Value Added Tax

Value added tax is a tax on exchanges. It is levied on the added value that results from exchange |transfer It was invented by French economist “Maurice Laure” in 1954,who was joint director of French tax authority. Thus vat is a Sales tax on sale of goods & services. In some countries this is know as Goods & service tax i.e. GST. Thus it is an indirect tax i.e. that the tax is collected from someone other than the person who actually bares the cost of tax. At present there are around 135 countries in the world who have adopted value added tax system as major source of revenue. In India, there are 28 states that have opted for the system of vat. In Maharashtra this act was enacted in the year 2002 know as Maharashtra Value Added Tax Act 2002. However this act became applicable w.e.f. 1St April 2005. This act has replaced the Bombay Sales Tax Act 1959 which was administered in Maharashtra earlier.

INCIDENCE AND LEVY OF TAX ( Section 3 )

Incidence of Tax:

1) Every dealer who, immediately before the appointed day, holds a valid or effective certificate of registration or licence under any of the earlier laws or, who is liable to pay tax under any of the earlier laws, in the year ending immediately before the appointed day shall, if his turnover of sales or purchases has, in the said year under any of such earlier laws, exceeded rupees [five lakh], or, as the case may be, who was an importer in the said year [and his turnover of sales or purchases in the said year had] exceeded rupees one lakh, be liable to pay tax with effect from the appointed day, in accordance with the provisions of the Act, till his certificate or licence is duly cancelled under this Act.

2) A dealer to whom Sub-Section (1) does not apply and whose turnover, [of all sales] made, during the year commencing on the appointed day or any year subsequent thereto, first exceeds the relevant limit specified in Sub-Section (4), shall, until such liability ceases under Sub-Section (3),be liable to pay tax under this Act with effect from first day of April of the said respective year:

Provided that, a dealer shall not be liable to pay tax in respect of [such sales] as take place during the period commencing on the first day of April of the said respective year upto the time when his turnover of sales, as computed from the first day of April of the said respective year, does not exceed the relevant limit applicable to him under Section(4)

3) Every dealer who has become liable to pay tax under this Act, shall continue to be so liable until his registration is duly cancelled; and upon such cancellation his liability to pay tax, other than tax already levied or leviable, shall remain ceased until his turnover of sales against first exceeds the relevant limit specified in Sub-Section (4) or, as the case may be, until he becomes liable to pay tax under [ Sub-Section ] (8) or (9).

4) For the purposes of this section, the limits of [turnover of sales] shall be as follows :

a) Limit of [ turnover of sales ] in case of a dealer, who is an Rs.100000.00 importer, and the value of taxable goods sold or purchased by him during the year is not less than Rs.10000.00 b) b) Limit of [ turnover of sales ] in any other case, where the

Rs.500000.00 value of taxable goods sold

or purchased by him during the year is not less

thanRs.10000.00

16. Registration

(1) No dealer shall, while being liable to pay tax under this Act, be engaged in the business as a dealer, unless he possesses a valid certificate of registration as provided by this Act:

Provided that, the provisions of this sub-section shall be deemed not to have been contravened, if the dealer having applied, within the prescribed time, for such registration as provided in this section, is engaged in such business:

Provided further that, if any dealer, holds the certificate of registration granted under the Bombay Sales Tax Act, 1959, (Bom. LI of 1959) which is effective or valid immediately before the appointed day, it shall not be necessary for him to apply for a fresh certificate under this section so long as the said certificate is not duly cancelled under this Act:

Provided also that, a dealer holding an effective certificate of registration or, as the case may be, a licence granted before the appointed day, under any laws other than the Bombay Sales Tax Act, 1959 (Bom. LI of 1959), shall, notwithstanding the fact that he is holding such effective certificate be required to apply for grant of certificate of registration under this section.

(2) Every dealer, required by sub-section (1) to possess a certificate of registration or one who voluntarily desires to get registered shall apply in the prescribed manner to the prescribed authority for grant of such registration.

(3) If the prescribed authority, after scrutiny of the application and after such enquiry as it deems fit, is satisfied that the application for registration is in order and the prescribed conditions are fulfilled, shall register the applicant and issue to him a certificate of registration in the prescribed form No.102 :

Revised Procedure: As a further step towards e-governance, the above procedure of manually submitting applications for registration is being changed. From 1st

October 2009 onwards, the application for registration under Maharashtra Value Added Tax, 2002 should be electronically uploaded in 'Form e-101' provided on the Web-site of the Sales Tax Department, Government of Maharashtra. Notification to that effect has been issued, as referred above. The remaining process of obtaining registration such as verification of documents, Photo attestation etc. will remain the same. Manually filled forms will not be accepted on or after 1st October 2009 except for non-resident dealer and Government department. It may be noted that non-resident dealer/s and Government Department/s should continue to apply manually.

Steps to make on line application: Applicant dealer should open the homepage of website “www.mahavat.gov.in” for the first time for registration.a) Log on to the web site of the Sales Tax Department, Govt. of Maharashtra at “www.mahavat.gov.in.b) Click e-registration in e-services link on homepage.c) Read the instructions. Detailed guidelines regarding application process flow, location details, list of required documents are provided in the instruction sheet. Click “next” and then “e registration information” page will appear.d) On the “e Registration Information”, dealer should enter /select details such as PAN, location, name of business, name of applicant, status of applicant and Act. Applications under MVAT Act and CST Act shall be made electronically. For the time being applications for registration under all other Acts such as Profession Tax Act, Luxury Tax Act, Maharashtra Tax on the Entry of Goods into Local Areas Act and Sugarcane Purchase Tax Act should be submitted manually.e) After the information on the “e Registration Information” page is entered, the dealer should click”next”.f) The e-application under MVAT will open. Information in the form should be completely filled either by entering in the relevant fields or selecting from the given lists and then “submit” button should be clicked.. In case a dealer has opted for CST also, then the CST e application form will open. The data in the fields common to both VAT and CST shall get populated for the ease of the applicant. Remaining fields are expected to be entered/selected by the applicant.g) In case the data in any of the fields is not entered, then the applicant would get error message and would be prompted to enter the said data.h) After the completely filled application form is submitted (uploaded) then the acknowledgment containing date and time for attending before Registering Authority alongwith code/designation and address of Registering Authority would be generated. This acknowledgment can be saved and should be printed for producing before the registering authority. The dealer should also save the downloadable MVAT and CST e-application form of registration and should take outa print of it.

i) The proprietor, partner, karta, Director, as the case may be are required to sign at relevant place/places on the print out of the application so taken and submit it to the concerned Registration Authority at the time of verification and photo attestation on given date and time along with relevant documents. In case of voluntary registration signature of “introducer” should also be obtained.j) The Demand Draft/PO towards fees and deposits for MVAT registration should be furnished on the appointed date .The fees of Rs. 25/- towards CST registration shall continue to be paid by affixing the court fee stamp. The dealer can also pay fees of Rs.500/- for MVAT registration by affixing court fee stamp. In this respect the instruction given in Trade Circular 42T of 2008 dated 26.12.2008 continue toapply.4) Grant of Registration Certificate:If the application is correct and complete in all respect along with relevant documents then Registering Authority will generate TIN after verification. Registration certificates shall be printed and issued to the dealer on the appointed day. In case the the application is eligible for granting registration, then the date of uploading the application shall be considered as the date of application for the purpose of determining the effective date of MVAT RC. In case the dealer has uploaded CST application also, then for the purpose of determining the CST RC effective date, the date of uploading CST applicationshall be considered as the application date.

Time Limit For Registration :A dealer who becomes liable to pay the tax under section 3 has to apply for registration. I ) Within 30 days from the appointed day, i.e. before 30 April 2005, if he

holds a certificate of registration under any repealed act before 1 April 2005 and he is not holding certificate of registration under Bombay Sales Tax Act, 1959;

II) Within 30 days from the date of achieving the stipulated turnover either of all sales or of all purchases.

III) In case of succession, he has to apply within 30 days from the date of succession.

After the introduction of TIN the dealer who have changed their place of business to a different local area with different Pin Code need not cancel the existing registration with effect from 20th June 2006 and they need not new registration. They have to inform the new address to the authorities.

Business advisory Visit: Now the Registration Certificate is granted without visiting the place of business as it was done in the BST regime. Now business advisory visit has been introduced.

