Indirect Taxes In India - RSM India publication (2012)

Astute Consulting
Indirect Taxes In India
- A Brief Insight

RSM Astute Consulting Group
Indian Member of RSM International
Personnel strength of about 900
Consistently ranked amongst India’s top 6 Accounting and Consulting groups
(Source : International Accounting Bulletin - September 2010 and September 2011)
Nationwide presence
International delivery capabilities
RSM International
6th largest network of independent
accounting and consulting firms in the world
Annual combined fee income of US$ 3.9 billion
714 offices across 83 countries
www.astuteconsulting.com

A Brief Insight
|INDIRECT TAXES IN INDIAAstute Consulting

Contents
Chapter 1 : Indirect Taxes In India – An Overview 1
Chapter 2 : Central Excise Act 3
Chapter 3 : The Customs Act 19
Chapter 4 : Service Tax 37
Chapter 5 : Maharashtra Value Added Tax 59
Chapter 6 : Central Sales Tax 73
A Brief Insight

Indirect Taxes in India – A Landscape
1
€
€
€
€
€
IndirectTaxesinIndia–ALandscape
ForeignVendor
COUNTRYBORDER
IMPORTS
BCD
CVD
ADC
JOBWORKEXCISE
DUTY
LOCALPURCHASE
VAT
EXCISEDUTY
Local
Vendor
STATEBORDER
INTERSTATE
PURCHASE
CST
Vendor
Factory
EXPORTS
NoTax
SERVICETAX
SERVICETAX
Branch1
CLEARANCE
EXCISEDUTY
Dealer
SALE
VAT
Customer
LOCALSALE
VAT
Service
Provider
STATEBORDER
COUNTRYBORDER
ForeignPurchaser
Branch2
Dealer
Customer
LOCALSALE
VAT
STOCK
TRANSFER
NOTAX
INTERSTATESALE
CST
LOCALSALE
VAT
EXCISEDUTY
| INDIRECT TAXES IN INDIA Astute Consulting

Quick Facts: Fiscal Year 2010-11
Fiscal Year
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Rs.inThousandCrores
Indirect Taxes
50
100
150
200
250
300
350
199
242
279 269 269
315
Direct Taxes 5.4%
Indirect Taxes 4.0%
Taxes of Union Territories / Other taxes 0.1%
Indirect Taxes Collection: 2005-06 to 2010-11
Gross Domestic Product and Tax Revenues Rs. in Crores US $ Billion
(Fiscal Year 2010-11)
Gross Domestic Product (GDP) 78,77,947 1,764
Gross Tax Revenue 7,46,651 167
Direct Taxes 4,22,500 95
Indirect Taxes 3,15,000 71
Taxes of Union Territories / Other taxes 9,151 2
Tax Revenues as a percentage of Gross Tax Revenue
Direct Taxes
Indirect Taxes
Taxes of Union
Territories / Other taxes
42%
1%
57%
Tax Revenue as a percentage of GDP
Source: www.indiabudget.nic.in

Chapter 1
- An Overview

1.1 Introduction
1.2 Meaning
1.3 LevyOfIndirectTaxes
The size of Indian economy is US $ 1.75 trillion in terms of Gross Domestic Product
(GDP) and is growing at the real rate of 8%. The indirect taxes are one of the major
sources of revenue with a Compound Annual Growth Rate (CAGR) of 16% and
constitutesignificantlytotheGDPofIndia.
ThecurrentstructureofIndirectTaxesinIndiaiscomplexwithtaxesleviedbyboth
the Central Government and the State Governments. The major taxes levied by
CentralGovernmentareExciseDuty,ImportDuty,ServiceTaxandCentralSalesTax
(CST) while taxes levied by the State Governments are Value Added Tax (VAT),
LuxuryTax,StateExciseandotherlevies.
In this publication, we have tried to capture the snapshot of all the major indirect
taxes applicable in India. Our aim is to create awareness among readers towards
applicability of indirect taxes, indirect tax laws and various exemptions available.
We have also brought out on the need for external review of indirect taxes in the
organization.
Indirect taxes are the taxes which are levied on a product or a service, the
incidenceofwhichisbornebythepersonwhoultimatelyconsumessuchproduct/
service.Thesellerofgoodsorthesupplierofservicescollectsthetaxbyincluding
the same in the selling price. Since indirect taxes get absorbed in the price of
goods / services, the ultimate cost is borne by the final consumer, though the
immediateliabilityfallsontheseller.
Power to levy and collect taxes - direct as well as indirect, emerges from the
Constitution of India. Article 246 of the Constitution of India gives authority to the
Union and the States to levy taxes. Seventh Schedule to the Constitution of India
contains lists which set out matters under which the State and the Union have
authoritytomakelaws.
Chapter 1: Indirect Taxes In India
– An Overview
2|INDIRECT TAXES IN INDIAAstute Consulting

2.1 Background
Central Excise duty is an indirect tax, which is levied on excisable goods produced
or manufactured in India. The power to levy Excise duty flows from Entry 84 of the
UnionListoftheConstitutionofIndia.
Central Excise or Central Value Added Tax (CENVAT) is essentially a charge on
manufacture of excisable goods. Power to impose excise on alcoholic liquors,
opiumandnarcoticsisgrantedtoStatesanditiscalled‘StateExcise.’
Central Excise Duty is imposed and levied through the various provisions
containedintheCentralExciseAct,1944andotherrelatedrulesandregulations.It
is administered by the Department of Revenue under the Ministry of Finance
throughtheCentralBoardofExciseandCustoms(‘CBEC’).
Some of the significant regulations which govern the Central Excise Levy are as
under:
} CentralExciseAct,1944.
} TheCentral ExciseTariffAct,1985andrelatedschedules
} CentralExciseRules,2002
} CenvatCreditRules,2004
} Central Excise Valuation (Determination of Price of Excisable Goods) Rules,
2000
} Central Excise (Removal of Goods at Concessional Rate of Duty for
ManufactureofExcisableGoods)Rules,2001
} CentralExcise(DeterminationofRetailSalePriceofExcisableGoods)Rules,
2008
} Other Rulessuch as Central Excise (Compounding of Offences) Rules, 2005,
CentralExcise(Appeal)Rules,2001,etc.
Chapter 2: Central Excise Act

5 | INDIRECT TAXES IN INDIA Astute Consulting
}
Central Excise is a duty on manufacture of excisable goods specified in the First
Schedule and Second Schedule to the Central Excise Tariff Act, 1985 (CETA) which
areproducedormanufacturedinIndia.
Central ExciseDuty canbe levied if the article is ‘goods’, it has come into existence
asaresultof‘manufacture’andsucharticleismanufacturedorproducedinIndia.
Duty is levied as a certain percentage of the assessable value of the goods. The
classification of goods and the rates of duty are specified in the First and Second
Schedule to the CETA. First Schedule specifies the ‘Basic Rate’ of excise duty while
the Second Schedule specifies the ‘Special Rate’ of excise duty. The classification
of goods is based on ‘Harmonised System of Nomenclature’ (HSN) adopted by 130
countriesworldwideforthepurposeofinternationaltrade.Thevaluationofgoods
isdealtwithintheforthcomingparagraphs.
As per the law ‘manufacture’ is inclusive of any process that is incidental or
ancillary to the completion of the manufactured product or is an activity
mentioned in the Section or Chapter notes of the First Schedule to the Central
Excise Tariff Act, 1985 or are goods specified in the Third Schedule involving such
activityasmentionedtherein.
Excise law does not define goods as such. However, the law laid down by the
Honourable Supreme Court in Delhi Cloth and General Mills Co. Ltd. Vs. U.O.I [(1977
(1) .L.T.(J. 199) (S.C.) (Constitutional Bench)], proves beyond doubt that in order to
qualify as ‘goods’ an article must be known to the market as such. Though actual
sale is not necessary, the product should be capable of being brought to the
marketforthepurposeofsale.
According to explanation to section 2(d) inserted by Finance Act of 2008, ‘goods’
includes any article, material or substance which is capable of being bought and
soldforaconsiderationandsuchgoodsshallbedeemedtobemarketable.
Notificationsissuedfromtotimetotime.
2.2 LevyOfDuty
2.3 Manufacture
2.4 Goods

2.5 Valuation
2.6 CENVATCreditScheme
The duty liability is determined as a certain percentage of the ‘value’ of the goods,
andhencevaluationofexcisablegoodsassumesutmostimportance.Themodesof
valuationofexcisablegoodsare:
2.5.1 Specific duty: In case of certain excisable goods, excise duty is payable on the
basis of certain unit like length, weight, volume, etc. (e.g. in case of cigarettes, it is
payableonthebasisoflength.)
2.5.2 Tariff value: The Central Government has declared tariff values in respect of
certain goods. The tariff value is a notional value and the duty of excise is
calculatedasaspecifiedpercentageofsuchnotionalvalue.
2.5.3 MRP value: The Government has notified certain goods on which excise duty is
payableasapercentageoftheMaximumRetailPrice(MRP)ofthegoods.
2.5.4 Transaction value: In respect of goods not covered above, the ‘transaction value’
isconsideredastheassessablevaluewhichisthevalueatwhichgoodsaresoldby
an assesseefor delivery at the time and place of removal, where the assesseeand
thebuyerarenotrelatedandpriceisthesoleconsideration.
Adoption of transaction value ensures that the sale is at arm’s length price, i.e. a
pricechargedbyaknowledgeableandwillingsellertoaknowledgeableandwilling
purchaseratanunbiasedvalue.
2.5.5 Reference to Central Excise Valuation Rules, 2000: In case any of the above
conditionsrelatingtotransactionvaluearenotfulfilled,thevaluationofthegoods
is done by referring to Central Excise Valuation Rules (Valuation Rules.) Valuation
rules provide for the adjustment to the actual sale price, so as to bring it in line or
nearesttothe‘transactionvalue.’
2.6.1 CENVAT credit is a scheme, whereby the duty paid on inputsusedin manufacturing
the final goods is available for set-off from the duty payable on clearance of final
goods. This eliminates the cascading effect of the duty levied on the final product.
In effect, only the net value addition is taxed at each subsequent stage of
manufacture.

CENVAT credit scheme (earlier known as Modvat credit) was introduced in 2004.
Today, CENVAT credit is available across goods and services, i.e. credit of excise
dutyandservicetaxpaidoninputs,capitalgoodsandinputservices,isavailableto
besetoffagainsttheexciseduty/servicetaxonoutputandoutputservices.
The terms ‘capital goods’, ‘inputs’ and ‘input services’ are defined extensively
undertherules.
Broadly, the capital goods include machineries, mechanical appliances, boilers,
nuclear reactors and equipments of various types like optical / photographic /
cinematographic/medicalandsurgicalinstrumentsandpartsthereof.
Inputs are the goods used directly or indirectly in the factory of the manufacturer
of final products. It also includes accessories which are cleared with the final
product.
Input service means a service used by a provider of taxable service for providing
anoutputservice;orusedbythemanufacturer,whetherdirectlyorindirectly,inor
in relation to the manufacture of final products. It also includes services that are
used in relation to modernization, renovation or repairs of a factory premises of a
person providing service or an office relating to such factory or premises,
advertisement or sales promotion, market research, storage upto the place of
removal, procurement of inputs, activities relating to business - such as
accounting, auditing, financing, recruitment and quality control, coaching and
training, computer networking, credit rating, share registry and security,
transportation of inputsor capital goods and transportation chargesincurred for
transportinggoodsaftermanufacture.
2.6.2 AvailmentofCENVATcredit:
Manufacturer of final goods or a provider of taxable services is eligible to avail
CENVATcreditof
} any input or capital goods received in the factory of manufacturer of final
productorinthepremisesoftheproviderofoutputserviceand
} any input service received by the manufacturer of final product or by the
providerofoutputservice.

