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Indirect Tax Law Regime in India
Central Sales Tax
(CST) &
Value Added Tax
(VAT)
Service Tax
Central Excise
Tariff
Foreign Trade
Policy (FTP)
Custom Duty
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Central Sales Tax (CST) &Value Added Tax (VAT)
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Central Sales Tax (CST) & Value Added Tax (VAT)
Constitutional Framework
The power to levy tax has been constitutionally divided between the Parliament and theState Legislatures. (Financial Relations between the Union and the States)
Schedule VII, List I ( Union List) lays down the law making domain for the Parliament.
Schedule VII, List II ( State List) lays down the law making domain for the State Legislature.
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Domain of Applicability of CST & VAT
Central Sales Tax (CST) Value Added Tax (VAT)
Levied on inter-State sale or purchaseof goods.
Power to Levy with CentralGovernment. ( Entry 92A, Union List,VIIth Schedule)
Levied on local sale or purchase ofgoods.
Power to levy with State Governments.( Entry 54, State List, VIIth Schedule)
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Central Sales Tax (CST)
Legal Framework of CST
I. Central Sales Tax Act, 1956II. Central Sales Tax (Registration and Turnover) Rules, 1957
III.CST Rules drafted by separate State Governments
CST Act (Important Provisions at a glance)
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Section Provisions
Section 2 Definition of sale, goods, declared goods, turnover etc
Section 3 When a sale/purchase amounts to an inter-State sale/purchase
Section 4 When a sale/purchase is said to have taken place outside a State
Section 5 When a sale/purchase is said to have taken place in the courseof import/export & high seas sale
Section 6 In-transit sales
Section 8 Rates of tax, State specific exemptions
Section 8A Determination of turnover
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Central Sales Tax (CST)
Sale under the Act should be effected by transfer of documents or title of goods during the
movement from one State to another.
Thus the levy of Tax, in India, depends on the movement of goods
In case the goods remain in the same State after the sale where they were before the said
sale, then VAT Act of the concerned State shall be applicable.
CST is a Central levy however the administration and the revenue from CST goes to
Appropriate State.
Appropriate State is the State which is competent to charge and collect tax. Generally, it
is the State from which the goods move into another State.
Under CST tax liability lies on the dealer who sells goods in the course of its business.
The tax liability commences from the very first sale.
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Value-Added Tax (VAT)
VAT is a multi-point destination based system of taxation, with tax being levied on value
addition at each stage of transaction in the production/ distribution chain.
The term 'value addition' implies the increase in value of goods and services at each stage
of production or transfer of goods and services.
Illustration:
Assuming that tax rate is 10% if:
i. Purchase Value of goods is Rs. 1,00,000 &
ii. Sale Price of the goods after manufacturing is Rs. 3,00,000
The VAT payable is 10% of Rs. 3,00,000 (Sale Price) which is Rs. 30,000
VAT Credits ( Tax already paid on purchases) is 10% of Rs. 1,00,000 which is Rs. 10,000
Hence, net VAT Payable is Rs. (30,000-10,000) = Rs. 20,000.
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Value-Added Tax (VAT)
The VAT rate in Andhra Pradesh is:
General Rate is 5% ( For goods mentioned in Schedule IV of the AP VAT Act, 2005
Residuary Rate is 14.5% ( For goods not mentioned in Schedules I, III, IV & VI)
For goods like bullion, specie, platinum, VAT Rate is 1% ( Schedule III of the Act)
Input Tax Credit (ITC)
Its is a credit of VAT paid on local procurement of goods.
The benefits of ITC are available in cases of resale, manufacture of goods for sale etc.
ITC is not available in cases where it involves manufacture of exempted goods.
One of the advantages of ITC is that it can be used to offset the output tax liability i.e.
both CST & VAT.
The latter is primarily to remove the cascading effect of taxation.
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Value-Added Tax (VAT)
Composition Scheme for Small Dealers
In order to relieve small dealers of the need to keep detailed records, the law provides
provision for a simpler method of accounting for VAT known as composition scheme. This
schemes make calculation of tax very easy.
Small dealers whose turnover does not exceed Rs. 50 lakhs in the last financial year may optfor composition tax scheme.
Advantages: saves labour in tax computation, simplified calculation of tax liability.
Disadvantages: compliance with certain conditions to avail the scheme
Conditions for Composition Scheme
Conditions have to be complied with to avail such composition scheme. Example, inter-
State sale cannot be effected, no imports or exports, sale or purchase through commission
agent.
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Case Study- Taxable Turnover
Bharat makes sale of both taxable and exempt items. He sells locally as well as makes inter
State sales and exports. His total turnover for the tax period is Rs. 10,00,000. The break up
is as follows:
Sales within Hyderabad Rs. 2,00,000
Sales to Bangalore Rs. 5,00,000 Exports to UK Rs. 3,00,000
The dealer in Hyderabad returned goods worth Rs. 20,000 while Rs. 50,000 worth of sale
within Hyderabad was of exempt items.
