Strategic Indirect Tax Management


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Indirect Tax for Decision Makers, at Strategic Level and Business Level

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Strategic Indirect Tax Management

  1. 1. Strategic Indirect Tax ManagementINDIRECT TAXES FOR DECISION MAKING By CA Abdur Rahman Musba May 2011
  2. 2. DisclaimerThis Presentation is only to provide various conceptualclarity of Indirect Tax Planning and Decision MakingAll the facts, case studies and information presented shouldbe crossed checked with the provisions of law, includingany notifications, exemptions, circulars, judgement,clarifications and amendmentsThe position stated herein may vastly differ from actualinterpretation by experts and vary from establishedindustry practicesThe Presenter shall have no liability for the accuracy ofinformation or the correct interpretation of law CA Abdur Rahman Musba
  3. 3. Factors Affecting Decision MakingTax - whether Creditable or NotNature of BusinessInputOutputSellerBuyerValue Addition & Value ChainLocationConcessions and Schemes CA Abdur Rahman Musba
  4. 4. Nature of TaxesCentral Excise Basic Excise Duty - Creditable Education Cess - CreditableCustom Duty Basic Custom Duty – Not Creditable Education Cess on Custom - Not Creditable Countervailing Duty (Excise Duty) - Creditable Education Cess on Countervailing Duty – Creditable Special Additional Duty – CreditableService Tax Service Tax – Creditable Education Cess – Creditable CA Abdur Rahman Musba
  5. 5. Nature of TaxesCentral Sale Tax – Not CreditableSale Tax – Not CreditableValue Added Tax –CreditableElectricity Duty – Not CreditableEntry Tax – Not CreditableState Excise – Not CreditableRoyalty (on mined products) – Not CreditableStamp Duty – Not CreditableVarious Other Cess and Taxes CA Abdur Rahman Musba
  6. 6. Nature of BusinessA Service Provider cannot avail credit of VAT andSpecial Additional Duty of CustomsA Non-Excise Registered Dealer cannot avail Creditof Service Tax and Central Excise.In case of lease of Tangible Goods, VAT is attracted ifcontrol is given to the lessee and Service Tax isattracted if control is not given to lessee.Accordingly, credit can be availed. CA Abdur Rahman Musba
  7. 7. Input and OutputRestriction on taking Credit on certain input No Input Credit under Central Excise for Petrol & DieselCertain Input not taxable No Excise Duty on VegetablesCertain Output is Exempted or Non Taxable CA Abdur Rahman Musba
  8. 8. Seller & BuyerSeller Exemption from Tax SSI under Central ExciseBuyer cannot avail credit Final Consumers cannot take credit, but can claim refund on wrong claims CA Abdur Rahman Musba
  9. 9. Value Addition & Value ChainIf Value Additions is low, it is better to avail fullcredit, as compared to concessional scheme, if optionexists For By-Cycle manufacturers, when excisable components are out-sourced, it is better to pay output Excise duty @ 5% after availing Cenvat Credit rather than pay 1% without availing Cenvat CreditEnsure that the entire value chain takes the benefitsof the Credit System In a value chain, if one of the supplier is Non-Excise Dealer/SSI unit claiming Excise Exemption; the input Excise Duty for that supplier would be a cost in the system CA Abdur Rahman Musba
  10. 10. LocationIf the supplier is outside the State, CST is a costIf the supplier is Foreign Country or SEZ unit,custom duty is CostIf the manufacturer is in Excise Exempted Area,input Central Excise is a cost and there is no outputExcise Duty CA Abdur Rahman Musba
  11. 11. Concessions & SchemesLesser Rate of CST for purchases against Form CConcessional Custom Duty under Project ImportsVarious Schemes under Foreign Trade Policy Advance licence, Export Promotion Capital Goods Scheme (EPCG) CA Abdur Rahman Musba
  12. 12. FormalitiesRegistration Under CST, exemption is available for goods mentioned in the registration certificateCredit/Exemption available only based on properDocumentations CA Abdur Rahman Musba
  13. 13. Detailed Discussions CA Abdur Rahman Musba