2.6.3 ConditionsforavailingCENVATcredit
} For Inputs: The CENVAT Credit in respect of inputs can be taken
immediately on receipt of the inputs in the factory of the manufacturer or
inthepremisesoftheproviderofoutputservice.
} ForInputServices:
l CENVAT Credit in respect of input service shall be allowed, on or
afterthedayonwhichtheinvoice,billorchallan,isreceived.
l Incasethepaymentofthevalueofinputserviceandtheservicetax
is not made within 3 months of the date of the invoice, the
manufacturer or the service provider who has taken credit on such
input service shall pay an amount equal to the CENVAT credit
availed on such input service. Thereafter, upon payment, the
manufacturer or output service provider shall be entitled to take
thecreditoftheamountequivalenttotheCENVATcreditpaid.
l If any payment or part thereof, made towards an input service is
refunded or a credit note is received by the manufacturer or the
serviceproviderwhohastakencreditofsuchinputservice,heshall
pay an amount equal to the CENVAT credit availed in respect of the
amountsorefundedorcredited.
l Further, in case of an input service where the service tax is paid on
reverse charge by the recipient of the service, the CENVAT credit in
respectofsuchinputserviceshallbeallowedonorafterthedayon
whichpaymentismadeofthevalueofinputserviceandtheservice
taxpaidorpayableasindicatedininvoice.
} ForCapitalGoods
l Capital goods removed / cleared from the factory in the same
financial year: 100% of CENVAT credit can be availed in the same
financialyear.
l Capitalgoodsretainedformorethanonefinancialyear:
– Maximum 50% of the CENVAT credit can be availed in the

financialyearofreceiptofcapitalgoodsinthefactory ofthe
manufacturerand
– Balanceinsubsequentfinancialyears
l CENVAT Credit of the additional duty leviable under sub-section (5)
of section 3 of the Customs Tariff Act, in respect of capital goods
shall be allowed immediately on receipt of the capital goods in the
factoryofthemanufacturer.
l CENVAT Credit is not allowed on the amount of duty on capital
goods, on which the manufacturer or provider of output service
claimsdepreciationundersection32oftheIncome–taxAct,1961.
l CENVAT credit is available on capital goods acquired by
manufacturer or service provider on lease, hire purchase or loan
agreement,fromafinancingcompany.
l CENVATCreditisallowedinrespectofjigs,fixtures,mouldsanddies
sent by a manufacturer of final products to another manufacturer
for the production of goods or to a job worker for the production of
goodsonhisbehalfaccordingtohisspecifications.
2.6.4 UtilizationofCENVATCredit:
CENVAT Credit may generally be utilized for payment of certain specified duties /
taxeswhichcanbebroadlyclassifiedintotwocategories:
} Anydutyofexciseonanyfinalproduct.
} ServiceTaxonanyoutputservice.
CENVATcreditcanutilizedonlytotheextentsuchcreditisavailableonthelastday
ofthemonth/quarter,forpaymentofdutyortaxrelatingtothatmonth/quarter.
CENVAT credit cannot be generally utilized for payment of any duty of excise on
goodsinrespectofwhichthebenefitofanexemptionisavailed.
2.6.5 TypesofdutiesonwhichCENVATCreditisallowable
CENVAT Credit is allowed in respect of certain specified duties / taxes. Some of the

significantspecifieddutiesinclude:
} ThedutyofexcisespecifiedintheFirstandSecondScheduletotheCETA.
} ServiceTaxleviableunderServiceTaxRegulations.
} Education Cess and Secondary and Higher Education Cess on excisable
goodsandtaxableservices.
} The additional duty leviable under Customs Law, which is equivalent to the
dutyofexciseasspecified(commonlyknownasCountervailingDuty).
} The additional duty leviable under Customs Law (commonly known as
Special Additional Duty) which is in relation to VAT/ sales tax. It may be
noted that the provider of taxable service is not eligible to avail Credit of
suchadditionalduty.
2.6.6 CENVAT Credit can be availed on certain specified documents (subject to
conditions)includingthefollowing
} An invoice issued by the manufacturer for clearance of inputs or capital
goods.
} An Invoice issued by an Importer, from his depot or from the premises of
the consignment agent of the said importer if the said depot or the
premises, as the case may be, is registered in terms of the provisions of
CentralExciseRules,2002.
} An Invoice issued by a first stage dealer or a second stage dealer under
CentralExciseLaw.
} Abillofentry.
} Achallanevidencingpaymentofservicetax.
} Aninvoice,abillorchallanissuedbyaproviderofinputservice.
} An invoice, bill or challan issued by an input service distributor under the
provisionsofServiceTaxLaw.
2.6.7 Rules where a manufacturer/ provider of output service avails CENVAT Credit in

respect of any inputs / input services and manufactures final products / provides
such output services which are chargeable to duty or tax as well as exempted
goodsorservices.
The CENVAT Credit Rules provide for various options for claiming Cenvat Credit in
case the manufacturer / provider of taxable output services manufactures final
products / provides such output services which are chargeable to duty or tax as
wellasexemptedgoodsorservices.
} Option 1: Maintain separate inventory and accounts for receipt and use of
inputs and input services which are used for exempted goods / exempted
services.
} Option 2: Pay an amount equal to 5% of value of exempted goods /
exemptedservices.
} Option3: PayanamountequaltoproportionateCENVATCreditattributable
to exempted final products / exempted output services as provided in the
CENVATCreditRules.
} Option 4: Maintain separate records for inputs and pay amount (as
determined in accordance with the specific method prescribed) in respect
ofinputservices.
2.6.8 TransferofCredit
} If a manufacturer of the final products shifts his factory to another site or
thefactoryistransferredonaccountofchangeinownershiporonaccount
of sale, merger, amalgamation, lease or transfer of the factory to a joint
venturewiththespecificprovisionfortransferofliabilitiesofsuchfactory,
then, the manufacturer is allowed to transfer the CENVAT Credit lying
unutilized in his accounts to such transferred, sold, merged, leased or
amalgamatedfactory.
} Similarprovisionshavebeenincorporatediftheproviderofoutputservice
shiftsortransfershisbusiness.
} The transfer of the CENVAT Credit in respect of the above is allowed only if
the stock of inputs as such or in process, or the capital goods is also

transferred along with the factory or business premises to the new site or
ownershipandtheinputsorcapitalgoodsonwhichCredithasbeenavailed
are duly accounted for to the satisfaction of the Deputy / Assistant
CommissionerofCentralExcise.
2.6.9 InputServiceDistributor
In the caseof company, there may be some units which are not directly involved in
the manufacture of goods or providing output service, e.g. Corporate Office.
However,thecorporateofficesmaybemakingpaymentofservicetaxfortheinput
servicesreceivedbythemwhichareusedinprovidingtaxableservices.Inorderto
enable the units providing taxable services / manufacturing excisable goods to
avail such credit of input services, the concept of input service distributor has
beenintroducedintheCenvatCreditRules,2004,whereinthecorporateofficecan
distribute the credit to its various units who provide taxable services /
manufactureexcisablegoods.
Theterm'InputServiceDistributor'meansgenerallyanofficeofthemanufacturer
of final products or provider of output service, which receives invoices towards
purchases of input services and thereafter issues invoice / challan for the
purposes of distributing the credit of service tax paid on the said services to units
providingtaxableservices/manufacturingexcisablegoods.
The Service Tax (Registration of Special Category of Persons) Rules, 2005 provide
for the registration of input service distributor. Thus, in order to distribute the
credit,theInputServiceDistributorneedstoobtainServiceTaxRegistration.
Manner of distribution of credit by input service distributor:Theinputservice
distributor can distribute the CENVAT Credit in respect of the service tax paid on
the input service to its manufacturing units or units providing output service,
subjecttothefollowingconditions:
} Thecreditofthetaxamountsodistributedtovariousunitsshallnotexceed
thetotalServiceTaxamountcontainedintheoriginalinvoice/bill.
} Credit of service tax attributable to service used in a unit exclusively
engaged in manufacture of exempted goods or providing of exempted
servicesshallnotbedistributed.

2.6.10 RefundofCENVATCredit
} Whereanyinputorinputserviceisusedinthemanufactureoffinalproduct
which is cleared for export under bond / letter of undertaking / used in the
intermediate product cleared for export / used in providing output service
which is exported, the CENVAT Credit in respect of input or input service so
used can be utilized by the manufacturer / provider of output service
towards payment of duty of excise on any final product cleared for home
consumption / for export on payment of duty or service tax on output
service.
} Further, where for any reason such adjustment is not possible, the
manufacturer / the provider of output service is allowed refund of such
amountsubjecttocertainconditions.
In order to provide an incentive to smaller industrial units, the Central Excise Law
grantscertainexemptionstounitscoveredundertheSSIscheme.Forthispurpose
a manufacturing unit is considered as SSI unit if the total value of clearances of
excisable goods for home consumption does not exceed Rs. 4 crore during the
precedingfinancialyear.FollowingisthebriefsummaryofSSIexemptionscheme.
} TheschemeisgovernedbyNotification8/2003dated1March2003.
} The exemption is available only in respect of the goods which have been
specifiedinthesaidNotificationNo.8/2003.
} The unit is not required to pay Excise duty till its clearances in a financial
yeardoesnotexceedRs.1.5crores.
} Thelimitwillbecalculatedbytakingintoaccounttheclearancesinrespect
ofonemanufacturerfromoneormorefactoriesorfromonefactorybyone
ormoremanufacturers.
} NoCENVATcreditisavailableinrespectofinputsuptotheclearancesofRs.
1.5croresinthefinancialyear.
} Assessee can avail CENVAT credit on capital goods, however the same can
beutilized,oncethelimitofRs.1.5croresiscrossed.
2.7 SmallScaleIndustries(SSI)

} Assessee has the option of not availing the benefit of this notification and
pay the normal rate of duty, by utilizing CENVAT credit.However, this needs
tobeintimatedtotheconcernedauthoritiesbeforeremovalofgoods.
} Valueofclearancestobeexcludedforthepurposeofthisscheme:
l Clearances of intermediate goods/goods captively consumed in
casethefinalproductiseligibleforSSIexemption.
l Clearances, which are exempt from the whole of the excise duty
leviablethereon.
l Clearances bearing the brand name or trade name of another
person.
l Exportclearances.
} The term 'job work' is defined under the CENVAT Credit Rules, 2004 and
Notification No. 214/86-CE dated 25 March 1996 to mean processing or
working upon of raw material or semi-finished goods supplied to the job
worker, so as to complete a part or whole of the process resulting in the
manufacture or finishing of an article or any operation which is essential
foraforesaidprocess.
} In case, the activities carried on by the job worker amount to manufacture,
the job worker would be liable to pay duty of excise on the goods so
manufactured unless the supplier of the raw materials or semi-finished
goods gives an undertaking to the Central Excise Authorities having
jurisdiction over the factory of the job worker that the said goods shall be
usedinorinrelationtothemanufactureofthefinalproductsinhisfactory
or removed on payment of duty from his factory or cleared for export, etc.
asspecifiedintheregulations.
2.9.1 Registration
Some of the categories of persons who require Central Excise Registration include
2.8 JobWork
2.9 ProceduralAspects

thefollowing:
} Manufacturerofexcisablegoodsonwhichexcisedutyisleviable.
} Person who desires to issue Cenvatable invoices under the CENVAT Credit
Rules,2004.
} Personsholdingwarehousesforstoringnon-dutypaidgoods.
} Personswhoobtainexcisablegoodsforavailingendusebasedexemption.
} Exporter-manufacturers under rebate/bond procedure; Export Oriented
Units, which have interaction with the domestic economy (through sales
withinIndiaorprocurementofdutyfreeinputs).
2.9.2 Exemptionfromregistration
SomeofthecategoriesofpersonswhoareexemptedfromobtainingCentralExcise
Registration(subjecttocertaintermsandconditions)includethefollowing:
} Manufacturers of goods which are chargeable to 'nil' rate of duty or are
fullyexempt.
} Every person (except certain specified), who gets his goods manufactured
onhisaccountbyothers.
} Persons manufacturing excisable goods by following warehousing
procedureasrequiredbyorundertheCustomsAct,1962.
} Person who carries on wholesale trade or deals with excisable goods
exceptfirststagedealerorsecondstagedealerasdefinedinCENVATCredit
Rules,2004.
} Small Scale Units availing the slab exemption based on value of clearances
underanotification.
2.9.3 InvoiceSystem
} As per Rule 11 of the Central Excise Rules, 2002, excisable goods must be
removed from a factory or a warehouse under an invoice signed by the
ownerofthefactoryorhisauthorizedagent.

