Description
Risk assessment is the determination of quantitative or qualitative value of risk related to a concrete situation and a recognized threat (also called hazard). Quantitative risk assessment requires calculations of two components of risk (R):, the magnitude of the potential loss (L), and the probability (p) that the loss will occur.
Summer project On
Present and Future Scenario of indirect taxation in project industry
At
THERMAX
INSTRUMENTATION LTD.
Submitted to:-
Suryadatta Institute of management and mass communication
By: - Priyanka Gangwar Specialization: - Finance and Marketing Batch: - 2010-2012
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Acknowledgement
Summer Project is an essential program in the MBA curriculum. This is an opportunity whereby the student gets hands on exposure of the practicalities involved in the corporate. Student also gets an opportunity to test his acquired skills; knowledge into the practical environment and learns various new concepts, which are far away from the reach of subject books. I would like to thank Mr. Anand Natu (Finance controller) for providing me with this opportunity to work on summer project in his department. I am highly indebted to Mr. Rajendra Kanire (Assistant Manager-Finance) for their guidance, co-opertaion and support throughout this project. I would like to convey my earnest appreciation to Mr. Sandeep Pandit (Sales tax officer) encouraging me to take up a project in this domain. I would like to express sincere gratitude to my internal project guide Prof. Mahesh for their timely support and co-operation.
PRIYANKA GANGWAR
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INDEX
S.no. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Particulars Executive Summary Objective Company Profile Present Scenario of Indirect Taxation Excise Duty Service Tax Custom Duty Sales tax Future Scenario of Indirect taxation i.e. GST Research Methodology Calculation of Indirect tax as per present tax structure Comparison of Present tax structure with GST Analysis and Interpretation of data Conclusion Learning’s Bibliography
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Page no. 4 5 6-12 13 13-21 22-29 30-33 34-38 39-41 42 43-46 46-48 49 50 51 52
Executive Summary
This project named “Present and Future scenario of Indirect Taxation in Project Industry” was carried out in the Accounts Department of finance division of Thermax Instrumentation Ltd. (Subsidiary of Thermax Ltd.). The Accounts Department Looks after the following main functions:1. Accounts Payable 2. Accounts Receivables 3. Tax Calculations 4. Books Keeping and its maintenance This project was carried out in Thermax Ltd as it is one of the leading Company in Project Industry.At Present India has a well-developed tax structure with a three-tier federal structure, comprising the Union Government, the State Governments and the Urban/Rural Local Bodies. The main taxes/duties that the Union Government is empowered to levy are Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are Sales Tax, Stamp Duty. The Local Bodies are empowered to levy tax on properties, Octroi and Tax on Markets. But in Future Government of India is Planning to come up with the biggest taxation reforms in India -- the Goods and Service Tax (GST) - is all set to integrate State economies and boost overall growth. GST will create a single, unified Indian market to make the economy stronger. The implementation of GST will lead to the abolition of other taxes such as octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, et cetera, thus avoiding multiple layers of taxation that currently exist in India.
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Objective
1. To study & analyze Indirect taxes paid by Thermax Instrumentation
Limited. 2. To study & understand the day-to-day process involved in Accounts Department. 3. To understand whether Goods and Service Tax which is expected to be one of the biggest taxation reforms will be good for Project Industry or not. 4. To understand the basic element involved in Book Keeping.
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Company Profile
Thermax is one of the leading Energy and Environment solutions company in India.
A Brief History:
Many years ago man discovered the might of fire, followed by steam. Steam produced mechanical movement that rewrote the history of human civilization. We came into business by harnessing this power of steam by the means of boilers. In the year 1966, A S Bathena collaborated with a Belgian company Wanson to commence our business operation as Wanson India Ltd in a small manufacturing unit in dadar (Mumbai) by making small boilers. It assumed the name Thermax Limited in the year 1980.
About the Company today:
Although Thermax is domestic focused with nearly 80% of net sales from India, it has six international subsidiaries based in Europe, Asia and North America. Headquartered in Pune, Thermaxoperates four manufacturing facilities (three in India and one in China). The company employed 4,752 personnel as on March 2009 and was listed on the stock exchange in 1995. It gradually diversified into several businesses, most of which it exited during the 2001-02 restructuring exercise. Currently, Thermax is into two Businesses - energy and environment.
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Business Areas:
Company structure (figure in bracket indicates share of net sales in FY09)
Thermax
ENERGY (79%)
ENVIRONMENT (21%)
BOILER / CHILLERS (50%)
AIR POLLUTION (10%)
POWER PLANTS (15%)
WASTE AND WATER TREATMENT (6%)
HEATERS (4%)
ION EXCHANGE RESIN & CHEMICALS (5%)
OTHERS (9%)
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Board of Directors
Meher Pudumjee- Chairperson (third Chairperson.
Meher took over as the Chairperson on October 5, 2004.)
M. S. Unnikrishnan- Managing Director Anu Aga Dr. Raghunath. A. Mashelkar Dr. Valentin von Massow Tapan Mitra Pheroz Pudumjee Dr. Manu Seth (upto August 8, 2009 ) Dr. Jairam Varadaraj
Executive Council
Ravinder Advani Sharad Gangal Gopal Mahadevan Hemant Mohgaonkar S. Ramachandran R. V. Ramani Dr. R. R. Sonde M. S. Unnikrishnan
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Officers of the Company
Gopal Mahadevan-Executive Vice President& CFO Sunil Lalai-Company Secretary
Key Dates
Incorporation Date - 30/06/1980 Public Issue Date - 15/02/1995 Year Ending Month - March AGM Month - July Book Closure Start Date 12/07/2010 Book Closure End Date 21/07/2010
Listing Information
Face Value - 2.0 Market Lot Of Equity Shares -1 BSE Code - 500411 BSE Group - A
The compnay forms a part of following indices –
BSE 200 Index (200 Cos) BSE 500 Index (500 Cos) BSE Capital Goods Sector Index BSE Dollex Index (200 Cos) BSE Mid-Cap Index BSE TASIS Shariah 50 Index CNX Midcap 200 Index (200 Cos)
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CNX Midcap Index S&P CNX 500 Equity Index (500 Cos)
Listed On
Bangalore Stock Exchange Ltd. Calcutta Stock Exchange Association Ltd. Cochin Stock Exchange Ltd. Delhi Stock Exchange Assoc. Ltd. Madras Stock Exchange Ltd., National Stock Exchange of India Ltd. The Stock Exchange, Mumbai Uttar Pradesh Exchange Assoc Ltd.
THERMAX INSTRUMENTATION LIMITED
Board of Directors
Ravinder Advani Gopal Mahadevan
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Manager
M. L. Bindra
R. V. Ramani
Domestic and international subsidiaries
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Thermax Limited Domestic Subsidiaries International Subsidiaries
Thermax Sustainable Energy Solutions Ltd
Thermax International Ltd, Mauritius
Thermax Engineering Construction Co.
Thermax Ltd. Europe, UK
Thermax Instrumentation Ltd
Thermax Inc., US
Thermax, Brazil
Thermax Hong Kong Limited
Thermax (Zhejiang), China
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THERMAX
Business Objectives
Grow the topline through core business growth. Create a sustainable service business by providing value-added services. Align all energies towards meeting commitments to customers. Ensure bottom line growth through operational efficiency, cutting wasteful expenditure. Streamline existing channel management, expand our reach to customers. Be a recognized and respected player in the international markets for heating, cooling and chemicals. Harness the synergies in our businesses to offer integrated solutions. Create and sustain a high performance culture in the company.
Our Vision
To be a globally respected high performance organization delivering sustainable solutions in energy and environment
Quality Policy
Our Quality Policy starts and ends with the customer as a focal point: understanding the customer’s requirements, designing optimal solutions to meet those requirements, building systems and processes in place to ensure quality at every stage, and achieving our commitments on delivery and service before and after sales. It is our endeavor to create a culture of Total Quality where continuous improvement of our people, our processes and our products become a way of life.
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Meher Pudumjee
Chairperson
THEORITICAL BACKGROUND
Present Scenario of indirect taxation
Excise duty
Central Excise is a duty on excisable goods manufactured or produced in India, other than alcoholic liquor. Duty liability is principally on ‘manufacturer’, except in a few cases. In majority of cases, duty rate w.e.f. 24.2.09 is 10% plus education cess of 2% and Secondary and Higher Education Cess of 1%. Thus, generally, duty is 10.30%. There are some exclusions, partial or full exemptions and higher duties in some cases. The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the goods are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers. The term "excisable goods" means the goods that are specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 , as being subject to a duty of excise and includes salt.
Power of Taxation under Constitution of India is as follows:
(a) The Central Government gets tax revenue form Income-tax (except on Agricultural Income), Excise (except on alcoholic drinks) and Customs.
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(b) The State Governments get tax revenue from sales tax, excise from liquor and alcoholic drinks, tax on agricultural income.
(c) The Local Self Governments e.g. municipalities, etc. get tax revenue
from entry tax and house property tax
Laws Relating to Central Excise
? Central Excise Act,1944(CEA) : The basic Act which
provides the constitutional power for charging of duty, valuation , powers of officers, provisions of arrests, penalty,etc.
? Central Excise Tariff Act, 1985 (CETA): This classifies
the goods under 96 chapters with specific codes assigned. ? Central Excise Rules, 2002: The procedural aspects are laid herein. The rules are implemented after issue of notification.
? Central Excise Valuation (Determination of Price
of Excisable Goods) Rules, 2000: The provisions regarding the valuation of excisable goods are laid down in this rule.
? Cenvat Credit Rules, 2004: The provisions relating to
Cenvat Credit available and its utilization are mentioned.
Central Exercise Act, 1944
The duty of Central Excise is levied if the following conditions are satisfied : (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.
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Duties Leviable
? Basic Excise Duty u/s 3 of Central Excise Act, which is 10%
in vast majority of the cases w.e.f. 24-9-2009 [Till 23-2-2009, it was 14%]. ? Education Cess @ 2% of excise duty under section 93 of Finance (No. 2) Act (w.e.f. 9-7-2004).
? Secondary and Higher Education Cess (S&H
Education Cess) @ 1% of the total duties of excise vide section 136 read with section 138 of Finance
Taxable event
As incidence of excise duty arises on production or manufacture of goods, the law does not require the sale of goods from place of manufacture, as a mandatory requirement. Normally, duty is payable on 'removal' of goods.
The removal may be for:1. Sale 2. Transfer to depot etc. 3. Captive consumption
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4. Transfer to another unit 5. Free distribution Thus, it can be seen that duty becomes payable irrespective of whether the removal is for sale or for some other purpose.
