CST and VAT

Sales can be broadly classified in three categories. (a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e. within the State) sale. State Government can impose sales tax only on sale within the State.

3 Key Elements: (Goods, Sale and Dealer)

CST and VAT is on goods. Goods include all kinds of movable property, but not newspapers, actionable claims, stocks, shares and securities. Electricity is goods. Newspapers are ‘goods’ but sales tax cannot be imposed in view of specific exclusion from definition of ‘goods’.

Sale can be actual (conventional) sale or deemed sale. Conventional sale takes place when there is complete transfer of property in goods from buyer to seller for valuable money consideration.

“Dealer” means any person who carries on (whether regularly or otherwise) the business of buying, selling, supplying or distribution of goods, directly or indirectly, for cash, or for deferred payment, or for valuable consideration Definition of ‘dealer’ is wide, but only those who ‘effect’ sale are liable to register and pay CST or VAT.

CST

1. State cannot discriminate between goods manufactured/produced within the State and goods brought from outside the State i.e. tax on local goods and goods from other States must be same

2. CST is payable on inter-State sales @ 2%, if C form is obtained. No CST if form H or I is obtained from purchaser. Otherwise, CST rate is same as applicable for sale within the State.

3. Even if CST is levied by Union Government, the revenue goes to State Government. State from which movement of goods commences gets revenue. CST Act is administered by State Government. CST is an origin based tax. Tax revenue goes to state from which the goods originate.

4. In case of interstate sale u/s 3(a), sale is interstate if it occasions movement of goods from one State to other. There should be express or implied stipulation for movement of goods outside the State. Movement of goods can be under agreement to sale.

5. In inter-state sale, property in goods can pass to buyer in either State. Sale can be inter-state even if buyer takes delivery of goods within the State, if he is required to take the goods outside the State.

6. Sale can be interstate even if both buyer and seller are in same State if goods are moving out of State on account of sale.

7. The movement of goods commences as soon as goods are handed over to transporter. The ‘movement’ is deemed to be continuing till delivery of goods is taken at other end.

8. E-I/E-II transactions are required to establish sale during movement. If done, all subsequent sales are exempt from sales tax/Vat.

9. In stock/branch transfer, goods move from one State to another, but there is no ‘sale’. Goods are sent to branch or depot or consignment agent in other State. Stock transfer/branch transfer is not subject to tax since there is no ‘sale’. Stock transfer can be only of standard goods. Stock transfer of

tailor made goods for a specific customer is a bogus stock transfer. Form F is required to be submitted to establish stock transfer. Sales Tax Officer can make enquiry regarding truth of contents in form F.

10. After stock transfer, sale in that other State is first sale and State sales tax (Vat) will be payable.11. In case of specific or ascertained goods, sale within State takes place at the time of contract. In case

of unascertained or future goods, sale takes place when goods are appropriated to contract in the State.

12. Though CST related laws are framed by Central Govt, CST collection is the responsibility of State Govt.

VAT

1. State level Vat is introduced to avoid cascading effect of State taxes.2. Vat works on system of giving input tax credit (ITC) of state sales taxes paid on inputs and capital

goods. Credit on inputs is instant, i.e. as soon as these are purchased. Thus Value Added Tax (VAT) is a tax levied on the value added to a product at different stages.

3. A manufacturer may pay VAT on input raw materials and recovers that tax when he sells the finished goods to a dealer. The difference of tax collected from the dealer and the tax paid for the raw materials is paid to the tax authority.

4. Similarly, a dealer may pay VAT on the finished Goods and recovers that tax when he sells it to a retailer. The tax after recovery is paid to the tax authority.

5. Finally the end customer pays the VAT to the retailer. The retailer recovers his portion of the tax he paid and pays the balance to the tax authorities.

6. Credit of capital goods is usually spread over 2/3 years in many States.7. VAT Exemption

a) Purchase where final goods sold are exempt from Vatb) Final product is given as free sample i.e. goods not soldc) Proper Tax Invoice showing Vat separately is not availabled) Ineligible purchases like automobiles, fuel, certain capital goods etc. as specified in relevant

State Vat law i.e. items in negative list.e) Inputs stolen/lost/damaged before use/sale

8. Net Tax payable = Output Tax + Reversal Credit (On exempted goods, stock transfers, free samples, lost inputs) - Input Tax Credit

9. This net amount is required to be paid through prescribed challan on or before due date.10. All States except J&K have introduced State Vat. Each State has its own Vat laws and procedures.11. Vat rates are generally as follows:

a) 0% for goods having special implicationsb) 1% on gold and silver ornaments, precious stonesc) 5% on declared goods and for basic necessities and machinery (earlier rate was 4%. Now many

States have increased it to 5%) – Cereals, Pulses, Coal, Jute, Iron & Steel – raw form, Man Made Fabrics, Sugar, LPG etc

d) 12.5% Revenue Neutral Rate on all goods (Some States have increased this rate also)

e) 20% or more on fuel, diesel, cigarettes, lottery tickets etc. [There are variations among various States].

12. Small dealers up to Rs 5 lakhs turnover per annum are exempt [In some States this limit is lower than Rs 5 lakhs]. Dealers having gross turnover exceeding the exemption limit but specified higher limit (which is Rs 50 lakhs in many States) have option of composition scheme. In such cases, 1% tax is payable on gross turnover in many States (without any input tax credit).

13. Composition scheme is available in most of the States in respect of works contract and sale of food in hotel

14. There is no regular assessment but selective audit is done by State Vat (sales tax) department.

Oracle VAT P2P Cycle

1. PO Localization Screen

Create PO with appropriate VAT applied to PO lines. No accounting

2. Receipt Localization Screen

Receive the goods, create receipt. Till the receipt is closed changes can be done to the tax related information which defaults from the PO.