  14. 14. Structure of the PresentationService Tax ExemptionVAT/Sales Tax/CST High Seas SalesWorks Contract Tax (Service Tax and VAT)Central Excise Exemption under Central Excise Inputs and Capital Goods Reversal of Cenvat Credit Outsourcing Decision Formalities Case Studies CA Abdur Rahman Musba
  15. 15. Structure of the Presentation (Contd)Contracts – Capital Expenditure – Tax LiabilityCustom Duty Concession of Custom Duty Benefits under Foreign Trade PolicyFiscal benefits for Specific ProjectsTips for Better Compliance – Strategic Level CA Abdur Rahman Musba
  16. 16. Service Tax CA Abdur Rahman Musba
  17. 17. Service TaxService Tax and Education Cess is creditable.However, when abatement is availed; Credit is notavailableRestriction of Credit on Composite SchemeCredit interchangeable with Central Excise to someextent.Restriction of Credit on certain industries likeBanking CA Abdur Rahman Musba
  18. 18. Some Exemption under Service TaxStatutory ActivitiesFor Taxable Service Up to Rs. 10 lakhsServices to SEZ Developers and Units (Cenvat Creditneeds not be reversed)Exports of ServicesRefund of Service Tax for Exporter of Goods andExemption on Reverse Charge Basis (for GTA andForeign Commission agent)Services to UN and International Agencies, foreigndiplomatic missions CA Abdur Rahman Musba
  19. 19. Some Exemption under Service TaxService Provided in Jammu & KashmirService Provided to EOU not exempted. EOU canclaim rebate under Cenvat Credit RulesFor Construction of Roads, Airports, Railways,Transport Terminals Bridges, Tunnels, Dams;Service Tax is exempted CA Abdur Rahman Musba
  20. 20. Cenvat CreditCenvat Credit available on Inputs Inputs Service Capital GoodsMore Discussions under Central Excise CA Abdur Rahman Musba
  21. 21. FormalitiesRegistration of each office and premise on whichInvoices are raised by the Service ProviderRegistration of each office and premises, on whichinvoices are raised on the Service Recipient to claiminput credit/Service Tax exemptionCentral Registration possible CA Abdur Rahman Musba
  22. 22. Sales Tax/VAT CA Abdur Rahman Musba
  23. 23. Central Sales Tax/Value Added Tax/Sales TaxesCentral Sales Tax is not CreditableState Sales Tax not Creditable. Covers items likePetrol, Diesel and ATFValue Added Tax is CreditableVAT under Composition Scheme – Not Creditable CA Abdur Rahman Musba
  24. 24. Concession under CSTSale to a Registered DealerStock TransferSale to ExporterSale to SEZ Developer/UnitSale made in course of Inter-State Sales (E1/E2sales) CA Abdur Rahman Musba
  25. 25. Formalities under Sales TaxRegistration of Goods to be sold for Inter State SalesRegistration of each place of SalesRegistration of place for purchase under Inter StateSales CA Abdur Rahman Musba
  26. 26. Case StudyA Works Contractor is also a manufacturer of goodswhich is used in works contractThe manufacturing unit is one state and the workscontracts in another state.The Manufacturing Unit should be registered underCST for the sale of goods.The works contract site should be registered underCST for purchase of Construction MaterialGoods should be transferred under Form F (StockTransfer) CA Abdur Rahman Musba
  27. 27. High Seas SalesSale outside the territory is High Sea SalesWhen Celebrities sell precious stones like Diamonds,they take a flight across the Atlantic to avoid Sale TaxThese are “High Seas Sales”High Seas Sales are made to avoid CST/VAT, in case ofimported Goods.Sales should be executed after goods are left the foreigndestination and before arriving in IndiaBill of Lading is a negotiable Document.Airway Bill in not negotiable document. Delivery Challanshould be endorsed. CA Abdur Rahman Musba
  28. 28. Sales in Course of ImportsSales is made after the goods are imported (afterCustoms Formalities is completed before delivery istaken)Sales in Course of Import does not attract CST/VAT.“High Seas Sales” and “Sales in Course of Imports”option should be decided on case to case to basisUsually, when Custom Duty is wholly exempted, HighSeas Sales is better.In case of High Seas Sales, the assessable value forCustoms Duty is the price charged by importer to theassessee. CA Abdur Rahman Musba