At the time of local sales (liable to tax) to dealers in Hyderabad, Bharat allowed a cash
discount of 5% on the local sales liable to tax.
Assuming VAT rate on Bharats products to be 10%, compute Bharats taxable
turnover and the tax for the period under VAT
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Case Study- Solution
Particulars Amount
Total Turnover 10,00,000
Less:
Export Sales 3,00,000
Inter-State Sales 5,00,000Exempt Sales 50,000
Sales Returns 20,000
Local Sales liable to tax 1,30,000
Less:Cash discount @ 5% on the above 6,500
Taxable Turnover 1,23,500
VAT @10% 12,350
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Central Excise
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Basic Concepts
Excise Duty
The power to levy Excise Duty lies with the Central Government under Entry 84, Union
List, VIIth Schedule of the Constitution of India.
Excise Duty is a duty on goods produced or manufactured in India.
Manufacture or production of excisablegoods in India is the taxable event.
Under the Central Excise Tariff Act, 1985 (CETA) excise duty shall be levied on all goods
prescribed under Schedule I and II.
Excise Duty liability is generally on the manufacturer.
Excisable Goods- Specified in First and Second Schedule of CETA.
Basic Conditions- Conditions for levy of excise duty as mentioned in Section 3 of Central
Excise Act, 1944.
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Basic Concepts
Manufacture
Section 2(f) of Central Excise Act, defines and lays down the scope ofmanufacture.
It means any process which is:
Incidental or ancillary to the completion of a manufactured product.
Specified in relation to goods in any section or Chapter notes of The Central
Excise Act, 1944 as amounting to manufacture.
With respect to any goods mentioned in the Third Schedule, packing, repacking,
labelling, re-labelling, declaration or alteration of retail sale price on it, adoption of
any other treatment which makes the product marketable to the consumer.
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Basic Concepts
As laid down by The Honble Supreme Court in a case, the test to determine what goods
amount to manufactured goods is to see if the new substance has emerged as a distinct
name, character and use.
Activities Amounting to Manufacture
Making a chair out a planks of wood
Oil produced from oil seeds
Activities not amounting to Manufacture
Repairing of goods
Cutting of hot, cold rolled coils into sheets and strips
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Basic Concepts
Steps in Classification
1. Reference can be made to the sections, chapters and HSN classification by an assessee to
ascertain the goods for which the Excise duty rates are to be determined.
2. After determination of goods from the relevant chapter, an assesse has to next find out the
rate of duty for the relevant product.3. Reference has to be made to the tariff heading, sub-heading of the Schedules and along
with the corresponding Section and Chapter Notes.
4. In the absence of any ambiguity or confusion the classification is final.
5. In case of confusion, reference has to be made to the Rules for interpretation of tariff.
6. To determine classification there are about 6 Rules which need to be borne in mind.
7. In case doubts persists, then reference may be made to funtional utility, design etc.
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Valuation
The valuation rules under excise are known as Central Excise Valuation (Determination of
Price of excisable Goods) Rules, 2000 notified pursuant to section 4(1)(b) of Central Excise
Act, 1944.
Excise Duty is payable on the basis of the Transaction Value if the following conditions are
satisfied
Goods are sold at the time and place of removal
Assessee and buyer are not related
The consideration for the transaction of sale should be more than just the price.
The valuation Rules will be applicable when any of the conditions mentioned above are not
satisfied.
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Valuation
Certain Key Rules
Rule 4- When goods are not sold at the time of removal
Rule 5- Goods sold at different place
Rule 6- Valuation when price is not the sole consideration
Rule 7- Sale through depot/consignment agent
Rule 8- Valuation in case of captive consumption
Rule 9- Sale to/through a related person other than an ICU
Rule 10- Sale to/through Inter connected undertakings (ICU)
Rule 10A- Valuation in the case of job work
Rule 11- Best Judgment assessment
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Export Procedure
Exports are free from taxes and duties.
Goods can be exported without payment of excise duty under bond under rule 19 or under
claim of rebate of duty under rule 18.
Container containing export goods should be sealed by excise officer. Self-sealing is
permissible. Excisable Goods should be exported under cover of Invoice and ARE-1 form. Export
should be within 6 months from date of clearance from factory.
Merchant exporter has to execute a bond and issue CT-1 so that goods can be cleared
without payment of duty. Manufacturer has to issue Letter of Undertaking.
Rebate under rule 18 can be either of duty paid on final products or duty paid on inputs
but not both.
EOU has to issue CT-3 certificate for obtaining inputs without payment of excise duty
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Refund & Bonds
Ideally an assessee can claim refund in the following instances:
Due to mistakes there is an excess payment of duty
When export is made under a claim of rebate
Refund of unutilised CENVAT credit if final product is exported.
