strategic indirect tax management

INDIRECT TAXES FOR DECISION MAKING

Strategic Indirect Tax Management

By CA Abdur Rahman Musba

May 2011

Disclaimer

� This Presentation is only to provide various conceptualclarity of Indirect Tax Planning and Decision Making

� All the facts, case studies and information presented shouldbe crossed checked with the provisions of law, includingany notifications, exemptions, circulars, judgement,

CA Abdur Rahman Musba

any notifications, exemptions, circulars, judgement,clarifications and amendments

� The position stated herein may vastly differ from actualinterpretation by experts and vary from establishedindustry practices

� The Presenter shall have no liability for the accuracy ofinformation or the correct interpretation of law

Factors Affecting Decision Making

� Tax - whether Creditable or Not

� Nature of Business

� Input

� Output


� Output

� Seller

� Buyer

� Value Addition & Value Chain

� Location

� Concessions and Schemes

Nature of Taxes

� Central Excise� Basic Excise Duty - Creditable

� Education Cess - Creditable

� Custom Duty� Basic Custom Duty – Not Creditable

Education Cess on Custom - Not Creditable


� Education Cess on Custom - Not Creditable

� Countervailing Duty (Excise Duty) - Creditable

� Education Cess on Countervailing Duty – Creditable

� Special Additional Duty – Creditable

� Service Tax� Service Tax – Creditable

� Education Cess – Creditable

Nature of Taxes

� Central Sale Tax – Not Creditable

� Sale Tax – Not Creditable

� Value Added Tax –Creditable

� Electricity Duty – Not Creditable


� Electricity Duty – Not Creditable

� Entry Tax – Not Creditable

� State Excise – Not Creditable

� Royalty (on mined products) – Not Creditable

� Stamp Duty – Not Creditable

� Various Other Cess and Taxes

Nature of Business

� A Service Provider cannot avail credit of VAT andSpecial Additional Duty of Customs

� A Non-Excise Registered Dealer cannot avail Creditof Service Tax and Central Excise.

In case of lease of Tangible Goods, VAT is attracted if


� In case of lease of Tangible Goods, VAT is attracted ifcontrol is given to the lessee and Service Tax isattracted if control is not given to lessee.Accordingly, credit can be availed.

Input and Output

� Restriction on taking Credit on certain input

� No Input Credit under Central Excise for Petrol & Diesel

� Certain Input not taxable

� No Excise Duty on Vegetables

Certain Output is Exempted or Non Taxable


� Certain Output is Exempted or Non Taxable

Seller & Buyer

� Seller Exemption from Tax

� SSI under Central Excise

� Buyer cannot avail credit

� Final Consumers cannot take credit, but can claim refund on wrong claims


wrong claims

Value Addition & Value Chain

� If Value Additions is low, it is better to avail fullcredit, as compared to concessional scheme, if optionexists� For By-Cycle manufacturers, when excisable components areout-sourced, it is better to pay output Excise duty @ 5% afteravailing Cenvat Credit rather than pay 1% without availing


availing Cenvat Credit rather than pay 1% without availingCenvat Credit

� Ensure that the entire value chain takes the benefitsof the Credit System� In a value chain, if one of the supplier is Non-ExciseDealer/SSI unit claiming Excise Exemption; the input ExciseDuty for that supplier would be a cost in the system

Location

� If the supplier is outside the State, CST is a cost

� If the supplier is Foreign Country or SEZ unit,custom duty is Cost

� If the manufacturer is in Excise Exempted Area,input Central Excise is a cost and there is no output


input Central Excise is a cost and there is no outputExcise Duty

Concessions & Schemes

� Lesser Rate of CST for purchases against Form C

� Concessional Custom Duty under Project Imports

� Various Schemes under Foreign Trade Policy

� Advance licence, Export Promotion Capital Goods Scheme(EPCG)


(EPCG)

Formalities

� Registration

� Under CST, exemption is available for goods mentioned in theregistration certificate

� Credit/Exemption available only based on properDocumentations


Documentations

Detailed Discussions


Structure of the Presentation

� Service Tax

� Exemption

� VAT/Sales Tax/CST

�High Seas Sales

� Works Contract Tax (Service Tax and VAT)


Works Contract Tax (Service Tax and VAT)

� Central Excise

� Exemption under Central Excise

� Inputs and Capital Goods

� Reversal of Cenvat Credit

� Outsourcing Decision

� Formalities

� Case Studies

Structure of the Presentation (Contd)

� Contracts – Capital Expenditure – Tax Liability

� Custom Duty

� Concession of Custom Duty

� Benefits under Foreign Trade Policy

Fiscal benefits for Specific Projects


� Fiscal benefits for Specific Projects

� Tips for Better Compliance – Strategic Level

Service Tax


Service Tax

� Service Tax and Education Cess is creditable.

