01.CIN Process Overview

1

Country India Version (CIN) Overview

Key Elements of Localization : Country Version

SAP has India Country Version (CIN) component as an integral part of ECC 6.0 product, which support most of the statutory requirements related to :

Input & Output Taxes, including customs and CVD

Withholding Taxes

Service Taxes

Enabling Statutory Reporting

CIN and its compatibility to India-specific statutory requirements are :CIN support the standard statutory requirements on Excise, Customs, Sales-tax, VAT,

Service Tax and With-holding taxes

CIN offers standard formats of statutory reports, in most cases these need modifications to suit the organization requirements.

Export and Import documentation is not supported; hence these either need to be developed or SAP certified products need to be deployed

© 2010 Capgemini. All rights reserved2

3

Logistics Process Overview

OverseasCustomer

Domestic Vendor Import Vendor Domestic Vendor

Domestic Customer

Subcontractor Plant X Plant Y

Depot A Depot B

4

India Localization

1.1. India Legal Requirements OverviewIndia Legal Requirements Overview

2. Logistics Process Overview ( Procurement & Sales )

Contents

5

India Localization Requirements - Overview

CENVAT (Excise)

VAT / LST / CST

Service Tax

Cenvat Credit

6


Central Value Added Tax (Excise)

VAT (LST) / Central Sales Tax

Service Tax

Cenvat Credit

7


What is Cenvat?

Tax on manufacturing or production of goods in India

Goods having 4M Characteristics are covered under this - Movable (No duty on Immovable Goods) - Marketable (Bought and Sold) - Manufactured (Come up out of a process) - Mentioned (Central Excise Tariff)

Every legal entity that manufactures or produces excisable goods shall pay the duty leviable on such goods

Materials are classified under various tariff headings (Chapter Ids). This will be subject to change in every financial budget.

Goods consumed in-house also liable for payment of duty

8


What is the basis of charge? Tax Rates Provided by GOI and are subject to change after each year based on the budget

Exemption to pay duty on intermediate products in the following cases - used for manufacturing capital goods - used for manufacturing final goods which are eligible for

Cenvat credit

Duty shall be paid when the goods are removed from the

place of production or place of storage

Excise duty not payable on goods manufactured for exports or deemed exports

Goods manufactured in factory for use within the factory for repairs of machinery installed within the factory are exempt from excise.

9


Types of Excise Duty

Basic Excise Duty (BED)

Additional Excise Duty (AED)

Special Excise Duty (SED)

Education Cess on Excise

Secondary and Higher education Cess

10


Duty Calculation

Specific duty – It is calculated on the basis of certain unit, length, weight etc. Eg. cigarette

Ad valorem duty – It is based on the value of the goods

Duty based on tariff value – The Govt. may fix tariff value fromtime to time. The duty will be calculated as percentage of tariff value fixed by the Govt. and not on assessable value

11


Duty Calculation Considerations

Transaction value is the price actually paid or payable for the goods and includes any other amount that the buyer is liable to pay in connection with such sale

Any additional consideration flowing directly or indirectly to the seller from the buyer should be added to the transactionvalue.

Cost of production is not relevant for the purpose of determining assessable value.

Assessable value may be lower than the cost price of the goods.

Goods should be assessed in the form in which they are removed.

12

Excise Payment Overview

Vendor Plant Customer

Pays Excise Duty Pays Excise Duty for all outbound goods movement

Claims Cenvat

Pays Excise component to the Vendor

13


CENVAT PAYMENT

Duty to be paid by 5th of the following month

Duty deposited in bank using TR 6 challan and credited to PLA

Duty is paid by debiting PLA

14


Excise Registers

Statutory Excise Reporting

Excise Registers (RG23A & C Part I & Part II,RG1, PLA, RG23D)

Excise Monthly Returns

Bond Registers

License Registers

Running Bond Registers

15


CENVAT (Excise)

VAT / LST / CST

Service Tax

Cenvat Credit

16

VAT / Central Sales Tax

How is Sales tax treated in India ?

