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A project report on concise study of central excise tax at d link india ltd verna-goa
 

A project report on concise study of central excise tax at d link india ltd verna-goa

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A project report on concise study of central excise tax at d link india ltd verna-goa mba finance project

A project report on concise study of central excise tax at d link india ltd verna-goa mba finance project

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    A project report on concise study of central excise tax at d link india ltd verna-goa A project report on concise study of central excise tax at d link india ltd verna-goa Document Transcript

    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 5 Introduction to D–Link (India) Ltd. Company History D-Link (India) Ltd. was incorporated on 31st March, 1993 as ―Smart-Link Network Pvt. Ltd.‖ originally located at 306, Rayu Chambers, Dr. A. Borkar Road, Panjim, Goa for setting up a manufacturing unit. D-Link Corporation, Taiwan assured the Indian promoter Mr. K. R. Naik that it will consider taking up a stake in the company only after satisfactory commissioning of the project as per its stringent standards. It took almost one year to set-up the factory and D-Link Corporation delegates on visiting India were impressed enough to invest financially. The name of the company was thereafter changed to ―D-Link India Pvt. Ltd.‖ after financial participation from D-Link Corporation, Taiwan on 29th March, 1995. The Company became Public Company on 1st July, 1998 i.e. D-Link (India) Ltd. Today D-link (India) Ltd. has grown to be a brand with maximum visibility and penetration in India in its market segment. It has its own distinct Brand image in Networking, Internetworking and Structured Cabling Products. D-Link (India) Ltd. by entering into newer segments of VoIP & digital Home Products has become a one stop shop to all communication, Local Area Network (LAN), Wide Area Network (WAN), Gigabit Area Network (GAN), Metropolitan Area Network (MAN), Virtual Private Network (VPN), Voice Over IP, Intranet, Extranet & ICE needs. D-Link (India) Software Engineers are being trained at D-Link Corporation, Taiwan in specialized software for the networking field. The company plans to penetrate the specialized software segment, which is major segment in the networking and communications field. D-Link (India) Ltd. has offices in Mumbai, Delhi, Bangalore, Kolkata, Chennai, Pune, Secunderabad, Ahmedabad, Lucknow, Chandigarh, Indore, Goa to serve its customers. D-Link (India) Ltd. has set up two manufacturing plants with three SMT (Surface Mount Technology) lines at Goa, the first line was set up in 1994, the second line was set up in 1999 & the third SMT line was set up in March 2001. The ISO-9002 certified plant has a capacity of 50000NIC, 10000 ubs and switches of various types besides a mix of more
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 6 that 20000 information outlets, patch cords, patch panels, fiber products etc. D-Link (India) Ltd. has three state-of-the-arts ISO 9001:2000 and ISO 14001:1996 certified plants in Goa; Software and R&D Centers in Goa and Bangalore; and a Global Tech Support Call Center in Mumbai. D-Link (India) Ltd. already embraced Six Sigma at its Goa factory and started getting rich return in terms of minimum rejections reduced waste and greater consistency. The Company also has OHSAS 180001 certification for Health and Safety. It has a nationwide network of 17 offices, 21 territory distributors, 325 dealers and 3600 resellers and three overseas distributors in SAARC countries providing active sales and service support. D-Link is having two subsidiary Companies and five sister concerns, out of which four companies are Public Limited Companies. The Secretarial department monitoring overall requirements of various registrations, filing of forms, submission of reports under the various Acts viz. Companies Act, FERA Act Industrial (R&D) Act MRTP Act and Income Tax Act, etc of all subsidiaries and sister concerns in additions to D-Link (India) Limited. One of the Subsidiary Company proposed to merge in Holding Company, D-Link (India) Limited. The Subsidiary and other companies of D-Link Group have increased their Authorized capital and Paid up Share Capital, special attention required to be given on the foreign inward remittance funds through authorized dealers under the provisions of FERA and issuing shares as per the provisions of Companies Act 1956. Overview of the Management of the Company The Company was founded by Mr. K. R. Naik, an Indian resident in the year 1993 with the vision to make D-Link a premier technology company. The Board of Directors of the Company consists of eight Directors, out of which two Directors are foreign nationals. Mr. K. R. Naik, main promoter, Chairman and Managing Director of the Company is in charge of the overall Management of the Company. The Company has a highly efficient Board with its members having vast experience and proficiency in the field of management, sales, marketing, business administration and more to take the Company to new heights in networking line. Board has constituted various committees such as Audit Committee and Investors Grievance Committee at the Board Level as per SEBI
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 7 Guidelines in respect of Corporate Governance. There is due compliance of the corporate governance requirements - Board ensures equal treatment, transparency, timely disclosures and more important accountability. Business carried on by the Company D-Link (India) Limited is a leading manufacturer of networking products. Its core business is in the area of Networking and Communications. D-Link India is present in the motherboard market through a joint venture with Gigabyte Technology Taiwan and in the high-end enterprise segment with a complete range of co branded products of Foundry Networks Inc of USA in India. D-Link India engaged in manufacturing, marketing and distribution of the entire range of networking products providing complete range of networking solutions. The company manufactures Switches, Structured Cabling, Leased Line Modems, NICs, Hubs and Modems. Etc. The Company has entered into Distributor Agreement with Cisco Systems Inc USA, Clerent Corporation for marketing and distributing its products in India and SAARC countries. D-Link (India) Ltd. has formed a strategic Joint Venture with Lanner Electronics Inc Taiwan, which deal in industrial Automation and data acquisition and control system products. D-Link (India) Ltd. started the Software Research and development activity at Goa in February 2000 and subsequently at Bangalore, Mhape and New Mumbai. Today most of its manpower is focused at designing and developing products for itself. The current projects include development of IP phones, IPBX, Wireless LAN and Network security. D-Link India recently started its Global Tech Support Center at Mumbai. The Group's principal activities are to manufacture and market networking and communication products. The Group operates in three segments: Networking Products, Software Development and Technical Support. The Group's products include Interface Cards, Switches, Modems, Transceivers, Internet Servers and Routers. Its broadband products include Cable Modem, wireless products/security products and networking storage products. Performance
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 8 In the financial year 2006-07 the Company achieved a turnover of Rs.3051.99 million as compared to Rs. 3014.77 million in the previous year. The Net Profit of the Company stood at Rs.219.27 million as compared to Rs. 232.06 million in the previous year. The turnover grew marginally by 1.23%. The company has during the past 2 years transferred a major portion of its motherboard business to its subsidiary, Gigabyte Technology (India) Limited. This has resulted in the low revenue growth as compared to previous years. However, the company‘s core business of networking and cabling products grew at a healthy rate of 19.24% as compared to the previous year. The profits were lower as compared to previous year primarily due to increase in depreciation and manpower costs. The Company has shown significant growth in the core business of networking and cabling products. The growth was primarily led by significant increase in sales from switches, wireless products, broadband modems and copper products comprising of cables, information outlets and patch cords. During the year the company also launched several new products such as DRO-250i – Multi Service Access Point, DVX-1000 – IPPBX Gateway, GLB-502T – ADSL Router, DWL-3500 – Wireless Access Point, and DWL-8500 – Wireless Access Point which will lead to higher revenue growth in future. The Company has tied up with Aptec Distribution LLC as distributor for entire passive networking products under the Digi-Link range of products in the territories of UAE, Oman, Qatar, Bahrain and Kuwait The Digi-Link brand of passive products include the end to end range of copper and fiber structured cabling products to support cable plant infrastructure requirements. The Company has forged alliances with retail chains to increase the number of its retail outlets in the metros and non-metros by the end of 2007. The company has tied up with consumer durables and information technology (CDIT) retail chains like croma, hyper city, e-zone and pantaloons in the country. The Company has recently concluded a deal to outsource D-TAC (Call Center) support functions of D-Link Europe. The services includes outsourcing telephone technical and email support to customers based out of UK, Belgium, Netherlands, Luxemburg and Ireland. D-Link India Ltd. has won the Channels Choice Award 2007 for Networking LAN and Wireless LAN. The company is quite strong in LAN segment and has a well-networked channel across the country. The company offers a wide range of products and stands for
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 9 quality and commitment. It continues to be the most demanded product, with best after sales services and value for money. The Company has received the following awards during the year under review: 360 Magazine - Golden Rhino Award - 2007 for Networking Cables Voice & Data 100 award for Top Modem Company year - 2006 DQ Channel - Channel Choice Award - 2006 for Networking Products 360 Magazine - Golden Rhino Award – 2006 for Networking Cables 360 Magazine - Golden Rhino Award - 2006 for Routers & Switches NASSCOM - The National Association of Software and Services Companies, has included D-Link India Ltd. in its ‗Showcase of Innovation Book 2006‘ for its work on IPPBX and Routers. Channels 1. Home, SOHO and SMB D-Link (India) Ltd. is a worldwide leader and award-winning designer, developer and manufacturer of connectivity solutions for customers in the digital home, SOHO (Small Office Home Office) and SMB (Small Medium Business) segments. More home users and network administrators increasingly prefer a D-Link India connectivity solution due to its overall reliability, quality, clear warranty policy, service support and value-for-money offering. D-Link (India) Ltd. is the most popular choice in wireless LAN equipment, unmanaged switching, broadband modems, dial-up modems, network cards, structured cabling and digital home products like IP cameras, videophones, etc. D-Link (India) Ltd. successfully extended its Channel product portfolio in 2004 with numerous product introductions of next generation networking, broadband, wireless, VoIP, firewalls, for the home, SOHO and SMB market. The D-Link India Channel‘s strategy looks at the future where convergence is a reality delivering new entertainment and communication devices so that consumers can take advantage of a network-centric technology era. The explosion of high-speed Internet access continues to open up opportunities for D-Link India in the world of consumer computing. Voice, video and data convergence combining digital and analog technology allows D-Link to deliver broadband driven products like digital
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 10 media players, IP-based remote security devices and video conferencing devices to consumers. D-Link (India) Ltd. continues to remain the most admired Networking Company as per various channel studies conducted by third parties. D-Link India‘s channel friendly policy, product reliability, regular training programs, widespread service support and unambiguous warranty policy has made it the most trusted vendor among channel partners. D-Link India Ltd. has won the Channels Choice Award 2007 for Networking LAN and Wireless LAN, D-Link has been awarded the Best Networking Vendor Award by VAR India, Top Modem company in 2006 from V&D 100, voted as the Most Admired Company as per CRN Survey November 2004 and the Golden Rhino Award 2005 by 360 Magazine. 2. Enterprise: Institutional and Corporate D-Link India enterprise connectivity products offer standard based complete end-to-end solution for business environments. D-Link‘s focus on price-performance based technology leadership delivers increased network performance, increased network scalability, and decreased costs over time for the IT manager and decision maker. Core, Distribution and Workgroup switching options available from D-Link India provide a range of deployable configurations and switch features for a scalable and robust business-class networking infrastructure. D-Link India delivers powerful solutions for deploying or upgrading to Gigabit Ethernet throughout an entire network including server farms, ISP backbone and campus-wide connectivity. D-Link India engineers continually push the innovation envelope to develop next-generation, standards-based IT solutions that businesses, whether small or large, can experience today. This philosophy strengthens D-Link‘s stature as a viable alternative to more expensive, proprietary-based solutions by bringing the same level of performance with better value. D-Link India has a co-branding agreement with Foundry Networks, Inc. to provide the full range of Foundry Networks products in India. Foundry Networks is a leading provider of high-performance enterprise and service provider switching, routing and Web traffic management solutions including Layer 2/3 LAN switches, Layer 3 Backbone switches, Layer 4 - 7 Web switches and Metro Routers. The enterprise customer thus gets the complete Enterprise Solution from a Single