� However, when abatement is availed; Credit is notavailable

� Restriction of Credit on Composite Scheme


� Credit interchangeable with Central Excise to someextent.

� Restriction of Credit on certain industries likeBanking

Some Exemption under Service Tax

� Statutory Activities

� For Taxable Service Up to Rs. 10 lakhs

� Services to SEZ Developers and Units (Cenvat Creditneeds not be reversed)

� Exports of Services


� Exports of Services

� Refund of Service Tax for Exporter of Goods andExemption on Reverse Charge Basis (for GTA andForeign Commission agent)

� Services to UN and International Agencies, foreigndiplomatic missions

Some Exemption under Service Tax

� Service Provided in Jammu & Kashmir

� Service Provided to EOU not exempted. EOU canclaim rebate under Cenvat Credit Rules

� For Construction of Roads, Airports, Railways,Transport Terminals Bridges, Tunnels, Dams;


Transport Terminals Bridges, Tunnels, Dams;Service Tax is exempted

Cenvat Credit

� Cenvat Credit available on

� Inputs

� Inputs Service

� Capital Goods

� More Discussions under Central Excise


� More Discussions under Central Excise

Formalities

� Registration of each office and premise on whichInvoices are raised by the Service Provider

� Registration of each office and premises, on whichinvoices are raised on the Service Recipient to claiminput credit/Service Tax exemption


input credit/Service Tax exemption

� Central Registration possible

Sales Tax/VAT


Central Sales Tax/Value Added Tax/Sales Taxes

� Central Sales Tax is not Creditable

� State Sales Tax not Creditable. Covers items like Petrol, Diesel and ATF

� Value Added Tax is Creditable


� VAT under Composition Scheme – Not Creditable

Concession under CST

� Sale to a Registered Dealer

� Stock Transfer

� Sale to Exporter

� Sale to SEZ Developer/Unit


� Sale to SEZ Developer/Unit

� Sale made in course of Inter-State Sales (E1/E2 sales)

Formalities under Sales Tax

� Registration of Goods to be sold for Inter State Sales

� Registration of each place of Sales

� Registration of place for purchase under Inter StateSales


Case Study

� A Works Contractor is also a manufacturer of goodswhich is used in works contract

� The manufacturing unit is one state and the workscontracts in another state.

The Manufacturing Unit should be registered under


� The Manufacturing Unit should be registered underCST for the sale of goods.

� The works contract site should be registered underCST for purchase of Construction Material

� Goods should be transferred under Form F (StockTransfer)

High Seas Sales

� Sale outside the territory is High Sea Sales

� When Celebrities sell precious stones like Diamonds,they take a flight across the Atlantic to avoid Sale Tax

� These are “High Seas Sales”

� High Seas Sales are made to avoid CST/VAT, in case of


� High Seas Sales are made to avoid CST/VAT, in case ofimported Goods.

� Sales should be executed after goods are left the foreigndestination and before arriving in India

� Bill of Lading is a negotiable Document.

� Airway Bill in not negotiable document. Delivery Challanshould be endorsed.

Sales in Course of Imports

� Sales is made after the goods are imported (afterCustoms Formalities is completed before delivery istaken)

� Sales in Course of Import does not attract CST/VAT.

� “High Seas Sales” and “Sales in Course of Imports”option should be decided on case to case to basis


“High Seas Sales” and “Sales in Course of Imports”option should be decided on case to case to basis

� Usually, when Custom Duty is wholly exempted, HighSeas Sales is better.

� In case of High Seas Sales, the assessable value forCustoms Duty is the price charged by importer to theassessee.