This is a tax on sale

VAT / LST is charged on sales within the state

Central Sales Tax (CST) is charged on inter-state sales

Any sale would be charged to either VAT or CST but only to one of them

Every person carrying on any business is required to charge VAT / CST, on all sales made by him, and pay it to the Government

VAT / CST shall be charged at the rate in force as on the date of sale

17

VAT / Central Sales Tax

Tax Impact under VAT System

Rs.STAGES

I– Manufacturer II – Wholesaler III – RetailerSelling price

(excl. tax)100.00 Cost price 100.00 Cost price 120.00

VAT @ 12.5% 12.50 Overheads & profit @ 20%

20.00 Overheads & profit @ 20%

24.00

Sale price 112.50 Sale price (excl. tax)

120.00 Sale price (excl. tax)

144.00

Tax paid 12.50 VAT @ 12.5% 15.00 VAT @ 12.5% 18.00

Sale price (incl. Tax)

135.00 Sale price (incl. Tax)

162.00

Tax paid (15-12.50)

2.50 Tax paid (18-15)

3.00

18

CENVAT vs. VAT

Cenvat VAT

Central – Value Added Tax State – Value Added Tax

Revenue to Central Government Revenue to State Government

Tax on Manufactured Goods Tax on Sale of goods

Single point tax - paid at the first point of goods movement Multi Point Tax – payable at each stage of value chain

Credit can be availed Credit can be availed except in case of LST

General CENVAT rate @ 16% with exceptions General VAT rate @ 4% or 12.5% with exceptions

Centrally administered –Cenvat Chain cannot be broken on interstate boundaries State administered – Chain broken on interstate transactions

Cenvat credit can be availed on Services Cenvat credit cannot be availed on Services

19


CENVAT (Excise)

VAT (LST) / Central Sales Tax

Service Tax

Cenvat Credit

20

Service Tax

Tax on services rendered

Applicable only on those services which have been notified by the Government

Tax is payable @ 12 % plus education cess & Higher and Secondary education cess

Exemptions to persons rendering taxable service below 400,000 INR

Tax to be paid by 5th of the next month

Service tax is payable on advances

21

Service Tax

Service Tax Considerations

Service tax is payable on value of services

Value of service is the gross amount charged by the service provider for the taxable service provided

Any discount/rebate given to customer before accepting the payment would be deducted from the gross amount

In most of the cases person providing the taxable service is liable to pay tax

Reimbursement of expenses incurred on behalf of customer is not taxable

No tax on services which are exported or used for providing services which are being exported

22

Service Tax

Export of Service

Should be at least partly performed outside India

It is delivered outside India and used outside India

Payment for such services is received in foreign exchange

No tax on services which are exported

23

Service Tax

Import of Service

Should be provided from outside India to a person in India

Service provider does not have a place of business in India

Person receiving such service has a place of business in India

Person receiving such services is liable to pay service tax

Cenvat credit can be utilized for tax payment

Tax paid can be used for availing credit

24

Service Tax

CENVAT Credit on Input Services

Service provider is entitled to take credit of service tax paid on input services

Credit can be taken only when full payment has been made for the service

Credit may be taken for service tax and also for education Cess , Secondary and Higher Education Cess paid

In case the service provider is engaged in exporting services, he shall be granted refund of CENVAT on input services

In many cases, various input services will be consumed in theheadquarters/administrative offices of manufacturers and OSPs. In such cases, the invoices indicating the payment of service tax will be in the name of such headquarters/ administrative offices. Provision can be made for availing credit of such service tax, in the premises where manufacturing activity is undertaken or the premises where the output services are rendered.

25

Service Tax

Reporting

Half yearly return in form ST-3 to be filed within 25 days from

the end of the half year

Return needs to be accompanied by TR -6 challan evidencing

duty payment

26


CENVAT (Excise)

VAT / LST / CST

Service Tax

Cenvat Credit

27

CENVAT Credit

A manufacturer or producer of the final product or provider of taxable services is entitled to take credit of –

Cenvat (Excise)

Education Cess

Secondary and Higher Education Cess

Secondary and Higher Education Cess

Service tax paid on input services

Countervailing Duty

28

CENVAT Credit

What items can be considered for taking Credit?