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 11 Vendor and also enjoys the assurance of world class service support from D-Link. Keeping in mind the CIO‘s end objective to offer the best available network solution by reducing Total Cost of Ownership, D-Link India is today, offering a wide range of network switches, WAN routers, wireless LAN products, security firewalls, VoIP and Copper & Fiber Structured Cabling products. 3. Telecom and ISP D-Link (India) Ltd. offers cost effective, feature-rich telecommunications solutions for any network. Telecom service providers know the future of their business depends on how well they migrate their core networks onto an IP based platform and how efficiently and cost effectively they roll out value added services like broadband, VoIP, IP VPN, videoconferencing etc. to the end customers. Internet service providers are also marketing business applications, such as VPN and integrated voice and video applications, as reasons for businesses to go broadband. Operational and economic efficiencies from network convergence will prompt business users to layer voice services on top of their IP VPN circuits. Increasingly, VoIP is seen as a logical and desirable complementary service to VPNs. D-Link (India) Ltd. foresees broadband to the home would pave the way for convergence in vendor, medium and services i.e. single service provider offering voice, video and data over a single medium either telephone line copper or fiber or Ethernet Copper with unified billing. D-Link along with Foundry Networks offers a range of proven core network options and last mile connectivity options for the Telecom and Internet Service providers. These include LAN, MAN, WAN switching options, Layer 4-7 Web Switches, last mile broadband connectivity products (CPEs) and broadband application products and copper and fiber based structured cabling products. D-Link‘s industry recognized broadband, media and networking solutions provide valuable cost savings and enhanced communication features for the home or business network and present a new set of business opportunities to the Telecom and Internet service provider.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 12 CHAPTER II Overview of tax structure in industry Introduction India has a well developed tax structure with a three-tier federal structure, comprising the Union Government, the State Governments and the Local Bodies. The power to levy taxes and duties is distributed among the three tiers of Governments, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Union
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 13 Government is empowered to levy are Income Tax (except tax on agricultural income, which the State Governments can levy), Wealth Tax, Customs duties, Central Excise, Sales Tax and Service Tax. The principal taxes levied by the State Governments are Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc. Direct Taxes A direct tax is one paid directly to the government by the persons (juristic or natural) on whom it is imposed (often accompanied by a tax return filed by the taxpayer). Examples include income tax, corporate tax, welth tax, transfer tax such as estate (inheritance) tax and gift tax. o Income Tax Tax Direct Tax Indirect Tax Income Tax Individual Corporate Excise Service Sales Customs Cess Entry Tax
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 14 Income tax is an annual tax on income. The Indian Income Tax Act provides that in respect of the total income of the previous year of every person, income tax shall be charged for the corresponding assessment year at the rates laid down by the Finance Act for that assessment year. The Act further provides that for the purpose of charge of income tax and computation of total income all income shall be classified under the following heads of income:  Salaries  Income from house property  Profits and gains of business or profession.  Capital gains  Income from other sources. The total income from all the above heads of income is calculated in accordance with the provisions of the act as they stand on the first day of April of any assessment year. Taxable Income Slab Rate (%) 1,00,000 1,35,000 (for women) 1,85,000 (for senior citizens) NIL 1,00,001 - 1,50,000 10% 1,50,001 - 2,50,000 20% 2,50,001 upwards 30% 10,00,000 upwards 30%* * A surcharge of 10% on income tax is levied where taxable income exceeds Rs.1 million which makes it effective 33% including surcharge. o Corporate Income Tax For domestic companies, the tax is levied @ 30% plus surcharge of 2.5%, where as for a foreign company (including branch/project offices), it is @ 40% plus surcharge of 5%. An Indian registered company, which is a subsidiary of a foreign company, is also considered an Indian company for this purpose. Indirect Tax:
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 15 An indirect tax (such as sales tax value added tax or excise and service tax) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. The Indirect tax in India includes a series of tax laws and regulations, which are central laws and state specific laws. As a result these taxes become a significant part of the total cost. It is thus essential to factor in such costs through appropriate planning. Indirect taxes are applicable to most of the activities ranging from manufacturing to final consumption, trading and imports as well as services. As a result it impacts all business lines. CHAPTER III A Overview of Central Excise Tax Introduction The Central Excise duties are the largest source of revenue for the country. Approximately 30% of the total revenue receipts are collected from Central Excise. Central Exice duty is an indirect tax levied on goods manufactured. The tax is administered by the Central Government under the authority of Entry 84 of the Union
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 16 List (List 1) under Seventh Schedule. The Central Excise duty is levied in terms of the Central Excise Act, 1944. The taxable event under the Central Excise law is ‗manufacture‘ and the liability of Central Excise duty arises as soon as the goods are manufactured. The liability of payment of excise is on the Manufacturer. Excise is collected, on the goods manufactured or produced at the time of their removal from the factory for administrative convenience. There are four basic conditions for levy of Central Excise duty. (1) The duty is on goods. (2) The goods must be excisable. (3) The goods must be manufactured or produced (4) Such manufacture or production must be in India. Unless all the above conditions are satisfied, Central Excise Duty cannot be levied. The Central Excise law is administered by the Central Board of Excise and Customs (CBEC or Board) through its field offices, the Central Excise Commissionerates. For this purpose, the country is divided into 10 Zones and a Chief Commissioner of Central Excise heads each Zone. There are total 61 Commissionerates in these Zones headed by Commissioner of Central Excise. Divisions and Ranges are the subsequent formations, headed by Deputy/Assistant Commissioners of Central Excise and Superintendents of Central Excise, respectively. Types of Excise Duties 1. Duties under central excise act - basic duty and special duty of excise are levied under central excise act. 2. CENVAT- Basic excise duty (also termed as Cenvat) is levied at the rates specified in First Schedule to Central Excise Tariff Act. 3. Special Duty of Excise (SED) - Some commodities like pan masala, cars etc. are leviable with special duty. Presently, SED on tyres, aerated soft drinks, polyester
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 17 filament yarn, air conditioners and components and motor cars is 8% w.e.f. 1-3- 2003. Thus, total duty on these products will be 24% i.e. 16% basic and 8% special. 4. Education Cess - Education cess is a ‗duty of excise‘, to be calculated on aggregate of all duties of excise including special excise duty or any other duty of excise, but excluding education cess on excisable goods. It is calculated at 2% of the excise duty. 5. SHE Cess – It refers to Secondary and Higher Education Cess which is calculated at 1% of the excise duty. 6. Clearance by EOU - The EOU units is expected to export all their production. However, if they clear their final product in DTA (domestic tariff area), the rate of excise duty will be equal to customs duty on like article if imported in India. 7. National Calamity and Contingent Duty - A ‗National Calamity Contingent Duty‘ (NCCD) has been imposed vide section 136 of Finance Act, 2001. This duty is imposed on pan masala, chewing tobacco and cigarettes. It varies from 10% to 45%. 8. Additional Duty - The 'Additional Duty' is in addition to excise duty. Rules, procedures, penalties etc. for collecting these duties are same as basic duty. Some items covered under this Act are textile articles like cotton fabrics, silk and wool fabrics, man-made fibers, terry fabrics, metallised yarn, embroidery; sugar, branded tobacco, pan masala containing tobacco and cigarettes. ECC code number and its utility ECC code is known as Electronic Computer Code and is allotted to all registrants of Central Excise. This code comprises of 10 digits. The first 2 digits represent the Commissionerate, next 2 digits represent the division, next 2 digits represent the range, the 7th digit indicates the sector, 8th & 9th digit represent the unit within the sector and the last digit is a check digit. The ECC code number facilitates proper account of Assessee's records. This code number is a mandatory requirement and is given to the registrant by the Pay and Accounts officer. But the application in this regard is to be submitted to the jurisdictional Range Officer. ECC code number is required to be mentioned on all the statutory documents issued and maintained by the registrant.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 18 Basis of calculation of duty payable When rates of duty are expressed as a percentage of value of goods, which is now the increasing trend, assessable value of the goods has to be found out before the amount of duty leviable thereon is determined and paid. Earlier there was a practice of assessee filing a price list, the assistant commissioner approving the assessable values after enquiry and then the assessee determining the duty on the basis thereof. But with the budget of 1994, the said practice stands abolished. Now it is the assessee‘s responsibility to determine assessable values of the goods, declare them on his invoice and pay duty on the basis thereof. 1. Tariff value – where under section 3(2) of the Act, the Central government has fixed tariff values for the goods, the assessee‘s task is easy, viz. to find out the tariff value for the particular variety from the relevant notification and pay duty thereon. But tariff values are rarely fixed by the government. 2. M.R.P. Value – a new section 4A has been inserted with the object of enabling the government to change excise duty with the reference to maximum retail price, with such deductions as the government allow. In respect of packaged commodities which under any law are required to be marked with Maximum Retail Price of the product, (vide standards of Weights and Measurement Act, 1976), the government has now acquired power under new section 4A to notify them for assessment on the basis of such MRP less such abatement (The Government, by issue of a notification, announces the percentage of abatement to be allowed from MRP in order to arrive at the assessable value for charging excise duty) as may be notified. The marked MRP should be the sole consideration for sale. Declaration of retail sale price of multi- piece packages and individual pieces contained in the multi-piece package (if such individual pieces are capable of being sold separately) is statutorily required and hence they will also be assessed under section 4A. But where affixation of MRP is not statutorily required, such packages, even if voluntarily marked with MRP, will be assessed. Where more than one retail price is declared on a package, then the maximum of such retail sale price has to be taken into account. But where different retail price are declared on different packages for the sale of any excisable goods in packaged form in different areas, each such retail price shall be the retail sale price
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 19 for the purpose of valuation of the excisable goods intended to be sold in the area to which the retail sale price relates. In case of slashed down prices, duty is to be charged on the lower MRP at which actual transaction takes place and not on the higher MRP printed alongside in scored out style to attract customers. 3. Transaction Value – if a product is not notified under section 4A and there is no tariff value fixed for it under section 3(2), it has to be assessed according to its transaction value determined under section 4 as substituted with effect from 1-7-2000. ―Transaction Value‖ includes receipts / recoveries or charges incurred or expenses provided for in connection with the manufacturing, marketing, selling of the excisable goods to be part of the price payable for the goods sold. Returns to be filed Form of Return Description Who is required to file Time limit for filing return ER-1 Monthly Return by large units Manufacturers not eligible for SSI concession 10th of following month ER-2 Return by EOU EOU units 10th of following month ER-3 Quarterly Return by SSI Assessees availing SSI concession 20th of following quarter ER-4 Annual Financial Information Statement Assessees paying duty of Rs one crore or more per annum through PLA Annually by 30th November of succeeding year ER-5 Information relating to Principal Inputs Assessees paying duty of Rs one crore or more per annum through PLA and manufacturing goods Annually, by 30th April for the current year (e.g. return for 2005-06 is to be filed by 30-4-2005].
