Question 1
How would you arrive at the assessable value for the purposes of levy of excise duty from the following particulars-cum-duty selling price exclusive of sales-tax Rs. 10,000 - Rate of excise duty applicable to the product : 15% - Trade discount allowed - Rs. 1,200 - Freight Rs. 750. (ICSI Final Dec. 1989)
Answer 1 – Trade discount of Rs 1,200 and freight of Rs 750 are allowed as deductions. Hence, net price is Rs 8,050 [Rs 10,000 – 1,200 – 750]. Since the price is inclusive of excise duty of 15%, Excise Duty will be Rs (8050 x 15)/115 i.e. Rs 1,050 and Assessable Value is Rs 7,000 [8050-1050]. Check that 15% of Rs 7,000 is Rs 1,050.
Question 2
How would you arrive at the assessable value for the purpose of levy of excise duty from the following particulars : * Cum-duty selling price exclusive of sales tax Rs 20,000 * Rate of excise duty applicable to the product 15% * Trade discount allowed Rs. 2,400 * Freight Rs. 1,500 (ICSI Final December, 1998)
Answer 2 - Trade discount of Rs 2,400 and freight of Rs 1,500 are allowed as deductions. Hence, net price is Rs 16,100 [Rs 20,000 – 2,400 – 1,500]. Since the price is inclusive of excise duty of 15%, Excise Duty will be Rs (16,100 x 15)/115 i.e. Rs 2,100 and Assessable Value is Rs 14,000 [16,100-2,100]. Check that 15% of Rs 14,000 is Rs 2,100.
Question 3 -
1,500 pieces of a product ‘A’ were manufactured during 1997-98. Its list price (i.e. retail price) is Rs. 250 per piece, exclusive of taxes. The manufacturer offers 20% discount to wholesalers on the list price. During the year, 840 pieces were sold in wholesale, 510 pieces were sold in retail, 35 pieces were distributed as free samples. Balance quantity of 115 pieces was in stock at the end of the year. The rate of duty is 15%. What is the total duty paid during the year 97-98? Assume that the manufacture is not eligible for SSI concession.
Answer 3 –
The total selling price is as follows –
Qty
Price
Total
510
250
=
1,27,500
840
200
=
1,68,000
35
200
=
7,000
Total
=
3,02,500
Duty payable is 15% of Rs 3,02,500 i.e. Rs 45,375, plus education cess @ 2% i.e. Rs 907.50
Note – (a) Since 115 pieces were in stock at year end, no duty will be payable. Duty will be payable only when goods are cleared from factory. (b) In case of samples, as per rule 4 of Valuation Rules, value nearest to the time of removal, subject to reasonable adjustments is required to be taken. However, since prices are varying, value nearest to the time of removal may not be ascertainable and will not be acceptable for valuation as the prices are changing. In such case, recourse will be taken to rule 11 of Valuation Rules, i.e. best judgment assessment. We can take recourse to rule 7 and 9 where principle of ‘normal transaction value’ is accepted, when prices are varying. As per rule 2(b) of Valuation Rules, ‘normal transaction value’ means the transaction value at which the greatest aggregate quantity of goods are sold. Since greatest quantity of 840 pieces are sold at Rs 200, that will be ‘normal transaction value’, which can be taken for valuation of free samples.
Question 4 - A manufacturer has appointed brokers for obtaining orders from wholesalers. The brokers procure orders for which they get brokerage of 5% on selling price. Manufacturer sells goods to buyers at Rs. 250 per piece. The price is inclusive of sales tax and Central excise duty. Sales tax rate is 6% and excise duty rate is 20%. What is the AV, and what is duty payable per piece ?
Answer 4 – Assume that Assessable Value = X.
No deduction is available in respect of brokerage paid to third parties from Assessable Value/
Since Excise duty is 20% and Sales tax rate is 6%, price including excise will be 1.20 X. Sales tax @ 6% of 1.20 X is 0.072 X. Hence, price inclusive of sales tax and excise duty will be 1.272 X. [1.20 X + 0.072 X].
Now, 1.272 X
= Rs
250.00
Hence, X
= Rs
196.54
Check the answer as follows –
Assessable Value
= Rs
196.54
Add duty @ 20% of Rs 196.54
= Rs
39.31
Add sales tax @ 6% on Rs 235.85
= Rs
14.15
Total Price (Including duty and tax)
= Rs
250.00
Question 5 - A manufacturer has to supply a machinery on following terms and conditions : (a) Price of machinery : 3,40,000 (net of taxes and duties) (b) Machinery erection expenses : 26,000 (c) Packing (normally done by him for all machinery) : 4,000 (d) Design and drawing charges relating to manufacture of machinery : 30,000 (Net of taxes and duties) (e) Central Sales Tax @ 4% (f) Central Excise Duty @ 20% (g) Cash discount of Rs. 5,000 will be offered if full payment is received before despatch of goods. (h) the machine will be supplied along with bought out accessories @ Rs. 8,500. The accessories were optional.