A manufacturer or producer of the final product or provider of

taxable services is entitled to take credit of CENVAT paid on the

INPUTS used in the manufacturing process

INPUTS include inputs in capital goods manufacture which would

be used further in manufacturing process

Inputs need not be contained in the final product. It should have

been used in the process

29

CENVAT Credit

What items can be considered for taking Credit?

CENVAT paid on the CAPITAL GOODS used in the manufacturing process

Capital goods should be used in manufacturing process and not in any office

Service tax and education cess paid on any input service used in relation to manufacturing process

When capital or inputs are removed as such (i.e. without using), only the credit availed originally needs to be paid

Inputs are eligible for Cenvat credit even if the intermediate products are exempt

30

CENVAT Credit

When the Credit may be taken?

Cenvat credit in respect of inputs may be taken immediately on

receipt of the inputs

Input includes all goods, except diesel and petrol / gasoline,

used in relation to the manufacturing whether directly or

indirectly and whether contained in the final product or not

Credit in respect of inputs shall be available whether such inputs

are lying in stock or used in the manufacturing process

31

CENVAT Credit


Cenvat credit in respect of capital goods may be taken for an amount not exceeding 50 % of the duty paid on such capital goods in the year in which such goods are received and balancein any subsequent financial year

Cenvat credit in respect of the capital goods shall be allowed even if such goods have been acquired on lease, hire purchase or loan agreement

No Cenvat credit shall be allowed on any input or capital good which is used in the manufacture of exempted goods or in providing exempted services

32

CENVAT Credit


No time limit for availing CENVAT credit

Unutilized Cenvat credit at the year end should be shown under “Loans & Advances” in Balance Sheet

Cenvat credit balance should be reviewed at the year end and any non-utilizable portion should be added to purchase cost

SSI units ( turnover below 10 million INR) cannot avail Cenvat credit on inputs but can avail Cenvat credit on Capital goods. But this credit can be utilized only when SSI unit becomes liable to pay excise.

33

CENVAT Credit

How the CENVAT credit may be Utilized?

Cenvat credit may be utilized towards payment of –

Excise duty on any final product

An amount equal to Cenvat credit taken on inputs if such inputs are removed as such

An amount equal to Cenvat credit taken on capital goods if such capital goods are removed as such

Service tax on any output service

34

CENVAT Credit

How the CENVAT credit may be Utilized?

Towards payment of Education cess on excisable goods or on taxable services

Where any input or input service is used in final product which is cleared for export, the Cenvat credit in respect of input or input service so used shall be utilized towards payment of excise duty on domestic consumption or towards payment of service tax on output service

Where the adjustment mentioned above is not possible, the

manufacturer shall be allowed a refund of such an amount

35

CENVAT Availment & Utilization Overview

CENVAT on holdfor Cap Goods

CENVAT Account

VENDOR EXCISEINVOICE PROCESS

GOODS RECEIPT

DESPATCH

SALES EXCISEINVOICE PROCESS

Excise Duty Payable A/C

PLA A/C

DEPOSIT FUNDSIN PLA ACCOUNT

Debit PLA Account

SELECTREGISTER Excise duty

Utilization Transaction

ON-LINE TRANSACTIONS

MONTHLY TRANSACTIONSDebit ED Payable A/c

(Consolidated Entry)

Credit ED Payable A/c

Credit PLA A/c

Credit CENVAT A/c

Debit CENVAT A/c

Debit CENVAT on-hold A/c

36

India Localization

1. India Legal Requirements Overview

2.2. Logistics Process Overview ( Procurement & Sales )Logistics Process Overview ( Procurement & Sales )

3. Utilization

4. Extended Withholding Tax

Contents

37

Excise Procurement Scenarios

Domestic Procurement Process

Subcontracting Process

Stock Transport Process

Imports Purchase

Service Procurement Process

38

Typical Procurement Cycle

Invoice Verification

Payment Processing Requirement Determination

Goods Receipt

Purchase Order Monitoring

Order Processing

Vendor Selection

39





Imports Purchase


40

Domestic Procurement of Raw Materials

Vendor liable to pay excise to Govt.