Classification
In order to determine the rate of excise duty on goods, classification is prerequisite. Excise duty payable is based on the classification of goods given in the Central Excise Tariff Act, 1985 (CETA). The Act gives a list of items chargeable to Central Excise duty. The Central Excise Tariff Act was amended in 2004. The Central Excise Tariff Act, 1985 (CETA) came into force w.e.f. 28th February, 1986. The main features of the Excise Tariff are: (a) The Central Excise Tariff has been made very detailed and comprehensive, as all the technical and legal aspects in relation to goods have been incorporated in it. (b) The Excise Tariff is based on the Harmonized System of Nomenclature, which is an internationally accepted product coding system formulated under the GATT. (c) The goods of the same class have been grouped together to bring about parity in treatment and restrict the dispute in classification matter. (d) The Central Excise Tariff provided detailed clarificatory notes under each section/chapter.
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(e) The interpretation of the Tariff have been provided for at the beginning of the Schedule. All the section notes, chapter notes and rules for interpretation are legal notes and/therefore serve as statutory guidelines in classification of goods.
(f) The Tariff is designed to group all the goods relating to one industry
under one chapter from one raw material in a progressive manner.
Harmonised System of Nomenclature All goods are classified using 4-digit system. These are called ‘headings’. Further 2 digits are added for sub-classification, which are termed as ‘subheadings’. Further 2 digits are added for sub-sub-classification, which is termed as ‘tariff item’. Rate of duty is indicated against each ‘tariff item’ and not against heading or sub-heading. The CETA is also based on the HSN pattern, of course, with some deviation. HSN has got Commercial as well as judicial recognition.
Valuation of Goods
Excise duty is payable on one of the following basis: ? Specific duty, based on some measure like weight, volume, length etc. ? Duty as % of Tariff Value fixed under section 3(2) ? Duty based on basis of Maximum Retail Price printed on carton after allowing deductions- section 4A of CEA. ? Compounded Levy Scheme. ? Duty as % based on Assessable Value fixed under section 4 (ad valorem duty) (If not covered in any of above)
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Methods & Techniques of Valuation Proper valuation of goods manufactured is an integral part towards levy of Excise Duty accurately. Accordingly, goods manufactured should be valued strictly in the manner as prescribed in the Central Excise Act, 1944 and Rules framed there-under. Details of the provisions relating to valuation have been discussed herein below:
Value under the Central Excise Act, 1944 Value of the excisable goods has to be necessarily determined when the rate of duty is on ad-valorem basis. Accordingly, under the Central Excise Act, 1944. the following values are relevant for assessment of duty. Transaction value is the most commonly adopted method. (i) Transaction value under Section 4 of the Central Excise Act (ii) Value determined on basis of maximum Retail Sale Price as per Section 4A of the Act, if applicable to a given commodity. (iii) Tariff value under Section 3, if applicable.
Refund & Other Important Provisions
Other important provisions are summarized below. 1. Refund of excise duty
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? Assessee can claim refund of duty within one year from relevant date u/s 11B, in form R. ? Refund is subject to doctrine of unjust enrichment, i.e. refund will be available only if the amount was not recovered from buyer. These are overriding provisions. ? If refund is delayed beyond three months, interest is payable @ 6% p.a.
2. Exemption from Duty ? Section 5A(1) of Central Excise Act and section 25(1) of Customs Act empower Central government to exempt any excisable goods from duty, by issuing notification in Official Gazette. ? Central Government can also grant exemptions in exceptional cases u/s 5A(2). ? An exemption notification should be strictly construed, but purposeful construction is permissible. ? Principle of promissory estoppel can apply to an exemption notification.
EA 2000 Excise Audit
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? Units paying duty more than Rs 3 crores – every year. ? Units paying duty between Rs 1 crore and Rs 3 crores – once every two years. ? Units paying duty between Rs 50 lakhs and Rs one crore – once every five years. ? Units paying duty below Rs 50 lakhs – 10% of units every year.
Collection of Excise Duty
The Central Excise Department follows two procedures in order to enforce the central excise law and collect the Excise duty :-
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Self removal procedure:- under this system, the assessee himself determines the duty liability on the goods and clears the goods. It involves, self assessment by the manufacturer himself of the excise duty payable by him. He removes goods without prior permission or physical supervision of the excise officers. The assessee is required to follow the prescribed procedure. It is applicable to all goods (except cigarettes) produced or manufactured within the country. Physical control: - Here assessment is followed by clearance. It takes place under the supervision of Central Excise officers. Central Excise Officers check that goods are cleared only after
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?
payment of duty. Once the excise duty has been paid, goods must move from that place. Duty paid goods cannot remain in the factory unless specifically permitted. It is applicable to cigarettes only.
Highlights of CENVAT Credit Scheme
? Credit of duty paid on input and input services
A manufacturer or service provider has to pay excise duty and service tax as per normal procedure on the basis of ‘Assessable Value’ (which is mainly based on selling price). However, he gets credit of duty paid on inputs and service tax paid on input services. Thus, he actually pays amount equal to duty/ service tax as shown in invoice less the Cenvat credit available to him.
? Input goods eligible for Cenvat to manufacturer
Credit will be available of excise duty paid on ( a ) raw materials (excluding few items) ( b ) material used in or in relation to manufacture like consumables etc. ( c ) Paints, packing materials, fuel etc. used for any purpose. The input may be used directly or indirectly in or in relation to manufacture.
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However, duty paid on high-speed diesel oil (HSD), Light Diesel Oil (LDO) and motor spirit (petrol) is not available as Cenvat credit, even if these are used as raw materials or as fuel. [Rule 2(k)(i) of Cenvat Credit Rules]
? Input goods eligible for Cenvat to service provider
In case of service providers, only inputs used directly for providing output service are eligible for Cenvat credit. However, high-speed diesel oil (HSD), Light Diesel Oil (LDO) and motor spirit (petrol) are not eligible as ‘inputs’. [Rule 2(k)(ii) of Cenvat Credit Rules] As per notification No. 12/2003-ST dated 20-6-2003, a service provider is not required to pay service tax on goods and materials used by him for providing output services. Normally, service tax is not payable on goods where property is transferred to buyer. Hence, Cenvat credit will be available mainly in respect of consumables.
Service Tax
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Service tax is tax of 21st Century. In India share of GDP in 2006-07 was Agriculture - 18.5%, Industry - 26.4%, Services - 55.1% (Source Economic Survey 2006-07). Service tax was imposed on three services w.e.f. 1-7-1994 and its scope is being widened every year. Highlights of the service tax are as follows – ? Service tax is imposed under Finance Act, 1994 as amended from time to time. There is no Service Tax Act. ? Service tax is payable on taxable services as defined in various clauses of section 65(105) of Finance Act, 1994. Presently, about 99 services are taxable. ? Service tax is payable on gross amount charged for taxable service provided or to be provided [Section 67]. ? Small service provider’s upto eight lakhs are exempt. Export of service is exempt from service tax under Notification No. 6/2005-ST dated 1-3-2005. ? Services provided in J&K are not taxable [section 64(1)]. ? Cenvat credit is available of inputs, input services and capital goods used for providing taxable output services.
? In some cases, receiver of service is liable to pay service tax. This is
termed as ‘reverse charge’ [Section 68(2)].
Basics of Service Tax
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? Every provider of taxable service should apply for registration in form ST-1 within 30 days from date of levy (in case of new services) and date of commencement of business of providing taxable service In case of existing services [Rule 4(1)]. Registration will be deemed to have been granted if not received within seven days [Rule 4(5)]. ? Assessee providing service from various premises can have centralized registration [Rule 4(2)]. ? Service provider is required to prepare invoice within 14 days, even in respect of advance received [Rule 4A]. ? Tax should be paid by 5th of following month (6th in case of epayment). ? If payment of tax is delayed, interest is payable @ 13% [Section 75]. ? Assessee has to submit half-yearly return in form ST-3 in triplicate within 25 days of close of half year [Rule 7]. ? The tax is administered by excise department. Excise officer issues adjudication order. ? First appeal lies with Commissioner (Appeals) [section 85] and second appeal with Appellate Tribunal (Customs, Excise and Service Tax Appellate Tribunal) [Section 86]. Further appeal lies with High Court and Supreme Court.
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Rate of Service Tax
This tax was first time introduced with effect from 1-7-1994 on three services. The rate was 5%. It was subsequently increased to 8% w.e.f. 14-52003. It was 10% plus education cess of 2% w.e.f. 10-9-2004 (total 10.2%) during 10-9-2004 to 17-4-2006. Service tax rate was 12% plus education cess of 2% (total 12.24%) during 18-4-2006 till 10-5-2007. Presently, service tax is payable @ 10% of value of taxable services referred in section 65(105) of Finance Act, 1994. In addition, education cess of 2% and SAH education cess of 1% is payable. Thus, total service tax is 10.30%. Service tax, education cess and SAH education cess to be shown separately in invoice – You have to show service tax, education cess and SAH education cess separately in invoice. You cannot just charge 10.30% as ‘service tax’.
Value of Taxable Service
? Service tax is payable on gross amount charged by service provider for service provided or ‘to be provided’. Thus, tax is payable as soon as advance is received. ? ‘Value of taxable service’ plus service tax payable is equal to ‘gross amount charged’ [section 67(2)]. ? Where consideration is not ascertainable, valuation will be on basis of Valuation Rules [section 67(1)(iii)].
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Procedures of Service Tax
The main procedures to be followed are – (a) Registration (b) Maintenance of records (c) Payment of service tax and (d) Half yearly return. There is no prescribed form of records. The records maintained by assessee including computerized data maintained by assessee in accordance with various other laws are acceptable [rule 5(1)]. There are many taxable services under service tax like Advertising Agency’s Services, Cargo Handling Services, courier services, Information technology software services, Legal consultancy Services, Market Research agency’s services, real estate agent services, Stock Broker Services, Transport of googs by air service, road services, rail service and Works Contract Service. Works Contract Services are the Service, which are provided by Thermax Instrumentation Limited.
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WORKS CONTRACT SERVICE
Tax on this Service is imposed under Finance Act, 2007 w.e.f. 1-6-2007. As per Section 65, any services provided or to be provided; to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams, is a taxable Service. Explanation – For the purpose of this sub clause, “works contract” means a contract wherein,1. Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and 2. such contract is for the purpose of carrying out,(a) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre- fabricated or otherwise, installation of electronic devise, plumbing, drain laying or other installation for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire or water proofing, lift and escalator, fire escape staircase; or (b) Construction of a new building or a civil structure or a part thereof, or of a pipe line or conduit, primarily for the purpose of commerce or industry; or (c) Construction of a new residential complex or a part thereof; or (d) Completion (b) and (c); or
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and
finishing
services,
repair,
alteration,
renovation or restoration of, or similar services, in relation to
(e) Turnkey projects including engineering, procurement, and construction or commissioning (EPC) projects.