You are informed that (a) The buyer made all payment before delivery. (b) The manufacturer incurred cost of Rs. 1,200 in loading the machinery in the truck in his factory. These are not charged separately to buyer. - - Find the ‘Assessable Value’ and the duty payable.
Answer 5 – Erection expenses are not includible in AV. Cash discount is allowable as deduction. Duty is not payable on optional bought out accessories supplied along with the machinery. The cost of Rs 1,200 is already included in the selling price of machinery (as it is not charged separately) and hence is not to be added again.
Hence, AV is Rs 3,69,000 [Rs 3,40,000 + 4,000 + 30,000 – 5,000]. Duty @ 20% will be Rs 73,800, plus education cess @ 2% i.e. Rs 1,476..
Question 6 - Find Assessable Value and duty payable - . - Maximum Retail Trade Price : Rs. 1,100/- per unit. - Sales-Tax, Surcharge, Octroi and other Local Taxes : 10% - Cash Discount : 2% - Trade Discount: 8% - Primary and Secondary packing cost included in the above MRP : Rs. 100 - Excise duty rate : 8% ad valorem. (ICWA Inter - December 1997)
Answer 6 – Cash discount Rs 22 (2% of Rs 1,100) and trade discount 88 [8% of Rs 1,100] are available as deduction. Packing cost is not allowable as deduction. Hence, price of excise purposes is Rs 990. [Rs 1,100 – 22 – 88]. - - Now, if X is the assessable value, excise duty is 0.08 X and price including Excise duty is 1.08 X. Sales tax and local taxes @ 10 % of 1.08 X will be 0.108 X. Thus, price inclusive of excise duty and sales tax will be 1.188 X.
Now, 1.188 X
= Rs
990.00
Hence, X
= Rs
833.33
Excise duty @ 8 % of X
= Rs
66.67
Check the answer as follows –
Assessable Value
= Rs
833.33
Add Excise Duty @ 8%
= Rs
66.67
Add sales on @ 10% on
= Rs
90.00
Selling Price (After allowable deductions)
= Rs
990.00
Question 7 - A manufacturer has agreed to supply a machine on following terms: - (i) Price of the machine at Rs. 4,50,000.00 (Exclusive of taxes and duties) (ii) Packing for transportation of the machine Rs. 15,000.00, (iii) Transport charges of machinery Rs. 25,000.00, (iv) Development and tooling charges Rs. 40,000.00 (exclusive of taxes and duties), (v) C.S.T. @ 4% (vi) Octroi paid on machine supplied Rs. 2,000.00 (not recovered from party separately) (vii) Excise duty @ 15%, (viii) Interest will be charged @ 16% on delayed payment beyond 30 days, (ix) Special discount of Rs. 5,000.00 if advance of Rs. 2,00,000.00 is paid with order. Work out the excise duty liability based on following additional information - (i) Actual transportation cost is Rs. 26,000.00, (ii) Interest of Rs. 5,000.00 was charged as party has failed to make payment within 30 days, (iii) The buyer paid advance with the order. (ICWA Inter - June 1997)
Answer 7 – Packing charges (Rs 15,000) and development and tooling charges (Rs 40,000) are includible in Assessable Value.
Transport charges of final product are not includible in Assessable Value. In this case, transport charges charged were Rs 25,000 against actual charges incurred of Rs 26,000. Hence, question of its addition does not arise. This loss of Rs 1,000 cannot be allowed as deduction, as it is not in connection with sale, it is in connection with additional service of arranging transport for customer, provided to him. It may be noted that even if actual transport charges paid to transporter were less than Rs 25,000 which were charged to customer (say actual transport charges were Rs 24,000), the difference of Rs 1,000 was not required to be added as reasonable profits on other service activities are permissible. This is so if the sale was complete at factory gate itself and transport was arranged as additional service.
Octroi duty paid Rs 2,000 on final product is allowable as deduction. Special discount of Rs 5,000 is not allowable as deduction. The reason is that 'price' should be sole consideration'.
Interest on delayed payment is not includible in Assessable Value as it is not in ‘connection’ with sale, but it is in connection with delayed payment. Packing charges are includible in AV.
Hence, Assessable Value is Rs 5,03,000 [4,50,000 + 15,000 + 40,000 – 2,000]. Excise duty @ 15% will be Rs 75,450/-.
Question 8 - Having regard to provisions of section 4 of the Central Excise Act, 1944, compute the assessable value of excisable goods and the duty amount, given the following information - (i) cum-duty wholesale price (inclusive of sales tax Rs 3,000) - Rs 16,000 (ii) Normal secondary packing cost - Rs 1,000 (iii) Cost of special secondary packing - Rs 2,000 (iv) Cost of durable and returnable package - Rs 1,000 (v) Freight (outward) - Rs 750 (vi) Insurance on freight - Rs 300 (vii) Trade discount (as per normal practice) - Rs 900. (viii) The rate of central excise duty as per the central excise tariff is 15%. (ICWA - Final- June, 1998).