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 20 under specified tariff headings ER-6 Monthly return of receipt and consumption of each of Principal Inputs Assessees required to submit ER-5 return 10th of following month Registration of factory / warehouse o Application for registration should be made in the prescribed Form A-1. o Separate registration is required for each separate premise, if person has more than one premise. o Registration is not transferable. If business is transferred, fresh registration has to be obtained by the transferee. o Change in constitution of partnership firm or Company should be intimated within 30 days of change. In case of such change, fresh registration is not required. o Registration can be revoked or suspended if the holder of registration or any person in his employment commits breach of any of the provisions of Central Excise Act or Rules Payment of Duty Assessee should pay duty through Current Account popularly known as PLA (Personal Ledger Account). The PLA is credited when duty is deposited in bank by TR-6 challan and duty is required to be paid by making a debit entry in the PLA on monthly basis. PLA and Cenvat credit should be used only for payment of excise duty. It is not necessary that there must be some minimum credit balance in PLA. It is sufficient if there is balance at the time of debit in PLA on monthly basis. Requirements of Return 1. Product description should tally with description actually used in invoices.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 21 2. Production and removal details must be given for each commercially separate product / group of products of similar nature falling under same sub-heading having same rate of duty, based upon data maintained under DSA (Daily Stock Account). For product group having separate classification / rate of duties, separate entries must be given. Commissioner can relax this requirement by a general or special order. 3. Duty liability will be consolidated adjustment in current account (PLA) and Cenvat credit account, as may be decided by assessee. (Thus, he can show pro rata through PLA and Cenvat credit or in some products he can show full payment through PLA and in some other products, he can show full payment through Cenvat credit). 4. If same product is cleared under different rates of duty under different notifications, the details are required to be given separately. 5. Goods received for repairs, reconditioning or export return are required to be shown in appropriate column. 6. Fine, penalties and interest cannot be paid through Cenvat credit. It must be paid through PLA only. [In fact, they should be paid through TR-6 challan as PLA is meant only for payment of duty]. 7. If there is delay in payment of duty, interest should also be paid and details of interest calculations should be shown along with return. 8. If duty on some invoices is paid under protest or on provisional basis, the details are required to be given in the ER-1 return. Administration Being the single largest contributor to the tax revenues of the Government, central excise revenues and administration have a critical role in the Indian economy. Naturally, any set back or slow down in central excise revenue mobilization adversely impacts economic planning. Therefore, it is important to devise a suitable tax administration which facilitates voluntary compliance by the tax payer and leads to the collection of revenue at minimum cost. In this regard a number of steps have been taken in the recent past to improve central excise administration. Some of these are: 1. With exception of cigarettes, self assessment of Central Excise duty by the manufacturer without reference to or interaction with the department has become the norm of Central Excise Administration.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 22 2. Central Excise rules earlier numbering over 234 have been considerably simplified and replaced by new set of Central Excise Rules, wherein the number of rules has been reduced to only 72. 3. Payment of duty has been simplified with the introduction of a fortnightly payment system. As a measure of further relaxation the units in the small scale sector are required to pay duty on monthly basis. 4. Documentation is reduced to the minimum and largely reliance is placed upon the tax payers own records. Further, the filing of statutory return with the department has been made less rigorous by increasing the periodicity. Tax payers are required to file a simple monthly return and those in the small scale sector have to furnish the return only on a quarterly basis. 5. A statutory body has been set up for giving Advance Rulings on matters of classification and valuation of goods and applicability of notifications with the objective of introducing uniformity and certainty in Central Excise Administration. 6. Computerization has been initiated on a large scale and the emphasis is on effective monitoring, analysis of data base, and use of Information Technology to carry out day to day functions. 7. New PAN based excise registration has been adopted with the objective of moving towards on-line registration to facilitate the tax payer. 8. Manufacturer exporters have been facilitated by dispensing with the requirement of bonds and security. Further a simplified procedure has been introduced for self credit of the duty on the goods exported. In respect of merchant exporters also the requirement of security for exports is not insisted upon. 9. Disputes with the tax payer have been sought to be reduced with the introduction of new valuation; rules and extension of the scheme of assessment based on Maximum Retail Price. 10. To ensure speedy disposal of cases pending adjudication and in appeal a time period for deciding the cases has been prescribed in the law. 11. Selective Audit based upon risk assessment has been introduced. 12. For greater facilitation the administration has been brought closer to the tax payer by an increase in the number of Central Excise Chief Commissioners from 10 to 23,
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 23 Commissioners from 61 to 92 and Commissioners of Central Excise (Appeals) from 18 to 71. It is the perception that the introduction of self-assessment in Central Excise has reduced responsibility of the Central Excise officers in ensuring the correctness of assessment including correct availment of Cenvat credit. By and large the officers feel that since the tax payer is responsible for self-assessment of the return their own responsibility is reduced to mere confirmation of mathematical accuracy. This is not correct. The C.B.E.C. had clearly laid down the responsibilities of the assessing officer‘s right up to the level of Addl. Commissioner in ensuring correctness of assessment and availment of Cenvat credit by the tax payer. The instructions also empower the officers to call for any document to confirm the assessment of the tax payer. However, it is a finding that this is not being done properly, furthermore there is an absence of monitoring mechanism and as a result proper checks are not carried out. Infact, the assessing officers take the stand that with the introduction of self assessment and the non submission of invoices with monthly returns the responsibility of finding out short levy is on the Audit or Anti-Evasion. It is the view that assessment should be the primary function of the Central Excise officers. Self assessment on the part of the tax payer is only a facility and cannot and must not be treated as a dilution of the statutory responsibility of the central excise officers in ensuring correctness of duty payment. No doubt Audit and Anti-Evasion have their roles to play but assessment or confirmation of assessment should remain the primary responsibility of the Central Excise officers. Scrutiny of Assessment The Central Excise Officers having jurisdiction over the factory/premises of the assessee is responsible for the scrutiny of returns. For this purpose, the said officer(s) may require the relevant documents. Though the statutory records have been dispensed with, the assessee is required to maintain private records containing all requisite information as required by different rules and also provide a list of all records maintained by him to the Range Office. The Officer responsible for scrutiny of return may require the invoices issued by the assessee, Daily Stock Account, Cenvat Account, cash ledgers, Ledger of all
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 24 receipts and payments and the source documents etc. It shall be compulsory for the assessee to provide the necessary records upon receiving the "Requisition Letter‘ from the Range Officer or other superior officers. He shall hand over the records under proper acknowledgement and receive them back under proper acknowledgement too. The Officer scrutinizing return may require presence of the assessee or his authorized person at mutually convenient time, for seeking certain information relating to the records. The Superintendent of Central Excise in-charge of the Range Office, with assistance of the Inspectors in-charge of the factory of an assessee, will scrutinize all the returns. They shall, in selected cases, call all connecting documents including invoices and the records and scrutinize the correctness of assessment. CHAPTER III B Analysis of 6 cases Case 1: In the following example we have assumed that a product ‗X‘ which is an excisable commodity requires two inputs i.e. raw material ‗A‘ and raw material ‗B‘ purchased at the rate of Rs.100 which are excisable. Table 1.1: Input Tax Calculations Raw Material Quantity Rate Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess A 1 100 100 16% 16 2% 0.32 1% 0.16 B 1 100 100 16% 16 2% 0.32 1% 0.16 Total 32 0.64 0.32
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 25 By considering the rate of the raw materials as Rs.100, the conversion cost as Rs.60 and the profit margin as Rs.40 the following calculations are made. Table 1.2: Cost Sheet Particulars Amount (Rs.) Raw Material (A) 116.48 Raw Material (B) 116.48 Total 232.96 Less: Excise paid 32.96 Input cost 200 Add: conversion cost 60 Add: profit margin 40 Ass. Value 300 Add: 16% excise duty 48 Add: 2% education cess 0.96 Add: 1% she cess 0.48 Product Price 349.44 In Table 1.2 we can see that the total expenses incurred in purchasing the raw material is Rs.232.96. As this amount is inclusive of excise of Rs.32.96, it is subtracted from the total and the actual cost incurred on the inputs is ascertained. This is possible as the government has provided us with the Cenvat credit facility which helps us to avoid the cascading effect. Table 1.3: Calculation of excise liability on finished goods Finished Good Quantity Ass. Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess X 1 300 16% 48 2% 0.96 1% 0.48 Table 1.4: Total liability Particulars Excise Cess SHE Cess
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 26 Excise Paid 32 0.64 0.32 Output tax liability 48 0.96 0.48 Tax paid through cash 16 0.32 0.16 Tax paid through credit 32 0.64 0.32 In the above Table 1.4 the column of excise paid shows the excise duty, cess and she cess paid on input goods. The column of output tax liability shows the total tax liability on the finished goods calculated on the assessable value i.e. Rs.300/-. As per the Central Excise Act we have a provision to avail Cenvat credit i.e. the amount already paid by us during our purchase of raw materials. Hence the column tax paid through credit shows the credit availed by us and the column tax paid through cash is the difference between the excise liability and the Cenvat credit which is actually paid to the government. Case 2: In the following example we have assumed that a product ‗Y‘ which is exempt from excise duty requires two inputs i.e. raw material ‗C‘ and raw material ‗D‘ purchased at the rate of Rs.100 which are also exempt from tax liability. Table 2.1: Input Tax Calculations Raw Material Quantity Rate Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess C 1 100 100 16% 0 2% 0 1% 0 D 1 100 100 16% 0 2% 0 1% 0 Total 0 0 0
