INDIRECT TAXES

INDIRECT TAXES
Excise duty
Import duty
VAT
CST
Octroi
Service Tax
GST
Share of Direct and Indirect Taxes in
Total Tax Revenue

2008-09 2009-10 2010-11
(Rs. In crores)

Direct taxes 327,447 363,525 421,897

Indirect Taxes 269,982 269,477 315,000

Total 597,429 633,002 736,897

Share of Direct and Indirect Taxes in
Total Tax Revenue
Source: Economic Survey 2010-11
0
10
20
30
40
50
60
70
80
90
100
2008-09 2009-10 2010-11
Indirect tax
Direct tax

55%


45 %






43%
57%
43%
57%
EXCISE DUTY
Levy
Excise duty is leviable on all excisable goods
which are manufactured or produced in India
Meaning of manufacture
Manufacture - emergence of a new
commercial product, different from the
raw material used
In other words, it must be an article with
different name, character or use
Notification 179/77 CE, dated
18.06.1977.
Exempted goods in or in relation to
the manufacture of such goods no
process is ordinarily carried on with
the aid of power.
Manufacture?
CCE V/s Sony Music Entertainment (I) P.
Ltd

Sr.
No.
Specified Processes Goods
1 Repacking from bulk to retail packs,
labelling or re-labelling of containers
or adoption of any other process to
render the product marketable
Beverages, spirits and vinegar
2 Conversion of ores into concentrates Ores, slag and ash
3 Galvanisation process Iron and steel
4 Refining of gold ore bars Precious metals, metals clad
with precious metals
5 Affixing a brand name on the product,
labelling or re-labelling of containers
or repacking from bulk packs to retail
packs or adoption of any other
treatment to render the product
marketable
Textile articles, worn
clothes and worn
textile articles etc
Classification issues- 1

Medicament or toothpowder
1. Common parlance test- it must be used
for medicinal purposes by the users
2. Ingredients test- it must have medical
content
CCE V/s Shree Baidyanath Ayurved Bhawan
Ltd. (Supreme court) 2009
Classification issues -2

Puzzle\quiz or game
a) Outcome predetermined and fixed
b) Clues- no clues in Scrabble, while in crossword words
are written as per clues
c) Chabce and skill In Scrabble there is an element of
chance and skill, which is not present in a puzzle
Common parlance test- place of storage in departmental
store- games section
Educational toy- toy is an object to play with. Chance and
skill are absent in a toy
Pleasantime Products V/s CCE- Supreme Court 2009
Rates of Excise duty
a) Specific amount- items such
as liquor, cigarettes,
cement on the basis of
length, weight, volume,
thickness

b) Specific rate (% of value) at
present 12%

c) Education and higher and
secondary education cess- 3%
of duty
Effective rate- 12.36%

Valuation

1. Tariff value-Readymade garments, pan masala
60% of retail sale price declared on the retail
package
2. M.R.P. value packaged goods where MRP is
mandatory less notified amount of abatement
having regard to excise, VAT and other local
taxes-mineral water 45%
3. Transaction value-excisable goods must be
sold by the assessee



Duty when payable ?

Removal of goods
1) from factory gate
2) from
warehouse/depot

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 12,360
Less: Input credit
Excise on raw materials Rs. 50,000 6,180
Service Tax charged by service
provider- Rs. 10,000 1,236 7,416
Net Excise duty Payable 4,944

Exemptions
1. Exports
2. Deemed exports- SEZs, STPIs, EOUs
3. Notified goods
PRACTICAL ASPECTS
SSI units
Labour job for others
Samples
Warranty clearances



IMPORT DUTY

DIFFERENT TYPES OF DUTY
Basic Custom duty
It is a standard rate or in the case of import
from some countries, at the preferential rate.
Maximum rate is 10%

Additional duty (commonly known as CVD)
It is equal to the Central Excise duty leviable on
similar product if manufactured in India. If the
same product is not manufactured in India, then
on the like product manufactured in India