Exclusions
Works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams, are excluded.
Value of taxable service under Works Contract Act
Broadly, two options are available to service provider – (a) Calculate value of service as per rule 2A of present Service Tax Rules, (in short ‘Valuation Rules) and pay service tax at normal rate @10.30% (inclusive of education cess and SAH education cess) on such ‘Value’. In such case, assessee can avail Cenvat credit of input services, inputs and capital goods (b) Pay service tax under ‘com-position scheme’ at 4.12% of ‘gross amount charged for works contract’ (inclusive of education cess and SAH education cess), under ‘Works Contract (Com-position Scheme for Payment of Service tax) Rules, 2007’ (the percentage was 2.06% upto 292-2008). As per rule 3(2) of Composition Scheme, the assessee cannot avail Cenvat credit of inputs. Thus, the assessee can avail Cenvat credit of input services and capital goods. In both the cases, Vat/sales tax will not be included in the ‘value’ for purpose of calculating service tax.
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Works Contracts under Vat/sales tax laws
Section of 2(ja)of CST defines ‘works contract’ as follows – ‘Works Contract’ means a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning, of any movable or immovable property.
Service Tax Exemptions
The Central Government can grant partial or total exemption by issuing an exemption notification. But it cannot be granted by the Government with retrospective effect. The general exemptions are :? Small service providers whose turnover is less than Rs 4 lakhs p.a. are exempt from service tax. ? There is no service tax on export of services. ? Services provided to UN and International Agencies and supplies to SEZ(Special Economic Zones) are exempt from service tax.
Payment of Service Tax
The service tax is payable 5th of the month following the month (6th in case of e-payment) in which payments are received toward value of taxable services [rule 6(1) of Service Tax Rules].
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Thus, service tax is not payable on basis of amounts charged in the bills/invoice, but only on amounts actually received during the relevant period.
Mandatory e-payment if annual service tax payment exceeds Rs 50 lakhs
Mandatory interest for late payment of service tax - In case of
delayed payment of service tax, there is mandatory payment of simple interest under section 75 for the period which the payment is delayed. The interest rate is 13% w.e.f. 10-9-2004, vide notification No. 26/2004-ST dated 10-9-2004 [Earlier interest @ 15% per annum from 11-5-2002. The interest rate was 24% upto 11-5-2002].
Returns
? Every assessee has to submit half-yearly return in form ST-3 in triplicate within 25 days of the end of the half-year. ‘Half year’ means 1st April to 30th September and 1st October to 31st March of financial year. ? The return should be accompanied by TR-6/GAR-7 challans, evidencing payment of duty. ? Details in respect of each service are to be provided separately. However, service tax payment details and Cenvat credit details are common and combined. ? There is no column to show excess amount paid, if any. Presumably, this will have to be intimated by a separate letter and/or given in the ST-3 form as a ‘remark’ or ‘note’.
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Customs Duties
Customs Duty is a type of indirect tax levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India. Import of goods means bringing into India of goods from a place outside India. India includes the territorial waters of India which extend upto 12 nautical miles into the sea to the coast of India. Export of goods means taking goods out of India to a place outside India. In India, the basic law for levy and collection of customs duty is Customs
Act, 1962.
The Constitutional provisions have given to Union the right to legislate and collect duties on imports and exports. The Central Board of Excise & Customs (CBEC) is the apex body for customs matters. Central Board of Excise and Customs (CBEC) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It deals with the task of formulation of policy concerning levy and collection of customs duties, prevention of smuggling and evasion of duties and all administrative matters relating to customs formations.
Types of Custom Duties
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The rate of basic customs duty is specified in Customs Tariff Act, read with relevant exemption notification. Generally, basic customs duty is 10% of non-agricultural goods. • CVD equal to excise duty is payable on imported goods u/s 3(1) of Customs Tariff Act. General excise duty rate is 10.30% (10% basic plus 2% education cess and SAH Education cess of 1%).
• Special CVD (SAD) is payable @ 4% on imported goods u/s 3(5) of Customs Tariff Act. This is in lieu of Vat/sales tax to provide level playing field to Indian goods. • Education cess of customs @ 2% and SAH Education cess of 1% is payable. • Total import duty considering all duties plus education cess on nonagricultural goods is generally 34.13%. • NCCD has been imposed on a few articles. In addition, on certain goods, anti-dumping duty, safeguard duty, protective duty etc. can be imposed.
Methods of Valuation
Section 14(1) is a Complete Code for Valuation of Export Goods. However, in respect of imported goods the value is required to be determined in accordance with the Valuation (Determination of Price of Imported Goods) Rules, 1988. These rules are framed in line with the provisions of GATT. Accordingly to the Valuation Rules, 1988, ‘Transaction Value’ i.e. the price actually paid or payable after adjustment of valuation factors shall be the customs value subject to –
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(a) Compliance with the conditions of valuation laid down under rule 4, and (b) Satisfaction of the customs authorities with the truth and accuracy of the ‘declared value’. In absence of the abovesaid the valuation has to be carried out by any of the following methods, as laid down under the Valuation Rules, 1988 :
(a) Comparative Value Method i.e. by comparing the transaction value of identical goods under Rule 5 or of similar goods under Rule 6. (b) Deductive Value Method i.e. on the basis of the sale price of the goods prevalent in the importing country under Rule 7. (c) Computed Value Method i.e. on the basis of cost of materials, conversion charges and the profit margins in the country of production under Rule 7A. (d) Residual Method i.e. on the basis of certain flexible rules as laid down under Rule 8.
Procedures for Import
Goods should arrive at customs port/airport only. • Person in charge of conveyance is required to submit Import Manifest or Export Manifest. • Goods can be unloaded only after grant of ‘Entry Inwards’. • Importer has to submit Bill of Entry giving details of goods being imported, along with required documents. Electronic submission of documents is to be done in many ports. • Goods are assessed to duty, examined and customs duty is paid. Bond is executed if required.
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• Goods can be cleared from port after ‘Out of Customs Charge’ order is issued by customs officer. • Self Assessment on basis of ‘Risk Management System’ (RNS) has been introduced in some ports in respect of specified goods and importers. • Demurrage is payable if goods are not cleared within three days from port. Goods can be disposed of if not cleared within 30 days.
Initial Steps by Exporter
Every exporter should take following initial steps –
• Obtain BIN (Business Identification Number) from DGFT. It is a PAN based number • Open current account with designated bank for credit of duty drawback claims • Register licenses/advance license/DEPB etc. at the customs station, if exports are under Export Promotion Schemes.
Exemptions and remission
• Exemption can be granted by Government by issuing a notification. • Capital goods and spares can be imported under project imports at concessional rate of customs duty. • Remission can be obtained on goods lost/pilfered in port • Title of imported goods can be relinquished and then no customs duty will be payable. • Goods exported can be re-imported. Concessional customs duty is payable in most of such re-imports.
Penalties under Customs Act
• Smuggling in relation to goods is an act or omission which will make the goods liable to confiscation.
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• Penalty can be imposed for improper imports or improper exports. • Monetary penalty upto value of goods or Rs 5,000 whichever is higher can be imposed. • Goods can be confiscated. Permission can be granted for re-export of offending goods.. • In case of goods covered under section 123 of Customs Act, burden of proof that the goods are not smuggled goods is on the accused.
Sales tax
State VAT/ Central Sales tax is one of the important indirect tax and major source of revenue to state governments. It may be noted that VAT (Value Added TAX) is not some new tax but only a different way of collecting sales tax.
Categories of Sales
Sales can be broadly classified in three categories. (a) Inter-State Sale (b) Sale during import/export. (c) Intra- State sale (i.e. within the state).
Central Sales Tax Act, 1956
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? Central Sales Tax is an indirect tax which is levied by the Central Government. ? In this case, the taxable event is ‘sale of goods inter-state’. ? CST applies to the whole of India including the state of Jammu & Kashmir. ? CST is payable in the state in which the movement of goods commences. ? Though it is called CST, it is actually assessed, collected & administered by the local (i.e. State) sales tax authorities only. ? Also, the tax collected under CST is actually retained by the state (in which it is collected).
VAT (Value Added Tax)
VAT is a multi-point destination based system of taxation, with tax being levied on value addition at each stage of transaction in the production/ distribution chain. The term 'value addition' implies the increase in value of goods and services at each stage of production or transfer of goods and services. VAT is a tax on the final consumption of goods or services and is ultimately borne by the consumer. It is a multi-stage tax with the provision to allow 'Input tax credit (ITC)' on tax at an earlier stage, which can be appropriated against the VAT liability on subsequent sale. ? VAT is basically a State subject, derived from Entry 54 of the State List, for which the States are sovereign in taking decisions.
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? The State Governments, through Taxation Departments, are carrying out the responsibility of levying and collecting VAT in the respective States. ? While, the Central Government is playing the role of a facilitator for the successful implementation of VAT. ? The Ministry of Finance is the main agency for levying and implementing VAT, both at the Centre and the State level The main benefits of implementation of VAT are:? Minimizes tax evasion as VAT is imposed on the basis of invoice/ bill at each stage, so that tax evaded at first stage gets caught at the next stage;
? A set-off is given for input tax as well as tax paid on previous purchases; ? Abolishes multiplicity of taxes, that is, taxes such as turnover tax, surcharge on sales tax, additional surcharge, etc. are being abolished; ? Replaces the existing system of inspection by a system of built-in self-assessment of VAT liability by the dealers and manufacturers (in terms of submission of returns upon setting off the tax credit); ? Tax structure becomes simpler and more transparent; ? Improves tax compliance; ? Generates higher revenue growth; ? Promotes competitiveness of exports; etc
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Rates of VAT
? At present, there are 2 basic rates of VAT, namely, 4 per cent and 12.5 per cent, besides an exempt category and a special rate of 1 per cent for a few selected items. ? The items of basic necessities and goods of local importance (upto 10 items) have been put in the zero rate bracket or the exempted schedule. Gold, silver and precious stones have been put in the 1 per cent schedule. ? There is also a category with 20 per cent floor rate of tax, but the commodities listed in this schedule are not eligible for input tax rebate/set off. This category covers items like motor spirit (petrol, diesel and aviation turbine fuel), liquor, etc.
Haryana became the first State in the country to introduce Value Added Tax (VAT). Till 2007, VAT has been introduced by more than 30 States/UTs, including Tamil Nadu (implemented VAT from January 1, 2007) and the UT of Puducherry (implemented VAT from April 1, 2007). From January 01, 2008, the Government of Uttar Pradesh has made VAT effective in the State.
Difference between VAT and CST
? Under the CST Act, the tax is collected at one stage of purchase or
sale of goods. Therefore, the burden of the full tax bond is borne by only one dealer, either the first or the last dealer. However, under the VAT system, all the dealers from first to last would share the tax burden. Then, such tax would be passed upon the final consumers.
