Taxation for Dummies

7/28/2019 Taxation for Dummies

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TAXATION FOR DUMMIES

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TAXATIONFOR

DUMMIES


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TAXATION

There are no tax laws applicable solely to the food processing industry. The main taxesapplicable are :-

Income Tax

Income Tax is applicable on income earner by an enterprise. The income tax law in India iselaborate and provides for several deductions and benefits on investment in India. The tax rateapplicable to Indian Companies is 35 % plus a surcharge of 10 %. Income Tax rate applicable toforeign companies is 48 %.

Excise duty

Excise duty is applicable on products manufactured in India. The rates of excise duty vary fromproduct to product. Several consumer good companies paid lower excise by getting goodsmanufactured at third party locations. To correct this anomaly, excise levy on several consumerproducts is now levied on the basis of maximum retail price (MRP basis).

India has a unique system of Value Added Taxation known as MODVAT ( Modified Value AddedTaxation )

Sales Tax

In India, Sales tax is administered and collected by the State Governments. Therefore each statehas its own State Sales Tax Act, which regulates the sale of goods within that state, fixes the rateof sales tax and enforces the administration of the Act. However, there is a Central Sales Tax Actwhich regulates inter-state sales. This law fixes the rate of sales tax for inter-state sales. Theadministration of this act however is done by sate governments.


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SALES TAX

Introduction

Sales tax is a tax on sale of goods. The liability to pay sales tax arises on making sales of goods.In India, the law for levying sales tax is provided in the Central Sales Tax Act, 1966. This act was

passed by the Parliament and applies to the entire country. The main objects of this act are :-

1. To formulate the principles for determining as to when sale or purchase of goods takesplace (i) in the course of inter-state trade or commerce or (ii) outside a state or (iii) in thecourse of import into or export from India.

2. To provide for the levy, collection and distribution of taxes on sales of goods in the courseof inter-state trade or commerce

3. To declare certain goods to be of special importance in interstate trade or commerce.

4. To specify the restrictions and conditions in respect of State laws which impose taxes onthe sale or purchase of such goods of special importance.

The CST Act, being a Central Act passed by the Parliament regulates and provides for levy ofsales tax on the sale and purchase of goods made in the course of inter-state trade or commerce.Sales and purchases made within a State are regulated by the sales tax law of each individualState. eg, in the State of Maharashtra, the Bombay Sales Tax Act, 1959 provides for the levy ofsales tax on sales made within the State of Maharashtra. Similarly, other States will also havetheir own sales tax laws for levying sales tax on intra-state sales or purchases of goods.Generally the CST Act does not deal with sales made intra-state. However, in respect of certaindeclared goods oil seeds, sugar, pulses, crude oil, etc, the CST Act imposes restrictions on thepowers of State Governments to levy sales tax even in respect of intra-state sales.

Accordingly, Sales can broadly be classified into 3 categories

Intra-state sales i.e. sales within the state Sales during import and export

Inter-state sales

The provisions of the CST Act apply only in respect of inter-state sales and not intra-state salesor import or export sales.


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Definitions

It is essential to understand the meaning of certain terms used in the CST Act. For the purposesof the Act, certain terms have been defined in the Act itself and the meaning of these terms will

be as per the definition only and not as per the ordinary meaning of the term. However, where aparticular term has not been defined, it will have the same meaning as ordinarily understood.

Business includes :-

Any trade, commerce, manufacture or any adventure or concern in the nature of trade,

commerce or manufacture, whether or not such trade, commerce, manufacture,adventure or concern is carried out with the motive to make gain or profit and whether ornot, any gain or profit accrues from such trade, commerce, manufacture, adventure orconcern.

Any transaction in connection with or incidental or ancillary to such trade, commerce,

manufacture, adventure or concern.

Dealer means any person who carries on, whether regularly or otherwise, the business of buying,selling, supplying or distributing goods, directly or indirectly, for cash or for deferred payment orfor commission, remuneration or for other valuable consideration and includes :-

A local authority, body corporate, company, co-operative society or other society, club,

firm, Hindu Undivided Family (HUF) or other Association of Persons (AOP) which carrieson such business.

A broker, commission agent or any other mercantile agent, by whatever name called and

whether of the same description as herein before mentioned or not, who carries on thebusiness of buying, selling, supplying or distributing goods belonging to any principal,whether disclosed or not. An auctioneer who carries on the business of selling orauctioning goods belonging to any principal, whether disclosed or not and whether offer

of the intending purchaser is accepted by him or by the principal or by the nominee of theprincipal.

A government, whether or not in the course of business buys, sells or supplies or

distributes goods, directly or otherwise, for cash or for deferred payment or forcommission, remuneration or other valuable consideration shall except in relation to anysale, supply or distribution of surplus, unserviceable or old stores or materials or wasteproducts or absolute or discarded machinery or parts or accessories thereof is deemed tobe a dealer for the purposes of this Act.

Sale means any transfer of any property or goods from one person to another for cash or fordeferred payment or for any other valuable consideration and includes the transfer of goods onhire-purchase or other system of payment by installments but does not include a mortgage or

hypothecation or charge or pledge on goods.

Accordingly, consignments to agents or transfers of goods to branch or other offices does notamount to sale for the purposes of the CST Act. Sale Price means an amount payable to a dealeras consideration for the sale of any good less any sum allowed as cash discount according to thepractices normally prevailing in the trade but inclusive of any


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sum charged for anything done by the dealer in respect of goods at the time of or before thedelivery thereof. However, it does not include freight or delivery cost or cost of installation wheresuch cost is separately charged.

Declared Goods means goods declared under section 14 to be of special importance in inter-state trade or commerce. In section 14 there is a list of goods of special importance which are

often called declared goods. The important ones among them are :-

Cereals

Coal in all forms excluding charcoal

Cotton in unmanufactured form

Cotton fabrics and cotton yarn

Crude oil

Hides and skin

Iron and steel

Jute

Oil seeds

Pulses

Man made fabrics

Sugar

Unmanufactured tobacco

Woven fabrics of wool


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Inter/intra state sales

The CST Act has imposed certain restrictions on the powers of state government to impose taxon declared goods inside the state.

Sale or purchase in the course of inter-state trade or commerce

A sale or purchase of goods shall be deemed to take place in the course on inter-state trade orcommerce if the sale or purchase occasions movement of goods from one state to another or iseffected by the transfer of documents of title to the goods during their movement from one stateto another.

