latest updates on “central excise” - for small scale ... · latest updates on “central...
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Latest updates on “Central Excise” - for Small Scale Industries
Study Circle Meeting
Bangalore branch of SIRC
SSI as per Excise
Not defined in CE ACT
Definition as per Industries (Development and Regulation) Act, 1951
Benefit of exemption – Based on clearance but not as per definition as above
Advantages
Integration of markets
Cheaper products
Specialized in consumer commodities
Employment opportunities
Distribution of national income
Balanced development
Efficient utilisation of skills and resources
SSI Exemption – Notn. 8/2003
Relaxation in the duty
Value of Clearance Duty Structure
0-150 lakh 0%
> 150 lakh Normal Duty
Features Previous year turnover should not exceed 4 crores
Inputs – no Cenvat credit is available upto 1.5 crores
Features cont….
Capital goods – 100% Cenvat credit can be taken in the year of receipt
No automatic exemption under SSI exemption unless option is exercised ○ Comm. Of C E, Lucknow v. Vinayak Drawings
Other conditions ○ Khadi and Village Industry
○ 2 factories in single place
○ Related party
○ Financial flow back
Declaration
Declaration to be filed with AC of CE – T.O exceeds 90 Lakhs
To be filed only once
Benefit of notn. at the option of manufacturer
Particulars of declaration (availing the option) Name & Add of the Mfr
Location of factory/ies
Description of inputs used, goods manf.
Date on which option exercised
Aggregate value of clearance of goods
Registration
Application in form A-1
Ground plan
Manufacturing process
Documents
Tariff Classification
Registration grant
Certificate Exhibit
Fresh Registration
Surrender of registration certificate
Lost Certificate
Clubbing of Clearances Main aspects leading to clubbing of
clearances are
Customers not willing to pay ED
Financial flow back
Working in tandem
Common procurement /sale
Insufficient prdn/managerial capability
Common Stock Usage
Free processing facility ○ AC v. Jayanthilal Balubhai & Ors 1978 (2) E.L.T
Brand Name
Brand name means a brand name,
whether registered or not,
that is to say, a name or a mark, such as a symbol, monogram, label, signature or
invented words or any writing which is used in relation to a product,
for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark
with or without any indication of the identity of that person
Brand Name cont….
No benefit of exemption for products which bear brand name of another person
Exceptions
○ Manufacturers of components, parts of mach. for use as original equipment in the factory
○ Brand name of Khadi and village industries commission, etc.
○ Housemark in respect of medicinal preparations
Exceptions cont….
○ Assignment of brand name. CCE v. ESBI Transmission Pvt Ltd.1997 (91) E.L.T
○ Raw materials bearing brand name.
○ Goods manufactured in rural areas
○ Account books, registers, writing pads and file folders entitled for SSI exemption even if brand name of another person.
○ Specified packing materials even if brand name of others
CCE,Trichy v. Rukmani pakkwell Traders (2004)
Notn.83/94
RM/SFG
FG/SFG
Undertaking to proper
officer having jurd.
of Y Ltd
Y Ltd (SSI unit
- Job Worker)
Undertaking to proper
officer having jurd.
of X Ltd
X Ltd (Availing
SSI Exmp – J W)
Notn. 84/94
X Ltd (Availing SSI Exmp)
Z Ltd (Job
Worker)
Removal of specified inputs w/o pymt of
duty
Undertaking to the proper
officer having jurd.of Z Ltd
Undertaking to the proper
officer having jurd of X Ltd
Exclusions for Rs.400 lakhs criteria
Removal of excisable goods without payment of duty – To 100% EOU, Unit in SEZ, FTP, EHTP,STP.
Supply to UN or International organisation.
Brand name/Trade name of another person
Captive consumption
Exempt clearances under notn 214/86, 83/94, 84/94.
Exports.
Clearances of strips of plastics used within the factory of production for weaving of fabrics………
Exclusions for Rs.150 lakhs criteria
Brand Name/Trade Name of another person.
Exempt clearances (other than exemption based on quantity or value of clearances) under any notification or on which no ED is payable for any other reason.
Captive consumption (Goods eligible for SSI exemption).
Clearances of strips of plastics used within the factory of production for weaving of fabrics…….
Exports
Criteria - Exceptions….