The Circular No.19-T dated 18th July 2005 explains the purpose of business advisory visit

RETURNS

Every registered dealer shall file correct complete and self consistent return in such form by such date for such period and to such authority as may be prescribed.DIFFERENT types of returns are prescribed for different classes of dealers.Sec 20 deals with filing of returns.The commissioner may examine the return to ascertain whether it is complte and self consistent. If the return is incomplete or inconsistent the commissioner may serve a notice within 4 months of filing the return to retify the defect by giving I months time. If the dealer fails to file the revised return it is as good as filing no return

PERIODICITY OF RETURNS AND PAYMENTS

For Monthly Payments  

For Quarterly Payment  

For six Monthly Returns  

Months Due Date Quarters Due Date Six Months Due DateTax liability exceeds

Rs.10,00,000 or entitlement for refund exceeded Rs.1 Crore during previous year

Any other registered dealer to whom monthly or half

yearly return provision does not apply or PSI Unit

Tax liability not exceeding Rs.1,00,000/- or no entitlement for

refund during previous year

April 21st May        May 21st Jun        June 21st July Apr to Jun 21st July    July 21st Aug        August 21st Sept        September 21st Oct July to Sept 21st Oct    October 21st Nov     Apr to Sept 21st OctNovember 21st Dec        December 21st Jan Oct to Dec 21st Jan    January 21st Feb        February 21st Mar        March 21st Apr Jan to Mar 21st Apr Oct to Mar 21st Apr

E-payment directly from Bank's websiteSr.No.Name Of The Bank1 STATE BANK OF INDIA2 STATE BANK OF HYDERABAD3 STATE BANK OF TRAVANCORE4 STATE BANK OF INDORE5 STATE BANK OF MYSORE6 STATE BANK OF BIKANER & JAIPUR7 STATE BANK OF PATIALA8 IDBI BANK9 CORPORATION BANK10 UNION BANK OF INDIA11 BANK OF INDIA12 BANK OF MAHARASHTRA13 BANK OF BARODABank's Integrated With MSTD websiteSr.No. Name Of The Bank1 IDBI BANK2 CORPORATION BANK3 UNION BANK OF INDIA4 BANK OF MAHARASHTRA5 BANK OF BARODA

SET OFF MECHANISUM Rule 51 to 55 & section 48 Deals with Set off.Set off is available to all Registered Dealers except those who have not opted to pay tax by way of composition as a retailer, Owner of Restaurant or a Bakery.Set off is related to Tax paid on purchases.The reduction of set off is also mentioned in the law in case of manufacturing of taxable goods, Goods use as fuel, Set off on Packing materials used to pack tax free goods if the dealers is a works contractor and has opted for composition scheme. Dealers buying office Equipments & furniture fixtures as using them as capital assets, set off reduced at 3%. The list is quite exhaustive, however only few illustrations are given above.

REFUND Refund from the Government of Maharashtra can be claimed by the dealer by filling up form No.501 with the necessary information asked for.

AUDIT A. BUSINESS AUDIT (DEPARMENTAL AUDIT U/S 22)

The Department may conducted an audit at the place of business of the assessee. At the discussion of the Commissioner of Sales Tax and the procedure is same as followed in the regular assessment.

B. STATUTORY AUDIT U/S 61A dealer exceeding the turnover of Rs. 40 Lacs (Exclusive of Labour charges) are required to get their books of account are audited by Chartered Accountant and submit the repot in form No.704. There is proposal in the budget that the said limit be raised to Rs.60 Lacs. The VAT is charged at the rates mentioned in the SCHEDULES from A to EThe Rates are as follows:

SCH A NILSCH B 1%SCH C 4%SCH D 25 % OR 31 %+ 1 RS PER LITRESCH E 12.5%

FINANCE DEPARTMENTMantralaya, Mumbai-400 032, dated the 10th March, 2010.

NOTIFICATIONTHE MAHARASHTRA VALUE ADDED TAX ACT, 2002

No VAT-1510/CR 47/Taxation-1.- In exercise of the powers conferred by sub-section (1) of section 9 of the Maharashtra Value Added Tax Act, 2002, (Mah. IX of 2005), the Government of Maharashtra hereby amends with effect from the 1st April 2010 the SCHEDULE “A” and “C” appended to the said Act as follows:─ (1) in Schedule-A, in entry 45, in column, (2) for the words, figures and brackets “ the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957)”, the words, figures and brackets “the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) but excluding those specified in Schedule-C” shall be substituted;

(2) in Schedule-C, ─ (a) in column (3), against entries at serial numbers 1, 2, 3, 5, 6, 7, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 21, 23, 24, 26, 28, 29, 29A, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 46, 47, 49, 50, 51, 53, 54, 56, 58, 59, 61, 62, 64, 65, 66, 67, 69, 70, 71, 72, 73, 74, 75, 76, 77, 79, 80, 81, 82 83, 84, 85, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99,100, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113 and 114 for the figure and sign “4%” the figure and sign “5%” shall be substituted;

(b) for entry 4, the following entry shall be substituted, namely:─ “4(a) Cotton yarn but not

including cotton yarn waste;

4 %

(b) Save as provided in clause (a) above, any yarn whether covered

5%”;

with any material or not; sewing thread, waste of any of them,

excluding cotton and silk yarn in hanks as covered under entry 17 of Schedule A.

COMPOSITION SCHEME U/S 42

Kind of Dealers Rate of Tax1.Restaurants, Eating Houses, Factory Canteen, Club Hotels and 5% of Sales for Registered Dealers Caterers 10% of Sales for Unregistered Dealers

2. Bakers 4% of Sales for Registered Dealers.6% of Sales for Unregistered Dealers.

3. Retailers 5% of Sales for Registered Dealers8% of Sales for Unregistered Dealers.

4. Dealers in Second Hand Vehicles 12.5% on 15% of Sale Price of Vehicle5. Works Contract Tax 5% in respect of Construction contracts

8% in respect of Other than Construction Contracts.

CST

SALIENT FEATURES OF INTERSTATE SALES1.there should be a completed sale .there should be an agreement or contract with a condition of moment of goods from one state 2 another.2.the goods should actually move from one state 2 another as per contract.3. the concluded sale should take place in a state which should be different from d state from where d moment of goods has started.4.the moment might be incidental 2 the contract of sale .5.it is not necessary dat the goods must pass on 2 d buyer .6.the sale can precede d moment of goods or moment of goods can precede d sale.7.if d moment of goods commences and concludes in a same state even though it has passed different sales it is not treated as interstate sales.8.the essential element of interstate is d sale of document of title 2 d goods.

BRANCH TRANSFERThe basic condition of inter state sale is dat there should be a sale ..if an assesscy sends goods 2 his branch in other state it is not a sale as one cannot sell 2 oneself.This transaction is known as “ BRANCH TRANSFER”

Since such transaction is not treated as a sale it is necessary 2 prove it as branch transfer ,the branch should give a declaration 2 d head office or a depot a declaration called as “FORM F”. IMPORT AND EXPORTIf a sale is an export sale ,no tax is leviable under CST ACT.A sale is suppose 2 be an export sale provided the following conditions r fulfilled.1.such sale or purchase either occasions such exports 2.it is effected by transfer of documents of title 2 goods after d goods have crossed d customs frontiers of India.

EXPORTS SALE BY TRANSFER OF DOCUMENTSAfter d goods crossed d custom frontiers ,the goods can be sold by way of transfer of documents of title 2 goods and it will be treated as export sale.as long as d goods remain within d frontiers of India it will not be treated as export sale.

FORM H.The exporter who exports goods which he has purchased from other dealer has 2 submit form H 2 the dealer supplying d goods. SALE DURING IMPORTA sale or purchase of goods is deemed 2 be in course of import of goods into d territory of India only if1. if such sale or purchase either occasions such export or it is effected by transfer of documents of title 2 goods before d goods have crossed d custom frontiers of India.2. imports could be (a ) direct imports through agent or by way of document of title 2 goods-high sea sale.

SALIENT FEATURES OF HIGH SEA SALE1. if imported goods r sold 2 a buyer in India by way of transfer of documents of

title 2 goods before d goods cross d custom frontiers of India.2. 2. where transfer of document of title effect sale ,such transfer should take place

before d goods r moved out of customs.