WORKS CONTRACT ATTRACT BOTH VAT AND SERVICE TAX

Taxation of Works Contract


VAT on Works Contract

� Taxation under Vat – Eg Civil Works

Particulars Regular Abatement Composition

Amount on which VAT is

On Material Portion

On 70% (For civil works)

On Full Value


which VAT is payable

Portion civil works)

Rate at Which the amount is Taxable

Full Rate Full Rate 4%

Effective Rate Computed 9.8% 4%

Input credit Available Available Not Available

Service Tax on Works Contract

Particulars Full Rate Abatement Composition Scheme

Calculation (as per VAT law)

Amount on which Service Tax is payable

Full Value On 33% of the Value

On Full Value On ServicePortion

Rate at Which Full Rate Full Rate 4.12% Full Rate


Rate at Which the amount is Taxable

Full Rate Full Rate 4.12% Full Rate

Effective Rate 10.3% 3.399% 4.12% Computed

Credit on Input Goods

Available Not Available

Not Available Not Available

Credit on Input Service


Available Available

Credit on Capital Goods


Available Available

Central Excise


Central Excise

� Normally, Central Excise by nature is Creditable

� Credit available for Education Cess

� Credit of Service Tax interchangeable

� Compound Levy Scheme – Credit not available


� Compound Levy Scheme – Credit not available

� Restriction of Credit on certain industries like ShipBreaking

Exemption under Central Excise

� Some Exemption of Central Excise

� Power Project

� Water Infrastructure Project

� UN/ADB funded projects

� Project Under International Competitive Bidding


� Project Under International Competitive Bidding

� Supply to Defence

� Supply to SEZ, EOU, Exports

� Supply against EPCG Authorisation

� Exemption for SSI units

� Exemption in Excise Free States

� Exemption of products under specific Notification

Case Study – When Located in an Excise Free Zone

� Some states like Himachal Pradesh are exemptedfrom Central Excise?

� Is it beneficial to set up a unit in Himachal Pradesh?


Analysis

� Check whether the input are excisable

� Check whether the buyer can claim Credit

� Check the value addition

� Check the place from which input should be procuredand the output shall be distributed


and the output shall be distributed

� Example: Food Processing Industry

� The vegetables and fruits does not attract Excise Dutyand the customers cannot avail credit of Excise Duty

� Hence, it is beneficial to set up a food processing unit inExcise Free states

Analysis of Inputs

� Analysis of “Input” under Cenvat Credit Rules isimportant

� Some of the items excluded from Input are

� Inputs used outside the Factory (except certain cases)

Petrol, Diesel excluded from definition of inputs


� Petrol, Diesel excluded from definition of inputs

� Inputs used for Civil Works

� Consumption of Employees

Analysis of Input Service

� Similarly, analysis of “Input Service” is critical

� The analysis of Input and Input Service should be seen from specific business point of view.

� Some of the Items exclude are


� Service on Civil Works

� Service Tax on Motor Vehicle (like Rent a cab, insurance on cars)

� For Consumption of Employees

Analysis of Capital Goods

� Cenvat Credit on Capital Goods is available forspecified list of Goods

� Cenvat Credit/Exemption not available forconstruction of Civil Works (except for Civil Worksfor SEZ and Service Tax exemption for certain


for SEZ and Service Tax exemption for certainInfrastructures)

Analysis of Capital Goods(Contd)

� While analysing use of Cenvat Credit of CapitalGoods, financial modelling should be used toascertained when the Cenvat Credit of Capital Goodscan be fully used.

� For captive intensive industries, interest cost should


� For captive intensive industries, interest cost shouldbe added for utilisation of Cenvat Credit of CapitalGoods, if the utilisation of credit is over a longer timevis-à-vis exemption scheme like EOU, SEZ etc (incase of direct comparison)

Case Study on Cenvat Credit on Capital Goods

Thumb Rule for factors considering how fast Cenvat Crediton Capital Goods can be used

� Huge Capital Investment

� Less Value Addition (in terms of Percentage)

� Excisable Input (in case the input is mine products like


� Excisable Input (in case the input is mine products likeCrude Oil, Iron Ore, Cenvat credit cannot be availed)

� Rate of Excise Duty of output vis-à-vis the rate of ExciseDuty of input.

