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
(Rs. In crores)

2010-11

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

100 90 80 70 60 50 40 30 20 10 0

43%

43%

45 %

57%

57%

Indirect tax Direct tax

55%

2008-09

2009-10

2010-11

Source: Economic Survey 2010-11

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. 1

Specified Processes

Goods

Repacking from bulk to retail packs, labelling or re-labelling of containers or adoption of any other process to render the product marketable Conversion of ores into concentrates Galvanisation process Refining of gold ore bars

Beverages, spirits and vinegar

2 3 4 5

Ores, slag and ash Iron and steel Precious metals, metals clad with precious metals

Affixing a brand name on the product, Textile articles, worn labelling or re-labelling of containers clothes and worn or repacking from bulk packs to retail textile articles etc packs or adoption of any other treatment to render the product marketable

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.

2.

3.

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

Manufacturers Liability for Excise

Rs. Basic Sales Price Rs. 1,00,000 Excise @ 12.36% on the sales price Less: Input credit Excise on raw materials Rs. 50,000 Service Tax charged by service provider- Rs. 10,000 Net Excise duty Payable 6,180 1,236 7,416 4,944 12,360

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 Higher Education 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 + Insurance Currency Conversion rate Announced by Central Board of Excise and Custom on the 1 st day of each month Freight Actual freight. 20% of FOB if freight not determinable Insurance 1.125% of FOB, if insurance is not ascertainable Landing charges 1% of CIF, added only for duty calculation purposes

IMPORT DUTY WORKING

Sr. No. 1 CIF Value in Rs. 100

2
3 4 5 6 7 8 9 10

Add Landing charges

SubTotal (1+2) Basic Custom duty SubTotal (3+4) Additional Duty (CVD) SubTotal (5+6) Education Cess on Basic & CVD Sub Total (7+8) Special Additional duty (SAD)

1% of item 1
10% of item 3 12% of item 5 3% of (4+6) 4% of item 9

1
101 10.10 111.10 13.33 124.43 0.70 125.13 5.00

11

Total Landed Cost (9+10-2)

129.13

IMPORTS

By a manufacturer of Excisable goods

By a trader for resale To manufacturer of Excisable goods

By a trader for resale To end customers

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. 200 24.72 224.72

1 Sale price of goods 2 Excise duty on the above @ 12.36% 3 Invoice value charged to the consumers

Manufacturers liability for Excise duty

Rs. Excise duty on the sales price Less: Set-off of CVD and SAD (13.72+5.00) Net Excise duty Payable 24.72 18.72 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 flooradditional freight v/s storage cost of warehousing + loading/unloading High Seas / Bond Sales Customs Valuation

VAT

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

TAXANOMY OF VAT

Trader

Manufacturer Wholesaler

Retailer Consumer

Manufacturer Purchasing from

Trader- outside State

Trader-within State

Other Manufactures

Sl. No.

Particulars

Rs. 10000

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

( A will deposit Rs. 1250 duty on the above. Since this is not a
State VAT it will form a cost of input) 2 A's cost of local materials (VAT charged by local suppliers Rs. 2,500. Since the credit of this

1250

20000

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

3 Other expenditure ( such as for storage transport, interest etc. incurred and profit earned by A) 4 Sales price of goods 40000 8750

5 VAT on the above @ 12.50%

6 Invoice value charged by A to the manufacturer, B

5000
45000

As Liability for VAT

Rs.

Tax on the sales price

Less: Set-off of VAT paid on purchases On imported goods On local goods Net Tax Payable Nil 2500

5000

2500 2500

B manufactures finished products from the raw materials purchased from A and other materials purchased from other suppliers.
Sl. No. Particulars (VAT recovery by A Rs. 5000) 2 B's cost of other materials Local Purchases (VAT charged on the above Rs. 2500) Inter State Purchases (CST paid Rs. 200 included in purchases value since credit is not available) 3 Manufacturing and other expenses incurred and profit earned by B 4 Sale price of finished products 5 VAT on the above 29800 100000 12500 10200 20000 Rs. 40000

1 B's cost of raw materials

6 Invoice value charged by B to the wholesalers, C

112500

Bs Liability for VAT

Rs.

