Indirect Taxes 2012 - Useful ppt

8/12/2019 Indirect Taxes 2012 - Useful ppt

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INDIRECT TAXES


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INDIRECT TAXES

Excise duty

Import duty

VAT

CST

Octroi

Service Tax

GST


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Share of Direct and Indirect Taxes in

Total Tax Revenue

Source: Eco nom ic Surv ey 2010-11

010

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%


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EXCISE DUTY

Levy

Excise duty is leviable on all excisable goodswhich are manufacturedor produced in India

Meaning of manufactureManufacture - 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


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Notification 179/77 CE, dated

18.06.1977.

Exempted goods in or in relation tothe manufacture of such goods noprocess is ordinarily carried on with

the aid of power.


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Sr.No.

Specified Processes Goods

1 Repacking from bulk to retail packs,

labelling or re-labelling of containersor adoption of any other process torender 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 cladwith precious metals

5 Affixing a brand name on the product,labelling or re-labelling of containersor repacking from bulk packs to retailpacks or adoption of any othertreatment to render the productmarketable

Textile articles, wornclothes and worn

textile articles etc


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Classification issues- 1


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Medicament or toothpowder

1. Common parlance test- it must be usedfor medicinal purposes by the users

2. Ingredients test- it must have medicalcontent

CCE V/s Shree Baidyanath Ayurved BhawanLtd. (Supreme court) 2009


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Classification issues -2


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Puzzle\quiz or game

a) Outcomepredetermined and fixed

b) Clues- no clues in Scrabble, while in crossword wordsare written as per clues

c) Chabce and skillIn Scrabble there is an element of

chance and skill, which is not present in a puzzleCommon 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 toyPleasantime Products V/s CCE- Supreme Court 2009


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Rates of Excise duty

a) Specific amount- items suchas liquor, cigarettes,

cementon the basis oflength, weight, volume,

thickness

b) Specific rate (% of value) atpresent 12%

c) Education and higher andsecondary education cess- 3%of duty

Effective rate- 12.36%


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Valuation

1. Tariff value-Readymade garments, pan masala60% of retail sale price declared on the retailpackage

2. M.R.P. valuepackaged goods where MRP ismandatory less notified amount of abatementhaving regard to excise, VAT and other local

taxes-mineral water 45%3. Transaction value-excisable goods must be

sold by the assessee


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Dutywhen payable ?

Removal of goods

1) from factory gate

2) fromwarehouse/depot


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CENVAT CREDIT

InputsRaw materials and intermediaries

Capital goods

CVD and SAD on imports

Service tax


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Manufacturers Liability for Excise

Rs.

Basic Sales PriceRs. 1,00,000

Excise @ 12.36% on the sales price 12,360

Less: Input credit

Excise on raw materialsRs. 50,000 6,180

Service Tax charged by service

provider- Rs. 10,000 1,236 7,416

Net Excise duty Payable 4,944


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Exemptions

1. Exports

2. Deemed exports- SEZs, STPIs, EOUs

3. Notified goods


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PRACTICAL ASPECTS

SSI units

Labour job for others

Samples Warranty clearances


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IMPORT DUTY


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DIFFERENT TYPES OF DUTY

Basic Custom dutyIt is a standard rate or in the case of importfrom 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 onsimilar product if manufactured in India. If the

same product is not manufactured in India, thenon the like product manufactured in India

Anti dumping/safeguard duty

It is leviable with a view to protect domestic


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Education cess and Secondary and HigherEducation cess

@ 2% and 1% respectively on aggregate ofbasic custom duty and additional custom duty

Special Additional duty (SAD)

To provide a level playing field to indegenous goods whichhave to bear VAT. It is 4% of assessable value + allduties


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RATE OF DUTY AND VALUATION

The rate of duty and tariff valuation shall be asapplicable on

a) The date of presentation of the bill of entry, in

case of goods directly cleared for homeconsumption

b) In the case of goods cleared from bondedwarehouse, the date of presentation of bill ofentry for home clearance of such goods fromthe warehouse


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CIF Value

FOB + Freight + InsuranceCurrency Conversion rate

Announced by Central Board of Excise and Custom on the 1 st day ofeach monthFreight

Actual freight. 20% of FOB if freight not determinableInsurance

1.125% of FOB, if insurance is not ascertainableLanding charges

1% of CIF, added only for duty calculation purposes


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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


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IMPORTS

By a manufacturer ofExcisable goods

By a trader for resaleTo manufacturer of

Excisable goods

By a trader for resaleTo end customers


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IMPACT OF IMPORT DUTY- MANUFACTURER

If the imported goods - an input inmanufacturing excisable goods, then CVDand SAD paid on imported goods can be

set off against excise duty collected


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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


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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


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IMPACT OF IMPORT DUTY- TRADER

If the goods are imported by a trader for resaleto manufacturer of excisable goods, and

The trader is registered under Excise duty

He has shown in his invoice, CVD and SADcharged ,

The manufacturer can set off CVD and SADagainst Excise duty collected and pay the net

amount to Govt.