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 27 By considering the rate of the raw materials as Rs.100, the conversion cost as Rs.60 and the profit margin as Rs.40 the following calculations are made. Table 2.2: Cost Sheet Cost Sheet Amount (Rs.) Raw Material (A) 100 Raw Material (B) 100 Total 200 Less: Excise paid 0 Input cost 200 Add: conversion cost 60 Add: profit margin 40 Ass. Value 300 Add: 16% excise duty 0 Add: 2% education cess 0 Add: 1% she cess 0 Product Price 300 In Table 2.2 we can see that the total expenses incurred in purchasing the raw material is Rs.200. There is no excise duty paid in this case as the materials purchased are exempt from tax. Table 2.3: Calculation of excise liability on finished goods Finished Good Quantity Ass. Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess Y 1 300 16% 0 2% 0 1% 0 Table 2.4: Total liability Particulars Excise Cess SHE Cess Excise Paid 0 0 0
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 28 Output tax liability 0 0 0 Tax paid through cash 0 0 0 Tax paid through credit 0 0 0 In the above table we can see that all the columns are nil as the raw material as well as the finished goods are exempt from tax. The price of the final product in this case is the cheapest as the product does not have to bare the pressure of the tax liability. Case 3: In the following example we have assumed that a product ‗Y‘ which is exempt from excise duty requires two inputs i.e. raw material ‗A‘ which is excisable and raw material ‗C‘ which is exempt from tax liability purchased at the rate of Rs.100. Table 3.1: Input Tax Calculations Raw Material Quantity Rate Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess A 1 100 100 16% 16 2% 0.32 1% 0.16 C 1 100 100 16% 0 2% 0 1% 0 Total 16 0.32 0.16
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 29 By considering the rate of the raw materials as Rs.100, the conversion cost as Rs.60 and the profit margin as Rs.40 the following calculations are made. Table 3.2: Cost Sheet Cost Sheet Amount (Rs.) Raw Material (A) 116.48 Raw Material (B) 100 Total 216.48 Add: conversion cost 60 Add: profit margin 40 Ass. Value 316.48 Add: 16% excise duty 0 Add: 2% education cess 0 Add: 1% she cess 0 Product Price 316.48 In Table 3.2 we can see that the total expenses incurred in purchasing the raw material is Rs. 216.48. As this amount is inclusive of excise of Rs.16.48, it is subtracted from the total and the actual cost incurred on the inputs is ascertained. This is possible as the government has provided us with the Cenvat credit facility which helps us to avoid the cascading effect. Table 3.3: Calculation of excise liability on finished goods Finished Good Quantity Ass. Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess Y 1 300 16% 0 2% 0 1% 0 Table 3.4: Total liability Particulars Excise Cess SHE Cess Excise Paid 16 0.32 0.16
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 30 Output tax liability 0 0 0 Tax paid through cash 0 0 0 Credit available 16 0.32 0.16 In the above Table 3.4 the column of excise paid shows the excise duty, cess and she cess paid on input goods. The column of output tax liability is nil as the finished product is exempt from tax. As per the Central Excise Act we have a provision to avail Cenvat credit i.e. the amount already paid by us during our purchase of raw materials but as the output product is exempt from tax this facility is not available. Case 4: In the following example we have assumed that a product ‗X‘ which is excisable requires two inputs i.e. raw material ‗A‘ which is excisable and raw material ‗C‘ which is exempt from tax liability purchased at the rate of Rs.100. Table 4.1: Input Tax Calculations Raw Material Quantity Rate Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess A 1 100 100 16% 16 2% 0.32 1% 0.16 C 1 100 100 16% 0 2% 0 1% 0 Total 16 0.32 0.16 By considering the rate of the raw materials as Rs.100, the conversion cost as Rs.60 and the profit margin as Rs.40 the following calculations are made.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 31 Table 4.2: Cost Sheet Cost Sheet Amount (Rs.) Raw Material (A) 116.48 Raw Material (B) 100 Total 216.48 Less: Excise paid 16.48 Input cost 200 Add: conversion cost 60 Add: profit margin 40 Ass. Value 300 Add: 16% excise duty 48 Add: 2% education cess 0.96 Add: 1% she cess 0.48 Product Price 349.44 In Table 4.2 we can see that the total expenses incurred in purchasing the raw material is Rs. 216.48. As this amount is inclusive of excise of Rs.16.48, it is subtracted from the total and the actual cost incurred on the inputs is ascertained. This is possible as the government has provided us with the Cenvat credit facility which helps us to avoid the cascading effect. Table 4.3: Calculation of excise liability on finished goods Finished Good Quantity Ass. Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess Y 1 300 16% 48 2% 0.96 1% 0.48 Table 4.4: Total liability Particulars Excise Cess SHE Cess Excise Paid 16 0.32 0.16
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 32 Output tax liability 48 0.96 0.48 Tax paid through cash 32 0.64 0.32 Tax paid through credit 16 0.32 0.16 In the above Table 4.4 the column of excise paid shows the excise duty, cess and she cess paid on input goods. The column of output tax liability shows the total tax liability on the finished goods calculated on the assessable value i.e. Rs.300/-. As per the Central Excise Act we have a provision to avail Cenvat credit i.e. the amount already paid by us during our purchase of raw materials. Hence the column tax paid through credit shows the credit availed by us and the column tax paid through cash is the difference between the excise liability and the Cenvat credit which is actually paid to the government. Case 5: In the following example we have assumed that a product ‗Y‘ which is exempt from excise duty requires two inputs i.e. raw material ‗A‘ and raw material ‗B‘ purchased at the rate of Rs.100 which are excisable. Table 5.1: Input Tax Calculations Raw Material Quantity Rate Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess A 1 100 100 16% 16 2% 0.32 1% 0.16 B 1 100 100 16% 16 2% 0.32 1% 0.16 Total 32 0.64 0.32 By considering the rate of the raw materials as Rs.100, the conversion cost as Rs.60 and the profit margin as Rs.40 the following calculations are made.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 33 Table 5.2: Cost Sheet Cost Sheet Amount (Rs.) Raw Material (A) 116.48 Raw Material (B) 116.48 Total 232.96 Add: conversion cost 60 Add: profit margin 40 Ass. Value 332.96 Add: 16% excise duty 0 Add: 2% education cess 0 Add: 1% she cess 0 Product Price 332.96 In Table 5.2 we can see that the total expenses incurred in purchasing the raw material is Rs.232.96. As this amount is inclusive of excise of Rs.32.96, it is subtracted from the total and the actual cost incurred on the inputs is ascertained. This is possible as the government has provided us with the Cenvat credit facility which helps us to avoid the cascading effect. Table 5.3: Calculation of excise liability on finished goods Finished Good Quantity Ass. Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess Y 1 300 16% 0 2% 0 1% 0 Table 5.4: Total liability Particulars Excise Cess SHE Cess Excise Paid 32 0.64 0.32 Output tax liability 0 0 0
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 34 Tax paid through cash 0 0 0 Credit available 32 0.64 0.32 In the above Table 5.4 the column of excise paid shows the excise duty, cess and she cess paid on input goods. The column of output tax liability is nil as the finished product is exempt from tax. As per the Central Excise Act we have a provision to avail Cenvat credit i.e. the amount already paid by us during our purchase of raw materials but as the output product is exempt from tax this facility is not available. Case 6: In the following example we have assumed that a product ‗X‘ which is an excisable commodity requires two inputs i.e. raw material ‗C‘ and raw material ‗D‘ purchased at the rate of Rs.100 which are also exempt from tax liability. Table 6.1: Input Tax Calculations Raw Material Quantity Rate Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess C 1 100 100 16% 0 2% 0 1% 0 D 1 100 100 16% 0 2% 0 1% 0 Total 0 0 0 By considering the rate of the raw materials as Rs.100, the conversion cost as Rs.60 and the profit margin as Rs.40 the following calculations are made.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 35 Table 6.2: Cost Sheet Cost Sheet Amount (Rs.) Raw Material (A) 100 Raw Material (B) 100 Total 200 Less: Excise paid 0 Input cost 200 Add: conversion cost 60 Add: profit margin 40 Ass. Value 300 Add: 16% excise duty 48 Add: 2% education cess 0.96 Add: 1% she cess 0.48 Product Price 349.44 In Table 6.2 we can see that the total expenses incurred in purchasing the raw material is Rs.200. There is no excise duty paid in this case as the materials purchased are exempt from tax. Table 6.3: Calculation of excise liability on finished goods Finished Good Quantity Ass. Value Excise Rate Excise Cess Rate Cess SHE Cess Rate SHE Cess X 1 300 16% 48 2% 0.96 1% 0.48 Table 6.4: Total liability Particulars Excise Cess SHE Cess Excise Paid 0 0 0 Output tax liability 48 0.96 0.48 Tax paid through cash 48 0.96 0.48 Tax paid through credit 0 0 0
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 36 In the above Table 6.4 the column of excise paid is nil as the raw material purchased was exempt from tax. The column of output tax liability shows the tax liability on the finished products. As we have not paid excise duty on input goods the total liability shown in the column tax paid through cash has to be paid to the government. CHAPTER IV A Overview of Cenvat Introduction CENVAT (Central Value Added Tax) has its origin in the system of VAT (Value Added Tax), which is common in West European Countries. Concept of VAT was developed to avoid cascading effect of taxes. VAT is found to be a very good and transparent tax collection system, which reduces tax evasion, ensures better tax compliance and increases tax revenue. MODVAT (Modified Value Added Tax) was introduced in India in 1986 (MODVAT was re-named as CENVAT w.e.f. 1-4-2000). The system was termed as MODVAT, as it was restricted upto manufacturing stage and credit of only excise duty paid on manufacturing products (and corresponding CVD (Countervailing Duty) paid on imported goods) was available. Credit of duty paid on input and input services
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 37 The CENVAT scheme is principally based on system of granting credit of duty paid on inputs and input services. A manufacturer or service provider has to pay excise duty and service tax as per normal procedure on the basis of ‗Assessable Value‘ (which is mainly based on selling price). However, he gets credit of duty paid on inputs and service tax paid on input services. Credit will be available of excise duty paid on: (a) Raw materials (excluding few items) (b) Material used in or in relation to manufacture like consumables etc. (c) Paints, packing materials, fuel etc. used for any purpose. However, duty paid on high speed diesel oil (HSD), Light Diesel Oil (LDO) and motor spirit (petrol) is not available as CENVAT credit, even if these are used as raw materials or as fuel No credit is available if final product is exempt from duty or final service is exempt from service tax. If a manufacturer manufactures more than one product, it may happen that some of the products are exempt from duty. Similarly, in case of service provider, some services may be taxable while some services may not be covered. In such cases, duty paid on inputs and service tax paid on input services used for manufacture of exempted products/services cannot be used for payment of duty or tax on other final products/services which are not exempt from duty/tax. If the manufacturer/service provider uses common inputs both for exempted as well as un-exempted goods/services, he should maintain separate records for inputs/input services used for manufacture of exempted final products and should not avail CENVAT on such inputs/input services. However, if he does not maintain separate records and inventories of inputs/input services used in exempted final products/services, he has to pay an ‗amount‘ of 10% of price of exempted goods and education cess is payable only on ‗duties of excise‘. ‗Amount‘ is not ‗duty‘. Hence, education cess is not payable on such ‗amount‘. In case of exempt services, he can utilize CENVAT credit only upto 20% of service tax payable on output service. Credit of duty on inputs can be taken up instantly, i.e. as soon as inputs reach the premises. In case of capital goods, upto 50% credit is available in current year and balance in subsequent financial year. In case of input services, credit is available only
