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

A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT

D-LINK (INDIA) LTD VERNA-GOA

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Introduction to D–Link (India) Ltd.

Company History

D-Link (India) Ltd. was incorporated on 31st March, 1993 as ―Smart-Link Network Pvt.

Ltd.‖ originally located at 306, Rayu Chambers, Dr. A. Borkar Road, Panjim, Goa for

setting up a manufacturing unit. D-Link Corporation, Taiwan assured the Indian promoter

Mr. K. R. Naik that it will consider taking up a stake in the company only after

satisfactory commissioning of the project as per its stringent standards. It took almost one

year to set-up the factory and D-Link Corporation delegates on visiting India were

impressed enough to invest financially. The name of the company was thereafter changed

to ―D-Link India Pvt. Ltd.‖ after financial participation from D-Link Corporation, Taiwan

on 29th

March, 1995. The Company became Public Company on 1st July, 1998 i.e.

D-Link (India) Ltd.

Today D-link (India) Ltd. has grown to be a brand with maximum visibility and

penetration in India in its market segment. It has its own distinct Brand image in

Networking, Internetworking and Structured Cabling Products. D-Link (India) Ltd. by

entering into newer segments of VoIP & digital Home Products has become a one stop

shop to all communication, Local Area Network (LAN), Wide Area Network (WAN),

Gigabit Area Network (GAN), Metropolitan Area Network (MAN), Virtual Private

Network (VPN), Voice Over IP, Intranet, Extranet & ICE needs.

D-Link (India) Software Engineers are being trained at D-Link Corporation, Taiwan in

specialized software for the networking field. The company plans to penetrate the

specialized software segment, which is major segment in the networking and

communications field.

D-Link (India) Ltd. has offices in Mumbai, Delhi, Bangalore, Kolkata, Chennai, Pune,

Secunderabad, Ahmedabad, Lucknow, Chandigarh, Indore, Goa to serve its customers.

D-Link (India) Ltd. has set up two manufacturing plants with three SMT (Surface Mount

Technology) lines at Goa, the first line was set up in 1994, the second line was set up in

1999 & the third SMT line was set up in March 2001. The ISO-9002 certified plant has a

capacity of 50000NIC, 10000 ubs and switches of various types besides a mix of more




that 20000 information outlets, patch cords, patch panels, fiber products etc. D-Link

(India) Ltd. has three state-of-the-arts ISO 9001:2000 and ISO 14001:1996 certified

plants in Goa; Software and R&D Centers in Goa and Bangalore; and a Global Tech

Support Call Center in Mumbai.

D-Link (India) Ltd. already embraced Six Sigma at its Goa factory and started getting

rich return in terms of minimum rejections reduced waste and greater consistency. The

Company also has OHSAS 180001 certification for Health and Safety. It has a

nationwide network of 17 offices, 21 territory distributors, 325 dealers and 3600 resellers

and three overseas distributors in SAARC countries providing active sales and service

support. D-Link is having two subsidiary Companies and five sister concerns, out of

which four companies are Public Limited Companies. The Secretarial department

monitoring overall requirements of various registrations, filing of forms, submission of

reports under the various Acts viz. Companies Act, FERA Act Industrial (R&D) Act

MRTP Act and Income Tax Act, etc of all subsidiaries and sister concerns in additions to

D-Link (India) Limited. One of the Subsidiary Company proposed to merge in Holding

Company, D-Link (India) Limited. The Subsidiary and other companies of D-Link Group

have increased their Authorized capital and Paid up Share Capital, special attention

required to be given on the foreign inward remittance funds through authorized dealers

under the provisions of FERA and issuing shares as per the provisions of Companies Act

1956.

Overview of the Management of the Company

The Company was founded by Mr. K. R. Naik, an Indian resident in the year 1993 with

the vision to make D-Link a premier technology company. The Board of Directors of the

Company consists of eight Directors, out of which two Directors are foreign nationals.

Mr. K. R. Naik, main promoter, Chairman and Managing Director of the Company is in

charge of the overall Management of the Company. The Company has a highly efficient

Board with its members having vast experience and proficiency in the field of

management, sales, marketing, business administration and more to take the Company to

new heights in networking line. Board has constituted various committees such as Audit

Committee and Investors Grievance Committee at the Board Level as per SEBI




Guidelines in respect of Corporate Governance. There is due compliance of the corporate

governance requirements - Board ensures equal treatment, transparency, timely

disclosures and more important accountability.

Business carried on by the Company

D-Link (India) Limited is a leading manufacturer of networking products. Its core

business is in the area of Networking and Communications. D-Link India is present in the

motherboard market through a joint venture with Gigabyte Technology Taiwan and in the

high-end enterprise segment with a complete range of co branded products of Foundry

Networks Inc of USA in India. D-Link India engaged in manufacturing, marketing and

distribution of the entire range of networking products providing complete range of

networking solutions. The company manufactures Switches, Structured Cabling, Leased

Line Modems, NICs, Hubs and Modems. Etc.

The Company has entered into Distributor Agreement with Cisco Systems Inc USA,

Clerent Corporation for marketing and distributing its products in India and SAARC

countries. D-Link (India) Ltd. has formed a strategic Joint Venture with Lanner

Electronics Inc Taiwan, which deal in industrial Automation and data acquisition and

control system products. D-Link (India) Ltd. started the Software Research and

development activity at Goa in February 2000 and subsequently at Bangalore, Mhape and

New Mumbai. Today most of its manpower is focused at designing and developing

products for itself. The current projects include development of IP phones, IPBX,

Wireless LAN and Network security.

D-Link India recently started its Global Tech Support Center at Mumbai. The Group's

principal activities are to manufacture and market networking and communication

products. The Group operates in three segments: Networking Products, Software

Development and Technical Support. The Group's products include Interface Cards,

Switches, Modems, Transceivers, Internet Servers and Routers. Its broadband products

include Cable Modem, wireless products/security products and networking storage

products.

Performance




In the financial year 2006-07 the Company achieved a turnover of Rs.3051.99 million as

compared to Rs. 3014.77 million in the previous year. The Net Profit of the Company

stood at Rs.219.27 million as compared to Rs. 232.06 million in the previous year. The

turnover grew marginally by 1.23%. The company has during the past 2 years transferred

a major portion of its motherboard business to its subsidiary, Gigabyte Technology

(India) Limited. This has resulted in the low revenue growth as compared to previous

years. However, the company‘s core business of networking and cabling products grew at

a healthy rate of 19.24% as compared to the previous year. The profits were lower as

compared to previous year primarily due to increase in depreciation and manpower costs.

The Company has shown significant growth in the core business of networking and

cabling products. The growth was primarily led by significant increase in sales from

switches, wireless products, broadband modems and copper products comprising of

cables, information outlets and patch cords.

During the year the company also launched several new products such as DRO-250i –

Multi Service Access Point, DVX-1000 – IPPBX Gateway, GLB-502T – ADSL Router,

DWL-3500 – Wireless Access Point, and DWL-8500 – Wireless Access Point which will

lead to higher revenue growth in future.

The Company has tied up with Aptec Distribution LLC as distributor for entire passive

networking products under the Digi-Link range of products in the territories of UAE,

Oman, Qatar, Bahrain and Kuwait The Digi-Link brand of passive products include the

end to end range of copper and fiber structured cabling products to support cable plant

infrastructure requirements. The Company has forged alliances with retail chains to

increase the number of its retail outlets in the metros and non-metros by the end of 2007.

The company has tied up with consumer durables and information technology (CDIT)

retail chains like croma, hyper city, e-zone and pantaloons in the country. The Company

has recently concluded a deal to outsource D-TAC (Call Center) support functions of

D-Link Europe. The services includes outsourcing telephone technical and email support

to customers based out of UK, Belgium, Netherlands, Luxemburg and Ireland.

D-Link India Ltd. has won the Channels Choice Award 2007 for Networking LAN and

Wireless LAN. The company is quite strong in LAN segment and has a well-networked

channel across the country. The company offers a wide range of products and stands for




quality and commitment. It continues to be the most demanded product, with best after

sales services and value for money. The Company has received the following awards

during the year under review:

360 Magazine - Golden Rhino Award - 2007 for Networking Cables

Voice & Data 100 award for Top Modem Company year - 2006

DQ Channel - Channel Choice Award - 2006 for Networking Products

360 Magazine - Golden Rhino Award – 2006 for Networking Cables

360 Magazine - Golden Rhino Award - 2006 for Routers & Switches

NASSCOM - The National Association of Software and Services Companies, has

included D-Link India Ltd. in its ‗Showcase of Innovation Book 2006‘ for its work on

IPPBX and Routers.

Channels

1. Home, SOHO and SMB

D-Link (India) Ltd. is a worldwide leader and award-winning designer, developer and

manufacturer of connectivity solutions for customers in the digital home, SOHO

(Small Office Home Office) and SMB (Small Medium Business) segments. More

home users and network administrators increasingly prefer a D-Link India

connectivity solution due to its overall reliability, quality, clear warranty policy,

service support and value-for-money offering. D-Link (India) Ltd. is the most popular

choice in wireless LAN equipment, unmanaged switching, broadband modems,

dial-up modems, network cards, structured cabling and digital home products like IP

cameras, videophones, etc. D-Link (India) Ltd. successfully extended its Channel

product portfolio in 2004 with numerous product introductions of next generation

networking, broadband, wireless, VoIP, firewalls, for the home, SOHO and SMB

market. The D-Link India Channel‘s strategy looks at the future where convergence is

a reality delivering new entertainment and communication devices so that consumers

can take advantage of a network-centric technology era. The explosion of high-speed

Internet access continues to open up opportunities for D-Link India in the world of

consumer computing. Voice, video and data convergence combining digital and

analog technology allows D-Link to deliver broadband driven products like digital




media players, IP-based remote security devices and video conferencing devices to

consumers. D-Link (India) Ltd. continues to remain the most admired Networking

Company as per various channel studies conducted by third parties. D-Link India‘s

channel friendly policy, product reliability, regular training programs, widespread

service support and unambiguous warranty policy has made it the most trusted vendor

among channel partners. D-Link India Ltd. has won the Channels Choice Award 2007

for Networking LAN and Wireless LAN, D-Link has been awarded the Best

Networking Vendor Award by VAR India, Top Modem company in 2006 from

V&D 100, voted as the Most Admired Company as per CRN Survey November

2004 and the Golden Rhino Award 2005 by 360 Magazine.

