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Unformatted text preview: [INDIRECT TAXES] Note: Every attempt is made to avoid errors and omissions, if any crept unintentional. Views may be mailed to [email protected] Central Excise AUTHOR ALLIndirect RIGHTS ARE RESERVED. NO PART OF THIS taxes BOOK SHALL BE REPRODUCED, STORED IN A RETRIEVAL Customs SYSTEM, OR TRANSMITTED BYSimplified ANY MEANSnotes WITHOUT WRITTEN Finance Act 2010 Service ALL RIGHTS ARE tax PERMISSION OF AUTHOR. Circulars, notifications up to 31.12.2010 RESERVED. NO PART OF THIS BOOK SHALL BE REPRODUCED, STORED IN A RETRIEVAL SYSTEM, TRANSMITTED BY ANY Vat ForOR May/June 2011 MEANS WITHOUT WRITTEN PERMISSION OFexams AUTHOR. Nov/Dec 2011 AUTHOR CST CA N. Rajasekhar M.Com FCA DISA (ICAI) Chennai [email protected] 9444019860 Central excise Customs Service tax Vat and CST AUTHOR: All rights are reserved. No part of this book shall be reproduced, transmitted by any means without written permission of author. [9444019860] Dear Students An attempt is made is to simplify indirect taxes, and it provided in a simple and easiest way for better understanding of subject to the students, The books cover FA 2010 all the amendments made up to 31.12.2010. For in-depth and expert knowledge on the subject, students are advised to read case studies, after completion of these notes. Every attempt is made to avoid errors and omissions; if any error crept it is unintentional. Author is not responsible. Approach to Examination General Reading the Question paper: First of all, read the question paper quickly, and- i) Select the questions that you will answer; ii) Decide the order in which the answers are to be attempted; and iii) Plan, how you will answer the questions. Selecting the Questions : You are the best judge, while selecting the question or its part, underline key words in the questions and understand them well. Order for Answering Questions : i) Remember that a serious attempt at one question is more valuable than casual attempt at two. ii) First answer the questions in which you are more confident to answer correctly. It will reveal your best to the examiner Answering Theory Questions Before answering each question, read the question very carefully word by word, answer to what the question demands. Answer to the point and in brief. Don’t write irrelevant answer. Present your answer in points or as a list wherever possible. Questions that use words such as describe and discuss require longer narrative answers. Present such answers in paragraphs with appropriate headings. Present examples and illustrations frequently. Tabulate the comparative points (in a columnar fashion), when you answer questions asking for comparison/distinguish, etc. Avoid writing long and more descriptive answers When you forget some points when writing the examination, leave some space and start an answering new question. You can return later and complete the previous answer when you recollect the points. If you are sure of the case laws and sections, provide these in the answer. But in case of ambiguity, avoid quoting wrong section /case law. Maintain good handwriting. Avoid overwriting. Answering - Application of theory questions Identify the section/rule on which the question is given Write the relevant section/rule briefly Apply the section/ rule to the given question Write the decision with supporting case if any Answering Numerical Problems Answer to the point what required. Present the solution neatly Write the assumptions & working notes clearly. Provide alternative solution if any. In case of problems in valuation/SSI, a brief note on inclusions and exclusions/rule should be mentioned. Good Wishes N Raja Sekhar M.Com F.C.A., D.I.S.A(ICAI)., Chennai 31.01.2011 Taxes Indirect taxes Direct taxes Levied on goods & services Levied on persons Income tax Wealth tax Interest tax Services Expenditure tax Goods CST Central excise On Mfg. Customs On imports & exports On interstate sale VAT/Sales tax On Sales Service tax Other Cess, Octroi etc Difference between direct and indirect tax S No 1 2 3 4 Direct taxes Levied on persons Person paying the tax has to bear the burden No cascading effect Will not be allowed as deduction (income tax wealth tax) in computing income Indirect taxes Levied on goods and services Burden will pass on to consumer Cascading effect in some cases (increases certain prices of goods and services) Allowed as deduction in computing income Chapter – I Central excise As amended by FA 2010 and included notifications and circulars up to 31.12.2010 Index Basics, Classification Valuation Procedures Administration Cenvat Credit Export and Other procedures SSI Assessments audit etc Penalties, Appeals SC, AA R Recent case laws in excise Old case laws in excise Problems and Solutions in excise 02 to 22 23to 34 34 to 40 41 to 45 44 to 57 58 to 62 63 to 64 65 to 74 75 to 82 83 to 87 Next Next Next Indirect taxes- Central Excise- simplified Chapter 1 Central excise Excise duty -Basic