Karnataka VAT - epayment of VAT

Notification No.EG1.CR.33/2011-12 dated 19.10.2011 has been issued under Karnataka Value Added Tax, Act, 2003 whereby all dues under this Act (namely Karnataka VAT) should be paid through electronic mode.  This will be applicable for all registered dealers whose liability under the Act is more than one lakh rupees.

The link for this payment is through https://vat.kar.nic.in or https://vat.kar.nic.in/epay

This notification is effective from 2.11.2011.

Please take note of this and be prepared to pay Karnataka VAT online if liability is more than one lakh rupees.

Special Additional Duty of Customs (SAD) Refund

Ministry of Finance issued a Notification No.102/2007-Customs dated 14.09.2007 to clarify certain points as to refund of the Special Additional Duty of Customs one of such clarification is contained in Point 2(b) which reads as follows.

"the importer, while issuing the invoice for sale of the said goods, shall specifically indicate in the invoice that in respect of the goods covered therein, no credit of the additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 shall be admissible;"

Hence the notification made it mandatory to incorporate the above declaration in the sales invoice of the assessee for granting refund of Special Additional Duty of Customs.

As is the general practice the Tribunals and courts take a liberal view on the notifications and they always are of the opinion that the notications have to be intepreted liberally and circumstantial evidence if they are very strong the and if there is positive intention on the part of the assessee then even if some "technical lapses" are evident the Tribunals and Courts overlook them and favour the assessee.

Similarly interpreting the above clause 2(b) cited in notification No.102/2007-Customs the Mumbai Tribunal has recently passed 2 judgements

        [2011 (272) ELT 287 (Tri-Mumbai)] and

[2011 (272) ELT 310 (Tri-Mumbai)]

In the above orders the Tribunal has held that the assessee has not charged or shown the Special Additional Duty in the invoice buy failed to incorporate the declaration as given in condition 2(b) the assessee is still elibgible for availing of refund of the Special Additional Duty.  Further the Tribunal observed that there is a Chartered Accountant Certificate which specifically proves the payment of VAT / CST liability and hence the declaration is not mandatory to avail refund of Special Additional Duty.

The views of Tribunals and Courts are more welcome, however this is absent till Commissioner (Appeals) level, which leads to increase in litigations reaching higher judicial authorities, which can be very well avoided.

How to handle Income Tax Scrutiny Assessments u/s 143(2) in India

Indian taxes are complicated, equally complicated is appearing for assessments before the assessing officer who is often the Assistant / Deputy / Joint Commissioner of Income Tax.  The primary objective of this article is to provide an insight into income tax assessements under section u/s 143(2), and how best one can handle this.  This article primarily may be suitable for medium sized manufacturing companies with a turnover range of Rs.100 crores to Rs.300 crores.

Along with the 143(2) intimation, an checklist of about 25 information required is sent by the Income Tax Officer.  These informations require various details relating to the company's activities including income, debtors, creditors, loans, assets etc.  As far as possible please take time and reply to all these queries precisely, with full facts and wherever annexure is required to be submitted also make the annexure.  Please ensure that not only the information is full, but also provided on time given or at the maximum one extension of time.

Then a personal hearing is called for by the Officer, would recommend that the person attending the hearing has reasonable knowledge of the business & also knowledge of income tax, so that he can explain all the queries of the officer about the business as well as income & expenses relating to the business.  Here I would suggest that a senior official from the company (maybe Head of Finance) should attend the hearing and explain to the officer about the company and also all the queries regarding financials of the company. 

The major problem with Indian Income Tax Administration is that they do not have any past records of the company like a "Permanent Audit File" so an information which was provided during the previous assessment will be asked again, so would recommend that be prepared for providing copies of all major agreements like Royalty, Third Party Manufacturing Agreement, Head Quarter Services Agreement, Distributor Agreement etc to the assessing officer, even though these agreements were live before the year under scrutiny.  Also please bear in mind that in India the officers change once in 3 to 4 years and there being no exchange of information among the officers the new officer will ask for all the details which were provided by you to the earlier officer also.  In short, for every assessment everything starts fresh.