After closing Receipt Localized window, India Receiving Transaction Processor fires to update the quantities in the PO and generate accounting entries.

Dr VAT Interim Recovery Acc 80

Dr Inventory Acc 400

Cr Inventory AP Accrual Acc 480

3. AP Invoice Screen

Dr Inventory AP Accrual Acc 480

Cr Liability Acc 480

No tax related accounting. However if we create a standalone AP invoice and apply VAT to it using IL Tax feature. In this case tax line will appear as a separate line with line type Miscellaneous. Create Accounting will generate the following accounting entries:

Dr VAT Interim Recovery Acc 80

Dr Distr Acc 400

Cr Liability Acc 480

4. Claim VAT on Supplier VAT Invoice created above. Supplier invoice needs to be processed before we can claim VAT.

Accounting will be done on claiming VAT.

Dr VAT Recovered Acc 80

Cr VAT Interim Recovery Acc 80

Oracle VAT O2C Cycle

1. OM Localization Screen

Create SO with appropriate VAT applied to SO lines. Pick Release and Ship Confirm the SO. No tax related accounting. The SO lines will be interfaced in the AR interface tables.

2. Generate AR Invoice

Run Auto Invoice Master and Auto Invoice Import program to create the AR invoice with tax lines. Create accounting will result in the following accounting:

Dr Receivables 400Cr Revenue 250Cr VAT Interim Liability Acc 150

If we create a standalone AR invoice and apply VAT to it using Transaction Localized screen, create Accounting will generate the above-mentioned accounting entries.

3. Run India VAT Invoice Generation/Accounting

This program will insert the eligible records to VAT repository. The following accounting will be created:

Dr VAT Interim Liability Acc 150

Cr VAT Liability Acc 150

Note: All the Interim and Final VAT related accounts will be picked up from the accounts defined in VAT Regime (Organization Level/Regime Level).

This program has been introduced to handle generation of VAT Invoice and pass requisite VAT Accounting entries for VAT type of taxes from Order Management. This program captures Value

Added Tax localization taxes in Shipments and inserts VAT Invoice Number in India Local Shipment Table and Entries in GL interface. This program is a mandatory program to be run for generating VAT Invoice Number and generation of Accounting Entries.

When VAT Invoice Number generation happens after the AR Invoice is created, localization AR table does not have VAT Invoice Number imported from localized shipping tables. Hence care should be taken to run the VAT Invoice Generation program prior to creation of AR Invoice.

Settlement

Dr VAT Liability 80

Cr VAT Recovered 80

Dr VAT Liability 70

Cr AP Liability 70

The balance is payable to VAT Authority, needs to be created as a supplier with Supplier Type – ‘VAT Authority – IND’.

Note: All transactions that lead to VAT Recovery or Liability or adjustment to the same would update the VAT Repository. The key events are:

1. Claim VAT2. Process VAT Installments3. Return to Vendor after VAT Claim4. VAT Invoice Generation (Shipment/AR Transaction Completion)5. Manual Entry6. Settlement

ST

There is no Service Tax Act. Finance Act, 1994 is amended from time to time to make provisions relating to service tax. Tax is payable on all services excluding those in negative list w.e.f. 1-7-2012.

Any activity carried out by a person for another person for consideration is ‘service’ – It also includes ‘declared service’. One cannot provide service to oneself. Exception is that services by branch in India and branch of same entity outside India will be two different persons.

Person includes,— (i) an individual ii) a Hindu undivided family (iii) a company (iv) a society (v) a limited liability partnership (vi) a firm (vii) an association of persons or body of individuals, whether incorporated or not (viii) Government (ix) a local authority, or (x) every artificial juridical person

Abatements

In case of some services, abatement is available under Notification No. 26/2012-ST dated 20-6-2012, subject to some restrictions on Cenvat Credit. In such cases, service tax is payable only on lower amount i.e. abated amount – e.g. on renting of vehicle service tax is payable on 40% of amount if Cenvat Credit is not availed.

Is ST applicable for Transport Service Provider?

Transport of Goods by Road Service is taxable as per Finance Act 1994. An abatement @75% is available, hence, the service tax would be charged on 25% of the Gross amount charged from customer. As the Service Tax rate is 12.36%, the effective rate would be 3.09% (25% of 12.36%).

Service tax is presently imposed under Entry 97 of List I of article 246 i.e. residual entry – It includes taxes covered in List II or List III. The implication is that if a transaction is fully covered under List II i.e. State List, service tax cannot be imposed. Thus, service tax cannot be imposed on sale of goods, deemed sale of goods, advertisements other than newspapers, tolls, consumption and sale of electricity etc. It is overlapping in some cases – e.g. software, advertisements on TV and radio, sale of food.

Service tax on portion of deemed sale of goods:

1. Works contract is a composite contract which comprises of goods plus service but where the intention is not to sale ‘goods’ as ‘goods’. Examples are – sale of constructed flat, painting of car, taking Xerox copy or photograph etc. In such cases, Service tax is imposed on service portion of Works Contract and State Vat is imposed on goods portion.

2. Service portion in activity of supply of food in any manner as part of that activity (like serving of food in restaurant or outdoor catering or catering as part of other services like mandap, shamiana, convention) is subject to service tax. State Vat is payable on goods portion.

3. Software (both packaged and tailor made) has been held as goods – then Vat should apply – However, in many cases, both Vat and service tax is paid – mainly because the seller of software does not want to take risk and buyer of software is not in dictating position.

4. Hire purchase and financial lease – State VAT is payable on hire purchase and financial lease. In addition, service tax is payable on administrative charges, documentation charges, inspection charges etc. plus 10% of interest portion of the periodic installment.