} The invoice should be issued in triplicate and must contain the particulars
setoutinRule11.
} Before utilizing the invoice book, the serial numbers of the same must be
intimatedtothejurisdictionalSuperintendentofCentralExcise.
} The invoice needs to be prepared in triplicate in the following manner,
namely:
l theoriginalcopybeingmarkedasORIGINALFORBUYER
l the duplicate copy being marked as DUPLICATE FOR
TRANSPORTER
l thetriplicatecopybeingmarkedasTRIPLICATEFORASSESSEE
2.9.4 FilingofReturns
Every assessee is required to file return (depending upon the category of the
assessee)intheformandtimeasspecified.E.g.
th} A manufacturer is generally required to file Return in Form ER-1 by 10 day
ofeverymonthforremovalsduringthepreviousmonth.
th} In the case of registered dealer, a quarterly return should be filed by 15
dayofthemonthfollowingtheparticularquarter.
} With effect from 1 October 2011, all assessees are mandatorily required to
filethereturnselectronically.
2.9.5 ExciseAudit2000:
Excise Audit 2000 (EA) was initiated from 1 December 1999. The essential
philosophyofEA2000isthatthisauditisbasedonthescrutinyofbusinessrecords
oftheassessee.
The EA is a systematic form of audit wherein the auditors are required to gather
basic information about the assessee and analyze them to find out vulnerable
areas. At every stage the assessee is consulted thus making the entire audit
processuserfriendly.

2.9.6 PaymentofDuty
TheExciseDutyneedstobepaidgenerallyasunder:
Type of Assessee Due date for payment
All (other than SSI) Generally 5 day of every month (for removals
th
during the previous month) (6 day of every
monthfore-payment)exceptMarch
st
ForMarch–By31 March
th
Assessee availing or eligible
to avail exemption based on
valueofclearance(SSIs)
Generally 5 day (6 day in the case of e-
payment) of the month following the quarter
exceptMarch.
stForMarch-By31 March.
th th

Summary of Central Excise Provisions
When the activity amounts to manufacture
Transfer of Raw Materials
to Job Worker
Registration under
Central Excise regulations
Manufacturer
Purchase of Raw Material /
Capital Goods /
Input Services
(payment of Excise Duty
/ Service Tax)
Removal / Clearance of
final products
Liability to pay
Excise Duty
CENVAT Credit
Net payment of
Excise Duty / Service Tax
Issue of Excise Invoice

Chapter 3
Chapter 3: The Customs Act

3.1 Background
} Customs Act, 1962 - This is the main Act, which provides for levy and
collection of customs duty, import / export procedures, prohibitions on
importationandexportationofgoods,penalties,offences,etc.
} CustomsTariffAct,1975(CTA)-TheActcontainstwoschedules.
First Schedule gives classification and rate of duties for imports, while
Second Schedule gives classification and rates of duties for exports. In
addition, the CTA makes provisions for duties like additional duty (CVD),
preferentialduty,anti-dumpingduty,protectiveduties,etc.
3.1.1 RulesunderCustomsAct
} Customs Valuation Rules, 1988: For valuation of imported goods for
calculatingdutypayable;
} Customs and Central Excise Duties Drawback Rules, 1995: Prescribe
modeofcalculatingratesofdutydrawbackonexports;
} Baggage Rules, 1998: Rules and allowances for bringing in baggage from
abroadbyIndiansandtourists;
} Customs (Import of goods at concessional rate of duty for
manufacture of excisable goods) Rules, 1996: Prescribes the procedure
tobefollowedwhengoodsareimportedforexportpurposes;
} Otherrules
3.1.2 ImportantdefinitionsunderCustomsAct
Import: ImportmeansbringinganygoodsintoIndiafromaplaceoutsideIndia.As
per Customs Act, 1962 India includes the installation, structure and vessels
locatedinthecontinentalshelfofIndiaandexclusivezoneofIndia,forthepurpose
of prospecting or extracting or production of mineral oil and natural gas and
Chapter 3: The Customs Act

supplythereof.
‘Goods’underCustomsAct:'Goods'include
l vessels,aircraftsandvehicles
l stores
l baggage
l currencyandnegotiableinstrumentsand
l anyotherkindofmovableproperty.
Dutiable Goods: Dutiable goods are those goods which are chargeable to duty
andonwhichdutyhasnotbeenpaid.Thus,goodscontinuetobe'dutiable'tillthey
are not cleared from the port. However, once goods are assessed at 'Nil' rate of
duty,theynomoreremain'dutiablegoods.'
Imported Goods: Imported goods are any goods brought into India from a place
outside India, but do not include goods which have been cleared for home
consumption. Thus, once goods are cleared by customs authorities from customs
area,theyarenolonger‘importedgoods'.
Export Goods: ExportgoodsmeananygoodswhicharetobetakenoutofIndiato
a place outside India. Goods brought near customs area for export purpose will be
‘exportgoods'.
3.2.1 Basicrequirementstoimportgoods
} Any body intending to import goods for commercial purpose has to submit
an application to the Directorate General of Foreign Trade and obtain
ImporterandExporterCode(IEC)number.
} In the caseof 100% Export Oriented Units(EOUs) / Export ProcessingZones
(EPZs) the IEC number is allocated by the Development Commissioner of
EPZconcerned.Thisnumberhastobeindicatedinthedocumentsfiledwith
theCustomsforclearanceoftheimportedgoods.
} Thisnumberisnotrequiredinthecaseofimportofgiftsandbaggage.
3.2 ProcedureForImportOfGoods

3.2.2 Restrictionsonimportofgoods
Import of all items is freely permitted except few items which are mentioned
as prohibited, restricted or canalized items in ITC (HS) classification. There is no
needtoobtainpermissionforimportinggoodswhichcanbefreelyimported.
3.2.3 ImportGeneralManifest(IGM)
Import General Manifest (IGM) is a document which is to be filed by the carriers of
the goods with the Customs authorities before arrival / within 24 hours after
arrival of vehicle carrying the imported goods. The ship is then granted entry
inwards by the Customs authorities after which the goods can be unloaded in the
port.
3.2.4 BillofEntry
} Bill of entry can normally be filed to clear the goods after the IGM is
presented to the Customs Officers by the Steamer Agents / Airlines, as the
casemaybe.
} Ifallthedocumentsareavailable,thebillofentrycanbepresented30days
inadvanceandwillbeassessedandthedutywillbepaid,ifany.Thus,asthe
goods land, they can be examined and the delivery taken without any loss
oftimeandwithoutpayingdemurragecharges.
3.2.5 Timelimittocleartheimportedgoods
Imported goods should be cleared for home consumption or warehoused or
transshipped within 30 days from the date of unloading the goods at a Customs
stationorwithinsuchextendedtimeallowedbytheproperofficer.
3.2.6 TimelimitallowedforpayingdutyonaBillofEntryassessedtoduty
Duty has to be paid within 5 days from the date on which the Bill of entry is
returned after assessment to the importer / agent for payment of duty. Non
paymentofdutywithinthestipulatedtimeattractsinterest.
3.2.7 Foreignexchangerateappliedtothevalueofinvoice
} The rate of exchange applicable is the rate in force on the date on which a
Billofentry(whetheritishomeconsumptionBillofentryorBillofentryfor

warehousing)ispresentedunderSection46oftheCustomsAct,1962.
} ThesameexchangeratesareapplicabletotheEx-bondbillofentryfiledfor
clearingthegoodsforhomeconsumptionformthebondedwarehouse.
} The exchange rates are notified by the Central Government by issue of
notificationsfromtimetotime.
3.2.8 Nodutypayableifthetitletotheimportedgoodsisrelinquished
} The owner of any imported goods may relinquish his title to the goods at
any time before an order for clearance of goods for home consumption or
anorderpermittingthedepositofthegoodsinthewarehouseispassed.
} Nodutywouldbepayableifthetitleisrelinquishedbytheimporter.
} In case of warehoused goods, the owner of warehoused goods can
relinquish the title of goods any time before order for home clearance is
made.Nodutywouldbepayableinsuchcases.However,theimporterwould
be required to pay rent, interest, other charges and penalties that have
beenaccrued.
3.2.9 Warehousing
Iftheimporterdoesnotwanttousetheentirestockimmediatelyorheisnotinthe
position to pay customs duty leviable on the goods, he can file into bond bill of
entry for warehousing the goods. The normal warehousing period is 1 year except
for 100 % Export Oriented Warehousing where warehousing period is 5 years for
capitalgoodsand3yearsforothergoods.
3.2.10 Remissiononlost/pilfered/damagedgoods
} Remission on lost / pilfered goods:Section23(1)ofCustomsActprovides
for remission of duty on imported goods lost (other than pilferage) or
destroyed, if such loss or destruction is at any time before clearance for
homeconsumption.
} Remission after goods are warehoused: Remission of duty on goods
warehoused is permissible under section 23, as goods cleared for
warehousingarenot‘goodsclearedforhomeconsumption’.

} Pilferage of Goods: Section 13 provides that duty on pilfered goods is not
payable if the imported goods are pilfered before order of clearance is
made.
} Duty on pilfered goods is payable by port authorities: Under section
45(3) if goods are pilfered after they are unloaded but before they are
clearedfromtheport,thecustomsdutyispayablebyporttrustauthorities
orairportauthoritiesunderwhosecustodythegoodswerelying.
} Abatement of duty on damaged goods:Section22providesforreduction
indutyifgoodsaredamagedordeterioratedinanyofthefollowingcases:
l damagedbeforeorduringunloadinginIndia
l damaged by accident after unloading but before examination of
goods for assessment by Customs Officer - provided that the
accident is not due to willful act, negligence or default of importer,
hisemployeeoragent
l damagedbyaccidentinwarehousebeforeclearanceofgoods.
3.3.1 NatureofCustomsDuty
Section 12 of Customs Act, often called charging section, provides that duties of
customsshallbeleviedatsuchratesasmaybespecifiedunder‘TheCustomsTariff
Act, 1975’, or any other law for the time being in force, on goods imported into, or
exportedfrom,India.
3.3.2 Taxableeventforimportduty
Goods become liable to import duty or export duty when there is 'import into, or
export from India'. Import of goods in India commences when they enter into
territorial waters but continues and is completed when the goods become part of
the mass of goods within the country. The taxable event is reached at the time
when the goods reach customs barrier and bill of entry for home consumption is
filed. In case of warehoused goods, the goods continue to be in customs bond.
Hence,'import'takesplaceonlywhengoodsareclearedfromthewarehouse.
3.3 Levy,ClassificationAndRateOfDuty