Vendor Excise Invoice accompanies Goods

GR at Factory Gate

Excise Invoice Capture

Excise Invoice Post (Optional)

Excise Stock – Part I Register entry

Excise Invoice Post

CENVAT – Part II Register entry

Vendor Delivery Goods Receipt Excise Invoice

Liability to Vendor - Price - Excise - Other Taxes - Other Costs

Vendor Invoice

41

Domestic Procurement of Raw MaterialsAccounting Entries

GR Posting

Inventory Account Dr.

GR/IR Clearing Account Cr.

Excise Invoice Posting

Excise Duty A/C Dr.

CENVAT Clearing Account Cr.

CENVAT Onhold A/C ( For Capital Goods) Dr.

Vendor Invoice Posting

CENVAT Clearing A/C Dr.

GR/IR Clearing A/C Dr.

Accounts Payable Cr.

42

Procurement: Cancellation of CENVAT Credit

It is possible to cancel the CENVAT credit after it has been

availed.

In the first step, the material document has to be cancelled.

This is followed by canceling the CENVAT credit.

43

Procurement: Vendor Returns

Vendor returns possible by creating an excise invoice for Other movements

Avail the credit for the materials/goods that are received.

Create an excise invoice for the materials/goods returned to the vendor and pay excise duty by posting this invoice.

44

Procurement: Additional Adjustments

A supplementary excise invoice for extra excise duty sent by a vendor can be captured and credit availed

CENVAT credit for Materials destroyed, lost, etc. can be written off

Surrender of credit for the excisable materials which are used for non-productive purposes

All these are taken care by Excise JV Transaction

45

Procurement: Adjustments & Reversals Highlights

Flexibility for 100% Compliance

Management of CENVAT Credit for Capital Goods

CENVAT Reversals and Adjustments

One-Step Reversal of Excise Invoice

Scrap

Non-production use

Additional Excise Paid by Vendor

Deposit into PLA through TR6

Cancel Excise Invoice

W ith Reference to External Docum ent

CENVAT Adjustm ent

46





Imports Purchase


47


Input

Output

Challan

FACTORYSub contractor

48


A. With out Payment of Duty: Removal of Materials from Factory

Note: Print Immediate Option to be used

Subcon Order

Transfer Posting

SubconChallan

Challan Printing

49


A. With out Payment of Duty : Receipt of materials from subcontractor

Note: Challans on which quantities are not completely returned have the status assigned

Goods Receipt Subcon challan Reconciliation

Complete Challan

50


A. With out Payment of Duty : Reversals

Note: Listing Transaction gives list of Challans due for Reversal

Run Listing Transaction

Get Material Qty not returned on Challan

Reverse Credit availed on Input

Material

51


A. With out Payment of Duty : Recredit

Note: Listing Transaction gives list of Challans due for Recredit

Run Listing Transaction

Get Material Qty subsequently returned

on Challan

Recredit Reversed Credit

52


B. Under Full Payment of Duty : Transfer Posting of Input Material to Subcon

Note: Excise Invoice created and Posted under other Movements

Subcon Order

Transfer Posting

Excise Invoice Creation


53


B. Under Full Payment of Duty : Receipt of Material from Subcon

Goods Receipt Excise Invoice Capture

Excise Invoice Post

Invoice Verification

54





Imports Purchase


55


Plant liable to pay excise to Govt.