Concepts •Excise is a duty an indirect tax levied as per Entry No. 84 of list I of Seventh Schedule to the Constitution • It is levied on excisable goods manufactured or produced in India except on alcoholic liquor for human consumption. Excise on alcoholic liquor levied by state government. •The tax is administered by Central Government. Central Excise is governed by Central Excise Act 1944 Central excise Tariff Act 1985 Central Excise rules 2002 Central Excise Valuation rules 2000 Cenvat Credit Rules 2004 Central Excise rules for removal goods at concession Rate Central Excise Manual 2001 Central Excise Appeal Rules 2001 Central Excise Settlement cases rules 2007 Cestat procedure Rules 1982 Central Excise Notifications & Circulars Excise Act coverage chapter wise Chapter I Short title, extent and commencement of the Act including definitions Chapter II Levy and collection of duty Chapter IIA Indicating amount of duty in the price of goods, etc., for purpose of refund and crediting certain amounts to the Consumer Welfare Fund Chapter III Powers and Duties of Officers and Land Holders Chapter IIIA Advance Rulings Chapter V Settlement of Cases Chapter VI Adjudication of Confiscations and Penalties Chapter VIA Appeals Chapter VIB Presumptions as to Documents Chapter VII Supplemental Provisions Excise Act -Short title, extent and commencement Section 1 • This Act may be called the Central Excise Act, 1944. N Raja Sekhar Chartered Accountant Chennai mobile 9444019860 1-2 Indirect taxes- Central Excise- simplified • • It extends to the whole of India. It shall come into force 28-02-1944 Basic conditions of excise liability Charging section 3 of Central Excise Act • Levy is manufacture/Production of excisable goods • Manufacture/Production should be in India • No levy on goods manufactured in SEZ.. • Duty payable at the rates specified in Schedule I and II of CETA • EOUs /EPZ pay duty for their clearance in in India ( Domestic Tariff Area -DTA) at the rate of 50% of basic customs duty and Excise duty equal to if that goods are manufactured in India. • Goods produced and manufactured by Government also attract excise duty. Govt liable to pay excise duty Basic conditions of excise liability Four basic conditions should be satisfied for levy •The duty is on goods •The goods must be excisable, movable and marketable •The goods must be manufactured or produced •Such manufacture or production must be in India. Goods manufactured in SEZ are ‘excluded excisable goods’ –But they are not ‘exempted goods’. No excise duty levied on goods manufactured in Special Economic Zone. SEZ treated located out of India, when SEZ removed goods for use in India, they have to pay import duty. Excisable goods manufactured in 100% EOU attract Excise duty, if these goods are removed to DTA, Excise duty is payable @ 50% of Basic customs duty and CVD equal to excise duty. Concept of Goods under Central Excise • The word “goods” has been defined under the Central Excise Act. Wide explanation to sec 2(d) w e f 16.5.2008 Goods includes • any article, material or • substance which is capable of • being bought and sold • for a consideration and • such goods shall be deemed to be marketable The word “goods”, for purpose of levy of Excise duty, must satisfy three requirements i.e. •They must be movable and •They must be marketable. •They must be excisable Goods must be movable They must be movable from one place to another place. Capable of being transport from one place to other For sale/Marketing U o I Vs. Delhi Cloth Mills (SC) / South Bihar Sugar Mills Vs. U oI( SC) Movement can be on any mode rail, road, air, water, pipe line etc N Raja Sekhar Chartered Accountant Chennai mobile 9444019860 1-3 Indirect taxes- Central Excise- simplified No duty on immovable goods. Immovable goods means land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.” Goods must be Marketable Goods should be Saleable (Actual sale is not necessary) Union Carbide India Ltd. Vs. UoI C.C.EX. Vs. Ambalal Sarabhai Enterprises (SC) (SC) Good should be Fit for Consumption Goods should Fetch some price At least one buyer is enough to buy the goods. Occasional or distress sale is not treated as marketable Goods Must Excisable. Excisable goods means goods mentioned in Central excise tariff. Central excise tariff is book contains details of goods and rate of duty payable on these goods. The description of goods should be mentioned in Central excise tariff, and then only they are called excisable goods Types of Excisable Goods 1. Goods charged to duty 2. Goods charged to nil rate of duty 3. Goods charged to duty but exempted by way of notification. All three are excisable goods (Wallace Flour Mills Ltd. Vs. C.C.EX.