REGISTRATION UNDER CSTRegistration under cst act can be done either voluntarily or compulsorily. (SECTION 7)Section 7 (1) compulsory registration section 7(2) voluntary registrationSection 6(1) states dat every dealer effecting a sale in d course of interstate trade or commerce is liable 2 pay CST.

VARIOUS FORMS UNDER CST ACTFollowing r d various forms used under d CST ACT

1. FORM C : form c is to be submitted by d buyer 2 d seller 2 avail d concessional rate at 2% wef 1st june 2008 earlier it was 3 %.

2. 2. as per section 8 (3) d following goods only r eligible for concessional rate of form c.

a. goods for resale b. goods for use in manufacture or processing c. Goods used in mining d. Goods used in power generation or distribution e. Goods used in telecom industry f. Goods used as containers or Packing materials

Submission of form c is mandatory.it can be also submitted at appelliate stage.for all d transactions within d buyer and seller for 1 yr can be included in 1 c form. FORM DForm d is 2 be given by d govt departments who wants 2 buy goods from other states at concessional rates. (RATE OF TAX =2%)

FORM E-1These forms r used for sales in transit.

Interstate selling buying E-1or E-2 forms c/d is taxable Sale dealer person under CST

First sale A of B of A will submit A should yes AHEM- BOMBAY E-1 2 B obtain form b Adabad 2nd sale B of k of Kochin B will give B should noDuring Bombay form E-2 2 k obtain form c Movement) from k

3rd sale K of m of madural k will give k should obtain noDuring Kochin form E-2 2 m Form c from m Movement)

M sells m of madural H of - M should obtain yesAfter taking Hyderabad form c from hDelivery.

Form E-1 and E-2 are mandatory.

RATES OF TAX UNDER CSTForm c 2%.without c form local rate of tax.D form 2% without d form local rate.Sale of goods other than form c and d ,of declared goods is twice d local rate of tax.if d rate of tax in d range of 4-10% maximum rate of tax is 10 %.

Service TaxThe Tax Reforms Committee headed by Dr. Raja J. Chelliah recognized the revenue potential of the service sector in India and recommended imposition of "service tax" on select services.

Based on these recommendations, Dr. Manmohan Singh, the then Union Finance Minister, in his Budget Speech for the year 1994-95 introduced the new concept of Service Tax.

The introduction of the service tax was under the residuary entry No. 97 of list 1 of Schedule VII of the Constitution and as such, could not be brought through a separate enactment. Therefore, the service tax was levied under Chapter V of the Finance Act, 1994. It was introduced for the first time on the following 3 services with nominal rate of 5%:

1. Telephone facility2. Stock brokers3. Non-life insurance

The Government has since amended the Constitution and inserted entry No. 92C in list 1 of Schedule VII empowering it to levy service tax and make separate Legislation for the same. But service tax law is still governed by residuary entry No. 97 of list 1 of Schedule VII.

Subsequent Finance Acts have added more and more services to be taxed for Service Tax purposes. As such, today 114 services are chargeable to Service Tax

The law relating to service tax extends to whole of India except the State of Jammu and Kashmir and it is applicable to taxable services provided.

Service tax is governed and administered by the Central Board of Excise and Customs (CBEC).

1. Charge of Service TaxSection 66

There is levied a tax (hereinafter referred to as the service tax) at the rate of 10%* of the value of taxable services referred in various sub-clauses of section 65(105) and collected in such manner as may be prescribed. * Education cess and SHEC as applicable, is extraIn other words. the service tax is levied as under:

1. It is levied at the effective rate of 10.3% of the gross value of taxable service but in certain cases abatement is provided for material component of the transaction e.g. in catering services, the standard service component is assumed to be 50%. Thus, abatement of 50% has been provided from the gross value.Alternative rate of service tax in case of certain services: Although service tax is levied at the basic rate of 10% but in case of certain services, an alternative rate is also provided. Some of these are as under:

(1) In case of specified works pertaining to specified immovable properties an optional composition tax rate of 4% of gross value has been provided.

(2) In case of life insurance services alternate mode of discharge of service tax liability has been provided and the rate of service tax in this case is 1% of total premium.

(3) In case of Air Travel Agents services, the Air Travel Agent, shall have the option to pay service tax of an amount calculated as under:

(a) In case of domestic bookings — 0.6% of the basic fare.(b) In case of international bookings — 1.2% of the basic fare.

2. It is levied only on specified taxable services.3. Taxable services mean any service provided or to be provided to a

person/client/customer, etc. by the service provider.4. The valuation of taxable services for charging service tax is covered under section 67 of

the Act.5. In most of the cases, the service provider has to pay service tax. However, in respect of

certain notified taxable services, the service tax shall be paid by such persons and in such manner as may be prescribed.

6. Although, service tax is attracted on service provided or to be provided but the tax has to be paid only on the receipt of the consideration except in the case of associated enterprise. Further, in case, some amount has been realized in advance for the taxable services yet to be rendered, service tax has to be paid in advance.

7. There is no service tax if the services are provided free of cost.8. Service tax is to be paid on the 5th day (6th day in case of e-payment of tax) of the next

calendar month depending on whether the tax has to be paid monthly or quarterly. However, for quarter ending March/month ending March, it has to be paid by 31st March of the calendar year.

2. Valuation of taxable servicesSection 67

As per section 67, the valuation of taxable service shall be determined under the following two situations:—

(A) Service tax is separately charged in the bill.(B) Bill value is inclusive of service tax

(A) Service tax is separately charged in the Bill

Situation Valuation

(i) where the provision of service is for a consideration in money

gross amount charged by the service provider for such service provided or to be provided by him

(ii) where the provision of service is for a consideration not wholly or partly consisting of money

such amount in money, with the addition of service tax charged, as is equivalent to the consideration. In other words, it should be value of similar services provided to third party. If similar service is not provided to third party, it should be market value as determined by the assessee but it cannot be lower than the cost of provision of same.

(iii) where the provision of service is for a consideration which is not ascertainable

the amount as may be determined in the prescribed manner

(B) Valuation where billing is inclusive of service tax: If the gross amount charged by a service

provider for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. Thus, in this situation, the assessee is to calculate service tax based on reverse working

For example .If the billing is done inclusive of service tax (Consider billing 10000 (inclusive) realization 10000 (inclusive)), the assessee can claim that the bill amount should be bifurcated into value and service tax components. Accordingly the service tax payable shall be (10000 10.3/110.3) = Rs. 934.

If the amount of money charged in the bill is Rs. 10,000 and the market value of consideration received in kind is Rs. 2,000, then the value of service provided shall be calculated as under:Rs. 12,000 × 100/110.3 = Rs. 10,879

Service tax payable shall be Rs. 10,879 × 10.3 = Rs. 1,121

2a Service tax is payable on gross amount: The first basic principle is that service tax is payable on the gross amount and not on the net amount. This has been made amply clear by the wordings of section 67.

Therefore, as a thumb rule, one may conclude that it is not possible for the assessee to deduct the expenses from the gross taxable amount.

For example, in case of air travel agents, it is clarified that discounts passed on to the customers cannot be reduced from the taxable service. Similarly, in the case of advertising agencies, it is stated that no reduction on account of expenses can be claimed by the service provider.

Further, it is not necessary that the recipient of service should pay the consideration only to the service provider. If the recipient of service has paid any sum of money to a third party on behalf of the service provider, such amount shall also be includable in computing the value of taxable services.

2b Charge is in relation to service provided: The second principle which also flows from section 67 is that the amount charged has to be in relation to services rendered.

2c Reimbursement of expenses to be excluded in certain cases: The reimbursement claim can be excluded from the value of service only in cases where the service provider acts as a "pure agent" of the client.

2d Sale value of goods to excluded in certain cases: Sometimes, the service provider

Wholly in money

Partly in money and partly in kind or wholly in kind

Gross amount charged

Value of similar services provided to third party

If similar service not provided - market value as determined by the assessee but it cannot be lower than cost of provision of same

Not ascertainable Amount to be determined in prescribed manner

Consideration

supplies goods & materials while providing the service, in this case the value of goods and material has to be excluded for purpose of payment of service tax. However, this exclusion is allowable only if sale of such goods is evidenced and sale value is quantified and shown separately in invoice.

Where, the sale consideration for such supply of goods cannot be dissected from the service element and the same shall be exposed to liability for service tax. For example, materials consumed by a beauty parlour in the rendering of services.