5. Operating Lease (Hire) – VAT is payable when possession and control is handed over to customer (e.g. crane or motor vehicle given without operator or driver) while service tax is payable when possession and control is not transferred (i.e. crane or motor vehicle is given with operator or driver)

What is not a service has been defined in 65B (44)? Difference between 'Negative List’ and 'Not Service' is, Negative List is a service but not taxable while activity excluded from definition of ‘service’ is not ‘service’ at all.

1. Mere transaction in money is not service.2. Fees paid to Court or Tribunal is not service3. Service provided by employee to employer

4. Deemed sale of goods under Article 366(29A) of Constitution of India is not ‘service’.5. Activity of mere transfer of title in goods or immovable property is not ‘service’6. Grant or Donation is not a service

Consideration is required for taxable service. Consideration means something in return. Free service is not taxable.

Reverse Charge (Tax Shift)

1. Normally, service tax is payable by person providing the service.2. Section 68(2) makes provision for reverse charge i.e. making person receiving the service liable to

pay tax.3. Provision can be made that part of tax will be paid by service receiver and part by service provider.4. Provisions relating to reverse charge are contained in Notification No. 30/2012-ST dated 20-6-2012.

Valuation of service

1. Service tax to be paid on value of service. Equivalent money value of consideration which shall not be less than cost

2. Service tax is not payable on any other amount charged and/or recovered from service receiver if it is not part of value of taxable service

3. Spare parts used while repairs –not taxable if billed separately4. Consideration for service – partly money partly other than money – then value of such consideration

to be added.

Oracle Service Tax P2P Cycle

1. PO Localization Screen

Create PO with appropriate ST applied to PO lines. No accounting

2. Receipt Localization Screen

Receive services, create receipt. Till the receipt is closed changes can be done to the tax related information which defaults from the PO.

After closing Receipt Localized window, India Receiving Transaction Processor fires to generate accounting entries.

Dr ST Interim Recovery Acc 80

Dr Expense Acc 400

Cr Expense AP Accrual Acc 480

3. AP Invoice Screen

Dr Expense AP Accrual Acc 480

Cr Liability Acc 480

No tax related accounting. However if we create a standalone AP invoice and apply ST to it using IL Tax feature. In this case tax line will appear as a separate line with line type Miscellaneous. Create Accounting will generate the following accounting entries:

Dr ST Interim Recovery Acc 80

Dr Distr Acc 400

Cr Liability Acc 480

4. Make Payment

Recovery will be in line with the payment made. Run create accounting.

Dr Liability 480

Cr Cash/Cash Clearing 480

5. Run India Service Tax Processing

This program will insert the eligible records to service tax repository. The program will not generate any accounting. Accounting will be generated by create accounting program. Run create accounting program.

Dr ST Recovered Acc 80

Cr ST Interim Recovery Acc 80

Oracle Service Tax O2C Cycle

6. OM Localization Screen

Create SO with appropriate ST applied to SO lines. Pick Release and Ship Confirm the SO. No tax related accounting. The SO lines will be interfaced in the AR interface tables.

7. Generate AR Invoice

Run Auto Invoice Master and Auto Invoice Import program to create the AR invoice with tax lines. Create accounting will result in the following accounting:

Dr Receivables 400Cr Revenue 250Cr ST Interim Liability Acc 150

If we create a standalone AR invoice and apply ST to it using Transaction Localized screen, create Accounting will generate the above-mentioned accounting entries.

8. Create Receipt

No tax related accounting. Liability will be in line with the payment received (receipt)

Dr Cash/Cash Clearing Acc 400

Cr Unapplied Receipt 400

9. Run India Service Tax Processing

This program will insert the eligible records to service tax repository. The program will not generate any accounting. Accounting will be generated by create accounting program. Run create accounting program.

Dr ST Interim Liability Acc 150

Cr ST Liability Acc 150

Note: All the Interim and Final ST related accounts will be picked up from the accounts defined in ST Regime (Organization Level/Regime Level).

India Service Tax Processing would create Accounting and Service Tax Repository entries for all eligible transactions.

Settlement

Dr Service Tax Liability 80

Cr Service Tax Recovered 80

Dr Service Tax Liability 70

Cr AP Liability 70

The balance is payable to ST Authority, needs to be created as a supplier with Supplier Type – ‘Service Tax Authority – IND’.

Some key FAQs on ST

What is the reason for India Service Tax Processing not processing transaction to service tax repository?

The reason is that Point of Taxation date is not given in the regime registration setup. The date is mandatory.

Is Service Type mandatory for Service Tax Functionality?

As per the new Service tax rules now it is not required to track service tax based on service type. Hence in application also Service Type is made as non mandatory.

Can I define multiple Service Tax Regimes?

No, you cannot define multiple Service Tax Regimes. However, to capture separate registration values at the organization level, you can override the defaulted registration values at an organization level.

What is the relevance of ‘Service tax distribution in PLA/RG’ field in Regime registration form?

This is the field which will drive the register updates on the event of Service tax distribution. Either PLA or RG registers will get updated with the service tax amount based on the field selected here.

Is it mandatory to have service tax defined as 100 recoverable?

Service tax has to be defined as recoverable by giving credit percentage in Tax definition form as 100. In case if it is not 100% Service Tax functionality will not work as intended.

Even if the taxes are used in Order to cash cycle they need to be recoverable. Also for Reverse charge type of taxes they need to be define it as 100% Recoverable.

TDS

Tax Deduction @ Source. Payer will deduct the tax while making the payment. It is not decided item wise; it is based on the nature of transaction.

TDS is applicable on payment received for rendering certain services, salary and a few other categories. This comes under the purview of IT Department. You as a company need to have a TAN number to collect TDS or TCS.

There are transactions on which both TDS and Service Tax is applicable. Similarly there are transactions on which both TDS and VAT is applicable. TDS is not shown anywhere in invoice.