(SC) Goods Charged to duty: These goods are mentioned in excise tariff, where certain duty is payable.. for example blasting powder, Gun powder, Binoculars, musical instruments all are charged to duty at 10% Goods charged to nil duty These goods are mentioned in excise tariff, where duty column will be mentioned as nil or Zero. For example, unbranded fruit jam, sewing needle, note books, bricks, cabbage, carrot , radish etc. For all these goods duty column will be mentioned as NIL Goods Charged duty but exempted by notification These goods are mentioned in excise tariff, where certain duty is payable, however the Central Government issued notification for exemption of duty on these goods. Example condensed milk, Water purifiers etc All the three Conditions of movability, marketability and excisability to be satisfied to call them as gods and for the purpose of levy of excise duty. Bhor Industries Ltd. Vs. C.C.EX(SC) Ion Exchange India Ltd. vs. C.C.EX (SC) Non excisable goods and duty on which appropriate duty was paid • • Goods not included in CETA are ‘non-excisable goods’ goods on which appropriate duty has been paid’ means that on which excise duty has been paid at ‘appropriate’ or correct rate, but not nil duty goods CCEx. vs. Dhiren Chemical Industries (S.C). What are the goods. (Examples of Goods) • Gas, Steam etc – • Electricity: Drawing, designs Etc: • Machinery • Branded Software: ( lotus, oracle, etc,) • Waste and Scrap• Aluminum paint having shelf life of 8 to 10 hours is marketable N Raja Sekhar Chartered Accountant Chennai mobile 9444019860 1-4 Indirect taxes- Central Excise- simplified • Columns: Columns fabricated at a place and removed to another place for erection, if they cannot remove after erection without dismantling they are not goods. What are not “Goods” (Examples what are not goods) • Some cases where the product was held as not ‘goods’ are illustrated here. • Goods having very short life are not ‘goods’, • Lift – • Storage system Installed at a site: • Zinc scaling and Zinc Flux • Aluminum Cans and Torch Bodies: • Unbranded software (not goods but it is a service- service tax payable) Excisable goods and Non Excisable goods Excisable goods means Goods mentioned in Central excise tariff first and second schedule and including salt. Non Excisable goods means Goods not mentioned in Central excise tariff first and second schedule Excisable goods may be dutiable or non dutiable, Where are Non excisable goods always non dutiable only Dutiable goods and Exempted goods, and Goods charged to nil rate of duty. Dutiable goods mean duty payable as per excise tariff. Where Exempted goods are mentioned in tariff and duty payment was exempted by notification. Goods charged to nil rate of duty goods are excisable and where is duty column will be “nil” Manufacture First part of a definition: Manufacture is a Process, Incidental/Ancillary, for completion of Product. Process means stages, a series of action in manufacturing the product. Incidental means occasional or casual process it is not absolute necessity and it is optional. Ancillary means auxiliary, compulsory. Manufacture is complete only when all ancillary and incidental processes are complete. A product comes to market only when incidental and ancillary process is carried out. All the process cannot be termed as manufacture. As per well established court decisions, Manufacture implies a change, but every change is not manufacture. By virtue of process, a new and different article must emerge having a distinctive name, character or use. The new product should be commercially different identifiable product, then only it is manufacture and excise duty liability will arise. Pictorial diagram of manufacture N Raja Sekhar Chartered Accountant Chennai mobile 9444019860 1-5 Indirect taxes- Central Excise- simplified Manufacture sec 2 (f) Process, Incidental/Ancillary For completion of Product. (New Product Should emerge) Emergence of New Product Compulsory Deemed Manufacture Process Amounting to Manufacture If Section/Chapter Notes of CETA Specifies that process as manufacture (Emergence of New Product Not relevant) Packing, Repacking/from bulk to Smaller containers, Labelling Re-labelling Printing/Alteration of Retail Price Adoption of any process Making marketable of Schedule III Goods of CETA (Emergence of New Product Not relevant) Delhi cloth mills Case SC on Manufacture • Manufacturing is a process • But every process cannot be termed as manufacture. • Manufacture implies a change, • But every change is not manufacture. • By virtue of process, a new and different article must emerge having a distinctive name, character or use. • The new product should be commercially different identifiable product, • Then only it is manufacture and excise duty liability will arise. Examples on Manufacturing Cutting of fabrics to make bed sheets etc. Making of ‘pan masala’ by mixing various ingredients Making masala powder Turmeric to turmeric powder Paddy to rice Wheat to wheat flour Ice from water Processing of grey yarn to ‘dyed yarn’ Processing grey fabrics by bleaching, dyeing, printing of fabric Making welding wire from MS wire N Raja Sekhar Chartered Accountant Chennai mobile 9444019860 1-6 Indirect taxes- Central Excise- simplified Fruit pulp to fruit