2. Enterprise: Institutional and Corporate

D-Link India enterprise connectivity products offer standard based complete

end-to-end solution for business environments. D-Link‘s focus on price-performance

based technology leadership delivers increased network performance, increased

network scalability, and decreased costs over time for the IT manager and decision

maker. Core, Distribution and Workgroup switching options available from D-Link

India provide a range of deployable configurations and switch features for a scalable

and robust business-class networking infrastructure. D-Link India delivers powerful

solutions for deploying or upgrading to Gigabit Ethernet throughout an entire network

including server farms, ISP backbone and campus-wide connectivity. D-Link India

engineers continually push the innovation envelope to develop next-generation,

standards-based IT solutions that businesses, whether small or large, can experience

today. This philosophy strengthens D-Link‘s stature as a viable alternative to more

expensive, proprietary-based solutions by bringing the same level of performance

with better value. D-Link India has a co-branding agreement with Foundry Networks,

Inc. to provide the full range of Foundry Networks products in India. Foundry

Networks is a leading provider of high-performance enterprise and service provider

switching, routing and Web traffic management solutions including Layer 2/3 LAN

switches, Layer 3 Backbone switches, Layer 4 - 7 Web switches and Metro Routers.

The enterprise customer thus gets the complete Enterprise Solution from a Single




Vendor and also enjoys the assurance of world class service support from D-Link.

Keeping in mind the CIO‘s end objective to offer the best available network solution

by reducing Total Cost of Ownership, D-Link India is today, offering a wide range of

network switches, WAN routers, wireless LAN products, security firewalls, VoIP and

Copper & Fiber Structured Cabling products.

3. Telecom and ISP

D-Link (India) Ltd. offers cost effective, feature-rich telecommunications solutions

for any network. Telecom service providers know the future of their business depends

on how well they migrate their core networks onto an IP based platform and how

efficiently and cost effectively they roll out value added services like broadband,

VoIP, IP VPN, videoconferencing etc. to the end customers. Internet service

providers are also marketing business applications, such as VPN and integrated voice

and video applications, as reasons for businesses to go broadband. Operational and

economic efficiencies from network convergence will prompt business users to layer

voice services on top of their IP VPN circuits. Increasingly, VoIP is seen as a logical

and desirable complementary service to VPNs. D-Link (India) Ltd. foresees

broadband to the home would pave the way for convergence in vendor, medium and

services i.e. single service provider offering voice, video and data over a single

medium either telephone line copper or fiber or Ethernet Copper with unified billing.

D-Link along with Foundry Networks offers a range of proven core network options

and last mile connectivity options for the Telecom and Internet Service providers.

These include LAN, MAN, WAN switching options, Layer 4-7 Web Switches, last

mile broadband connectivity products (CPEs) and broadband application products

and copper and fiber based structured cabling products. D-Link‘s industry recognized

broadband, media and networking solutions provide valuable cost savings and

enhanced communication features for the home or business network and present a

new set of business opportunities to the Telecom and Internet service provider.




CHAPTER II

Overview of tax structure in industry

Introduction

India has a well developed tax structure with a three-tier federal structure, comprising the

Union Government, the State Governments and the Local Bodies. The power to levy

taxes and duties is distributed among the three tiers of Governments, in accordance with

the provisions of the Indian Constitution. The main taxes/duties that the Union




Government is empowered to levy are Income Tax (except tax on agricultural income,

which the State Governments can levy), Wealth Tax, Customs duties, Central Excise,

Sales Tax and Service Tax. The principal taxes levied by the State Governments are Sales

Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State

Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for

agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions &

Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.),

Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax

on Markets and Tax/User Charges for utilities like water supply, drainage, etc.

Direct Taxes

A direct tax is one paid directly to the government by the persons (juristic or natural) on

whom it is imposed (often accompanied by a tax return filed by the taxpayer). Examples

include income tax, corporate tax, welth tax, transfer tax such as estate (inheritance) tax

and gift tax.

o Income Tax

Tax

Direct Tax Indirect Tax

Income Tax

Individual Corporate

Excise Service Sales Customs Cess Entry

Tax




Income tax is an annual tax on income. The Indian Income Tax Act provides that in

respect of the total income of the previous year of every person, income tax shall be

charged for the corresponding assessment year at the rates laid down by the Finance Act

for that assessment year. The Act further provides that for the purpose of charge of

income tax and computation of total income all income shall be classified under the

following heads of income:

Salaries

Income from house property

Profits and gains of business or profession.

Capital gains

Income from other sources.

The total income from all the above heads of income is calculated in accordance with the

provisions of the act as they stand on the first day of April of any assessment year.

Taxable Income Slab Rate (%)

1,00,000

1,35,000 (for women)

1,85,000 (for senior citizens)

NIL

1,00,001 - 1,50,000 10%

1,50,001 - 2,50,000 20%

2,50,001 upwards 30%

10,00,000 upwards 30%*

* A surcharge of 10% on income tax is levied where taxable income exceeds Rs.1

million which makes it effective 33% including surcharge.

o Corporate Income Tax

For domestic companies, the tax is levied @ 30% plus surcharge of 2.5%, where as for a

foreign company (including branch/project offices), it is @ 40% plus surcharge of 5%.

An Indian registered company, which is a subsidiary of a foreign company, is also

considered an Indian company for this purpose.

Indirect Tax:




An indirect tax (such as sales tax value added tax or excise and service tax) is a tax

collected by an intermediary (such as a retail store) from the person who bears the

ultimate economic burden of the tax (such as the customer). The intermediary later files a

tax return and forwards the tax proceeds to government with the return. The Indirect tax

in India includes a series of tax laws and regulations, which are central laws and state

specific laws. As a result these taxes become a significant part of the total cost. It is thus

essential to factor in such costs through appropriate planning. Indirect taxes are

applicable to most of the activities ranging from manufacturing to final consumption,

trading and imports as well as services. As a result it impacts all business lines.

CHAPTER III A

Overview of Central Excise Tax

Introduction

The Central Excise duties are the largest source of revenue for the country.

Approximately 30% of the total revenue receipts are collected from Central Excise.

Central Exice duty is an indirect tax levied on goods manufactured. The tax is

administered by the Central Government under the authority of Entry 84 of the Union




List (List 1) under Seventh Schedule. The Central Excise duty is levied in terms of the

Central Excise Act, 1944. The taxable event under the Central Excise law is

‗manufacture‘ and the liability of Central Excise duty arises as soon as the goods are

manufactured. The liability of payment of excise is on the Manufacturer. Excise is

collected, on the goods manufactured or produced at the time of their removal from the

factory for administrative convenience. There are four basic conditions for levy of

Central Excise duty.

(1) The duty is on goods.

(2) The goods must be excisable.

(3) The goods must be manufactured or produced

(4) Such manufacture or production must be in India.

Unless all the above conditions are satisfied, Central Excise Duty cannot be levied.

The Central Excise law is administered by the Central Board of Excise and Customs

(CBEC or Board) through its field offices, the Central Excise Commissionerates. For this

purpose, the country is divided into 10 Zones and a Chief Commissioner of Central

Excise heads each Zone. There are total 61 Commissionerates in these Zones headed by

Commissioner of Central Excise. Divisions and Ranges are the subsequent formations,

headed by Deputy/Assistant Commissioners of Central Excise and Superintendents of

Central Excise, respectively.

Types of Excise Duties

1. Duties under central excise act - basic duty and special duty of excise are levied under

central excise act.

2. CENVAT- Basic excise duty (also termed as Cenvat) is levied at the rates specified in

First Schedule to Central Excise Tariff Act.

3. Special Duty of Excise (SED) - Some commodities like pan masala, cars etc. are

leviable with special duty. Presently, SED on tyres, aerated soft drinks, polyester




filament yarn, air conditioners and components and motor cars is 8% w.e.f. 1-3-

2003. Thus, total duty on these products will be 24% i.e. 16% basic and 8% special.

4. Education Cess - Education cess is a ‗duty of excise‘, to be calculated on aggregate of

all duties of excise including special excise duty or any other duty of excise, but

excluding education cess on excisable goods. It is calculated at 2% of the excise

duty.

5. SHE Cess – It refers to Secondary and Higher Education Cess which is calculated at

1% of the excise duty.

6. Clearance by EOU - The EOU units is expected to export all their production.

However, if they clear their final product in DTA (domestic tariff area), the rate of

excise duty will be equal to customs duty on like article if imported in India.

7. National Calamity and Contingent Duty - A ‗National Calamity Contingent Duty‘

(NCCD) has been imposed vide section 136 of Finance Act, 2001. This duty is

imposed on pan masala, chewing tobacco and cigarettes. It varies from 10% to 45%.

8. Additional Duty - The 'Additional Duty' is in addition to excise duty. Rules,

procedures, penalties etc. for collecting these duties are same as basic duty. Some

items covered under this Act are textile articles like cotton fabrics, silk and wool

fabrics, man-made fibers, terry fabrics, metallised yarn, embroidery; sugar, branded

tobacco, pan masala containing tobacco and cigarettes.

ECC code number and its utility

ECC code is known as Electronic Computer Code and is allotted to all registrants of

Central Excise. This code comprises of 10 digits. The first 2 digits represent the

Commissionerate, next 2 digits represent the division, next 2 digits represent the range,

the 7th digit indicates the sector, 8th & 9th digit represent the unit within the sector and

the last digit is a check digit. The ECC code number facilitates proper account of

Assessee's records. This code number is a mandatory requirement and is given to the

registrant by the Pay and Accounts officer. But the application in this regard is to be

submitted to the jurisdictional Range Officer. ECC code number is required to be

mentioned on all the statutory documents issued and maintained by the registrant.