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 38 after the amount of bill is paid to person who had provided the service. In some cases, it may happen that, duty paid on inputs and service tax paid on input services may be more than duty payable on final products. In such cases, though the CENVAT credit will be available to the manufacturer/service provider, he cannot use the same and the same will lapse. There is no provision for refund of the excess CENVAT credit. However, the only exception is in case of exports where duties paid on input material or services used for goods exported are refundable. Another exception is that the Tribunal can order refund when CENVAT credit could not be availed due to fault / wrong action of the department. Refund may also be granted if assessee could not utilize credit for some other reason. CENVAT on inputs or input services is available only if the process is 'manufacture'. Otherwise, CENVAT is not available. (In fact, in such cases, no duty is payable on the final product and question of CENVAT does not arise at all). CENVAT in Service tax and Central Excise The system of VAT was introduced in Central Excise in 1986. The concept was also introduced in case of Service Tax in 2002. However, these two were independent of each other. Since both excise (goods tax) and service tax are under Central Government, the Government intends to integrate these two taxes. Full integration of goods and service tax will take considerable time, as it can be achieved only after political consensus is achieved. However, a beginning has been made by making credit of service tax and excise duty inter-chargeable w.e.f. 10-9-2004. Overview of CENVAT System oCredit of duty paid on input and input services and capital goods - The CENVAT scheme is principally based on system of granting credit of duty paid on inputs, input services and capital goods. A provider of taxable output services has to charge service tax in his invoice as per normal procedure. However, he gets credit of (a) duty paid on inputs and capital goods and (b) service tax paid on input services. This is termed as CENVAT Credit. This CENVAT Credit can be used for payment of service tax on his output services.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 39 oInput services eligible for credit - An output service provider will be entitled to credit of service tax paid by him on input services, which are used by him directly or indirectly in or in relation to provision of output services. Even input services relating to setting up an office premises will be eligible. In addition to this, services like advertising, activities relating to business like accounting, auditing, storage, transport etc., which are only indirectly related to provision of output services would also be permitted for credit. In fact, all input services relating to all activities relating to business are eligible for CENVAT credit. oInputs goods eligible for CENVAT to service provider - Credit will be available of excise paid on inputs used for providing output services, except high speed diesel oil (HSD), Light Diesel Oil (LDO) and motor spirit (petrol). oCENVAT on Capital Goods - Capital goods used for providing output taxable service will be available. Credit of duty paid on machinery, plant, spare parts of machinery, tools, dies, etc., is available. However, upto 50% credit is available in current year and balance in subsequent financial year or years. A service provider can take out capital goods from his premises, provided that he brings them back within 180 days. This period can be extended by Assistant/Deputy Commissioner. oCredit on motor vehicles used to provide output service - Motor vehicles are not ‗capital goods‘ for purpose of ‗manufacture‘, but credit on motor vehicles would be allowed as ‗capital goods‘ only to the service providers of courier, tour operator, rent-a- cab scheme operator, cargo handling agency, outdoor caterer, pandal and shamiana operator and goods transport agency. Motor vehicle will not be treated as ‗capital goods‘ for manufacturers or other service providers. oNo CENVAT credit if output service exempt from service tax - No credit is available if output service is exempt from service tax. oService provider providing exempted as well as unexempted services - If the service provider uses common inputs both for exempted as well as un-exempted services, he should maintain separate records for input services used for exempted output services and should not avail CENVAT on such inputs/input services. However, if he does not maintain separate records and inventories of inputs/input services used in exempted
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 40 output services, he can utilize CENVAT credit only upto 20% of service tax payable on output service. For example, assume that service tax payable on output service is Rs.100. Service tax paid on input service is Rs.15. These input services are used both for taxable output services and exempt/non-taxable output services. In such case, assessee can avail and utilize credit of entire Rs.15. However, if tax paid on input services is Rs.75, and these are used both for exempted and taxable services, then assessee can actually utilize credit of only Rs.20. He will have to pay balance in cash, even if credit of Rs.55 is still available in his books. He can carry forward balance credit and can utilize it in subsequent month/s, if opportunity arises. Inputs eligible for CENVAT All goods, except (a) light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and (b) motor vehicles are eligible, but these should be used for providing taxable output service. Input service for purpose of CENVAT Credit ―Input service‖ means any service used by a provider of taxable service for providing an output service. The services that will be covered are services in relation to - a. Setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises b. Advertisement or sales promotion c. Market research d. Storage upto the place of removal e. Procurement of inputs f. Activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 41 Credit only after payment to service provider Credit of input services can be availed only after the output service provider makes payment of value of input services and the service tax payable on it, as shown in invoice of input service provider. In case of input goods, credit is available as soon as goods are received in premises, but not so in case of credit of service tax. Suppose the invoice is for Rs. 100 and service tax is Rs. 12.24, can you avail CENVAT credit if you pay only Rs.12.24 to the input service provider? The answer is no, as the words used are ‗value of input services and the service tax payable on it‘. Capital goods eligible for CENVAT credit a. Tools, hand tools, knives etc., Machinery, Electrical machinery, Measuring, checking and testing machines etc., Grinding wheels and the like goods, Abrasive powder or grain on a base of textile material. b. Pollution control equipment. c. Components, spares and accessories of the goods specified above. d. Moulds and dies e. Refractories and refractory material f. Tubes, pipes and fittings thereof, used in the factory g. Storage Tank. The capital goods should be used for providing output service. If these are exclusively used to provide exempted services, credit of duty paid will not be available. Service provider can send out capital goods for providing output service, but these should be brought back within 180 days. Extension can be obtained from Assistant/Deputy Commissioner. In fact, in case of large projects, it will be highly uneconomical to bring back the capital goods to the premises of service provider. Hopefully, obtaining permission from AC/DC should not be a problem. If permission is rejected, reasoned
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 42 order will have to be given. Order rejecting extension is an appealable order and appeal can be filed with Commissioner (Appeals). Depreciation cannot be availed on CENVAT portion Manufacture cannot avail depreciation in respect of excise portion e.g. if cost of ‗capital goods‘ is Rs. 1.15 lakhs, out of which Rs. 0.15 lakh is duty paid, assessee can claim depreciation under Income Tax only on Rs.1 lakh, if he has availed CENVAT credit of Rs.0.15 lakh. Credit to be availed in two stages of 50% each CENVAT credit on capital goods is required to be availed in more than one year, viz. upto 50% credit can be availed when these are received and balance in any subsequent financial year. The condition for taking balance credit is that the capital goods should be in possession and use of final products in subsequent years. The exception is that in case of consumables like spare parts, components, moulds and dies, refractories, refractory materials and grinding wheels, the balance credit can be availed in subsequent year, even if they are not in possession and use. Duties and documents eligible for credit All taxes and duties defined as ‗CENVAT Credit‘ will be eligible. a. Basic excise duty on indigenous inputs [Paid on goods specified in First Schedule to CETA (Central Excise Tariff Act)]. Corresponding CVD on imported goods is allowable. b. Education cess on manufactured excisable goods and CVD equal to education cess on imported goods. This credit can be utilized only for payment of education cess on final product or output services c. National Calamity Contingent Duty (NCCD) and corresponding CVD paid on imported goods. This credit can be used for payment of NCD on outputs only and not for any other duty. d. Service tax on input services.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 43 e. Education cess paid on service tax. This credit can be utilized only for payment of education cess on final product or output services. f. Secondary and higher education cess paid on service tax. This credit can be utilized only for payment of secondary and higher education cess on final product or output services. g. Additional Customs Duty paid. This duty is imposed w.e.f. 1-3-2005. This credit will not be available to service providers. It is clear that even if the goods are ‗capital goods‘, full 100% credit will be available in first year itself h. Additional Excise duty paid under. Basic duty and service tax on input services are inter-changeable, i.e. Credit of duty paid under one head can be utilized for payment of duty under other head. Restrictions on taking CENVAT credit Credit of any duty can be utilized for payment of any duty on final product. However, some exceptions are provided. Thus, excluding these exceptions as explained below, input credit of any type of duty can be utilized for payment of any type of duty on final product. a. In respect of inputs/capital goods procured from EOU unit, CENVAT credit is available only partially. b. Education cess paid on input or input service can be utilized either for payment of education cess on output services or education cess on final product, but cannot be used for payment of other taxes. c. Credit only upto input services, inputs and capital goods received upto end of month/quarter. Service tax is presently payable by 5th of following quarter in case of individual, proprietary firm or partnership firm, and by 5th of following month in case of other service providers except in month of March. However, only CENVAT credit available as on last day of the month can be utilized for payment of duty even if tax is payable by 5th of following month/quarter. CENVAT credit in respect of input services/inputs/capital