  29. 29. Taxation of Works ContractWORKS CONTRACT ATTRACT BOTH VAT AND SERVICE TAX CA Abdur Rahman Musba
  30. 30. VAT on Works ContractTaxation under Vat – Eg Civil Works Particulars Regular Abatement Composition Amount on On Material On 70% (For On Full Value which VAT is Portion civil works) payable Rate at Which Full Rate Full Rate 4% the amount is Taxable Effective Rate Computed 9.8% 4% Input credit Available Available Not Available CA Abdur Rahman Musba
  31. 31. Service Tax on Works ContractParticulars Full Rate Abatement Composition Calculation (as Scheme per VAT law)Amount on Full Value On 33% of On Full Value On Servicewhich Service the Value PortionTax is payableRate at Which Full Rate Full Rate 4.12% Full Ratethe amount isTaxableEffective Rate 10.3% 3.399% 4.12% ComputedCredit on Input Available Not Not Available Not AvailableGoods AvailableCredit on Input Available Not Available AvailableService AvailableCredit on Available Not Available AvailableCapital Goods Available CA Abdur Rahman Musba
  32. 32. Central Excise CA Abdur Rahman Musba
  33. 33. Central ExciseNormally, Central Excise by nature is CreditableCredit available for Education CessCredit of Service Tax interchangeableCompound Levy Scheme – Credit not availableRestriction of Credit on certain industries like ShipBreaking CA Abdur Rahman Musba
  34. 34. Exemption under Central ExciseSome Exemption of Central Excise Power Project Water Infrastructure Project UN/ADB funded projects Project Under International Competitive Bidding Supply to Defence Supply to SEZ, EOU, Exports Supply against EPCG Authorisation Exemption for SSI units Exemption in Excise Free States Exemption of products under specific Notification CA Abdur Rahman Musba
  35. 35. Case Study – When Located in an Excise Free ZoneSome states like Himachal Pradesh are exemptedfrom Central Excise?Is it beneficial to set up a unit in Himachal Pradesh? CA Abdur Rahman Musba
  36. 36. AnalysisCheck whether the input are excisableCheck whether the buyer can claim CreditCheck the value additionCheck the place from which input should be procuredand the output shall be distributedExample: Food Processing IndustryThe vegetables and fruits does not attract Excise Dutyand the customers cannot avail credit of Excise DutyHence, it is beneficial to set up a food processing unit inExcise Free states CA Abdur Rahman Musba
  37. 37. Analysis of InputsAnalysis of “Input” under Cenvat Credit Rules isimportantSome of the items excluded from Input are Inputs used outside the Factory (except certain cases) Petrol, Diesel excluded from definition of inputs Inputs used for Civil Works Consumption of Employees CA Abdur Rahman Musba
  38. 38. Analysis of Input ServiceSimilarly, analysis of “Input Service” is criticalThe analysis of Input and Input Service should beseen from specific business point of view.Some of the Items exclude are Service on Civil Works Service Tax on Motor Vehicle (like Rent a cab, insurance on cars) For Consumption of Employees CA Abdur Rahman Musba
  39. 39. Analysis of Capital GoodsCenvat Credit on Capital Goods is available forspecified list of GoodsCenvat Credit/Exemption not available forconstruction of Civil Works (except for Civil Worksfor SEZ and Service Tax exemption for certainInfrastructures) CA Abdur Rahman Musba
  40. 40. Analysis of Capital Goods(Contd)While analysing use of Cenvat Credit of CapitalGoods, financial modelling should be used toascertained when the Cenvat Credit of Capital Goodscan be fully used.For captive intensive industries, interest cost shouldbe added for utilisation of Cenvat Credit of CapitalGoods, if the utilisation of credit is over a longer timevis-à-vis exemption scheme like EOU, SEZ etc (incase of direct comparison) CA Abdur Rahman Musba
  41. 41. Case Study on Cenvat Credit on Capital GoodsThumb Rule for factors considering how fast Cenvat Credit on Capital Goods can be used Huge Capital Investment Less Value Addition (in terms of Percentage) Excisable Input (in case the input is mine products like Crude Oil, Iron Ore, Cenvat credit cannot be availed) Rate of Excise Duty of output vis-à-vis the rate of Excise Duty of input.Detailed Computations can be done only using financial modelling CA Abdur Rahman Musba