Explanation 1

Where the goods are delivered to a carrier or other bailee for transmission, the movement ofgoods shall, for the purpose of clause 2 above, be deemed to commence at the time of suchdelivery and terminate at the time when delivery is taken from such carrier or bailee.

Explanation 2

Where that movement of goods commences and terminates in the same state, it shall not bedeemed to be a movement of goods from one state to another by reason merely of the fact that inthe course of such movements, goods pass through the territory of any other state.

Ashok of Ambala sells goods to Bhaskar of Bangalore in Ambala. Such sale is not an inter-statesale since the goods do not move from one state to another. Ashok of Mumbai sells anddespatches goods to Bhaskar of Calcutta. This is inter state sales of goods since goods move

from one state to another under the contract of sales. Ashok of Delhi sends goods by railways toBhaskar of Mumbai. Bhaskar sells the goods to Chetan of Mumbai and transfers the document oftitle (railway receipt) during their movement from Delhi to the state of Maharashtra. This is interstate sales since documents of title are transferred while the goods are being moved from onestate to another.

Sale or purchase inside the state

A sale or purchase of goods shall be deemed to take place inside the state if the goods are withinthe state.

In case of specific or ascertained goods, at the time the contract of sale is made (Specific

or ascertained goods means goods which are identified and agreed upon at the timewhen contract of (sale is made) and

In case of unascertained or future goods, at the time of appropriation of contract of sale

by the seller or by the buyer, whether the ascent of the other party is prior or subsequentto such appropriation.(eg agreement to buy mangoes which are still growing on the treesat a future date )

Explanation : Where there is a single contract of sale or purchase of goods situated at one ormore places the provisions of this subsection shall apply as if there were separate contracts inrespect of the goods at each of such places.


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A sale or purchase of goods which is not within the state as per the above provisions will betreated as taking place outside the state. The purpose of determining whether the sales havetaken place within the state or outside the state is very important for levying central sales taxsince under the CST Act, tax is leviable only on sales in the course of inter-state trade orcommerce.

Inter-state sales involve two or more states. It is necessary to determine the state in which thesale or purchase of goods takes place since that becomes the appropriate state for the purposeof levying and collecting central sales tax.

Sale or purchase of goods in the course of import or export

A sale or purchase of goods shall be deemed to take place in the course of exports of goods outof the territory of India only if:-

1. The sale or purchase results in such exports; or

2. Is effected by the transfer of documents of title after the goods have crossed the customs ofIndia.

A sale or purchase of goods shall be deemed to take place in the course of import of goods intothe territory of India only if:-

1. The sale or purchase either results into such imports ; or

2. Is effected by a transfer of documents of title to the goods before the goods have crossed thecustoms frontiers of India.

In other words, location of goods when contract of sales is made is very important for determiningwhere the sale took place.


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transferred the lorry receipt to Chetan of Bangalore. Sale by Bhaskar to Chetan is an inter-statesale because it was effected by a transfer of documents to title i.e. lorry receipt.

In the above case, if Chetan instead of taking delivery, transferred the lorry receipt to Dable ofBangalore, the sale between Chetan and Dable is still a subsequent sale and may enjoy thebenefit of section 6 to subject the fulfillment of the other conditions mentioned above.

Ashok of Ahmedabad ordered from Babu of Bombay 100 radios. Babu despatched the goods toAshok by road. Instead of taking delivery of goods, Ashok transferred the lorry receipt to Ingle ofIndore. This is inter-state sale by documents of transfer. Ashok should obtain Form E1 from Babuof Bombay, and Form C from Ingle of Indore. Babu charges CST against Form C from Ashok. Awill not charge any CST to Ingle. In such cases, it should be noted that the transfer of documentsof title must take place before taking delivery of goods for it to be treated as subsequent sales inthe course of inter-state trade or commerce. Once the buyer has taken delivery of goods, there isno document left for transfer and it will not be treated as subsequent sale in the course of inter-state trade or commerce.

Tax rates and filing of returns

Every dealer who sells goods in the course of inter-state trade or commerce to the governmentwill be liable to concessional CST of 4 %, provided the government gives a certificate in Form Dduly filled in and signed by a duly authorised officer of the government.

The concessional rate of 4% is also applicable in the case of sales to a dealer who is registeredunder the CST Act on the date of sale provided :-

The goods sold must be of the class or classes specified in the certificate of the

registration of the registered dealer purchasing the goods.

Such goods are meant for resale or are to be used in a manufacturing process or as

packing material.

Purchasing dealer must give prescribe declaration i.e. Form C to selling dealer.

Office stationery, office furniture or books & periodicals purchased for office use cannot

be purchased at concessional rate of 4%. against Form C since it is not for the purposeof resale nor is it used in the manufacturing process or as packing material.

Raw material, plant and machinery, tools, moulds and packing materials can be

purchased at concessional rate of 4% against Form C.

A dealer who is not registered under CST Act (Unregistered dealer) shall be liable to CST at therate twice the rate of sales tax applicable to the sale or purchase of such goods inside theappropriate state in case of sale of declared goods in the course of inter-state trade or commerce.In case of such sale other than declared goods, CST will be 10% or the rate applicable to the saleor purchase of such goods inside the appropriate state, whichever is higher.

Goods may be taxed at the lower rate of 4% or be made exempt from CST under the followingcircumstances :-

Where under sales tax law of appropriate state, no tax is payable on the sale or purchase

of such goods, then no CST is payable even in the case of inter-state trade or commercein relation to that state.


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Where under sales tax law of appropriate state, tax is payable on the sale or purchase of

such goods at a rate lower than 4 %, then CST is payable at that lower rate even in thecase of inter-state trade or commerce in relation to that state.

The appropriate state government may grant exemption from CST or may reduce the rate of taxwith reference to any goods or a class of goods for any person or classes of persons through

notification in public interest in the Official Gazette. Exemption may be to any dealer or a class ofdealers. It may be absolute or conditional, total or partial.

Filing of Returns

Category Form No Periodicity

Dealers having a tax liability of less than Rs20,000 in the previousand current year

III-B III-BB Annual, Annual

Dealers having a tax liability of more than Rs 20,00 in the previous

year but less the Rs. 20,000 in the current yearIII-B III-BB Monthly, Annual

Dealers having a total tax liabilty of more than Rs 2000 in theprevious year

III-BB Annual

Newly registered with no previous year

III-B Monthly


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EXCISE

Excise duty is a duty on production or manufacture of goods. It is a tax levied on manufacture ofgoods and the liability to pay excise duty arises immediately on manufacture or production ofgoods.