Basis of calculation of duty payable

When rates of duty are expressed as a percentage of value of goods, which is now the

increasing trend, assessable value of the goods has to be found out before the amount of

duty leviable thereon is determined and paid. Earlier there was a practice of assessee

filing a price list, the assistant commissioner approving the assessable values after

enquiry and then the assessee determining the duty on the basis thereof. But with the

budget of 1994, the said practice stands abolished. Now it is the assessee‘s responsibility

to determine assessable values of the goods, declare them on his invoice and pay duty on

the basis thereof.

1. Tariff value – where under section 3(2) of the Act, the Central government has fixed

tariff values for the goods, the assessee‘s task is easy, viz. to find out the tariff value

for the particular variety from the relevant notification and pay duty thereon. But

tariff values are rarely fixed by the government.

2. M.R.P. Value – a new section 4A has been inserted with the object of enabling the

government to change excise duty with the reference to maximum retail price, with

such deductions as the government allow. In respect of packaged commodities which

under any law are required to be marked with Maximum Retail Price of the product,

(vide standards of Weights and Measurement Act, 1976), the government has now

acquired power under new section 4A to notify them for assessment on the basis of

such MRP less such abatement (The Government, by issue of a notification,

announces the percentage of abatement to be allowed from MRP in order to arrive at

the assessable value for charging excise duty) as may be notified. The marked MRP

should be the sole consideration for sale. Declaration of retail sale price of multi-

piece packages and individual pieces contained in the multi-piece package (if such

individual pieces are capable of being sold separately) is statutorily required and

hence they will also be assessed under section 4A. But where affixation of MRP is

not statutorily required, such packages, even if voluntarily marked with MRP, will be

assessed. Where more than one retail price is declared on a package, then the

maximum of such retail sale price has to be taken into account. But where different

retail price are declared on different packages for the sale of any excisable goods in

packaged form in different areas, each such retail price shall be the retail sale price




for the purpose of valuation of the excisable goods intended to be sold in the area to

which the retail sale price relates. In case of slashed down prices, duty is to be

charged on the lower MRP at which actual transaction takes place and not on the

higher MRP printed alongside in scored out style to attract customers.

3. Transaction Value – if a product is not notified under section 4A and there is no tariff

value fixed for it under section 3(2), it has to be assessed according to its transaction

value determined under section 4 as substituted with effect from 1-7-2000.

―Transaction Value‖ includes receipts / recoveries or charges incurred or expenses

provided for in connection with the manufacturing, marketing, selling of the excisable

goods to be part of the price payable for the goods sold.

Returns to be filed

Form of Return

Description

Who is required to

file

Time limit for filing

return

ER-1 Monthly Return by

large units

Manufacturers not

eligible for SSI

concession

10th of following

month

ER-2 Return by EOU EOU units 10th of following

month

ER-3 Quarterly Return by

SSI

Assessees availing

SSI concession

20th of following

quarter

ER-4

Annual Financial

Information

Statement

Assessees paying

duty of Rs one crore

or more per annum

through PLA

Annually by 30th

November of

succeeding year

ER-5 Information relating to

Principal Inputs

Assessees paying

duty of Rs one crore

or more per annum

through PLA and

manufacturing goods

Annually, by 30th

April for the current

year (e.g. return for

2005-06 is to be filed

by 30-4-2005].




under specified tariff

headings

ER-6

Monthly return of

receipt and

consumption of each

of Principal Inputs

Assessees required

to submit ER-5 return

10th of following

month

Registration of factory / warehouse

o Application for registration should be made in the prescribed Form A-1.

o Separate registration is required for each separate premise, if person has more than

one premise.

o Registration is not transferable. If business is transferred, fresh registration has to be

obtained by the transferee.

o Change in constitution of partnership firm or Company should be intimated within 30

days of change. In case of such change, fresh registration is not required.

o Registration can be revoked or suspended if the holder of registration or any person in

his employment commits breach of any of the provisions of Central Excise Act or

Rules

Payment of Duty

Assessee should pay duty through Current Account popularly known as PLA

(Personal Ledger Account). The PLA is credited when duty is deposited in bank by

TR-6 challan and duty is required to be paid by making a debit entry in the PLA

on monthly basis. PLA and Cenvat credit should be used only for payment of excise duty.

It is not necessary that there must be some minimum credit balance in PLA. It is

sufficient if there is balance at the time of debit in PLA on monthly basis.

Requirements of Return

1. Product description should tally with description actually used in invoices.




2. Production and removal details must be given for each commercially separate product

/ group of products of similar nature falling under same sub-heading having same rate

of duty, based upon data maintained under DSA (Daily Stock Account). For product

group having separate classification / rate of duties, separate entries must be given.

Commissioner can relax this requirement by a general or special order.

3. Duty liability will be consolidated adjustment in current account (PLA) and Cenvat

credit account, as may be decided by assessee. (Thus, he can show pro rata through

PLA and Cenvat credit or in some products he can show full payment through PLA

and in some other products, he can show full payment through Cenvat credit).

4. If same product is cleared under different rates of duty under different notifications,

the details are required to be given separately.

5. Goods received for repairs, reconditioning or export return are required to be shown

in appropriate column.

6. Fine, penalties and interest cannot be paid through Cenvat credit. It must be paid

through PLA only. [In fact, they should be paid through TR-6 challan as PLA is

meant only for payment of duty].

7. If there is delay in payment of duty, interest should also be paid and details of interest

calculations should be shown along with return.

8. If duty on some invoices is paid under protest or on provisional basis, the details are

required to be given in the ER-1 return.

Administration

Being the single largest contributor to the tax revenues of the Government, central excise

revenues and administration have a critical role in the Indian economy. Naturally, any set

back or slow down in central excise revenue mobilization adversely impacts economic

planning. Therefore, it is important to devise a suitable tax administration which

facilitates voluntary compliance by the tax payer and leads to the collection of revenue at

minimum cost. In this regard a number of steps have been taken in the recent past to

improve central excise administration. Some of these are:

1. With exception of cigarettes, self assessment of Central Excise duty by the

manufacturer without reference to or interaction with the department has become the

norm of Central Excise Administration.




2. Central Excise rules earlier numbering over 234 have been considerably simplified

and replaced by new set of Central Excise Rules, wherein the number of rules has

been reduced to only 72.

3. Payment of duty has been simplified with the introduction of a fortnightly payment

system. As a measure of further relaxation the units in the small scale sector are

required to pay duty on monthly basis.

4. Documentation is reduced to the minimum and largely reliance is placed upon the tax

payers own records. Further, the filing of statutory return with the department has

been made less rigorous by increasing the periodicity. Tax payers are required to file

a simple monthly return and those in the small scale sector have to furnish the return

only on a quarterly basis.

5. A statutory body has been set up for giving Advance Rulings on matters of

classification and valuation of goods and applicability of notifications with the

objective of introducing uniformity and certainty in Central Excise Administration.

6. Computerization has been initiated on a large scale and the emphasis is on effective

monitoring, analysis of data base, and use of Information Technology to carry out day

to day functions.

7. New PAN based excise registration has been adopted with the objective of moving

towards on-line registration to facilitate the tax payer.

8. Manufacturer exporters have been facilitated by dispensing with the requirement of

bonds and security. Further a simplified procedure has been introduced for self credit

of the duty on the goods exported. In respect of merchant exporters also the

requirement of security for exports is not insisted upon.

9. Disputes with the tax payer have been sought to be reduced with the introduction of

new valuation; rules and extension of the scheme of assessment based on Maximum

Retail Price.

10. To ensure speedy disposal of cases pending adjudication and in appeal a time period

for deciding the cases has been prescribed in the law.

11. Selective Audit based upon risk assessment has been introduced.

12. For greater facilitation the administration has been brought closer to the tax payer by

an increase in the number of Central Excise Chief Commissioners from 10 to 23,




Commissioners from 61 to 92 and Commissioners of Central Excise (Appeals) from

18 to 71.

It is the perception that the introduction of self-assessment in Central Excise has reduced

responsibility of the Central Excise officers in ensuring the correctness of assessment

including correct availment of Cenvat credit. By and large the officers feel that since the

tax payer is responsible for self-assessment of the return their own responsibility is

reduced to mere confirmation of mathematical accuracy. This is not correct. The

C.B.E.C. had clearly laid down the responsibilities of the assessing officer‘s right up to

the level of Addl. Commissioner in ensuring correctness of assessment and availment of

Cenvat credit by the tax payer. The instructions also empower the officers to call for any

document to confirm the assessment of the tax payer. However, it is a finding that this is

not being done properly, furthermore there is an absence of monitoring mechanism and as

a result proper checks are not carried out. Infact, the assessing officers take the stand that

with the introduction of self assessment and the non submission of invoices with monthly

returns the responsibility of finding out short levy is on the Audit or Anti-Evasion.

It is the view that assessment should be the primary function of the Central Excise

officers. Self assessment on the part of the tax payer is only a facility and cannot and

must not be treated as a dilution of the statutory responsibility of the central excise

officers in ensuring correctness of duty payment. No doubt Audit and Anti-Evasion have

their roles to play but assessment or confirmation of assessment should remain the

primary responsibility of the Central Excise officers.

Scrutiny of Assessment

The Central Excise Officers having jurisdiction over the factory/premises of the assessee

is responsible for the scrutiny of returns. For this purpose, the said officer(s) may require

the relevant documents. Though the statutory records have been dispensed with, the

assessee is required to maintain private records containing all requisite information as

required by different rules and also provide a list of all records maintained by him to the

Range Office. The Officer responsible for scrutiny of return may require the invoices

issued by the assessee, Daily Stock Account, Cenvat Account, cash ledgers, Ledger of all




receipts and payments and the source documents etc. It shall be compulsory for the

assessee to provide the necessary records upon receiving the "Requisition Letter‘ from

the Range Officer or other superior officers. He shall hand over the records under proper

acknowledgement and receive them back under proper acknowledgement too. The

Officer scrutinizing return may require presence of the assessee or his authorized person

at mutually convenient time, for seeking certain information relating to the records.