Answer 8 – Secondary Packing cost of Rs 1,000 is includible. Cost of special secondary Rs 2,000 is includible if it is in connection with sales. In absence of specific information, it is assumed that it is in connection with sale and hence is addible. Sales tax of Rs 3,000 is allowable as deduction. Cost of durable and returnable packing is not includible. Transport charges and insurance are not includible. Trade discount of Rs 900 is allowable as deduction.
Hence, cum-duty price for excise purposes is Rs 15,100 [Rs 16,000 + 1,000 + 2,000 – 3,000 – 900]. If Assessable Value = X, duty @ 15% will be 0.15 X. Hence, total price, including excise duty is 1.15 X.
Now, 1.15 X = Rs 15,100. Hence, X, i.e. Assessable Value is = Rs 13,130.43. Excise duty @ 15% of Assessable Value will be Rs 1,969.57. Check that Rs 13,130.43 + Rs 1,969.57 is Rs 15,100.
Note - It is presumed that outward freight of Rs 750 and insurance has been charged over and above the the price on actual basis and hence not included. [Advise to students - In case of doubt, you should state the assumptions made, so that examiner is aware that you know the correct legal position].
Question 9 - Having regard to the provisions of Section 4 of the Central Excises Act, 1944, compute/derive the assessable value of excisable goods, for levy of duty of excise, given the following information : * Cum-duty wholesale price (including sales tax of Rs. 2,000) - Rs 15,000 * Normal secondary packing cost - Rs 1,000 * Cost of special secondary packing - Rs 1,500 * Cost of durable and returnable packing - Rs 1,500 * Freight - Rs 750 * Insurance on freight - Rs 200 * Trade discount (normal practice) - Rs 1,000 * Rate of C.E. duty as per C.E. Tariff - 15% Adv. State in the footnote to your answer, reasons for the admissibility or otherwise of the deductions. (CA Final - November 1996)
Answer 9 - Secondary Packing cost of Rs 1,000 is includible. Cost of special secondary Rs 1,500 is includible if it is in connection with sales. In absence of specific information, it is assumed that it is in connection with sale and hence is addible. Sales tax of Rs 2,000 is allowable as deduction. Cost of durable and returnable packing is not includible. Transport charges and insurance are not includible. Trade discount of Rs 1,000 is allowable as deduction.
From the question, it is not clear whether the packing cost, freight and insurance have been charged over and above Rs 14,500 or are included in them. Hence, it is assumed that these are charged over and above Rs 14,500. Hence, Rs 750 on account of freight and Rs 200 on account of insurance have not been deducted from Rs 14,500 in the calculations below.
Hence, cum-duty price for excise purposes is Rs 14,500 [Rs 15,000 + 1,000 + 1,500 – 2,000 – 1,000]. If Assessable Value = X, duty @ 15% will be 0.15 X. Hence, total price, including excise duty is 1.15 X.
Now, 1.15 X = Rs 14,500. Hence, X, i.e. Assessable Value is = Rs 12,608.70. Excise duty @ 15% of Assessable Value will be Rs 1,891.30. Check that Rs 12,608.70 + Rs 1,891.30 is Rs 14,500.
Note - It is presumed that outward freight of Rs 750 and insurance of Rs 200 have not been included in the cum-duty price of Rs 14,500 and hence not deducted from Rs 14,500. It is also assumed that the sale is on ex-factory basis. [Advise to students - In case of doubt, you should state the assumptions made, so that examiner is aware that you know the correct legal position].
Chapter 13
Question 1 - Product ‘P’ is sold by the Company at uniform price of Rs. 15,000 per Ton at various depots of Company in different States. The price is inclusive of excise duty. Local sales tax is charged extra. During the year, 3,000 Tons of ‘P’ were sold in Haryana, Delhi and Rajasthan as per following details:
State
Qty.
Sold Freight Charge paid (Rs.)
Haryana
1,100
9,50,000
Delhi
1,400
11,30,000
Rajasthan
500
7,40,000
The ‘freight charge’ is from factory to the depot. Excise duty rate is 10.00%. What is the ‘Value’ under section 4 of Central Excise and total excise duty payable?
Will there be any difference if the assessee makes direct sale from his factory to customers in different states at uniform CIF price of Rs 15,000 per ton.
Answer 1 – In case of depot sale, duty is payable at the price ruling at depot. Thus, relevant price in all cases is Rs 15,000 per ton and no deduction is available in respect of freight charges paid for transport from factory to depot. Thus, total price is 3,000 tons x Rs 15,000 per ton i.e. Rs 45,00,000. The price is inclusive of duty @ 10%. Hence, excise duty will be (10 x 45,00,000)/110 i.e. Rs 4,09,091. Total ‘Value’ for excise purposes will be Rs 40,90,909. [45,00,000 – 4,09,091]. Check that 10% of Rs 40,90,909 is Rs 4,09,091.
If all production is sold from factory gate at CIF price of Rs 15,000 per ton, assessee can claim deduction of actual freight on equalised basis.