Month

March 25 April

April 25 May

May 25 June

June 25 July

July 25 August

August 25 September

September 25 October

October 25 November

November 25 December

December 25 January

January 20 February

February 20 March

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In India, excise duty is levied in accordance with the provisions of The Central Excise Act, 1944.The following are the main sources of Central Excise Law in India:-

Central Excise Act, 1944

This is the principal act which provides the levy and collection of central excise, prescribes

procedures for clearances from factory once the goods have been manufactured, etc.

Central Excise Tariff Act, 1985 (CETA)

This act prescribes the rates of excise duties for various goods. Initially, when the Central ExciseAct was passed in 1944, the rates of duties for different goods were given in that Act itself.However, with the increase in the types of goods being manufactured in India, the need for aseparate Act for classifying the goods and prescribing the rate of excise duty for each was felt.Therefore, in 1985, the Central Excise Tariff Act was passed classifying goods under 96 chapterswhich were further divided into groups and sub-groups with the rate of duty prescribed for eachsub-group.

Rules

The central government has the power to make rules in order to carry out the purposes of the act.Various rules have been framed under these rules such as Central Excise Rules, 1944 providingfor various procedures to be followed for clearance of and storage of goods, accounting of goods,licensing procedures, etc. Since excise law is highly procedure-oriented, it is very essential tofollow the rule precisely; otherwise benefits of concessions may be lost. However, if there is anyconflict between the provisions of the act and Rules, the provisions of the act shall prevail.

Regulations

The Central Board of Excise and Customs (CBEC) has been empowered to make regulations tocarry out the provisions of the act. However, if there is any conflict between the provisions of the

rules and regulations, the provisions of the rules shall prevail.

Notifications

The central government may also issue notifications in the Official Gazette for the purposes of theact. The Central government has several notifications under various sections such as partial orfull exemption from duty, etc. Each of the rules and notifications has to be placed before theParliament for approval. If the Parliament modifies the rules or notifications, the modified rulesand notifications will be applicable. The government has the power to exempt certaincommodities or certain classes of manufacturers from the payment of central excise bynotification.

Types of excise duties

Under the excise laws, the following are the various types of duties which are levied:-

Basic duty : This is the basic duty levied under the Central Excise Act.


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Special excise duty : This special duty is levied under special circumstances where the levy ofsuch additional duty is justifiable or found necessary to protect other industries.

Additional Duty in lieu of Sales Tax : It can be charged on all goods by the central government tocounter balance exemptions from sales tax granted by various State Governments to thedetriment of industries in other States.

Additional Duty on specified items under the Act : If the Tariff Commission set up by lawrecommends that in order to protect the interests of industry, the Central Government may levyadditional duties at the rate recommended on specified goods. The notification for levy of suchduties must be introduced in the Parliament in the next session by way of a bill or in the samesession, if the Parliament is in session. If the bill is not passed within six months of introduction inParliament, the notification ceases to have force but the action already undertaken under thenotification remains valid. Such duty will be payable upto the date specified in the notification.Such duty may be cancelled or varied by notification. Such notification must also be placedbefore Parliament for approval as above.

It is noteworthy that "basic excise duty" is different from "special excise duty" or "additional duty ofexcise". Therefore an exemption from basic duty does not mean that exemption from special duty

or additional duty has also been granted unless there is an express provision to that effectregarding the exemption in the notification.

IMPORTANT DEFINITIONS

Excisable Goods means goods specified in the schedule to the Central Tariff Act, 1985 as beingsubject to a duty of excise. The basic conditions to be satisfied by any goods to be calledexcisable goods are:-

The goods must be movable.

The goods must be marketable ie saleable in the market as such goods. Actual sale of

goods in the market is not necessary because excise duty is chargeable on manufactureand not on sales.

The goods must be specified in the Central Excise Tariff Act

Factory means any premises including the precincts thereof, wherein excisable goods other thansalt are manufactured or wherein any manufacturing process connected with the production ofthese goods is being carried on or is ordinarily carried on.

Manufacture includes any process:-

Incidental or ancillary to the completion of a manufactured product; and

Which is specified in relation to any goods in the section or Chapter note of the Schedule

to the Central Excise Tariff Act, 1985 as amounting to manufacture and the word"manufacturer" shall be construed accordingly and shall include not only a person whoemploys hired labor in the production of manufacture of excisable goods but also anyperson who engages in their production and manufacture on his own account such as oncontract basis or job work basis.

Once manufacture of goods is complete, excise duty is payable, whether the goods are sold orself-consumed. Excise duty does not depend on the end use of the goods.


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Sometimes, a particular process may not actually amount to manufacture but if it has beenspecified that it amounts to manufacture in the Schedule to the CETA, it will be deemed to bemanufacture and all the provisions applicable to manufacture will apply to such process. Likerepackaging of goods from bulk packing to small packing units does not normally amount tomanufacture. However under note 3 - chapter 21, repackaging from bulk packing to retail pack ofpan masala will amount to manufacture on which excise duty has to be paid.

Basis of charge and classification

Excise Duty is a tax on manufacture of goods but for the sake of administrative convenience, it iscollected only on removable of goods from the factory.

Excise duty may be levied in any of the following manner:-

Ad-valorem Duty is levied as a percentage of value of the commodity manufactured. For exampleexcise duty could be 10 per cent of the cost of goods. Most of the excise duty is levied on ad-valorem basis.

Slab System Under this system, duty varies with the change of the value from one slab to

another. Thus for the first 1,000 kg, excise duty is Rs500, for next 1,000 kg it is Rs750 and forproduction in excess, it is Rs1,000 for every 1,000 kg manufactured.

Specific Duty Under this system, a specific rate of duty is fixed per unit rate or per quantity item ofthe product manufactured, for example Rs10 per unit manufactured.

Compounded Duty Under this system, Duty is levied on productive capacity irrespective of theactual production. For example if a unit has installed capacity to manufacture 10,000 ton, exciseduty is Rs50,000, whatever be the number of units produced.

Once the liability to pay excise duty has been established on manufacture of excisable goods, it isnecessary to quantify the amount of excise duty payable. For this purpose, it is necessary to find

out, under which particular sub-group heading of CETA do the goods in question actually fall.Since the rates of duty for each sub-group are given in CETA the categorization of goods intosub-group headings is known as classification of goods.