Anti dumping/safeguard duty
It is leviable with a view to protect domestic
industry from unfair injury



Education cess and Secondary and 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 Add Landing charges 1% of item 1 1
3 SubTotal (1+2) 101
4 Basic Custom duty 10% of item 3 10.10
5 SubTotal (3+4) 111.10
6 Additional Duty (CVD) 12% of item 5 13.33
7 SubTotal (5+6) 124.43
8 Education Cess on Basic & CVD 3% of (4+6) 0.70
9 Sub Total (7+8) 125.13
10 Special Additional duty (SAD) 4% of item 9 5.00
11 Total Landed Cost (9+10-2) 129.13

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.
1 Sale price of goods 200
2 Excise duty on the above @ 12.36% 24.72
3 Invoice value charged to the consumers 224.72
Manufacturers liability for Excise duty

Rs.
Excise duty on the sales price

24.72
Less: Set-off of CVD and SAD (13.72+5.00)

18.72
Net Excise duty Payable

6.00


IMPACT OF IMPORT DUTY- TRADER
If the goods are imported by a trader for resale
to manufacturer of excisable goods, and
The trader is registered under Excise duty
He has shown in his invoice, CVD and SAD
charged ,
The manufacturer can set off CVD and SAD
against Excise duty collected and pay the net
amount to Govt.
IMPACT OF IMPORT DUTY- TRADER
If the goods are imported by a trader for
the purpose of resale, and
He has charged VAT to his customers and
paid the same ,
entitled to a refund of SAD paid on
imports.
EXEMPTIONS FROM DUTY
Pilfered goods
Damaged or deteriorated goods
Lost or destroyed goods
Goods abandoned by the importer
Denatured or mutilated goods
Goods notified by Government
SOME PRACTICAL ASPECTS
Transshipment- if no urgency
Small quantity direct on the shop floor-
additional freight v/s storage cost of
warehousing + loading/unloading
High Seas / Bond Sales
Customs Valuation





VAT
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.
1 A's cost of raw material ( from other state) 10000
( A will deposit Rs. 1250 duty on the above. Since this is not a 1250
State VAT it will form a cost of input)
2 A's cost of local materials 20000
(VAT charged by local suppliers Rs. 2,500. Since the credit of this
would be available it will not be included in cost of input)
3 Other expenditure ( such as for storage transport, interest etc. 8750
incurred and profit earned by A)
4 Sales price of goods 40000
5 VAT on the above @ 12.50% 5000
6 Invoice value charged by A to the manufacturer, B 45000
As Liability for VAT
Rs.
Tax on the sales price 5000
Less: Set-off of VAT paid on purchases
On imported goods Nil
On local goods 2500 2500
Net Tax Payable 2500

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

Sl. No. Particulars Rs.
1 B's cost of raw materials 40000
(VAT recovery by A Rs. 5000)
2 B's cost of other materials
Local Purchases 20000
(VAT charged on the above Rs. 2500)
Inter State Purchases 10200

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

3 Manufacturing and other expenses incurred and profit earned by B 29800
4 Sale price of finished products 100000
5 VAT on the above 12500
6 Invoice value charged by B to the wholesalers, C 112500
Bs Liability for VAT
Rs.
Tax on the sales price 12500
Less: Set-off of VAT paid on purchases
To A 5000
To other suppliers 2500 7500
Net Tax Payable 5000

C, after repacking the goods into other packing, sells the
finished product to a retailer.
Sl. No. Particulars Rs.
1 C's cost of goods 100000
(VAT recovered by B Rs. 12500)
2 Cost of packing material 2000
(VAT charged on the above Rs.250)
3 Expenses incurred and profit earned by C) 18000
4 Sale price of goods 120000
5 VAT on the above 15000
6 Invoice value charged by C to D, a retailer 135000
Cs Liability for VAT