Question 2 - Cost of production of a product 'X' calculated as per CAS-4 standard is Rs 350 per piece. 500 pieces of a product were manufactured. 120 pieces were sold at Rs. 700 per piece to Industrial Consumers, 70 pieces were sold to a Central Government department @ Rs. 690 per piece; 210 pieces were sold to wholesalers at Rs. 720 per piece; 70 pieces were sold in retail @ Rs. 800 per piece and 20 pieces were given as free samples. Out of the 75 pieces sold to Government department, 25 pieces were rejected, which were subsequently sold to other customers @ Rs. 300 per piece, without bringing them in the factory. Balance pieces were in stock, out of which 25 pieces were so damaged that they became unsaleable. [Note that All the prices are exclusive of excise and sales tax]. The rate of duty on the product is 15%. What is total duty payable ? Advise Management about steps to be taken in respect of 25 pieces which have been damaged in storage.
Answer 2 – The total value is as follows –
Quantity
Price Rs.
Total Value
120
700
=
84,000
70
690
=
48,300
210
720
=
1,51,200
70
800
=
56,000
20
720
=
14,400
-------------
3,53,900
The price is exclusive of excise duty and taxes. Hence, Assessable Value is Rs 3,53,900 and duty @ 15% will be Rs 53,085 plus education cess @ 2% Rs 1,061.70.
As regards 25 pieces damaged in storage, assessee should apply for remission of duty to Commissioner. After remission is granted, the damaged goods should be destroyed in presence of Excise Officer.
Notes – (a) Once goods are cleared from factory, no duty is payable even if subsequently goods are sold at higher price. (b) There is no provision for refund of duty if goods are rejected after they are cleared from factory. (c) In case of samples, as per rule 4 of Valuation Rules, value nearest to the time of removal, subject to reasonable adjustments is required to be taken. However, since prices are varying, value nearest to the time of removal may not be ascertainable and will not be acceptable for valuation as the prices are changing. In such case, recourse will be taken to rule 11 of Valuation Rules, i.e. best judgment assessment. We can take recourse to rule 7 and 9 where principle of ‘normal transaction value’ is accepted, when prices are varying. As per rule 2(b) of Valuation Rules, ‘normal transaction value’ means the transaction value at which the greatest aggregate quantity of goods are sold. Since greatest quantity of 210 pieces are sold at Rs 720, that will be ‘normal transaction value’, which can be taken for valuation of free samples.
Question 3 - A trader is owner of a brand name ‘J-17’. He supplies materials to a job-worker. The job worker manufactures goods with brand name ‘J-17’ and supplies the goods to the trader. Cost of inputs is Rs. 360 per piece, inclusive of transport cost upto the factory of job worker. Job worker charges Rs. 130 per piece to manufacture the product. The trader sells the goods in market at Rs. 630 per piece. The rate of duty is 10%. Find the Assessable Value. What is the duty payable per piece ?
Answer 3 – The duty is payable on material cost plus job charges. Hence, duty is payable on Rs 360 + Rs 130. Hence, Assessable Value is Rs 490 per piece.
Question 4 - A manufacturer manufactured some furniture within the factory for his own use. He purchased material of Rs. 27,500 for this purpose. Cost of the operations carried out by him, as certified by a Cost Accountant, as per CAS-4, is Rs. 12,200. The furniture is liable for duty @ 15%. The manufacturer generally earns profit of 18% on his total cost. Sales tax on furniture is 10%. Find the excise duty and sales tax payable.
Answer 4 – In case of captive consumption, duty is payable @ cost of production plus 10%. Cost of production is material cost plus processing cost i.e. Rs 39,700. [Rs 27,500 + Rs 12,200]. Add 10% i.e. Rs 3,970, as per valuation rule 8. Thus, Assessable Value will be Rs 43,670 [Rs 39,700 + Rs 3,970]. Hence, excise duty payable will be 15% of Rs 43,670 i.e. Rs 6,550.50 plus education cess @ 2% i.e. Rs Rs 131.01.
No sales tax is payable and goods are not sold.
Note – Even if assessee earns 18% profit, that cannot be considered for valuation of captive consumption.
Answers to Unsolved Practical Examples in ‘Indirect Taxes'
Question 1 M/s Jani Manufacturing Co. Ltd., Delhi are despatching 100 ‘Mixing Machines’ to their dealer in U.P. The dealer in U.P is not registered under Central Sales Tax Act. Sales Tax on ‘mixing machine’ in State of Delhi is 6%. The retail price of the machine is Rs. 800 (exclusive of sales tax and excise). Dealers get discount of 15% on this price. Excise duty is 16% plus education cess @ 2%. Packing cost is Rs 50 per piece. Manufacturer normally sales the goods with the packing. Transport charges are Rs. 1,500 extra. What will be total value of Invoice? Prepare an Invoice showing copy which will be useful for transport purposes. [Student will learn in section on ‘Sales Tax’ that central sales tax charged in aforesaid case is 10%.]