Note: Export to Nepal and Bhutan is not considered as
„Exports‟ Goods exempted under any other notification
excluded for 1.5 cr criteria included for 4 cr criteria
Example for determining clearance of 400 lakhs Facts Exports to USA :Rs. 100
lakhs Exports to Nepal :Rs. 50
Lakhs Clearances to a 100% EOU : Rs. 75
lakhs Clearances as loan licensee of goods carrying the brand name of another upon full payment of duty : Rs.200
lakhs Clearances exempted vide Notification No. 214/86-C.E. dated 25-3-86 :Rs.125
lakhs Balance clearances of goods in the normal course :Rs. 300
lakhs
Answer
Following is includible for calculating 400 lakhs Exports to Nepal : Rs 50 lakhs Normal clearances : Rs 300 lakhs
Following is excluded for calculating 400 lakhs Exports to USA :Rs.100 lakhs Clearance to 100 % EOU : Rs.75 lakhs Clearances as loan licensee of goods
carrying the brand name of another upon full payment of duty :Rs.200 lakhs
Clearances exempted vide Notification No. 214/86-C.E. dated 25-3-86 :Rs.125 lakhs
Since the turnover is less than Rs 400 lakhs, X Ltd. is entitled to SSI concession in 2010-11
Example for determining clearance of 150 lakhs Unit located in rural area availing benefit of
SSI under notn. 8/2003 effected following clearances Total value of clearances of goods with own brand name :Rs 75
lakhs Total value of clearances of goods with brand name of other parties :Rs 90
lakhs Clearances of goods which are totally exempt under another notification (other than an exemption based on quantity or value of clearances) :Rs35
lakhs
Answer
Goods cleared under brand name in rural area are to be included (Rs. 75 lakhs +90 lakhs) :165
lakhs However, goods which are exempted from duty under notification other than exemption based on quantity or value of clearances is not required to be considered :35
lakhs Value of turnover :165
lakhs Liable to duty on (first 150 lakhs is exempted) : 15
lakhs
Definition of Input – rule 2(k)
Definition of input is spilt into inclusions and exclusions are stated
Inclusions All goods used in the factory by the manufacturer
of final product.
Any goods including accessories cleared along with final product and goods used for providing free warranty
Goods used for generation of electricity or steam for captive use also constitute inputs
Exclusions (input)
LDO, HSDO, Petrol
Goods used for const of bldg or civil structure or laying of foundation, making of structure for support of capital goods
CG except when used as parts and components in manf. of final products & does not include final products.
Exclusions (input) cont….
Goods used primarily for personal use/ consumption of employee including food articles, etc
Is credit on employees safety precaution uniform available?
Is credit on goods used as staff welfare measures
(gift to employees), gifts to clients available?
Exclusions (input) cont….
Goods having no relationship whatsoever with the manufacture of final product
How do we determine?
○ The above expression must be interpreted and applied strictly.
(credit of goods used in factory but having absolutely no relationship with the manufacture of final product is not allowed).
Exclusions (input) cont….
Is credit on storage racks used in stores, tables and chairs used in various departments available?
Is credit on Tools and equipments used for garden maintenance, tube lights, fans either fitted in mfg or admin area available?
Input service
Inclusions
Any taxable service used by the provider of taxable service for providing output service
OR
Used by a manufacturer whether directly or indirectly in relation to manufacture of final product and clearance of final product upto the place of removal
Inclusions (input service) cont….
Services in relation to
○ Modernization or renovation or repairs of the premises of the provider of output service or an office relating to such premises.
Accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, business exhibition,
legal service.
Inclusions (input service) cont….
○ Advertisement or sales promotion
○ Market research
○ Inward transportation of inputs or capital goods
○ Storage upto place of removal
○ Outward transportation upto the place of removal
Exclusions (input service)
Services in relation to
Architect service
Port service
Air port/other port service
Commercial/ industrial const service
Construction of residential complex when they are used in const of bldg/ civil structure/ laying foundation
Works contract service
Exclusions (input service) cont….
Services such as rent a cab service,
general insurance service,
authorised service station service and
supply of tangible goods service
shall not be available as credits,
unless they are used by service providers who have been allowed to take cenvat credit of duty paid on capital goods.
Is credit allowable on services received before 1/4/11? (Ex. Rent a cab)
Exclusions (input service) cont….
Services used for personal use/ consumption of employee
Outdoor catering
Beauty treatment
Health service
Cosmetic & plastic surgery
Health insurance
Travel benefit extended to employees on vacation such as leave/home travel concession
Life insurance
Membership of a club
Exclusions (input service) cont….
Is credit of BAS on account of sales commission now disallowed
○ Reading the provisions harmoniously, it is clarified that credit is admissible on the service of sale of dutiable goods on commission basis.
Treatment of credit of input/input services used exclusively in trading
○ Trading is an exempted service, hence no credit can be availed.
Capital Goods
Capital goods means
(A) the following goods, namely
all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule to the Excise Tariff Act
pollution control equipment
components, spares and accessories of the goods specified above
moulds and dies, jigs and fixtures
refractories and refractory materials
Capital Goods cont….
tubes and pipes and fittings thereof; and
storage tank,
Used
○ in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or
○ outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; or
○ for providing output service
Capital Goods cont…. (B) motor vehicle registered in the name of provider of
output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act;
(C) dumpers or tippers, falling under Chapter 87 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), registered in the name of provider of output service for providing taxable services as specified in sub-clauses (zzza) and (zzzy) of clause (105) of section 65 of the said Finance Act
(D) components, spares and accessories of motor vehicles, dumpers or tippers, as the case may be, used to provide taxable services as specified in sub-clauses (B) and (C).