3.3.3 TypesofCustomsDuties
} Basic Customs Duty: The rate of customs duty applicable will be as
provided in Customs Act, subject to exemption notifications, if any,
applicable.Incaseofimportsfrompreferentialarea,thepreferentialrateis
applicable,ifmentionedintheTariff.Itisneedlesstomentionthatifpartial
or full exemption has been granted by a notification, the effective rate (as
per notification) will apply and not the tariff rate (as mentioned in Customs
Tariff). Normally, it is levied as a percentage of 'Value' as determined under
section 14(1). The rates vary for different items, but general rate at present
is10%.
} Education Cess and Secondary and Higher Education Cess: It is
imposedonimportedgoods@2%and1%respectively.
} Additional Customs Duty (CVD): This is often called ‘Countervailing Duty'
(CVD). Rate for CVD will be as mentioned in Central Excise Tariff Act, subject
to any general exemption notification.It was observed that CVD is imposed
when excisable articles are imported, in order to counter balance the
excise duty, which is leviable on similar goods if manufactured within the
State. If such goods are imported, duty will be payable on basis of MRP
printed on the packing, i.e. at MRP specified on the packing carton less
abatementaspermissibleundersection4AofCentralExciseAct.
} Additional Duty of Customs: In addition to Additional Duty under section
3(1) of Customs Tariff Act; which is chargeable on all goods, further
additional duty can be levied by Central Government to counter-balance
excise duty leviable on raw materials, components, etc. similar to those
usedin productionofsucharticle.
} Safeguard duty and product specific safeguard duty on imports from
China: Central Government is empowered to impose 'safeguard duty' on
specified imported goods if Central Government is satisfied that the goods
are being imported in large quantities and under such conditions that they
arecausingorthreateningtocauseseriousinjurytodomesticindustry.
} NCCD of Customs: A ‘National Calamity Contingent Duty’ (NCCD) of
customs has been imposed vide section 129 of Finance Act, 2001. NCCD of

customs of 1% was imposed on PFY, motor cars, multi utility vehicles and
twowheelersandNCCD@Rs.50pertonwasimposedondomesticcrudeoil,
videsection134ofFinanceAct,2003.
} Exportduty:ExportDutyisdefinedonfewproducts.
} Protective Duties: Countervailing duty on subsidized goods and Anti
DumpingDutyondumpedarticles.
3.3.4 ClassificationofGoods
The Classification of goods is as per Customs Tariff Act which is based on the
internationally accepted HSN. Method of classification and the principles of
classificationaregenerallythesameaspertheCentralExciseLaw.
3.3.5 CalculationofCustomsDuty
Thetablebelowshowsthecomputationofcustomduty
Sly No Particulars Duty Amount Total Duty
% (Rs.) (Rs.)
A AssessableValue 10,000
B BasicCustomsDuty 10 1,000 1,000
C Sub-TotalforcalculatingCVD'(A+B)' 11,000
D CVD: 'C'xexcisedutyrate 10 1,100 1,100
E Educationcessofexcise@2%of'D' 2 22 22
F Secondary and Higher Education cess of
excise @ 1% of 'D' 1 11 11
G Sub-total for education cess on
customs 'B+D+E+F' 2133
H Education Cess of Customs - 2% of 'G' 2 42.66 42.66
I Secondary and Higher Education Cess of
Customs @ 1% of G 1 21.33 21.3
J Sub-total for Spl CVD 'C+D+E+F+H+I' 12,196.99
K Special CVD under section 3(5) @ 4% of 'J' 4 487.88 487.88
L Total Duty 2,684.87
M Total duty rounded to 2,685

3.4 Valuation
3.4.1 ValueforpurposeofCustomsAct
As per section 14 of the Customs Act, valuation needs to be done at transaction
value.
Transactionvalueatthetimeandplaceofimportationorexportation,whenprice
is sole consideration and buyer and sellers are unrelated is the basic criteria for
‘value’ under section 14 of Customs Act. Thus, CIF (Cost, Insurance and Freight)
value in case of imports and FOB value in case of exports is relevant. However in
theeventthevaluecannotbearrivedatintermsofsection14ofCustomsAct,then
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 would
beapplicable.
In case of high sea sale, price charged by importer to assessee would form the
assessablevalueandnottheamountinvoicedtotheimporterbyforeignsupplier.
3.4.2 CustomsValuation(DeterminationofValueofImportedGoods)Rules,2007
Themethodsofvaluationforimportedgoodsareasfollows
} TransactionValueofImportedgoods[Section14(1)andRule3(1)]
} TransactionValueofIdenticalGoods[Rule4]
} TransactionValueofSimilarGoods[Rule5]
} Deductive Value which is based on identical or similar imported goods sold
inIndia[Rule7]
} Computed value which is based on cost of manufacture of goods plus
profits[Rule8]
} Residualmethodbasedonreasonablemeansanddataavailable[Rule9]
Thesemethodsaretobeappliedsequentially.
3.4.3 ExportGoods-ValuationforAssessment
Customs value of export goods is to be determined under section 14 of Customs
Act, read with Customs Valuation (Determination of Value of Export Goods), Rules

2007. Transaction value at the time and place of exportation, when price is sole
considerationandbuyerandsellersareunrelatedisthebasiccriteria.Ifthereisno
sale or buyer or sellers are related or price is not the sole consideration, value of
thegoodswillbedeterminedasperValuationRules.
3.5.1 ‘Selfassessmentprocedure’forclearanceofimportedgoods
} According to this procedure the importers of repetitive imports can assess
theirownBillsofEntryshowingpreviousclearancesandassessmentofthe
samegoods.
} The amount of duty payable is mentioned on the Bill of Entry. Physical
examination of imported goods will be done by using Risk Management
Systems(RMS)onacomputerbasedsystem.
3.5.2 ProvisionalAssessment
} When an importer or exporter is unable to produce any documents or
furnish any information necessary for assessmentof duty on the imported
or export goods, he may request for provisional assessment of the goods
pendingproductionofsuchdocumentsandfurnishingsuchinformation.
} Where the importer or the exporter has produced all the requisite
documents and furnished full information but the proper officer of
customs may deem that it is necessary to make further enquiry for
assessingthe duty, he may resort to provisional assessment,pending such
enquiry.
3.5.3 Exemptionfromduty
} Exemptions by Notification: Section 25 (1) of Customs Act, 1962
authorizes Central Government to issue notifications granting exemptions
fromduty.
} Imports by privileged persons and organizations: Import by U N
agencies, Governors, Ford Foundation, Vice President of India, specified
equipment by foreign news agency, personal effects of deceased persons,
gifts imported by CARE have been granted various exemptions. The
3.5 Assessment,Exemption,DemandAndRefundOfCustomsDuty

diplomats (High Commissioner, Ambassadors, Consultant, General, etc) are
allowed duty free import of goods for their personal use or official use.
} Import for repairs, reconditioning, etc.: Goods can be imported for
repairs, reconditioning or re-engineering. These have to be re-exported
within 3 years of import. After imports, the repairs, reconditioning or re-
engineeringhastobedoneinabondedwarehouseundercustomsbond.
} Ad hoc exemptions: Section 25(2) of Customs Act empowers the Central
Government to issue ad-hoc exemption from customs duty by issue of a
specialorderinexceptionalcircumstances.
} ExemptionsofImportsforexport:Variousschemeshavebeenformedto
allow duty free imports of raw materials and components for exports.
These include schemes like FTZ, 100% EOU, STP, EHTP, Advance Licenses,
etc.Importofmaterialsforjobworkandreturnarealsopermitted.
} Project Imports: HeavyCustomsdutyonimportedmachineryforprojects
make the initial project cost very high and project may become unviable.
Hence,conceptof‘projectImport’hasbeenintroducedtobringmachinery,
etc. required for initial setup or substantial exemption at a concessional
rate of customs duty. The goods are classified under heading 98.01 of the
CTA though the machinery and its parts may actually fall under different
tariff heading. The current rate of basic custom duty payable on project
importis5%.
3.5.4 RefundofDuty
Refund may be obtainable if customs duty was paid in excess while clearing the
goods.Refundclaimcanbeofcustomsdutyandinterestpaidonsuchduty.
3.5.5 Timelimitforfilingrefundclaim
} Refundclaimshouldbelodgedwithin1yearfromthe‘relevantdate.’
} This period is 1 year in case of imports made by individual for personal use
orbyGovernmentorbyanyeducational,researchorcharitableinstitution.
} If duty was paid under protest, time limit of 1 year is not applicable. If duty
was paid on provisional basis, period of 1 year will be calculated from the

dateofadjustmentofdutyafterfinalassessment.
3.5.6 RefundofExportduty
Export duty is charged on very few items but Customs Act also makes provisions
for refund of export duty. Export duty is refundable if (a) Goods are re-imported
within 1 year (b) the goods returned are not ‘re-sold’ and (c) refund claim is lodged
within6monthsfromdateofclearancebycustomsofficerforre-importation.This
refundisnotsubjecttoprovisionsofunjustenrichment.
3.6.1 PreferentialAreaExemptionNotifications
Government has issued various notifications granting exemption of customs
duties for importing specified goods from ‘preferential areas' like Singapore,
ASEAN, SAFTA, etc. subject to the fulfillment of conditions pertaining to Rules of
Origin.Thecertificateoforiginisvery importantinordertoavailofthebenefitsof
suchconcessionalratesofduty.
3.6.2 DutyEntitlementPassBook(DEPB)
DEPB was basically an export incentive scheme and was very popular among
exporters. The objective of DEPB scheme was to neutralize the incidence of basic
customdutyontheimportcontentoftheexportedproducts.Howeverthisscheme
has been withdrawn since the same was not compliant with World Trade
OrganizationRules.
3.6.3 DutyDrawback
Here, the excise duty and customs duty paid on inputs is refunded to the exporter
of finished product by way of ‘duty drawback’. If inputs are obtained without
payment of customs/excise duty, no drawback will be paid. If customs/excise duty
is paid on part of inputs or rebate/refund is obtained, only that part on which duty
is paid and on which rebate/refund is not obtained will be eligible for drawback.
ThreetypesofDrawbackRatesareprescribed-AllIndustryRatesforGeneralClass,
Brand Rate for special type of products and Special Brand Rate for a particular
manufacturer if he finds that the actual duty paid on inputs is higher than All
IndustryRatefixedforhisproduct.
3.6 VariousBenefitsUnderCustomsAct,1962

3.6.4 DutyFreeImportAuthorizations(DFIA)
DFIA is issued to allow duty free import of inputs which are used in the
manufacture of the export products (making normal allowance for wastage), and
fuel,energy,catalyst,etc.whichareconsumedorutilizedinthecourseoftheiruse
toobtaintheexport product.DFIAisissuedonthebasisofinputsandexportitems
given under Standard Input and Output Norms (SION). Minimum value addition of
15% is required except for items in gems and jewellery sectionand other specified
items.
3.6.5 DeemedExports
‘Deemed Exports’ means those transactions in which the goods supplied do not
leave the country and the payment for the supplies is received either in foreign
exchange or Indian Rupees. Deemed exporters are eligible for any of the following
benefitssubjecttospecifiedtermsandconditions.
l AdvanceLicenseforintermediarysupplyofdeemedexport
l DeemedExportDrawback
l Refundofterminalexciseduty
3.6.6 AgriExportZones
Various importers that come under the Agri Export Zones are entitled to all the
importfacilitiesandincentives.
3.6.7 ServedfromIndia
In order to create a powerful ’Served from India’ brand all over the world, the
Governmenthasprovideddifferenttypeofimportincentivetotheinvisibleexport
providers. Under the ‘Served from India’ Scheme, import incentive is given for
importofanycapitalgoods,spares,officeequipmentandprofessionalequipment.
It will cover duty free credit entitlement benefit @ 10% of total foreign exchange
earned, even for individual service providers who are able to earn total foreign
exchange of Rs. 5 lakhs or more in the preceding financial year and other service
providerswhoareabletoearntotalforeignexchangeofRs.10lakhsormoreinthe
precedingfinancialyearorcurrentfinancialyear.