Provisional assessment is finalized
When during the process of an appeal there has been deposit made as a pre-
condition to hear an appeal and the appeal is decided in favour of the assessee
Bonds
Assessee is required to execute bond for various purposes like obtaining goods without
payment of duty, clearance of seized goods etc. B-1 bond is for exporting without
payment of duty, B-17 bond is for EOU.
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Small Scale Industries (SSI)
Under the Central Excise Act, 1944, an SSI unit is defined as any unit whose turnover is
less than 4 crores in the last financial year and the turnover in any financial year must not
exceed Rs. 150 Lakhs.
If SSI unit avails CENVAT Credit on inputs then it has to pay normal duty on all
clearances and no SSI exemption is available.
SSI units eligible for SSI concession are required to pay duty on quarterly basis and file
quarterly return even if they do not avail the SSI exemption
Clubbing of Turnover:When goods are cleared from one or more factories by the same
manufacturer then the turnover may be clubbed together to calculate the exemption limit.
Where the specified goods are cleared by one or more manufacturers from the same
factory, the exemption shall apply to the aggregate value of clearances of all the
manufacturers from that factory.
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Adjudication
Under the Central Excise Act, 1944 where any confiscation is legally provided for or any
penalty is to be imposed, such confiscation or penalty can be imposed by the Commissioner
of Central Excise.
Procedure- The Adjudicating Authority has to give the party an opportunity to be heard if
the party so desires.
The Adjudicating Authority has the power to adjourn proceedings if sufficient cause is
shown.
The Adjudicating Authority cannot adjourn the proceedings for more than 3 times.
When confiscation is adjudged, the adjudicating authority has the obligation to offer the
owner an option to pay fine of such amount which he thinks fit.
Confiscation or penalty in one proceeding cannot interfere with any other parallel
proceeding under the same Act.
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Appeals
Under the Central Excise Act, 1944 appeal is allowed against orders passed by the Excise
authorities i.e. Superintendent, Assistant Commissioner, Deputy Commissioner, Joint
Commissioner, Additional Commissioner and Commissioner of Central Excise.
Such appeal will lie to the Customs, Excise and Service Tax Appellate Tribunal (CESTAT)
Against order passed by Superintendent, Assistant Commissioner, Deputy Commissioner,Joint Commissioner, Additional Commissioner of Central Excise:
First Appeal lies with Commissioner
Second Appeal lies with CESTAT
CESTAT is the final fact finding authority and such orders passed by it are final & binding.
In cases of substantial questions of law, appeals can be made to either the High Court or
the Supreme Court of India.
For classification/valuation of goods, appeal can be filed before the Supreme Court.
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Authority for Advanced Ruling (AAR)
Definition of Authority for Advanced Ruling (AAR) as defined under The Customs Act,
1962 is extended for the purposes of Central Excise Act, 1944.
Any non-resident of India, resident setting up a joint venture in collaboration with a non-
resident, any joint venture for India or any wholly owned subsidiary of a parent foreign
company can apply to AAR for determination of any question of law.
AAR can be approached on questions pertaining to any classification of any goods,
applicability of any notification or principles to be noted for the purposes of determination
of any value of the goods under the Act etc.
The order passed by the AAR is binding only on the applicant and the Commissioner of
Central Excise only to the extent that there is no change in the facts on the basis of which
AAR gave a ruling.
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Basic Concepts
First Stage Dealer-dealer who directly purchases goods
Second Stage Dealer-dealer who purchases goods from a first stage dealer
CENVAT ( Central Value Added Tax) Credit
CENVAT Scheme allows the credit of duty paid on inputs and capital goods and service
tax paid on input service. One of the aims of introducing CENVAT is to reduce the cascading effect of taxation
and therefore the duty paid on inputs can be adjusted against the payment of excise duty
on the final products or service tax on output service.
Under CENVAT set-off is allowed only in cases of excise duty paid on inputs and capital
goodsAND service tax paid on input service against the duty of excise and NOT for all
taxes and duties.
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Basic Concepts
Salient Feature of CENVAT Credit Rules
Under Rule 3(1) of the CENVAT Credit Rules, all the taxes and duties mentioned therein
are very significant for purposes of availing the credit rule benefits.
Maintainance of separate accounts is required under Rule 3.
For Inputs, they are Receipts, Consumption & Inventory For Input Service, they are Receipt & Use
CENVAT Credit Scheme benefits do not extend to final products which are exempt.
CENVAT credit advantage cab be availed in case of input services only post payment of
service tax.
One-to-one relation is not required under CENVAT.
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Basic Concepts
Budget 2012 Proposals
Due to increase in general excise duty rate from 10% to 12%, the merit rate of 5%
increased to 6%.
Rule 3(5) & 3(5A) amended which pertains to amount payable after credit has been taken
and cleared after use.