Viz: Repairs and maintenance attract service tax as well as TDS under Section 94 J. If the Invoice amount exceeds Rs 30000 we need to deduct TDS @ 10% on the total invoice value.

Effective from 13-Jan-14 TDS is not applicable on the Service Tax portion of the Invoice; this is valid for all TDS sections. But Service Tax needs to be a separate component/line item on the Invoice.

Key TDS Sections and Rates:

Section Nature of Payment Exemption Limit

Rate with PAN -Individuals/ HUF/ BOL/ AOP

Rate with PAN Others

192 Salary194C Payment to a contractor,

sub-contractor194C To a contractor - Advertising 30000

(75000)1 2

194C To a contractor - Transporter

0 0 0

194C To a contractor - Others 30000 (75000)

1 2

194D Insurance Commission 20000 10 10194H Commission or brokerage 5000 10 10194I Rent - Plant, Machinery or

Equipment180000 2 2

194I Rent - Land, Building or Furniture

180000 10 10

194J Fees for Professional or Technical Services

30000 (75000)

10 10

If PAN details are not provided by the recipient, then TDS should be deducted at 20% or specified rates above, whichever is higher.

Oracle System

1. TDS Regime needs to be created. TAN No is the TDS registration number.2. Select the organizations (Legal Entity or Operating Unit) to which the regime is applicable.

a. TAN No can be defined at the LE level or OU level for the organization3. Create Income Tax Authority or India TDS Authority as Supplier

a. Select the appropriate Supplier Typeb. Each Section Code can be a Supplier Site

4. Define TDS Yeara. The TDS Year represents the reporting period and would be basis for the TDS Certificate

Numbering and evaluating Threshold Limits.b. It can be different from the Accounting Calendar and the Tax Calendar defined for INV

transactions5. Define Taxes

a. Tax Nameb. TDS Accountc. Certificate (Suppliers who can avail concession)d. Section Codee. Original Tax %f. Surcharge %g. Update Transactionsh. Credit Percentage (Blank)i. Vendor Name (India TDS Authority)j. Vendor Site (Same as Section Code)

6. Specify the required TDS information for the supplier using Supplier Additional Info:a. PAN Numberb. TDS Vendor Typec. Default TDS Sectiond. Default Tax Namee. Confirm PANf. Create Pre-Validated TDS Invoice and Credit Memog. All Applicable Thresholds (Section Wise)

7. Threshold Setupa. Vendor Type + Section Code Wiseb. Single/Cumulativec. Both can be applicabled. In case both TDS Thresholds are setup with a monetary limit, Single Invoice Threshold

will operate only if the Cumulative Invoice Threshold is not reached. Once Cumulative Invoice Threshold is reached, Single Invoice Threshold will be ignored.

e. Cumulative Threshold applies to aggregate of all Invoices for the Financial Year.f. Can define Exceptions – Rules that apply to specific vendorsg. TDS thresholds are maintained by Vendor PANh. Based on TDS Vendor Type and Default TDS Section, TDS thresholds will be determined

and TDS calculation madei. At a Supplier Site level, you can attach a Tax Name also. TDS calculation will happen

based on the Threshold setup linked to the default Tax Name specified in the TDS Thresholds Setup screen.

Some Key Points

1. Create Invoice with 2 distribution lines and for each line, TDS Tax belonging to a different section is attached. System will generate the TDS Invoices, based on the Threshold setups of that particular Section and Vendor Type

2. Standard Invoice is created. In the 'Invoice Distributions GDF', TDS/WCT/ESI taxes are attached in all the segments (3 segments). System will generate 3 TDS Invoices on validation of Standard Invoice for each of the segment.

3. Standard Invoice having TDS/WCT/ESI Invoice is cancelled. TDS/WCT/ESI Invoice will be cancelled

4. Create a Standard Invoice in foreign currency and validate the same. System will generate the TDS Invoice and Credit Memo in functional currency.

5. TDS Threshold calculations by manually updating the Total Threshold Invoice amounts in the Manual 'Thresholds' Screen. System will update the Threshold amount and further TDS Invoice generation will be based on the modified Threshold

6. Invoice created that reaches Cumulative Invoice Threshold. TDS will be deducted based on the Tax Code applicable for Cumulative Invoice Threshold. Adjustment Invoice will be generated based on tax already deducted, if any.

TCS

At the time of selling certain specified goods (as listed below), the seller should also collect tax from the buyer (TCS). Few scenarios where TCS is exempted are:

•Goods are bought for personal consumption (retail sales only)

•If the buyer is a Public Sector Undertaking, State/ Central Government undertaking, Embassy/ High commission/ Consulate or trade representation of a Foreign State, Club

•If the buyer gives Form 27C in duplicate, a copy which is then submitted to Income tax department by the seller

The seller should issue a certificate (Form 27D) on monthly basis (and a consolidated certificate on half yearly basis on request from buyer).

Specified Goods Section Exemption Limit TCS RateAlcoholic liquor for human consumption and Indian made foreign liquor

206CA Nil 1

Tendu Leaves 206CI Nil 5

Any forest produce not being Tendu leaves

206CB/ CC/ CD Nil 2.5

Scrap 206CE Nil 1

Parking lot / toll plaza / mining and quarrying

206CF/ CG/ CH Nil 2

TDS vs TCS

TDS happens while making a payment — it is a deduction from the recipient's income. TCS happens in a diametrically opposite situation.

Under Section 206C, a seller of scrap is required to collect tax at the rate of 1 per cent of the selling price.

While TDS pares down one's receipts, TCS heightens one's purchase bill. While TDS is normally resorted to expedite tax collection and foil tax evasion, the aim of TCS is to bring into the tax net the hard-to-tax categories.

CENVAT

CENVAT is a Central VAT. You have the provision to claim this tax at the time of receipt. The RG registers are updated with the CENVAT entries at the time of receipt.