The Central Excise Tariff Act, 1985 (CETA) classifies all the goods under 20 sections and 96chapters. Each of these sections is related to a particular class of goods. Thus section 1 is onanimal products, section 2 on vegetable products, so on and so forth. Each section is divided intochapters and each chapter is sub-divided into groups and sub-groups of excisable goods. Thistariff schedule is based on the internationally followed product coding system "HarmonisedSystem of Non-clementure" (HSN)

Excise Duty is payable at the rate specified in CETA against the sub-group heading under whichthe product falls. However, benefit of exemptions or concessions may be claimed under various

notifications if the conditions specified in the notification are satisfied.

The following is the broad grouping of goods under CETA:-


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Section Head Chapter

I Animal products 2 to 5

II Vegetable products 7 to 14

III Animal and vegetable fats 15

IV Prepared foodstuffs and beverages 16 to 24

V Mineral products 25 to 27

VI Chemical fertilisers 28 to 38

VII Plastic and rubber articles 39 to 40

VIII Leather and leather articles 41 to 43

IX Wood cork, straw 44 to 46

X Pulp, paper and paperboard 47 to 49

XI Textiles and textile products 50 to 63

XII Footwear and umbrellas 64 to 67

XIII Articles of stones, plaster, ceramics, glass 68 to 70

XIV Pearls, precious metal 71

XV Brass metals and articles 72 to 83

XVI Machinery, electrical equipments 84 to 85

XVII Vehicles, aircraft and vessels 86 to 89

XVIII Optical, photographic, medical & surgical instruments 90 to 92

XIX Arms & ammunition 93

XX Miscellaneous articles 94 to 96

Valuation


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Since most of the excise duty is levied on ad-valorem basis ie at a percentage of value of goods,the value of goods must be determined. Section 4 of the Central Excise Act, 1944 provides for thedetermination of the value of goods for excise purposes. The following are the provisions in thisconnection:-

The value of excisable goods is the normal price of goods. The normal price of goods

means the price of goods at which the goods are normally sold in the course of wholesaletrade. However recent provisions have been introduced in the Central Excise Act whereincertain specified articles are to be taxed on the basis of the maximum retail price and notthe wholesale price. Wholesale trade means sales to dealer, industrial consumers,Governments, Local Authorities and other buyers who purchase their requirements inbulk and not on retail basis.

In determining the wholesale price, care should be taken that the buyer is not a related

person and the sale is for delivery at the time and place of removal. If the buyer is arelated person and this relationship has affected the price for sale, suitable adjustmentsare to be made in arriving at the fair price. Similarly, if the sale is not for delivery at thetime and place of removal of goods, suitable adjustments for other expenses such asfreight and insurance of goods while in transit from the place of removal to the place ofsale must be made. Related persons means a person who is so associated with the

assessee that they have interest, directly or indirectly in the business of each other andincludes a holding company, subsidiary company a relative and a distributor of theassessee and any sub-distributor of such distributor.

The price is the sole consideration for the sale. If there are other considerations for the

sale, suitable adjustments must be done in order to arrive at the assessable value.

If goods are sold at different wholesale prices to different classes of buyer (not being

related persons), each such wholesale price is deemed to be assessable value.Therefore excisable goods can have more than one assessable value.

If goods are sold in the course of wholesale trade at prices fixed by law or at prices being

the maximum chargeable under any law, such fixed price is taken as the assessablevalue.

If the assessee arranges that goods are not generally sold by him in the course of

wholesale trade except to or through a related person, the price at which the goods aresold by such related person is taken as assessable value.

Expenses incurred on primary packing ie packing for making the product actually

saleable in the market is part of the assessable value. However the packing expense onsecondary or special packing or on durable packs which are returnable by the buyer isnot to be included in the value of the goods for the purpose of calculation of excise duty.

If the normal price of goods is not ascertainable because such goods are not sold or for

any other reason, the nearest equivalent price will be determined in the manner providedin the Central Excise Valuation Rules, 1975.

If the price at the time of removal of goods from the factory is not known but it is

dependent on the time and place of delivery, such price less cost of transportation fromthe place of removal to the place of delivery will be take to be the assessable value.


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If excisable goods are consumed within the factory, the value of comparable goods

produced by another person or the normal wholesale price of such goods will be treatedas assessable value.

The assessable value does not include the amount of excise duty, sales tax and other

taxes, if any, payable on such goods and subject to rules made in this behalf, the trade

discount allowed under normal wholesale business practices at the time of removal.

In case a tariff rate has been specified by law, the assessable value must be calculated

on the basis of such tariff rate.

Excise duty is paid on the basis of normal price even if free samples are given.

For example ABC Ltd manufactures toys which are chargeable to excise @ 10 per cent.

Cost of production is Rs10,000 and profit margin is Rs1,000. Sales tax is five per cent. Inthis situation, excise duty is Rs1,100 ie 10 per cent of Rs11,000. Sales tax is included forthe purpose of excise duty.

Valuation on retail price basis

The Central Government may notify goods by publication in the OFFICAIL Gazatte on which dutywill be payable on the basis of the retail selling price. The following are the provisions in thisconnection :-

1. The goods should be covered by the provisions of Standard of Weights and Measures Act.

2. The Central Government may permit reasonable deductions from the "retail sale price". TheCentral Government takes into account excise duty, sales tax and other taxes payable on thegoods for allowing such reductions.

3. If more than one "retail sale price" is printed on the same packing, the maximum of such retailprice will be considered.

4. The "retail sale price" must be the maximum price at which excisable goods in packaged formsare sold to the ultimate consumer. The retail sale price includes all taxes, freight, transportcharges, commission payable to dealers and all charges towards advertisement, delivery,packing, forwarding charges, etc.

5. The price is the sole consideration for the sale.

eg Notification Nos. 18/97-CE(NT) and 19/97-CE(NT) both dt. 19-6-97 state that excise duty on"cosmetics and toilet preparations" will be payable on the basis of Maximum Retail Price printedon retail carton after allowing a deduction of 50%.