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IMPACT OF IMPORT DUTY- TRADER

If the goods are imported by a trader forthe purpose of resale, and

He has charged VAT to his customers andpaid the same ,

entitled to a refund of SAD paid onimports.


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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


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VAT


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VAT RATES

State subject

Classification of goods

Rates4%, 5%, 8%, 12.5%


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TAXANOMY OF VAT

Trader Manufacturer Wholesaler

Retailer Consumer


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ManufacturerPurchasing from

Trader- outside State Trader-within State Other Manufactures


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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


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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


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B manufactures finished products from the raw materials

purchased from A and other materials purchased from

other suppliers.


1 B's cost of raw materials 40000

(VAT recovery by A Rs. 5000)

2 B's cost of other materialsLocal 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


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Bs Liability for VAT

Rs.



To A 5000To other suppliers 2500 7500



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C, after repacking the goods into other packing, sells the

finished product to a retailer.


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


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Cs Liability for VAT

Rs.



To B 12500

To other suppliers 250 12750



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Ds liability for VAT

Rs.


Less: Set-off of VAT paid to C 15000



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ELIGIBLE PURCHASES FOR INPUT TAX

CREDIT

Raw materials

Capital goods (if not for 36 months, withdrawal)

Consumable stores

Packing materials

Finished goods for resale


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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


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EXEMPTIONS/REFUNDS

Exporters

SEZ

EOU Stock transfers

High seas sales

Bond sales Consignment sales


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CENTRAL SALES TAX (CST)

Tax on inter-State sale of goods

Tax Rate = local (as per the State fromwhere sale is effected) VAT rate applicable

to the goods -4%, 5% or 12.5%

Inter-State purchase - for resale or for usein the manufacture of goods- concessional

rate of 2% against Form C


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Cascading of taxessince inter-State purchasesliable to CST are not eligible for input tax credit

Trade becomes uncompetitive for the States thatare net importers because in those Statesconsumer prices will be high

Contrary to basic objective of VAT system viz.lowering of prices

CST is an origin-based tax collected by exportingState and VAT is a destination basedconsumption tax, hence both cannot go together


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However, when liability of CST arises on ainter-State sale, the input tax credit (local

VAT) can be used for set-off.

This is because revenue does not go toany other State

Slow phasing out of CST- 4% to 3% to

2%


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OCTROI

The term Octroi has itsroots in the French wordOctroyer meaning toauthorise or to grant

It is a local tax collectedon articles brought into atown for local use byvarious bodies likemunicipalities, zilla

parishads etc. Levy of octroi is based on

the value, weight, lengthand number of articles


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Octroi is levied on specified articles attheir time of entry into the limits of thecity 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


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CALCULATION OF OCTROI

At present octroi in Mumbai is 5.5% of value ofgoods

Value of goods - value as per invoice including

freight, all taxes and duties charged till the entryof 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


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VARIOUS OCTROI FORMS

A and B Forms

For payment of octroi-

C and CC Forms

For refund of octroi in the event of wrongpayment or rejection of the material by theconsignee

Form C - export of goods -by Sea or Air

Form CC- export by roadThe Octroi paid wrongly is refunded afterdeducting 6.25% as service charge


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N Formapplication for exemption in respect of articles imported forimmediate export within 7 days

R Form

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

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

X FormFor exemption of octroi for articles imported into city/town bycharitable institution


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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


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PRACTICAL ASPECTS

Goods purchased from supplier located outsidecity limits for resale to customers out of citylimits


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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) forconsideration, c) carried out by a person foranother, and d) includes a declared service


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Body of service tax law

No independent statute on service tax

Chapter V of Finance Act, 1994 containsprovisions on levy and collection,

registration and other procedures likeappeals, interest and penalties

.


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Input Service Tax

Amount payable = Service tax collectable

Less

Service tax payable


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Reverse Charge Mechanism

Recipient of services liable to pay tax

1. Insurance agent

2. Sponsorship service

3. Legal services from advocate or firm ofadvocates

4. Goods transport agency

5. Support services by Govt. or local authority6. Import of services


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Joint charge

Service provider (if individual or HUF orpartnership firm) and service recipientboth liable to pay tax

1) Hiring or renting of motor vehicle

2) Supply of manpower

3) Works contract

E t f S i


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Export of ServicesFor the purpose of defining export of service in relation toeach 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.EgArchitect services