Applicability Can be claimed by a manufacturer anywhere in India. Can be claimed by a service provider anywhere in India except J&K. CC is available if there is a tax liability (Excise/Service Tax). CC is available in case of exports as well though there is no tax liability of Excise/Service Tax.

Concept This is a system or procedure under which a manufacturer of excisable goods who is liable to pay excise duty or provider of taxable service who is liable to pay service tax is given credit for ED & ST borne by him on his capital goods, inputs and input services.

The manufacturer uses this credit in order to pay ED on FGs manufactured or the service provider uses this credit in order to pay ST on the services provided.

2 Scenarios:

Amount of Tax > CC

Pay the difference as tax to Central Excise/ST Authority

Amount of Tax < CC

Excess amount can be carried forward for unlimited period. No refund.

Exception Refund is applicable only in case of input or input services (CC) is used to manufacture goods or provide services that are exported. Refund is applicable in case of VAT.

Purpose Purpose is to avoid cumulative effect of taxes.

Cenvat for Manufacturers

If any manufacturer purchased a material, which is duty paid, and if it is used for his further manufacturing activity, he can avail this as credit in his book based on the Central Excise Invoice. At the time of selling his manufactured goods, he is liable to pay the excise duty. He can adjust the credit which he has taken into his book and pay the rest.

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. 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.

Input may be used directly or indirectly - The input may be used directly or indirectly in or in relation to manufacture. The input need not be present in the final product.

No credit is available if final product is exempt from duty

Cenvat Credit Explained

ABC Ltd is the manufacturer and exporter of toys and it purchases certain components from PQR Ltd for use in manufacture of toys. PQR Ltd would have paid excise duty on components manufactured by it and it would have recovered that excise duty in its sale price from ABC Ltd. Now, ABC Ltd has to pay excise duty on toys manufactured by it as well as bear the excise duty paid by its supplier, PQR Ltd. This amounts to multiple taxation. ABC Ltd can take credit for excise duty paid by PQR Ltd so that lower excise duty is payable by ABC Ltd, at the time of export. This is how CENVAT CREDIT works.

Under CENVAT Credit scheme, the benefit of excise duty on inputs is available, instantaneously, when the inputs reach the factory. There is no need to establish any linkage between the inputs and goods manufactured. In case of capital goods, 50% benefit is available in the current year of purchase and balance in the next year. This balance can be adjusted against the duty payable but is not refunded.

For example:

CENVAT availed at the time purchased various goods Rs.20,000 (Excise duty alone)

CENVAT payable for his product at the time sales Rs.25,000

He will pay only Rs.5000 through cash deposit in PLA.

Some Key points on Cenvat Credit

CENVAT credit can be availed immediately on the receipt of the goods in the registered premises of the company that gets the final products manufactured.

Physical receipt of input is prerequisite for the availment of credit.

In case of removal of input as such, credit availed earlier needs to be reversed in full Cenvat credit on input, input services and capital goods is not available when the final product

manufactured by the manufacturer is chargeable to duty @ 1% under Notification 1/2011-CE. In case of import of inputs and capital goods, Cenvat credit of the Basic Customs Duty is not

available. Input credit is not required to be reversed where final products are exported or deemed to be

exported. Capital goods not defined as capital goods under Cenvat credit rules will be eligible as ‘inputs’ if used

in factory and has some relation with manufacturing. Cenvat credit on goods for personal consumption of employees is not eligible as input. Cenvat is available on entire quantity of input even if part of input goes in process loss, since all

inputs are used in the manufacture of final product, even if it is not reflected in the final product. If inputs are short received and there is loss during transit, the goods short received cannot be

termed as ‘used in the factory’. Hence Cenvat credit on such short received inputs is not available. It is not necessary that input should be directly used in the manufacture of final product as the word

used in the definition is “all goods used in the factory…” not “all goods used in the manufacture of final product….”

Goods having no relationship whatsoever with the manufacture of final product cannot be used for claiming Cenvat credit

The Cenvat Credit can be utilised for payment of any excise duty on:

Any duty on any final product manufactured by manufacturer Payment of ‘amount’ if inputs are removed as such or after partial processing Payment of ‘amount’ on capital goods if they are removed as such Payment of ‘amount’, if goods are cleared after repairs under rule 16(2) of Central Excise Rules Reversal of Cenvat credit, if assessee opts out of Cenvat – Rule 11(2) Payment of ‘amount’ if goods sent for job work are not returned within 180 days – Rule 4(5)(a).

VAT Negative List

List of items on which No Input Tax Credit Available

NEGATIVE LIST[See sub-section (4) and sub-section 12 (e) of section 22.]

List of goods not eligible for input tax credit or input tax rebateSerialNo.

Description of goods Exceptions

1. Air-conditioning units, aircoolers, fans and air circulators.

When the registered dealer is in the business of dealing in such goods.

2. All automobiles including When the registered dealer is in the business

commercial vehicles, and two and three wheelers, and spare parts for repair and maintenance thereof.

of dealing in such automobiles or spare parts.

3. Crude oil. When the registered dealer is in the business of dealing in crude oil or of manufacturing any goods taxable under the Act using crude oil as a raw material.

4. Food, beverages and tobacco products. When the registered dealer is in thebusiness of dealing in such goods.

5. Building materials, namely, bricks, sand, cement, stone chips, iron and steel as referred to in section 14 of the Central Sales Tax Act, 1956, marble,tiles, doors, windows, sanitary fittings, bathroom fittings, drain pipes and all other materials used in construction,reconstruction or repair of a civilstructure or parts thereof.

[When the registered dealer is a works contractor and uses such goods in the execution of works contracts, or when the registered dealer is in the business of dealing in such goods.]

6. Office equipments. When the registered dealer is in thebusiness of dealing in such goods.

7. Furniture, fixture includingelectrical fixtures and fittings.

When the registered dealer is in thebusiness of dealing in such goods.