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Customs Duty
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Basic Concepts
Background
The power to levy customs duty lies with the Central Government (Entry 83, Union
List, VIIth Schedule)
Customs duty is generally levied on all the goods imported to India and very few goods
exported from India.
Reasons for such Levy:
Protection of domestic industry in India
Regulations of imports and exports
Collection of revenue
Legal Framework
1. The Customs Act, 1962 2. The Customs Tariff Act, 1975 3. Customs Valuation
( Determination of Price of imported Goods) Rules, 2007 etc.
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Basic Concepts
The Customs Act, 1962 provides for three kinds of provisions:
a. Provisions concerning levy of duty
b. Provisions concerning various procedures
c. Provisions which are regulatory in nature
d. Miscellaneous Provisions
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Types of Duties
Basic
Customs
Duty
SpecialAdditional
Duty
SafeguardDuty
Anti-Dumping
Duty
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Import & Export of Goods
Import or Export of goods can take place only through the notified CustomsStation
Import Procedure:
Importer has to submit a Bill of Entry (BoE) divulging the details of goods, value etc.
Importer has to submit other documents like invoices, contracts, product literature etc so that
the Customs Officer can assess the imported goods under clearance. Importer to pay duty if the clearance is for home consumption.
Importer may also be required to execute a bond, if clearance is for warehousing.
Export Procedure
For the purposes of export Shipping Bill has to be submitted to the Customs officials which
may also include invoice, packing lists etc.
When applicable export duty has to be paid.
Export will depend on whether the export is prohibited or restricted.
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Valuation
The Legal Frameworkfor Valuation are as follows:
The Customs Act, 1962; Provisions for valuation for export and
import of goods.
Customs Valuation ( Determination of Price of Imported
Goods) Rules, 2007 ('The Import Valuation Rules')
Customs Valuation ( Determination of Price of Exported
Goods) Rules, 2007 ('The Export Valuation Rules)
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Valuation
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Step I
Step II
Step III
Step IV
Under Rule 4 & 5, the price at which such goods
are sold to unrelated buyers in India are taken intoaccount.
Under Rule 7, the price given to unrelated buyers
is taken into account as the base price including
deductions such as profit margins, general
expenses, freight &insurance duties etc.
Under Rule 8, the profit margin earned by the
seller over the total cost of the export goods has to
be justified.
Under Rule 9, the Customs Value is arrived at
based on the information available along with the
best judgment of the SVB
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Valuation
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Export Valuation Rules
The Export Valuation Rules was introduced under Section 14 (1) of The Customs Act,
1962
The rationale behind introduction of such rules is to prevent deliberate over-valuation
of goods to claim higher export incentives
In cases of related party transactions, the given set of Rules need to be applied.
Key Rules of The Export Valuation Rules
Rule 3: Determination of the method of valuation
Rule 4: Export value by comparison
Rule 5: Computed value Method
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Valuation
Rule 6: Residual Method
Rule 7: Declaration to be filed by the exporter
Rule 8: Rejection of declared value
Classification
Section
Chapters & Sub Chapters
Headings & Sub-Headings
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Miscellaneous Provisions (Section 141-158)
Miscellaneous provision from Section 141-158, inter alia, deals with the following:
i. Recovery of sums due to Government
ii. Liability under Act to be first charge
iii. Duty deferment
iv. Power to take samples
v. Liability of principal and agent
vi. Amendment of documents
vii. Liability of agents appointed by the person in charge of the conveyance.
viii. Correction of clerical orders
ix. Publication of information respecting persons in certain cases
x. Rounding off of duty
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Advance Ruling
The idea behind introducing Advance Ruling is to give findings on the question of law or
fact regarding the specified provisions of The Customs Act, 1962 pertaining to any activity
which is proposed to be undertaken by the importer/exporter.
Any non-resident of India, resident setting up a joint venture in collaboration with a non-
resident, any joint venture for India or any wholly owned subsidiary of a parent foreign
company can apply to AAR for determination of any question of law.
AAR can be approached on questions pertaining to any classification of any goods,
applicability of any notification or principles to be noted for the purposes of determination
of any value of the goods under the Act etc. The order passed by the AAR is binding only on the applicant and the Commissioner of
Central Excise only to the extent that there is no change in the facts on the basis of which
AAR gave a ruling.
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Advance Ruling
Advance Ruling can be sought in respect of the following:
Classification of goods under the Act, applicability of exemption issued under S. 25(1)
Principles of valuation of goods under the Act, applicability of notifications issued in
respect of duties under the Act, determination of origin of goods in terms of the Rules
under the Tariff.
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Settlement Commission
Central Government has constituted Settlement Commission for the purposes of settlement
of cases
Pre-Conditions for making application:
Firstly a show cause notice has to be issued to the applicant regarding import or export of
certain goods and the relevant Bill of Entry (BoE) or the shipping Bill for such import or
export must be filed with the application.