Answer 1 – Net price to dealer per piece is Rs 680 (List price Rs 800 less discount of Rs 120 @ 15% of Rs 800). Thus, invoice for 100 pieces will be as follows –
Price of 100 machines
Rs
68,000.00
Add – Packing charges @ Rs 50 per piece
Rs
5,000.00
Sub-Total
Rs
73,000.00
Excise duty @ 16% of Rs 73,000
Rs
11,680.00
Education Cess @ 2% of ED
Rs
233.60
Sub-Total
Rs
84,913.60
Sales Tax @ 10%
Rs
8,491.36
Transport Charges
Rs
1,500.00
Total
Rs
94,904.96
Question 2 During July, 2000, an assessee deposited Rs. 30,000 in bank for credit in PLA, when opening balance was Rs. 5,600. He cleared goods by paying excise duty of Rs. 31,400. Show entries in General Ledger of the assessee.
Answer 2 – Opening balance in excise deposit account is Rs 5,600. When Rs 30,000 are deposited in bank, debit ‘Excise Deposit Account’ and credit Bank Account. When duty of Rs 31,400 is paid, debit Excise Duty paid account and credit ‘Excise deposit’ account. Thus, at month end, balance in Excise Deposit Account will be Rs 4,200.
Chapter 27 of 17th edition and chapter 25 of 16th edition
Question 1 A manufacturer under CENVAT purchased inputs of value at Rs. 60,000 on which duty of Rs. 9,000 was paid @ 15% on 25th January, 2005. After two months, due to change in production schedule, he found that he does not need the material. He sold the inputs lying in stock @ Rs. 70,000 on 17th July, 2005. However, due to budget change announced earlier, duty on those inputs was increased to 20%. (a) Does the manufacturer have to pay excise duty? If so, how much? (b) If, instead of increase of duty to 20%, the inputs were exempted from duty in the budget, what would have been your answer?
Answer 1 – (a) The manufacturer has to pay an 'amount' (not 'duty') equal to Cenvat credit taken i.e. Rs 9,000. (b) Even in this case, manufacturer has to pay 'amount' of Rs 9,0000 under rule 3(5). The buyer will be eligible to avail Cenvat credit of this ‘amount’.
Chapter 28 of 17th edition and chapter 25 of 16th edition
Question 2 A manufacturer manufactures 3,500 Nos. of a product ‘P’. Its Assessable Value is Rs. 650 per piece. Duty payable is 10%. He bought inputs for the same, on which duty paid was Rs. 90,000. The manufacturer sells 2,000 pieces in India and 1,500 pieces are exported. What is CENVAT available and what is the duty payable through PLA ?.
Answer 2 – In case of sale in India, duty payable is 2,000 x Rs 65 per piece, i.e. total 1,30,000. No duty is payable on 1,500 pieces which are exported. Cenvat credit available is Rs 90,000. Thus, the manufacturer has to pay duty of Rs 40,000 only by cash i.e. through PLA.
Chapter 24 of 17th edition and chapter 25 of 16th edition
Question 3 Following transactions took place in a month :
(a) The manufacturer received inputs with Invoice evidencing payment of duty of Rs. 42,800 on 2nd. The invoice was marked ‘ORIGINAL FOR BUYER’.
(b) 400 pieces of Final products were despatched under Invoice on 6th. Assessable value was Rs. 80 per piece and excise duty rate was 16%.
(c) 1,000 pieces of input ‘I’ were sent outside for job work on 10th. When the inputs were received, credit of duty of Rs. 15,000 was taken on those inputs.
(d) Some inputs were purchased from a manufacturer in Chennai in March 2004. These were directly despatched from factory of the supplier to factory of job worker. Duty paid on the inputs is Rs. 40,000. Out of those inputs, 45% on inputs were received after carrying out the job work. On 18th.
(e) An imported consignment of raw materials was received on 19th. The materials were not imported directly, but were purchased from an importer. The invoice of importer showed that customs duty paid was Rs. 26,000, special duty of Rs 3,000, additional customs duty paid was Rs. 13,200 and special additional duty paid was Rs 5,400. The importer was registered with Central Excise authorities.
(f) Goods worth Rs 2,00,000 were despatched on 24th. Rate of duty was 16%.
There was no opening balance in PLA or Cenvat credit account at the beginning of the month. Calculate the amount of duty payable in each of the following situations –
1) The month under question is February 2005 and the assessee is a large manufacturer.
2) The month in question is March 2005 and assessee is a large manufacturer.
3) The month is February 2005 and the assessee is a SSI unit. His turnover upto end January, 2005 was Rs 70 lakhs and he is availing Cenvat credit and is paying duty at concessional rate.
4) The month under question is March 2005 and assessee is a SSI unit. His turnover upto end February 2005 was Rs 130 lakhs.
Answer 3 – In case of (a), Cenvat credit of Rs 42,800 is available.
In case of (b), duty payable is Rs 5,120 (400 pieces x Rs 12.80). if assessee is large manufacturer. Same will be the duty payable if SSI had already crossed turnover limit of Rs 100 lakhs in the financial year. In case of SSI, if earlier clearances were less than Rs 100 lakhs, duty payable is 60% of normal duty i.e. 9.6%. Thus, duty payable by SSI is Rs 3,072. (400 pieces x Rs 7.68).