Another twist to the tale will be Transfer Pricing.  If your company has substantial International Transactions with related parties then the Income tax Officer will transfer the file to the Transfer Pricing Officer for scrutiny of Transfer Pricing transactions.  Again the problem of "disconnect" among the officers happen here.  The Assessing Officer and the Transfer Pricing Officer do not exchange information so the Transfer Pricing Officer will also ask some details which were already provided to the Assessing Officer and also ask for one more copy of the agreements already provided to the Assessing Officer.  The scrutiny of Transfer Pricing Officer will again have its iterations of calling for additional details and personal hearing.  Here again I would strongly recommend that a company representative having reasonable knowledge about business and income tax regulations attend the hearing, so as to make the Transfer Pricing Officer more comfortable.  Here also please provide full details for any queries raised by the Transfer Pricing Officer and ensure that you attend the Personal Hearing and all the subsequent hearings on time stipulated without postponment as much as possible, this will help trust to be built on you by the Officer.

Once the Transfer Pricing Officer sends in the report, the Assessing Officer again opens the files and goes through another round of questions and personal hearing.  As usual be elaborate and complete in your answers and ensure that you attend the Personal Hearings on time stipulated without postponment.

If there are issues raised by the officer which you do not accept please present your side of the case with full details including case law citiations and preferably in writing as you would do to the higher courts.  This helps in decision making of the Assessing Officer.  Here you should take opinion from experts as if the officer rejects your side of the story then appeal is a costly and time consuming affair.

In conclusion, please be prompt & accurate in your replies and ensure that you attend the hearing on time, surely you will get over the assessments without much hurdles.

SAP - CIN Version

Country India (CIN) modules have been specifically designed by SAP to handle the complex Indian taxes. The objective of this article is to throw some light on the various transactions relating to CIN version in SAP so that it can serve as an activity manual for users of SAP. This article is a high level summary of some CIN related transactions.

Material Accounting

 

Tax masters are entered in MM module using ME11 & FV11 transaction codes. ME11 is used chiefly for import transactions where there are multiple taxes like customs duty, CVD, SAD and their respective Cess & Education Cess. FV11 is mostly used for local purchases. These taxes are then captured in purchase orders prepared to enable tax to be captured in material accounting.

 

Local Purchases

 

• Goods Received Note (GRN) is prepared using MIGO transaction and in the GRN stores have to capture the excise invoice details (as excise invoice may be different from commercial invoices in some cases). This excise invoice so captured also helps in generation of RG23A Part I report.

• Based on the above MIGO RG23A Part II entry is made using transaction code J1iex. Here if there is a difference between ED in PO and invoice we can have manual correction (ie) a higher or lower amount of excise can be captured

Import Purchase – little complicated because of customs duty payment before GRN (MIGO)

 

• Prepare customs duty MIRO first based on PO terms – here complication comes in if it is for manufacturing or trading. If manufacturing Special Additional Duty (SAD) is configured for credit, if trading SAD is configured for refund (receivable)

• Customs duty MIRO has to be captured separately for separate condition type like Basic Customs Duty, Cess, ECess, CVD, Cess on CVD, ECess on CVD, SAD and so on as every item of tax has a different treatment in material accounting / credit availment

• If there are multiple line items in the PO there is real complication in entry of customs MIRO as for one line item there are 7 conditions to enter and if in an invoice there are 10 items then there are 70 lines in MIRO to enter. For this, one can use an customs duty update program which can be developed using ABAP program.

• At the time of MIGO the customs duty MIRO number has to be entered to take the correct taxes.

• Then Cenvat (CVD) is availed under transaction code j1iex

 

All reports like RG1 / RG23A Part I / RG23A Part II / RG23C Part II / PLA etc are generated using J1i5, J2i5, J2i6 etc. Excise duty is paid using J2iun

 

RG23C – Capital Goods

 

All the requirements are as same for material purchases, difference is that configuration for capital goods purchase should be done in transaction code J1id, and 50% calculation will happen from there for excise purpose.

 

Goods Transport Agency (GTA)

 

GTA can be configured similar to withholding tax and the same should be configured in vendor master for capturing during the time of MIRO or FB60 transactions. Vatability of GTA can be configured while creating GTA masters.

Sales Tax – VAT credit

 

For Sales tax VAT credit use report J1iz – this gives on list of VAT transactions. Details of raw materials and Capital goods can be split here and entries passed accordingly.