The additional amount of duty accepted by the applicant exceeds three lakh rupees.
The applicant has paid the additional amount of Customs duty.
There must not be a parallel proceding pending with any other Tribunal or any Court
Application cannot involve issues regarding classification of goods
Applicant is not permitted to withdraw the application.
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Settlement Commission
Commission is empowered to grant immunity from prosecution, penalty, fine and interest.
(wholly or in part)
Immunity may bewithdrawn when:
Applicant fails to pay any sum due within prescribed time.
Commission is conviniced that the applicant has concealed any material fact or providedfalse evidence.
Commission in exercise of its discretionary power may send the case back to the Adjudicating
Officer.
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Service Tax
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Basic Concepts
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Legal Framework
Governing Legislation
1. Chapter V of The FinanceAct, 1994
Regulatory Rules
1. Service Tax (Determination of Value)Rules, 2006
2. Service Tax Rules, 1994
3. Place of Provision of Service Rules, 2012
4. Point of Taxation Rules, 2011
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Service Tax Compliance
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Service Tax Compliance
Procedure/Steps
Registration Payment
Invoicing Records
Returns
Audit
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Valuation
Valuation of taxable services for charging service tax is mentioned in Section 67 of Chapter
V of The Finance Act, 1994.
The value of taxable service (on which service tax is applicable) is the gross amount
charged by the service provider for the service provided.
When service is inclusive of service tax, service tax is calculated as if gross amount
includes such service tax.
The Service Tax (Determination of Value) Rules, 2006 (ValuationRules) provide for the
methodology to determine the value of services where the consideration is not received in
money. The method prescribed are as follows:
Where the value is unascertainable, then value is the equivalent consideration in money
which should not be cost of provision of service.
The value will be equivalent to the gross amount charged for provision of similar
service to another person in the ordinary course of trade.43
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Valuation
Valuation Rules also prescribe that the computation of tax shall also include any cost or
expenditure incurred to provide a taxable service.
But cost or expenditure incurred as pure agent on behalf of the service recipient shall be
excluded on certain conditions.
Such conditions pertain to:
How and in what manner such service is to be provided
What qualifies as a pureagent
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Negative List of Services
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Introduction of a Negative List based Taxation
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0
20000
40000
60000
80000
100000
120000
140000
Revenue in Crores
Service Tax collections have shown a steady increase in revenue from inception
Under the negative list regime, collections are budgeted to be Rs.124000 crores
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Possibility of significant jump in tax revenues as services hitherto
not taxed come under tax net47
Positive List 119 specified categories of
services
Unspecified services were not
liable to tax
Neither beneficial from tax
administration nor complianceperspective
Various disputes.
Possible of overlap amongst
categories.
Negative List
Any service other than thosementioned in negative list shall be
subject matter of taxation.
Independent appraisal of servicesector prior to introduction of
GST
Smooth transition of GST
Clarity to reduce quantum of tax
controversy
Negative List of ServicesObjective in Indian Scenario
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Essentials of service Definition of Service
Service means any activity carried out by a person for another for consideration,
and includes a declared services.
Key Factors of the above definition
Two or more parties
Services provided to two distinct entities.
Establishments located in a taxable territory and non taxable territory
belonging to the same entity.
Activity
Could be active, passive, and would include forbearance from an act.
Consideration
Includes both monetary and non monetary consideration
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Essentials of service Negative List of Services
Consideration
Non Monetary Consideration
- Supply of goods and / or servicesin return
- Refraining / forbearing / tolerating/
performance of an Act
Monetary Consideration
- Consideration Received in theform of money
- Money defined under Section65B of the Finance Act includescash, cheque promissory note,bill of exchange, letter of credit,draft, pay order, postal orelectronic remittance
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Declared Services
The definition ofservice under Section 65B includes DeclaredServices
The term DeclaredService has been defined under Section 66E as,
an activity carried out by a person for another for consideration and
specified in Section 66E of theAct
9 Declared Services
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Selected Declared Services and its implications
Declared Service Comments
Renting Services Renting of residential dwellings coveredunder Negative List
No exemptions granted for non
commercial uses like private schools,
hospitals etc.,
Intellectual Property Rights Service Temporary transfer of patents registeredoutside India would also be covered
Information Technology Software Services May obviate issues pertaining to double
taxation
Hospitality Services Service portion in any activity where
goods being articles of human
consumption or any alcoholic drinks areconsumed.
Service Portion in the execution of a Works
Contract
Definition of Works Contract
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Negative List of Services Section 66DA Birds eye view
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Services provided bythe Government or
local authority
Services relating to
agriculture
Trading of Goods
PSUs/autonomous institutions set up by special Acts are
not covered. Those services where Government competes with private
players also not covered eg., life insurance, security
services.