  42. 42. Analysis of OutputWhether Output is chargeable to ExciseIn case of pure power plant, Electricity is notChargeable to Excise Duty. Therefore, tax on inputbecomes a cost. However, if the power plant is set upas part of existing industrial plant, tax on input canbe taken as credit. CA Abdur Rahman Musba
  43. 43. Cenvat Credit ReversalWhen manufacturer/service provider ismanufacturing/ providing both taxable and nontaxable service/goods, Cenvat Credit have to bereversed.In case, the person opts to pay an specified“amount”, Cenvat credit need not be reversedFor supplies to SEZ, EOU, Exports, Projects underCompetitive Bidding, Some Power Projects, CenvatCredit need not be reversed. CA Abdur Rahman Musba
  44. 44. Case Study on ReversalPipes are required for Water Project, partly withinSEZ and partly outside SEZ.There is Excise Duty exemption for within SEZ andcenvat credit needs not be reversedFor water projects (from Source), pipes are exemptedfrom Excise Duty. However, Cenvat Credit have to bereversed.How to analysis the impact of Central Excise? CA Abdur Rahman Musba
  45. 45. Case Study on ReversalVarious types of pipes can be procured. Therefore,first check the raw material for the pipemanufacturerFor Ductile Iron Pipes, the main inputs are Iron Oreand Coal. Both the items are not excisable. (Coal hasnow Energy Cess)The Price should not vary much due to Cenvat CreditavailabilityHowever, for other pipes, where input are taxableproducts, the manufacturer would charge 5% more;if detailed calculation or reversal is not made. CA Abdur Rahman Musba
  46. 46. Case Study (when Final Product is exempted)For Ship Building (and Aircraft Building), CentralExcise is exempted.Even Custom Duty is exempted for imports of shipsTherefore, should any tax planning be made in thiscase? CA Abdur Rahman Musba
  47. 47. Case Study (when Final Product is exempted) [Contd]Shipping Building unit purchase components afterpaying Central Excise/Custom Duty.If the Shipyard is located in an EOU (ExportOriented Unit), Central Excise is exempted onpurchase of components.Similarly, Custom Duty is exempted for import ofcomponents.On Sale in domestic market, there would not beExcise Duty.Net Foreign Exchange earning should be satisfied. CA Abdur Rahman Musba
  48. 48. Outsourcing Decision and Taxes CA Abdur Rahman Musba
  49. 49. Outsourcing Decision and TaxesAnalysis the Value Chain and the Taxability of eachpoint of value additionIf the Value Chain does not have taxes, theoutsourced vendor should not have any input Tax ascost nor charge any Output Tax which credit cannotbe takenIf the Value Chain has Taxes, the outsourced vendorshould able to at least avail and pass on thecreditable tax and further not add Tax cost. CA Abdur Rahman Musba
  50. 50. Case Study on OutsourcingFor Input used outside the Factory, Cenvat Creditcannot be availedFor Example, Cenvat Credit cannot be taken onExcise Duty paid on Explosive used by CementFactory for blasting Limestone.Cenvat Credit cannot be taken for the tipper anddumper used for carrying limestone from the site tofactory (for such vehicles owned by the Factory orGoods Transport Agency)How to avail Cenvat Credit on these inputs andCapital Goods? CA Abdur Rahman Musba
  51. 51. Case Study on Outsourcing (Contd)The activities of the Limestone Mining can beoutsourced to Service Provider of Mining of MineralExcise Duty on explosive can be availed as input, andcredit can be availedTippers and Dumpers can be treated as CapitalGoods for Mining activities CA Abdur Rahman Musba
  52. 52. Other Points to ConsiderLevel of Control on the Third Party Service ProviderMaturity of the Service Provider and competitivenessin the Industry Quality of Service Level ConfidentialityAdministrative Cost and Management time to set upown Service ProviderEffect on future changes in law CA Abdur Rahman Musba
  53. 53. Formalities CA Abdur Rahman Musba