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 44 goods received after end of month cannot be utilized while paying service tax on 5th of following month. The credit can be utilized in subsequent month only. Eligible duty/tax paying documents Credit can be taken on the basis of following documents o Invoice of Manufacturer from factory. o Invoice of manufacturer from his depot or premises of consignment agent. o Invoice issued by registered importer. o Invoice issued by importer from his premises or consignment registered with Central Excise. o Invoice issued by registered first stage or second stage dealer. o Supplementary Invoice. o Bill of Entry. o Certificate issued by an appraiser of customs in respect of goods imported through foreign post office. o TR-6 Challan of payment of tax where service tax is payable by other than input service provider. o Invoice, bill or challan issued by provider of input service on or after 10-9-2004. o Invoice, Bill or Challan issued by input service provider under rule 4A of Service tax Rules. Essential requirement of invoice CENVAT credit cannot be denied as long as the document contains essential aspects of duty/tax payment a. Payment of duty or service tax b. Prescription of goods or taxable service c. Assessable value d. Name and address of the factory or warehouse or provider of input service. Thus, CENVAT cannot be denied if the documents contain these details and no permission/condonation is required if the invoice/bill/challan contains these basic details. Exempted output services
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 45 As per basic principle of VAT, credit of duty or tax can be availed only for payment of service tax on output services. As a natural corollary, if no duty is payable on final product or output services, credit of duty/tax paid on inputs or input services cannot be availed. CENVAT credit is not admissible on such quantity of input or input service which is used in manufacture of exempted goods or exempted services. Thus, if inputs and input services are partly used in exempted final product/output service, CENVAT credit of that portion of input/input service will not be available. Returns to be submitted A return has to be submitted to Range Superintendent of Central Excise in the prescribed form, as follows – o Half yearly return within one month from close of half year, by provider of output services. The return should be in form ST-3. o Half yearly return within one month from close of half year, by Input Service Distributor. The return should be in form ST-3. Revised return There is no provision for submission of revised return. If assessee finds that he has made some mistake, he should pay the amount by TR-6 challan and inform department suitably. If he has paid excess amount by mistake, he is required to file refund claim. He cannot adjust excess payment on his own, except in few cases where it has been specifically permitted. If he has not taken CENVAT credit of certain inputs, input services or capital goods, he can avail it in subsequent period, since there is no time limit for availing CENVAT credit. This will be reflected in his return for that subsequent period, as in normal course. Tax to be paid in cash but CENVAT Credit can be availed
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 46 Taxable service will not be treated as output service of the recipient for purpose of availing of CENVAT credit of duty of excise paid on inputs or service tax paid on any input services. Thus, the recipient of service has to pay the service tax in cash by TR-6 challan. He cannot utilize his CENVAT credit for payment of this amount, as it is not his ‗output service‘, though he is liable to pay service tax. However, once the person receiving the service pays service tax, it is his ‗input service‘. He can avail credit of service tax paid, if it is his ‗input service‘ as defined. The TR-6 challan by which he has paid the service tax will be eligible document for availment of service tax credit. CHAPTER IV B Brief introduction to Service Tax Introduction Service tax is said to be tax of 21st century. This tax made a small beginning in 1994. This tax was first introduced with effect from 1-7-1994 on three services. The rate was 5% and it was subsequently increased to 8% w.e.f. 14-5-2003, it was enhanced to 10% w.e.f. 10-9-2004. An education cess of 2% of service tax has been imposed w.e.f. 10-9-2004. Presently, Service tax is payable @ 12% w.e.f. 18-4-2006 (plus education cess of 2% and secondary and higher education cess of 1% i.e. total 12.36%) on ‗taxable services‘ w.e.f. 01-04-2007 Legally, you have to show service tax, education cess and secondary and higher education cess separately in invoice. You cannot just charge 12.36% as ‗service tax‘. In that case, department can ask you to pay further 0.24% plus 0.12% amount. You should also pay it by showing separate account head in TR-6 challan, indicating appropriate code. Service Provider In most of the cases, service provider, i.e. person who is providing taxable service is liable to pay service tax. However, in few cases, exceptions have been made and other person is made liable to pay service tax. The major exceptions are as follows
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 47 (a) When service provider is non-resident, service receiver is liable. (b) In case of service of Goods Transport Agency (GTA), here consignor/consignee who is paying freight is liable. (c) In case of insurance agents and mutual fund agents, insurance company and mutual fund are liable. (d) In case of sponsorship service provided to a body corporate or firm, the body corporate or firm receiving such sponsorship service will be liable. Taxable Service Service is taxable if service is provided by ‗any person‘. In some case, service is taxable if provided to ‗client‘ or ‗customer‘. Hence, tax liability will often depend on who is service provider and service receiver. Taxable service includes any taxable service provided or to be provided by any unincorporated association or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration. Gross amount charged for taxable service shall include any amount received towards the taxable service before, during or after provision of taxable service. The service tax is payable by 5th of the month following the month in which payments are received toward value of taxable services except in March. Service tax on value of taxable services received during month of March or quarter of March is required to be paid by 31st March. If service provider does not receive any payment from his customer, there is no liability of service tax. Service tax is payable only on ‗value of taxable service‘ actually ‗received‘, and not on amount ‗billed‘. The service provider is required to show service tax separately in his invoice/bill. This is also required to enable the service recipient to claim credit of service tax paid by the service provider. Calculation of service tax by back calculations The gross amount charged can be taken as inclusive of service tax and the ‗value‘ and ‗service‘ tax is to be calculated by back calculations. For example, if Bill amount is Rs.1,000 and service tax is not shown separately in invoice, the tax payable is not
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 48 Rs.123.60, but Rs.110 and Assessable Value is Rs.890 (Check that 12.36% of Rs. 890 is Rs.110 and total of Rs. 890 plus Rs.110 is Rs.1,000. In invoice, Rs.106.8 will be service tax, Rs.2.1 will be education cess and Rs.1.1 will be secondary and higher education cess). Exclusion of value of material If the amount charged includes value of goods and materials sold, service tax will not be payable on that value. There should be documentary evidence showing value of goods and materials sold. This exemption is available only if Cenvat credit of such material is not taken. If such credit was taken, assessee should pay amount equal to the credit. Such payment should be before sale of such goods and materials. Abatement in certain cases from gross value of contract In some cases, abatement has been provided from gross value of contract by way of an exemption notification, e.g. in case of construction services, service tax is payable on 33% of value of gross amount including of material, in case of outdoor catering contracts, service tax is payable on 50% of amount, etc. Thus, exemption notifications have been used as ‗valuation provisions‘. The so called ‗exemption notification‘ is on the assumption that in absence of such ‗exemption‘, service tax would be payable on value of such goods also. This is incorrect as tax is payable only on ‗value of service‘ and not on ‗gross value of contract‘. Abatement is provided of certain percentage, probably on the presumption that the abated amount represents value of material. ‗Exemption‘ is granted in respect of certain value which is not taxable at all in the first place. You cannot ‗exempt‘ something which is not taxable at all. Specific Exemption In case of some services, service tax is payable at lower rates, i.e. partial abatement is available from gross value. The lower rate is applicable if the service provider does not avail Cenvat credit of duty/tax on inputs, input services and capital goods.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 49 Taxable Service Partial abatement available Relevant Notification w.e.f. 1-3-2006 Accommodation booking service by tour operator 10% of gross amount charged 1/2006-ST dated 1-3- 2006. Air Travel Agent Option to pay service tax at flat rate on ‗basic fare‘ @ 0.6% in case of domestic booking and 1.2% in case of international booking rule 6(7) Business Auxiliary Service in relation to processing of parts and accessories used in manufacture of cycle, cycle rickshaws and hand operated sewing machines Tax on 70% of gross amount if gross amount is inclusive of cost of inputs and input services, whether or not supplied by the client 1/2006-ST dated 1-3- 2006. Commissioning and installation services Tax on 33% of gross amount if gross amount includes value of material 1/2006-ST dated 1-3- 2006. Construction Service Tax on 33% of gross amount if gross amount includes value of material 1/2006-ST dated 1-3- 2006. Goods Transport Agency (GTA) Tax only on 25% amount in his invoice [Payment will be made by consignor / consignee who is actually paying freight] 1/2006-ST dated 1-3- 2006. Mandap keeper, hotels and convention services, providing full catering services Tax on 60% gross amount charged 1/2006-ST dated 1-3- 2006.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 50 Outdoor caterer Tax on 50% amount if he provides full and substantial meal 1/2006-ST dated 1-3- 2006. Package tours and other than package tour Tax is payable only on 40% of gross amount charged 1/2006-ST dated 1-3- 2006. Pandal and shamiana Service 70% of gross amount charged if full catering service provided 1/2006-ST dated 1-3- 2006. Rent-a-cab operator Tax payable on 40% of gross amount charged 1/2006-ST dated 1-3- 2006. Transport of goods in container by rail Tax payable on 30% of gross amount charged 1/2006-ST dated 1-3- 2006. Exemption from service tax oSmall units whose turnover is less than Rs. 4 lakhs per annum are exempt from service tax. oThere is no service tax on export of services, if service is exported as per ‗Export of Service Rules‘. oServices provided to UN and International Agencies and supplies to SEZ or developer are exempt. oExemption form service tax has been provided to all taxable services provided by Reserve Bank of India. oService tax is not payable on value of goods and material supplied to the service recipient while providing service. There should be evidence about its value. Such exclusion is permissible only if Cenvat credit on such goods and material is not taken. Exemption or Rebate of Service tax on export services: Exporter of service has three options - 1.Export without payment of service tax and utilize Cenvat Credit for payment of service tax on other services.