Services provided by RBI not taxable
Process which does not alter the essential character of theagricultural produce, included in the negative list.
Services provided by APMC or commission agents for sale
or purchase of agricultural produce covered.
Handling, storage and warehousing of agricultural produce
covered
Leasing of vacant land for agricultural purpose covered
Services auxiliary for trading of goods like activities of a
commission agent or a clearing and forwarding agent who
sells goods on behalf of another for a commission, would
attract service tax, since, only the trading of goods has
been included in the negative list.
f S S
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Negative List of Services Section 66DA Birds eye view
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Services provided bya foreign diplomatic
mission
Transportation of
passengers
Transportation of
goods specified
services
Does not cover services provided by an international
organization
Transport of passengers in public transport, metered taxis,
metro, monorail covered.
Charter vessels, cruises not covered.
Service provided by a vessel in inland waterways covered
Services provided by railways, air, GTA, coastal waterways
transport not covered.
Goods and value specific exemptions also available
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Negative List of Services Section 66DA Birds eye view
54
Process amountingto manufacture or
production of goods
Selling of space or
time slots for
advertisement
Toll charges
Process amounting to manufacture, even where exempted,
under the Central Excise Law, would not attract service tax.
Non taxable sale of space for advertisement in bill
boards, public places, buildings, conveyances, cell phones,
automated teller machines, internet, aerial advertising, sale
of space for advertisement in print media.
Taxable Sale of space or time for advertisement to be
broadcast on radio or television
National highways and State highways are covered.
Collection charges or service charges paid to any toll
collecting agency, not covered in negative list.
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Negative List of Services Section 66DA Birds eye view
55
Betting, gambling,
lottery
Entry toentertainment events
and access to
amusement facilities
Transmission or
distribution of
electricity
Auxiliary services that are used for organizing or promoting
betting or gambling events are not covered in the negative
list.
Membership of club not covered in amusement facility.
Event manager organizing an entertainment event not
covered in this entry.
Only Government utilities / licenses covered
Services provided by way of installation of gensets or
similar equipment by private contractors for distribution of
electricity not covered in this entry.
Charges collected by developers/housing society not
covered
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Negative List of Services Section 66DA Birds eye view
56
Specified servicesrelating to education
Renting of residential
dwelling for use as
residence
Financial Sector
Services by international schools giving internationalcertifications covered in this entry.
Private tuitions, placement services not covered in
negative list.
Education auxiliary services separately exempted
Normal trade parlance guest house, hotel, motel, inn,
campsite, lodge, house boat, not included.
Mixed usage of dwellings to be tested on a case to
case basis.
Services in relation to loans, advances or deposits
consideration represented by interest/discount covered.
Any service charges or administrative charges or entry
charges, recovered in addition to interest on loan not
covered in negative list.
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Negative List Overall Impact
No categorization of Services
Single code for payment of service tax(old codes continue to be valid for thepurpose of statistical analysis)
Exemptions to education and healthservices.
Service Tax applicability on a reverse
charge mechanism Wider tax coverage
Issues pertaining to double taxation stillprevail
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58
Place of Provision of Services
(POPOS) Rules, 2012
Pl f i i f S i R l 2012
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Place of provision of Service Rules, 2012
Introduced to determine Place of Supply of services
Purpose is to determine the jurisdiction for taxability of the services
Replaces the Export of Service Rules, 2005 and Taxability of Services (Provided
from outside India and received in India) Rules, 2006
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Place of pro ision of Ser ice R les 2012
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Place of provision of Service Rules, 2012
General or Basic Rule (Rule 3)
Place of provision is the location of the recipient
Location of the recipient:
Place of centralized registration
Else
Location of business establishment (or)
Location of use of the Service (or)
Where used at multiple locations, place most directly concerned with such use
- The usual place of residence, i.e., place of incorporation
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Place of provision of Service Rules 2012
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Place of provision of Service Rules, 2012
Performance based services (Rule 4)
Physical Work on Goods : Place of performance
Electronic Work on Goods : situation of goods
Not applicable to temporary imports into India for repair / reconditioning / re-
engineering for purpose of re-export.
Services provided to an individual which requires presence of recipient : place of
performance.
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Place of provision of Service Rules 2012
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Place of provision of Service Rules, 2012
Services related to immovable property (Rule 5)
Location of immovable property
Includes services of real estate agents, advisors, accommodation,
constructions, architects, interior decoration.
Services relating to events (Rule 6)
Place where event is held.
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Place of provision of Service Rules 2012
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Place of provision of Service Rules, 2012
Services provided at more than one location (Rule 7)
Place of provision of service is where the greatest proportion of the service is
provided.
No clarity as to whether the proportion is to be determined in terms of actual
work or value.
Rule 8 where service provider and recipient are both located in the taxableterritory, the place of provision of service is the taxable territory.