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? Under the CST Act, the tax is levied at a single point. Under the VAT system, the retailers are not subject to tax except for the retail tax. ? Under the CST Act, general and specific exemptions are granted on certain goods while VAT does not permit such exemptions. Under the CST law, concessional rates are provided on certain taxes. The VAT regime will do away with such concessions, as it would provide the full credit on the tax that has been paid earlier. ? Under VAT law, first, the dealer pays tax on the sale or purchase of goods. The subsequent dealer pays tax on the portion of the value added upon such goods. Thus, the last dealer shares the tax burden equally.
Vat (Sales tax) rate for sale within the State
CST rate in case of sale to registered dealers (applicable to declared goods as well as other goods)
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CST rate in case of sale to unregistered dealers (applicable to declared goods as well as other goods)
Nil 1% 2% 3% 4% 8% 10% 12.5% 20%
Nil 1% 2% 3% 3% 3% 3% 3% 3%
Nil 1% 2% 3% 4% 8% 10% 12.5% 20%
Future scenario of Indirect Taxation i.e. Goods and Services Act
GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the producer’s point and service provider’s point up to the retailer’s level.
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Following Central Taxes should be, to begin with , subsumed under the Goods And Services Tax: ? Central Excise Duty ? Additional Excise Duties ? The excise duty levied under the Medicinal and Toiletries Preparation Act ? Service Tax ? Additional Customs Duty ? Special Additional Duty of Customs ? Surcharges ? Cesses Following State Taxes and levies would be, to begin with, Subsumed under GST : ? VAT / Sales tax ? Entertainment tax (unless it is levied by the local bodies) ? Luxury tax ? Taxes on lottery, betting and gambling ? State Cesses and Surcharges in so far as they relate to supply of goods and services ? Entry tax not in lieu of Octroi
GST Rate Structure & important points
? Tax rates There will be a two-rate structure as under though no specific rates have been indicated as of now.
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? Lower rate –
for necessary items and items of basic importance
? Standard rate – for general items ? GST on Imports Both CGST and SGST will be levied on import of goods and services into India. However, full set-off will be available on GST paid on import of goods and services. ? Zero Rating of Exports Exports and sales to SEZ would be zero rated. This implies that though no GST will be payable on such transactions, set-off of GST paid on purchases and services availed will be allowed.
All the transactions will be subjected to dual GST example
ART ICUALRS Basic SGST( SAY 8%) CGST( SAY 8%) T OT AL INVOICE VALUE Amt. 100 8 8 116
( TRANSACTION MAY BE FOR GOODS OR FOR SERVICE)
Salient features of the GST model
? The GST hall have two components: one levied be the Centre (hereinafter referred to as Central GST), and the other levied be the States (hereinafter referred to as State GST).
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? The Central GTST and State GST are to be paid to the accounts of the Centre and the States separately. ? Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit. ? Cross utilization of ITC between the Central GST and the State GST would not be allowed except in the case of inter – State supply of goods and services under the IGST model. ? The taxpayer would need to submit periodical returns, in common format as far as possible, to both the Central GST authority and to the concerned State GST authorities. ? Each taxpayer would be allotted a PAN – linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN – linked system in line with the prevailing PAN – based system for Income tax, facilitating data exchange and taxpayer compliance. ? Service tax on SGST will now be available to traders who do not get any credit for service tax paid by them on input service
RESEARCH METHODOLOGY
1) DATA COLLECTION
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a) Primary Data: Primary data related to the project was collected from the discussion and interaction with the senior employees and executives in the organization from Accounts and Finance department. b) Secondary Data: Secondary data was collected from the documents, which were in printed forms and in excel sheet like annual reports, pamphlets, reference books and through websites.
METHODOLOGY FOR ANALYSIS
The methodology opted for carrying out project was by way of collection of data from the company s annual reports and from the record of Accounts Department for the past two years i.e. from 2008-2009 & 2009-2010, for the calculation of Indirect taxation. The theory related to Indirect Taxation was gathered from Business Taxation book. So accordingly taxes are calculated and comparison is done Between Present and Future Scenario.
Calculation of Indirect taxation as per Present tax structure
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To know the Present Scenario of Indirect Taxation in Project Industry I went through the one of the completed Project of Thermax Instrumentation limited i.e. ACC Chanda-25 MW in Maharashtra. Period of this project was 2008-2010. Indirect Taxes Paid by Thermax Instrumentation Ltd. are-
Excise Duty
Excise duty is payable on Manufacturing or Production of Goods. However this company provides Erection and construction services which are normally classified under “Industrial and Commercial Construction services” or “Works Contract Services”. Since only services are provided and nothing is manufactured or produced by the company, the company is not liable to pay excise duty on sales invoices raised on the customer. However the company is eligible to take Cenvat credit of excise duty paid on input material such as reinforcement steel, structural steel and cement. Since the said contract is registered under “Industrial and Commercial Construction Services” eligibility of input excise duty as input credit is allowed.
Service Tax
The company is engaged in providing Civil Services and Erection & Commissioning. Service tax paid on Input Services is as follows:46
Input Services for the Project in 2 Years and Service Tax paid on it:Year 2008-09 Input Services Service Tax
21,725,655.92 20,675,402.52 42,401,058.45
2,237,742.56 2,129,566.46 4,367,309.02
2009-10 Total
Service Tax paid on Services provided for completion of project:-
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Year
Types of Output Services Civil Services
Basic Amount
Service tax rate Service Tax 6,392,857.64 10.30% 5,155,452.66 8,614,405.01 20,162,715.3
62,066,579 10.30% 50,052,938
2008-09 E&C Civil Services 2009-10 Total E&C
83,635,000 10.30% 195,754,517
Net Service tax Liability = Service tax charged on Output Services Less: Service tax paid on Input Services =20,162,715.3 - 4,367,309.02 = 15,795,406.28
Custom Duty
Customs Duty is a type of indirect tax levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India. Thermax Instrumentation Ltd. does not pay any Custom Duty as it is not involved in any activities related to import and export.
Sales Tax
VAT and CST paid on purchase of material required for completion of Project
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Year 2008-09
Purchases Local Purchase Interstate Purchase
Basic Amount 501,663 18,316,337 7,856,517.09 29,339,778. 38 56,014,295.4
VAT/CST 56,111.45 367,864.527 399,193.59 660,750.50 1,483,920.07
2009-10
Local Purchase Interstate Purchase
Total
VAT charged on Civil Services.
Year 2008-09 2009-10 Total
Basic Amount 87,624,000 44,642,000.00 132,266,000
VAT 1,395,447 533,675.52 1,929,122.52
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VAT Liability =VAT Charged to Customer Less: VAT paid on Purchase of Goods = 1,929,122.52 - (56,111.45+399,193.59) = 1,473,817.5 CST Liability = Total CST paid in 2 years on Purchase of goods = 367,864.527+660,750.50 =1,028,615.03
Total Indirect tax paid by Thermax Instrumentation Limited on ACC Chanda Project =Service tax Liability Add: VAT liability Add: CST liability =15,795,406.28 + 1,473,817.5 + 1,028,615.03 =18,297,838.7
Comparison of Present tax Structure with Goods and Service Tax
Comparison will be done by assuming if indirect taxes were calculated on GST Basis on the same, project i.e. ACC Chanda. According to the Article in The Hindu:50
“World over, GST rates are typically between 16 per cent and 20 per cent. In India it is likely to be the same,” CBEC Chairman Sumit D Majumdar. Therefore, for this project GST Rate is assumed 16 %. Share of State and Central Government will be Equal that means 8 % of State and 8 %of Central.
Goods and Services Tax paid on purchase of Goods and on Input Services:-
Year
Basic Amount
CGST Rate 8% 8% 8%
CGST 3,243,492.47 4,629,735.84 7,873,228.31
SGST Rate 8% 8% 8%
SGST 3,243,492.47 4,629,735.84 7,873,228.31
2008-09 40,543,655.92 2009-10 57,871,697.99 Total 98,415,353.91
GST paid on Sale of Goods and Services Provided for Completion of project:-
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Year
Basic Amount
CGST Rate 8% 8% 8%
CGST 11,975,246.32 14266395.04 26,241,641.36
SGST Rate 8% 8% 8%
SGST 11,975,246.32 14266395.04 26,241,641.36
2008-09 149,690,579.00 2009-10 178,329,938.00 Total 328,020,517.00
Total Indirect tax paid by Thermax Instrumentation Limited as per GST on ACC Chanda Project
CGST Liability = CGST paid on purchase of Goods and on Input Services
Less: CGST paid on of Goods and Services Provided
= 26,241,641.36 -7,873,228.31 = 18,368,413.05
SGST Liability = SGST paid on purchase of Goods and on Input Services
Less: SGST paid on of Goods and Services Provided = 26,241,641.36 - 7,873,228.31
= 18,368,413.05 So Total GST Liability is = CGST liability Add: SGST Liability = 18,368,413.05 + 18,368,413.05 = 36,736,826.1
Table showing Comparison of Tax Liability under Present tax Structure and GST
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Year
2008-2010
Present tax Structure 18,297,838.7
GST 36,736,826.1
Analysis and Interpretation of Data
1. From above data we can interpret that GST will be less complicated. 2. GST is the broader form of VAT as it is also charged on value addition. 3. There are many taxes in present tax structure but in future tax Structure there is only on tax i.e. GST. 4. In present tax structure tax manufacturer or service provider are required to pay tax on many activities where as in future tax structure they are required to pay tax only one time i.e. at the time of sale. 5. Filling for return will be easier in GST.
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Conclusions
From Above data, we conclude that GST liability is more than Present tax Structure liability but from this, we cannot conclude that GST is good or bad for project industry. The company is paying VAT on steel and cement sales under the current tax regime. However under GST entire order value will be taxed and which will increase the impact. Also CST is lower and at the same time company is getting advantage of Composition scheme. Therefore, at present we can only conclude that under GST it will be easy to calculate indirect taxation and filling return. It will make create a clear picture of indirect taxation that will be understandable to everyone.
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Learning’s
1. I learned some of the features of ERP. 2. I learned how books of accounts are maintained in excel format. 3. I learned to analyse Balance sheet and Cash Flow Statement. 4. I leaned the day to day working of Accounts department which are as follows
a) (b) (c) Approval and maintaining records of expenses done at the site of project. Maintaining records of Indirect taxes in Excel format. How to prepare voucher.