Detailed Computations can be done only using financialmodelling

Analysis of Output

� Whether Output is chargeable to Excise

� In case of pure power plant, Electricity is notChargeable to Excise Duty. Therefore, tax on inputbecomes a cost. However, if the power plant is set upas part of existing industrial plant, tax on input can


as part of existing industrial plant, tax on input canbe taken as credit.

Cenvat Credit Reversal

� When manufacturer/service provider ismanufacturing/ providing both taxable and nontaxable service/goods, Cenvat Credit have to bereversed.

� In case, the person opts to pay an specified


� In case, the person opts to pay an specified“amount”, Cenvat credit need not be reversed

� For supplies to SEZ, EOU, Exports, Projects underCompetitive Bidding, Some Power Projects, CenvatCredit need not be reversed.

Case Study on Reversal

� Pipes are required for Water Project, partly withinSEZ and partly outside SEZ.

� There is Excise Duty exemption for within SEZ andcenvat credit needs not be reversed

For water projects (from Source), pipes are exempted


� For water projects (from Source), pipes are exemptedfrom Excise Duty. However, Cenvat Credit have to bereversed.

� How to analysis the impact of Central Excise?

Case Study on Reversal

� Various types of pipes can be procured. Therefore,first check the raw material for the pipemanufacturer

� For Ductile Iron Pipes, the main inputs are Iron Oreand Coal. Both the items are not excisable. (Coal has


and Coal. Both the items are not excisable. (Coal hasnow Energy Cess)

� The Price should not vary much due to Cenvat Creditavailability

� However, for other pipes, where input are taxableproducts, the manufacturer would charge 5% more;if detailed calculation or reversal is not made.

Case Study (when Final Product is exempted)

� For Ship Building (and Aircraft Building), Central Excise is exempted.

� Even Custom Duty is exempted for imports of ships

� Therefore, should any tax planning be made in this case?


case?

Case Study (when Final Product is exempted) [Contd]

� Shipping Building unit purchase components afterpaying Central Excise/Custom Duty.

� If the Shipyard is located in an EOU (ExportOriented Unit), Central Excise is exempted onpurchase of components.


purchase of components.

� Similarly, Custom Duty is exempted for import ofcomponents.

� On Sale in domestic market, there would not beExcise Duty.

� Net Foreign Exchange earning should be satisfied.

Outsourcing Decision and Taxes


Outsourcing Decision and Taxes

� Analysis the Value Chain and the Taxability of eachpoint of value addition

� If the Value Chain does not have taxes, theoutsourced vendor should not have any input Tax ascost nor charge any Output Tax which credit cannot


cost nor charge any Output Tax which credit cannotbe taken

� If the Value Chain has Taxes, the outsourced vendorshould able to at least avail and pass on thecreditable tax and further not add Tax cost.

Case Study on Outsourcing

� For Input used outside the Factory, Cenvat Creditcannot be availed

� For Example, Cenvat Credit cannot be taken onExcise Duty paid on Explosive used by CementFactory for blasting Limestone.


Factory for blasting Limestone.

� Cenvat Credit cannot be taken for the tipper anddumper used for carrying limestone from the site tofactory (for such vehicles owned by the Factory orGoods Transport Agency)

� How to avail Cenvat Credit on these inputs andCapital Goods?

Case Study on Outsourcing (Contd)

� The activities of the Limestone Mining can beoutsourced to Service Provider of Mining of Mineral

� Excise Duty on explosive can be availed as input, andcredit can be availed

Tippers and Dumpers can be treated as Capital


� Tippers and Dumpers can be treated as CapitalGoods for Mining activities

Other Points to Consider

� Level of Control on the Third Party Service Provider

� Maturity of the Service Provider and competitiveness in the Industry

� Quality of Service Level

Confidentiality


� Confidentiality

� Administrative Cost and Management time to set up own Service Provider

� Effect on future changes in law

Formalities


Formalities

� To avail Credit/Refund/Exemption proper formalitieshave to be complied

� Registration is one of the important Formalities. TheRegistration show the ground plan.

� Only area shown in Ground Plan, Cenvat Credit can beavailed. (Any Capital Goods installed outside the Ground


Only area shown in Ground Plan, Cenvat Credit can beavailed. (Any Capital Goods installed outside the GroundPlan, Cenvat Credit cannot be availed).

� Land owned by the unit or lease by the unit can be shownin Ground Plan.