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Place of provision of Service Rules 2012
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Place of provision of Service Rules, 2012
Specified Services (Rule 9)
Banking / Finance institution / NBFC Services to account holders : Service
provider
Online Information and data base services : Service provider.
Intermediary services : Service provider
Hiring of transport (upto 1 month) : Service provider
GTA Services (Rule 10) (excluding courier / mail) :
Place of provision is the location of person liable to pay tax.
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Place of provision of Service Rules 2012
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Place of provision of Service Rules, 2012
Passenger related services (Rule 11)
Passenger Transport Embarkation point.
Related on board Services Scheduled place of departure
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66
Bundled Services
Bundled Services
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Bundled Services
Section 66F
Concept
Bundle of provision of various services wherein an element of provision of one
service is combined with an element or elements of provision of any other
service or services.
Determination of service category
Reference to a service not to include reference to a service used for providing
main service.
Specific description to be preferred over general description If various elements of service are naturally bundled in the ordinary course of
business service which gives the essential character.
If various elements of service are NOT naturally bundled in the ordinary course
of business service which gives the highest service tax liability.
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ValuationWorks contracts
Valuation of Service Portion Works contract
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Valuation of Service Portion Works contract
Where actual value of goods transferred in the execution of works contract isavailable with the Company
Value of service is :
Gross amount charged for the works contract (excluding value added tax charged)
less
Actual value of property in goods transferred in the execution of the works contract.
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Valuation of Service Portion Works contract
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Valuation of Service Portion Works contract
Where actual value of goods transferred in the execution of works contract is notavailable with the Company
Value of service is :
Total Amount =Gross amount charged for the works contract + Fair market value of all goods
and services supplied in or relation to the execution of works contract amount charged for
such goods or services Value added tax or sales tax.
Original works means
i. all new constructions;
ii. All types of additions and alterations to abandoned or damaged structures on land that
are required to make them workable;
iii. Erection, commissioning or installation of plant, machinery or equipment or structures,
whether pre-fabricated or other wise;70
In the case of works contract entered intofor execution of original work
40$ of total amount charged forworks contract
In the case of works contract entered into for
maintenance or repair or reconditioning or
restoration or servicing of any goods
In the case of any other type of works contract
70% of total amount charged for works
contract
60% of total amount charged for works
contract
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71
Domestic Reverse Charge
The new reverse charge mechanism
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The new reverse charge mechanism
S.No. Nature of service Particulars Percentage ofservice tax
payable by thepersonprovidingservice
Percentage ofservice tax
payable by theperson receivingthe services
1. Works contract Individual, HUF, proprietary
firm, partnership firm
50% 50%
2. Any service Any person who is located in
a non-taxable territory
NIL 100%
3. Support Service* Government or local authority NIL 100%
4. Supply of manpower
for any purpose
including security
services
Individual, HUF, proprietary
firm, partnership firm
25% 75%
5. Renting or hiring any
motor vehicle designed
to carry passenger
Individual, HUF, proprietary
firm, partnership firm
60% (on non
abated value)
40%(on non
abated value)
6. Renting or hiring any
motor vehicle designed
to carry passenger
Individual, HUF, proprietary
firm, partnership firm
NIL 40% on abated
value
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The new reverse charge mechanism
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The new reverse charge mechanism
S.No. Nature of service Particulars Percentage ofservice tax
payable by thepersonprovidingservice
Percentage ofservice tax
payable by theperson receivingthe services
7. Transportation by
Road
Goods transport agency NIL 100% on 25%
value
8. Legal Services Individual and Firm of
Advocates
NIL 100%
9. Directors Fees Services provided by Non
Executive Directors
NIL 100%
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New Reverse Charge Mechanism
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New Reverse Charge Mechanism
Important Aspects
Small scale benefit is available to the Service provider only.
Liabilities of both the Service provider and Service Receiver are independent of
each other.
Valuation of Service receiver and Service Provider may be on different principles
Registration, payment and return filings for service tax could be applicable to
entities only account of reverse charge
Payment of service tax under reverse charge only by way of cash and not byutilising Cenvat credit.
Payment of tax under reverse charge and Cenvat credit thereof are independent
of each other.
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Foreign Trade Policy
Basic Concepts
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Basic Concepts Legal Framework
The Foreign Trade Policy (FTP) issued by the Government of India is issued in
exercise of powers under Section 5 of The Foreign Trade (Development and
Regulation) Act, 1992 (FTDRA)
Objective of FTP are as follows:
Regulation of imports and exports through the Indian Trade Classification
Encouraging exports (goods & services)
To facilitate lower cost of production of mostly export goods
Earning and increasing foreign exchange reserve
Generating employment
IncreasingIndias impact and influence in the global market
With this aim, Government releases the Export Import Policy every 5 years. Current Policycovers 2009-2014
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Basic Concepts
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Basic Concepts
Basics of the Policy:
There are basically two types of benefits provided. They are:
Pre-Export Benefits: Includes schemes like Advance license, Export Promotion Capital Goods
Scheme (EPCG), Export Oriented Unit Scheme (EOU), Special Economic Zone Scheme
(SEZ).