3.6.8 ManufactureunderBond
In the ‘Manufacture under Bond’ Scheme, all factories registered to produce their
goodsforexportareexemptedfromimportdutyandothertaxesoninputs,usedto
manufacturesuchgoods.Asperthisfacilitythemanufacturerisallowedtoimport
goods without payment of customs duty. The production is made under the
supervisionofcustomsorexciseauthority.
3.6.9 ExportPromotionCapitalGoodsScheme(EPCG)
EPCG is a special type of incentive given to the EPCG license holder. Capital goods
imported under EPCG Scheme are subject to actual user condition and the same
cannotbetransferred/soldtillthefulfillmentofexport obligationspecifiedinthe
license. Under Export Promotion Capital Goods (EPCG) scheme, a license holder
can import capital goods (including second hand) such as plant, machinery,
equipment, components and spare parts of the machinery at concessional rate of
customsdutyof3.09%andwithoutCVDandspecialduty.
Zero Duty EPCG scheme: It is a liberalized version of EPCG scheme but with limited
validityupto31March2011andapplicabletocertainspecifiedsectors.
3.7.1 HighSeaSaleTransactions
} Imports through transfer of documents of title to goods before the goods
cross the customs frontier of India are popularly known as High Sea sales
(HSS).
} HSS is a sale carried out by the carrier document consignee to another
buyer while the goods are yet on high seas or after their dispatch from the
port / airport of origin and before their arrival at the port / airport of
destination.
} HSS contract / agreement should be signed after dispatch of goods from
originandpriortotheirarrivalatdestination.
} In case of HSS, no sales tax is payable in case of transfer of documents of
goodssinceitisasaleincourseofimport.
3.7 General

3.7.2 AccreditedClientsProgramforimporter(ACP)
} With a view to reduce clearance time and lower the transaction costs, ACP
fortheimporter(withcleantrackrecord)hasbeenintroduced.
} The importers desirous of availing the facility are required to apply for
registrationunderACPscheme.
} ThemaineligibilityconditionisthattheyshouldhaveimportedgoodsofRs.
10 Crores or paid Customs duty or Central excise duty of Rs. 1 Crore in the
previousfinancialyear.
3.7.3 SpecialAdditionalDuty(SAD)Refund
} Central Government exempts the goods falling within the First Schedule to
the CTA, when imported into India for subsequent sale, from the whole of
the additional duty of customs leviable thereon under sub-section (5) of
section3oftheCTAsubjecttoconditionsasspecifiedinthenotifications.
} This refund provision is beneficial to import of trading goods by
manufacturer/trader.
3.7.4 CertaintermsofpricingusedinInternationalTrade
} Ex-Work: Ex Works means that the seller is responsible to make the goods
availabletothebuyerattheSeller’sworksorfactory.
} Free on Board: Theseller'sresponsibilityendsthemomentthecontracted
goods are placed on board the ship or direct transport vehicle from the
seller’spremisestothebuyer’spremises.
} Cost and Freight (C & F): The seller must on his own risk and not as an
agent of the buyer, contract for carriage of the goods to the port of
destinationnamedinthesalescontractandpaythefreight.
} Cost, Insurance and Freight (CIF): In addition to C & F, insurance has to
beobtainedbytheseller.
3.7.5 CustomHouseAgent(CHA)
Inordertoassistimportersandexporters,theservicesofCustomHouseAgentsor

clearing agents are available at international ports and airports. They are the
persons who hold a valid license issued by the Commissioner of Customs under
CustomsAct,1962forclearingthegoods.

Customs Export Procedure
SHIPPING BILL
Shipping bill is submitted by Exporter along with documents like invoice,
packing lists, contracts, export authorization and other requisite documents .
NOTING
Noting of shipping bill is done by Customs Officer.
ASSESSMENT
Goods are assessed to duty by Customs Authorities.
EXAMINATION
Goods are examined and checked for aspects like,
whether export is restricted or prohibited.
PAYMENT OF DUTY
Export duty is paid if applicable.
STUFFING
Stuffing of container is done if it is not already done.
LET EXPORT ORDER
LET export order is a document issued by Customs
Authorities, which allows the goods to be exported .

Customs Import Procedure
IMPORT GENERAL MANIFEST
Person in charge of the conveyance is required to
submit Import General Manifest / Import Report.
ENTRY INWARD
Entry inward is a document which
allows the goods to be unloaded.
BILL OF ENTRY
Importer submits either Bill of Entry for warehousing
or Bill of Entry for Home consumption, giving details
of goods being imported, along with required documents.
NOTING
Bill of Entry is cross checked with Import Manifest and
it is noted if the description tallies with Import General Manifest.
ASSESSMENT
Goods are assessed to duty by Customs Authorities
Bill of Entry for WarehousingBill of Entry for Home Consumption
Payment of Duty
Clearance of Goods for
Home Consumption
1. Execution of Warehousing Bond
2. Transfer of goods to warehouse
3. BillofEntryforEx-Bondclearanceis
filed for clearance of goods from
warehouse and Customs Duty is
paid

4.1 Background
Service Tax was introduced in India in the year 1994. It is a tax on ‘services
rendered’byonepersontoanother.Asanindirecttax,thefinallevyisbornebythe
consumer of services, though the intermediate liability falls on the supplier.
Service tax is collected at each stage by the service provider by charging it to the
recipient of the service. Service Tax is applicable to all States in India except the
StateofJammuandKashmir.
4.1.1 Constitutionalvalidity
Article 265 of the Constitution of India lays down that no tax shall be levied or
collected except by the authority of law. Schedule VII to the Constitution of India
dividesthissubjectintothreecategories:
a) Unionlist(onlyCentralGovernmenthaspoweroflegislation)
b) Statelist(onlyStateGovernmenthaspoweroflegislation)
c) Concurrentlist(bothCentralandStateGovernmentcanpasslegislation).
To enable Parliament to formulate the law principles for determining the
modalities of levying the Service Tax by the Central Government and collection of
the proceeds thereof by the Central Government and the State, the amendment
vide Constitution (92nd amendment) Act, 2003 has been made. Consequently, new
article 268A has been inserted for Service Tax levy by Union Government,
collectedandappropriatedbytheUnionGovernment,andamendmentofschedule
VII to the constitution, in list I-Union list after entry 92B, entry 92C has been
insertedfortaxesonservicesaswellasinarticle270oftheconstitutiontheclause
(1)article268Ahasbeenincluded.
4.1.2 Administrativemechanism
ServiceTaxisadministeredbytheCentralExciseandServicetaxCommissionerate
and the Service Tax Commissionerate working under the Central Board of Excise
and Customs, Department of Revenue, Ministry of Finance, Government of India.
Chapter 4: Service Tax

They also collect Service Tax from the Large Tax paying units (LTU) registered with
them.
4.1.3 StatutesgoverningthetaxationrelatingtoServiceTax
l TheFinanceAct,1994.
l TheServiceTaxRules,1994.
l TheCENVATCreditRules,2004.
l TheExportofServiceRules,2005.
l PointofTaxationRules,2011
l TheServiceTax(RegistrationofSpecialcategoriesofpersons)Rules,2005.
l The Taxation of Services (Provided from Outside India and Received in
India)Rules,2006
l TheServiceTax(DeterminationofValue)Rules,2006
l DisputeResolutionSchemeRules,2008
l ServiceTaxDisputeResolutionScheme,2008
l ServiceTax(ProvisionalAttachmentofProperty)Rules,2008
l TheServiceTax(PublicationofNames)Rules,2008
l ServiceTax(AdvanceRulings)Rules,2003
l Authority for Advance Rulings (Central Excise, Customs and Service Tax)
ProcedureRegulation,2005
l ServiceTaxReturnPreparerScheme,2009
l Works Contract (Composition Scheme for payment of Service Tax ) Rules,
2007
l ServiceTax(RemovalofDifficulty)Order,2010

4.2 Levy,ClassificationAndRateOfServiceTax
4.2.1 Liabilitytopayservicetax
Generally, the ‘person’ who provides the taxable service is responsible for paying
Service Tax to the Government. Taxable Services have been specified under
Section 65(105) of the Finance Act, 1994 (the Act). Initially levy of Service Tax was
confined to 3 services in the organized sector, viz. Telephone, General Insurance
Services and Stock broking. Since then the Act has been amended year after year
andvariousserviceswerebroughtintothetaxnet.Presently,therearearound120
categories of services liable to Service Tax including some of the prominent
services such as, Management Consultant, Banking and Other Financial Service,
Business Auxiliary Service, Maintenance or Management Service, Business
Support Service, Renting of Immovable Property Service, Works Contract Service,
Information Technology Software Service, Copyright Service, Restaurant Service,
etc.
However, in certain situations, the receiver of the services is responsible for the
paymentofServicetax,e.g.
} Service provided or to be provided by a person from outside India and is
receivedbyapersoninIndia,
} For the services in relation to Insurance Auxiliary Service provided by an
InsuranceAgent,theServiceTaxistobepaidbyanypersoncarryingonthe
general insurance business or the life insurance business, as the case may
beinIndia,
} ForthetaxableservicesprovidedbyGoodsTransportAgency,fortransport
of goods by road, the person who pays or is liable to pay freight is liable to
pay Service Tax , if the consignor or the consignee falls under any of the
seven categories viz. (a) factory, (b) company, (c) corporation, (d) society,
(e) co-operative society (f) registered dealer of excisable goods, (g) body
corporateorapartnershipfirm,
} For the taxable services provided by Mutual Fund Distributors in relation to
distributionofMutualFund,theServiceTaxistobepaidbytheMutualFund
distributor or the Asset Management Company receiving such service,

} BodycorporateorfirmlocatedinIndiareceivingsponsorshipservices.
4.2.2 Classificationofservices
} As per Section 65A of the Act, classification of taxable services shall be
determined according to terms of definition of taxable service prescribed
invarioussubclausesofsection65(105);
} If for any reason, a taxable service is prima facie classified under two or
more sub clauses, then sub clause which provides the most specific
description shall be preferred to sub clause providing a more general
description;
} Composite services consisting of combination of different services which
cannot be classified as above shall be classified as if they consisted of
servicewhichgivesthemtheiressentialcharacter;
} When a service cannot be classified in either of the manner specified in
above clauses, it shall be classifiedunder the sub clause which occurs first
amongthesubclauseswhichequallymeritconsideration.
} Thefollowingchartshowstheclassificationofservices:
Classification of Taxable Services
Determined according to terms of definition
of taxable service prescribed in various sub
clauses of section 65 (105)
Prima facie classifiable under
two or more sub clauses of
section 65 (105)
Most specific description to be preferred to general description
Composite services - service category which gives them their
essential character
If the service is not covered by 1 and 2 above , the service will
be classified under the sub clause which occurs first among
the sub clauses which equally merit consideration.
1
2
3