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 51 2.Export without payment of service tax and claim rebate of service tax paid on input services and excise duty paid on inputs (or forget about rebate as procedure is too complicated and impractical) 3.Pay service tax on exported services and claim rebate (by this, he can utilize his input credit) Procedure The main procedures to be followed are: 1. Registration 2. Maintenance of records 3. Payment of service tax 4. Half yearly returns There is no prescribed form of records. The records maintained by assessee including computerized data maintained in accordance with various other laws are acceptable. In the first return, the assessee should furnish a list of all accounts maintained by assessee including the memoranda received from his branch offices. It is obligatory for an assessee to preserve records at least for a period of five years. Registration: Administration of service tax is under Central Excise department. A ‗person liable for paying service tax‘ has to register with Superintendent of Central Excise under whose jurisdiction your premises fall. He should register within 30 days from date of commencement of the business of providing taxable service. The person will have to apply for registration in form ST-1. An acknowledgement will be given on duplicate copy of ST-1 form by Superintendent of Central Excise, in whose jurisdiction the person operates. If a person is providing more than one taxable service, he may make a single application, i.e., even if the service falls under more than one heading, service tax is payable only once. If one service provider is providing more than one taxable service, he needs to take only one registration. However, the certificate shall be endorsed for all
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 52 taxable services and tax liability will have to be discharged separately for each of the taxable services separately. He should mention in the application all the taxable services provided by him. Applicant should submit following at the time of filing application for registration (a) copy of PAN (b) proof of residence and (c) constitution of applicant. The registration certificate will be granted by Superintendent of Central Excise in seven days in form ST-2. If the registration certificate is not granted within seven days, the registration shall be deemed to have been granted. Penalty for late registration If there is delay, interest for delayed payment will have to be paid, which cannot be waived. Though there is no mandatory penalty for delay in registration, penalty upto Rs. 1,000 can be imposed. In addition, penalty of Rs. 100 per day can be imposed for late payment of tax. In case of suppression of facts, willful mis-statement, fraud and collusion, higher penalty is payable. If an assessee proves that there was reasonable cause for delay in registration or payment of service tax, the penalty can be waived. Returns Every assessee has to submit half yearly return in form ST-3 in triplicate within 25 days of the end of the half-year. ‗Half year‘ means 1st April to 30th September and 1st October to 31st March of financial year. The return should be accompanied by TR-6 challan, evidencing payment of duty. Doctrine of unjust enrichment Since service tax is indirect tax, it is recoverable from customer. If you recover the amount from customer and again claim refund, you will get double benefit. Hence, provision of ‗unjust enrichment‘ has been made in the law. As per the doctrine of unjust enrichment, refund will be granted to assessee only if assessee has not passed on the tax burden to the customer/client. As it will be presumed that assessee has passed on the burden of service tax, he will have to prove that he has not passed on the burden to the customer.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 53 Penalty for non-payment or delayed payment of service tax If service tax is not paid or belatedly paid, penalty shall be imposed, which will be minimum Rs. 200 per day during which such failure continues or @ 2% per month, whichever is higher, starting with the first day after due date till date of actual payment of outstanding amount. Mercifully, the penalty cannot exceed the service tax which was payable. In addition, of course, service tax and interest is payable. Penalty in case of fraud, suppression of facts etc. Where any tax is not levied or paid or erroneously refunded, the person shall be liable to pay penalty which shall not be less than amount of service tax but can be upto twice the amount of service tax not levied or not paid or erroneously refunded. The penalty can be waived, if assessee proves that failure was due to reasonable cause. The penalty will be reduced to 25%, if tax, interest and penalty are paid within 30 days from date of receipt of order of Central Excise Officer.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 54 Services at D-Link (India) Ltd. 1. Business Auxiliary Service Tax on this service was introduced with effect from 1-7-2003. Any service provided or to be provided to a client, by any person in relation to business auxiliary service is a ‗taxable service‘. ‗Business auxiliary service‘ means any service in relation to — o Promotion, marketing or sale of goods produced or provided by or belonging to the client; or o Promotion or marketing of service provided by the client; or o any customer care service provided on behalf of the client; or o procurement of goods or services, which are inputs for the client; o a service incidental or auxiliary to any activity such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision 2. Commercial Training or Coaching Services Tax on this service was introduced with effect from 1-7-2003. Any service provided or to be provided to any person, by a commercial training or coaching center in relation to commercial training or coaching, is a ‗taxable service‘. ‗Commercial training or coaching centre‘ means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include pre-school coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force. Only private coaching or training services are covered.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 55 Teaching in Government recognized institutes will not be a taxable service. Pre-school coaching has been specifically excluded from the definition. Commercial coaching for board, university or competitive examinations: Commercial coaching and training services provided by institutes that prepare applicants for Board examinations, University examinations and competitive examinations like entrance examinations of IIT, Civil services etc. are chargeable to service tax [However, it will not be taxable if service is provided by recognized colleges] Postal coaching taxable: Service provided by postal coaching are taxable, including postal charges collected for rendering postal tuition service Commercial training which forms essential part of course leading to recognized certificate/diploma exempt: Some institutes like CA/ICWA/ICSI issue recognized diplomas/degrees. They have provided that the students must undergo compulsory training in some subject (e.g. language or computer training). However, the training is provided by some commercial institutes recognized by the institute which gives recognized diploma. In such case, the service rendered by the commercial training centre or coaching centre will be exempt from service tax, if following conditions are satisfied - (a) The training or coaching should form essential part of the course or curriculum leading to issuance of recognized certificate, diploma, degree or other educational qualification (b) The student should make payment of fees to the institute or establishment issuing such certificate (e.g. ICAI, ICWAI or ICSI etc.) and not to the commercial coaching or training centre. Vocational training Institutes:
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 56 It means a commercial training or coaching centre which provides vocational training or coaching that impart skills to enable the trainee to seek employment or undertake self- employment, directly after such training or coaching. Recreational Training Institutes: It means a commercial training or coaching centre which provides training or coaching relating to recreational activities such as dance, singing, martial arts or hobbies, foreign language institutes, hobby classes, institutes teaching martial arts, painting, dancing etc. would not be chargeable to service tax. 3. Manpower Recruitment or Supply Agency’s services Tax on this service was introduced with effect from 7-7-1997. Any service provided or to be provided to a client, by manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner, is a ‗taxable service‘. ―Manpower recruitment or supply agency‖ means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to a client. Services of manpower recruitment were taxable from 7-7-1997. Services of manpower supply (usually termed as ‗labour contractor‘) have been made taxable w.e.f. 16-6-2005. The coverage includes services provided by an agency for following services – o preliminary stage of building a database of manpower for different categories of personnel employment, whether white collared or blue collar, whether for employment in India or overseas; o determining manpower requirement for the client, preliminary identification, short listing and screening of prospective candidates, providing specialists for interviewing prospective candidates, arranging for their interviews at every stage; o placing advertisements for recruitment of manpower in the print or electronic media. In short, it will cover entire gamut of services from incipient stage of selecting/identifying manpower requirement till stage of final selection.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 57 If the person approaches manpower recruitment agency for employment (as usually happens for employment in Gulf countries), the prospective candidate for employment becomes the client for purposes of service tax. 4. Transport of Goods by Road Service Any service provided or to be provided to a customer, by a goods transport agency, in relation to transport of goods by road in a goods carriage is a ‗taxable service‘. The basic scheme is that the goods transport agency (GTA) will be preparing the consignment note and invoice containing details as required. Service tax payable will also be shown on the invoice/bill/challan prepared by goods transport agency. However, payment of service tax will be made by the consignor or consignee who is actually paying the freight, if the consignor/consignee paying freight is a company, body corporate, cooperative society, registered society, factory, partnership or dealer registered under Central Excise. All sort of services of goods transport by road are not liable to service tax. There is no general service tax on all goods transport. The tax is only on services provided by Goods Transport Agency (GTA). Only GTA which issues a consignment note is liable to service tax. One essential requirement is that the GTA is one who issues a ‗consignment note‘. Finance Minister, in his speech, has also clarified that the service tax is on transport booking agents and not on truck owners or truck operators. There is no general service tax on all goods transport. Service tax is payable only when service is provided by ‗goods transport agency‘, as defined in the Act. A GTA can avail either of the 2 benefits given to him i.e. (a) He can enjoy abatement of 75% on value of service & pay tax on only 25% of the value of service (b) he can claim the benefit of Cenvat Credit on duties paid on inputs & capital goods. In both the cases mentioned above, he is not barred from taking credit for service tax paid by him on value of input services availed by him for the purpose of rendering the taxable service. There is no specific provision, but normally, a choice cannot be changed during a financial year. However, in the case of GTA, only a person who is out of his mind will avail Cenvat on inputs and capital goods and show full service tax in his invoice. Rest will not avail Cenvat on inputs and capital goods and will show 25% tax in their invoice. Person who is