Tax on the sales price Less: Set-off of VAT paid on purchases To A To other suppliers Net Tax Payable 5000 2500

12500

7500 5000

C, after repacking the goods into other packing, sells the finished product to a retailer.
Sl. No. Particulars Rs. 100000

1 C's cost of goods (VAT recovered by B Rs. 12500) 2 Cost of packing material (VAT charged on the above Rs.250) 3 Expenses incurred and profit earned by C) 4 Sale price of goods 5 VAT on the above

2000

18000 120000 15000

6 Invoice value charged by C to D, a retailer

135000

Cs Liability for VAT

Rs.

Tax on the sales price

Less: Set-off of VAT paid on purchases To B To other suppliers 12500 250

15000

12750

Net Tax Payable

2250

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

Sl. No.

Particulars

Rs. 120000

1 D's cost of goods (VAT recovered by C Rs. 15000) 2 Expenses incurred and profit earned by D) 3 Sale price of goods 4 VAT on the above 5 Invoice value charged by D to the consumers

20000 140000 17500 157500

Ds liability for VAT

Rs. Tax on the sales price Less: Set-off of VAT paid to C Net Tax Payable 17500 15000 2500

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 goodsconcessional 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

35.0

30.0
25.0 20.0 15.0 10.0 12.5 10.0 12 14.0 15.0 17.0 15 17.5 19.0 19.6 20.0

26.4

13.0

5.0
0.0 Australia Germany New Zealand Canada Mexico France South Africa China India Italy UK

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

GST - NEW ERA OF INDIRECT TAXATION - CERTAIN HIGHLIGHTS

1) A Dual GST model with appropriate binding mechanism to harmonize the various aspects of GST 2) 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 SUBSUMED

Excise Duty 2. Service Tax 3. Additional Custom Duty (CVD) 4. Special Additional Duty (SAD) 5. Surcharges 6. Cesses
1.

STATE TAXES SUBSUMED

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
1.

PROPOSED RATE STRUCTURE UNDER GST

1.

For goods- Two rate structurea) 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+SGST
Goods Goods Services Lower Standard . Year 12% 20% 16% 1

Year 2
Year 3

12%
16%

18%
16%

16%
16%

SOURCE

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

GST Mechanism
Supply chain
Purchase Value of Input

Valu Value to Rate e next of addit stage GST ion 30 130 20%

GST Input tax Amount credit

Net GST

Manfacturer

100

26

20 (20% of 26-20=6 100 inputs)

Whoesaler

130

20

150

20%

30

26 (20% of 30-26=4 130 inputs)

30 (20% of 32-30=2 150 inputs)

Retailer

150

10

160

20%

32

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.

N R J SEATING SYSTEMS
Plot no.(24), Wagle Industrial Estate Thane, Maharashtra 410 012

T A X

I N V O I C E
Invoice No. Date : : 360 01/04/2012
TCSL/PO/POWAI /33283

Cust. Ord. No.: Date :

01/04/2012

Quantity 50 Ass. Value

Rate 2,000.00

Amount (Rs.) 100,000 100,000

BED. @12 %

12,000

Ed. Cess on BED @ 2 % S.& H.Ed.Cess on BED @ 1% Total Rs. S.T./C.S.T. @ Total Rs. 12.5%

240 120 112,360 14,045 126,405 6,952

Octroi. 5.5% Grand Total

% % % %
133,357

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 Commissions 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
Finance & Taxation 2. Operational 3. Documentation 4. Information Technology 5. Logistics 6. Legal
1.

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. Business entities with professional help should target to address this challenge and effectively

I CANT CHANGE THE DIRECTION OF THE WIND, BUT I CAN ADJUST MY SAILS TO ALWAYS REACH MY DESTINATION SAFE AND SOUND - ANONYMOUS

THANKS