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BIBLIOGRAPHY
? Reference book: Taxman’s Indirect taxes – V.S. Datey ? Newspaper: The Hindu ? Internet Sites: www.thermaxindia.com www.google.co.in www.cbec.com www.business.gov.in
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doc_292392181.doc
Risk assessment is the determination of quantitative or qualitative value of risk related to a concrete situation and a recognized threat (also called hazard). Quantitative risk assessment requires calculations of two components of risk (R):, the magnitude of the potential loss (L), and the probability (p) that the loss will occur.
Summer project On
Present and Future Scenario of indirect taxation in project industry
At
THERMAX
INSTRUMENTATION LTD.
Submitted to:-
Suryadatta Institute of management and mass communication
By: - Priyanka Gangwar Specialization: - Finance and Marketing Batch: - 2010-2012
1
Acknowledgement
Summer Project is an essential program in the MBA curriculum. This is an opportunity whereby the student gets hands on exposure of the practicalities involved in the corporate. Student also gets an opportunity to test his acquired skills; knowledge into the practical environment and learns various new concepts, which are far away from the reach of subject books. I would like to thank Mr. Anand Natu (Finance controller) for providing me with this opportunity to work on summer project in his department. I am highly indebted to Mr. Rajendra Kanire (Assistant Manager-Finance) for their guidance, co-opertaion and support throughout this project. I would like to convey my earnest appreciation to Mr. Sandeep Pandit (Sales tax officer) encouraging me to take up a project in this domain. I would like to express sincere gratitude to my internal project guide Prof. Mahesh for their timely support and co-operation.
PRIYANKA GANGWAR
2
INDEX
S.no. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Particulars Executive Summary Objective Company Profile Present Scenario of Indirect Taxation Excise Duty Service Tax Custom Duty Sales tax Future Scenario of Indirect taxation i.e. GST Research Methodology Calculation of Indirect tax as per present tax structure Comparison of Present tax structure with GST Analysis and Interpretation of data Conclusion Learning’s Bibliography
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Page no. 4 5 6-12 13 13-21 22-29 30-33 34-38 39-41 42 43-46 46-48 49 50 51 52
Executive Summary
This project named “Present and Future scenario of Indirect Taxation in Project Industry” was carried out in the Accounts Department of finance division of Thermax Instrumentation Ltd. (Subsidiary of Thermax Ltd.). The Accounts Department Looks after the following main functions:1. Accounts Payable 2. Accounts Receivables 3. Tax Calculations 4. Books Keeping and its maintenance This project was carried out in Thermax Ltd as it is one of the leading Company in Project Industry.At Present India has a well-developed tax structure with a three-tier federal structure, comprising the Union Government, the State Governments and the Urban/Rural Local Bodies. The main taxes/duties that the Union Government is empowered to levy are Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are Sales Tax, Stamp Duty. The Local Bodies are empowered to levy tax on properties, Octroi and Tax on Markets. But in Future Government of India is Planning to come up with the biggest taxation reforms in India -- the Goods and Service Tax (GST) - is all set to integrate State economies and boost overall growth. GST will create a single, unified Indian market to make the economy stronger. The implementation of GST will lead to the abolition of other taxes such as octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, et cetera, thus avoiding multiple layers of taxation that currently exist in India.
4
Objective
1. To study & analyze Indirect taxes paid by Thermax Instrumentation
Limited. 2. To study & understand the day-to-day process involved in Accounts Department. 3. To understand whether Goods and Service Tax which is expected to be one of the biggest taxation reforms will be good for Project Industry or not. 4. To understand the basic element involved in Book Keeping.
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Company Profile
Thermax is one of the leading Energy and Environment solutions company in India.
A Brief History:
Many years ago man discovered the might of fire, followed by steam. Steam produced mechanical movement that rewrote the history of human civilization. We came into business by harnessing this power of steam by the means of boilers. In the year 1966, A S Bathena collaborated with a Belgian company Wanson to commence our business operation as Wanson India Ltd in a small manufacturing unit in dadar (Mumbai) by making small boilers. It assumed the name Thermax Limited in the year 1980.
About the Company today:
Although Thermax is domestic focused with nearly 80% of net sales from India, it has six international subsidiaries based in Europe, Asia and North America. Headquartered in Pune, Thermaxoperates four manufacturing facilities (three in India and one in China). The company employed 4,752 personnel as on March 2009 and was listed on the stock exchange in 1995. It gradually diversified into several businesses, most of which it exited during the 2001-02 restructuring exercise. Currently, Thermax is into two Businesses - energy and environment.
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Business Areas:
Company structure (figure in bracket indicates share of net sales in FY09)
Thermax
ENERGY (79%)
ENVIRONMENT (21%)
BOILER / CHILLERS (50%)
AIR POLLUTION (10%)
POWER PLANTS (15%)
WASTE AND WATER TREATMENT (6%)
HEATERS (4%)
ION EXCHANGE RESIN & CHEMICALS (5%)
OTHERS (9%)
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Board of Directors
Meher Pudumjee- Chairperson (third Chairperson.
Meher took over as the Chairperson on October 5, 2004.)
M. S. Unnikrishnan- Managing Director Anu Aga Dr. Raghunath. A. Mashelkar Dr. Valentin von Massow Tapan Mitra Pheroz Pudumjee Dr. Manu Seth (upto August 8, 2009 ) Dr. Jairam Varadaraj
Executive Council
Ravinder Advani Sharad Gangal Gopal Mahadevan Hemant Mohgaonkar S. Ramachandran R. V. Ramani Dr. R. R. Sonde M. S. Unnikrishnan
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Officers of the Company
Gopal Mahadevan-Executive Vice President& CFO Sunil Lalai-Company Secretary
Key Dates
Incorporation Date - 30/06/1980 Public Issue Date - 15/02/1995 Year Ending Month - March AGM Month - July Book Closure Start Date 12/07/2010 Book Closure End Date 21/07/2010
Listing Information
Face Value - 2.0 Market Lot Of Equity Shares -1 BSE Code - 500411 BSE Group - A
The compnay forms a part of following indices –
BSE 200 Index (200 Cos) BSE 500 Index (500 Cos) BSE Capital Goods Sector Index BSE Dollex Index (200 Cos) BSE Mid-Cap Index BSE TASIS Shariah 50 Index CNX Midcap 200 Index (200 Cos)
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CNX Midcap Index S&P CNX 500 Equity Index (500 Cos)
Listed On
Bangalore Stock Exchange Ltd. Calcutta Stock Exchange Association Ltd. Cochin Stock Exchange Ltd. Delhi Stock Exchange Assoc. Ltd. Madras Stock Exchange Ltd., National Stock Exchange of India Ltd. The Stock Exchange, Mumbai Uttar Pradesh Exchange Assoc Ltd.
THERMAX INSTRUMENTATION LIMITED
Board of Directors
Ravinder Advani Gopal Mahadevan
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Manager
M. L. Bindra
R. V. Ramani
Domestic and international subsidiaries
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Thermax Limited Domestic Subsidiaries International Subsidiaries
Thermax Sustainable Energy Solutions Ltd
Thermax International Ltd, Mauritius
Thermax Engineering Construction Co.
Thermax Ltd. Europe, UK
Thermax Instrumentation Ltd
Thermax Inc., US
Thermax, Brazil
Thermax Hong Kong Limited
Thermax (Zhejiang), China
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THERMAX
Business Objectives
Grow the topline through core business growth. Create a sustainable service business by providing value-added services. Align all energies towards meeting commitments to customers. Ensure bottom line growth through operational efficiency, cutting wasteful expenditure. Streamline existing channel management, expand our reach to customers. Be a recognized and respected player in the international markets for heating, cooling and chemicals. Harness the synergies in our businesses to offer integrated solutions. Create and sustain a high performance culture in the company.
Our Vision
To be a globally respected high performance organization delivering sustainable solutions in energy and environment
Quality Policy
Our Quality Policy starts and ends with the customer as a focal point: understanding the customer’s requirements, designing optimal solutions to meet those requirements, building systems and processes in place to ensure quality at every stage, and achieving our commitments on delivery and service before and after sales. It is our endeavor to create a culture of Total Quality where continuous improvement of our people, our processes and our products become a way of life.
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Meher Pudumjee
Chairperson
THEORITICAL BACKGROUND
Present Scenario of indirect taxation
Excise duty
Central Excise is a duty on excisable goods manufactured or produced in India, other than alcoholic liquor. Duty liability is principally on ‘manufacturer’, except in a few cases. In majority of cases, duty rate w.e.f. 24.2.09 is 10% plus education cess of 2% and Secondary and Higher Education Cess of 1%. Thus, generally, duty is 10.30%. There are some exclusions, partial or full exemptions and higher duties in some cases. The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the goods are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers. The term "excisable goods" means the goods that are specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 , as being subject to a duty of excise and includes salt.
Power of Taxation under Constitution of India is as follows:
(a) The Central Government gets tax revenue form Income-tax (except on Agricultural Income), Excise (except on alcoholic drinks) and Customs.
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(b) The State Governments get tax revenue from sales tax, excise from liquor and alcoholic drinks, tax on agricultural income.
(c) The Local Self Governments e.g. municipalities, etc. get tax revenue
from entry tax and house property tax
Laws Relating to Central Excise
? Central Excise Act,1944(CEA) : The basic Act which
provides the constitutional power for charging of duty, valuation , powers of officers, provisions of arrests, penalty,etc.
? Central Excise Tariff Act, 1985 (CETA): This classifies
the goods under 96 chapters with specific codes assigned. ? Central Excise Rules, 2002: The procedural aspects are laid herein. The rules are implemented after issue of notification.
? Central Excise Valuation (Determination of Price
of Excisable Goods) Rules, 2000: The provisions regarding the valuation of excisable goods are laid down in this rule.
? Cenvat Credit Rules, 2004: The provisions relating to
Cenvat Credit available and its utilization are mentioned.
Central Exercise Act, 1944
The duty of Central Excise is levied if the following conditions are satisfied : (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.
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Duties Leviable
? Basic Excise Duty u/s 3 of Central Excise Act, which is 10%
in vast majority of the cases w.e.f. 24-9-2009 [Till 23-2-2009, it was 14%]. ? Education Cess @ 2% of excise duty under section 93 of Finance (No. 2) Act (w.e.f. 9-7-2004).
? Secondary and Higher Education Cess (S&H
Education Cess) @ 1% of the total duties of excise vide section 136 read with section 138 of Finance
Taxable event
As incidence of excise duty arises on production or manufacture of goods, the law does not require the sale of goods from place of manufacture, as a mandatory requirement. Normally, duty is payable on 'removal' of goods.
The removal may be for:1. Sale 2. Transfer to depot etc. 3. Captive consumption
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4. Transfer to another unit 5. Free distribution Thus, it can be seen that duty becomes payable irrespective of whether the removal is for sale or for some other purpose.