Similarly, it has been clarified that in case of commercial training and coaching institutes, deduction will be not be available for any study material or written text provided by the institute.

3. Registration Rule 4 of Service Tax

Rules, 1994

Every person liable to pay the service tax is required to make an application to the concerned Superintendent of Central Excise in Form ST-1for registration with in such time as may be prescribed.Further the Central Government may, by notification in the Official Gazette, specify such other person or class of persons, who shall make an application for registration with in such time and in such manner and in such form as may be prescribed.

3a Time limit for registration: The application in Form No. ST-1 has to be made within time prescribed as under:

Situation Time Limit for RegistrationWhen service tax is imposed on a new service and the service provider has already been providing that service

Within 30 days from the date of levy of service tax

In case a service provider commences the business of providing taxable services

Within 30 days from the date of commencement of business

In case a service provider is already providing a taxable service and

- starts providing another taxable service or - provides a service which has now become

taxable

No need for fresh registration.Amendment for the same in the registration certificate i.e. ST-2 should be applied within 30 days

3b Centralised Registration [Rule 4(2)]: Where a person, liable to pay service tax on a taxable service,—

(i) provides such service from more than one premises or office; or(ii) receives such service in more than one premises or offices (in case of service

recipients); or(iii) is having more than one premises or offices, which are engaged in relation to such service

in any other manner, making such person liable for paying service tax.AND

has centralised billing system or centralised accounting system in respect of such service, he may, at his option, opt for centralized registration.

However, separate registration of Multiple place of business is required in the absence of centralised billing or centralised accounting system or the service provider does not opt for centralised registration.

Only one registration is required even if more than one service is provided from one place.

It should be noted that even though the registration is common across different service categories, the tax liability has to be discharged separately for each of the taxable service in separate GAR - 7 Challans mentioning the accounting code of relevant service.

However, a single return in Form ST-3 indicating the details separately for each taxable service is required to be submitted.

3c Single application for registration even if multiple taxable services are provided [Rule 4(4)]

If the same assessee provides more than one category of taxable services, he need not apply for separate registration for each taxable service. Single application mentioning therein all the taxable services provided shall be sufficient. In case the assessee is already registered for one service but subsequently becomes liable for another category of service, then he has to get his certificate endorsed for the other category of service.

It should be noted that even though the registration is common across different service categories, the tax liability has to be discharged separately for each of the taxable service in separate GAR-7 Challans mentioning the accounting code relevant for that pertinent taxable service. However a single return in Form ST-3 indicating the details separately for each taxable service will suffice

It should also be noted that the registration numbers for each service category would be different though the service tax code (PAN Based) would be common. Also, the classification of services would be very important in this situation.

3d Documents to be attached along with application for registration: An application for registration has to be accompanied along with the following documents:

1. Application in Form ST-1 in triplicate duly signed.2. Attested Copy of the PAN Card issued under income tax.3. Proof of Address of the premises which is required to be registered.4. Copy of the Document governing the constitution of the organisation (partnership deed in

case of a partnership firm, Memorandum of Association in case of a company, Trust Deed in case of a trusts or associations).

5 Authority Letter in favour of the person who is to collect the registration certificate on the letter head of the organization applying for registration.

6. Power of Attorney in case the documents are signed by an authorised representative.

3e Issue of Registration Certificate : The Superintendent of Central Excise, after verification of the application of registration, issue a certificate in Form ST-2 within 7 days of the receipt of application.

If the registration certificate is not granted within the said period, the registration applied for shall be deemed to have been granted.

3f New PAN Based Service Tax Code: The department has decided to introduce Service Tax Code based on PAN. Accordingly, it is compulsory for all concerns registered under the

Service Tax Rules to obtain PAN whether or not they pay income tax. The Service Tax Code is a 15 digit alphanumeric code. First 10 digits will be 10 character PAN issued by Income Tax authorities. Next two characters will be 'ST'. Last three will be numeric code – 001, 002, 003 etc. The concerned person should apply in prescribed form.

3g Changes in Registration Certificate: If there is any change in name or place of the applicant, a certified copy of the registration certificate should be sent for necessary amendment within 30 days from the change. Moreover, if the change in the place also results in a change in the jurisdiction, an additional request for the transfer of records should also be made.

If the business is transferred to another person, the transferee is required to make a fresh application for registration and transferor should surrender the registration certificate immediately.

It has been clarified that in case of change in the place of business, looking at the scheme of premise-specific registration and the provisions of rule 4(1), an application should be made within a period of 30 days.

Assessee ceases to carry on business [Rule 4(7)]: If the assessee ceases to carry on the activity for which he is registered, he should surrender the registration certificate immediately.

Similarly, in case there is a change in constitution of a partnership firm, the same should be intimated through a letter to the Superintendent of Central Excise.

3h Registration by other persons [Section 69(2)]: The Central Government is empowered to notify the class of dealers other than service providers who shall be required to register with service tax authorities. Accordingly, the Central Government has issued notifications for the following person to apply for registration:

(1) Input service distributors.(2) Small scale provider whose aggregate value of taxable services exceeds Rs. 9 lakh in a

financial year.Besides the above, where service tax is levied on service recipient, such recipient of service

shall have to apply for registration e.g. Goods transport services, import of service, etc.3-i Penalty for non-registration: A person who is liable to pay service tax or is required to

take registration, fails to take registration in accordance with the provisions of section 69 or rules made thereunder, shall be liable to pay a penalty of Rs. 200 for every day during which failure continues, subject to maximum of Rs. 5,000.

4. Payment of service taxSection 66 and Rule 6 of STR,

1994

4a Persons liable to pay service tax: Every person liable to pay service tax is required to pay the service tax as per the provisions of rule 6 of the Service Tax Rules, 1994. Unincorporated associations or body of persons providing taxable services to its members for cash, deferred payment or any other valuable consideration are also liable to pay service tax.

Although the general principle is that the person providing a taxable service is liable to pay service tax, but in certain specific situations, section 68(2) permits the Government to notify persons other than the person providing the taxable service to be liable for payment of service tax. Accordingly, certain exceptions to the general rule have been carved out. The same are listed below:

1. In relation to insurance auxiliary service by an insurance agent, the insurance company

shall be liable to pay the service tax.2. In relation to any taxable service provided by a non-resident not having any office in

India, the person receiving the taxable service in India shall be liable to pay the service tax.

3. In relation to any taxable service provided by a goods transport agency where either the consignor or the consignee is a specified entity, the person paying the freight either himself or through his agent shall be liable to pay the service tax.Specified entity in this case means that the consignor or consignee should fall under any of the following seven categories:

(a) a factory

(b) a company(c) a corporation established under any law

(d) a society(e) a co-operative society

(f) a registered dealer of excisable goods(g) a body corporate or a partnership firm

4. In relation to business auxiliary service of distribution of mutual fund by a mutual fund distributor or an agent, the mutual fund or asset management company receiving such service shall be liable to pay the service tax.

5. In relation to sponsorship services, the person sponsoring the event if he is located in India.

A sub-contractor is liable to service tax: Although sub-contractor provides service to main contractor and the main contractor pays service tax on the total amount of total work, still the service provided by sub-contractor shall be in the nature of input service and sub-contractor shall have to pay service tax on the amount of such services provided and the main contractor can take Cenvat Credit for such input services.

4b Payment of Service Tax only on Realisation of Services The service tax is levied at the stage of rendering the services but the same has to be paid only when the value of the taxable services is realized except in the case of associated enterprise.

For example, if a service provider raises a bill on 12-10-2008 and the client pays the bill in January 2009, the liability to pay service tax shall arise only in January, 2009.

4c Transactions with associated enterprises: Where the transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, in such case shall include any amount credited or debited, as the case may be, to any account, whether called 'Suspense account' or by any other name, in the books of account of a person liable to pay service tax.

4d Treatment of Advances and Deposits: Deposits and advances are also liable for service tax at the time of receipt. Thus, the gross amount charged for the taxable service includes any amount received even before the provisions of services.

When advance payment is received for a service which is non-taxable at the time of receipt of payment but becomes taxable during the course of provision of service, such payments would have to be apportioned appropriately between the two periods and that part of service provided on or after the service becomes taxable service, is only liable for service tax.

When payment is received in advance for services to be provided but subsequently the services are not actually provided, then in such cases service tax paid is liable to be refunded.