Post-Export Benefits: Includes schemes like Duty Entitlement Pass Book (DEPB), Duty Free
Replenishment Certification Scheme (DFRC), Duty Drawback, Served from India Scheme,
Vishesh Krishi Udyog Yojana, refund of terminal excise duty for deemed exports.
IEC- All importers and exporters are required to obtain an Importer Exporter Code
which is a mandatory registration requirement.
RCMC- Registration with the export promotion council of the relevant industry is
mandatory in order to enjoy benefits of any of the schemes under FTP.
All benefits are implemented by a notification.
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Export Promotion Schemes under FTP
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Export Promotion Schemes under FTP
There are several Export Promotion Schemes under FTP. They are as follows:
i. Served from India Scheme (SFIC)
ii. Vishesh Krishi and Gram Udyog Yojana (VKGUY)
iii. Focus Market Scheme (FMS)
iv. Focus Product Scheme (FPS)
v. Duty Entitlement Pass Book (DEPB)
vi. Export Promotion Capital Goods Scheme (EPCG)
vii. Export Oriented Scheme (EOU)
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Special Economic Zones (SEZ)
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Special Economic Zones (SEZ)
Background
Special Economic Zone (SEZ) as a Scheme has evolved from the existing concept of
the Export Processing Zones (EPZ) policy.
Back in 1960s the aim behind EPZ Scheme was to enhance foreign exchange earnings,
develop and foster the growth of export-oriented manufacturing industries and most
importantly generate employment opportunities across India.
Central Government however had proposed to convert the existing EPZ Scheme into a
Free Trade Zone (FTZ) which never saw the light of the day and finally in the year
2000 SEZ Scheme was introduced.
The SEZ Scheme has developed over the year with the introduction of a statute and
various Rules made under it.
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Special Economic Zones (SEZ)
Successful SEZ Scheme has lead to the following benefits:
Significant surge in investment by both foreign and domestic entities;
Rise in exports;
Developments happening a very large scale;
And very importantly it generated a lot of employment skilled and unskilled workforce.
Host of fiscal benefits were given to the business enterprises that included exemption
from customs duty, stamp duty, sales tax etc. thus adhering to the objectives of setting a
liberal economic zone fostering growth and development of the economy.
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Key Highlights of FTP 2009-2014
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Key Highlights of FTP 2009 2014
Gems & Jewellery Sector
To neutralize duty incidence on gold Jewellery exports, it has now been decided to allow
Duty Drawback on such exports.
A new facility to allow import on consignment basis of cut & polished diamonds for
the purpose of grading/ certification purposes has been introduced.
To promote export of Gems & Jewellery products, the 13 value limits of personal
carriage have been increased from $ 2 million to US$ 5 million in case of participation
in overseas exhibitions.
Special Bonus Benefit Scheme A new scheme has been introduced to provide special assistance to certain specified
sectors such as Engineering, Chemical & Pharmaceutical.
The rate of duty credit is 1% of FOB value of exports.
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Key Highlights of FTP 2009-2014
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Key Highlights of FTP 2009 2014
Apparel Sector
Based on the previous statistics of exports made to mostly US and EU and realizing
the higher level of potential to achieve significant increase in the export along with
more employment benefits, Market Linked Focus Product Scheme (MLFPS) has been
extended for exports made to US and EU under chapter 61 & 62.
Duty credit has been made available to exports made till March 2012 at 2% of FOB
value of exports.
Agriculture Sector
To reduce transaction and handling costs, a single window system to facilitate export ofperishable agricultural produce has been introduced. The system will involve creation
of multi-functional nodal agencies to be accredited by APEDA
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Professional Opportunities
Professional Opportunities
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pp
1. Where there are large projects in government or commercial sphere by proper
tax planning.
2. Initial Registration
3. Initial Disclosures to department
4. Initial Procedures.
5. Monthly /Quarterly payment of Tax / duties.
6. Return Verification Filing of returns / filing of bill of entry
7. IDT or Customs / Excise / Service Tax Review and Quarterly Audit
8. Review just before departmental audit
9. Assistance during departmental IAP or CAG audit.
10. Opinions / Clarifications
11. Transaction structuring
12. Effect of budget/recent changes on activity13. Refunds of Service Tax and Central Excise
14. Past errors rectification
15. Departmental letter reply
16. Show Cause Notice Reply
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Professional Opportunities
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pp
17. Representation before adjudicating authority
18. Reply / Representation at appellate forums
19. Assistance to advocate at High Court / Supreme Court
20. Outsourcing of the Function
21. Other Area
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Thank You