liability. Disadvantages: compliance with certain conditions to avail the scheme Conditions for Composition Scheme Conditions have to be complied with to avail such composition scheme. Example, inter-

State sale cannot be effected, no imports or exports, sale or purchase through commission
agent.
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Case Study- Taxable Turnover


Bharat makes sale of both taxable and exempt items. He sells locally as well as makes inter
State sales and exports. His total turnover for the tax period is Rs. 10,00,000. The break up is as follows: Sales within Hyderabad Sales to Bangalore Exports to UK Rs. 2,00,000 Rs. 5,00,000 Rs. 3,00,000

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.

Assuming VAT rate on Bharats products to be 10%, compute Bharats taxable


turnover and the tax for the period under VAT
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Case Study- Solution


Particulars
Total Turnover

Amount
10,00,000 3,00,000 5,00,000 50,000 20,000

Less:
Export Sales Inter-State Sales Exempt Sales Sales Returns

Local Sales liable to tax

1,30,000
6,500 1,23,500 12,350

Less: Cash discount @ 5% on the above


Taxable Turnover VAT @10%

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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

List, VIIth Schedule of the Constitution of India.


Excise Duty is a duty on goods produced or manufactured in India. Manufacture or production of excisable goods in India is the taxable event.

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

Oil produced from oil seeds


Activities not amounting to Manufacture Repairing of goods Cutting of hot, cold rolled coils into sheets and strips
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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

but not both.


EOU has to issue CT-3 certificate for obtaining inputs without payment of excise duty
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Refund & Bonds


Ideally an assessee can claim refund in the following instances:
Due to mistakes there is an excess payment of duty When export is made under a claim of rebate Refund of unutilised CENVAT credit if final product is exported. Provisional assessment is finalized When during the process of an appeal there has been deposit made as a precondition to hear an appeal and the appeal is decided in favour of the assessee Bonds Assessee is required to execute bond for various purposes like obtaining goods without payment of duty, clearance of seized goods etc. B-1 bond is for exporting without

payment of duty, B-17 bond is for EOU.

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Small Scale Industries (SSI)


Under the Central Excise Act, 1944, an SSI unit is defined as any unit whose turnover is
less than 4 crores in the last financial year and the turnover in any financial year must not exceed Rs. 150 Lakhs. If SSI unit avails CENVAT Credit on inputs then it has to pay normal duty on all clearances and no SSI exemption is available. SSI units eligible for SSI concession are required to pay duty on quarterly basis and file quarterly return even if they do not avail the SSI exemption

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

the Supreme Court of India.


For classification/valuation of goods, appeal can be filed before the Supreme Court.
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Authority for Advanced Ruling (AAR)


Definition of Authority for Advanced Ruling (AAR) as defined under The Customs Act,
1962 is extended for the purposes of Central Excise Act, 1944. 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, applicability of any notification or principles to be noted for the purposes of determination

of any value of the goods under the Act etc.


The order passed by the AAR is binding only on the applicant and the Commissioner of Central Excise only to the extent that there is no change in the facts on the basis of which AAR gave a ruling.

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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

taxes and duties.

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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

1. The Customs Act, 1962

2. The Customs Tariff Act, 1975

3. Customs Valuation

( Determination of Price of imported Goods) Rules, 2007 etc.


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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

Basic Customs Duty

Special Additional Duty

Safeguard Duty

AntiDumping Duty

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Import & Export of Goods


Import or Export of goods can take place only through the notified Customs Station
Import Procedure: Importer has to submit a Bill of Entry (BoE) divulging the details of goods, value etc. Importer has to submit other documents like invoices, contracts, product literature etc so that the Customs Officer can assess the imported goods under clearance. Importer to pay duty if the clearance is for home consumption. Importer may also be required to execute a bond, if clearance is for warehousing. Export Procedure For the purposes of export Shipping Bill has to be submitted to the Customs officials which may also include invoice, packing lists etc.

When applicable export duty has to be paid.


Export will depend on whether the export is prohibited or restricted.
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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

Chapters & Sub Chapters

Headings & Sub-Headings

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Miscellaneous Provisions (Section 141-158)


Miscellaneous provision from Section 141-158, inter alia, deals with the following:
i. ii. Recovery of sums due to Government Liability under Act to be first charge

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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Rounding off of duty

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,

applicability of any notification or principles to be noted for the purposes of determination


of any value of the goods under the Act etc. The order passed by the AAR is binding only on the applicant and the Commissioner of Central Excise only to the extent that there is no change in the facts on the basis of which AAR gave a ruling.
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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

Applicant is not permitted to withdraw the application.

