Service Tax/ VAT/ WCT/ Excise
Despite the various reforms carried out in the past few years, the prevailing Indirect tax regime in India is still in a state of evolution. The system is quite complex, with multi-layered levies both at the Federal and State level. The Federal government levies tax on goods at the point of import (Customs duty), manufacture (Excise duty), inter-state sales (Central sales tax or CST), and on provision of services (Service tax). The states, on the other hand, have been vested with powers to levy tax on sale of goods within the state (Sales tax/Value Added Tax or VAT), and on the entry of goods into the state (Entry tax), under the respective state laws
The existing regime requires businesses to undertake careful upfront analysis of the tax costs involved in a transaction, ensure adequate backup documentation to support their tax positions and constantly explore opportunities for tax optimization. Further, as India is committed to move towards uniform Goods and Services Tax (GST) regime by April 2016, this needs to be factored in any significant tax approach developed at present.
Our indirect tax professionals with their wide-ranging experience and in-depth knowledge help clients in all of these aspects. We provide advisory services in respect of the state level Value Added Tax (VAT)/Sales tax, Service tax, Works Contract Tax and Custom and Excise duties. This includes services in relation to setting up a green field venture including review of tax assumptions and analysis of tax exemptions/concessions which could be relevant for the project and tax modeling involving analysis of tax costs and credits impacting the business models. We also provide services in relation to setting up of Special Economic Zones (‘SEZs')/SEZ units.
Further, an indirect tax diagnostic review or health check is an broad-based package offered to our clients. This review helps identify areas of potential tax exposure and tap opportunities for tax savings.We also assist our clients in making representations before the revenue authorities for obtaining tax concessions, relief and seeking clarifications at state as well as federal level.
What is Indirect Tax ?
Indirect taxes are the charges that are levied on goods and services. Some of the significant indirect taxes include Value Added Tax, Central Sales Tax, Central Excise Duty, Works Contract Tax, Customs Duty, stamp duties and expenditure tax.
Unlike Direct Taxes, Indirect Taxes are not levied on individuals, but on goods and services. Customers indirectly pay this tax in the form of higher prices. For example, it can be said that while purchasing goods from a retail shop, the retail sales tax is actually paid by the customers. The retailer eventually passes this tax to the respective authority. The indirect tax, actually raises the price of a good and the customers purchase by paying more for that product.
Service Tax is a Central levy on provision of notified taxable services specified under Chapter V of the Finance Act, 1994. The Finance Act in the year 1994 has introduced service tax only on three services viz. (1) Telephone (2) Stockbroker (3) General Insurance. But over the years, numerous services have been brought under the purview of this tax. Due to constant amendments in the Finance Act by introduction of new services, the maximum GDP of about 55.1% in the year 2006-07 was collected from the Service sector.
At the time when this tax was introduced, the rate of service tax was 5%. But over the years this rate had increased up to 14% Service tax is a destination based consumption tax. When any taxable service classified under Section 65 (105) of the Finance Act is rendered, the service provider is liable to pay service tax. The service tax is actually borne by the service recipient in normal circumstances. The total consideration paid by the recipient of the taxable services is considered to be the amount on which Service Tax is chargeable.
The service provider whose gross receipts exceeds Rs. 10,00,000/- (One Million Rupees) needs to be registered with the Service Tax Department. The gross receipt upto the extent of Rs. 1,00,000/- are exempt from Service Tax. However, this exemption is available only once till the gross receipts have not crossed the Rs. 10 lacs limit. Once the gross receipt exceeds Rs. 10 lacs, the services provider needs to collect and pay service tax on each billing.
The Service Provider is required to seek registration within 30 days from the date of commencement of business or from the date when the provision of any taxable service commences. Penalty is levied in case the service provider fails to seek registration within the prescribed time limit.
Single Premise Registration:
In case service provider is providing services from multiple place of business, separate registration is required in respect of each premises from where the services are rendered. The application shall be filed in Form ST-1.
In case where the service provider is providing taxable services from more than one premises and has Centralised billing system, Centralised accounting system, he may at his option opt for the centralized registration for all such premises. The applciation shall be filed in Form ST-1 with additional documents.