The Superintendent of Central Excise in-charge of the Range Office, with assistance of

the Inspectors in-charge of the factory of an assessee, will scrutinize all the returns. They

shall, in selected cases, call all connecting documents including invoices and the records

and scrutinize the correctness of assessment.

CHAPTER III B

Analysis of 6 cases

Case 1:

In the following example we have assumed that a product ‗X‘ which is an excisable

commodity requires two inputs i.e. raw material ‗A‘ and raw material ‗B‘ purchased at

the rate of Rs.100 which are excisable.

Table 1.1: Input Tax Calculations

Raw

Material Quantity Rate Value

Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

A 1 100 100 16% 16 2% 0.32 1% 0.16

B 1 100 100 16% 16 2% 0.32 1% 0.16

Total 32 0.64 0.32




By considering the rate of the raw materials as Rs.100, the conversion cost as Rs.60 and

the profit margin as Rs.40 the following calculations are made.

Table 1.2: Cost Sheet

Particulars

Amount

(Rs.)

Raw Material (A) 116.48

Raw Material (B) 116.48

Total 232.96

Less: Excise paid 32.96

Input cost 200

Add: conversion cost 60

Add: profit margin 40

Ass. Value 300

Add: 16% excise duty 48

Add: 2% education

cess 0.96

Add: 1% she cess 0.48

Product Price 349.44

In Table 1.2 we can see that the total expenses incurred in purchasing the raw material is

Rs.232.96. As this amount is inclusive of excise of Rs.32.96, it is subtracted from the

total and the actual cost incurred on the inputs is ascertained. This is possible as the

government has provided us with the Cenvat credit facility which helps us to avoid the

cascading effect.

Table 1.3: Calculation of excise liability on finished goods

Finished

Good Quantity

Ass.

Value

Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

X 1 300 16% 48 2% 0.96 1% 0.48

Table 1.4: Total liability

Particulars Excise Cess SHE Cess




Excise Paid 32 0.64 0.32

Output tax liability 48 0.96 0.48

Tax paid through cash 16 0.32 0.16

Tax paid through credit 32 0.64 0.32

In the above Table 1.4 the column of excise paid shows the excise duty, cess and she cess

paid on input goods. The column of output tax liability shows the total tax liability on the

finished goods calculated on the assessable value i.e. Rs.300/-. As per the Central Excise

Act we have a provision to avail Cenvat credit i.e. the amount already paid by us during

our purchase of raw materials. Hence the column tax paid through credit shows the credit

availed by us and the column tax paid through cash is the difference between the excise

liability and the Cenvat credit which is actually paid to the government.

Case 2:

In the following example we have assumed that a product ‗Y‘ which is exempt from

excise duty requires two inputs i.e. raw material ‗C‘ and raw material ‗D‘ purchased at

the rate of Rs.100 which are also exempt from tax liability.


Raw


Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

C 1 100 100 16% 0 2% 0 1% 0

D 1 100 100 16% 0 2% 0 1% 0

Total 0 0 0







Cost Sheet

Amount

(Rs.)

Raw Material (A) 100

Raw Material (B) 100

Total 200

Less: Excise paid 0

Input cost 200



Ass. Value 300


Add: 2% education

cess 0

Add: 1% she cess 0

Product Price 300


Rs.200. There is no excise duty paid in this case as the materials purchased are exempt

from tax.


Finished

Good Quantity

Ass.

Value

Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

Y 1 300 16% 0 2% 0 1% 0


Particulars Excise Cess SHE Cess

Excise Paid 0 0 0




Output tax liability 0 0 0

Tax paid through cash 0 0 0

Tax paid through credit 0 0 0

In the above table we can see that all the columns are nil as the raw material as well as

the finished goods are exempt from tax. The price of the final product in this case is the

cheapest as the product does not have to bare the pressure of the tax liability.

Case 3:


excise duty requires two inputs i.e. raw material ‗A‘ which is excisable and raw material

‗C‘ which is exempt from tax liability purchased at the rate of Rs.100.


Raw


Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

A 1 100 100 16% 16 2% 0.32 1% 0.16

C 1 100 100 16% 0 2% 0 1% 0

Total 16 0.32 0.16







Cost Sheet

Amount

(Rs.)



Total 216.48



Ass. Value 316.48


Add: 2% education

cess 0

Add: 1% she cess 0



Rs. 216.48. As this amount is inclusive of excise of Rs.16.48, it is subtracted from the



cascading effect.


Finished

Good Quantity

Ass.

Value

Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

Y 1 300 16% 0 2% 0 1% 0


Particulars Excise Cess

SHE

Cess







Credit available 16 0.32 0.16


paid on input goods. The column of output tax liability is nil as the finished product is

exempt from tax. As per the Central Excise Act we have a provision to avail Cenvat

credit i.e. the amount already paid by us during our purchase of raw materials but as the

output product is exempt from tax this facility is not available.

Case 4:

In the following example we have assumed that a product ‗X‘ which is excisable requires

two inputs i.e. raw material ‗A‘ which is excisable and raw material ‗C‘ which is exempt

from tax liability purchased at the rate of Rs.100.


Raw


Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

A 1 100 100 16% 16 2% 0.32 1% 0.16

C 1 100 100 16% 0 2% 0 1% 0

Total 16 0.32 0.16







Cost Sheet

Amount

(Rs.)



Total 216.48

Less: Excise paid 16.48

Input cost 200



Ass. Value 300


Add: 2% education

cess 0.96




Rs. 216.48. As this amount is inclusive of excise of Rs.16.48, it is subtracted from the



cascading effect.


Finished

Good Quantity

Ass.

Value

Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

Y 1 300 16% 48 2% 0.96 1% 0.48



SHE

Cess







Tax paid through credit 16 0.32 0.16


paid on input goods. The column of output tax liability shows the total tax liability on the

finished goods calculated on the assessable value i.e. Rs.300/-. As per the Central Excise

Act we have a provision to avail Cenvat credit i.e. the amount already paid by us during

our purchase of raw materials. Hence the column tax paid through credit shows the credit

availed by us and the column tax paid through cash is the difference between the excise

liability and the Cenvat credit which is actually paid to the government.

Case 5:


excise duty requires two inputs i.e. raw material ‗A‘ and raw material ‗B‘ purchased at

the rate of Rs.100 which are excisable.


Raw


Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

A 1 100 100 16% 16 2% 0.32 1% 0.16

B 1 100 100 16% 16 2% 0.32 1% 0.16

Total 32 0.64 0.32







Cost Sheet

Amount

(Rs.)


Raw Material (B) 116.48

Total 232.96



Ass. Value 332.96


Add: 2% education

cess 0

Add: 1% she cess 0



Rs.232.96. As this amount is inclusive of excise of Rs.32.96, it is subtracted from the



cascading effect.


Finished

Good Quantity

Ass.

Value

Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

Y 1 300 16% 0 2% 0 1% 0



SHE

Cess







Credit available 32 0.64 0.32


paid on input goods. The column of output tax liability is nil as the finished product is

exempt from tax. As per the Central Excise Act we have a provision to avail Cenvat

credit i.e. the amount already paid by us during our purchase of raw materials but as the

output product is exempt from tax this facility is not available.

Case 6:

In the following example we have assumed that a product ‗X‘ which is an excisable

commodity requires two inputs i.e. raw material ‗C‘ and raw material ‗D‘ purchased at

the rate of Rs.100 which are also exempt from tax liability.


Raw


Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

C 1 100 100 16% 0 2% 0 1% 0

D 1 100 100 16% 0 2% 0 1% 0

Total 0 0 0







Cost Sheet

Amount

(Rs.)

Raw Material (A) 100


Total 200

Less: Excise paid 0

Input cost 200



Ass. Value 300


Add: 2% education

cess 0.96




Rs.200. There is no excise duty paid in this case as the materials purchased are exempt

from tax.


Finished

Good Quantity

Ass.

Value

Excise

Rate Excise

Cess

Rate Cess

SHE

Cess

Rate

SHE

Cess

X 1 300 16% 48 2% 0.96 1% 0.48



SHE

Cess

Excise Paid 0 0 0



Tax paid through credit 0 0 0




In the above Table 6.4 the column of excise paid is nil as the raw material purchased was

exempt from tax. The column of output tax liability shows the tax liability on the finished

products. As we have not paid excise duty on input goods the total liability shown in the

column tax paid through cash has to be paid to the government.

CHAPTER IV A

Overview of Cenvat

Introduction

CENVAT (Central Value Added Tax) has its origin in the system of VAT (Value Added

Tax), which is common in West European Countries. Concept of VAT was developed to

avoid cascading effect of taxes. VAT is found to be a very good and transparent tax

collection system, which reduces tax evasion, ensures better tax compliance and increases

tax revenue.

MODVAT (Modified Value Added Tax) was introduced in India in 1986 (MODVAT

was re-named as CENVAT w.e.f. 1-4-2000). The system was termed as MODVAT, as it

was restricted upto manufacturing stage and credit of only excise duty paid on

manufacturing products (and corresponding CVD (Countervailing Duty) paid on

imported goods) was available.

Credit of duty paid on input and input services




The CENVAT scheme is principally based on system of granting credit of duty paid on

inputs and input services. A manufacturer or service provider has to pay excise duty and

service tax as per normal procedure on the basis of ‗Assessable Value‘ (which is mainly

based on selling price). However, he gets credit of duty paid on inputs and service tax

paid on input services.

Credit will be available of excise duty paid on:

(a) Raw materials (excluding few items)

(b) Material used in or in relation to manufacture like consumables etc.

(c) Paints, packing materials, fuel etc. used for any purpose. However, duty paid on high

speed diesel oil (HSD), Light Diesel Oil (LDO) and motor spirit (petrol) is not

available as CENVAT credit, even if these are used as raw materials or as fuel

No credit is available if final product is exempt from duty or final service is exempt from

service tax. If a manufacturer manufactures more than one product, it may happen that

some of the products are exempt from duty. Similarly, in case of service provider, some

services may be taxable while some services may not be covered. In such cases, duty paid

on inputs and service tax paid on input services used for manufacture of exempted

products/services cannot be used for payment of duty or tax on other final

products/services which are not exempt from duty/tax. If the manufacturer/service

provider uses common inputs both for exempted as well as un-exempted goods/services,

he should maintain separate records for inputs/input services used for manufacture of

exempted final products and should not avail CENVAT on such inputs/input services.