- Category BSuch services are wholly or partly

performed outside India. EgCredit Rating Agencyservices

- Category C(a) When service is provided in relation to business orcommerceprovision of such services to a recipient

located outside India(b) When service is provided otherwise - provision of suchservices to a recipient located outside India at the time ofprovision of the service.EgBanking & Other Financial Services


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Import of Services

Import of taxable service is said to takeplace 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 usualplace of residence,

in a country other than India and


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Negative List

From July 1, 2012 Service Tax would beapplicable on all services except thosementioned in

a) Negative list (17 items), or

b) Mega exemption notification


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GST M d l


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GST Model

Central Level GST

State Level GST

Centre and State to legislate, levy and administer

GST R I i l i


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GST Rates - International comparison

* CENVAT: 12.36 % + VAT;12.5 %

=26.40%)

10.012.5 13.0

14.0 15.0 17.017.5

19.0 19.6 20.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Australia

New

Zealand

Canada

South

Africa

Mexico

China

UK

Germany

France

Italy

India

12

15

26.4

GST - NEW ERA OF INDIRECT


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TAXATION

- CERTAIN HIGHLIGHTS1) A Dual GST model with appropriate binding mechanismto 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 servicesexcept the exempted goods / services, goods outside thepurview of GST and the transactions below theprescribed threshold limits.

4) The CGST and SGST are to be paid to the accounts ofthe Centre and the States separately.5) Cross utilization of ITC between the CGST and the SGST

would not be allowed.


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PRINCIPLES OF GST

(i) Taxes or levies to be subsumed should be primarily inthe nature of indirect taxes, either on the supply ofgoods or on the supply of services.

(ii) Taxes or levies to be subsumed should be part of thetransaction chain which commences with import/

manufacture/ production of goods or provision ofservices at one end and the consumption of goods andservices at the other.

(iii) The subsumation should result in free flow of taxcredit in intra and inter-State levels.

(iv) The taxes, levies and fees that are not specificallyrelated to supply of goods & services should not besubsumed under GST.

(v) Revenue fairness for both the Union and the Statesindividually would need to be attempted.


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CENTRAL TAXES

GSTSGST,CGST,

IGST

STATE TAXES------ ------


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CENTRAL TAXES SUBSUMED

1. Excise Duty

2. Service Tax

3. Additional Custom Duty (CVD)

4. Special Additional Duty (SAD)

5. Surcharges

6. Cesses


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PROPOSED RATE STRUCTURE


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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 items2. For servicesa single rate for CGST and SGST

R S CGST SGST


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Rate Structure-CGST+SGST

GoodsLower

GoodsStandard.

Services

Year1

12% 20% 16%

Year

2

12% 18% 16%

Year

3

16% 16% 16%


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GST M h i


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GST Mechanism

Supplychain

PurchaseValue ofInput

Valueaddition

Value tonextstage

RateofGST

GSTAmount

Input taxcredit

Net GST

Manfacturer 100 30 130 20% 26 20 (20% of100 inputs)

26-20=6

Whoesaler 130 20 150 20% 30 26 (20% of130 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


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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 serviceproviders pass on benefit of tax on

procurements


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A 2% point rate difference between goods andservices would mean that the classification ofcertain items (e.g. intangibles) as goods orservices would continue to be relevant underGST.

One would hope that the GST law would provideabsolute clarity on the distinction between goods

and services, to ensure that there is noambiguity over classification.


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Th h ld li it


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Threshold limit

Exemption threshold and composition forsmall dealers-

- Threshold for both goods and services at

INR 1 million for CGST and SGST.

- Composition to be made available tosmall dealers up to an agreed common

limit under both CGST and SGST to bringsimplification and improve compliance.

C ti f t t


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Compensation for states

In line with the Thirteenth FinanceCommissions recommendations, Stateswould be compensated for initial four

years for loss of VAT and Purchase taxrevenues.

This will remove the apprehension ofstates that GST would adversely affect

their revenue and will ensure speedyimplementation

E ti


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Exemptions

Exemptions under Central Excise to bealigned with current exemptions under

VAT which would ensure alignment of

CGST and SGST exemptions.

B fit f GST


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Benefits of GST

Agriculture, industry, trade

Exporters

Entrepreneurs

Traders

Common consumers

GST CHALLENGES


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GST CHALLENGES

1. Finance & Taxation

2. Operational

3. Documentation

4. Information Technology

5. Logistics

6. Legal


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While GST is a welcome change which aims tosimplify the regulations and making businesses

more tax efficient and would be heralded as one

of the significant Tax reforms happening in Indiain 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.


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I CANT CHANGE THE DIRECTION OFTHE WIND, BUT I CAN ADJUST

MY SAILS TO ALWAYS REACH MY

DESTINATION SAFE AND SOUND

- ANONYMOUS


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THANKS

Indirect Taxes 2012 - Useful ppt

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