4e. Discounts and Short Payments: In cases where there has been a short recovery, it would be necessary for the assessee to revise the bill or to endorse the reduction on the original bill. In case an assessee does not do so, his liability to pay service tax shall be on the amount billed by him to the client for the services rendered.

This requirement in fact acts as a cross check against misuse as the service recipient is now entitled to claim CENVAT Credit on the service tax paid by him on input services consumed in relation to manufacture of taxable goods or provision of taxable output services.

4f. Excess Collection: Service tax can be collected separately in the invoices raised to the customer. If any service tax is wrongly collected, or collected at a higher amount, then the service provider can refund the excess collection to the customer. He cannot however retain the excess collection with himself in view of the very wide provisions of section 73A of the Act.

As per section 73A, every person, who is liable to pay service tax and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service from the recipient of taxable service in any manner as representing service tax, must pay the amount so collected immediately to the credit of the Central Government. This provision ensures that the service provider does not collect excess amount from the recipient of the service in the name of service tax.

Further, where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person should also immediately pay the amount so collected to the credit of the Central Government.

4g Due Dates for Payments [Rule 6(1)]

Category of Assessee

Periodicity of Payment

Period Due Date

Individuals, proprietory firms or partnership firms

Quarterly April to JuneJuly to SeptemberOctober to December

5th of the month immediately following the said quarter.6th of the month immediately following the said quarter if paid by net banking.

January to March 31st MarchOthers Monthly All months except

March5th of the month immediately following the calendar month6th of the month immediately following the calendar month if paid by net banking.

March 31st March

4h How to make the payment [Rule 6(2)]: Under rule 6(2), the assessee is required to deposit the service tax with the designated bank through GAR – 7 challan. A photocopy of challan after payment has to be attached to the return of service tax which has to be filed in Form No. ST-3.

However, in case of the assessee has paid service tax of Rs. 10,00,000 or more in the preceding financial year or has already paid service tax of Rs. 10,00,000 in the current financial year, service tax shall have to be paid electronically through internet banking.

It is to be noted that the interest for delayed payment of service tax has also to be paid along

with the service tax amount.4-i Payment by Cheque — Date of Tender [Rule 6(2A)]: In case of payment by cheque,

rule 6(2A) provides that the date of payment is the date on which the cheque is tendered to the designated bank, provided the cheque is not dishonoured in the course of clearing.

4j Rounding off of tax: The provisions of section 37D of the Central Excise Act, 1944 provide for the rounding off of the payment of duty. The said provisions have been made applicable to the service tax law also. Therefore the payment of service tax should be rounded off in multiple of Rupees. Where such amount includes fifty paise or more, it should be increased to one rupee and if it is less than fifty paise, it should be ignored.

4k Consequences of non/delayed payment of service taxInterest on delayed payment of service tax: Every person, liable to pay the service tax in

accordance with the provisions of section 68 of the Act or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest @ 13% p.a. Interest is payable for the period from the first day after the due date till the date of payment of any defaulted service tax amount.

Interest payments are mandatory in nature and same can not be waived.The penal consequences if the Service Tax is not paid or paid late: If a person who is liable to

pay Service Tax fails to pay service tax, he shall pay in addition to such tax and interest in accordance with the provisions of section 75 of the Act, a penalty which shall not be less than Rs. 200 for every day during which such failure continues or @ 2% of such tax p.m., whichever is higher. However, the penalty amount payable shall not exceed the amount of Service Tax payable.

4-l Service tax can be paid in Advance [Rule 6(1A)]: Without prejudice to the provisions contained in sub-rule (1), every person liable to pay service tax, may, on his own volition, pay an amount as service tax in advance, to the credit of the Central Government and adjust the amount so paid against the service tax which he is liable to pay for the subsequent period.

However, the assessee shall:(i) intimate the details of the amount of service tax paid in advance, to the jurisdictional

Superintendent of Central Excise within a period of 15 days from the date of such payment; and

(ii) indicate the details of the advance payment made, and its adjustment, if any in the subsequent return to be filed under section 70 of the Act.

4m Adjustment of Excess Service Tax Paid [Rule 6(3)]: Where an assessee has paid service tax in respect of a taxable service,

- which is not so provided by him either wholly or partially for any reason, and- assessee has refunded the value of taxable service including service tax thereon to the

person from whom it was received,then the assessee may adjust the excess service tax so paid (calculated on pro rata basis)

against the service tax liability for the subsequent period,In case where an assessee has opted for centralized registration and has paid any service tax

amount in excess of the liability for a period due to non-receipt of details of receipts from other premises or offices, the assessee may adjust such excess amount against his service tax liability for the subsequent period.

Where the excess payment is due to any other reason, the assessee has to apply for a refund under section 11B of the Central Excise Act if the assessment is pending, If the assessment is completed, the assessee should apply for rectification under section 74 of the Finance Act, 1994.

4n Self Adjustment of Excess Service Tax Paid [Rule 4A and 4B]: Where an assessee has paid excess amount of service tax liability for a month or quarter, as the case may be, the assessee may adjust such excess amount paid by him against his service tax liability for the succeeding month or quarter, as the case may be. subject to the following conditions

reasons not involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification,

excess amount paid by an assessee, on account of delayed receipt of details of payments towards taxable services may be adjusted without monetary limit

in cases other than specified in clause (ii) above, the excess amount paid may be adjusted with a monetary limit of rupees fifty thousand for a relevant month or quarter, as the case may be

the details and reasons for such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of such adjustment.".

4-o Provisional payment of service tax [Rule 6(4)]Where an assessee is, for any reason, unable to correctly estimate, on the date of deposit, the

actual amount payable for any particular month or quarter, as the case may be, he may make a request in writing to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, giving reasons for payment of service tax on provisional basis and the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, on receipt of such request, may allow payment of service tax on provisional basis on such value of taxable service as may be specified by him.

Provisional assessment: The assessee requesting for provisional assessment shall file a statement giving details of the difference between the Service Tax deposited and the Service Tax liable to be paid for each month in a memorandum in Form ST-3A accompanying the half-yearly return in Form ST-3.

In case the Service Tax assessee resorts to provisional assessment after following the procedure and furnishes the returns in Form ST-3A along with Form ST-3, it is the responsibility of the Asstt./Deputy Commissioner to complete the assessment after calling for from the assessee the relevant documents or records, as may be considered necessary by him. Wherever the Asstt./Dy. Commissioner, after considering all the details/documents proposes to re-assess the Service Tax liability, the finalization of the provisional assessment would be made after providing adequate opportunity to the assessee by issuing the show cause notice and giving opportunity of being heard in person.

5. Person liable for payment of service taxThe general principle is that the person providing a taxable service is liable to pay service

tax, but in certain specific situations, as Government may notify, persons other than the person providing the taxable service are liable for payment of service tax.

S. No.

Services Persons liable for payment

1 General Insurance Insurance company2 Insurance Auxiliary Insurance company3 Any service provided from

outside India and received in India

Receiver of service in India

4 Goods transport agency (GTA) Person making payment of freight i.e. receiver of the

S. No.

Services Persons liable for payment

service (if consignor or consignee of goods are in organized sector), or GTA i.e. provider of service (in other cases)

5 Sponsorship services Person sponsoring the event if he is located in India6 Business auxiliary services of

distribution of mutual fundReceiver of service in India

7 Any other taxable service Service provider

5a Advance payment of service tax: The facility to pay service tax in advance is extended to all taxable service provides. The facility is subject to the condition that the details of such advance payment should be intimated to the jurisdictional Superintendent of Central Excise within 15 days of such payment. Such advance service tax paid is allowed to be adjusted against service tax liability for subsequent period. It is sufficient to intimate details of such adjustment in the subsequent return to be filed.

6. Service received from outside India [Section 66A]

Where any taxable service is provided or to be provided by a person who has:(i) established a business or has a fixed establishment from which service is provided or has

been provided in a country outside India, or(ii) his permanent address or usual place of residence is in a country other than India.

AndSuch service is received by a person (i.e. recipient) who has his place of business, fixed

establishment, permanent address or unusual place of residence in India.it will be treated as if recipient himself has provided the services in India and it will be

chargeable to tax in has hands instead of the service provider.However, if the recipient of the service is an individual, such service shall not be taxable unless it has been

received by him in any business or commerce.

