SYNOPSIS

1.1 Synopsis: The project is aimed at critical study of beneficial provisions of indirect taxes applicable to process industry i.e., RINL. The study reveals credit on various items on which credit is availed, conditions for availing the CENVAT credit, procedure to avail credit on various inputs, capital goods & input services .It explains effectiveness in utilization of credit vis--vis cash payment of excise duty & the advantages & disadvantages in the existing system.

INTRODUCTION

1.2 Introduction to the project:

The global steel industry made spectacular progress especially through fifties to early seventies from a crude steel production level of 190MT to over 600MT with a growth rate of around 6% per year. This was mainly on account of the massive reconstruction work taken up by the war ravaged countries in Europe, Japan etc., after the 2nd world war. Massive infrastructural build up by the fast growing economies of the developed countries accelerate the steel consumption galloping speeds.

However from the late seventies till the recent past, growth rate have been quite low. There was hardly any perceptible growth from 1982 to 1992, in the World crude steel production, which was stagnant at around 720MT and apparent steel consumption at around 620MT. Recessionary conditions, raising cost of production & strict environmental regulations put breaks on steel production in North America, Western Europe & Japan. The structural & political changes in former USSR/Eastern Europe around 1990 & the resultant adverse impact on their economies caused a decline in steel consumption by 50% in these regions from 1983 to 1993. However, in the worlds steel output has not been affected as such much of it should have been mainly due to the rapid growth in China &other countries like South Korea etc.

With the upsurge in the economies of South East Asian countries the present world steel scenario is once again witnessing growth trends of the post Second World War period. It is expected that global demand for steel would rise by 2.3% during current year, bringing the world consumption to 800MT. By the year 2010AD steel product consumption would raise to 1000MT, representing an average growth rate of 5% per year. This would reflect the increasing demand from the developing countries mainly in Asia. Nearly half of the steel consumed in Asian countries. India stands to gain much from the expected boom in the world steel demand, especially in the Asian region due its geographic location advantage & favorable conditions for the growth of steel industry in the country.

However, there are equal threats to the Indian industries as there are opportunities in these boom conditions. Existing capacities in developed countries in Europe are expected to be present out with increased cost of production. At the same time, there would also be many steel plants, which would come up with the latest technology & improved productivity. Beside, the established players are taking up reengineering & restructuring, to be cost competitive. Dumping of the steel by CIS countries with low capital & consequential low production cost and as well as the economic compulsions of China, forcing it to cut imports & even resort to export, may effect the market conditions considerably in the South East Asia. Indian steel industry will have to stay to stop ahead of its compositors & maintain the world standards & the cost, quality, delivery fronts to draw benefit from the market upsurge in this region, just after the independence of the India, rapid capacity expansion of steel industry were planned & achieved.

The crude steel production, which has a level of 1.4MT in 1950 rose to a level of 7MT by late 70s. However, the industry grew in a highly protected & controlled

environment with massive import tariff & administrative control over pricing & distribution. Till 60s the Indian industry retaining a clear &substantial manufacturing cost, competitive advantage with respect to overseas producers. However, over the past two decades India lost much of the competitive edge in the world market mainly due to protectionism & policies of isolation from the global market.

With a demand supply gap in the Asian region expected to go up to 150 MT by 2006AD & 250 MT by 2010AD & the same domestic demand projected to go up from the present level of 35 MT to 50 MT & 100 MT by the same period. Indian steel enjoys excellent prospects of growth. It has the following strengths to rise to the occasion & benefits from the boom: Availability of trained manpower with rich experience in steel making. Abundant resources of high quality iron ore. Some usable quantities of cooking coal & limestone. Fairly good level of infrastructural facilities for the development of industry.

This being the present scenario with better prospects & at the same time, threats to the steel industry needs a thorough study. Hence the present study is taken up.

1.3 NATURE AND SIGNIFICANCE OF STUDY

Corporate Taxation areas are gaining importance in the present day business environment and it is vital for an industry to run profitably. Taxation issues can

make or break an industry as they have lot of financial implication. Central Excise and CENVAT are very crucial and these constitute lot of portion of total taxes that are discharged by industry in general and steel industry in particular. Industry always looks at maximizing the beneficiary provisions of taxation areas. One such vital area in Central excise is CENVAT credit, which can save up to 10-15% of total duty payment.

It is generally found that professionals/students opt for doing projects on Working Capital, Treasury Management, and Budget & Budgetary Control & Costing. These are traditional areas in Finance management. However, it is felt that there is an increase in number of tax problems being faced by corporate sector. Hence these areas relating to tax planning &management have become more significant in view of the inherent problems of interpretation in the tax laws. These are the areas where computers offer limited help or virtually no help & where companies feel experts are required to handle these areas. In todays business environment companies are required to often comply with various statutes, which include statutes relating to taxation. Of particular importance are taxes relating to production, sales & services. These taxes are Central Excise, Sales Tax & Service Tax & have gained prominence in view of their contribution to national exchequer.

In view of the complications involved in the laws relating to indirect taxes, several companies have a separate section to deal with these laws. This sections are involved in day-to-day tax compliances, tax planning & tax management. At RINL, Central Excise and Cenvat credit is dealt by group of professionals working in Finance Department. This section deals with payment of excise duty, availing of CENVAT credit and ensuring compliances with Central Excise Act & Rules. It was felt that the study of this section would be challenging and very much

relevant for professionals. Hence, the project relating to CENVAT credit which is a part of the Central Excise section of Finance Department was taken up.

1.4 OBJECTIVE OF THE STUDY:

The study is taken up to study the following objectives:

1. 2. 3. 4.

Review of the history of the steel industry. Review of the performance of VSP. Analysis of the CENVAT credit system in VSP. Study problems involved in the CENVAT credit system

and related areas. 5. To make suggestions for the improving the CENVAT credit

system Objectives of any company in todays business environment are two-fold: 1. 2. Maximize share-holders wealth Maximize net profit.

Each organization has its own set of objectives, which may include fulfillment of social responsibilities, application of Corporate Governance, attaining of EVA (Economic Value Addition).

One of the main objectives of RINL, VSP is producing high quality steel at low cost. To achieve this end, steps are taken to identify various elements of cost and working out various means and methods for reducing such costs. One such element of cost of specific importance to VSP is interest paid on Working Capital.

Working Capital is usually obtained from consortium of banks and interest is paid on Working Capital borrowed. The interest cost is one of the important costs in the total cost of production.

One-way of reducing the interest on Working Capital is prudent working capital/cash management. The CENVAT Credit system aims at availing more and more CENVAT Credit within minimum time lag between the receipt of the goods and availment of credit. If more credit is availed in time less will be the cash payment of excise duty. Thus increase in availment leads to reduction in cash payment thus reduction in interest costs.

The objective of this study is to analyze the system of availing CENVAT credit and suggesting measures for improving the availment to this end. It is felt that the objective and study of this project is ultimately to aim at increasing the availment of CENVAT credit which will indirectly reduce the interest cost of VSP.

1.5 METHODOLOGY:
The methodology of this project runs as stated below. The data was collected from Primary sources Secondary sources

Primary sources:

The information was collected by personal interaction with officials of the Central Excise Section of the Finance & Accounts department of VSP.And also from Central Excise Act, Central Excise Rules, and CENVAT Credit Rules

Secondary sources:

Secondary data was collected through manuals, journals of VSP. Details of revenue and duties were obtained through proper channel. Some textbooks and journals were referred for latest information.