Service Tax Return:
The service tax return is required to be filed under section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules. This return shall be filed in Form ST- 3. The periodicity and filing due date of return is as under:
April to September: 25th October
October to March: 25th April
Import of Services:
Generally, the liability to deposit service tax lies with the service provider. In case the service provider is a non-resident, not having an office in India, the person liable to pay the service tax is the service recipient in India, in such case recipient of service has to get himself registered under service tax. This mechanism is known as reverse charge mechanism.
Value Added Tax (VAT)
VAT is levied by State Governments on intra-State sale of goods in India. VAT rate varies depending upon the relevant State Legislations and the nature of goods. The general rate of VAT is 12.5%, 4% and 0%. In case of few States the VAT rate of 4% has been increased to 5%. A dealer is allowed to take input tax credit of VAT paid on inputs and utilize the same against its output VAT/ CST liability subject to compliance with the prescribed conditions.
The are two kinds of sales Intra state and inter state sales. Intra state sale is a sale which happens with in the limits of any one State. This type of sales attrates VAT. Other transaction are known as inter state transaction, these transaction happens between two or more States. Such transaction attacts Central Sales Tax (CST). The rate of CST is 2% if concessional form i.e. FORM C is available.
Works contract tax
Works contract tax (WCT) is a tax imposed on a contract for work, such as assembling, construction, building, altering, manufacturing, processing, fabricating, installation, improvement, repair, or commissioning of any movable or immovable property.
WCT is based on the contracts for labor, work, or service, and not for the sale of goods; although goods are used to fulfill the contract. For example, when a contractor constructs a building, the buyer pays for the cost of the building, which includes the building material, labor, and other services. No contract exists for the supply of the building material. The WCT tax applies only to the building and not for the materials used for construction. A WCT certificate is the Certificate of Tax (R75I119) which you submit to the dealer or contractor.
Works contract involving transfer of property in goods is an indivisible contract. It is indivisible in the sense that value of goods to be incorporated in any form in the works and value of labour & other services to be rendered in execution of the contract have not been subject matter of bargain separately. Single amount has been subject matter of bargain. A works contract is an entire one and indivisible contract. In certain cases, a contract may be more than a works contract and it may involve a works contract as well as a contract for transfer of immovable property.
The taxation issues regarding Works Contract require special consideration. Taxes should be properly planned for cost efficient execution of works Contract. Few other issues like supply of goods for execution of inter state works contract, Turnkey projects, Service and Supply Contract require proper planning from tax angle.
Central Excise Duty
Central Excise duty is an indirect tax levied on goods manufactured in India. The tax is administered by the Central Government under the authority of Entry 84 of the Union list (List I) of the Constitution of India. The Central Excise Duty is levied in terms of Central Excise Act, 1944 and rates of duty, ad valorem or specific, are prescribed under the Schedule I and II of the Central Excise Tariff Act, 1985. Generally, the effective rate of the central excise is 10.30%. Two conditions must be satisfied for levy of central excise:-
The article should be "Goods'; and It should have come into existence as a result of "Manufacture"
Payment of Central Excise Duty:
Central Excise Duty is payable on monthly basis by 5th of following month. Duty can be paid through current account (Personal Ledger Account) or CENVAT Credit. Small Scale units availing exemption are required to pay duty on 15th of month following end of month. Duty is payable electronically or by banking channels through TR-6 challan. The prescribed challan form TR-6 should be filled in giving details like name and fifteen digit ECC number of the manufacturer, code number of excise commissionerate/division/range etc.
Filing of Central Excise Return:
The Central excise return shall be filed on or before 10th of next month. In case of dealer, the excise return shall be filed on quarterly basis. Following are the forms and description of returns
- ER-1: Manufacturer not eligible for SSI Concession
- ER-2: EOU Unit
- ER-3: Quarterly Return BY ssi
- ER-4: Annual Financial Information Statement
- ER-5: Information relating to Principal Inputs
- ER-6: Monthly return of receipt and consumption of each of principal inputs
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