However, if he does not maintain separate records and inventories of inputs/input

services used in exempted final products/services, he has to pay an ‗amount‘ of 10% of

price of exempted goods and education cess is payable only on ‗duties of excise‘.

‗Amount‘ is not ‗duty‘. Hence, education cess is not payable on such ‗amount‘. In case of

exempt services, he can utilize CENVAT credit only upto 20% of service tax payable on

output service.

Credit of duty on inputs can be taken up instantly, i.e. as soon as inputs reach the

premises. In case of capital goods, upto 50% credit is available in current year and

balance in subsequent financial year. In case of input services, credit is available only




after the amount of bill is paid to person who had provided the service. In some cases, it

may happen that, duty paid on inputs and service tax paid on input services may be more

than duty payable on final products. In such cases, though the CENVAT credit will be

available to the manufacturer/service provider, he cannot use the same and the same will

lapse. There is no provision for refund of the excess CENVAT credit. However, the only

exception is in case of exports where duties paid on input material or services used for

goods exported are refundable. Another exception is that the Tribunal can order refund

when CENVAT credit could not be availed due to fault / wrong action of the department.

Refund may also be granted if assessee could not utilize credit for some other reason.

CENVAT on inputs or input services is available only if the process is 'manufacture'.

Otherwise, CENVAT is not available. (In fact, in such cases, no duty is payable on the

final product and question of CENVAT does not arise at all).

CENVAT in Service tax and Central Excise

The system of VAT was introduced in Central Excise in 1986. The concept was also

introduced in case of Service Tax in 2002. However, these two were independent of each

other. Since both excise (goods tax) and service tax are under Central Government, the

Government intends to integrate these two taxes. Full integration of goods and service tax

will take considerable time, as it can be achieved only after political consensus is

achieved. However, a beginning has been made by making credit of service tax and

excise duty inter-chargeable w.e.f. 10-9-2004.

Overview of CENVAT System

o Credit of duty paid on input and input services and capital goods - The CENVAT

scheme is principally based on system of granting credit of duty paid on inputs, input

services and capital goods. A provider of taxable output services has to charge service

tax in his invoice as per normal procedure. However, he gets credit of (a) duty paid on

inputs and capital goods and (b) service tax paid on input services. This is termed as

CENVAT Credit. This CENVAT Credit can be used for payment of service tax on his

output services.




o Input services eligible for credit - An output service provider will be entitled to credit of

service tax paid by him on input services, which are used by him directly or indirectly

in or in relation to provision of output services. Even input services relating to setting

up an office premises will be eligible. In addition to this, services like advertising,

activities relating to business like accounting, auditing, storage, transport etc., which

are only indirectly related to provision of output services would also be permitted for

credit. In fact, all input services relating to all activities relating to business are eligible

for CENVAT credit.

o Inputs goods eligible for CENVAT to service provider - Credit will be available of

excise paid on inputs used for providing output services, except high speed diesel oil

(HSD), Light Diesel Oil (LDO) and motor spirit (petrol).

o CENVAT on Capital Goods - Capital goods used for providing output taxable service

will be available. Credit of duty paid on machinery, plant, spare parts of machinery,

tools, dies, etc., is available. However, upto 50% credit is available in current year and

balance in subsequent financial year or years. A service provider can take out capital

goods from his premises, provided that he brings them back within 180 days. This

period can be extended by Assistant/Deputy Commissioner.

o Credit on motor vehicles used to provide output service - Motor vehicles are not

‗capital goods‘ for purpose of ‗manufacture‘, but credit on motor vehicles would be

allowed as ‗capital goods‘ only to the service providers of courier, tour operator, rent-a-

cab scheme operator, cargo handling agency, outdoor caterer, pandal and shamiana

operator and goods transport agency. Motor vehicle will not be treated as ‗capital

goods‘ for manufacturers or other service providers.

o No CENVAT credit if output service exempt from service tax - No credit is available if

output service is exempt from service tax.

o Service provider providing exempted as well as unexempted services - If the service

provider uses common inputs both for exempted as well as un-exempted services, he

should maintain separate records for input services used for exempted output services

and should not avail CENVAT on such inputs/input services. However, if he does not

maintain separate records and inventories of inputs/input services used in exempted




output services, he can utilize CENVAT credit only upto 20% of service tax payable on

output service.

For example, assume that service tax payable on output service is Rs.100. Service tax

paid on input service is Rs.15. These input services are used both for taxable output

services and exempt/non-taxable output services. In such case, assessee can avail and

utilize credit of entire Rs.15. However, if tax paid on input services is Rs.75, and these

are used both for exempted and taxable services, then assessee can actually utilize credit

of only Rs.20. He will have to pay balance in cash, even if credit of Rs.55 is still

available in his books. He can carry forward balance credit and can utilize it in

subsequent month/s, if opportunity arises.

Inputs eligible for CENVAT

All goods, except (a) light diesel oil, high speed diesel oil, motor spirit, commonly known

as petrol and (b) motor vehicles are eligible, but these should be used for providing

taxable output service.

Input service for purpose of CENVAT Credit

―Input service‖ means any service used by a provider of taxable service for providing an

output service. The services that will be covered are services in relation to -

a. Setting up, modernization, renovation or repairs of a factory, premises of provider of

output service or an office relating to such factory or premises

b. Advertisement or sales promotion

c. Market research

d. Storage upto the place of removal

e. Procurement of inputs

f. Activities relating to business, such as accounting, auditing, financing, recruitment

and quality control, coaching and training, computer networking, credit rating, share

registry and security, inward transportation of inputs or capital goods and outward

transportation upto the place of removal.




Credit only after payment to service provider

Credit of input services can be availed only after the output service provider makes

payment of value of input services and the service tax payable on it, as shown in invoice

of input service provider. In case of input goods, credit is available as soon as goods are

received in premises, but not so in case of credit of service tax. Suppose the invoice is for

Rs. 100 and service tax is Rs. 12.24, can you avail CENVAT credit if you pay only

Rs.12.24 to the input service provider? The answer is no, as the words used are ‗value of

input services and the service tax payable on it‘.

Capital goods eligible for CENVAT credit

a. Tools, hand tools, knives etc., Machinery, Electrical machinery, Measuring, checking

and testing machines etc., Grinding wheels and the like goods, Abrasive powder or

grain on a base of textile material.

b. Pollution control equipment.

c. Components, spares and accessories of the goods specified above.

d. Moulds and dies

e. Refractories and refractory material

f. Tubes, pipes and fittings thereof, used in the factory

g. Storage Tank.

The capital goods should be used for providing output service. If these are exclusively

used to provide exempted services, credit of duty paid will not be available. Service

provider can send out capital goods for providing output service, but these should be

brought back within 180 days. Extension can be obtained from Assistant/Deputy

Commissioner. In fact, in case of large projects, it will be highly uneconomical to bring

back the capital goods to the premises of service provider. Hopefully, obtaining

permission from AC/DC should not be a problem. If permission is rejected, reasoned




order will have to be given. Order rejecting extension is an appealable order and appeal

can be filed with Commissioner (Appeals).

Depreciation cannot be availed on CENVAT portion

Manufacture cannot avail depreciation in respect of excise portion e.g. if cost of ‗capital

goods‘ is Rs. 1.15 lakhs, out of which Rs. 0.15 lakh is duty paid, assessee can claim

depreciation under Income Tax only on Rs.1 lakh, if he has availed CENVAT credit of

Rs.0.15 lakh.

Credit to be availed in two stages of 50% each

CENVAT credit on capital goods is required to be availed in more than one year, viz.

upto 50% credit can be availed when these are received and balance in any subsequent

financial year. The condition for taking balance credit is that the capital goods should be

in possession and use of final products in subsequent years.

The exception is that in case of consumables like spare parts, components, moulds and

dies, refractories, refractory materials and grinding wheels, the balance credit can be

availed in subsequent year, even if they are not in possession and use.

Duties and documents eligible for credit

All taxes and duties defined as ‗CENVAT Credit‘ will be eligible.

a. Basic excise duty on indigenous inputs [Paid on goods specified in First Schedule to

CETA (Central Excise Tariff Act)]. Corresponding CVD on imported goods is

allowable.

b. Education cess on manufactured excisable goods and CVD equal to education cess on

imported goods. This credit can be utilized only for payment of education cess on

final product or output services

c. National Calamity Contingent Duty (NCCD) and corresponding CVD paid on

imported goods. This credit can be used for payment of NCD on outputs only and not

for any other duty.

d. Service tax on input services.




e. Education cess paid on service tax. This credit can be utilized only for payment of

education cess on final product or output services.

f. Secondary and higher education cess paid on service tax. This credit can be utilized

only for payment of secondary and higher education cess on final product or output

services.

g. Additional Customs Duty paid. This duty is imposed w.e.f. 1-3-2005. This credit will

not be available to service providers. It is clear that even if the goods are ‗capital

goods‘, full 100% credit will be available in first year itself

h. Additional Excise duty paid under. Basic duty and service tax on input services are

inter-changeable, i.e. Credit of duty paid under one head can be utilized for payment

of duty under other head.

Restrictions on taking CENVAT credit

Credit of any duty can be utilized for payment of any duty on final product. However,

some exceptions are provided. Thus, excluding these exceptions as explained below,

input credit of any type of duty can be utilized for payment of any type of duty on final

product.

a. In respect of inputs/capital goods procured from EOU unit, CENVAT credit is

available only partially.

b. Education cess paid on input or input service can be utilized either for payment of

education cess on output services or education cess on final product, but cannot be

used for payment of other taxes.

c. Credit only upto input services, inputs and capital goods received upto end of

month/quarter.