� In case of Project, where Contractor has leased out land,the lessee right should be assigned to the Unit.

Formalities (Contd)

� Any additional land taken for the purpose of unit, andany manufacturing activities or storage is done in suchland, the Ground Plan should be amended.

� Even if storage is made in additional area (not mentionedin Ground Plan) it may be construed as “removal”.


in Ground Plan) it may be construed as “removal”.

� Cenvat Credit can be taken for a particular Unit. If thefactory is at different location, Cenvat Credit for eachfactory should be taken.

� In case, there are two units at the same location, CenvatCredit should be taken for each unit separately.

Case Study (Installation outside Ground Plan)

� An Factory has to set up a Transformer for its factory

� The Transformer is being set up outside the factoryon Government Land.

� How can Cenvat Credit be availed on installation ofthe Transformer?


the Transformer?

Case Study (Installation outside Ground Plan)

� The Cenvat Credit of Central Excise cannot beavailed directly

� A contractor has to be appointed for Supply andInstallation of Transformer (Composite Contract)

� The Contractor has to Purchase the Transformer


� The Contractor has to Purchase the Transformerfrom the Manufacturer/Excise Dealer and takeCenvat Credit on Central Excise

� After Installation, the Contractor has to ChargeService Tax on the Whole Value of Works at FullRate.

� Cenvat Credit can be taken on Service Tax.

Contracts – Capital Goods –Tax Liability


Formalities - Contracts

� Capital Goods can be purchase through three ways

� Supply Contract

� Works Contract

� Supply & Erection Contract


Supply Contracts

� Cenvat Credit Under Central Excise can be takeneasily as the Invoice is in the name of Buyer

� For Inter-State Sales, C Form can be issued tominimise Sale Tax.

For Regular Purchases, the option for seller to open a


� For Regular Purchases, the option for seller to open adepot in the State should be analysed, if input of VATcan be availed

Supply and Erection Contracts

� For Supply and Erection Contracts, (DivisibleContracts), the Purchase Order and Work Ordershould be issued

� Where the supplier is supplying goods from ThirdParty Manufacturer/Excise Dealer, the Invoice of the


Party Manufacturer/Excise Dealer, the Invoice of thethird party manufacturer should mention that theGoods are on Account of the Ultimate Buyer.(Contractor should not take Cenvat Credit).

Supply and Erection Contracts (Contd)

� The Consignee in the Lorry Receipt (LR) should be inthe name of the contractor. The LR should beendorse in favour of Buyer before delivery of goods.

� The Contractor should not receive the Goods atDestination (especially in case of Sale in the course


Destination (especially in case of Sale in the courseof Inter State sale).

� Invoice should be raise on the date of endorsementof LR.

� C Form and E1, E2 Forms should be exchanged.

Case Study

� In such Contracts, the Supplier Contractor isresponsible till Erection is over and handed over.The Contractor has to take insurance till handingover.

� If the Buyer accepts the goods delivered, what is the


� If the Buyer accepts the goods delivered, what is theLiability of the Contractor after delivery? (Who isresponsible for Security and Insurance?)

Case Study

� When the Goods are received at site, the goodsshould be handed over to the Contractor, under acontract of Bailment, in pursuant of the MainAgreement, through a Delivery Challan.


Works Contracts

� For Works Contract, the Contractor can take CenvatCredit. The Contractor has to charge normal ServiceTax on Full Value.

� However, in case of civil works, Cenvat Credit cannotbe availed. In Case of SEZ, Exemption of Central


be availed. In Case of SEZ, Exemption of CentralExcise and Service Tax can be obtained even for CivilWorks.

� Whether Works Contract can be split in Supply &Erection Contract should be analysed.

� Example: In Electrical Works and Goods can bepurchased Inter-State and Form C can be issued

Custom Duty


Computation of Custom Duty

S No

Particulars Working Legend Amount

1 Assessable Value (CIF + 1% of CIF)

A 1000

2 Basic Custom Duty (BCD) 10% of A B 100

3 CVD 10% of A+B C 110


3 CVD 10% of A+B C 110

4 Education Cess on CVD 3% on C D 3.3

5 Education Cess on BCD 3% on A+B+C E 6.40

6 Special Additional Duty 4% on A+B+C+D

F 48.79

7 Total 1268.49

Effective Duty 26.85%

Credit for Custom Duty

� A manufacturer can claim Cenvat Credit on CVD,Education Cess on CVD and SAD

� A Service Provider can claim Cenvat Credit on CVDand Education Cess on CVD, and not on SAD.