7. Service Tax Exemption

1. Exemption of taxable services of aggregate value not exceeding Rs. 10,00,000No service tax is payable if aggregate value of taxable services does not exceed Rs. 10 lakhs.However the above exemption shall not apply to—(i) taxable services provided by a person under a brand name or trade name, whether

registered or not, of another person; or(ii) where service tax is payable by the service recipient instead of service provider.

Conditions to be satisfied before claiming exemption of Rs. 10,00,000—(i) the provider of taxable service has the option not to avail the exemption contained in this

notification and pay service tax on the taxable services provided by him and such option, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year;

(ii) the provider of taxable service shall not avail the CENVAT credit of service tax paid on any input services;

(iii) where a taxable service provider provides one or more taxable services from one or more premises, the exemption under this notification shall apply to the aggregate value of all such taxable services and from all such premises and not separately for each premises or each services; and

(iv) the aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed Rs. 10,00,000 in the preceding financial year. If in the preceding financial year if aggregate value of taxable service exceeds Rs. 10,00,000 there will be no exemption from service tax in the current year.

2. No service tax is levied where goods are produced by job worker on behalf of client using raw material supplied by the client and goods so produced are returned back to said client and appropriate excise duty is payable by the client.

3. No service tax is levied on export of services.4. No service tax is levied on services provided to the United Nation and declared

international organisations.5. No service tax is levied on services provided to diplomatic missions for their official or

personal use.6. No service tax is levied on services provided to units located in SEZ or to a

developer of SEZ.

8. Filing of Return of Service Tax [Section 70 and rule 7]

Every person liable to pay service tax shall himself assess the tax due on the services provided by him and furnish a return in Form ST-3 (in triplicate) on a half yearly basis.

'Half year' means 1st April to 30th September and 1st October to 31st March of financial year.

8a Due dates of filing of returns: The return has to be submitted by the 25th day of the month following the particular half-year. Even a NIL return has to be filed if the assessee has not rendered any taxable service during a particular half year.

8b Contents of Service Tax Return: The return should include inter alia, monthwise details for each of the taxable service rendered by the assessee—

Value of taxable service charged/billed; Value of services which are exempted — with reference to the notification; Value of services which are exported; Abatement Claimed — with reference to the notification; Value of taxable service realized for services already rendered; Value of taxable service realized for services yet to be rendered; Amount of service tax payable/paid; Amount of education cess & SHEC payable/paid; Details of CENVAT Credit Details of payment of service tax vide GAR – 7 i.e. challans date, no., etc.

8c Enclosures to the ReturnThe following documents should be enclosed with the return: Copies of GAR-7/TR-6 challans for the months covered in the return.

Memorandum in Form ST-3A in case of a provisional assessment. List of accounts maintained in relation to service tax by the assessee should be attached

with the first return. Documentary Proof for adjustment of excess service tax paid in terms of rule 6(3). Worksheet of calculation of interest in case of delayed payment of service tax.

8d E-filing of ReturnsThe Central Board of Excise & Customs has introduced a scheme of e-filing of service tax

returns. The broad scheme is as under:1. Assessee should have the 15 digit STP Code (based on PAN) to avail the facility of e-

filing of returns.2. The assessee should indicate his 15 digit STP code in the challans used by him for the

period for which the returns are being filed. (An assessee who has not done this may also opt for e-filing, but he will have to submit copies of Challans, evidencing payment of service tax to the concerned excise formations after indicating his 15 digit STP code on each challan).

3. The assessee should file an application to the concerned excise formation at least one month in advance before the due date of filing of the return, in Annexure-I. User 'id' and 'password' for the assessee will be communicated to him within ten days after filing the application along with the necessary technical guidance.

4. After receipt of the said details the individual service provider can download form for entering details of ST3 returns and TR6 challans from the central server using internet and enter the necessary details for the concerned return period.

5. The computer generates a key number which will depend on the STP code, date of filing, value of services declared and tax paid and generates an acknowledgement giving these details which can be printed by the assessee and kept in his records as evidence of having filed the return.

6. The computer will verify the fact of payment from data obtained from Focal Point Bank. Where details as declared by the assessees are not found the assessee will be contacted.

7. The Central Board of Excise & Customs has assured all assessees opting forE-filing of returns that the department will not invoke section 77 of the Finance Act, 1994 prescribing a maximum penalty of Rs. 1,000 for non- filing of ST-3 return for delay upto one month from the due date prescribed under the rules for filing such return. It is to be clearly understood that this assurance does not extend to non-payment of tax in time or mis-declaration of the value of taxable services rendered.

8. The facility of E-filing is an optional facility and does not bar in any way the manual filing of the return by the Service Provider.

9. An interesting observation is that in the site for e-filing of returns, there is a provision for filing of revised returns in Form ST-3. Of course, there are no legal provisions permitting the filing of the revised returns and hence the legal position in such a scenario is debatable

8e Multiple Services RenderedIn case the assessee renders multiple categories of taxable services, he can file a single return

for all the categories of taxable services. However, complete information should be presented in the return month-wise and category wise. Also, the payment of service tax has to be made in separate challans or in one challan with separate codes mentioned clearly thereon.

9. Penalty for delay in furnishing returnRule 7C of STR, 1994

Section 70(1) provides for filing of periodical return after the due date with the prescribed late fee of not more than Rs. 2,000

Where the return is not furnished within due date, the person liable to furnish return is liable to pay to the CG as penalty, on the basis of period of delay subject to maximum of Rs. 2,000.

Period of delay from due date Amount to be paid

Upto 15 days Rs. 500

Upto 30 days Rs. 1000

After 30 days Rs 1000 + Rs 100 per day in excess of 30 days upto a max of Rs. 2000

10. Revised Return

Rule 7B of STR 1994

An assessee may submit a revised return, in Form ST-3, in triplicate, to correct a mistake or omission, within a period of 90 days from the date of submission of the return under rule 7.

Where an assessee submits a revised return, the 'relevant date' for the purpose of recovery of service tax, if any, under section 73 of the Act shall be the date of submission of such revised return.

If the original return has been filed late, this period of 90 days will be applicable from the date when return has been actually filed and not from the last date when such return was required to be filed with the department.

11. Scheme for submission of return through Service Tax Return Preparer [Section 71]

Without prejudice to the provisions of section 70, the Board may, by notification in he Official Gazette, frame a Scheme for the purposes of enabling any person or class of persons to prepare and furnish a return under section 70, and authorise a Service Tax Return Preparer to act as such under the Scheme.

A Service Tax Return Preparer shall assist the person or class of persons to prepare and furnish the return in such manner as may be specified in the Scheme framed under this section.

"Service Tax Return Preparer" means any individual, who has been authorised to act as a Service Tax Preparer under the Scheme framed under this section as may be specified in the scheme.

The Scheme to be framed by the Board: The Scheme framed by the Board under this section may provide for the following, namely:—

(a) the manner in which and the period for which the Service Tax Return Preparer shall be authorised;

(b) the educational and other qualifications to be possessed, and the training and other conditions required to be fulfilled, by a person to act as a Service Tax Return Preparer;

(c) the code of conduct for the Service Tax Return Preparer;(d) the duties and obligations of the Service Tax Return Preparer;

(e) the circumstances under which the authorisation given to a Service Tax Return Preparer may be withdrawn;

(f) any other matter which is required to be, or may be, specified by the Scheme for the purposes of this section.

CENTRAL EXCISE

Basic conditions of excise liability - Section 3 of Central Excise Act ( often called the ‘Charging Section’ ) states that ‘There shall be levied and collected in such manner as may be prescribed duties on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India - . - . -'. The words ‘goods which are manufactured or produced in India’ are same as those used in Entry No 84 to list I. Thus, the power to levy Central Excise duty is derived from the Constitution. This definition of charging section of Central Excise is vital, because it clearly signifies that there are four basic conditions for levy of Central Excise duty. (1) The duty is on goods. (2) The goods must be excisable. (3) The goods must be manufactured or produced (4) Such manufacture or production must be in India. Unless all of these conditions are satisfied, Central Excise Duty cannot be levied. Each of these requirements needs close scrutiny.

GOODS MANUFACTURED IN SEZ ARE ‘EXCLUDED EXCISABLE GOODS’ – A per section 3(1) of CE Act, duty is leviable on all excisable goods (excluding goods manufactured or produced in Special Economic Zones). Thus, goods manufactured or produced in SEZ are ‘excisable goods’ but no duty is leviable, as charging section 3(1) excludes those goods. Thus, the goods manufactured in SEZ are not ‘exempted goods’. They can be termed as ‘excluded excisable goods’ [The revised definition is made effective from 15-8-2003].