In case of (c), no duty is payable while sending the goods for job work. In case of (d), Cenvat credit can be taken only after fully quantity is received after job work. In case of (e), Cenvat credit of Rs 13,200 is available.
In case of (f), duty payable is Rs 32,000 (16% of Rs 2,00,000). Same will be the duty payable if SSI had already crossed turnover limit of Rs 100 lakhs in the financial year. In case of SSI, if earlier clearances were less than Rs 100 lakhs, duty payable is 60% of normal duty i.e. 9.6%. Thus, duty payable by SSI is Rs 19,200 (9.6% of Rs 2,00,000).
If the assessee is large manufacturer, Cenvat credit available is Rs 56,000, while duty payable is Rs 37,120. Thus, no duty in cash is payable. Excess Cenvat credit of Rs 18,880 will be carried forward next month. The position is same whether the month is February or March.
In case of SSI, Cenvat credit available for whole month is more than duty payable. Hence, SSI unit does not have to pay any duty whether the month in February or March.
Answers to Unsolved Practical Examples in ‘Indirect Taxes'
Answer to question
Question - The value of excisable goods viz. Iron and Steel articles manufactured by M/s. Alpha Ltd., was Rs. 120 lakhs during the financial year 2003-04. The goods attract 16% ad valorem duty. Determine the excise duty liability when the assessee opts for ‘CENVAT’ and ‘opts for not to avail CENVAT’ under SSI exemption notifications respectively. (ICWA Inter - December 1997). (Question adopted for current year)
Answer - If the assessee does not avail Cenvat, duty will payable will be Rs 3.2 lakhs. [Nil for first 100 lakhs and Rs 3.20 lakhs for subsequent Rs 20 lakhs]. If assessee avails Cenvat credit, duty payable will be Rs 11.8 lakhs (Rs 9.60 lakhs on first Rs 100 lakhs and Rs 3.20 lakhs on balance Rs 20 lakhs)
Question - ABC and Co. are manufacturing the products specified below from excise duty paid high density polyethylene granules. Part of the goods are captively consumed and other part of the goods cleared for home consumption in India and for export to Bhutan and United Kingdom. The effective rate of duty, and the value of clearances during the preceding year 2004-05, and the current assessment period 2005-06 are as follows -
1. Rate of duty - Product ‘A’ - 25%. Product ‘B’ - 25%. Product ‘C’ (waste & scrap) - Exempt from duty.
2. Value of clearances in 2004-05 - Product ‘A’ - (a) Clearance for home consumption - Rs 130 lakhs (b) For captive consumption in the manufacture of excisable goods - Rs 135 lakhs (c) Exports to Bhutan - Rs 35 lakhs (d) Exports to UK under bond - Rs 100 lakhs.
Product ‘B’ - (a) Clearance for home consumption - Rs 80 lakhs (b) For captive consumption in the manufacture of excisable goods - Nil (c) Exports to Bhutan - Rs 50 lakhs (d) Exports to UK under bond - Rs 200 lakhs.
Product ‘C’ - (a) Clearance for home consumption - Rs 40 lakhs (b) For captive consumption in the manufacture of excisable goods - Rs 20 lakhs (c) Exports to Bhutan - Nil (d) Exports to UK - Nil
3. Value of clearances during current year i.e. 2005-06 -
Product ‘A’ - (a) Clearance for home consumption - Rs 50 lakhs (b) For captive consumption in the manufacture of excisable goods - Rs 40 lakhs (c) Exports to Bhutan - Nil (d) Exports to UK under bond - Rs 50 lakhs.
Product ‘B’ - (a) Clearance for home consumption - Rs 80 lakhs (b) For captive consumption in the manufacture of excisable goods - Nil (c) Exports to Bhutan - Rs 50 lakhs (d) Exports to UK under bond - Rs 100 lakhs.
Product ‘C’ - (a) Clearance for home consumption - Rs 50 lakhs (b) For captive consumption in the manufacture of excisable goods - Nil (c) Exports to Bhutan - Nil (d) Exports to UK under bond - Nil
Advise the manufacturers as to whether they are entitled to small scale exemption and the amount of excise duty payable for their clearances during 1999-2000, if the assessee intends to avail Cenvat credit. [Question slightly modified for current year]. (ICSI - Final- June, 1997)
Answer - Turnover in 2004-05 for purpose of considering SSI exemption limit is as follows –
Product A – Rs 165 lakhs. [130 + 35]
Product B - Rs 130 lakhs [80+50]
Product C – Rs 20 lakhs.
Note that if final product is dutiable, the goods used for captive consumption are not liable to duty. Hence, turnover of product C of Rs 20 lakhs for captive consumption is not includible.