  54. 54. FormalitiesTo avail Credit/Refund/Exemption proper formalitieshave to be compliedRegistration is one of the important Formalities. TheRegistration show the ground plan.Only area shown in Ground Plan, Cenvat Credit can beavailed. (Any Capital Goods installed outside the GroundPlan, Cenvat Credit cannot be availed).Land owned by the unit or lease by the unit can be shownin Ground Plan.In case of Project, where Contractor has leased out land,the lessee right should be assigned to the Unit. CA Abdur Rahman Musba
  55. 55. Formalities (Contd)Any additional land taken for the purpose of unit, andany manufacturing activities or storage is done in suchland, the Ground Plan should be amended.Even if storage is made in additional area (not mentionedin Ground Plan) it may be construed as “removal”.Cenvat Credit can be taken for a particular Unit. If thefactory is at different location, Cenvat Credit for eachfactory should be taken.In case, there are two units at the same location, CenvatCredit should be taken for each unit separately. CA Abdur Rahman Musba
  56. 56. Case Study (Installation outside Ground Plan)An Factory has to set up a Transformer for its factoryThe Transformer is being set up outside the factoryon Government Land.How can Cenvat Credit be availed on installation ofthe Transformer? CA Abdur Rahman Musba
  57. 57. Case Study (Installation outside Ground Plan)The Cenvat Credit of Central Excise cannot beavailed directlyA contractor has to be appointed for Supply andInstallation of Transformer (Composite Contract)The Contractor has to Purchase the Transformerfrom the Manufacturer/Excise Dealer and takeCenvat Credit on Central ExciseAfter Installation, the Contractor has to ChargeService Tax on the Whole Value of Works at FullRate.Cenvat Credit can be taken on Service Tax. CA Abdur Rahman Musba
  58. 58. Contracts – Capital Goods – Tax Liability CA Abdur Rahman Musba
  59. 59. Formalities - ContractsCapital Goods can be purchase through three ways Supply Contract Works Contract Supply & Erection Contract CA Abdur Rahman Musba
  60. 60. Supply ContractsCenvat Credit Under Central Excise can be takeneasily as the Invoice is in the name of BuyerFor Inter-State Sales, C Form can be issued tominimise Sale Tax.For Regular Purchases, the option for seller to open adepot in the State should be analysed, if input of VATcan be availed CA Abdur Rahman Musba
  61. 61. Supply and Erection ContractsFor Supply and Erection Contracts, (DivisibleContracts), the Purchase Order and Work Ordershould be issuedWhere the supplier is supplying goods from ThirdParty Manufacturer/Excise Dealer, the Invoice of thethird party manufacturer should mention that theGoods are on Account of the Ultimate Buyer.(Contractor should not take Cenvat Credit). CA Abdur Rahman Musba
  62. 62. Supply and Erection Contracts (Contd)The Consignee in the Lorry Receipt (LR) should be inthe name of the contractor. The LR should beendorse in favour of Buyer before delivery of goods.The Contractor should not receive the Goods atDestination (especially in case of Sale in the courseof Inter State sale).Invoice should be raise on the date of endorsementof LR.C Form and E1, E2 Forms should be exchanged. CA Abdur Rahman Musba
  63. 63. Case StudyIn such Contracts, the Supplier Contractor isresponsible till Erection is over and handed over.The Contractor has to take insurance till handingover.If the Buyer accepts the goods delivered, what is theLiability of the Contractor after delivery? (Who isresponsible for Security and Insurance?) CA Abdur Rahman Musba
  64. 64. Case StudyWhen the Goods are received at site, the goodsshould be handed over to the Contractor, under acontract of Bailment, in pursuant of the MainAgreement, through a Delivery Challan. CA Abdur Rahman Musba
  65. 65. Works ContractsFor Works Contract, the Contractor can take CenvatCredit. The Contractor has to charge normal ServiceTax on Full Value.However, in case of civil works, Cenvat Credit cannotbe availed. In Case of SEZ, Exemption of CentralExcise and Service Tax can be obtained even for CivilWorks.Whether Works Contract can be split in Supply &Erection Contract should be analysed.Example: In Electrical Works and Goods can bepurchased Inter-State and Form C can be issued CA Abdur Rahman Musba
  66. 66. Custom Duty CA Abdur Rahman Musba