Rs.
Tax on the sales price 15000
Less: Set-off of VAT paid on purchases
To B 12500
To other suppliers 250 12750
Net Tax Payable 2250

When D sells the goods to the consumers the
position would be as under
Sl. No. Particulars Rs.
1 D's cost of goods 120000
(VAT recovered by C Rs. 15000)
2 Expenses incurred and profit earned by D) 20000
3 Sale price of goods 140000
4 VAT on the above 17500
5 Invoice value charged by D to the consumers 157500
Ds liability for VAT

Rs.
Tax on the sales price

17500
Less: Set-off of VAT paid to C

15000
Net Tax Payable

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 goods- concessional
rate of 2% against Form C
Cascading of taxes since inter-State purchases
liable to CST are not eligible for input tax credit
Trade becomes uncompetitive for the States that
are net importers because in those States
consumer prices will be high
Contrary to basic objective of VAT system viz.
lowering of prices
CST is an origin-based tax collected by exporting
State and VAT is a destination based
consumption tax, hence both cannot go together
However, when liability of CST arises on a
inter-State sale, the input tax credit (local
VAT) can be used for set-off.
This is because revenue does not go to
any other State
Slow phasing out of CST- 4% to 3% to
2%
OCTROI
The term Octroi has its
roots in the French word
Octroyer meaning to
authorise or to grant
It is a local tax collected
on articles brought into a
town for local use by
various bodies like
municipalities, zilla
parishads etc.
Levy of octroi is based on
the value, weight, length
and number of articles
Octroi is levied on specified articles at
their time of entry into the limits of the
city or town for consumption, use or sale
Places of import for purpose of levy
1. Import by sea - Docks, wharfs
2. Import by Rail - Rly. Stations, sidings
3. Import by Air - Airport terminals
4. Import by Road - Municipal posts/naka
CALCULATION OF OCTROI
At present octroi in Mumbai is 5.5% of value of
goods
Value of goods - value as per invoice including
freight, all taxes and duties charged till the entry
of goods in city/town
In case of samples of no commercial value,
-invoice for octroi purpose
In case parts under warranty,
- invoice for octroi purpose

VARIOUS OCTROI FORMS
A and B Forms
For payment of octroi-
C and CC Forms
For refund of octroi in the event of wrong
payment or rejection of the material by the
consignee
Form C - export of goods -by Sea or Air
Form CC- export by road
The Octroi paid wrongly is refunded after
deducting 6.25% as service charge

N Form
application for exemption in respect of articles imported for
immediate export within 7 days

R Form
It is an application for exemption in respect of goods imported or
exported into or out of city or town for demonstration, repairs etc.

The octroi amount is to be paid first. Goods to be returned within 6
months

X Form
For exemption of octroi for articles imported into city/town by
charitable institution

EXEMPTION FROM OCTROI
Units located in areas such as SEEPZ
Containers of durable nature- gas cylinders,
aerated water bottles
Personal luggage
Personal belongings of MPs, MLAs, Govt.
servants in case of shifting
PRACTICAL ASPECTS
Goods purchased from supplier located outside
city limits for resale to customers out of city
limits

Service Tax
Concept
- Service Tax is a tax on services
- Service means a useful result/product of labour,
which is intangible.
- Thus, service is a value addition that can only
be felt and cannot be seen
- Definition- Service means a) any activity, b) for
consideration, c) carried out by a person for
another, and d) includes a declared service
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
Reverse Charge Mechanism
Recipient of services liable to pay tax
1. Insurance agent
2. Sponsorship service
3. Legal services from advocate or firm of
advocates
4. Goods transport agency
5. Support services by Govt. or local authority
6. Import of services
Joint charge
Service provider (if individual or HUF or
partnership firm) and service recipient
both liable to pay tax
1) Hiring or renting of motor vehicle
2) Supply of manpower
3) Works contract
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