Classification
In order to determine the rate of excise duty on goods, classification is prerequisite. Excise duty payable is based on the classification of goods given in the Central Excise Tariff Act, 1985 (CETA). The Act gives a list of items chargeable to Central Excise duty. The Central Excise Tariff Act was amended in 2004. The Central Excise Tariff Act, 1985 (CETA) came into force w.e.f. 28th February, 1986. The main features of the Excise Tariff are: (a) The Central Excise Tariff has been made very detailed and comprehensive, as all the technical and legal aspects in relation to goods have been incorporated in it. (b) The Excise Tariff is based on the Harmonized System of Nomenclature, which is an internationally accepted product coding system formulated under the GATT. (c) The goods of the same class have been grouped together to bring about parity in treatment and restrict the dispute in classification matter. (d) The Central Excise Tariff provided detailed clarificatory notes under each section/chapter.
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(e) The interpretation of the Tariff have been provided for at the beginning of the Schedule. All the section notes, chapter notes and rules for interpretation are legal notes and/therefore serve as statutory guidelines in classification of goods.
(f) The Tariff is designed to group all the goods relating to one industry
under one chapter from one raw material in a progressive manner.
Harmonised System of Nomenclature All goods are classified using 4-digit system. These are called ‘headings’. Further 2 digits are added for sub-classification, which are termed as ‘subheadings’. Further 2 digits are added for sub-sub-classification, which is termed as ‘tariff item’. Rate of duty is indicated against each ‘tariff item’ and not against heading or sub-heading. The CETA is also based on the HSN pattern, of course, with some deviation. HSN has got Commercial as well as judicial recognition.
Valuation of Goods
Excise duty is payable on one of the following basis: ? Specific duty, based on some measure like weight, volume, length etc. ? Duty as % of Tariff Value fixed under section 3(2) ? Duty based on basis of Maximum Retail Price printed on carton after allowing deductions- section 4A of CEA. ? Compounded Levy Scheme. ? Duty as % based on Assessable Value fixed under section 4 (ad valorem duty) (If not covered in any of above)
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Methods & Techniques of Valuation Proper valuation of goods manufactured is an integral part towards levy of Excise Duty accurately. Accordingly, goods manufactured should be valued strictly in the manner as prescribed in the Central Excise Act, 1944 and Rules framed there-under. Details of the provisions relating to valuation have been discussed herein below:
Value under the Central Excise Act, 1944 Value of the excisable goods has to be necessarily determined when the rate of duty is on ad-valorem basis. Accordingly, under the Central Excise Act, 1944. the following values are relevant for assessment of duty. Transaction value is the most commonly adopted method. (i) Transaction value under Section 4 of the Central Excise Act (ii) Value determined on basis of maximum Retail Sale Price as per Section 4A of the Act, if applicable to a given commodity. (iii) Tariff value under Section 3, if applicable.
Refund & Other Important Provisions
Other important provisions are summarized below. 1. Refund of excise duty
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? Assessee can claim refund of duty within one year from relevant date u/s 11B, in form R. ? Refund is subject to doctrine of unjust enrichment, i.e. refund will be available only if the amount was not recovered from buyer. These are overriding provisions. ? If refund is delayed beyond three months, interest is payable @ 6% p.a.
2. Exemption from Duty ? Section 5A(1) of Central Excise Act and section 25(1) of Customs Act empower Central government to exempt any excisable goods from duty, by issuing notification in Official Gazette. ? Central Government can also grant exemptions in exceptional cases u/s 5A(2). ? An exemption notification should be strictly construed, but purposeful construction is permissible. ? Principle of promissory estoppel can apply to an exemption notification.
EA 2000 Excise Audit
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? Units paying duty more than Rs 3 crores – every year. ? Units paying duty between Rs 1 crore and Rs 3 crores – once every two years. ? Units paying duty between Rs 50 lakhs and Rs one crore – once every five years. ? Units paying duty below Rs 50 lakhs – 10% of units every year.
Collection of Excise Duty
The Central Excise Department follows two procedures in order to enforce the central excise law and collect the Excise duty :-
?
Self removal procedure:- under this system, the assessee himself determines the duty liability on the goods and clears the goods. It involves, self assessment by the manufacturer himself of the excise duty payable by him. He removes goods without prior permission or physical supervision of the excise officers. The assessee is required to follow the prescribed procedure. It is applicable to all goods (except cigarettes) produced or manufactured within the country. Physical control: - Here assessment is followed by clearance. It takes place under the supervision of Central Excise officers. Central Excise Officers check that goods are cleared only after
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?
payment of duty. Once the excise duty has been paid, goods must move from that place. Duty paid goods cannot remain in the factory unless specifically permitted. It is applicable to cigarettes only.
Highlights of CENVAT Credit Scheme
? Credit of duty paid on input and input services
A manufacturer or service provider has to pay excise duty and service tax as per normal procedure on the basis of ‘Assessable Value’ (which is mainly based on selling price). However, he gets credit of duty paid on inputs and service tax paid on input services. Thus, he actually pays amount equal to duty/ service tax as shown in invoice less the Cenvat credit available to him.
? Input goods eligible for Cenvat to manufacturer
Credit will be available of excise duty paid on ( a ) raw materials (excluding few items) ( b ) material used in or in relation to manufacture like consumables etc. ( c ) Paints, packing materials, fuel etc. used for any purpose. The input may be used directly or indirectly in or in relation to manufacture.
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However, duty paid on high-speed diesel oil (HSD), Light Diesel Oil (LDO) and motor spirit (petrol) is not available as Cenvat credit, even if these are used as raw materials or as fuel. [Rule 2(k)(i) of Cenvat Credit Rules]
? Input goods eligible for Cenvat to service provider
In case of service providers, only inputs used directly for providing output service are eligible for Cenvat credit. However, high-speed diesel oil (HSD), Light Diesel Oil (LDO) and motor spirit (petrol) are not eligible as ‘inputs’. [Rule 2(k)(ii) of Cenvat Credit Rules] As per notification No. 12/2003-ST dated 20-6-2003, a service provider is not required to pay service tax on goods and materials used by him for providing output services. Normally, service tax is not payable on goods where property is transferred to buyer. Hence, Cenvat credit will be available mainly in respect of consumables.
Service Tax
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Service tax is tax of 21st Century. In India share of GDP in 2006-07 was Agriculture - 18.5%, Industry - 26.4%, Services - 55.1% (Source Economic Survey 2006-07). Service tax was imposed on three services w.e.f. 1-7-1994 and its scope is being widened every year. Highlights of the service tax are as follows – ? Service tax is imposed under Finance Act, 1994 as amended from time to time. There is no Service Tax Act. ? Service tax is payable on taxable services as defined in various clauses of section 65(105) of Finance Act, 1994. Presently, about 99 services are taxable. ? Service tax is payable on gross amount charged for taxable service provided or to be provided [Section 67]. ? Small service provider’s upto eight lakhs are exempt. Export of service is exempt from service tax under Notification No. 6/2005-ST dated 1-3-2005. ? Services provided in J&K are not taxable [section 64(1)]. ? Cenvat credit is available of inputs, input services and capital goods used for providing taxable output services.
? In some cases, receiver of service is liable to pay service tax. This is
termed as ‘reverse charge’ [Section 68(2)].
Basics of Service Tax
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? Every provider of taxable service should apply for registration in form ST-1 within 30 days from date of levy (in case of new services) and date of commencement of business of providing taxable service In case of existing services [Rule 4(1)]. Registration will be deemed to have been granted if not received within seven days [Rule 4(5)]. ? Assessee providing service from various premises can have centralized registration [Rule 4(2)]. ? Service provider is required to prepare invoice within 14 days, even in respect of advance received [Rule 4A]. ? Tax should be paid by 5th of following month (6th in case of epayment). ? If payment of tax is delayed, interest is payable @ 13% [Section 75]. ? Assessee has to submit half-yearly return in form ST-3 in triplicate within 25 days of close of half year [Rule 7]. ? The tax is administered by excise department. Excise officer issues adjudication order. ? First appeal lies with Commissioner (Appeals) [section 85] and second appeal with Appellate Tribunal (Customs, Excise and Service Tax Appellate Tribunal) [Section 86]. Further appeal lies with High Court and Supreme Court.
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Rate of Service Tax
This tax was first time introduced with effect from 1-7-1994 on three services. The rate was 5%. It was subsequently increased to 8% w.e.f. 14-52003. It was 10% plus education cess of 2% w.e.f. 10-9-2004 (total 10.2%) during 10-9-2004 to 17-4-2006. Service tax rate was 12% plus education cess of 2% (total 12.24%) during 18-4-2006 till 10-5-2007. Presently, service tax is payable @ 10% of value of taxable services referred in section 65(105) of Finance Act, 1994. In addition, education cess of 2% and SAH education cess of 1% is payable. Thus, total service tax is 10.30%. Service tax, education cess and SAH education cess to be shown separately in invoice – You have to show service tax, education cess and SAH education cess separately in invoice. You cannot just charge 10.30% as ‘service tax’.
Value of Taxable Service
? Service tax is payable on gross amount charged by service provider for service provided or ‘to be provided’. Thus, tax is payable as soon as advance is received. ? ‘Value of taxable service’ plus service tax payable is equal to ‘gross amount charged’ [section 67(2)]. ? Where consideration is not ascertainable, valuation will be on basis of Valuation Rules [section 67(1)(iii)].
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Procedures of Service Tax
The main procedures to be followed are – (a) Registration (b) Maintenance of records (c) Payment of service tax and (d) Half yearly return. There is no prescribed form of records. The records maintained by assessee including computerized data maintained by assessee in accordance with various other laws are acceptable [rule 5(1)]. There are many taxable services under service tax like Advertising Agency’s Services, Cargo Handling Services, courier services, Information technology software services, Legal consultancy Services, Market Research agency’s services, real estate agent services, Stock Broker Services, Transport of googs by air service, road services, rail service and Works Contract Service. Works Contract Services are the Service, which are provided by Thermax Instrumentation Limited.
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WORKS CONTRACT SERVICE
Tax on this Service is imposed under Finance Act, 2007 w.e.f. 1-6-2007. As per Section 65, any services provided or to be provided; to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams, is a taxable Service. Explanation – For the purpose of this sub clause, “works contract” means a contract wherein,1. Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and 2. such contract is for the purpose of carrying out,(a) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre- fabricated or otherwise, installation of electronic devise, plumbing, drain laying or other installation for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire or water proofing, lift and escalator, fire escape staircase; or (b) Construction of a new building or a civil structure or a part thereof, or of a pipe line or conduit, primarily for the purpose of commerce or industry; or (c) Construction of a new residential complex or a part thereof; or (d) Completion (b) and (c); or
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and
finishing
services,
repair,
alteration,
renovation or restoration of, or similar services, in relation to
(e) Turnkey projects including engineering, procurement, and construction or commissioning (EPC) projects.