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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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Service Tax Compliance

Registration

Payment

Returns

Service Tax Compliance Procedure/Steps

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

charged by the service provider for the service provided.


When service is inclusive of service tax, service tax is calculated as if gross amount includes such service tax.

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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Negative List of Services

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Introduction of a Negative List based Taxation


140000 120000 100000 80000

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 of Services Objective in Indian Scenario


Positive List
119 specified services categories of

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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Essentials of service Definition of Service


Service means any activity carried out by a person for another for consideration, and includes a declared services.
Key Factors of the above definition Two or more parties Services provided to two distinct entities. Establishments located in a taxable territory and non taxable territory belonging to the same entity. Activity Could be active, passive, and would include forbearance from an act. Consideration Includes both monetary and non monetary consideration

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Essentials of service Negative List of Services


Monetary Consideration Consideration Received in the form of money Money defined under Section 65B of the Finance Act includes cash, cheque promissory note, bill of exchange, letter of credit, draft, pay order, postal or electronic remittance Non Monetary Consideration - Supply of goods and / or services in return

Refraining / forbearing / tolerating/ performance of an Act

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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Selected Declared Services and its implications


Declared Service
Renting Services

Comments
Renting of residential dwellings covered under Negative List No exemptions granted for non commercial uses like private schools, hospitals etc.,

Intellectual Property Rights Service


Information Technology Software Services Hospitality Services

Temporary transfer of patents registered outside India would also be covered


May obviate issues pertaining to double taxation Service portion in any activity where goods being articles of human consumption or any alcoholic drinks are consumed. Definition of Works Contract

Service Portion in the execution of a Works Contract

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Negative List of Services Section 66D A Birds eye view

Services provided by the Government or local authority

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

Services relating to agriculture

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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Negative List of Services Section 66D A Birds eye view


Services provided by a foreign diplomatic mission

Does not cover services provided by an international organization

Transportation of passengers

Transport of passengers in public transport, metered taxis, metro, monorail covered. Charter vessels, cruises not covered.

Transportation of goods specified services


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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

Negative List of Services Section 66D A Birds eye view


Process amounting to manufacture or production of goods

Process amounting to manufacture, even where exempted, under the Central Excise Law, would not attract service tax.

Selling of space or time slots for advertisement

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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Negative List of Services Section 66D A Birds eye view


Betting, gambling, lottery
Auxiliary services that are used for organizing or promoting betting or gambling events are not covered in the negative list.

Entry to entertainment events and access to amusement facilities

Membership of club not covered in amusement facility. Event manager organizing an entertainment event not covered in this entry.

Transmission or distribution of electricity


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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

Negative List of Services Section 66D A Birds eye view


Specified services relating to education
Services by international schools giving international certifications covered in this entry. Private tuitions, placement services not covered in negative list. Education auxiliary services separately exempted

Renting of residential dwelling for use as residence

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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Negative List Overall Impact

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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Place of Provision of Services (POPOS) Rules, 2012

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Place of provision of Service Rules, 2012


Introduced to determine Place of Supply of services
Purpose is to determine the jurisdiction for taxability of the services Replaces the Export of Service Rules, 2005 and Taxability of Services (Provided from outside India and received in India) Rules, 2006

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Place of provision of Service Rules, 2012


General or Basic Rule (Rule 3)
Place of provision is the location of the recipient Location of the recipient: Place of centralized registration Else
Location of business establishment (or) Location of use of the Service (or) Where used at multiple locations, place most directly concerned with such use

- The usual place of residence, i.e., place of incorporation

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Place of provision of Service Rules, 2012


Performance based services (Rule 4)
Physical Work on Goods : Place of performance Electronic Work on Goods : situation of goods Not applicable to temporary imports into India for repair / reconditioning / reengineering for purpose of re-export. Services provided to an individual which requires presence of recipient : place of performance.

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Place of provision of Service Rules, 2012


Services related to immovable property (Rule 5)
Location of immovable property Includes services of real estate agents, advisors, accommodation, constructions, architects, interior decoration. Services relating to events (Rule 6) Place where event is held.

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Place of provision of Service Rules, 2012


Services provided at more than one location (Rule 7)
Place of provision of service is where the greatest proportion of the service is provided. No clarity as to whether the proportion is to be determined in terms of actual work or value. Rule 8 where service provider and recipient are both located in the taxable territory, the place of provision of service is the taxable territory.