4.2.3 RateofServiceTax
At present, the effective rate of Service Tax is 10.3% on the value of the taxable
service. It comprises of Service Tax @ 10% payable on the ‘Gross Value of Taxable
Service’, Education Cess @ 2% on the service tax amount, and Secondary and
HigherEducationCess@1%ontheServiceTaxamount.
The above rate is subject to certain abatements as provided under various
categoriesoftaxableservices(subjecttocertainconditions).E.g.GoodsTransport
Agency Services, Commercial or Industrial Construction Service, Restaurant
Services,etc.
4.3.1 Every personliable to pay Service Tax mustmandatorily obtain registration within
prescribed time and manner. Central Government has notified following persons
forthepurposeofobtainingmandatoryregistration:
} Every person who has provided a taxable service of value exceeding Rs. 9
lakhs, i.e. Small Scale Service providers whose aggregate value of taxable
servicesdoesnotexceedRs.9lakhsinitially,arenotliabletoobtainService
TaxRegistration.
} Recipientofservice(Incasearecipientisliabletopayservicetax.)
} ‘InputServiceDistributors’.
4.3.2 Timelimitforregistration
} When a person commences business of providing a taxable service, he is
required to register himself within 30 days from commencement of
business.
} In case Service Tax levy is extended to a new service, an existing service
provider must register himself, unless he is eligible for exemption under
anynotification,withinaperiodof30daysfromthedateofnewlevy.
} SmallScaleServiceproviderswhoseaggregatevalueoftaxableservicesis
less than or equal to Rs. 10 lakhs during the previous financial year, must
make an application for registration within a period of 30 days of the date
4.3 Registration

of the financial year in which the aggregate value of taxable service has
exceededRs.9lakhs.
} Recipient of the taxable services shall obtain registration within 30 days
fromthedateofbecomingliabletopayservicetax.
4.3.3 Procedureforregistration
A prospective Service Tax assessee(service provider or service receiver) or 'Input
Service Distributor’ should file an application in Form ST-1 electronically at ACES
wherein registration number is obtained immediately online. However,
registration certificate in form ST-2 can be obtained after submitting certified /
attested copies of the following documents to the jurisdictional Central Excise /
ServiceTaxofficer:
} Form - ST1 as e-filed along with acknowledgement of submission of the
same.
} PermanentAccountNumber(‘PAN’)oftheperson/company.
} Residential Address proof of Directors / Proprietor/Partners/Authorized
Person
} PowerofAttorney/BoardResolutionforappointingAuthorizedSignatory.
} Proof of constitution of the entity viz. Memorandum and Articles of
Association along with Certificate of Incorporation or Partnership deed,
etc.
} AddressproofoftheCompany/ProprietaryBusinessPremises.
‘ACES’ is abbreviated form of ‘Automation of Central Excise and Service Tax’. It is a
Centralized, web based software application where Service Tax and Excise
applications such as Registration, Returns, Refunds, ST-3A, Audit, Dispute
Resolutioncanbedone.
4.3.4 IssuanceofRegistrationCertificate
The Registration certificate should be issued within a period of 7 days from the
date of submission of application in form ST-1 along with all relevant details /
documents. In case the registration certificate is not issued within 7 days, the

registration applied for is deemed to have been granted provided the same is
completeandproperlyfilledup.
4.3.5 Centralizedregistration
Service providers and service receivers having centralized accounting or
centralized billing system and located in one or more premises, may at their
option, register such premises or office from where centralized billing takes place
or centralized accounting systems are located and thus have centralized
registration.
4.3.6 Multipleservicesprovidedbyanassessee
} Only one Registration certificate needs to be obtained if the person
providesmultipleservicesfromasinglepremise.
} However, while making application for registration, all taxable services
provided by the personshould be mentioned, i.e. registration is needed for
eachcategoryofservice.
4.3.7 Cessationofbusinessofprovidingtaxableservice
The Service Tax Registration certificate (ST-2) should be surrendered
electronically to the respective Central Excise / Service Tax authorities
immediately on cessation of business. After surrender of the Registration
Certificate online, following documents need to be generally submitted for
cancellationofthecertificate:
} Coveringletterexplainingthereasonsforsurrender,etc.
} OriginalCertificateofRegistration(FormST-2).
} AcknowledgementsofOnlinesurrenderoftheFormST-2.
} Declarationinthespecifiedformat
} LastHalfyearlyreturnsfiled.
4.3.8 Transferofbusinesstoanotherperson
In the event of transfer of the business, the transferee should obtain a fresh

certificateofServiceTaxregistrationbasedonhisownPAN.
4.4.1 Valueoftaxableservice
Service Tax is payable on the value of taxable services. The 'value of taxable
service’ means, the gross amount charged by the service provider for the taxable
service provided or to be provided by him. Taxable value has to be determined as
per the provisions under Section 67 of the Finance Act, 1994, read with Service Tax
(Determination of Value) Rules, 2006. For certain services, a specified percentage
ofabatement/exemptionisallowedfromthegrossamountchargedforrendering
theservicessubjecttotheconditionsprescribedunderServiceTaxRegulations.
4.4.2 Inclusion/Exclusionofcertainexpenditureorcost
} When certain expenditure or costs are incurred by the service provider in
thecourseofprovidingtaxableservices,allsuchexpenditureorcostsshall
be treated as consideration for taxable service provided. It also includes
reimbursementof‘outofpocketexpenses.’
} As per Rule 5 (2) of Service Tax (Determination of Value) Rules, 2006,
expenditure or cost that a service provider incurs, as pure agent of client
shall be excluded from value if service provider fulfils certain specified
conditions.
} Rule 6 provides for certain specific items for inclusion and exclusion in the
valueoftaxableservices.
4.5.1 Returns
} The Service Tax return (Form ST – 3) is required to be filed by any person
liabletopayservicetax.
} The Return is required to be filed twice in a financial year – on half yearly
th stbasis. Return for half year ending 30 September and 31 March are
th th
required to be filed by 25 October and 25 April respectively. Input
Service Distributor is required to furnish half yearly Service Tax Returns to
4.4 Valuation
4.5 Returns,Assessment,RecordsAndPayment

jurisdictional Superintendent of Central Excise by last day of the month
followingthehalfyearperiod.
4.5.2 RevisedReturns
An assessee may submit a revised return, in Form ST-3 to rectify a mistake or
omission, within a period of 90 days from the date of submission of the original
returninaccordancewiththeServiceTaxRules,1994asamended.
4.5.3 E-filingofreturnsmandatory
With effect from 1 October 2011, all the assessees are mandatorily required to file
thereturnselectronically.
4.5.4 SelfAssessment
Generally, under Service Tax regulations the service taxpayer himself has to
assess his tax liability due on the service provided and file a service tax return
accordinglyintheprescribedmanner.
4.5.5 ProvisionalAssessment
IfanassesseeisunabletocorrectlyestimatetheactualamountpayableasService
Taxforanyparticularmonthorquarter,asthecasemaybe,hemaymakearequest
inwritingtotheAssistant/DeputyCommissionerofServiceTax/CentralExciseas
provided under Service Tax Rules, 1994, giving reasons for seeking payment
of Service tax on provisional basis. On receipt of such request for provisional
assessment, the authority may allow payment of Service Tax on provisional basis
on such value of taxable service and subject to conditions as may be specified by
him. Upon finalization of such assessment, if a liability of service tax arises, the
differential amount along with interest has to be paid by the assessee. If he has
paidexcessamounthemayclaimrefund.
4.5.6 Records
} The assesseeis required to provide to the jurisdictional Superintendent of
Central Excise / Service Tax at the time of filing the first return a list, in
duplicate,ofalltherecords maintainedbytheassesseefor
l transactions in regard to providing of any service, whether taxable
orexempted,

l receipt or procurement of input services and payment for such
inputservices
l receipt, purchase, manufacture, storage, sale, or delivery, other
activities,suchasmanufactureandsaleofgoodsand
l all other financial records maintained by him in the normal course
ofbusiness.
} Invoice/Bill/Challan
l Issue of Invoice / Bill / Challan by a Service Tax assessee is
mandatory as per Service Tax Rules. The same should be issued
within 14 days from the date of completion of taxable service or
receiptofpaymenttowardstheservice,whicheverisearlier.
l However, if the service is provided continuously for successive
periods of time and the value of such taxable service is determined
or payable periodically, the Invoice / Bill / Challan shall be issued
within14daysfromthelastdayofthesaidperiod.
} ContentsofInvoice/Bill/Challan
l SerialnumberoftheInvoice/Bill/Challan.
l Name,addressandregistrationnumberoftheserviceprovider.
l Nameandaddressoftheservicereceiver.
l Description, classification and value of taxable service being
providedortobeprovided.
l The amount of Service Tax payable (Service Tax and Education and
SecondaryandHigherEducationCessshouldbeshownseparately).
It is mandatory to separately indicate the amount of Service Tax
chargedintheBills/Invoices/Challansraisedontheclients.
} Preservationperiod
Records and return shall be preserved for a minimum period of 5 years
immediatelyfallingafterthefinancialyeartowhichsuchrecordspertain.

4.5.7 PointofTaxationRules
The Point of Taxation Rules, 2011 have been notified with effect from 1 April 2011,
which has shifted the Service Tax liability from ‘Receipt’ basis to ‘Accrual’ basis.
However, an option has been provided to the taxpayer to continue to pay service
taxonreceiptofpaymentsinrespectof:
} Services,theprovisionofwhichiscompletedonorbefore30June2011;or
} Wheretheinvoicesareissuedupto30June2011.
As per the Point of Taxation Rules, 2011 the taxable event will be the earlier of the
following:
} Time when the Invoice is issued for the service provided or to be provided;
or
} Dateofcompletionofservice,incase,invoiceisnotissuedwithin14daysof
suchcompletion;or
} Receiptofpayment(includinganadvance).
In case of Continuous Supply of Service, it is further provided that where the
provision of the whole or part of the service is determined periodically on the
completion of a certain event (in terms of a contract) which requires the service
receiver to make any payment to service provider, then the date of such
completion (as specified in the contract) shall be deemed to be the date of
completion of provision of service. Generally, any service provided or to be
provided continuously under a contract for a period exceeding 3 months shall be
consideredasContinuousSupplyofServices.CentralBoardofExciseandCustoms
(CBEC) has further, specifically notified certain services as Continuous Supply of
Services such as Commercial or Industrial Construction Services,
TelecommunicationServices,WorksContractServices,etc.
In respect of the determination of the date of completion of provision of service,
CBEC, vide its Circular No. 144/13/ 2011 – ST dated 18 July 2011, had clarified that this
would include not only the physical part of providing the service but also the
completionofallotherauxiliaryactivitiesthatenabletheserviceprovidertobein
apositiontoissuetheinvoice.Suchauxiliaryactivitiescouldincludeactivitieslike
measurement, quality testing etc which may be essential pre-requisites for

identification of completion of service. The test for the determination whether a
service has been completed would be the completion of all the related activities
thatplacetheserviceproviderinasituationtobeabletoissueaninvoice.However
such activities do not include flimsy or irrelevant grounds for delay in issuance of
invoice.
Notification No.25/2011 – Service Tax, dated 31 March 2011 provides certain
exceptions/exemptionstotheaboverulesasunder:
} In case of the following persons / services, the ‘Point of Taxation’ Rules will
notapplyandaccordingly,thetaxableeventshallbethebasedonreceipt/
makingofpayment:
l Services qualifying under ‘Export of Services Rules, 2005 provided
that the payment for such services is received within time
stipulatedbytheReserveBankofIndia.
l Person requiring to pay Service Tax as recipient provided that the
paymentforinvoiceismadewithin6monthsfromtheinvoicedate.
l Individuals or proprietary firms or partnership firms providing
certain taxable services such as Architect Services, Interior
Decorator Services, Chartered Accountant Services, Scientific /
TechnicalConsultancyServices,LegalServices,etc.
l In case of ‘associated enterprises’ where the person providing the
services is located outside India, the point of taxation shall be the
date of credit in the books of accounts of the person receiving the
servicesorthedateofmakingpaymentwhicheverisearlier.
In respect of the services for which provision is completed on or before 30 June
2011 or where the invoices are issued upto 30 June 2011, the point of taxation shall,
attheoptionofthetaxpayer,bethedateonwhichthepaymentisreceivedormade
asthecasemaybe.
4.5.8 PaymentofServiceTax
} Thepaymentofservicetaxisrequiredtobemadeasunder:
l For persons other than Individual or Proprietary / Partnership

Concerns-monthlybasis.
l For Individual or Proprietary / Partnership Concerns - quarterly
basis.
} While depositing the service tax, the appropriate ‘account head’ as
specified pertaining to the particular service category should be
mentionedonthepaymentchallan.
} The date of deposit of cheque is the date of payment of Service Tax. If the
chequeisdishonored,itwouldmeanasiftheServiceTaxhasnotbeenpaid
andtherelevantpenalconsequenceswouldfollow.
} E-payment is mandatory for assesses who have paid Service Tax of Rs. 10
lakhs or more including the amount paid by utilization of CENVAT credit, in
theprecedingfinancialyear.
} The service tax shall be paid to the credit of the Central Government
th th
generally by the 5 day of the month / quarter (or by 6 day if deposited
electronically through internet banking) as the case may be. For the
assessee being an individual or proprietary firm or partnership firm, the
Service Tax shall be paid on quarterly basis and in other cases, it shall be
paidonmonthlybasis.
} The service tax on the value of taxable services received during the month
of March, or the quarter ending in March, as the case may be, shall be paid
sttothecreditoftheCentralGovernmentbythe31 dayofMarch.
4.5.9 ExcesspaymentofServiceTax
} With Point of Taxation Rules coming into force, where an assesseehas paid
Service Tax to the credit of the Government in respect of a taxable service,
which is not so provided by him, either wholly or partially for specified
reasons, the assessee may either refund the amount to the Service
ReceiverwithServiceTaxorissueaCreditNotetohim.Aftersuchrefundor
issue of credit note the assesseecan adjust the excess Service Tax so paid
by him against his Service Tax liability for the subsequent period and
subjecttocertainotherconditionsasspecified.