Credit Rules
Credit on Invoice – Accrual basis
Payment within 90 days
Rule 6 – Options
Separate books of accounts
Reversal – fixed percentage
Formula method
Rebate / Refund
Refund under Sec 11B – Not 13/91
Refund of paid on inputs under Rule 5 of CCR, 2004
Refund of service tax on specified input services – Not. 17/2009 ST
Rebate
Duty paid on exports
Inputs – cenvat credit not availed
Rebate
Rebate
Rule 18 of CER, 2002
Notn 19/2004
Rebate only on materials and not capital goods
ED paid on goods exported / excisable materials used in mfg. of goods exported
Claim with AC/DC of CE having jurisdiction
Rebate amt => Rs. 500/-
Time limit
Refund
Refund
Sec 11B
One to one co-relation – Input to finished goods
Duty paid on Inputs
Mfr – Incidence of duty not passed on
Buyer – If duty borne and incidence not passed
Appln within 1 year of relevant date to AC/DC of CE
Rule 5 of CCR, 2004
Refund available on inputs/input service used in final/intermediate products cleared for export
Allowed only if such credit is not adjusted against ED on local clearances
No refund if he avails drawback under Customs and CE drawback rules, claims rebate in terms of CCR
Appln not more than once for any quarter in a calender year
Exception (Appln in each month) EOU
Avg. Export clearances (value) is > 150% compared to preceeding quarter
Duty Payment
Sl No
Case Due date for payment of duty
1. If duty Paid electronically through Net banking
6th day of the month following that quarter
2. In any other case 5th day of the month following that quarter
3. In case of goods removed during the quarter ended march
31st day of march
Returns
ER 3
Within 10 days after the close of the relevent quarter
Electronic filing (Mandatory if duty paid is 10 lakhs in PY)
Details of Mfg, clearances, duty payable
Details of cenvat credit taken and utilised
Self Assessment
Textile Industry
Excise duty has been introduced in Budget 2011 on branded readymade garments and made up textile articles
Effective from 1/3/2011
Abatement of 55%
Value = „retail price‟ is as declared or as required to be declared under Legal Meteorology Act [earlier Standards of Weights and Measures Act].
Textile Industry cont….
FAQ Can we avail SSI exemption for the period 1-3-
2011 to 31-3-2011? Can we avail SSI exemption during 2011-12? How to calculate „value‟ for purpose of SSI
exemption? We are mainly exporting goods. Are we required
to register with excise? Who is liable to pay excise duty? Is excise duty payable on the stock lying in our
factory on 1-3-2011?
Other amends in Finance Act 2011
Nominal duty @ 1% imposed on 130 items Credit of duty paid not available for
mfr/service provider who buys them Duty to be paid in cash only
2/2011 – 5% duty with cenvat credit Concessional duty of 1% provided for
Sanitary napkins/diapers Water filters
ED reduced from 10% to 5% on Kits for conversion of fossil fuel vehicles into
hybrid vehicles Grease proof paper and glasine paper
Other amends cont….
Lower rate of duty increased from 4% to 5%
ED levied @ 10% on branded garments
Reversal of Cenvat credit -Rule 3(5B)– if the Value of Input/CG before put to use is written off ( Fully or Partial)
Sec – 11E - First charge on property of defaulter for recovery of dues subject to provisions of Companies Act, 1956
Recovery of debt due to bank and Financial institution Act, 1993
SARFAESI Act, 2002
Other amends cont….
Full exemption from excise duty A/C equipments, refrigeration, panels etc
Conveyor belt systems
Goods for expansion of mega power projects
Specified parts of sewing machines
Parts of power tillers
Cotton stalk particle board
Colour, unexposed cinematographic film
Pipe fittings
Other amends cont….
Penalty Provisions
Sec 11A -Cases of extended period of limitation-Lower mandatory penalty of 50%.
Sec 11A - Where SCN has been issued – Remission of penalty of 50% of duty
Sec 11(1A) – Omitted
Compounding of Penalty – available only when duty & Int paid before issue of SCN
Uniform rate of Int – 18% u/s 11AA &11AB
Common errors
Purchases Related
Credits reversed on oral instructions
Proportionate reduction of credit
Classification of goods-inputs/capital goods
Consolidated courier bill of entry
Supplementary invoice
Common errors cont….
Sub – Contract related Documentary proof
180 days criteria
Duty on scrap
Consumption and Utilization related Insurance claims received, inputs not issued to
production or damaged goods handed over to insurance co.
Destroyed goods removed but not intimated dept and reversal not done
Non duty payment when finished goods capitalised or sent to service wing
Common errors cont….
Sales, clearances and duty pymt related Improper computation - value of clearances
Wrong exemption claimed based on wrong classification
Documentation in respect of transfer of cenvat credit
Packing and forwarding not considered for valuation
General Non maintenance of Stock register, job work register,
credit register
Availing of both depreciation and cenvat credit on CG
Challenges of SSI
Upgradation with technologies/law
Access to international markets
Intense Competition
Imported goods
Power supply
Lack of skilled labour
Increase raw material costs
SSI
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