8. Taxable goods which are used ascapital goods, raw materials,considerable stores required inthe manufacture of goodsspecified in Schedule A or usedin the packing of goods somanufactured and not sold in thecourse of export.

9. Goods purchased and accountedfor in business but utilized forthe purpose of providing facilityto the employees including anyresidential accommodation.

10. Goods used for personalconsumption or received as gifts.

11. Taxable goods purchased for usein business other than that asdefined in sub-clause (a) ofclause (5) of section 2.

12. Coal, furnace oil, or any otherfuel used for any purpose

When the registered dealer is in thebusiness of dealing in such goods.

13. Generators and parts andaccessories thereof used for captive generation.

When the registered dealer is in thebusiness of dealing in such goods.]

Negative list or items on which no input credit is available, therefore must be consulted before any claim under the WB VAT Act.

Central Excise Duty

Applied to both manufacturing and trading Orgs when the organization is excise registered. It is a federal tax controlled by the central excise department. A CE registration called ECC# is required for each physical location. If there are two inventory orgs at the same location, they will share a common ECC#.

ECC number: A tax number assigned, in India, by the Department of Revenue to legal and natural persons liable to excise duty. The taxpayer is required to obtain a separate ECC number for each registered premises (for example, factory, warehouse, or dealer's premises).

Excise registration number: The number used to identify an excise registration (India only). When a business registers with the local excise authorities, the authorities issue it a separate number for each registration

Manufacturers must pay excise duty when purchasing raw materials. This is a part of the P2P cycle. They must also pay excise duty when they sell the finished goods. This is a part of the O2C cycle. Manufacturers must maintain all statutory records according to the rules that the excise authorities have defined.

Manufacturers who are exporters are not required to pay excise duty according to the excise rules. However, they must submit ARE 1 bonds or ARE 3 certificates, which are equivalent to the excise amount or excise quantity, to the excise authorities for a given period.

The manufacturers who send goods consignment outside the company for work do not have to pay excise duty if they receive the consignment within 180 days. They must submit the consignment note to the tax authorities to declare the receipt of goods within the required time period.

Dealers are not required to pay excise duty because they perform only a goods transfer.

Excise Registers

RG23A-II register: Manufacturers maintain this account for the purchase of raw materials.

RG23C-II register: Manufacturers maintain this account for the purchase of capital goods.

RG1 register: Excise units maintain this register. This register includes receipts, issues, and stock of finished goods.

RG23D register: Dealers maintain this register to record the stock transfer at purchase price.

PLA Account: Excise units maintain this register by depositing the cash amount for the duty payment in the bank with the TR-6 challan.

Excise Process in O2C Cycle

Manufacturer Process

Create a sales order for items that are eligible for excise duty. Issue a tax invoice to charge excise duty to customers for goods purchased. Confirm the shipment after receiving the shipment confirmation for the goods exported. Update inventory and the RG1 register. Update the accounts receivable. Produce reports that show the revenue generated on a periodic basis. Pay excise duty to the government by offsetting the excise duty amount, and update the PLA.

Manufacturer (Export) Process

Set up ARE 1 bonds and ARE 3 certificates. Create a sales order with excise tax for items that you export. Create an invoice. Offset the amount or quantity of excise duty by the ARE 1 bond or ARE 3 certificate respectively. Receive the proof of export. Replenish the bond amount with ARE 1. Print Annexure 19 periodically to submit to the government.

Dealer Process

Create a sales order for items that are eligible for excise duty. Issue a dealer tax invoice. Confirm the shipment after receiving the shipment confirmation for the goods dispatched. Update the excise tax in the RG23D register.

Excise Flow in P2P Cycle

Manufacturer Process

Create a purchase order for items that are eligible for excise duty. Receive goods with tax component and a receipt note from the supplier. Claim the excise duty on the purchase order. Update credit balances for the AII, CII, or PLA register.

Customs Duty

Customs Duty is paid on goods when goods are imported into India

It is paid in INR as a % of the duty over the value of goods received in foreign Currency.

In Oracle, provision is made to pay this duty as a prepayment before receiving the materials and it is adjusted against BOE given by Customs.

When goods are received into the inventory org, they should be associated with the BOE Tax amount paid on them at the time of import.

These Entries are registered in a Tax Register called RG23D

While Shipping the goods on a sales order, the deliveries are associated with these registry entries.

Key Localization Setups

Inventory Orgs Additional Organization Information

The information that you provide in the organization additional information using India Localization would become the basis for the recording, reporting and accounting for the tax

Setup Inventory Orgs in the regular way Setup records for each inventory Org and inventory location in the Organization additional

information Each organization should have a record with Null location first. The other records for each location

should be defined there after Each organization has tabs for providing Tax Info, Accounting Info and Trading Info. In the Tax info, provide the Excise Registration Information, Sales Tax registration Information, PAN

No, TAN No, VAT Registration No. In the Accounting Info tab, provide all the accounting related information. In the Trading Info, provide the trading excise registration information related to the trading orgs. Once you enter the excise info, the org will be treated as Manufacturing Org You can set up one of those records as Master and the other as Child Orgs for Excise. Then Excise

will be consolidated at the Master org level Most of the excise info that you specify here will print on the excise related documents. Most of the Sales Tax info that you provide here would print on the sales tax documents. If you enter excise info in the Tax Info tab, then you will not be able to enter the excise info under

the trading tab. An Organization is either a manufacturing org or a trading org but not both. Provide the Excise information under trading info tab for the trading organization Checking Excise in RG23D option will create entries in the RG23D register. If this is not selected, then

the excise amount will be added to the inventory cost on receipt Order Price Inclusive Option includes the Excise tax in the order price. If the option is checked, then

excise duty is not added to the receivables account. If it is unchecked, then the excise tax is added to the receivables account