Taxable Event for Excise Duty - ‘Taxable event’ is that on happening of which the charge is fixed. It is that event, which on its occurrence creates or attracts the liability to tax. Such liability does not accrue at any earlier or later point of time - Goodyear India Ltd. v. State of Haryana (1990) 76 STC 71 (SC) = 1990 UPTC 198 = AIR 1990 SC 781. Tax becomes payable when liability to pay tax arises and liability to pay tax arises by the happening of the taxable event. - Kalwa Devadallain v. UOI (1963) 49 ITR 165 (SC) * M A Co. v. Asstt Commissioner (1964) 15 STC 487 (All HC).

In Re Sea Customs Act, 1878 - AIR 1963 SC 1760 = (1964) 3 SCR 787 (SC 9 member full bench), it was observed - 'Excise duty is not directly on the goods, but manufacture thereof. - . - . - Though both excise duty and sales tax are levied with reference to goods,

the two are very different imposts. In one case, the imposition is on the act of manufacture or production, while in the other it is on act of sale. In neither case, therefore, can it be said that the excise duty or sale tax is directly on the goods, for in that event, they will really become the same tax' - confirmed in Shinde Brothers v. Dy Commissioner - AIR 1967 SC 1512 = (1967) 1 SCR 548, where it was held that excise duty is on goods and taxable event is manufacture or production of goods.

It has been held that in Wallace Flour Mills Co. Ltd. v. CCE (1989) 186 ITR 440 (SC) = 1989 (44) ELT 598 (SC) = 1989(2) SCALE 804 = (1989) 4 SCC 592 that ‘manufacture or production in India’ of an 'excisable article’ is a ‘taxable event’ for Central Excise, though duty can be levied and collected at a later stage for administrative convenience - quoted with approval and followed in Shree Synthetics Ltd. v. UOI 1999(113) ELT 774 (SC 3 member bench). Removal from factory is not the 'taxable event'. In CCE v. Vazir Sultan Tobacco Co. Ltd. - 1996 (2) SCALE 603 = (1996) 13 RLT 291 = JT 1996 (3) (2 ?)112 = AIR 1996 SC 3025 = 1996 AIR SCW 1353 = 63 ECR 359 = 1996 (83) ELT 3 = (1996) 3 SCC 434 (SC - 3 member bench), Supreme Court has confirmed that the levy is and remains upon the manufacture or production alone. Only the collection is shifted to stage of removal. It is also confirmed that the removal of goods is not a taxable event. In Empire Industries v. UOI (1985) 20 ELT 179 (SC) = AIR 1986 SC 662 = (1985) 1 SCALE 1269 = (1987) 64 STC 42 (SC) = (1985) 3 SCC 314 = 1985 Supp (1) SCR 292 = (1986) 162 ITR 846 (SC), it was observed - 'Taxable event in Central Excise is the manufacture of excisable goods. - . - . - The sale or the ownership of the end-product is absolutely irrelevant for the purposes of 'taxable event' under Central Excise'.

Person liable to pay excise duty - Once duty liability is fixed, the duty can be collected from a person at the time and place found administratively most convenient for collection.

THE DUTY LIABILITY IN CASE OF MANUFACTURED GOODS - Rule 4(1) of Central Excise Rules makes it clear that excise duty is payable by the manufacturer or producer of excisable goods. In case where goods are allowed to be stored in a warehouse without payment of duty, the duty liability is of the person who stores the goods. Rule 4(1) makes it clear that goods can be removed from the place where they are manufactured or produced or warehoused, only on payment of duty.

Ownership of raw material is not relevant for duty liability. – CCE v. Mahindra & Mahindra 2001(132) ELT 632 (CEGAT). Duty demand is payable by manufacturer, even if it cannot be recovered from customer. – Snap Chem v. CCE 2001(137) ELT 235 (CEGAT).

DUTY LIABILITY IN CASE OF GOODS STORED IN WAREHOUSE - Rule 20 of CE Rules permit warehousing of certain goods in warehouses without payment of duty. These goods are coffee, petroleum products, benzene, tolune etc. In such cases, the duty liability is on the person who stores the goods.

DUTY LIABILITY IN CASE OF MOLASSES PRODUCED IN KHANDSARI SUGAR FACTORY - The other exception is in case of molasses produced in a khandsari sugar factory, the duty liability is of the procurer (i.e. purchaser) of such molasses. The duty is payable on the date of receipt of such molasses in the factory of procurer. The duty on molasses produced in khandsari sugar factory is payable only when the procurer procures the molasses for use in the manufacture of any commodity. Such commodity may or may not be excisable. [Rule 4(2) of CE Rules].  - - Validity of this rule has been upheld in Ranson Industries v. UOI 2003(151) ELT 53 (J&K HC DB).

DUTY LIABILITY IN CASE OF JOB WORK - Even in case of job work, the duty liability is of actual manufacturer and not of the raw material supplier.- GTC Industries v. CCE 2001(132) ELT 74 (CEGAT). - - However, a job worker manufacturing goods under notification No 214/86 is exempt from excise duty, as the raw material supplier undertakes that he will use these goods further to manufacture final product or clear for export or pay duty on such goods. [The only exception is in case of textile articles, as explained below].

DUTY LIABILITY IN CASE OF TEXTILE AND TEXTILE ARTICLES MANUFACTURED ON JOB WORK BASIS – In textile sector, often goods are manufactured on job work basis. The processors (job workers) are small units. It is difficult for them to pay excise duty and comply with all excise formalities. Hence, in case of yarns, fabrics (falling under chapter headings 50 to 60) or readymade garments falling under chapter 61 or 62 or textile articles under chapter 63, it has been provided that the duty liability will be of the raw material supplier. The raw material supplier will have to pay duty while clearing final product as if he is assessee. However, the job worker my, at his option, agree to pay duty. Thus, job worker cannot be compelled to pay duty  [Rule 12B(1) of CE Rules]. This provision is not applicable to EOU or SEZ unit. [It may be noted that though duty liability is of the raw material supplier in case of textile and textile articles, job worker is really the manufacturer].

Rate of duty as applicable on date of removal relevant - Though taxable event is 'manufacture', duty payable is as applicable on date of removal i.e. clearance from factory. In Wallace Flour Mills Co. Ltd. v. CCE 1989(44) ELT 598 = 1989(2) SCALE 804 = 186 ITR 440 = 1989(4) SCC 592 (SC), goods were fully manufactured and packed when goods were exempt from duty. These were cleared after the exemption was withdrawn and goods became liable to duty. It was held that duty is payable as applicable on date of removal.

State of goods at the time of removal is relevant - Goods have to be classified and valued in the state in which goods are removed from the factory. Any further processing done after removal is not relevant.

Duty payable even when not collected - An assessee is liable to pay sales tax and the question whether he has collected it from consumer or not is of no consequence. His liability is by virtue of being an assessee under the Act. - American Remedies P Ltd. v. Govt of AP 1999(1) SCALE 30 = 113 STC 400 (SC 3 member bench).

Duty is a manufacturing expense from accounting point of view - Excise duty should be considered as a manufacturing expense and should be considered as an element of cost for inventory valuation, like other manufacturing expenses. Excise duty cannot be treated as a period cost.  - Guidance Note of ICAI on Accounting Treatment for Excise Duty - Chartered Accountant - July 2000.

Types of excise duties - Excise duties are of following types -

DUTIES UNDER CENTRAL EXCISE ACT - Basic duty and special duty of excise are levied under Central Excise Act.

BASIC EXCISE DUTY TO BE TERMED AS CENVAT - Basic excise duty (also termed as Cenvat as per section 2A of CEA added w.e.f. 12-5-2000) is levied at the rates specified in First Schedule to Central Excise Tariff Act, read with exemption notification, if any. – [section 3(1)(a) of CEA]. The present general rate is 16% w.e.f. 1-3.2000. There is partial exemption to a few products.