Service tax is presently payable by 5th of following quarter in case of individual,

proprietary firm or partnership firm, and by 5th of following month in case of other

service providers except in month of March. However, only CENVAT credit available as

on last day of the month can be utilized for payment of duty even if tax is payable by 5th

of following month/quarter. CENVAT credit in respect of input services/inputs/capital




goods received after end of month cannot be utilized while paying service tax on 5th of

following month. The credit can be utilized in subsequent month only.

Eligible duty/tax paying documents

Credit can be taken on the basis of following documents

o Invoice of Manufacturer from factory.

o Invoice of manufacturer from his depot or premises of consignment agent.

o Invoice issued by registered importer.

o Invoice issued by importer from his premises or consignment registered with Central

Excise.

o Invoice issued by registered first stage or second stage dealer.

o Supplementary Invoice.

o Bill of Entry.

o Certificate issued by an appraiser of customs in respect of goods imported through

foreign post office.

o TR-6 Challan of payment of tax where service tax is payable by other than input

service provider.

o Invoice, bill or challan issued by provider of input service on or after 10-9-2004.

o Invoice, Bill or Challan issued by input service provider under rule 4A of Service tax

Rules.

Essential requirement of invoice

CENVAT credit cannot be denied as long as the document contains essential aspects of

duty/tax payment

a. Payment of duty or service tax

b. Prescription of goods or taxable service

c. Assessable value

d. Name and address of the factory or warehouse or provider of input service.

Thus, CENVAT cannot be denied if the documents contain these details and no

permission/condonation is required if the invoice/bill/challan contains these basic details.

Exempted output services




As per basic principle of VAT, credit of duty or tax can be availed only for payment of

service tax on output services. As a natural corollary, if no duty is payable on final

product or output services, credit of duty/tax paid on inputs or input services cannot be

availed. CENVAT credit is not admissible on such quantity of input or input service

which is used in manufacture of exempted goods or exempted services.

Thus, if inputs and input services are partly used in exempted final product/output

service, CENVAT credit of that portion of input/input service will not be available.

Returns to be submitted

A return has to be submitted to Range Superintendent of Central Excise in the prescribed

form, as follows –

o Half yearly return within one month from close of half year, by provider of output

services. The return should be in form ST-3.

o Half yearly return within one month from close of half year, by Input Service

Distributor. The return should be in form ST-3.

Revised return

There is no provision for submission of revised return. If assessee finds that he has made

some mistake, he should pay the amount by TR-6 challan and inform department

suitably. If he has paid excess amount by mistake, he is required to file refund claim. He

cannot adjust excess payment on his own, except in few cases where it has been

specifically permitted. If he has not taken CENVAT credit of certain inputs, input

services or capital goods, he can avail it in subsequent period, since there is no time limit

for availing CENVAT credit. This will be reflected in his return for that subsequent

period, as in normal course.

Tax to be paid in cash but CENVAT Credit can be availed




Taxable service will not be treated as output service of the recipient for purpose of

availing of CENVAT credit of duty of excise paid on inputs or service tax paid on any

input services. Thus, the recipient of service has to pay the service tax in cash by TR-6

challan. He cannot utilize his CENVAT credit for payment of this amount, as it is not his

‗output service‘, though he is liable to pay service tax. However, once the person

receiving the service pays service tax, it is his ‗input service‘. He can avail credit of

service tax paid, if it is his ‗input service‘ as defined. The TR-6 challan by which he has

paid the service tax will be eligible document for availment of service tax credit.

CHAPTER IV B

Brief introduction to Service Tax

Introduction

Service tax is said to be tax of 21st century. This tax made a small beginning in 1994.

This tax was first introduced with effect from 1-7-1994 on three services. The rate was

5% and it was subsequently increased to 8% w.e.f. 14-5-2003, it was enhanced to 10%

w.e.f. 10-9-2004. An education cess of 2% of service tax has been imposed w.e.f.

10-9-2004. Presently, Service tax is payable @ 12% w.e.f. 18-4-2006 (plus education

cess of 2% and secondary and higher education cess of 1% i.e. total 12.36%) on ‗taxable

services‘ w.e.f. 01-04-2007

Legally, you have to show service tax, education cess and secondary and higher

education cess separately in invoice. You cannot just charge 12.36% as ‗service tax‘. In

that case, department can ask you to pay further 0.24% plus 0.12% amount. You should

also pay it by showing separate account head in TR-6 challan, indicating appropriate

code.

Service Provider

In most of the cases, service provider, i.e. person who is providing taxable service is

liable to pay service tax. However, in few cases, exceptions have been made and other

person is made liable to pay service tax. The major exceptions are as follows




(a) When service provider is non-resident, service receiver is liable.

(b) In case of service of Goods Transport Agency (GTA), here consignor/consignee who

is paying freight is liable.

(c) In case of insurance agents and mutual fund agents, insurance company and mutual

fund are liable.

(d) In case of sponsorship service provided to a body corporate or firm, the body

corporate or firm receiving such sponsorship service will be liable.

Taxable Service

Service is taxable if service is provided by ‗any person‘. In some case, service is taxable

if provided to ‗client‘ or ‗customer‘. Hence, tax liability will often depend on who is

service provider and service receiver. Taxable service includes any taxable service

provided or to be provided by any unincorporated association or body of persons to a

member thereof, for cash, deferred payment or any other valuable consideration. Gross

amount charged for taxable service shall include any amount received towards the taxable

service before, during or after provision of taxable service. The service tax is payable by

5th of the month following the month in which payments are received toward value of

taxable services except in March. Service tax on value of taxable services received during

month of March or quarter of March is required to be paid by 31st March. If service

provider does not receive any payment from his customer, there is no liability of service

tax. Service tax is payable only on ‗value of taxable service‘ actually ‗received‘, and not

on amount ‗billed‘. The service provider is required to show service tax separately in his

invoice/bill. This is also required to enable the service recipient to claim credit of service

tax paid by the service provider.

Calculation of service tax by back calculations

The gross amount charged can be taken as inclusive of service tax and the ‗value‘ and

‗service‘ tax is to be calculated by back calculations. For example, if Bill amount is

Rs.1,000 and service tax is not shown separately in invoice, the tax payable is not




Rs.123.60, but Rs.110 and Assessable Value is Rs.890 (Check that 12.36% of Rs. 890 is

Rs.110 and total of Rs. 890 plus Rs.110 is Rs.1,000. In invoice, Rs.106.8 will be service

tax, Rs.2.1 will be education cess and Rs.1.1 will be secondary and higher education

cess).

Exclusion of value of material

If the amount charged includes value of goods and materials sold, service tax will not be

payable on that value. There should be documentary evidence showing value of goods

and materials sold. This exemption is available only if Cenvat credit of such material is

not taken. If such credit was taken, assessee should pay amount equal to the credit. Such

payment should be before sale of such goods and materials.

Abatement in certain cases from gross value of contract

In some cases, abatement has been provided from gross value of contract by way of an

exemption notification, e.g. in case of construction services, service tax is payable on

33% of value of gross amount including of material, in case of outdoor catering contracts,

service tax is payable on 50% of amount, etc. Thus, exemption notifications have been

used as ‗valuation provisions‘. The so called ‗exemption notification‘ is on the

assumption that in absence of such ‗exemption‘, service tax would be payable on value of

such goods also. This is incorrect as tax is payable only on ‗value of service‘ and not on

‗gross value of contract‘. Abatement is provided of certain percentage, probably on the

presumption that the abated amount represents value of material. ‗Exemption‘ is granted

in respect of certain value which is not taxable at all in the first place. You cannot

‗exempt‘ something which is not taxable at all.

Specific Exemption

In case of some services, service tax is payable at lower rates, i.e. partial abatement is

available from gross value. The lower rate is applicable if the service provider does not

avail Cenvat credit of duty/tax on inputs, input services and capital goods.




Taxable Service Partial abatement available Relevant Notification

w.e.f. 1-3-2006

Accommodation booking

service by tour operator

10% of gross amount

charged

1/2006-ST dated 1-3-

2006.

Air Travel Agent

Option to pay service tax at

flat rate on ‗basic fare‘ @

0.6% in case of domestic

booking and 1.2% in case of

international booking

rule 6(7)

Business Auxiliary Service in

relation to processing of parts

and accessories used in

manufacture of cycle, cycle

rickshaws and hand operated

sewing machines

Tax on 70% of gross amount

if gross amount is inclusive

of cost of inputs and input

services, whether or not

supplied by the client

1/2006-ST dated 1-3-

2006.

Commissioning and

installation services


if gross amount includes

value of material

1/2006-ST dated 1-3-

2006.

Construction Service


if gross amount includes

value of material

1/2006-ST dated 1-3-

2006.

Goods Transport Agency

(GTA)

Tax only on 25% amount in

his invoice [Payment will be

made by consignor /

consignee who is actually

paying freight]

1/2006-ST dated 1-3-

2006.

Mandap keeper, hotels and

convention services,

providing full catering

services

Tax on 60% gross amount

charged

1/2006-ST dated 1-3-

2006.




Outdoor caterer

Tax on 50% amount if he

provides full and substantial

meal

1/2006-ST dated 1-3-

2006.

Package tours and other than

package tour

Tax is payable only on 40%

of gross amount charged

1/2006-ST dated 1-3-

2006.

Pandal and shamiana Service

70% of gross amount

charged if full catering

service provided

1/2006-ST dated 1-3-

2006.

Rent-a-cab operator Tax payable on 40% of gross

amount charged

1/2006-ST dated 1-3-

2006.

Transport of goods in

container by rail

Tax payable on 30% of gross

amount charged

1/2006-ST dated 1-3-

2006.

Exemption from service tax

o Small units whose turnover is less than Rs. 4 lakhs per annum are exempt from service

tax.

o There is no service tax on export of services, if service is exported as per ‗Export of

Service Rules‘.

o Services provided to UN and International Agencies and supplies to SEZ or developer

are exempt.

o Exemption form service tax has been provided to all taxable services provided by

Reserve Bank of India.

o Service tax is not payable on value of goods and material supplied to the service

recipient while providing service. There should be evidence about its value. Such

exclusion is permissible only if Cenvat credit on such goods and material is not taken.