Negative List
From July 1, 2012 Service Tax would be
applicable on all services except those
mentioned in
a) Negative list (17 items), or
b) Mega exemption notification

GST Model
Central Level GST
State Level GST
Centre and State to legislate, levy and administer
GST Rates - International comparison
* CENVAT: 12.36 % +VAT;12.5 %
=26.40%)


10.0
12.5
13.0
14.0
15.0
17.0
17.5
19.0
19.6
20.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
A
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12
15
26.4
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
1. Excise Duty
2. Service Tax
3. Additional Custom Duty (CVD)
4. Special Additional Duty (SAD)
5. Surcharges
6. Cesses
STATE TAXES SUBSUMED
1. VAT/Sales Tax
2. Entertainment Tax
3. Luxury Tax
4. Entry Tax/Octroi
5. Taxes on lotteries
6. State surcharges and cesses relating to
goods and services
PROPOSED RATE STRUCTURE
UNDER GST
1. For goods- Two rate structure-
a) lower rate for necessary items and items
of basic importance
b) standard rate for goods in general


There will be a special rate for precious metals and
also a list of exempted items
2. For services a single rate for CGST and SGST

Rate Structure-CGST+SGST





Goods
Lower
Goods
Standard
.
Services
Year
1
12% 20% 16%

Year
2
12% 18% 16%

Year
3
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
e
addit
ion
Value to
next
stage
Rate
of
GST
GST
Amount
Input tax
credit
Net GST
Manfacturer 100 30 130 20% 26 20 (20% of
100 inputs)
26-20=6
Whoesaler 130 20 150 20% 30 26 (20% of
130 inputs)
30-26=4
Retailer 150 10 160 20% 32 30 (20% of
150 inputs)
32-30=2
Total GST 20+6+4+
2=32
IMPACT
Goods- cheaper
Household services-Telephone, mobile,
cable, insurance will be costlier since
presently the service tax @12.36%
The impact may not be 4% if service
providers pass on benefit of tax on
procurements
A 2% point rate difference between goods and
services would mean that the classification of
certain items (e.g. intangibles) as goods or
services would continue to be relevant under
GST.
One would hope that the GST law would provide
absolute clarity on the distinction between goods
and services, to ensure that there is no
ambiguity over classification.

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N R J SEATING SYSTEMS
Plot no.(24), Wagle Industrial Estate
Thane, Maharashtra 410 012
T A X I N V O I C E
Invoice No. : 360
Date : 01/04/2012
Cust. Ord. No.: TCSL/PO/POWAI /33283
Date : 01/04/2012

Quantity Rate Amount (Rs.)
50 2,000.00 100,000
Ass. Value 100,000
BED. @12 % 12,000
Ed. Cess on BED @ 2 % 240
S.& H.Ed.Cess on BED @ 1% 120
Total Rs. 112,360
S.T./C.S.T. @ 12.5% 14,045
Total Rs. 126,405
Octroi. 5.5%
Grand Total 133,357


6,952
Threshold limit
Exemption threshold and composition for
small dealers-
- Threshold for both goods and services at
INR 1 million for CGST and SGST.
- Composition to be made available to
small dealers up to an agreed common
limit under both CGST and SGST to bring
simplification and improve compliance.
Compensation for states
In line with the Thirteenth Finance
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
1. Finance & Taxation
2. Operational
3. Documentation
4. Information Technology
5. Logistics
6. Legal
While GST is a welcome change which aims to
simplify the regulations and making businesses
more tax efficient and would be heralded as one
of the significant Tax reforms happening in India
in the recent times, the road ahead on
implementation is a turbulent one. Business
entities with professional help should target to
address this challenge and effectively manage
change.
I CANT CHANGE THE DIRECTION OF
THE WIND, BUT I CAN ADJUST
MY SAILS TO ALWAYS REACH MY
DESTINATION SAFE AND SOUND
- ANONYMOUS



THANKS