  67. 67. Computation of Custom DutyS Particulars Working Legend AmountNo1 Assessable Value (CIF + 1% of A 1000 CIF)2 Basic Custom Duty (BCD) 10% of A B 1003 CVD 10% of A+B C 1104 Education Cess on CVD 3% on C D 3.35 Education Cess on BCD 3% on A+B+C E 6.406 Special Additional Duty 4% on F 48.79 A+B+C+D7 Total 1268.49 Effective Duty 26.85% CA Abdur Rahman Musba
  68. 68. Credit for Custom DutyA manufacturer can claim Cenvat Credit on CVD,Education Cess on CVD and SADA Service Provider can claim Cenvat Credit on CVDand Education Cess on CVD, and not on SAD.A Trader can claim Refund of SAD, if the trader sellsthe Goods charging VAT/Sales Tax.In a supply and erection contract (Divisible), theContractor can claim refund of SAD, and the Unitcan claim input Credit of CVD, Education Cess onCVD and VAT. CA Abdur Rahman Musba
  69. 69. Concession under Custom Duty – Capital GoodsProject Imports – Concessional Rate of Custom Duty at5% or 0% for new Industrial & Infrastructural projects orsubstantially expansion of old projects. No ConditionattachedExport Promotion Capital Goods Scheme under theForeign Trade Policy: Concessional Rate of 3% or 0%Custom Duty.Export Oriented Unit: Custom Duty Exemption (forCapital Goods and Input).Special Economic Zone: Custom Duty ExemptedRoad Project: Machinery for Construction Exempted CA Abdur Rahman Musba
  70. 70. Concession under Custom Duty – InputAdvance License SchemeDuty Free Import AuthorisationPreferential Rate of Duty CA Abdur Rahman Musba
  71. 71. Case Duty - Delay Payment of Custom DutyWhen Huge Amount of Raw Material is imported (tobe used over a period of time), to avail Economy ofScale during Purchase.The Manufacturer does not have the cash to pay theCustom Duty or wants to avoid interest of funds usedto pay Custom Duty.What can be done? CA Abdur Rahman Musba
  72. 72. Delay Payment (Contd)The Goods can be stored in a Custom BondedArea/Warehouse.At the time of removal from Warehouse, CustomDuty can be Paid CA Abdur Rahman Musba
  73. 73. Case Study – Avoid DemurrageA Capital Goods in imported which is eligible forconcessional duty under Project Imports or ExportPromotion Capital Goods Scheme.However, the necessary formalities are notcompletedIf the Capital Goods are kept at the Port, hugedemurrages to be paid.How to Avoid the Demurrages? CA Abdur Rahman Musba
  74. 74. Avoid DemurrageThe Goods should be transfer to Custom BondedArea and Project Can be registered in the CustomBonded Area and clear the goods at a concessionalrate of Duty. CA Abdur Rahman Musba
  75. 75. Benefits under Foreign Trade PolicyPre-Shipment Advance License Duty Free Import AuthorisationPost Shipment Duty Drawback Duty Entitlement Passbook SchemeMarket Focus SchemeProduct Focus SchemeServed from India Scheme CA Abdur Rahman Musba
  76. 76. Foreign Trade PolicyProjects Export Promotion Capital Goods Scheme Manufacturers of Products Hotels, Retailers, Project Imports Export Oriented Unit Scheme Special Economic ZonesDeemed Exports Refinery Power Projects EOU, SEZ CA Abdur Rahman Musba
  77. 77. Barriers to Foreign TradeTariff Barriers High Rate of Import Duty Export Duty Free Trade Agreement/PactsNon Tariff Barriers Phytosanitary Conditions Intellectual Property Rights Transfer of Technology CA Abdur Rahman Musba
  78. 78. Fiscal Benefits for Specific Projects CA Abdur Rahman Musba
  79. 79. Benefits for New ProjectsConcessional Custom Duty under Project ImportsDeferred Payment of VAT on SalesExemption of Stamp Duty on Lease, LoanExemption of Electricity Duty, Entry TaxSubsidy, Grant from GovernmentConcessional Interest from Financial Institution CA Abdur Rahman Musba
  80. 80. Income Tax Benefit for New ProjectsExemption for Income Tax under 10AA, 35AD, 80 IA,IAB, IB for various Industrial, Infrastructure Projects.Power, Road, Water Infrastructure, SEZ, Cold Storage,Industrial Project in Backward area, are some of theexempted ProjectMAT is applicable on all Projects, but Creditable innature. (Cash flow Issue: IRR, NPV, DSCR)The exemption of Tax may not be available due to initialhigher depreciation, initial cash lossesHowever, actual exemption available should bedetermined by Financial Modelling. CA Abdur Rahman Musba