A Trader can claim Refund of SAD, if the trader sells


� A Trader can claim Refund of SAD, if the trader sellsthe Goods charging VAT/Sales Tax.

� In a supply and erection contract (Divisible), theContractor can claim refund of SAD, and the Unitcan claim input Credit of CVD, Education Cess onCVD and VAT.

Concession under Custom Duty – Capital Goods

� Project Imports – Concessional Rate of Custom Duty at5% or 0% for new Industrial & Infrastructural projects orsubstantially expansion of old projects. No Conditionattached

� Export Promotion Capital Goods Scheme under theForeign Trade Policy: Concessional Rate of 3% or 0%


Foreign Trade Policy: Concessional Rate of 3% or 0%Custom Duty.

� Export Oriented Unit: Custom Duty Exemption (forCapital Goods and Input).

� Special Economic Zone: Custom Duty Exempted

� Road Project: Machinery for Construction Exempted

Concession under Custom Duty – Input

� Advance License Scheme

� Duty Free Import Authorisation

� Preferential Rate of Duty


Case Duty - Delay Payment of Custom Duty

� When Huge Amount of Raw Material is imported (tobe used over a period of time), to avail Economy ofScale during Purchase.

� The Manufacturer does not have the cash to pay theCustom Duty or wants to avoid interest of funds used


Custom Duty or wants to avoid interest of funds usedto pay Custom Duty.

� What can be done?

Delay Payment (Contd)

� The Goods can be stored in a Custom BondedArea/Warehouse.

� At the time of removal from Warehouse, CustomDuty can be Paid


Case Study – Avoid Demurrage

� A Capital Goods in imported which is eligible forconcessional duty under Project Imports or ExportPromotion Capital Goods Scheme.

� However, the necessary formalities are notcompleted


completed

� If the Capital Goods are kept at the Port, hugedemurrages to be paid.

� How to Avoid the Demurrages?

Avoid Demurrage

� The Goods should be transfer to Custom BondedArea and Project Can be registered in the CustomBonded Area and clear the goods at a concessionalrate of Duty.


Benefits under Foreign Trade Policy

� Pre-Shipment

� Advance License

� Duty Free Import Authorisation

� Post Shipment

Duty Drawback


� Duty Drawback

� Duty Entitlement Passbook Scheme

� Market Focus Scheme

� Product Focus Scheme

� Served from India Scheme

Foreign Trade Policy

� Projects

� Export Promotion Capital Goods Scheme

�Manufacturers of Products

�Hotels, Retailers, Project Imports

� Export Oriented Unit Scheme


� Export Oriented Unit Scheme

� Special Economic Zones

� Deemed Exports

� Refinery

� Power Projects

� EOU, SEZ

Barriers to Foreign Trade

� Tariff Barriers

� High Rate of Import Duty

� Export Duty

� Free Trade Agreement/Pacts

� Non Tariff Barriers


� Non Tariff Barriers

� Phytosanitary Conditions

� Intellectual Property Rights

� Transfer of Technology

Fiscal Benefits for Specific Projects


Benefits for New Projects

� Concessional Custom Duty under Project Imports

� Deferred Payment of VAT on Sales

� Exemption of Stamp Duty on Lease, Loan

� Exemption of Electricity Duty, Entry Tax


� Exemption of Electricity Duty, Entry Tax

� Subsidy, Grant from Government

� Concessional Interest from Financial Institution

Income Tax Benefit for New Projects

� Exemption for Income Tax under 10AA, 35AD, 80 IA,IAB, IB for various Industrial, Infrastructure Projects.

� Power, Road, Water Infrastructure, SEZ, Cold Storage,Industrial Project in Backward area, are some of theexempted Project

MAT is applicable on all Projects, but Creditable in


� MAT is applicable on all Projects, but Creditable innature. (Cash flow Issue: IRR, NPV, DSCR)

� The exemption of Tax may not be available due to initialhigher depreciation, initial cash losses

� However, actual exemption available should bedetermined by Financial Modelling.