The following excisable goods have been covered under this scheme :-

Cosmetics and toilet preparations - deduction 50%

Paints & Varnishes - deduction 40%

Footwear and parts - deduction 40%


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Aerated waters - deduction 50%

Colour television sets - deduction 30%

Tooth powder & tooth paste - deduction 30%

Detergents, Soaps etc - deduction 35%

Chocolates - deduction - 35%

Preparation of Malt, Cereals, Flour, Starch or milk - deduction 35%

Pan masala in retail packs of 10 gms and more - deduction 50%

Chocolates - deduction 35%

Perfumes and toilet waters, beauty preparations, shaving preparations - deduction 50%

Glazed Tiles - deduction 50%

Cooking appliances and plate warmers - deduction 40%

Razor and Razor Blades - deduction 40%

Primary cells and primary batteries - deduction 40%

Electromechanical domestic appliances, shavers, hair clippers with self contained electric

motor - deduction 40%

Radio and transistors set - deduction 40%

Electric filament or discharge lamps - deduction 40%

MODVAT

Modvat stands for "Modified Value Added Tax". It is a scheme for allowing relief to finalmanufacturers on the excise duty borne by their suppliers in respect of goods manufactured bythem. eg ABC Ltd is a manufacturer and it purchases certain components from PQR Ltd for usein manufacture. POR Ltd would have paid excise duty on components manufactured by it and itwould have recovered that excise duty in its sales price from ABC Ltd. Now, ABC Ltd has to payexcise duty on toys manufactured by it as well as bear the excise duty paid by its supplier, PQRLtd. This amounts to multiple taxation. Modvat is a scheme where ABC Ltd can take credit forexcise duty paid by PQR Ltd so that lower excise duty is payable by ABC Ltd.

The scheme was first introduced with effect from 1 March 1986. Under this scheme, amanufacturer can take credit of excise duty paid on raw materials and components used by himin his manufacture. Accordingly, every intermediate manufacturer can take credit for the exciseelement on raw materials and components used by him in his manufacture. Since it amounts toexcise duty only on additions in value by each manufacturer at each stage, it is called value-added-tax (VAT)


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The modvat credit can be utilized towards payment of excise duty on the final product.

When the scheme was first introduced, it covered only some excisable goods. Gradually, thescope of the modvat scheme has been enlarged from time to time under various notifications.From 16 March 1995, all excisable goods can take the benefit of the scheme except thosementioned below:-

In case of inputs

Tobacco and Manufactured Tobacco Products

Matches other than pyrotechnics articles of heading number 36.04 of CETA

Cinematograph Films

Motor Spirits, Special Boiling Spirits, High Speed Diesel

In case of final products

Tobacco and Manufactured Tobacco Products

Matches other than pyrotechnics articles of heading number 36.04 of CETA

Cinematograph Films

Woven fabrics classified under chapter 52,54 & 55 of CETA other than cotton fabrics,

man made fibre fabrics and filament yarn fabrics

Advantages of Modvat

It reduces the effects of taxation at multiple stages of manufacture.

It facilitates duty free exports.

It increases the tax base.

Disadvantages of Modvat

It increases paper work and leads to multiplicity of records.

It leads to corruption.

It leads to litigation.

The modvat scheme is regulated by Rules 57A and 57U of the Central Excise Rules and thenotifications issued thereunder.

Rule 57A This rule specifies the scope and applicability of the modvat. The modvat schemeapplies to all finished excisable goods which have been notified by the Central Government in theOfficial Gazette for this purpose. The modvat scheme may be made applicable in respect ofcertain goods or classes of goods with restrictions and conditions.

For the purposes of the modvat scheme, input includes:-


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Inputs which are manufactured and used within the factory of production in or in relation

to the manufacture of the final product.

Paints and packing material

Inputs used as fuel

Inputs used for the generation of electricity, used within the factory of production for

manufacturing of final products or for any other purpose, but does not include:-

A. Machines, machinery, plant, equipments, apparatus, tools or appliances which are used forproduction or processing of any goods or for bringing about any change in any substance in or inrelation to the manufacture of the final products. However, on and from 1994-95, the benefit ofmodvat has been extended to excise duty paid on several capital goods like plant, machinery,equipments, etc which are used for the manufacture of the finished product.

As long as the capital goods are used in the factory of production, credit of modvat will beallowed. No modvat is available in respect of capital goods not used within the factory ofproduction.

Packing Material in respect of which any exemption to the extent of excise duty payable

on the value of packing material is being availed of for packaging of final products.

Packing materials of the cost of which is not included or had not been included during the

preceding financial year in the assessable value of the final products.

The manufacturer can avail of the benefit of modvat credit on the final product to the

extent of specified duties paid on the inputs. The benefit of modvat will be available only ifthe final product is an excisable goods. Modvat credit will not be available if the final goodis not an excisable goods or is exempt from duty or is chargeable at nil rate of duty.However, benefit of modvat will be available to the final goods manufactured by a unit ina Free Trade Zone or in an 100 per cent EOU where no excise duty is payable on finalgoods which are exported.

For example ABC Ltd purchased raw materials of Rs9,900 inclusive of excise duty @ nine percent and sales tax @ 10 per cent. Modvat credit available will be Rs743 (Cost excluding sales taxwill be Rs9,000 out of which excise duty will be Rs743 ie 9000/109*9)

Rule 57D Modvat credit will not be denied or varied just because some of the raw materials andother inputs in respect of which excise has been paid become waste or scrap in the course of themanufacturing process.

Similarly, modvat credit will not be denied or varied just because in the course of themanufacturing process of an excisable final product, an intermediate product which is non-excisable or which is chargeable to excise at nil rate of duty or which is exempt from excise duty

is created.

Intermediate products are those products which get produced in the course of manufacture of thefinal product. eg in the manufacture of alcohol from sugarcane, first molasses are produced fromwhich alcohol is produced. In such a situation, molasses are an intermediate product, which arecharged to excise duty. The benefit of modvat will not be withdrawn if the intermediate productcreated is non-excisable or is chargeable to excise at nil rate of duty or is exempt from exciseduty. Whether a product is an intermediate product or a final product depends on the facts andcircumstances of each case. The product may be intermediate so far as a particular process ofmanufacturing is concerned but may be a final product for another manufacturing process.


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Rule 57E If the excise duty paid on modvatable inputs is subsequently increased or refunded, themodvat claimed on the basis of those inputs will also be increased or reduced, as the case maybe. If any amount is found due as a result of such increase, it shall be recovered from themanufacturer either from the balance maintained by him with the excise authorities or in cash.

Rule 57F The modvatable inputs must be used in or in relation to the manufacture of final

products for which they have been brought into the factory. However, the inputs may be removedfrom the factory for home consumption or for export under bond but only after intimating theAssistant Collector having jurisdiction over the factory and obtaining a dated acknowledgement ofthe same. Where the inputs are removed for home consumption, excise duty must be paid, atleast of an amount equal to the modvat credit claimed in respect of such inputs.