} However, apparently such adjustment is not permissible in case of bad
debtsorgivingasimplediscount/reductionincharges.
} Further, assesses having centralized registration who have paid excess
amount of Service Tax, on account of delayed receipt of details from other
branch offices, may adjust such excess amount against the Service Tax
liability for the subsequent period subject to the conditions as provided
and furnish the details of such adjustment to the Jurisdictional
Superintendent of Central Excise / Service Tax within 15 days from the date
ofsuchadjustment.
4.6.1 Refund
Service Tax could be refunded subject to ‘unjust enrichment clause.’ The
procedureforclaimingrefundfromthedepartmentisasmentionedbelow
} Application in the prescribed form (Form - R) is to be filed in triplicate with
the jurisdictional Assistant /Deputy Commissioner of Central Excise /
ServiceTax.
} The application should be filed within 1 year from the relevent date as
defined.
} Applicationshouldbeaccompaniedbydocumentaryevidencetotheeffect
that the amount claimed as refund is the amount actually paid by him in
excess of the Service Tax due and the incidence of such tax claimed as
refundhasnotbeenpassedontoanyotherperson.
4.6.2 Exemptions
A. SmallServiceProvider
Where the aggregate value of taxable services provided is less than or
equal to Rs. 10 lakhs in any financial year, then such small scale service
provider at his option and subject to the conditions as provided is
exempted from whole of the service tax leviable thereon under Service Tax
regulations. The above exemption is not admissible to taxable service
provided by a person under a brand name or trade name, whether
4.6 RefundAndExemption

registered or not, of another person or to such value of taxable services in
respect of which service tax shall be paid by recipient of service under
reversechargemechanism.
B. Generalexemptions
} ServicesprovidedtotheUnitedNationsorInternationalOrganizations
} Exemption by way of refund of service tax to developer / units of Special
Economic Zone (SEZ). Accordingly, if the services provided are ‘wholly
consumed’ for authorized operations in SEZ, the provider of service is not
required to pay service tax. This is optional and subject to certain
conditions, else he can pay service tax and SEZ unit / SEZ developer
(Servicereceiver)canclaimrefund.
} The value of the goods and materials sold by the service provider to the
recipient of the service is exempted from payment of the Service Tax
provided
l There is a documentary proof specifically indicating the value of
thegoodsandmaterials
l No credit of duty paid on such goods and material sold, has been
takenor
l Wheresuchcredithasbeentaken,theserviceproviderhaspaidthe
amount equal to such credit availed before the sale of such good
andmaterials.
} Exemption to Technology Business Incubators (‘TBI’) or Science and
Technology Entrepreneurship Park (‘STEP’) and an entrepreneurs located
withinthepremiseofTBIorSTEP
} Exemptiontoserviceprovidedbydigitalcinemaserviceprovider.
} Exemptions to Diplomatic Missions for official use of taxable services and
also to the officers of a Diplomatic Mission and their families for personal
useoftaxableservices.

4.7 ExportAndImportOfServices
4.7.1 ExportofServices
The Export of Services Rules, 2005 specify three categories of cross border
transactions of services and conditions that will be construed as export of
services:
} Category1:Specifiedserviceswhichareprovidedinrelationtoimmovable
propertiessituatedoutsideIndia.
} Category2:SpecifiedserviceswhicharepartlyperformedoutsideIndia.
} Category 3: The remaining taxable services, barring a few exceptions,
when provided in relation to business or commerce to a recipient located
outsideIndia,
l When such services are provided not in relation to business or
commerce,itshouldbeprovidedtoarecipientlocatedoutsideIndia
atthetimeofprovisionofsuchservice.
l However, where such recipient has commercial establishment or
any office relating thereto, in India, such taxable services provided
shall be treated as export of service only when order for provision
of such service is made from any of his commercial establishment
orofficelocatedoutsideIndia.
Further,inordertoqualifyasexportofservice,itisnecessarythatthepaymentfor
such service shall be received by the service provider in convertible foreign
exchange.
4.7.2 Incentivesforexportofservices
} Taxableservicesmaybeexportedwithoutpaymentofservicetax,provided
theconditionsspecifiedinExportofServiceRules,2005arefulfilled.
} Where service tax has already been paid on export of services to countries
(other than Nepal and Bhutan), rebate / refund of such service tax, can be
availedundernotificationno11/2005-STdated19April2005.
} Where excise duty / service tax has already been paid on the inputs and

inputservicesusedinexportofservicestocountries(otherthanNepaland
Bhutan), rebate / refund of such excise duty on inputs and service tax paid
on input services canbe availed under notificationno. 12/2005- ST dated 19
April2005.
} Where taxable services are exported without payment of tax, but CENVAT
Credit was availed, the refund of accumulated CENVAT Credit (if cannot be
fullyusedforpaymentofservicetax),maybeclaimedasrefundunderrule
5 of the CENVAT Credit Rules, 2004 read with notification no. 11/2002-CE
(N.T.)datedthe1March,2002,asamended.
} A Merchant Exporter in respect of specified services can claim refund on
service tax paid on such specified services under Notification 17/2009 – ST
dated 7 July 2009 as amended from time to time, provided certain
conditionsasstatedthereinarecompliedwith.
4.7.3 Importofservices
Section 66A of the Finance Act, 1994, inserted with effect from 18 April 2006,
provides that where any taxable service is provided or to be provided by a person
who has established a business or has a fixed establishment from which the
service is provided or to be provided or has his permanent address or usual place
of residence, in a country other than India, and is received by a personwho has his
place of business, fixed establishment, permanent address or usual place of
residence, in India, such service shall be taxable service, and such taxable service
shallbetreatedasiftherecipienthadhimselfprovidedtheserviceinIndia.
4.7.4 Taxation of Services (Provided from Outside India and Received in India)
Rules,2006
It specifies three categories of cross border transactions of services and
conditionsthatwillbeconstruedasimportofservices,namely:
} Specified services which are provided in relation to immovable properties
situatedinIndia.
} SpecifiedserviceswhichareprovidedpartlyinIndia.
} Theremainingtaxableservices,barringafewexceptions,whenprovidedin
relationtobusinessorcommerce,toarecipientlocatedinIndia.

Generally, service tax is payable on receipt basis except in case of services
provided to associated enterprises. In case of Import of services, service tax is
payable when payment is made to the foreign party (service provider). Point of
Taxation Rules, 2011 which provide for payment of service tax on accrual basis,
further provide that person requiring to pay Service Tax as recipient of services
under import of services may pay service tax on payment basis provided that the
payment for invoice is made within 6 months from the invoice date. In case of
associated enterpriseswhere the person providing the services is located outside
India, the point of taxation shall be the date of credit in the books of accounts of
the person receiving the services or the date of making payment, whichever is
earlier.
4.7.5 SEZRelatedAspects
Exemptionbywayofrefundofservicetaxisprovidedtodeveloper/unitsofSEZ.If
the services provided are ‘wholly consumed’ for authorized operations in SEZ, the
providerofserviceisnotrequiredtopayservicetax.Thisisoptionalandsubjectto
certain conditions, else he can pay service tax and SEZ unit / SEZ developer
(Servicereceiver)canclaimrefund.
4.8.1 Summaryofprovisionsistabulatedbelow
4.8 Fine,InterestAndPenalty
Obligations
Type of
Assessee
Time Limit /
Due date
Form Penal Provisions
(In Case Of Default)
Registration Within 30 days
of commencing
b u s i n e s s /
become liable
for new services
/ value of gross
a m o u n t
c h a r g e d
exceeds Rs. 9
lakhs
ST1 Rs. 200 per day or Rs. 10,000
whichever is higher.
All
Half Yearly
return
th
25 October
th
and25 April
ST3 Late fee not exceeding
Rs. 20,000
All

Obligations
Type of
Assessee
Time Limit /
Due date
PaymentofDuty
All (other
than
individual or
proprietary
/partnership
concerns
GAR 7 Rs. 100 per day or 1% per
month under section 76
upto 50% of tax amount,-
l F o r a l l
months except
th
March: 5 day
of next month
th(6 day for e-
payment)
l For March:
st
31 March
Individual or
proprietary/
partnership
concerns
GAR 7 Rs. 100 per day or 1% per
month under section 76
upto 50% of tax amount
l For every
quarter (except
quarter ending
thon March) 5
day of the month
i m m e d i a te l y
falling after such
th
quarter (6 for
e-payment)
l For Quarter
endingonMarch:
st
31 March
Interest on
delayed
payment of
service tax
GAR 7 15% per annum from the
due date of payment of
service tax under section 75
Turnover
upto Rs. 60
lakhs
GAR 7 18% per annum from the
due date of payment of
service tax under section 75
Turnover
exceeding
Rs.60 Lakhs
-
-
Certain failures attracting penal provisions
Failure to
furnish
information,
produce
documents or
failure to
appear before
Central Excise
officer
GAR 7 Rs. 200 per day or Rs. 10000
All -

Obligations
Type of
Assessee
Time Limit /
Due date
Failure to
maintain books
of accounts,
Pay
electronically,
Incomplete or
incorrect
invoices, Any
other provision
where no
penalty is
prescribed
GAR 7 MaximumRs.10,000All -
Suppressing
Value of taxable
services
GAR 7 If True & Complete position
is captured in records:
Penalty not exceeding 50%
of the service tax. However,
if penalty is paid within 30
days of the order, it would
be reduced to 25% under
section 78.
If True & Complete position
is not captured in records:
Penalty not exceeding the
service tax liability. No
mitigation of penalty.
All -
4.8.2 ProsecutionProvisions
Finance Act, 2011 has re-introduced prosecution provisions and shall apply in the
followingsituations:
} Provisionofservicewithoutissueofinvoice;
} Availment and utilization of CENVAT credit without actual receipt of inputs
orinputservices;
} Maintaining falsebooks of accounts or failure to supply any information or

submittingfalseinformation;
} Non-payment of amount collected as service tax for a period of more than
6months.
4.9.1 Audit
The selective audit of service taxpayers and other assessee like input service
distributors may be done by jurisdictional centralized officer, duly authorized or
byauditpartydeputedbytheComptrollerandAuditorGeneralofIndia(CAG).
4.9.2 Advancerulings
Authority for Advance Rulings for Excise and Customs is meant to provide binding
ruling on important issues so that intending investors have a clear-cut indication
of their duty / tax liability in advance. The following category of persons can seek
foradvanceruling
} A non-resident setting up a joint venture in India in collaboration with a
non-residentoraresident;or
} A resident setting up a joint venture in India in collaboration with a non-
resident
} A wholly owned subsidiary Indian company, of which the holding company
is a foreign company, who proposes to undertake any business activity in
India;
} AjointventureinIndia,
} A resident falling within any such class or category of persons, as the
Central Government may specify, and who makes application for advance
ruling under sub- section (1) of section 28H of the Customs Act or Section
23CofCentralExciseActorSection96CofServiceTaxprovisionsofFinance
Act,1994.
} A resident as an applicant who proposes to import any goods from the
Republic of Singapore under Comprehensive Economic Co-operation
Agreement(CECA).
4.9 General