Thus, total turnover during 2004-05 is Rs 295 lakhs. Since it is less than Rs 400 lakhs, the assessee is entitled to exemption in 2005-06 for first turnover of Rs 100 lakhs, if assessee does not avail Cenvat credit. If assessee avails Cenvat credit, he has to pay normal duty from 1st April 2005, without availing any exemption.
Answers to Unsolved Practical Examples in ‘Indirect Taxes'
Question 1 Compute the Customs duty liability as per the provisions of the Customs Act, 1962, from the following information. Make suitable assumptions and indicate the same in your answer: Product Imported - ‘X’ Total FOB Value of the goods - US $ 74000 Quantity Imported - 100 MTs. Ocean freight - US $ 10000 Insurance - US $ 740 Landing charges - 1% of CIF value Exchange rate - 1 US $ = Rs. 37 Date of presentation of Bill of Entry - 28.02.2002 Date of Entry Inwards of the Vessel - 03.03.2002 - . - . - . - . - . - Customs duty Rates on 28-2-2002 - (i) Basic Customs Duty 25% (ii) Education Cess - 2% (iii) Countervailing Duty (Additional Duty) 12%. - . - . - Customs duty rates on 3.3.2002 - (i) Basic Customs Duty 20% (ii) Education Cess 2% (iii) Countervailing Duty (Additional Duty) 8%.Special CVD under section 3(5) of Customs Tariff Act is applicable. How much Cenvat can be availed by importer, if he is manufacturer. - . - . - . - Will your answer change if the actual cost of Freight and Insurance is not available ? (ICWA Inter - December 1997).
Answer 1 – Though Bill of Entry was presented earlier, entry inward was granted later. Hence, rate relevant will be as on 3.3.2002 i.e. Basic 20%, Special CVD 4% and CVD 8%.
FOB Price
US $
74,000
Add – Ocean Freight
US $
10,000
Add – Insurance charges
US $
740
Total CIF Price
US $
84,740
CIF @ Rs 37 = 1 US $
Rs
31,35,380.00
Add – Landing charges @ 1%
Rs
31,353.80
Assessable Value
Rs
31,66,733.80
Calculation of duty payable is as follows -
Duty Rate %
Amount Rs
Duty Rs
(A)
Assessable Value Rs
3,166,733.80
(B)
Customs Duty
20
633,346.76
(C)
Sub-total for calculating CVD (A+B)
3,800,080.56
(D)
CVD as % of C
8
304,006.44
(E)
Education cess of excise - 2% of 'D'
2
6,080.13
(F)
Sub-total for calculating Edu Cess (B+D+E)
943,433.33
(G)
Education Cess of Customs (2% of 'F')
2
18,868.67
(H)
Sub-total for Special CVD (C+D+E+G)
4,129,035.80
(I)
Special CVD (4% of 'H')
4
165,161.43
(J)
Total Duty Rs B+D+E+G
1,127,463.43
(K)
Total duty (rounded)
1,127,463.00
If actual cost of freight and insurance is not available, it should be taken as 20% of FOB and 1.125% of FOB respectively. Hence, freight will have to be taken as US $ 14,800 and insurance as US $ 832.50. Thus, CIF value will be US $ 89,632.50. Student can calculate customs duty payable on that basis.
A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.
Question 2 Compute (keeping in mind the provisions of the Customs Act, 1962 and Customs Tariff Act, 1975), the total customs duty payable by an importer on goods ‘X’ imported by sea into India, from the following details. You may, wherever appropriate, make suitable assumptions, indicating the same in your answer. - * Value of Goods (FOB) $ 1,000 (Dollars) * Weight of Goods 1,000 Kg * Freight Charges $ 100 (Dollars) * Insurance Charges $ 20 (Dollars) * Handling Charges Rs. 200 * Exchange Rate 4 Dollars = Rs. 100 * Date of Presentation of Bill of Entry - 4.5.2005 * Date of Entry Inwards of Vessel - 1.5.2005 Rates of Customs Duty on 1.5.2005 - * Basic 20% Adv. * Education Cess -2% * Additional (CVD) 15%. * Rates of Customs Duty on 4.5.2005 - * Basic 15% Adv. * Education cess -2%* Additional (CVD) 16%. - . - Note : Special CVD under section 3(5) of Customs Tariff Act is applicable. No other particulars are relevant. How much Cenvat can be availed by importer, if he is manufacturer (CA Final - November 1996 adopted).
Answer 2 - CIF Value is US $ 1,120 [1,000 + 100 + 20]. In Rupees, it will be Rs 28,000 @ Rs 25 per dollar. Add handling charges of Rs 200. [It is presumed that these are ‘landing charges’ and hence separate landing charges are not added]. Thus, Customs Value (Assessable Value) is Rs 28,200.
Duty Rate %
Amount Rs
Duty Rs
(A)
Assessable Value Rs
28,200.00
(B)
Customs Duty
15
4,230.00
(C)
Sub-total for calculating CVD (A+B)
32,430.00
(D)
CVD as % of C
16
5,188.80
(E)
Education cess of excise - 2% of 'D'
2
103.78
(F)
Sub-total for calculating Edu Cess (B+D+E)
9,522.58
(G)
Education Cess of Customs (2% of 'F')
2
190.45
(H)
Sub-total for Special CVD (C+D+E+G)
37,913.03
(I)
Special CVD (4% of 'H')
4
1,516.52
(J)
Total Duty Rs B+D+E+G
11,229.55
(K)
Total duty (rounded)
11,230.00
A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.