The modvatable inputs can also be removed from the factory to a place outside either, as such orafter they have been partially processed in the course of manufacture but only after intimating the

Assistant Collector having jurisdiction over the factory and obtaining a dated acknowledgement ofthe same for any of the following purposes:-

For testing, repairs, refining, reconditioning or carrying out any other operation required

for the manufacture of final product provided that after such work, the inputs are returned

to the factory to be further used in the manufacture of final product. The waste generatedin such operation must also be returned to the factory.

For export of inputs under bond without payment of excise duty

For home consumption of inputs on payment of excise duty

For manufacture of intermediate products necessary for the manufacture of final products

provided that after such manufacture, the intermediate product is brought back to thefactory to be further used in the manufacture of final product. The waste generated insuch operation must also be returned to the factory.

For export of the intermediate products under bond without payment of excise duty

For home consumption of the intermediate products on payment of excise duty

However waste is not required to be returned in case appropriate excise duty is paid on thewaste.

The main manufacturer as well as job worker are required to maintain register giving details ofmaterials sent, challan number, etc. similar to a stock register showing goods lying with the jobworker, goods returned by the job worker, etc. Generally, the goods sent must be returned to themain manufacturer within 60 days. If the job is not completed within 60 days, the period may beextended for another 60 days.

The benefit of this rule is available only if the main manufacturer does a certain amount ofprocessing or value addition to make the final product. There must not be completemanufacturing outside the factory by the job worker.

Modvat credit can be utilised for the following purposes:-

Towards payment of excise duty on the final product

Towards payment of excise duty on waste arising in the course of manufacture of final

product


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Towards payment of excise duty on inputs themselves where they are cleared for home

consumption.

Modvat credit in respect of finished products exported without payment of duty (like

goods manufactured by units in a Free Trade Zone or by 100 per cent EOUs or by unitsin an Electronic Hardware Technology Park or by units in a Software Technology Park)

may be utilized for discharging duty liability on similar final products cleared for homeconsumption. If the manufacturer does not have any excise liability, the modvat creditmay be refunded to him provided he has not availed claimed drawback of duty under theCentral Excise Rules.

Any waste arising from processing of modvatable inputs in respect of which credit has beenavailed may:-

Be removed by payment of duty if such waste is produced in the factory.

Be removed without payment of duty where permitted by order of the government.

Be destroyed in the presence of a proper officer on application made by the manufacturer

and if found unfit for further use or not worth the duty payable thereon provided themanufacturer informs the appropriate authorities at least 7 days in advance in writing asregards the quantity of waste and the date on which it is supposed to be destroyed andafter complying with all the conditions as may be prescribed by the Collector of CentralExcise in this behalf.

The manufacturer may transfer or utilise modvat credit from one of his factories to another withapproval from the Collector of Central Excise provided application is made by him in this behalfand all conditions imposed by the Collector are satisfied.

Rule 57G For availing the benefit of modvat, the manufacturer must carry out certain procedures.He must file a declaration with the Assistant Collector of Central Excise having jurisdiction overhis factory indicating the description of final product manufactured in the factory giving details of

the inputs used for such purpose.in each of the said products. He must also give detailedinformation required by the Assistant Collector of Central Excise and must obtain datedacknowledgement for such declaration.

The manufacturer may avail of modvat credit only after the above declaration is filed by him.However, he cannot take credit unless the inputs are accompanied with an invoice prepared asper Central Excise Rules, Form AR-1. In case of imported goods it must be accompanied withtriplicate copy of Bill of Entry or Certificate of Appraisal by Custom posted in a foreign post office.In other words, the goods must be accompanied with proof that duty has been paid on them.

The Central Government has the power to direct that modvat credit on specified inputs may beallowed at such rate and subject to such conditions as it may direct without production ofdocuments evidencing the payment of duty.

Where copy of invoice meant for the purpose of claiming modvat is lost or misplaced, themanufacturer can claim modvat credit on the basis of or misplaced, the manufacturer may claimmodvat credit on the basis of the original invoice subject to the satisfaction of central exciseauthorities.

A manufacturer of final products shall maintain:-


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An account in form of RG 23A - Part I and Part II in respect of duty payable on final

product. Part I is a record of inputs and subsequent utilisation in the manufacturingprocess. Part II is a record of modvat credit pertaining to such inputs.

An account current to cover the excise duty payable on the final product cleared at any

time.

A manufacturer of final products must submit within five days after the close of eachmonth to the Superintendent of Central Excise, the following documents:-

Original documents evidencing payment of duty

Extract of RG 23A Part I and Part II

After verifying their genuineness, the Superintendent shall deface the documents and return themto the manufacturer. The Collector may, having regard to the nature, variety and extent ofproduction or frequency of removal provide for a period shorter than 1 month for submission ofsuch return in respect of any assessee or class of assessees. He may also permit filing of theaforesaid return by an assessee within a period not exceeding 21 days after the close of each

month. He may also permit filing of the aforesaid return by an assessee within a period notexceeding 21 days after the close of each quarter where the assessee is availing of an exemptionbased on the quantity of clearances during a financial year.

In case the manufacturer is not in a position to file the aforesaid return on time for sufficientcause, the Assistant Collector may allow the manufacture to take credit of duty paid on inputs,condoning the delay and giving reasons in writing for such condonation. The Assistant Collectormust see that the following conditions are satisfied before giving allowing such modvat credit:-

Input in respect of which credit of duty is allowed are received in the factory not before six

months from the date of filing declaration and not before date of eligibility for modvatcredit.

Amount of duty for which credit is sought has been actually paid on these inputs.

Inputs have actually been used or are to be used in manufacture of final products.

The persons issuing invoices for modvatable inputs must follow certain procedures and

must get registered with the Central Excise authorities. He must maintain stock accountin the RG 23D. He shall make entries in RG 23D at the end of the day of receipt andissue of excisable good and:-

Shall enter the date of entry

Correctly keep such book, account or register in the manner required

Shall not cancel, obliterate or alter any entry therein except for correction of errors

Keep such book, account or register open for inspection by the concerned authorities and

allow such inspection

Allow the concerned officer to take copies or extracts or send the records to the

concerned officer.


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Such person shall issue serial-wise invoice containing details as prescribed by the Central Boardof Excise and Customs or by the Collector of Central Excise in quaduplicate as follows:-

Original copy is for the buyer.

Second copy is for the transporter.

Third copy is for the excise department.

Fourth copy is to be retained by the issuer.

The invoice contains the following details:-

Evidence showing proof of payment of excise duty

Rate of duty paid, amount of duty, duty debit entry in the PLA, date and number of such

entry.