Exemption or Rebate of Service tax on export services: Exporter of service has three

options -

1.Export without payment of service tax and utilize Cenvat Credit for payment of service

tax on other services.




2.Export without payment of service tax and claim rebate of service tax paid on input

services and excise duty paid on inputs (or forget about rebate as procedure is too

complicated and impractical)

3.Pay service tax on exported services and claim rebate (by this, he can utilize his input

credit)

Procedure

The main procedures to be followed are:

1. Registration

2. Maintenance of records

3. Payment of service tax

4. Half yearly returns

There is no prescribed form of records. The records maintained by assessee including

computerized data maintained in accordance with various other laws are acceptable. In

the first return, the assessee should furnish a list of all accounts maintained by assessee

including the memoranda received from his branch offices. It is obligatory for an assessee

to preserve records at least for a period of five years.

Registration:

Administration of service tax is under Central Excise department. A ‗person liable for

paying service tax‘ has to register with Superintendent of Central Excise under whose

jurisdiction your premises fall. He should register within 30 days from date of

commencement of the business of providing taxable service. The person will have to

apply for registration in form ST-1. An acknowledgement will be given on duplicate copy

of ST-1 form by Superintendent of Central Excise, in whose jurisdiction the person

operates. If a person is providing more than one taxable service, he may make a single

application, i.e., even if the service falls under more than one heading, service tax is

payable only once. If one service provider is providing more than one taxable service, he

needs to take only one registration. However, the certificate shall be endorsed for all




taxable services and tax liability will have to be discharged separately for each of the

taxable services separately. He should mention in the application all the taxable services

provided by him.

Applicant should submit following at the time of filing application for registration (a)

copy of PAN (b) proof of residence and (c) constitution of applicant. The registration

certificate will be granted by Superintendent of Central Excise in seven days in form

ST-2. If the registration certificate is not granted within seven days, the registration shall

be deemed to have been granted.

Penalty for late registration

If there is delay, interest for delayed payment will have to be paid, which cannot be

waived. Though there is no mandatory penalty for delay in registration, penalty upto Rs.

1,000 can be imposed. In addition, penalty of Rs. 100 per day can be imposed for late

payment of tax. In case of suppression of facts, willful mis-statement, fraud and

collusion, higher penalty is payable. If an assessee proves that there was reasonable cause

for delay in registration or payment of service tax, the penalty can be waived.

Returns

Every assessee has to submit half yearly return in form ST-3 in triplicate within 25 days

of the end of the half-year. ‗Half year‘ means 1st April to 30th September and 1st

October to 31st March of financial year. The return should be accompanied by TR-6

challan, evidencing payment of duty.

Doctrine of unjust enrichment

Since service tax is indirect tax, it is recoverable from customer. If you recover the

amount from customer and again claim refund, you will get double benefit. Hence,

provision of ‗unjust enrichment‘ has been made in the law. As per the doctrine of unjust

enrichment, refund will be granted to assessee only if assessee has not passed on the tax

burden to the customer/client. As it will be presumed that assessee has passed on the

burden of service tax, he will have to prove that he has not passed on the burden to the

customer.




Penalty for non-payment or delayed payment of service tax

If service tax is not paid or belatedly paid, penalty shall be imposed, which will be

minimum Rs. 200 per day during which such failure continues or @ 2% per month,

whichever is higher, starting with the first day after due date till date of actual payment of

outstanding amount. Mercifully, the penalty cannot exceed the service tax which was

payable. In addition, of course, service tax and interest is payable.

Penalty in case of fraud, suppression of facts etc.

Where any tax is not levied or paid or erroneously refunded, the person shall be liable to

pay penalty which shall not be less than amount of service tax but can be upto twice the

amount of service tax not levied or not paid or erroneously refunded. The penalty can be

waived, if assessee proves that failure was due to reasonable cause. The penalty will be

reduced to 25%, if tax, interest and penalty are paid within 30 days from date of receipt

of order of Central Excise Officer.




Services at D-Link (India) Ltd.

1. Business Auxiliary Service

Tax on this service was introduced with effect from 1-7-2003. Any service provided or to

be provided to a client, by any person in relation to business auxiliary service is a

‗taxable service‘. ‗Business auxiliary service‘ means any service in relation to —

o Promotion, marketing or sale of goods produced or provided by or belonging to the

client; or

o Promotion or marketing of service provided by the client; or

o any customer care service provided on behalf of the client; or

o procurement of goods or services, which are inputs for the client;

o a service incidental or auxiliary to any activity such as billing, issue or collection or

recovery of cheques, payments, maintenance of accounts and remittance, inventory

management, evaluation or development of prospective customer or vendor, public

relation services, management or supervision

2. Commercial Training or Coaching Services


be provided to any person, by a commercial training or coaching center in relation to

commercial training or coaching, is a ‗taxable service‘. ‗Commercial training or coaching

centre‘ means any institute or establishment providing commercial training or coaching

for imparting skill or knowledge or lessons on any subject or field other than sports, with

or without issuance of a certificate and includes coaching or tutorial classes but does not

include pre-school coaching and training centre or any institute or establishment which

issues any certificate or diploma or degree or any educational qualification recognized by

law for the time being in force. Only private coaching or training services are covered.




Teaching in Government recognized institutes will not be a taxable service. Pre-school

coaching has been specifically excluded from the definition.

Commercial coaching for board, university or competitive examinations:

Commercial coaching and training services provided by institutes that prepare applicants

for Board examinations, University examinations and competitive examinations like

entrance examinations of IIT, Civil services etc. are chargeable to service tax [However,

it will not be taxable if service is provided by recognized colleges]

Postal coaching taxable:

Service provided by postal coaching are taxable, including postal charges collected for

rendering postal tuition service

Commercial training which forms essential part of course leading to recognized

certificate/diploma exempt:

Some institutes like CA/ICWA/ICSI issue recognized diplomas/degrees. They have

provided that the students must undergo compulsory training in some subject (e.g.

language or computer training). However, the training is provided by some commercial

institutes recognized by the institute which gives recognized diploma. In such case, the

service rendered by the commercial training centre or coaching centre will be exempt

from service tax, if following conditions are satisfied -

(a) The training or coaching should form essential part of the course or curriculum

leading to issuance of recognized certificate, diploma, degree or other educational

qualification

(b) The student should make payment of fees to the institute or establishment issuing

such certificate (e.g. ICAI, ICWAI or ICSI etc.) and not to the commercial

coaching or training centre.

Vocational training Institutes:




It means a commercial training or coaching centre which provides vocational training or

coaching that impart skills to enable the trainee to seek employment or undertake self-

employment, directly after such training or coaching.

Recreational Training Institutes:

It means a commercial training or coaching centre which provides training or coaching

relating to recreational activities such as dance, singing, martial arts or hobbies, foreign

language institutes, hobby classes, institutes teaching martial arts, painting, dancing etc.

would not be chargeable to service tax.

3. Manpower Recruitment or Supply Agency’s services


be provided to a client, by manpower recruitment or supply agency in relation to the

recruitment or supply of manpower, temporarily or otherwise, in any manner, is a

‗taxable service‘. ―Manpower recruitment or supply agency‖ means any person engaged

in providing any service, directly or indirectly, in any manner for recruitment or supply of

manpower, temporarily or otherwise, to a client. Services of manpower recruitment were

taxable from 7-7-1997. Services of manpower supply (usually termed as ‗labour

contractor‘) have been made taxable w.e.f. 16-6-2005.

The coverage includes services provided by an agency for following services –

o preliminary stage of building a database of manpower for different categories of

personnel employment, whether white collared or blue collar, whether for

employment in India or overseas;

o determining manpower requirement for the client, preliminary identification, short

listing and screening of prospective candidates, providing specialists for interviewing

prospective candidates, arranging for their interviews at every stage;

o placing advertisements for recruitment of manpower in the print or electronic media.

In short, it will cover entire gamut of services from incipient stage of

selecting/identifying manpower requirement till stage of final selection.




If the person approaches manpower recruitment agency for employment (as usually

happens for employment in Gulf countries), the prospective candidate for employment

becomes the client for purposes of service tax.

4. Transport of Goods by Road Service

Any service provided or to be provided to a customer, by a goods transport agency, in

relation to transport of goods by road in a goods carriage is a ‗taxable service‘. The basic

scheme is that the goods transport agency (GTA) will be preparing the consignment note

and invoice containing details as required. Service tax payable will also be shown on the

invoice/bill/challan prepared by goods transport agency. However, payment of service tax

will be made by the consignor or consignee who is actually paying the freight, if the

consignor/consignee paying freight is a company, body corporate, cooperative society,

registered society, factory, partnership or dealer registered under Central Excise. All sort

of services of goods transport by road are not liable to service tax. There is no general

service tax on all goods transport. The tax is only on services provided by Goods

Transport Agency (GTA). Only GTA which issues a consignment note is liable to service

tax. One essential requirement is that the GTA is one who issues a ‗consignment note‘.

Finance Minister, in his speech, has also clarified that the service tax is on transport

booking agents and not on truck owners or truck operators. There is no general service

tax on all goods transport. Service tax is payable only when service is provided by ‗goods

transport agency‘, as defined in the Act.

A GTA can avail either of the 2 benefits given to him i.e. (a) He can enjoy abatement of

75% on value of service & pay tax on only 25% of the value of service (b) he can claim

the benefit of Cenvat Credit on duties paid on inputs & capital goods. In both the cases

mentioned above, he is not barred from taking credit for service tax paid by him on value

of input services availed by him for the purpose of rendering the taxable service. There is

no specific provision, but normally, a choice cannot be changed during a financial year.

However, in the case of GTA, only a person who is out of his mind will avail Cenvat on

inputs and capital goods and show full service tax in his invoice. Rest will not avail

Cenvat on inputs and capital goods and will show 25% tax in their invoice. Person who is




showing full i.e. 10.2% service tax in his invoice will soon go out of business and hence

any further question will not arise.