Exclusions
Works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams, are excluded.
Value of taxable service under Works Contract Act
Broadly, two options are available to service provider – (a) Calculate value of service as per rule 2A of present Service Tax Rules, (in short ‘Valuation Rules) and pay service tax at normal rate @10.30% (inclusive of education cess and SAH education cess) on such ‘Value’. In such case, assessee can avail Cenvat credit of input services, inputs and capital goods (b) Pay service tax under ‘com-position scheme’ at 4.12% of ‘gross amount charged for works contract’ (inclusive of education cess and SAH education cess), under ‘Works Contract (Com-position Scheme for Payment of Service tax) Rules, 2007’ (the percentage was 2.06% upto 292-2008). As per rule 3(2) of Composition Scheme, the assessee cannot avail Cenvat credit of inputs. Thus, the assessee can avail Cenvat credit of input services and capital goods. In both the cases, Vat/sales tax will not be included in the ‘value’ for purpose of calculating service tax.
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Works Contracts under Vat/sales tax laws
Section of 2(ja)of CST defines ‘works contract’ as follows – ‘Works Contract’ means a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning, of any movable or immovable property.
Service Tax Exemptions
The Central Government can grant partial or total exemption by issuing an exemption notification. But it cannot be granted by the Government with retrospective effect. The general exemptions are :? Small service providers whose turnover is less than Rs 4 lakhs p.a. are exempt from service tax. ? There is no service tax on export of services. ? Services provided to UN and International Agencies and supplies to SEZ(Special Economic Zones) are exempt from service tax.
Payment of Service Tax
The service tax is payable 5th of the month following the month (6th in case of e-payment) in which payments are received toward value of taxable services [rule 6(1) of Service Tax Rules].
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Thus, service tax is not payable on basis of amounts charged in the bills/invoice, but only on amounts actually received during the relevant period.
Mandatory e-payment if annual service tax payment exceeds Rs 50 lakhs
Mandatory interest for late payment of service tax - In case of
delayed payment of service tax, there is mandatory payment of simple interest under section 75 for the period which the payment is delayed. The interest rate is 13% w.e.f. 10-9-2004, vide notification No. 26/2004-ST dated 10-9-2004 [Earlier interest @ 15% per annum from 11-5-2002. The interest rate was 24% upto 11-5-2002].
Returns
? Every assessee has to submit half-yearly return in form ST-3 in triplicate within 25 days of the end of the half-year. ‘Half year’ means 1st April to 30th September and 1st October to 31st March of financial year. ? The return should be accompanied by TR-6/GAR-7 challans, evidencing payment of duty. ? Details in respect of each service are to be provided separately. However, service tax payment details and Cenvat credit details are common and combined. ? There is no column to show excess amount paid, if any. Presumably, this will have to be intimated by a separate letter and/or given in the ST-3 form as a ‘remark’ or ‘note’.
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Customs Duties
Customs Duty is a type of indirect tax levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India. Import of goods means bringing into India of goods from a place outside India. India includes the territorial waters of India which extend upto 12 nautical miles into the sea to the coast of India. Export of goods means taking goods out of India to a place outside India. In India, the basic law for levy and collection of customs duty is Customs
Act, 1962.
The Constitutional provisions have given to Union the right to legislate and collect duties on imports and exports. The Central Board of Excise & Customs (CBEC) is the apex body for customs matters. Central Board of Excise and Customs (CBEC) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It deals with the task of formulation of policy concerning levy and collection of customs duties, prevention of smuggling and evasion of duties and all administrative matters relating to customs formations.
Types of Custom Duties
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The rate of basic customs duty is specified in Customs Tariff Act, read with relevant exemption notification. Generally, basic customs duty is 10% of non-agricultural goods. • CVD equal to excise duty is payable on imported goods u/s 3(1) of Customs Tariff Act. General excise duty rate is 10.30% (10% basic plus 2% education cess and SAH Education cess of 1%).
• Special CVD (SAD) is payable @ 4% on imported goods u/s 3(5) of Customs Tariff Act. This is in lieu of Vat/sales tax to provide level playing field to Indian goods. • Education cess of customs @ 2% and SAH Education cess of 1% is payable. • Total import duty considering all duties plus education cess on nonagricultural goods is generally 34.13%. • NCCD has been imposed on a few articles. In addition, on certain goods, anti-dumping duty, safeguard duty, protective duty etc. can be imposed.
Methods of Valuation
Section 14(1) is a Complete Code for Valuation of Export Goods. However, in respect of imported goods the value is required to be determined in accordance with the Valuation (Determination of Price of Imported Goods) Rules, 1988. These rules are framed in line with the provisions of GATT. Accordingly to the Valuation Rules, 1988, ‘Transaction Value’ i.e. the price actually paid or payable after adjustment of valuation factors shall be the customs value subject to –
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(a) Compliance with the conditions of valuation laid down under rule 4, and (b) Satisfaction of the customs authorities with the truth and accuracy of the ‘declared value’. In absence of the abovesaid the valuation has to be carried out by any of the following methods, as laid down under the Valuation Rules, 1988 :
(a) Comparative Value Method i.e. by comparing the transaction value of identical goods under Rule 5 or of similar goods under Rule 6. (b) Deductive Value Method i.e. on the basis of the sale price of the goods prevalent in the importing country under Rule 7. (c) Computed Value Method i.e. on the basis of cost of materials, conversion charges and the profit margins in the country of production under Rule 7A. (d) Residual Method i.e. on the basis of certain flexible rules as laid down under Rule 8.
Procedures for Import
Goods should arrive at customs port/airport only. • Person in charge of conveyance is required to submit Import Manifest or Export Manifest. • Goods can be unloaded only after grant of ‘Entry Inwards’. • Importer has to submit Bill of Entry giving details of goods being imported, along with required documents. Electronic submission of documents is to be done in many ports. • Goods are assessed to duty, examined and customs duty is paid. Bond is executed if required.
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• Goods can be cleared from port after ‘Out of Customs Charge’ order is issued by customs officer. • Self Assessment on basis of ‘Risk Management System’ (RNS) has been introduced in some ports in respect of specified goods and importers. • Demurrage is payable if goods are not cleared within three days from port. Goods can be disposed of if not cleared within 30 days.
Initial Steps by Exporter
Every exporter should take following initial steps –
• Obtain BIN (Business Identification Number) from DGFT. It is a PAN based number • Open current account with designated bank for credit of duty drawback claims • Register licenses/advance license/DEPB etc. at the customs station, if exports are under Export Promotion Schemes.
Exemptions and remission
• Exemption can be granted by Government by issuing a notification. • Capital goods and spares can be imported under project imports at concessional rate of customs duty. • Remission can be obtained on goods lost/pilfered in port • Title of imported goods can be relinquished and then no customs duty will be payable. • Goods exported can be re-imported. Concessional customs duty is payable in most of such re-imports.
Penalties under Customs Act
• Smuggling in relation to goods is an act or omission which will make the goods liable to confiscation.
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• Penalty can be imposed for improper imports or improper exports. • Monetary penalty upto value of goods or Rs 5,000 whichever is higher can be imposed. • Goods can be confiscated. Permission can be granted for re-export of offending goods.. • In case of goods covered under section 123 of Customs Act, burden of proof that the goods are not smuggled goods is on the accused.
Sales tax
State VAT/ Central Sales tax is one of the important indirect tax and major source of revenue to state governments. It may be noted that VAT (Value Added TAX) is not some new tax but only a different way of collecting sales tax.
Categories of Sales
Sales can be broadly classified in three categories. (a) Inter-State Sale (b) Sale during import/export. (c) Intra- State sale (i.e. within the state).
Central Sales Tax Act, 1956
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? Central Sales Tax is an indirect tax which is levied by the Central Government. ? In this case, the taxable event is ‘sale of goods inter-state’. ? CST applies to the whole of India including the state of Jammu & Kashmir. ? CST is payable in the state in which the movement of goods commences. ? Though it is called CST, it is actually assessed, collected & administered by the local (i.e. State) sales tax authorities only. ? Also, the tax collected under CST is actually retained by the state (in which it is collected).
VAT (Value Added Tax)
VAT is a multi-point destination based system of taxation, with tax being levied on value addition at each stage of transaction in the production/ distribution chain. The term 'value addition' implies the increase in value of goods and services at each stage of production or transfer of goods and services. VAT is a tax on the final consumption of goods or services and is ultimately borne by the consumer. It is a multi-stage tax with the provision to allow 'Input tax credit (ITC)' on tax at an earlier stage, which can be appropriated against the VAT liability on subsequent sale. ? VAT is basically a State subject, derived from Entry 54 of the State List, for which the States are sovereign in taking decisions.
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? The State Governments, through Taxation Departments, are carrying out the responsibility of levying and collecting VAT in the respective States. ? While, the Central Government is playing the role of a facilitator for the successful implementation of VAT. ? The Ministry of Finance is the main agency for levying and implementing VAT, both at the Centre and the State level The main benefits of implementation of VAT are:? Minimizes tax evasion as VAT is imposed on the basis of invoice/ bill at each stage, so that tax evaded at first stage gets caught at the next stage;
? A set-off is given for input tax as well as tax paid on previous purchases; ? Abolishes multiplicity of taxes, that is, taxes such as turnover tax, surcharge on sales tax, additional surcharge, etc. are being abolished; ? Replaces the existing system of inspection by a system of built-in self-assessment of VAT liability by the dealers and manufacturers (in terms of submission of returns upon setting off the tax credit); ? Tax structure becomes simpler and more transparent; ? Improves tax compliance; ? Generates higher revenue growth; ? Promotes competitiveness of exports; etc
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Rates of VAT
? At present, there are 2 basic rates of VAT, namely, 4 per cent and 12.5 per cent, besides an exempt category and a special rate of 1 per cent for a few selected items. ? The items of basic necessities and goods of local importance (upto 10 items) have been put in the zero rate bracket or the exempted schedule. Gold, silver and precious stones have been put in the 1 per cent schedule. ? There is also a category with 20 per cent floor rate of tax, but the commodities listed in this schedule are not eligible for input tax rebate/set off. This category covers items like motor spirit (petrol, diesel and aviation turbine fuel), liquor, etc.
Haryana became the first State in the country to introduce Value Added Tax (VAT). Till 2007, VAT has been introduced by more than 30 States/UTs, including Tamil Nadu (implemented VAT from January 1, 2007) and the UT of Puducherry (implemented VAT from April 1, 2007). From January 01, 2008, the Government of Uttar Pradesh has made VAT effective in the State.
Difference between VAT and CST
? Under the CST Act, the tax is collected at one stage of purchase or
sale of goods. Therefore, the burden of the full tax bond is borne by only one dealer, either the first or the last dealer. However, under the VAT system, all the dealers from first to last would share the tax burden. Then, such tax would be passed upon the final consumers.