Excise invoice for sales

 

This can be configured as proforma invoice in SAP. For generating excise invoice use transactions J1iin or J1i3

 

Service Tax on Goods Transport Agencies (GTA)

Service Tax on Goods Transport Agency (GTA) is yet another “innovation” in Indian tax scenario. The “innovative” Fringe Benefit Tax (FBT) was bundled out couple of years back but this GTA is here to stay and haunt especially manufacturers who do not provide transporting services but avail of these transporting services. The way out of this muddle is to ensure that GTA service providers pay this service tax and charge in their invoices as all other service providers do. But, will the Government be able to get over the strong GTA lobby is a big question.

For beginners to explain why GTA is different, “Under Service Tax the person who provides ‘service’ has to pay Service Tax and claim it from his customer as this is an indirect tax. Difference under GTA is that service tax has to be paid by the recipient of the service and not by provider of service. This is called “Reverse Charge” mechanism. So if a manufacturer avails Goods Transport service from a GTA, he on the basis of the bill of the GTA should pay to the Service tax authorities Service tax. The manufacturer also has to maintain all the records regarding this payment and file necessary returns also.

The main purpose of this article is to highlight the procedure for payment of service tax on GTA & availment of Cenvat Credit on the same, by a manufacturing concern which has both manufacturing and trading (exempted) products.

First some basic rules

1. Service tax is to be paid on the GTA bill less 75% abatement – (ie) if the bill value is Rs.10,000 then service tax needs to be paid on Rs.2,500

2. Current service tax percentage is 10.3% after 75% abatement effective rate is 2.575%

3. Service tax is not payable if the GTA bill is less than Rs.750

4. Service tax is not payable if the GTA bill is less than Rs.1,500 for more than one consignment in the same consignment note (LR)

5. Credit of Cenvat can be availed by the manufacturer using the TR6 Challan or GAR-7 Challan on which Service tax has been paid by them

Treatment for freight on Manufactured goods on which Excise duty is payable

Service tax has to be paid on all freight bills received and paid by the manufacturer. The manufacturer has to maintain separate records for these bills and also register of tax paid.

The complication arises in availing of Cenvat Credit. Manufactures have to split the GTA invoices into 3 catagories.

1. NGTA – No GTA

This is basically GTA invoices on which there is no service tax payable because either the bill value is Rs.750 or below or Rs.1,500 or below for more than 1 consignment.

So obviously there is no Cenvat Credit available on these bills

2. GTAC – GTA on which Credit can be availed

This covers all Inward freight (ie) materials used in or in relation to Manufacture of excisable goods and all Outward freight upto the place of removal (ie) either a warehouse or Depot from which goods are invoiced to customers

3. GTANC – GTA payable but on which No Credit can be availed

Service tax paid on all Outward freight (ie) freight incurred on sales of finished goods, will not be eligible for Cenvat Credit, as this freight is not used for transporting items used in or in relation to Manufacture of excisable goods but for transporting already duty suffered goods.

 

Treatment for freight on Traded goods on which Excise duty is not payable

Service tax has to be paid on all freight bills received and paid by the manufacturer for these traded (exempted) items. The manufacturer has to maintain separate records for these bills and also register of tax paid.

However as for Cenvat Credit there are only 2 categories (as explained above).

1. NGTA

2. GTANC

In short, for the trading (exempted) portion of the products the manufacturer is liable to pay service tax but cannot claim CENVAT credit.

Conclusion

For a manufacturer maintaining records and filing returns on GTA is an additional burden imposed by law just because GTA service providers are resisting any move to tax them and unwilling to maintain records. This practice should not be continued, GTA service providers should be made accountable under law for service tax also and they should also be on par with all other service tax providers as to payment of service tax. Government should Act firmly on this.

 

Extension of time for receipt of Export Proceeds to 1 year

RBI vides its circular

A.P. (DIR Series) Circular No.40, Dated- November 01, 2011

has yet again extended to twelve months (normal period six months) the period of realization and repatriation to India the full value of exports of goods or services. This effectively means that if an export is made on 1.10.2011 the proceeds of this export can be received within 1 year (ie) till 30.09.2012. This extension is applicable upto 30th September 2012.

This relaxation which is being now provided for almost 3 years now, is to help Indian exporters tide over American & European crises.

Validity of Cheques / Drafts / Pay Orders / Bankers Cheques reduced to 3 months

Reserve Bank of India has issued directions vide RBI/2011-12/251 - DBOD.AML BC.No.47/14.01.001/2011-12, under which it has directed banks from 1st April 2012, not to honour cheques / Drafts / Pay Orders / Banker’s Cheques which are more than 3 months old as against the current practice of 6 months.