Key Excise Related Info: Excise Division, Region, Zone, Circle, Collectorate. For Manufacturing Excise there are 2 options: Export Oriented Unit and Excise Invoice at EC Code

In Accounting Info tab we need to specify accounting info wrt Excise. Excise Acc Info, Cess Acc Info and SHE Cess Acc Info. The key accounts are BOE Acc, Customs Write Off Acc, Excise RG 23D, Excise Payable/Paid, Excise Expense, Cenvat RM, Cenvat CG, Cenvat Reversal, Cenvat Receivable, RTV Expense and PLA Register. Expense Excise Taxes on RTV

o Excise Payable/Paid: This account will debit for the total Excise amount whenever shipment is confirmed to a customer and AR Invoice is raised.

o Excise RG23D: Excise Duty Account for trading item and this account will be updated for transaction happened in a Trading Organization Location.

o Excise Expenses: This default account is being used to track the Excise duty due from the excise department on account of customer returns treated as FG return or scrap.

o OSP Excise: This account will be used to pay the Excise Duty on goods sent for Outside Processing (OSP). This is usually a Expenses Account.

o Bill of Entry: defaulted on creation of Bill of Entry and on applying Bill of Entry to Receipt this GL account gets credited. This is usually an asset account.

o Customs write off: This Customs write off a/c will be updated for a written off amount from Bill of Entry a/c when ever amount is written off from BOE.

o PLA Register: defaulted for Payment towards Excise Duty through TR - 6 Challan. Whenever the payment to Excise is made through the PLA Invoice/RG Consolidation screen will update this ledger account. This will also consider the PLA debit entries done through ship confirm transactions and AR Localized transactions.

o CENVAT RM: This is the default GL account that will hit while performing a receipt with CENVAT Credit (inputs). This is usually an asset account. This account would be credited on shipment when the excise liability arising from the shipment transaction is met by utilizing the Cess credit available in RG 23 A Register.

o CENVAT CG: This is the default GL account that will hit while performing a receipt with CENVAT credit (Capital Goods). This is usually an asset account. This account would be credited on shipment when the excise liability arising from the shipment transaction is met by utilizing the Cess credit available in RG 23 C Register.

o CENVAT Receivable: Needs to hit while performing CENVAT credit transactions for the Capital Goods. As per the provisions of Excise Rules, the manufacturer is permitted only to take 50% of the duty paid on Capital Goods at the time of receipt and the balance can be availed in the succeeding financial year. The amount that needs to be claimed later will be accounted in this ledger account.

o CENVAT Reversal: This CENVAT Reversal a/c will be updated for Reversal entry passed on account of Excise Exemption & CT2 form transactions in an Inventory Organization Location.

Parameters:o Do not allow excise shipments without excise taxeso Sales Tax/VAT/OSP/Excise Return Days

Enter the number of days within which the OSP goods should come back to the Inventory Organization under 57F4. As per the Excise Rule it is 180 days.

Enter the number of days within which the Sales Return Goods should reach the Inventory Organization from the date of Sale as per Sales Tax Act. As per the Sales Tax Act, it is 180 days.

Enter the number of days within which the sales return goods should reach the Inventory Organization from the date of delivery as per VAT act in each state.

o Modvat Reversal % This value is the default percentage, which will be considered by the system

whenever it performs a duty debit under Rule 57 CC of the Central Excise Rules. You should enter the CENVAT recovery percentage in this field. For example, currently, the percentage of CENVAT recovered is 8% on all excise exempted transaction. Thus, 8 should be entered into this field.

Register Preferences:o This parameter decides the preference of hitting the duty payment register while

performing a ship confirm transaction in Order Management or a Transaction Localized in the AR Module. You are not permitted to debit duty from different duty paying registers for a single transaction.

o Allow –ive balance in PLAo Allow –ive balances in RG Registerso Allow CVD credit reversal for RTV transactiono RG 23 Ao RG 23 Co PLA

Receiptso Update Qty Register Event (Receipt/Claim)o This event lets you update the Quantity register on Receive and Amount register on claim of

CENVAT.o Allow Tax Change on Receipts

Default Location for Bill Only Workflow

Note: If the balance available in each of the CENVAT Registers and PLA is less than Excise Duty liability arising from the ship confirms transaction, then the ‘Interface Trip Stop’ request completes with error and the shipment transaction remains incomplete.

Note: In case of monthly Excise settlement, you can ship the goods with inadequate CENVAT Credit. To meet such situations you can enable ‘allow negative balance in PLA’ and set PLA preference to 1. On doing this, all excise payments are done through PLA register and periodic adjustments towards payment of excise duty can be done through RG Consolidation screen. In such type of setup, the CENVAT registers will have entries only for the credit availed and the adjustments made while computing the exact excise liability (fund transfer from CENVAT register to PLA register).

Sub Inventories

Before you start using Oracle Financials for India Inventory, the Sub-inventories have to be associated with Organization/Location combination.

Excise related transactions and records will be updated only for those Sub inventories, which are

identified as bonded for Manufacturing Organizations and as Trading for Trading Organizations. Then only Excise related transactions will be recorded.

By considering the transactions of a Sub Inventory, the check box for bonded/traded needs to be enabled.

Note: The above Sub Inventory setup is mandatory in nature & missing the same will result in shipping getting stopped.

Tax Regimes

Setup Excise, TDS, TCS, VAT and Service Tax Regime Registrations You specify the registration numbers, Tax Types and the inventory Orgs for which it is applicable Also you specify the tax account details like Liability Account, Recovery Account etc. For TDS however we don’t specify the Tax Type or accounts. Moreover TDS specifies the OU for

which it is applicable and not Inv Org. The Regime would be used to define the rules that are applicable to all the taxes (based on the tax

types) assigned to it. Taxes defined under the regime would default only for those organizations assigned to it. You can over ride them at the org level.

