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Tax Planning & Cost Control under Central Excise

CA Madhukar N Hiregange

Coverage Today

• Sources of Law• Differentiation b/n Planning Vs Evasion• Tax Planning Alternatives/ Options • Options – Cenvat Credit• Some Judicial Directions?• Options – Cost Control• Questions?

Indirect Tax Laws

Act

Rules

Circulars

Case Laws

Trade Notices

Should be in line with Constitution

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Meanings..

Cost Control – A penny saved is a penny

earned

Tax Planning- Within Framework

Tax avoidance - Borderlin

Tax evasion- Intent

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Options..

Availment of SSI Exemption vis-à-vis Payment

of duty

Project Planning – 15-25% IDT

Duty paid under Rule 6 of CE Valuation Rules

Inter-unit Transfer

Selecting appropriate status of entity

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Options.. • Drafting of terms of agreement – transaction

structuring• Export transactions – pre-export & post-export

benefits• Methods:

• Refund of taxes paid on Input & input services• Rebate on export• Rebate of inputs used for export/• 41/2012-ST

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Options..

• Leasing transactions

• Purchase form manufacturers Vs dealers – dealer

margin

• SOP for Cenvat credit availment – customers and

vendors understanding

• Cenvat credit on capital goods

• Deemed manufacture for claiming credits

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Options..

• ISD Distributor & Centralised Registration

• T/f of SAD credit to other units

• Setting up units in excise exempted areas

• Purchase of duty credit scrips

• Imports / Mfr – import from where?

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Options..

• EOU / SEZ + Locational advantages

• Mfr / procure /Job work - Outsource

• Method under Rule 6 of CCR, 2004 - Intimation

to department + Facing departmental audit

• Comparing Quotation of suppliers

• Inclusion of ED cost in P/O

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Cost Control under Central Excise

•Mfr - In India? Labour Intensive + parts lower

customs duty

• Mfr or Buy – Standardised product – No

deemed mfr

•Branded Products – mfr in Rural Area

•MRP products – Import in Bulk- Only packing

unit - save on flexibility + cash flow

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Cost Control & Cenvat credit• Bulky MRP product – Packing near to Customer,

Proactive MRP change

• Intermediate product - Credit availers

( Manufacturers/ SP) – Educate on credit

• Intermediate product - Credit restricted

{Structures, Tanks…..}

• VAT Invoice – Credit on mfr/ RD invoice to dealer –

Darshan Ind.

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Cenvat credit

• Registered Importer – 18% credit? – Lowering of

price also?

• All RD under CE or Manufacturers – proportion –

Margin for negotiation with both

• Recent 1 year restriction – Protest?

• Any past demand – set off ?

• Send back – Manufacturer can take credit – Rule

16 send back – Dealer even easier

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• CC availed on Free issue of material + Courier bill of

entry + Invoice where buyer & consignee are

different

• Overvaluation of assessable value by mfrer-credits?

• CC on cess-accumulated-earlier to 31.3.15?? – Notfn

12/15-CE (NT)

Cenvat credit

Cenvat credit• Rule 6(3) – Bifurcation based on cost a/c

• Some SP - eligible for credit on vehicles – if no

abatement

• CG credit – lost due to incorrect classification?

• Avoid accumulation of credit – deemed export

• Construction/ AMC contracts- Value of mat on

actual - avoid more than 100% payment

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Cenvat credit

• Exempted service – option to pay and avail credit

• Material directly to JW• SSI + JW route for consumer products• Cost of erring on safety – Uncompetitive

Cenvat credit• Customer avail credit – No? Why? - Used for Mfr /

provide service + Excise goods used for providing

service??

• Imported goods - mfrd then provided to SP – 4%

SAD

• Credit for JW – inputs + consumables used U/N

214/86 + ST exemption

Other Planning• Valuation Options to optimise Tax• Co-ordination of Prdtm / Mktng /

Procurement with Compliance Team• Disclosure as a tool for safety – Max 1 yr

demand• Leasing of Machinery + FOC supply of

services/ goods

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Important Decisions

Nokia Ltd vs CST (2014-TIOL-100-SC-VAT)SC

Held mobile battery charger is not integral part of cell phone and an accessory and not eligible of concessional rate of tax.

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Important Decisions

State of Karnataka v Infosys Technologies Ltd (2015-TIOL-385-HC-KAR-VAT)

Allowed input tax credit on work stations.

Coramandel Paints Ltd (2014(306) ELT A110(SC):

Goods produced from others on principal to principal basis specifying vendors for purchase of raw material — Valuation Rule 10A inapplicable.

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Important Decisions

Kone Elevators Pvt Ltd Vs State of TN (2014(304) ELT 0161(SC)

It is works contract. Assessable value for manufactured components only. The bought out items transferred to site with value addition. The VAT could be paid on actual value of goods. Erection etc could be gone on actual value.

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Important Decisions

Darshan Industries Vs UOI & other [2014-TIOL-1604-HC-AHM-CX]

Held that the credit would be available on commercial invoices of dealers if backed up by the excise invoice of the manufacturer to the dealer where sold in transit.

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Important Decisions

Maruti Suzuki India Ltd Vs C.C.Ex, New Delhi 2015-TIOL-30-SC-CX

"input" that is removed from the factory for home consumption is bumpers, grills, etc., Electro Deposition coating which would increase its shelf life and provide anti-rust treatment would not convert them into a new commodity

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Important Decisions

C.C.Ex Vs Godrej And Boyce Mfg Co Ltd (2015-TIOL-263-HC-MUM-CX)

Makers and framers did not intend to deny MODVAT credit simply because the inputs were not received after processing or job work within 180 days. Period of 180 days cannot be held to be mandatory.

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Important Decisions

M/s India Cements Ltd Vs CESTAT(2015-TIOL-650-HC-MAD-CX)

Held that the assessee was entitled to avail MODVAT credit of steel plates and M.S. channels used in the fabrication of chimney for diesel generating set, by treating these items as capital goods.

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Important Decisions

M/s Andrew Yule & Co. Ltd Vs CCE, Kolkata III (2014-TIOL-2506-CESTAT-KOL)

• Garden maintenance: statutory requirement of Karnataka Govt. CC available

• Outdoor catering service: Providing food to employees a statutory obligation, CC available

• Maintenance service: maintenance and repair of factory and office related to factory. CC available

Cost Control

• Cr on Accommodation bills - Strictly No• Reverse Charge upto 1.7.12- adj of credit• Regular, timely credit availment • Examination of provision of services• Services provided and received outside

India

Cost Control

• Avoid Surprises in form of demands [ if liable and not collected can be upto 100+ % of the turnover]

• Vendors / customer education• Built in IDT in MIS- monthly quarterly etc

reaching the top.

Cost Control

• Checks and Balances - SOP, Internal Audit (IDT), Stage wise authorisation - integration to ERP + Reconciliation.

• Missed credits - earlier issues, preventive directions, AG audit – sou moto credit

• Avoid common mistakes + many more

Any questions?madhukar@ hiregange.com