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? Under the CST Act, the tax is levied at a single point. Under the VAT system, the retailers are not subject to tax except for the retail tax. ? Under the CST Act, general and specific exemptions are granted on certain goods while VAT does not permit such exemptions. Under the CST law, concessional rates are provided on certain taxes. The VAT regime will do away with such concessions, as it would provide the full credit on the tax that has been paid earlier. ? Under VAT law, first, the dealer pays tax on the sale or purchase of goods. The subsequent dealer pays tax on the portion of the value added upon such goods. Thus, the last dealer shares the tax burden equally.
Vat (Sales tax) rate for sale within the State
CST rate in case of sale to registered dealers (applicable to declared goods as well as other goods)
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CST rate in case of sale to unregistered dealers (applicable to declared goods as well as other goods)
Nil 1% 2% 3% 4% 8% 10% 12.5% 20%
Nil 1% 2% 3% 3% 3% 3% 3% 3%
Nil 1% 2% 3% 4% 8% 10% 12.5% 20%
Future scenario of Indirect Taxation i.e. Goods and Services Act
GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the producer’s point and service provider’s point up to the retailer’s level.
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Following Central Taxes should be, to begin with , subsumed under the Goods And Services Tax: ? Central Excise Duty ? Additional Excise Duties ? The excise duty levied under the Medicinal and Toiletries Preparation Act ? Service Tax ? Additional Customs Duty ? Special Additional Duty of Customs ? Surcharges ? Cesses Following State Taxes and levies would be, to begin with, Subsumed under GST : ? VAT / Sales tax ? Entertainment tax (unless it is levied by the local bodies) ? Luxury tax ? Taxes on lottery, betting and gambling ? State Cesses and Surcharges in so far as they relate to supply of goods and services ? Entry tax not in lieu of Octroi
GST Rate Structure & important points
? Tax rates There will be a two-rate structure as under though no specific rates have been indicated as of now.
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? Lower rate –
for necessary items and items of basic importance
? Standard rate – for general items ? GST on Imports Both CGST and SGST will be levied on import of goods and services into India. However, full set-off will be available on GST paid on import of goods and services. ? Zero Rating of Exports Exports and sales to SEZ would be zero rated. This implies that though no GST will be payable on such transactions, set-off of GST paid on purchases and services availed will be allowed.
All the transactions will be subjected to dual GST example
ART ICUALRS Basic SGST( SAY 8%) CGST( SAY 8%) T OT AL INVOICE VALUE Amt. 100 8 8 116( TRANSACTION MAY BE FOR GOODS OR FOR SERVICE)
Salient features of the GST model
? The GST hall have two components: one levied be the Centre (hereinafter referred to as Central GST), and the other levied be the States (hereinafter referred to as State GST).
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? The Central GTST and State GST are to be paid to the accounts of the Centre and the States separately. ? Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit. ? Cross utilization of ITC between the Central GST and the State GST would not be allowed except in the case of inter – State supply of goods and services under the IGST model. ? The taxpayer would need to submit periodical returns, in common format as far as possible, to both the Central GST authority and to the concerned State GST authorities. ? Each taxpayer would be allotted a PAN – linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN – linked system in line with the prevailing PAN – based system for Income tax, facilitating data exchange and taxpayer compliance. ? Service tax on SGST will now be available to traders who do not get any credit for service tax paid by them on input service
RESEARCH METHODOLOGY
1) DATA COLLECTION
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a) Primary Data: Primary data related to the project was collected from the discussion and interaction with the senior employees and executives in the organization from Accounts and Finance department. b) Secondary Data: Secondary data was collected from the documents, which were in printed forms and in excel sheet like annual reports, pamphlets, reference books and through websites.
METHODOLOGY FOR ANALYSIS
The methodology opted for carrying out project was by way of collection of data from the company s annual reports and from the record of Accounts Department for the past two years i.e. from 2008-2009 & 2009-2010, for the calculation of Indirect taxation. The theory related to Indirect Taxation was gathered from Business Taxation book. So accordingly taxes are calculated and comparison is done Between Present and Future Scenario.
Calculation of Indirect taxation as per Present tax structure
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To know the Present Scenario of Indirect Taxation in Project Industry I went through the one of the completed Project of Thermax Instrumentation limited i.e. ACC Chanda-25 MW in Maharashtra. Period of this project was 2008-2010. Indirect Taxes Paid by Thermax Instrumentation Ltd. are-
Excise Duty
Excise duty is payable on Manufacturing or Production of Goods. However this company provides Erection and construction services which are normally classified under “Industrial and Commercial Construction services” or “Works Contract Services”. Since only services are provided and nothing is manufactured or produced by the company, the company is not liable to pay excise duty on sales invoices raised on the customer. However the company is eligible to take Cenvat credit of excise duty paid on input material such as reinforcement steel, structural steel and cement. Since the said contract is registered under “Industrial and Commercial Construction Services” eligibility of input excise duty as input credit is allowed.
Service Tax
The company is engaged in providing Civil Services and Erection & Commissioning. Service tax paid on Input Services is as follows:46
Input Services for the Project in 2 Years and Service Tax paid on it:Year 2008-09 Input Services Service Tax
21,725,655.92 20,675,402.52 42,401,058.45
2,237,742.56 2,129,566.46 4,367,309.02
2009-10 Total
Service Tax paid on Services provided for completion of project:-
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Year
Types of Output Services Civil Services
Basic Amount
Service tax rate Service Tax 6,392,857.64 10.30% 5,155,452.66 8,614,405.01 20,162,715.3
62,066,579 10.30% 50,052,938
2008-09 E&C Civil Services 2009-10 Total E&C
83,635,000 10.30% 195,754,517
Net Service tax Liability = Service tax charged on Output Services Less: Service tax paid on Input Services =20,162,715.3 - 4,367,309.02 = 15,795,406.28
Custom Duty
Customs Duty is a type of indirect tax levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India. Thermax Instrumentation Ltd. does not pay any Custom Duty as it is not involved in any activities related to import and export.
Sales Tax
VAT and CST paid on purchase of material required for completion of Project
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Year 2008-09
Purchases Local Purchase Interstate Purchase
Basic Amount 501,663 18,316,337 7,856,517.09 29,339,778. 38 56,014,295.4
VAT/CST 56,111.45 367,864.527 399,193.59 660,750.50 1,483,920.07
2009-10
Local Purchase Interstate Purchase
Total
VAT charged on Civil Services.
Year 2008-09 2009-10 Total
Basic Amount 87,624,000 44,642,000.00 132,266,000
VAT 1,395,447 533,675.52 1,929,122.52
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VAT Liability =VAT Charged to Customer Less: VAT paid on Purchase of Goods = 1,929,122.52 - (56,111.45+399,193.59) = 1,473,817.5 CST Liability = Total CST paid in 2 years on Purchase of goods = 367,864.527+660,750.50 =1,028,615.03
Total Indirect tax paid by Thermax Instrumentation Limited on ACC Chanda Project =Service tax Liability Add: VAT liability Add: CST liability =15,795,406.28 + 1,473,817.5 + 1,028,615.03 =18,297,838.7
Comparison of Present tax Structure with Goods and Service Tax
Comparison will be done by assuming if indirect taxes were calculated on GST Basis on the same, project i.e. ACC Chanda. According to the Article in The Hindu:50
“World over, GST rates are typically between 16 per cent and 20 per cent. In India it is likely to be the same,” CBEC Chairman Sumit D Majumdar. Therefore, for this project GST Rate is assumed 16 %. Share of State and Central Government will be Equal that means 8 % of State and 8 %of Central.
Goods and Services Tax paid on purchase of Goods and on Input Services:-
Year
Basic Amount
CGST Rate 8% 8% 8%
CGST 3,243,492.47 4,629,735.84 7,873,228.31
SGST Rate 8% 8% 8%
SGST 3,243,492.47 4,629,735.84 7,873,228.31
2008-09 40,543,655.92 2009-10 57,871,697.99 Total 98,415,353.91
GST paid on Sale of Goods and Services Provided for Completion of project:-
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Year
Basic Amount
CGST Rate 8% 8% 8%
CGST 11,975,246.32 14266395.04 26,241,641.36
SGST Rate 8% 8% 8%
SGST 11,975,246.32 14266395.04 26,241,641.36
2008-09 149,690,579.00 2009-10 178,329,938.00 Total 328,020,517.00
Total Indirect tax paid by Thermax Instrumentation Limited as per GST on ACC Chanda Project
CGST Liability = CGST paid on purchase of Goods and on Input Services
Less: CGST paid on of Goods and Services Provided
= 26,241,641.36 -7,873,228.31 = 18,368,413.05
SGST Liability = SGST paid on purchase of Goods and on Input Services
Less: SGST paid on of Goods and Services Provided = 26,241,641.36 - 7,873,228.31
= 18,368,413.05 So Total GST Liability is = CGST liability Add: SGST Liability = 18,368,413.05 + 18,368,413.05 = 36,736,826.1
Table showing Comparison of Tax Liability under Present tax Structure and GST
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Year
2008-2010
Present tax Structure 18,297,838.7
GST 36,736,826.1
Analysis and Interpretation of Data
1. From above data we can interpret that GST will be less complicated. 2. GST is the broader form of VAT as it is also charged on value addition. 3. There are many taxes in present tax structure but in future tax Structure there is only on tax i.e. GST. 4. In present tax structure tax manufacturer or service provider are required to pay tax on many activities where as in future tax structure they are required to pay tax only one time i.e. at the time of sale. 5. Filling for return will be easier in GST.
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Conclusions
From Above data, we conclude that GST liability is more than Present tax Structure liability but from this, we cannot conclude that GST is good or bad for project industry. The company is paying VAT on steel and cement sales under the current tax regime. However under GST entire order value will be taxed and which will increase the impact. Also CST is lower and at the same time company is getting advantage of Composition scheme. Therefore, at present we can only conclude that under GST it will be easy to calculate indirect taxation and filling return. It will make create a clear picture of indirect taxation that will be understandable to everyone.
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Learning’s
1. I learned some of the features of ERP. 2. I learned how books of accounts are maintained in excel format. 3. I learned to analyse Balance sheet and Cash Flow Statement. 4. I leaned the day to day working of Accounts department which are as follows
a) (b) (c) Approval and maintaining records of expenses done at the site of project. Maintaining records of Indirect taxes in Excel format. How to prepare voucher.55
BIBLIOGRAPHY
? Reference book: Taxman’s Indirect taxes – V.S. Datey ? Newspaper: The Hindu ? Internet Sites: www.thermaxindia.com www.google.co.in www.cbec.com www.business.gov.in
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