Power Projects

� Exemption from Excise and Custom Duty for MegaPower Projects

� Export Benefits Available for supplies to Mega PowerProjects

� Cenvat Credit need not be reversed for suppliers to MegaPower Project


Cenvat Credit need not be reversed for suppliers to MegaPower Project

� Income Tax exemption is available

� For other Independent Power Project; Excise, Custom isa cost

� Cenvat Credit can be available for Captive Power Plants,even if set up outside the Factory.

Export Promotion Capital Goods Scheme

� Capital Goods used for Earning Forex

� Can be used by Hotel, Retailer, Project Imports and otherService Providers

� Import of Goods under Concessional Custom Duty/NilCustom Duty


Custom Duty

� Can also avail Indigenous Goods without Payment ofExcise Duty

� Domestic Supplier can avail Export Benefit like DutyDrawback

� Supply for Deemed Exports is counted for ExportObligations Fulfilment

100% Export Oriented Unit

� Exemption under Excise Under CT – 3, ARE 3Procedure.

� Supplier of Goods need not reverse Cenvat Credit

� Supply to EOUs eligible for Export Benefits asdeemed exports.


deemed exports.

� Exemption of Custom Duty

� Service Tax can be availed as Credit and refund canbe obtained.

� CST is eligible for Refund

� Rate of Excise Duty is equivalent to Custom Duty

Computation of Duty for EOU Sale

S No

Particulars Working Legend Amount

1 Assessable Value A 1000

2 Basic Custom Duty (BCD) 10% of A B 100

3 CVD 10% of A+B C 110




5 Education Cess on BCD 3% on A+B+C E 6.40

6 Total Excise Duty B+C+D+E F 219.7

Education Cess on Excise Duty 3% on F G 6.59

7 Total 1226.29

+ VAT/CST

Special Economic Zone

� Exemption of Excise Duty, CST, Custom Duty, ServiceTax, R&D Cess for Authorised Operations

� Cenvat Credit on Goods or Service need not be reversedby the supplier/Service Providers

� Export Benefits can be availed. However, for units some


� Export Benefits can be availed. However, for units someexport benefits is subject to payment made in Forex

� Exemption of taxes for Civil Works

� Exemption of taxes for Construction Equipment of theContractors

� Income Tax benefit under Section 80IAB, 10AA

Special Economic Zone (Contd)

� VAT is exempted by way of refund

� Exemption of Entry Tax (except certain PetroleumGoods)

� Exemption of Stamp Duty (100% for Developer/Co-Developer and 50% for units)


Developer and 50% for units)

� Exemption of Electricity Duty

� Custom Duty is payable when Sale made to DTA. (If theproduct is generally not being imported and CustomDuty is not exempted, the Seller have to bear the impactof Custom Duty component)

� Net Foreign Exchange Earning should be positive

Case Study on SEZ

� Analysis of Input and Output Taxes is very critical fordetermination whether unit should be located in SEZ

� For IT/Electronic hardware, the main products outputare exempted from Custom Duty. However, the ITcomponents (inputs) attract Custom Duty


components (inputs) attract Custom Duty

� Sale of IT related goods in DTA is covered under the NetForeign Exchange Earning

� Hence, it is beneficial to set up a unit in SEZ than DTA,as SEZ unit can procure inputs without Custom Duty andsell without paying Excise Duty or Custom Duty

Devil Lies in the Details


Tips to ensure Compliance

� Scrutinise the Registration Certificates from time totime

� Keep Proper Documents, even if there is no taxpayable.

How do you convince the Government Official that your


� How do you convince the Government Official that yourturnover has not exceed the taxable turnover?

� Maintain proper Registers

� Have effective internal control

� Follow Proper System

� Remember the Security tracks the movements of goods

Tips to ensure Compliance (Contd)

� Check the official rules relating to documentations bothfor documents in which exemption/Credit is obtain aswell as documents which is issued by the organisation

� Maintain Proper Record of Suppliers and Purchasers

� Have adequate personnel for compliance or outsource


� Have adequate personnel for compliance or outsourcethe job

� Give regular training to the personnel

� Conduct regular audits to minimise contravention of law

� Structure the wording of the Contract, Invoice, Letters

Any Questions


strategic indirect tax management

Business

special economic

transport

international

foreign trade

captive intensive

high seas

existing industrial

income tax