SPECIAL DUTY OF EXCISE - Some commodities like pan masala, cars etc. are leviable with special duty. – [section 3(1)(b) of CEA]. These items are covered in Schedule II to Central Excise Tariff. Initially, the special excise duty rates were 8%, 16% and 24%. The rate was made uniform @ 16% on 1-3-2001. - - Presently, SED on tyres, aerated soft drinks, Polyester Filament Yarn (PFY), Air Conditioners and components and motor cars is 8% w.e.f. 1-3-2003. Thus, total duty on these products will be 24% i.e. 16% basic and 8% special. SED on pan masala, chewing tobacco and snuff of tobacco continues to be 16%.

EDUCATION CESS ON EXCISE DUTY - In case of excise duty, calculation of cess is easy. If excise duty rate is 16%, education cess will be 0.32%. If excise duty us 24%, cess will be 0.48%. Section 93 of Finance (No. 2) Act, 2004 states that education cess is ‘duty of excise’, to be calculated on aggregate of all duties of excise including special excise duty or any other duty of excise, but excluding education cess on excisable goods). As per section 93(3) of Finance (No. 2) Act, 2004, all provisions of Central Excise Act, including those relating to refunds, exemptions and penalties will apply to education cess.

EXCISE DUTY IN CASE OF CLEARANCES BY EOU – The EOU units are expected to export all their production. However, if they clear their final product in DTA (domestic tariff area), the rate of excise duty will be equal to customs duty on like article if imported in India. [proviso to section 3(1)]. Note that even if rate of customs duty is considered for payment of duty, actually the duty paid by them is Central Excise Duty. The rate of customs duty is taken only as a measure. The EOU unit can sale part of their final products in India at 50% of customs duty or normal excise duty in certain cases.

NATIONAL CALAMITY CONTINGENT DUTY – A ‘National Calamity Contingent Duty’ (NCCD) has been imposed vide section 136 of Finance Act, 2001 [clause 129 of Finance Bill, 2001, w.e.f. 1.3.2001]. This duty is imposed on pan masala, chewing tobacco and cigarettes.  It varies from 10% to 45%. - - NCCD of 1% was imposed on

PFY, motor cars, multi utility vehicles and two wheelers  and NCCD of Rs 50 per ton was imposed on domestic crude oil, vide section 169 of Finance Act, 2003.

DUTIES UNDER OTHER ACTS - Some duties and cesses are levied on manufactured products under other Acts. The administrative machinery of central excise is used to collect those taxes. Provisions of Central Excise Act and Rules have been made applicable for levy and collection of these duties / cesses.

ADDITIONAL DUTY ON GOODS OF SPECIAL IMPORTANCE - Some goods of special importance are levied Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957. History behind this scheme is that manufacturers suggested to Government that multiple level taxes and duties should be avoided. Levy and collection of all taxes at one stage by single authority will be convenient for payment and administration. Hence, by agreement between Central and State Governments, it was decided to make a beginning in 1957, by selecting some items where additional duty will be collected instead of sales tax and such additional duty will be distributed among various States. Revenue from this duty is distributed among State Governments on basis of percentages given in the second schedule to the Act. The percentages are fixed on basis of recommendations of Finance Commission.

Some items covered are textile articles like cotton fabrics, silk and wool fabrics, man-made fibres, terry fabrics, metallised yarn, embroidery; sugar, branded tobacco, pan masala containing tobacco and cigarettes. These goods are same as ‘declared goods’ under Central Sales Tax Act. The CST Act imposes restrictions on powers of State Government to levy sales tax on 'declared goods'. The 'Additional Duty' is in addition to excise duty. Rules, procedures, penalties etc. for collecting these duties are same as basic duty. Budget collection of AED during 94-95 is Rs. 2,700 crores. (This duty is different than Additional Duty under Customs Act, which is often called “Countervailing Duty”).

To leavy the central excise 1. Goods must be movable2. Goods must be marketable

Excisable Goods

Other essential requirement is that the goods must be ‘excisable’. Section 2(d) of Central Excise Act defines Excisable Goods as ‘Goods specified in the Schedule to Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt’. Thus, unless the item is specified in the Central Excise Tariff Act as subject to duty, no duty is leviable.

Goods ‘excisable’ even if exempt from duty - ‘Excisable goods’ do not become non-excisable goods merely because they are exempt from duty by an exemption notification

-. Wallace Flour Mills Co. Ltd. v. CCE (1989) 186 ITR 440 (SC) = 1989(2) SCALE 804 = 1989 (44) ELT 598 (SC) = (1989) 4 SCC 592.

If exemption is granted u/s 5A(1) [that time rule 8(1)], goods do not cease to be excisable goods and levy of duty is not erased. – CCE v. Smithkline Beecham Consumer Health Care Ltd. 2003(151) ELT 5 (SC).

Goods not included in CETA are ‘non-excisable goods’ - Some goods like wheat, rice, cut flowers, horses, soya beans etc. are not mentioned in Central Excise Tariff at all and hence they are not ‘excisable goods’, though they may be ‘goods’. These are ‘non-excisable goods’. Similarly, ‘waste and scrap’ will be ‘excisable goods’ only if specifically mentioned in CETA - CCE v. Amol Decalite Ltd. 1999(105) ELT 222 (CEGAT). In Western India Ceramics P Ltd. v. CCE 1998(9) ELT 425 (CEGAT), it was held that broken glazed tiles are not excisable as there is no specific entry (in Tariff) for it.

Goods manufactured in SEZ are ‘excluded excisable goods’ – As per section 3(1) of CE Act, as made effective w.e.f. 15-8-2003, duty is leviable on all excisable goods (except goods manufactured or produced in Special Economic Zone). Thus, goods manufactured or produced in SEZ are ‘excisable goods’ but no duty is leviable, as charging section 3(1) excludes those goods. Thus, the goods manufactured in SEZ are not ‘exempted goods’. They can be termed as ‘excluded excisable goods’.

DIFFERENCE BETWEEN SALES TAX AND EXCISE - Central Excise duty has to be distinguished from Sales Tax. The Sales Tax is a tax on sales and hence can be imposed only when there is a sale. On the other hand, excise duty is a duty on manufacture and the duty liability is fastened immediately after goods are manufactured ; whether these are sold or not is immaterial. For example, if a Company manufactures a machine or fabricates some furniture within the factory for its own use, there will be no sales tax on the machine or furniture manufactured as it is not sold. However, the machine or furniture will be liable to excise duty as it has been manufactured. However, for administrative convenience, the payment of duty may be deferred till removal of goods from the factory.

NEW CENVAT CREDIT SCHEME

Section 37 of Central Excise act gives powers to Central Government to make rules to: [a] provide for the credit of duty paid or deemed to have been paid on goods used in or in relation to manufacture of excisable goods. [Clause (xvia)]. [b] provide for giving of credit of sums of money with respect to raw materials used in manufacture of excisable goods. [clause (xvib)] [c] provide for credit of service tax leviable under chapter V of the Finance Act, 1994, paid or payable on taxable services used in , or in relation to, the manufacture of excisable goods.

Highlights of Cenvat Schemes

1. Credit of Duty paid on input and input services2. Input goods eligible for Cenvat to Manufacturer

3. Input goods eligible for Cenvat to service provider

4. Credit of duty paid on capital goods

ELIGIBILITY OF CENVAT CREDITThe basic conditions for taking Cenvat credit are as follows:1. There should be ‘manufacturer’ or provision of taxable output service.2. Inputs (goods) should be used in or in relation to manufacture of final product or

for provision of output service.3. Input service should be utilized for manufacture of final product or provision of

taxable output service.4. Cenvat credit is available for duties and taxes specified in rule 3(1), paid on input,

input services and capital goods, subject to restrictions as specified.5. No credit is available if final product is exempt from duty or output services is not

taxable.6. Credit is available on the basis of specified documents only.

FILING OF RETURNSRule No. Brief contents12(1) A monthly return is to be submitted by every assessee to Superintendent of

Central Excise, of production and removal goods, and Cenvat credit availed, by 10th of the following month in form ER-1. SSI unit availing concession on basis of annual turnover have to file return on quarterly basis within 20 days from close of quarter in form ER-3

12(2) Assessee paying duty of Rs. 1 Crore or more per annum through PLA are required to submit Annual Financial Information Statement for each financial year by 30th November of succeeding year in prescribed form ER-4

12(3) The Range Officer will scrutinize the monthly/quarterly return. He can call for documents from the assessee as he considers necessary.

12(4) It will be responsibility of assessee to provide necessary records as and when required by excise officer.

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