drink Processing non-woven fabrics Conversion of yarn to thread Stitching of cloth Making car matting from rolls Ordinary cotton into surgical cotton Making chicken kabab, chicken kofta, chicken pakodas from chicken meat Examples on not Manufacturing • Changing colour of an article • Changing engine • Charging of dry batteries • Cleaning and repairs of old ornaments • Cleaning, washing • Coating • Compressing and bottling gas • Conversion of marble blocks into marble slabs/tiles • Cream into butter • Crushing/powdering • Cutting of jumbo rolls into small sizes • Cutting, sizing to requires size • Cutting, stamping, folding etc. of processed fabrics • Plain glazed tile to decorated tiles • Powdering of lumps of minerals • Printing of Aluminum foil • Printing of logo and colour on glass bottle • Purification and packing of water in bottles • Roasting, salting, spicing of nuts • Sawing of timber logs • Separating mineral sand from ordinary sand • Sieving of duty paid goods • Sizing of yarn • Slitting/cutting of jumbo rolls of tissue paper into small sizes • Deemed Manufacture (Second part of definition) • Any process mentioned in CETA 1985 is a manufacture, it is a manufacture • Here the question of emergence of new product not necessary Examples for deemed Mfg of section Chapter notes in Ceta S No Name of goods 1 2 3 Edible vegetable oils Metallic wire Medicines 4 Iron/Steel Nature of process Central excise Tariff Chapter No Note No 15 6 Sec XV 10 to 30 6 Refining Drawing rod in to wire Conversion of powder in tables/capsules Galvanizing( However Circular 19/94 says it is not manufacture as N Raja Sekhar Chartered Accountant Chennai 73 mobile 9444019860 4 1-7 Indirect taxes- Central Excise- simplified 5 6 7 8 9 10 11 12 Audio/video Cassettes and tapes Motor Vehicles Textile products per Gujarat Steel tubes case) Recording Body building Dyeing, printing, bleaching, twisting doubling, cabling etc Milk and dairy Labeling, relabelling, repacking products from bulk to small containers and any other treatment to make it marketable Vegetable fruit nuts, Labeling, relabelling, repacking from bulk to small container Inorganic chemicals Labeling, relabelling, repacking from bulk to small container Readymade garments Affixing brand name, Labeling, relabelling, repacking from bulk pack to small pack Photographic films, Cutting, Slitting and perforation rolls, plates from Jumbo rolls- Circular 13/92 85 8 87 52 5 2 4 6 20 3 28 10 61/62 4 37 3 The activity of transferring the goods from tankers into smaller drums cannot be said to be covered by the said chapter note 10 because the tankers cannot be termed as bulk packs.[Circular No. 910/30/2009-CX dated 16-12-2009] Process of pickling and oiling (removal of surface oxides and other contaminants such as dirt from metal) not amount to manufacture since no new product emerge. Circular No. 927/17/2010-CX Dated 24/6/2010 Deemed manufacture in case of schedule III of CEA Goods (Second part of definition) There are about 98 goods in schedule III of CEA. The goods are where MRP valuation is applicable. The goods are mainly consumer goods and eatables. Example: milk products such as cheese, butter, Biscuits etc. Packing or Repacking of these goods in to unit container is manufacture. • Manufacture’ includes any process, • which, in relation to goods specified in Third Schedule to Central Excise Act, • involves packing or repacking of such goods in a unit container • or labeling or re-labeling of containers including the declaration or alteration of retail sale price on the container or • Adoption of any other treatment on the goods to render the product marketable to consumer will be ‘manufacture’. • Key issues in the packing/ repacking manufacturing concept • • • • Packing/repacking will be ‘deemed manufacture’ only if it is from bulk to in unit container. In such case, putting MRP may or may not be done. Labelling/relabelling should include declaration or alteration of retail sale price. Otherwise, mere labeling or relabelling will not be ‘deemed manufacture’ Any other treatment will be ‘deemed manufacture’ only if it renders the product marketable to consumer Packing repacking will be manufacture only when there is value addition in the packing process N Raja Sekhar Chartered Accountant Chennai mobile 9444019860 1-8 Indirect taxes- Central Excise- simplified • If good are already marketable, mere packing and repacking them is not a manufacture. Putting Stickers indicating MRP. Putting stickers on the imported medicines to provide information as per Drug and Cosmetics Act is amount to manufacture CBEC Circular No 576/12/2001 dated 16.05.2001. However there is a contrary view held in 1. Putting label name and address of manufacturer and MRP on imported chocolates is not a manufacture –Lal International Vs CCE (2003) 154ELT520 CEGAT 2. Putting label name and address of manufacturer as required under standard weights and measures act is not a...
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