Normally, service tax is payable @ 12% plus 2% education cess plus 1% secondary and

higher education cess on service tax i.e. total 12.36%. However, there is partial

exemption and as per exemption notification dated 3-12-2004, actually service tax is

payable on 25% of gross amount charged from customer by goods transport agency.

Thus, service tax payable will be 3% of gross amount charged plus 2% education cess

plus 1% secondary and higher education cess i.e. total 3.09%.

Tax @ 25% is payable only if

(a) the credit of duty paid on inputs or capital goods used for providing the taxable

service has not been taken under the provisions of the Cenvat Credit Rules, 2004; or

(b) the goods transport agency has not availed the benefit [As per this exemption

notification, if the service provider supplies certain goods while providing service, he

is not required to pay service tax on the value of goods supplied]. It is apparent that

these conditions for exemption are required to be fulfilled by goods transport agency

and if he fulfills those conditions, the consignor/consignee paying service tax will

also be eligible for this concession.




CHAPTER V

Central Excise applied to D-Link (India) Ltd.

Introduction

D-link (India) Ltd. has a separate company secretary department for the management of

indirect taxes which is lead by the Company Secretary, Asst. Company Secretary, and is

assisted by the commercial executive. Together these people are responsible for handling

the entire system. The activities pertaining to Central Excise are carried on in an

appropriate pattern by the concerned persons at D-Link (India) Ltd. The Commercial

Executive is specifically responsible for the calculations, documentations, credit

availment and payment of the excise duty liable to D-Link (India) Ltd.

The ERP (Enterprise Resource Planning) system at D-Link (India) Ltd. helps maintain

records of all the activities from the issue of PO (Purchase Order) to the GIN‘s (Goods

Inward Note) prepared, from the job orders made to the sales invoice and from the excise

duty payable to the CENVAT credit availed. All the details regarding the purchase, sales,

inventory, finances and so on are been maintained in an ERP system in a systematic

format as would be necessary to satisfy the requirements of the government.

Record Maintenance and Procedure for Excise

1. Every person who produces or manufactures excisable goods is required to get

registered, unless exempted.

2. Manufacturer is required to maintain Daily Stock Account (DSA) of goods

manufactured, cleared and in stock.

3. Goods must be cleared under Invoice of assessee, duly authenticated by the owner or

his authorized agent.




4. Duty is payable on monthly basis through TR-6 challan / Cenvat credit by 5th of

following month, except in March. SSI units have to pay duty on monthly basis by

15th of following month.

5. Cenvat records and return by 10th of following month.

6. Monthly return in form ER-1 should be filed by 10th of following month. SSI units

have to file quarterly return in form ER-3 and EOU/STP units to file monthly return

in form ER-2.

7. Assessees paying duty of rupees one crore or more per annum through PLA are

required to submit Annual Financial Information Statement for each financial year by

30th November of succeeding year in prescribed form ER-4

8. Inform change in boundary of premises, address, name of authorized person, change

in name of partners, directors or Managing Director in form A-1.

Documentation

S. No.

Documents and

Records

Designation

of Authorized

Person Work Process

1

MRS (Material

Requisition Slip)

Specific Dept.

HOD

As and when there is requirement for material

the concerned department places an MRS which

consists all the details regarding the

requirement.

2 PO (Purchase Order) Asst. Materials

When details of the requirement are received in

the form of an MRS, a PO is prepared and sent

to the supplier.

3

BOE (Bill of

Exchange) Exim Asst.

After the packing list and invoice is received a

BOE is prepared.

4 GIN (Goods Inward GIN Asst. After the input goods are unloaded the GIN is




Note) prepared.

5 QC (Quality Check)

Quality

Inspector

After the GIN is prepared the goods are

checked for quality assurance.

6 Entry Book

Commercial

Executive

Entry book of duty credit on input goods is

maintained

7

MRS (Material

Requisition Slip)

Production

Manager

Requirement of materials on the basis of the job

order is sent to RM (Raw Material) stores.

8 Job Order Valuation

HOD

Production

The Completed as well as the products in WIP

(Work in Process) are valued.

9

Material In-Out

report Asst. Stores

As soon as the goods are produced they are

transferred to the FG (Finished Goods) Stores.

10 Invoice Asst. Logistics

After an order is received from the customers

by the logistics department, an invoice is raised

and sent to the FG stores.

11

Finished Goods In-

Out report Asst. Stores

When the goods are transferred from the FG

stores to the logistics department the record is

maintained in the In-Out register.

12

Transporter Docket

and Gate Pass Asst. Logistics

The finished goods are checked with the

invoice and then the packing list is made, goods

are packed and labeled and the transporter

docket and gate pass is prepared.

13

Documents relating

to Excise

Commercial

Executive

The amount of Excise payable is calculated and

debited from the Entry book of duty credit on

input goods.




Product cycle (Internal Modem)

The following calculations help us get a clear picture about the chain a product goes

through and the excise duty payable for the product.

Table 1 provides information about the quantity of raw material purchased by D-Link

(India) Ltd. to manufacture 25000 FGDFM-560IS-IN internal modems (wrt. suppliers),

the rate at which they were purchased and the excise duty, cess, secondary and higher

education cess and additional duty that was paid on the same.

Table 1: Input Tax Calculations

Particulars

GIN.

NO.

Quantity

(Units)

Rate

(Rs.)

approx.

Ass.

Value

Excise

Duty Cess

SHE

Cess

Add.

Duty

Raw Material

(Imported) 471 1935250 1.165 2253900 360624 7212.48 3606.24 102493

Raw Material

(Local)

Supplier 1 354* 30100 0.615 18500 0 0 0 0

Supplier 2 367* 25000 0.98 24500 0 0 0 0

Supplier 3 439* 39000 0.401 15650 0 0 0 0

Supplier 4 461 10000 4.2 42000 6720 134.4 67.2 0

Supplier 5 492* 26205 0.755 19775 0 0 0 0

Supplier 6 526 5000 4.2 21000 3360 67.2 33.6 0

TOTAL 370704 7414.08 3707.04 102493

*Exempt from Tax (non-excisable goods)

Total duty paid = 370704 + 7414.08 + 3707.04 + 102493 = 484318.12

Total duty paid per product = 484318.12 / 25000 = 19.3727248 ≈ 19




Table 2 contains details of an invoice prepared for an order of 300 Internal 56K

Fax/Modem Card Ver. 1.2 which provides details regarding the excise duty payable on

the 300 units and calculations made to ascertain excise duty payable per product.

Table 2: Invoice

Product Inv. No. Date Quantity

Ass.

Value

Excise

Duty Cess

SHE

Cess

INTERNAL 56K

FAX/MODEM

CARD VER.1.2 FL000402 12/6/2007 300 59237 9477.9 189.558 94.7792

1 197.457 31.593 0.63186 0.31593

From the above calculation we see that one product will cost us Rs. 230/- and the tax

payable per product is Rs.32/-

Assessable Value 197.457

Excise Duty (16%) 31.593

Cess (2%) 0.63186

She Cess (1%) 0.31593

229.9975 ≈ 230

Table 3 provides details of sale of 300 units made to HCL Infosystems Ltd.

Table 3: Product wise dispatch report

Customer Inv. No. Order Dt. Bill Dt. Quantity Rate Value

HCL INFOSYSTEMS LTD. FL000402 5/6/2007 12/6/2007 300 230 69000

(PONDICHERRY MFG. PLANT-3)




Table 4:

Particulars Excise

Output tax liability 32

Less: Excise paid 19

Tax paid through cash 13

Tax paid through Cenvat credit 19

The above table shows that the output tax liability is Rs.32 i.e. excise liability calculated

on the finished product. The excise paid is the amount paid per product as tax on the

materials purchased. As per the Central Excise Act we have a provision to avail Cenvat

credit i.e. the amount already paid by us during our purchase of raw materials. Hence

difference between these two amounts is the tax payable to the government in cash.




CHAPTER VI

Observation and Conclusion

Observations

1. Efficient systems: The systems are updated continuously so as to keep pace with

technological advancements and ever changing excise laws, rules and regulations;

thus ensuring a smooth flow of operations.

2. Optimum manpower: At D-Link (India) Ltd. only three members handle the entire

system of indirect taxation. A company secretary, an asst. company secretary and one

accounts department personnel. The entire system of indirect taxation is handled by

domain experts in an efficient manner. It was surprising to know that the transactions

of a huge organization like this are managed in such a systematic manner.

3. Software and Hardware: The software and hardware supports are well in place. All

the requirements in the organization are readily met.

4. Readiness for audit: All the documents that exist in the work process are

maintained in a systematic manner by the workforce, which helps them to be prepared

for any kind of audits. This structure of being systematic helps them work

appropriately without causing much inconvenience. Also the time and effort required

for retrieving and processing the data is reduced to a large extent.

5. Academic perspective necessary: In D-Link (India) Ltd. all the employees perform

their job flawlessly but are ignorant of the activities carried on around them. For

instance, Customs and Excise are related academically but the person handling

Customs would not be aware of requirements of the Central Excise Act. Eventually

taxes are going to be merged, the staff at D-link (India) Ltd. should be aware of all

the processes so that they acquire a broader idea of the entire system which will in the

near future help the organization to work competently.




Conclusions

1. Comparison of 6 different cases has shown Excise duty to be effecting the price of a

product in the following way:

o If the output product is excisable then there is no effect on the price of the product

irrespective of whether the input material is excisable or not.

o If input product as well as output product is exempt from excise duty then the

final product would be available to the ultimate consumer at the cheapest price.

o If the output product is exempt but the input products are excisable the tax paid by

the company in cash to the government gets added to the price which ultimately

would make the product less competitive.

2. The CENVAT credit on capital purchases can be availed for input service tax paid.

Hence an isolated study of Central Excise tax cannot give the complete picture of the

tax liability calculation. However, logically maintained systems of records at D-Link

(India) Ltd. go a long way in avoiding miscalculations.