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Place of provision of Service Rules, 2012


Specified Services (Rule 9)
Banking / Finance institution / NBFC Services to account holders : Service provider Online Information and data base services : Service provider. Intermediary services : Service provider Hiring of transport (upto 1 month) : Service provider GTA Services (Rule 10) (excluding courier / mail) : Place of provision is the location of person liable to pay tax.

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Place of provision of Service Rules, 2012


Passenger related services (Rule 11)
Passenger Transport Embarkation point. Related on board Services Scheduled place of departure

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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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Valuation Works contracts

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Valuation of Service Portion Works contract


Where actual value of goods transferred in the execution of works contract is available with the Company
Value of service is :

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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Valuation of Service Portion Works contract


Where actual value of goods transferred in the execution of works contract is not available with the Company Value of service is :

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

40$ of total amount charged for works contract


70% of total amount charged for works contract

60% of total amount charged for 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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Domestic Reverse Charge

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The new reverse charge mechanism


S.No. Nature of service Particulars Percentage of service tax payable by the person providing service 50% NIL NIL 25% Percentage of service tax payable by the person receiving the services 50% 100% 100% 75%

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

60% (on non abated value) NIL

40%(on non abated value) 40% on abated value

6.

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The new reverse charge mechanism


S.No. Nature of service Particulars Percentage of service tax payable by the person providing service NIL NIL NIL Percentage of service tax payable by the person receiving the services 100% on 25% value 100% 100%

7. 8. 9.

Transportation by Road Legal Services Directors Fees

Goods transport agency Individual and Firm of Advocates Services provided by Non Executive Directors

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New Reverse Charge Mechanism


Important Aspects
Small scale benefit is available to the Service provider only. Liabilities of both the Service provider and Service Receiver are independent of each other. Valuation of Service receiver and Service Provider may be on different principles Registration, payment and return filings for service tax could be applicable to entities only account of reverse charge Payment of service tax under reverse charge only by way of cash and not by utilising Cenvat credit. Payment of tax under reverse charge and Cenvat credit thereof are independent of each other.
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Foreign Trade Policy

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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

Earning and increasing foreign exchange reserve


Generating employment Increasing Indias impact and influence in the global market With this aim, Government releases the Export Import Policy every 5 years. Current Policy covers 2009-2014
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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

mandatory in order to enjoy benefits of any of the schemes under FTP.


All benefits are implemented by a notification.
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Export Promotion Schemes under FTP


There are several Export Promotion Schemes under FTP. They are as follows:
i. ii. Served from India Scheme (SFIC) Vishesh Krishi and Gram Udyog Yojana (VKGUY)

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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Special Economic Zones (SEZ)


Background
Special Economic Zone (SEZ) as a Scheme has evolved from the existing concept of the Export Processing Zones (EPZ) policy. Back in 1960s the aim behind EPZ Scheme was to enhance foreign exchange earnings, develop and foster the growth of export-oriented manufacturing industries and most importantly generate employment opportunities across India. Central Government however had proposed to convert the existing EPZ Scheme into a

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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Special Economic Zones (SEZ)


Successful SEZ Scheme has lead to the following benefits:
Significant surge in investment by both foreign and domestic entities; Rise in exports; Developments happening a very large scale; And very importantly it generated a lot of employment skilled and unskilled workforce. Host of fiscal benefits were given to the business enterprises that included exemption from customs duty, stamp duty, sales tax etc. thus adhering to the objectives of setting a liberal economic zone fostering growth and development of the economy.

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Key Highlights of FTP 2009-2014


Gems & Jewellery Sector
To neutralize duty incidence on gold Jewellery exports, it has now been decided to allow Duty Drawback on such exports. A new facility to allow import on consignment basis of cut & polished diamonds for the purpose of grading/ certification purposes has been introduced. To promote export of Gems & Jewellery products, the 13 value limits of personal carriage have been increased from $ 2 million to US$ 5 million in case of participation

in overseas exhibitions.
Special Bonus Benefit Scheme A new scheme has been introduced to provide special assistance to certain specified

sectors such as Engineering, Chemical & Pharmaceutical.


The rate of duty credit is 1% of FOB value of exports.
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Key Highlights of FTP 2009-2014


Apparel Sector
Based on the previous statistics of exports made to mostly US and EU and realizing the higher level of potential to achieve significant increase in the export along with more employment benefits, Market Linked Focus Product Scheme (MLFPS) has been extended for exports made to US and EU under chapter 61 & 62. Duty credit has been made available to exports made till March 2012 at 2% of FOB value of exports.

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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