  81. 81. Power ProjectsExemption from Excise and Custom Duty for MegaPower ProjectsExport Benefits Available for supplies to Mega PowerProjectsCenvat Credit need not be reversed for suppliers to MegaPower ProjectIncome Tax exemption is availableFor other Independent Power Project; Excise, Custom isa costCenvat Credit can be available for Captive Power Plants,even if set up outside the Factory. CA Abdur Rahman Musba
  82. 82. Export Promotion Capital Goods SchemeCapital Goods used for Earning ForexCan be used by Hotel, Retailer, Project Imports and otherService ProvidersImport of Goods under Concessional Custom Duty/NilCustom DutyCan also avail Indigenous Goods without Payment ofExcise DutyDomestic Supplier can avail Export Benefit like DutyDrawbackSupply for Deemed Exports is counted for ExportObligations Fulfilment CA Abdur Rahman Musba
  83. 83. 100% Export Oriented UnitExemption under Excise Under CT – 3, ARE 3Procedure.Supplier of Goods need not reverse Cenvat CreditSupply to EOUs eligible for Export Benefits asdeemed exports.Exemption of Custom DutyService Tax can be availed as Credit and refund canbe obtained.CST is eligible for RefundRate of Excise Duty is equivalent to Custom Duty CA Abdur Rahman Musba
  84. 84. Computation of Duty for EOU SaleS Particulars Working Legend AmountNo1 Assessable Value A 10002 Basic Custom Duty (BCD) 10% of A B 1003 CVD 10% of A+B C 1104 Education Cess on CVD 3% on C D 3.35 Education Cess on BCD 3% on A+B+C E 6.406 Total Excise Duty B+C+D+E F 219.7 Education Cess on Excise Duty 3% on F G 6.597 Total 1226.29 + VAT/CST CA Abdur Rahman Musba
  85. 85. Special Economic ZoneExemption of Excise Duty, CST, Custom Duty, ServiceTax, R&D Cess for Authorised OperationsCenvat Credit on Goods or Service need not be reversedby the supplier/Service ProvidersExport Benefits can be availed. However, for units someexport benefits is subject to payment made in ForexExemption of taxes for Civil WorksExemption of taxes for Construction Equipment of theContractorsIncome Tax benefit under Section 80IAB, 10AA CA Abdur Rahman Musba
  86. 86. Special Economic Zone (Contd)VAT is exempted by way of refundExemption of Entry Tax (except certain PetroleumGoods)Exemption of Stamp Duty (100% for Developer/Co-Developer and 50% for units)Exemption of Electricity DutyCustom Duty is payable when Sale made to DTA. (If theproduct is generally not being imported and CustomDuty is not exempted, the Seller have to bear the impactof Custom Duty component)Net Foreign Exchange Earning should be positive CA Abdur Rahman Musba
  87. 87. Case Study on SEZAnalysis of Input and Output Taxes is very critical fordetermination whether unit should be located in SEZFor IT/Electronic hardware, the main products outputare exempted from Custom Duty. However, the ITcomponents (inputs) attract Custom DutySale of IT related goods in DTA is covered under the NetForeign Exchange EarningHence, it is beneficial to set up a unit in SEZ than DTA,as SEZ unit can procure inputs without Custom Duty andsell without paying Excise Duty or Custom Duty CA Abdur Rahman Musba
  88. 88. Devil Lies in the Details CA Abdur Rahman Musba
  89. 89. Tips to ensure ComplianceScrutinise the Registration Certificates from time totimeKeep Proper Documents, even if there is no taxpayable. How do you convince the Government Official that your turnover has not exceed the taxable turnover?Maintain proper RegistersHave effective internal controlFollow Proper System Remember the Security tracks the movements of goods CA Abdur Rahman Musba
  90. 90. Tips to ensure Compliance (Contd)Check the official rules relating to documentations bothfor documents in which exemption/Credit is obtain aswell as documents which is issued by the organisationMaintain Proper Record of Suppliers and PurchasersHave adequate personnel for compliance or outsourcethe jobGive regular training to the personnelConduct regular audits to minimise contravention of lawStructure the wording of the Contract, Invoice, Letters CA Abdur Rahman Musba
  91. 91. Any Questions CA Abdur Rahman Musba