Tax Calendar

Localization taxes would be calculated only when the transaction falls within the active year. You can keep only one Year active at a time. The Tax Calendar defined for an Organization NULL location would be defaulted to the other

Organization Additional Information records created for the Locations with this Organization. Tax Year in India is from 1st April to 31st March This task needs to be done every tax year. Do not open the tax year for the next year by mistake as it will become current and cannot be

changed. If Excise invoice has to be generated with a specific prefix, then complete the setups under Excise

Generation. Different prefixes can be given based on transaction (Order/Invoice/Export/Inter-Org) in question and the corresponding transaction type.

Define TDS Calendar

This is OU specific. One TDS calendar is allowed for a combination of TAN number and OU.

Only one period or year should be open at a point in time. This also has options to specify the Rounding factor and whether Inclusive taxes should be

accounted Before you start using the TDS functionality in an Organization, you will have to setup TDS Year

Information. This year would be the Income Tax Reporting Year and is independent of the Tax Calendar defined in the Inventory Module.

The TDS limits, TDS Reports and TDS Certificate would be based on the period. Every assessee liable to deduct TDS is required to obtain a unique identification number called TAN

(Tax Deduction Account Number) which is a ten digit alpha numeric number. This number has to be quoted by the assessee in every correspondence related to TDS.

Define Tax Authorities as Vendors

This needs be done in AP. We need to select the appropriate supplier type viz: India TDS Authority

Customer and Supplier Additional Information

This needs to be defined for null site as well as the actual sites. VAT, Excise and Service tax registrations can be defined for each supplier, supplier site, customer

and customer site. The information that you setup here would be the basis for tax defaults on PO and SO. These can be setup in the additional Supplier or customer information VAT info on customer is mandatory for VAT Invoice Generation Assessable Price List is used where excise or VAT has to be calculated based on assessed amount

rather than line price PAN No, TAN No and TCS Customer Type is also captured here. Key TDS related information is specified below:

o TDS Vendor Typeo Default TDS Sectiono Default Tax Nameo Confirm PANo Create Pre-Validated TDS Invoice and Credit Memoo All Applicable Thresholds (Section Wise)

Items

Setup item templates for India Localization and apply the templates to Items Apply these Item templates to Items for each Inventory Org You can override the attribute values derived from the template

Also create a category list with the required items and assign the tax category. This tax category will default in PO line. The item category is defined at the Inv Org level.

Define Tax and Tax Categories

Define taxes. Provide the following key information.

Tax Name Tax Type

o Select type of tax from list of values. This will indicate how to treat the tax at transaction level.

Vendor Nameo Required for TDS

Account Codeo Account will be debited or credited. In the Order to Cash Cycle this account will be used to

account for the Tax transactions. In Procure to Pay Cycle, this account will be charged for the recoverable portion of the taxes specified for tax types other than Excise and Add. Customs.

o For example, for a Sales Tax Type of tax you have defined tax as 10% and credit % as 50%. During delivery, sales tax to the tune of 50% will be considered for Item Cost and the balance 50% (of recoverable tax amount) will hit this account.

Tax Rateo Enter the Tax Rate at which the Tax will be calculated. The user can either enter Tax rate

based on amount or per unit or on Adhoc basis. Discounts can be specified as Negative Taxes. But this works only when the Tax Types is ‘Any Other Tax’. (Percentage/Unit Rate/Adhoc)

Surcharge % Cess %

o Cess on TDS Inclusive Tax Update Vendor

o This flag is providing flexibility to the user to change the Vendor Name at the transaction tax lines while entering a transaction. But this Flag cannot be checked for Customs, Additional Customs, and TDS Type of Taxes since the respective tax dues need to be paid to the respective Department Authorities.

Update Transactionso By enabling this flag the tax transaction lines can be updated or modified whenever any

changes are required at the transaction level. Adhoc

o Adhoc basis of tax can be used to define tax amount, which will be known only at transaction level (i.e. Freight). You can change these taxes at transaction level. In

Precedence calculation amount of such type of tax will not depend on any other tax whereas other taxes will be dependent on amount of this tax type. When adhoc basis is enabled, then other fields in the Rate Block will get disabled.

Credit Percentageo For all input type of taxes, this field determines the percentage of recoverable and

irrecoverable taxes.

Tax Categories can be used to combine a combination of taxes and define how each component of tax will be calculated to give the total tax. Viz: Service tax so that the three taxes base value (12%), cess (2%) and SHE cess (1%) can be combined together. The net effect should be a tax percentage of 12.36%.

If a Tax Category is associated to a particular Inventory item class then the respective Inventory class code can be entered here.

Bond Register

Setups in Bond Register are required to generate Excise Invoice numbers and Updation of excise registers. It also determines the excise duty to be calculated.

You specify the Order type from OM in bond register to associate the related excise transactions The excise transactions related to manufacturing and trading need to be associated with the bond

register. By associating the order types to the excise transactions for an inventory org and location, excise

records will be passed based on the nature of goods cleared. Some of the register types are Trading Domestic with Excise; Trading Export with Excise; Export with

Excise etc. Excise transactions need to be identified based on the Organization/Location combination and

against each Excise Transaction multiple Order Types and Transaction Sources can be assigned. Order Type need to be assigned to Excise related transactions from Order Management Module and Transaction Source need to be assigned for all Excise related transactions through the Stand Receivable Module.

If the Organization/Location is of ‘Manufacturing’ type, excise related transactions for manufacturing set up need to be associated. Likewise, if the Organization/Location is ‘Trading’ excise related transactions for trading need to be associated.

By associating the Order Types to the excise transactions for an Inventory Organization and Location, the related Excise Record entries will be passed based on the nature of goods cleared.