Postal address, range and division of the excise officer under which the manufacturer

falls, name and address and code number, excise registration number of the factory andalso the name and address of the consignee, description and certification of goods,number of packages, total quantity of goods, total price of goods, total assessable value,rate of duty, total duty paid, serial number of debit entry in the personal ledger account,date and time of removal of goods, mode of transport, motor vehicles registration numberand certificate duly signed by authorised person stating that what is stated above is true.

Each invoice book must be authenticated by a working partner or managing director or

secretary.

Each invoice shall bear a printed serial number running for the whole financial year

beginning on the 1St. April each year. Only one invoice book of each type shall be usedby the registered person for removal of excisable goods at any one time unless otherwise

specially permitted by the collector in writing.

Each foil of the invoice book shall be authenticated by the owner or the working partner

or the managing director or the company secretary, as the case may be, before beingbrought into use by the registered person. The serial number of the invoice before beingbrought into use shall be intimated to the Assistant Collector of Central Excise and datedacknowledgement of receipt of such intimation shall be retained by the registered person.When the invoice is generated through computer, serial number serial number likely to beused in the forth-coming quarter shall be intimated to the Assistant Collector of CentralExcise and as soon as the same is exhausted, a revised intimation must be send.Records and invoices generated through computer are also recognised. Such registereddealer shall send details in software used including the format for information to the

Assistant Collector of Central Excise.

Rule 57I The excise authority may disallow modvat credit which has been wrongly availed orincorrectly utilised. In case modvat credit has been taken on account of error or misconstruction,the proper officer may send notice to the manufacturer within 6 months from the date of filing ofreturn to show cause why such modvat credit should not be disallowed. In such cases, wheremodvat credit has already been utilised, show cause notice must state the utlised amount mustnot be recovered from the assessee.


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In case such wrong modvat credit is on account of willful mis-statement, collusion or suppressionof facts on the part of manufacturer, instead of the aforesaid period of 6 months, notices may besent for a period within 5 years from date of availment of modvat credit. The period of stay bycourt order will not be considered while determining the aforesaid period.

The proper officer must consider the representation of the manufacture with regard to the show

cause notice and thereafter to determine the amount of disallowance, if any.

Introduction to central excise procedure

Registration procedure

In order to commence manufacture of excisable goods, it is necessary for every manufacturer toregister himself with the Central Excise authorities. A separate registration is required for eachfactory of the manufacturer in which duty paid goods are intended to be stored and cleared. Anapplication for registration must be filed for registration in the prescribed form duly signed by theproprietors, partners, directors or authorised persons along with the required details such ascomplete ground plan incorporating the layout of the factory together with the intended place ofstorage of finished goods. The Central Excise authorities will scrutinise the application and if

found proper in all respects, grant registration in Registration Certificate made out in Form R4.

After obtaining the registration certificate and before commencement of manufacturing activities,the manufacturer must intimate to the excise authorities the intended date of commencement ofmanufacturing operations.

The manufacturer is required to intimate the excise authorities details of plant and machineryused to manufacture the product. On completion of manufacture, the finished goods must be keptin the bonded store room specified in the application form. The goods can be removed from thestore room only on payment of duty or against modvat credit.

The manufacturer has to make entry in Register RG1 on transferring the goods to the bondedstore room. Entries in RG 1 are to be made on a day-to-day basis. If on any day, there has beenno production, it must be mentioned that production on that day is nil. The stock as per RG 1 andactual stock must tally. Failure to do so will attract penalty and confiscation of goods not found inexcise records.A proforma of RG 1 is given below.

Once the goods are ready for removal, the manufacturer must mark on each wholesale packagein clearly legible the following details:-

Running serial number of the product.

Batch number or lot number, if any, of the goods.

Number of retail packages contained in each wholesale package.

Distinguishing letter or word or combination of both denoting the kind or quality of goods.

The record should be made in such manner that there is quantity as well as numerical controlover goods manufactured.

Procedure for removal of excisable goods


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No excisable goods can be removed from the place of manufacture unless leviable excise dutyhas been paid. There are 2 systems for clearance of excisable goods:-

Physical control

The Central Excise authorities appoint an officer posted at the place of removal i.e. at the factory

or godown of the manufacturer. This officer personally verifies and checks that goods are clearedonly after payment of duty and verifies such payment. Once the excise duty has been paid, goodsmust move from that place. Duty paid goods cannot remain in the factory unless specificallypermitted. The officer also verifies that there proper records of production, removal and paymentof excise duty are kept.

Self removal procedure

There is self assessment by the manufacturer of the excise duty payable by him. The assesseeremoves goods without prior permission or physical supervision of the excise officers. Thisprocedure is applicable to all excisable goods except in the following circumstances:-

Where physical control is applicable

Where compounded levy scheme is applicable

Where removal is from Free Trade Zone or 100per cent EOU or Electronic Hardware

Technology Park or Software Park.

The assessee is required to follow the following procedure in this connection:-.

He must file a declaration list in respect of excisable goods to be cleared by him.

He may calculate the excise duty payable on the goods intended to be removed in

accordance with the declaration and value declared in the invoice and make payment ofexcise duty, either through modvat credit or by debiting the amount in the depositmaintained by him with the Central Excise authorities in the PLA (Personal Ledger

Account).

Thereafter, he can remove the goods on invoice without cross verification by the excise

authorities. The invoice must be made in quadruplicate and must contain the prescribeddetails.

He must file monthly return in Form RT 12.

The excise officer will assess the excise duty on the basis of information contained in

Form RT 12.

If the manufacturer removes excisable goods from the factory without following the correctprocedure and willfully makes false entries in the records, he shall be liable to penalty upto 3times the value of goods and such goods shall be liable to be confiscated.

Personal Ledger Account (PLA)

PLA is the record of amount deposited by the manufacturer with the excise authorities in advancefor payment of excise as and when, the manufacturer clears goods, he will debit the PLA by theamount of duty payable on those goods. PLA is to be maintained in the prescribed form


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separately for each excisable good. Each debit and credit entry must be made on separate lineand assigned a running serial number for each financial year.

Only one entry, either debit or credit, can be made against one serial number. When theassessee deposits any amount with the Central Excise authorities for payment towards exciseduty, he must make a credit entry in the PLA. At the time of removal of excisable goods assessee

pays the duty determined by him by making a debit entry in the PLA. The balance remaining at agiven point of time is the amount available for future payment of excise duty. If any goods areremoved from the factory without such debit entry or without adequate credit balance in the PLA,they will be treated as goods removed without payment of duty. Generally, corrections are notallowed in PLA. If any corrections become necessary, the original entry must be neatly scoredand attested by the assessee or his authorised agent.