Chapter 5
Maharashtra Value Added Tax

5.1 Background
5.2 Levy,ClassificationAndRateOfDuty
Value Added Tax (VAT) was implemented in India in phased manner with all the
States adopting VAT over a period of time. It replaced old sales tax laws and
adopted universally accepted method of taxation where tax is charged at each
successive stage of value addition with credit of taxes paid at the previous stage.
WhenVATwasfirstintroduced,itwasprincipallyagreedtohaveuniformlaws,levy,
rate, duty, etc. across States. However, with passage of time, State legislatures
have enacted various provisions which had lead to divergent VAT across States.
Although basic structure has remained the same, other aspect such as valuation,
returns, provisions, rateshave varied acrossStates. We have covered Maharashtra
Value Added Tax (MVAT) Law in detail in the current publication. In case of other
StatespleasereferVATlawofrespectiveStatefordetailedimplicationoftaxes.
5.2.1 SaleorpurchaseofgoodsinsideaState(localsale)
} A sale or purchase of goods shall be deemed to take place inside a State if
thegoodsarewithintheState.
} Inthecaseofspecificorascertainedgoods,atthetimethecontractofsale
ismadeand
} In the case of unascertained or future goods, at the time of their
appropriationbythesellerorbythebuyer.
5.2.2 Certainsalesandpurchasesnotliabletotax
} SaleorPurchaseinthecourseoftheimportorexport
} SaleorPurchaseinthecourseofinter-statetradeorcommerce
} Sales by dealers specified in the Foreign Trade Policy notified by the
GovernmentofIndia
} Sales of goods effected by a unit holding a Certificate of Entitlement and
Chapter 5: Maharashtra Value Added Tax

whichoptedforexemptionunderPackageSchemeofIncentives
} Sale of Motor spirits / petroleum products by Oil Company to another Oil
Company.
5.2.3 RatesoftaxesasperMVAT:
For calculating MVAT, goods are classified under different schedules, A to E. The
ratesoftaxesareprescribedasperMVATschedulesgivenbelow.
Schedule Rates
A 0%
B 1%
C 5%
D 20%andAbove
E 12.5%forOtherGoodsnotcoveredintheaboveschedules
5.3 Registration
5.3.1 Registrationofdealers
A. MandatoryRegistration:
The registration of dealers is mandatory if any of the below given condition is
satisfied
} TurnoverofsalesexceedRs.5,00,000inafinancialyear.
} For Importer, turnover of sales of goods exceeds Rs. 1,00,000 in a financial
year.
However, if the dealer is dealing in tax free goods and taxable goods, the purchase
orsaleoftaxablegoodsshouldbemorethanRs10,000togethimregisteredunder
MVAT.
B. Voluntary Registration:Apersoncanvoluntarilyregisterundertheprovisionsof
thisAct.
5.3.2 TimelimitforRegistration
} Thedealershallapplyforregistrationwithin30daysofincurringliabilityto

paytax.
} The dealer needs to declare the name of Manager / Partner / Director /
ManagingDirectorandtheirPermanentAccountNumber(PAN).
5.3.3 RegistrationFees
} Mandatory Registration: Registration Fees Rs. 500 without any security
deposit
} Voluntary registration: Security Deposit Rs. 25,000 with the Government
TreasuryandRegistrationFeesofRs.5,000.
} CSTRegistration:RegistrationFeesRs.25.
5.3.4 Informationtobefurnishedregardingchangesinbusiness
A registered dealer should inform the prescribed authority, of the following
specified,ifany
} Changeintheownershipofthebusinessorparttransferofbusiness.
} Anyadditionordeletionofplaceofbusiness.
} ChangeinthenameorConstitutionofbusiness
} Insolvency or liquidation, or merger, de-merger or amalgamation of
companies.
} Changeinthenatureofbusiness,orchangesintheBankaccount.
} ChangeinAuthorisedSignatory/Director/Partners.
5.3.5 DocumentsforRegistration
} TheapplicationforregistrationhastobemadeinFormno.101.ThisisaPAN
based Registration. It should include all places of business (including
branches and godown) and all classes of goods. Application should be
madeelectronicallyonSalesTaxDepartmentwebsite.
} The certificate of Registration shall be in Form no. 102. A copy of the
certificate of registration has to be displayed conspicuously at each place

ofbusiness.
5.4.1 OriginalReturn:
Every registered dealer shall file correct, complete, self-consistent return
prescribed under MVAT Law. Filing of returns is done electronically.
Followingreturnformsarebeingprescribed.
} Formno.231-Regulardealers,
} FormNo.232-Dealersoptingforcompositionoftax,
} Formno.233–Dealersengagedinworkscontractorleasingbusiness.
} Formno. 234-DealerscoveredunderPackageSchemeofIncentives
} FormNo.235-Dealerswhoareinthebusinessofexecutingworkscontract,
leasing and also opting for composition only for part of the activity of the
business.
5.4.2 RevisedReturn:
} Any dealer who discovers any omission or incorrect statement in return,
may furnish revised return within 10 months from the end of the year to
whichreturnrelates.Suchrevisioncanbemadeonlyoncebydealer.
} If the dealer discovers any omission or incorrect statement during audit,
hemayfurnisharevisedreturnwithin30daysfromthedateprescribedfor
furnishingtheauditreport.
} Adealermayalsofurnisharevisedreturnonanintimationreceivedbyhim
from the Sales Tax Department under section 63, if he agrees with the
observation contained in such intimation. Such revised return must be
furnishedwithin30daysfromthedateofserviceofthesaidintimation.
5.4.3 Collectionandpaymentoftax
Every dealer shall electronically pay taxes before the date specified for
submissionofreturn.
5.4 Returns,Assessment,RecordsAndAudit

5.4.4 Accounts
} The dealers registered under MVAT are required to maintain following
records:
l All tax, retail invoices issued and received, challans for payment of
taxes;
l Ledger, cash book, registers for stock of goods, purchases, proof of
dispatchesanddeliveriesofgoods;
l Paymentsmadeforpurchasesandamountreceivedforsales.
} All books of accounts shall be preserved for a period of 6 years from the
end of the year and should be kept at the place of business mentioned in
theregistrationcertificate.
} Saleorpurchasereturnsshallbeaccountedinthereturnwhenappropriate
entriesarepassedinaccounts.
} Credit notes, or debit notes issued for price variation shall separately
specifythecomponentoftaxinit.
} Taxrefundwouldbegrantedonlyifsalesreturnsaremadewithin6months
fromdateofsale.
5.4.5 Taxinvoiceandmemorandumofsalesorpurchases:
A registered dealer may issue either a tax invoice or a bill or a cash memorandum.
‘Tax Invoice’ should not be issued by retailers, restaurants, bakeries and second
hand car dealers opting for composition scheme. Work Contractors opting for
compositionschememayissue‘TaxInvoice.’
5.4.6 Audit
Every dealer whose total turnover of purchase / sales exceeds Rs. 60 lakhs in any
particular year shall get his books audited by a Chartered Accountant / Cost
Accountant. The audit report shall be prepared and submitted to Sales Tax
DepartmentbyendofJanuary ofnextyear.Thefailuretosubmitauditreport shall
attractapenaltyequalto1/10th%oftotalsalealongwithtaxpayable.

5.5 ExemptionAndRefund
5.6 InputTaxCredit(ITC)
5.5.1 Exemption
Under section 41 of the Act, the State Government is empowered to grant
exemptionandrefundofanytaxleviedandcollectedfromnotifiedclassorclasses
of dealers or persons if it satisfied that it is necessary in the public interest to do
so.
5.5.2 Refundofexcesspayment
} The Commissioner shall, refund to a person the amount of tax, penalty,
interest ,security deposit made at the time of Voluntary registration and
fee except when the fee is paid by way of court fee stamp, if any, paid by
suchpersoninexcessoftheamountduefromhim.
} Ifaregistereddealerhasfiledanyreturnsandanyamountisrefundableto
him, the dealer may adjust such refund against the amount due for any
period contained in the said year, filed under this Act or the Central Sales
Tax Act, 1956 or the Maharashtra Tax on the Entry of Goods into Local Areas
Act,2002”.
5.5.3 Provisionalrefunds
Where a registered dealer has in any return, fresh return or revised return shown
any amount to be refundable and has not undertaken to adjust such amount
against the amount due as per any return, the Commissioner shall, on an
application made by the dealer and subject to rules, and the other provisions of
thisAct,grantrefundofsuchamounttothesaiddealer.
5.6.1 ITC/Setoffisallowedinrespectoffollowing:
} Input Tax paid under MVAT law for purchase of goods, execution of works
contractsorleasecontract(subjecttonegativelistgivenbelow).
} EntryTaxbythedealers.
} Dealer purchasing or importing motor vehicles would also get credit of

entry tax paid under ’Maharashtra Tax on Entry of Motor Vehicles into the
LocalAreasAct,1987.’
5.6.2 ConditionsforavailingITC
} ITC is only allowed if tax is paid separately supported by appropriate ‘Tax
Invoice.’
} NoITCisallowedofCentralSalesTaxpaid.
} ITCmustbeclaimedinthesametaxperiod.
} ITCisallowedonlocalpurchasesof
l CapitalAssets,
l GoodspurchasedanddebitedtoProfitandLossA/c,
l Rawmaterialsandpackingmaterials,tradinggoods,fuel,parts,and
componentsandspares.
} Excess ITC must be adjusted against CST liability and balance to be carried
forward to the next tax period, till the end of the financial year. In the last
returnfortheyear,refundhastobeclaimedbyfilingtherefundapplication
in form 501. If the refund in the last returnis lessthan Rs 1 lakh, then dealer
hasan optiontocarryitforward tosubsequentperiod.

Item ReductionRatio
Fuel 3% of Purchase Price (PP) of taxable goods used as
Fuel
ManufactureofTax-freegoods 2% of PP of taxable goods (other than capital goods
andfuel)
ResaleofTax-freegoods 2% of PP of taxable goods (other than capital goods
andfuel)
StockTransferofManufactured 2% o PP of corresponding goods (other than capital
/TradinggoodstootherStates goodsandfuel)
WhereReceiptsagainstSales ITC is allowed of corresponding purchases which are
islessthan sold or resold within 6 months form date of
50%ofGrossReceipts purchases. In case manufacturer is not principally
engaged in job work or labour work, ITC is allowed
purchase of plant and machinery, purchase of parts,
components and accessories thereof, consumables,
storesandpackingmaterialsofpast3yearsfromthe
dateofeffectoftheRegistrationCertificate.
Works Contactors opting for ITC is to be reduced by 9/25 of total tax credit
Composition scheme
Constructioncontract ITCistobereducedby4%ofPPoftaxablegoods.
CapitalAssets Noreduction
Office equipment, furniture, 3% of PP of such items
fixture and electrical
installation
5.6.3 Reduction in Input Tax Credit

Indirect Taxes In India - RSM India publication (2012)

Indirect Taxes In India - RSM India publication (2012)

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Indirect Taxes In India - RSM India publication (2012)

Similar to Indirect Taxes In India - RSM India publication (2012) (20)

More from RSM India

More from RSM India (20)

Recently uploaded

Recently uploaded (20)

Indirect Taxes In India - RSM India publication (2012)