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 58 showing full i.e. 10.2% service tax in his invoice will soon go out of business and hence any further question will not arise. Normally, service tax is payable @ 12% plus 2% education cess plus 1% secondary and higher education cess on service tax i.e. total 12.36%. However, there is partial exemption and as per exemption notification dated 3-12-2004, actually service tax is payable on 25% of gross amount charged from customer by goods transport agency. Thus, service tax payable will be 3% of gross amount charged plus 2% education cess plus 1% secondary and higher education cess i.e. total 3.09%. Tax @ 25% is payable only if (a) the credit of duty paid on inputs or capital goods used for providing the taxable service has not been taken under the provisions of the Cenvat Credit Rules, 2004; or (b) the goods transport agency has not availed the benefit [As per this exemption notification, if the service provider supplies certain goods while providing service, he is not required to pay service tax on the value of goods supplied]. It is apparent that these conditions for exemption are required to be fulfilled by goods transport agency and if he fulfills those conditions, the consignor/consignee paying service tax will also be eligible for this concession.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 59 CHAPTER V Central Excise applied to D-Link (India) Ltd. Introduction D-link (India) Ltd. has a separate company secretary department for the management of indirect taxes which is lead by the Company Secretary, Asst. Company Secretary, and is assisted by the commercial executive. Together these people are responsible for handling the entire system. The activities pertaining to Central Excise are carried on in an appropriate pattern by the concerned persons at D-Link (India) Ltd. The Commercial Executive is specifically responsible for the calculations, documentations, credit availment and payment of the excise duty liable to D-Link (India) Ltd. The ERP (Enterprise Resource Planning) system at D-Link (India) Ltd. helps maintain records of all the activities from the issue of PO (Purchase Order) to the GIN‘s (Goods Inward Note) prepared, from the job orders made to the sales invoice and from the excise duty payable to the CENVAT credit availed. All the details regarding the purchase, sales, inventory, finances and so on are been maintained in an ERP system in a systematic format as would be necessary to satisfy the requirements of the government. Record Maintenance and Procedure for Excise 1. Every person who produces or manufactures excisable goods is required to get registered, unless exempted. 2. Manufacturer is required to maintain Daily Stock Account (DSA) of goods manufactured, cleared and in stock. 3. Goods must be cleared under Invoice of assessee, duly authenticated by the owner or his authorized agent.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 60 4. Duty is payable on monthly basis through TR-6 challan / Cenvat credit by 5th of following month, except in March. SSI units have to pay duty on monthly basis by 15th of following month. 5. Cenvat records and return by 10th of following month. 6. Monthly return in form ER-1 should be filed by 10th of following month. SSI units have to file quarterly return in form ER-3 and EOU/STP units to file monthly return in form ER-2. 7. Assessees paying duty of rupees one crore or more per annum through PLA are required to submit Annual Financial Information Statement for each financial year by 30th November of succeeding year in prescribed form ER-4 8. Inform change in boundary of premises, address, name of authorized person, change in name of partners, directors or Managing Director in form A-1. Documentation S. No. Documents and Records Designation of Authorized Person Work Process 1 MRS (Material Requisition Slip) Specific Dept. HOD As and when there is requirement for material the concerned department places an MRS which consists all the details regarding the requirement. 2 PO (Purchase Order) Asst. Materials When details of the requirement are received in the form of an MRS, a PO is prepared and sent to the supplier. 3 BOE (Bill of Exchange) Exim Asst. After the packing list and invoice is received a BOE is prepared. 4 GIN (Goods Inward GIN Asst. After the input goods are unloaded the GIN is
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 61 Note) prepared. 5 QC (Quality Check) Quality Inspector After the GIN is prepared the goods are checked for quality assurance. 6 Entry Book Commercial Executive Entry book of duty credit on input goods is maintained 7 MRS (Material Requisition Slip) Production Manager Requirement of materials on the basis of the job order is sent to RM (Raw Material) stores. 8 Job Order Valuation HOD Production The Completed as well as the products in WIP (Work in Process) are valued. 9 Material In-Out report Asst. Stores As soon as the goods are produced they are transferred to the FG (Finished Goods) Stores. 10 Invoice Asst. Logistics After an order is received from the customers by the logistics department, an invoice is raised and sent to the FG stores. 11 Finished Goods In- Out report Asst. Stores When the goods are transferred from the FG stores to the logistics department the record is maintained in the In-Out register. 12 Transporter Docket and Gate Pass Asst. Logistics The finished goods are checked with the invoice and then the packing list is made, goods are packed and labeled and the transporter docket and gate pass is prepared. 13 Documents relating to Excise Commercial Executive The amount of Excise payable is calculated and debited from the Entry book of duty credit on input goods.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 62 Product cycle (Internal Modem) The following calculations help us get a clear picture about the chain a product goes through and the excise duty payable for the product. Table 1 provides information about the quantity of raw material purchased by D-Link (India) Ltd. to manufacture 25000 FGDFM-560IS-IN internal modems (wrt. suppliers), the rate at which they were purchased and the excise duty, cess, secondary and higher education cess and additional duty that was paid on the same. Table 1: Input Tax Calculations Particulars GIN. NO. Quantity (Units) Rate (Rs.) approx. Ass. Value Excise Duty Cess SHE Cess Add. Duty Raw Material (Imported) 471 1935250 1.165 2253900 360624 7212.48 3606.24 102493 Raw Material (Local) Supplier 1 354* 30100 0.615 18500 0 0 0 0 Supplier 2 367* 25000 0.98 24500 0 0 0 0 Supplier 3 439* 39000 0.401 15650 0 0 0 0 Supplier 4 461 10000 4.2 42000 6720 134.4 67.2 0 Supplier 5 492* 26205 0.755 19775 0 0 0 0 Supplier 6 526 5000 4.2 21000 3360 67.2 33.6 0 TOTAL 370704 7414.08 3707.04 102493 *Exempt from Tax (non-excisable goods) Total duty paid = 370704 + 7414.08 + 3707.04 + 102493 = 484318.12 Total duty paid per product = 484318.12 / 25000 = 19.3727248 ≈ 19
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 63 Table 2 contains details of an invoice prepared for an order of 300 Internal 56K Fax/Modem Card Ver. 1.2 which provides details regarding the excise duty payable on the 300 units and calculations made to ascertain excise duty payable per product. Table 2: Invoice Product Inv. No. Date Quantity Ass. Value Excise Duty Cess SHE Cess INTERNAL 56K FAX/MODEM CARD VER.1.2 FL000402 12/6/2007 300 59237 9477.9 189.558 94.7792 1 197.457 31.593 0.63186 0.31593 From the above calculation we see that one product will cost us Rs. 230/- and the tax payable per product is Rs.32/- Assessable Value 197.457 Excise Duty (16%) 31.593 Cess (2%) 0.63186 She Cess (1%) 0.31593 229.9975 ≈ 230 Table 3 provides details of sale of 300 units made to HCL Infosystems Ltd. Table 3: Product wise dispatch report Customer Inv. No. Order Dt. Bill Dt. Quantity Rate Value HCL INFOSYSTEMS LTD. FL000402 5/6/2007 12/6/2007 300 230 69000 (PONDICHERRY MFG. PLANT-3)
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 64 Table 4: Particulars Excise Output tax liability 32 Less: Excise paid 19 Tax paid through cash 13 Tax paid through Cenvat credit 19 The above table shows that the output tax liability is Rs.32 i.e. excise liability calculated on the finished product. The excise paid is the amount paid per product as tax on the materials purchased. As per the Central Excise Act we have a provision to avail Cenvat credit i.e. the amount already paid by us during our purchase of raw materials. Hence difference between these two amounts is the tax payable to the government in cash.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 65 CHAPTER VI Observation and Conclusion Observations 1. Efficient systems: The systems are updated continuously so as to keep pace with technological advancements and ever changing excise laws, rules and regulations; thus ensuring a smooth flow of operations. 2. Optimum manpower: At D-Link (India) Ltd. only three members handle the entire system of indirect taxation. A company secretary, an asst. company secretary and one accounts department personnel. The entire system of indirect taxation is handled by domain experts in an efficient manner. It was surprising to know that the transactions of a huge organization like this are managed in such a systematic manner. 3. Software and Hardware: The software and hardware supports are well in place. All the requirements in the organization are readily met. 4. Readiness for audit: All the documents that exist in the work process are maintained in a systematic manner by the workforce, which helps them to be prepared for any kind of audits. This structure of being systematic helps them work appropriately without causing much inconvenience. Also the time and effort required for retrieving and processing the data is reduced to a large extent. 5. Academic perspective necessary: In D-Link (India) Ltd. all the employees perform their job flawlessly but are ignorant of the activities carried on around them. For instance, Customs and Excise are related academically but the person handling Customs would not be aware of requirements of the Central Excise Act. Eventually taxes are going to be merged, the staff at D-link (India) Ltd. should be aware of all the processes so that they acquire a broader idea of the entire system which will in the near future help the organization to work competently.
    • A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT D-LINK (INDIA) LTD VERNA-GOA Babasabpatilfreepptmba.com Page 66 Conclusions 1. Comparison of 6 different cases has shown Excise duty to be effecting the price of a product in the following way: o If the output product is excisable then there is no effect on the price of the product irrespective of whether the input material is excisable or not. o If input product as well as output product is exempt from excise duty then the final product would be available to the ultimate consumer at the cheapest price. o If the output product is exempt but the input products are excisable the tax paid by the company in cash to the government gets added to the price which ultimately would make the product less competitive. 2. The CENVAT credit on capital purchases can be availed for input service tax paid. Hence an isolated study of Central Excise tax cannot give the complete picture of the tax liability calculation. However, logically maintained systems of records at D-Link (India) Ltd. go a long way in avoiding miscalculations.