Separate procedure is prescribed for making consolidated debit entry for big manufacturershaving more than 3000 consignments in the preceding calender year. Small manufacturershaving excise duty liability of not more than Rs.500 are exempted from maintaining PLA.

Monthly returns in form RT 12

Every assessee must file monthly returns with the Central Excise authorities in Form RT 12 within5 days from the close of each month in quadruplicate containing the prescribed information. Thereturn must be accompanied with the following documents:-

Duplicate copy of invoices issued during the month

Original and duplicate of the PLA folios.

Folios of modvat registered RG23A and 23C - Part I and Part II.

Duplicate copy of crate challans under which PLA deposits are made by the assessee.

To add to further confusion, the Central Board of Excise and Customs has made yet another

amendment, for fortnightly payment of Central Excise Duty.

Rule 49 sub rule (1) (a) has been substituted vide Notification No. 34/2000 dated 11.4.00. thatevery manufacture who is not availing SSI Exemption will pay excise duty for the first fortnight ofeverymonth on the twentieth of that month.

And for the next fortnight of the month, he shall pay excise duty on the fifth of the succeedingmonth.

That means Excise Duty now form 1st to 15th of every month has to be paid on the 20th of thatmonth and form 15th to end of the month on the 5 th of the succeeding or the next month.

Now, again it is not as simple as this looks. In case of March, during the second fortnight, theshall pay duty not on the 5 th of April but on the 31st of March, a sum equal to the aggregate ofamount of duty payable on actual clearances made upto the 25 th of March, and the amountcalculated for the remaining six days of March, Pro-rata of the actual duty paid till 25th March hasto be calculated and that is payable.

Let me give you an illustration for the above.


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If a manufacturer clears goods say worth Rs. 50 lakhs for the period 16.3.2001 to 25.3.2001, andsay the rate of duty is 16% advalorem. He pays excise a sum of Rs. 14.4 lakhs plus Rs. 8.64lakhs by 31.3.2001 on pro-rata basis.

Now suppose, in case he has paid excise duty in excise, he is allowed to make adjustments inthe month of April 2001, or any subsequent fortnight.

We are again waiting for some more major changes to take place in excise, hopefully there will tobe a further clarification or some amendment as regards payment of excise duty in the month ofMarch 2001 again.

CENVATAfter Modvat now its time for CENVAT (Central Value Added Taxes) introduced in this yearsBudget which is similar to the industrialised nations who have implemented VAT (Value AddedTax). This marks a fundamental change in the Governments revenue collections policy as 86percent of the excise collections during 00-01 would be under the new levy, and since a singlerate is introduced this year, the changes that take place in the rate of duties would be eliminated.Cenvat covers practically all the items in the Central Excise Tariff, though a few items likeautomobiles, pan masala aerated water, tobacco products, cosmetics, tyres and air-conditioners

have been placed under the special excise duty regime totaling to only 14% of the estimatedexcise collection during the year would be under the special excise duty which has been spreadover three slabs of 8, 16 and 24 per cent. Only 1 per cent of total collections of ad valorem exciseduty would be from the 8 per cent slab of additional customs duty. 9% would come from the 16per cent slab while 4 per cent would be from the 24 per cent levy. Further this would alsoeliminate the classification disputes totally.

Inspite of the above the opinion of most of the industries and the middle class people is not verypositive towards, this single rate of duty as they will have to now pay more for quite a few itemslike culinary products, toiletries, Ice-cream, squashes, cosmetics, perfumes, talcum powders,

jams and confectionery for which the rate of duty has been raised from 8% to 16% which is quitea lot. Moreover the new slab will have a cascading effect on overall prices. Industry had hopedthat the Budget would lower excise duties, thereby enabling companies to tread the growth path

and improve market penetration. Especially in rural areas. Infact it would increase inflation level.

Another step towards procedural simplification, which is supposed, to benefit the industry in a bigway as maintenance of statutory records has been done away with. The revenue departmentwould rely on the account maintained be the assessee. Random checks would be done to checkevasion while detailed examination on a regular basis would be discontinued. A move is madetowards a regime of transaction cost where documents produced by the assessee would beaccepted.

Though the above is supposed to be a procedural simplification now the revenue departmentinstead of relying only on the Excise statutory records can check any records they wish to andtherefore the onus is now more on the assessee how to maintain the records and how perfectand careful he needs to be.

Amendment of Section 4 of Central Excise relating to valuation is made. Instead of theassessment on the basis of normal price, Transaction value assessment would be made. Thismeans there is a total new change in the valuation norms. Transaction value would now includethe amount charged for servicing, financing, warranty, commission and advertising. The changesare in line with customs valuation rules, which are line with GATT norms. In simplified terms, thenew valuation norms for goods attracting ad volrem duty would means that the cost of servicing,providing warranty or extending credit to the buyer would be included in the cost of the items forthe purpose of imposing excise duty. As of now, manufactures pay excise duty only on the goods


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and not the add-ons. The new norms have also tightened the rules governing transfer of goods toa related person. Even here, now the onus remains with the assessee to prove that the goods aresold at a fair market price or there would be demand of differential duty by the excise departmentand this would certainly lead to more litigations as in case of related persons the definition hasbeen enlarged which more inclusions like an employee is also added to the list of related personswhich would lead to more interpretations and more interpretations means more litigations.

4% SAD (Special Additional Duty) on imports, were to be paid only by the manufacturers in thelast year, but this year it has been introduced even to the importers, dealers which is a welcomemove. The changes in SAD is set to push up the premiums on advance license and freelytransferable credits in the duty-free entitlement passbook scheme (DEPB). The introduction ofCenvat almost puts to rest all the initiatives taken for the introduction of mini-VAT for exporters,under which all state and central levies would be reimbursed to them a sort of expanded dutydrawback scheme. Non-reimbursed levies state sales tax, electricity duty and the like constituteabout 13 per cent of the cost of export production.

Further in case of mandatory penalty, it would be reduced to 25% of the duty amount along with24% interest if 25% penalty is paid within 30 days of the date of communication of the Order. Thisis a relief to the assessee in certain cases while otherwise the time limit to issue Show Cause

Notice is increased from 6 months to one year, which means that now there is a larger scope forthe department to issue Show Cause Notices.

It can be thus concluded that as usual the changes in indirect taxes would make some goodsmore expensive and some hopefully cheaper. The single slab rate and fortnightly payments ofexcise duty will reduce the procedural delays but may not improve demand.

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