Excise Invoice accompanies Goods

GR at Plant Gate


Excise Invoice Post (Optional)


Excise Invoice Post

CENVAT – Part II Register entry

Supplying Plant Delivery

Goods Receipt – Receiving Plant Excise Invoice

56


FEATURES

Applicable for Plants in different registration Ids

Assessable value in excise master used for duty computation

EI capture in receiving plant w.r.t- STO- GR

Excise Values copied from supplying plant invoice during EI capture

No Inter Plant Billing Delivery through MMStock Transfer

Excise Invoice –Other Movements

57





Imports Purchase


58

Imports Purchase

Vendor Outside India

Duties to be paid to Customs

Credit can be claimed on CVD

Liability to Customs in India

CD & CVD

GR at Factory Gate


Excise Invoice Post


CENVAT – Part 2 Register

Vendor Invoicing - Price - Other Costs

Imports PO Commercial Invoice Goods Receipt & Excise Invoicing Invoice Verification

59

Imports Purchase

Accounting Entries Commercial Invoice Posting

Customs Clearing Dr.

Customs Payable (Commissioner) Cr.

GR Posting

Inventory Account Dr.

GR/IR Clearing Account Cr.


Excise Duty A/C Dr.

Customs Clearing Account Cr.

Vendor Invoice Posting

GR/IR Clearing A/C Dr.

Accounts Payable (Vendor) Cr.

60





Imports Purchase


61

Service Procurement

Service PO Service Entry & Acceptance Invoice Verification

PO for Services

Service Tax, Ecess and SECESS

Service Provider liable to Pay ST to Govt.

Additional Detailing of Individual Services Performed

Additional Control of acceptance

Vendor Invoicing

Inclusive of Service Tax

62

Service Procurement

Vendor Payment FI - JV Utilization

Payment Inclusive of Service Tax

Transfer to Service Tax availed accounts

Credit Taken on availed accounts

Utilization Service Tax availed against Service Tax Payable

63

Service Procurement

Accounting Entries Accounting Entry after Vendor Invoice Verification Accounts Payable (Vendor) Cr. GR/IR Clearing Account Dr. Service Tax Receivable Account Dr. Education Cess on Service Tax Receivable Account Dr. Sec.Education Cess on Service Tax Receivable Account Dr.

FI-JV after Vendor Payment to avail Service Tax Credit

Service Tax Availed Account Dr. Education Cess on Service Tax Availed Account Dr. Sec.Education Cess on Service Tax Availed Account Dr.

Service Tax Receivable Account Cr. Education Cess on Service Tax Receivable Account Cr. Sec.Education Cess on Service Tax Receivable Account Cr

Excise registers.

RG23A: Raw Material The entries pertaining to quantity will go into RG 23 Part I and that of duty will go into Part II in

the appropriate duty column. i.e. Basic Excise, SED, Additional duty, etc

RG23C: Capital Goods RG23CI-Part I entry: Excise stock entry at the time of GR (only quantity) RG23CII-Part II entry: Credit entry of Capital goods (only value)

RG-I : Finished Goods (only Quantity) The finished goods (manufactured, sub-contracted or gained) and sales or stock transfer are

entered in the RG I Register Register RG I is updated after creation of an excise invoice while dispatching the goods from

the factory premises with reference a commercial invoice or a pro-forma invoice

RG23D: Depot (this indicates both the Quantity and the amount)

© 2011 Capgemini. All rights reserved Ins

ert "Title, Author, Date"

64

Setting Configuration Elements

Basic Settings

Maintain Excise Registrations ID’s

Maintain Company Code Settings

Maintain Plant Settings

Maintain Excise Groups

Maintain Series Groups

Maintain Excise Duty Indicators

Determination of Excise duty

Select tax procedure

Formula Based Excise Rate & Sales Tax rate determination (TAXINJ)

OR

Condition Based Excise Rate & Sales Tax rate determination (TAXINN)

Maintain Excise Defaults



65

Tax Procedures

Tax Procedures for India Formula Based Tax Procedure - TAXINJ Condition Based Tax Procedure – TAXINN

TAXINN Set - Up Set the tax procedure as TAXINN for Country IN. Tax Procedures Ensure that excise defaults are maintained for the Tax procedure Check if all the tax condition types in the tax procedure are classified. Create TAX codes Assign Tax codes to respective Company code Create condition records for those conditions which are relevant



66

67

Thank you!Questions??

Documents

01.CIN Process Overview