Question 3 Some spares were imported by air from Germany at CIF value of 1,200 DM, which included air freight of 380 DM and insurance charges of 20 DM. If exchange rate is 23.40 Rs. = 1 DM, find the Customs Value. Rate of customs duty is 20%, and education cess is 2%. Excise duty chargeable on similar goods in India is 16% as per tariff rate. However, as per an exemption notification, the effective rate of excise duty is 8%. Special CVD under section 3(5) of Customs Tariff Act is applicable. Find the customs duty payable. How much Cenvat can be availed by importer, if he is manufacturer.
Answer 3 – Since actual freight exceeds 20%, it has to be limited to 20% for valuation. Now, FOB Value is DM 800 [CIF – Freight – Insurance]. Add freight DM 160 [20% of DM 800] and insurance DM 20 [Actual]. Thus, CIF price for valuation purposes is DM 980/-. Convert in Rs @ Rs 23.40 = 1 DM. Thus, CIF in Rs is 22,932.00. Add 1% landing charges (Rs 229.32) to get Assessable Value of Rs 23,161.32.
Calculation of duty payable is as follows -
Duty Rate %
Amount Rs
Duty Rs
(A)
Assessable Value Rs
23,161.32
(B)
Customs Duty
20
4,632.26
(C)
Sub-total for calculating CVD (A+B)
27,793.58
(D)
CVD as % of C
8
2,223.49
(E)
Education cess of excise - 2% of 'D'
2
44.47
(F)
Sub-total for calculating Edu Cess (B+D+E)
6,900.22
(G)
Education Cess of Customs (2% of 'F')
2
138.00
(H)
Sub-total for Special CVD (C+D+E+G)
30,199.54
(I)
Special CVD (4% of 'H')
4
1,207.98
(J)
Total Duty Rs B+D+E+G
8,246.20
(K)
Total duty (rounded)
8,246.00
A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.
Question 4 An importer has imported a machine from Japan at FOB cost of 9,00,000 Yens. Other details are as follows :
(a) Freight from Japan to Indian port was 18,000 Yens.
(b) Transit insurance charges were 1% of FOB value.
(c) Design and development charges of 90,000 Yens were paid to a consultancy firm in Japan for design of machinery.
(d) Packing charges of 22,000 Yen were charged extra.
(e) Rs. 20,000 were spent in design cost on machine in India.
(f) An amount of 98,500 Yen was payable to Japanese manufacturer towards charges for installation and commissioning the machine in India.
(g) Rate of exchange as announced by RBI was : 1 yen = Rs. 0.309
(h) Rate of exchange as announced by Central Government by notification under section 14 (3) (a) (i) : 1 Yen = 0.302 Rs
(i) Customs duty was 20% and education cess was 2%. Excise duty on similar machinery in India would be 16%. Special CVD under section 3(5) of Customs Tariff Act is applicable.
Find the customs duty payable. How much Cenvat can be availed by importer, if he is manufacturer.
Answer 4 – Design charges of Rs 20,000 are not includible in Assessable Value, but design charges paid abroad are includible. Erection and commissioning charges are not includible. Relevant rate of exchange is 1 Yen = Rs 0.302. Hence, duty payable is calculated as follows -
FOB Price
Yen
9,00,000
Add – Ocean Freight
Yen
18,000
Add – Insurance charges
Yen
9,000
Add - Design and consultancy charges
Yen
90,000
Add –Packing Charges
Yen
22,000
Total CIF Price
Yen
10,39,000
CIF @ Rs 0.302 = 1 Yen
Rs
3,13,778.00
Add – Landing charges @ 1%
Rs
3,137.78
Assessable Value
Rs
3,16,915.78
Calculation of duty payable is as follows -
Duty Rate %
Amount Rs
Duty Rs
(A)
Assessable Value Rs
316,915.78
(B)
Customs Duty
20
63,383.16
(C)
Sub-total for calculating CVD (A+B)
380,298.94
(D)
CVD as % of C
16
60,847.83
(E)
Education cess of excise - 2% of 'D'
2
1,216.96
(F)
Sub-total for calculating Edu Cess (B+D+E)
125,447.95
(G)
Education Cess of Customs (2% of 'F')
2
2,508.96
(H)
Sub-total for Special CVD (C+D+E+G)
444,872.69
(I)
Special CVD (4% of 'H')
4
17,794.91
(J)
Total Duty Rs B+D+E+G
145,751.82
(K)
Total duty (rounded)
145,752.00
A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.
Q 5 Infotech Limited has imported a machine from Japan at an FOB cost of 50,000 yen (Japanese). The other expenses incurred are as follows: (i) Freight from Japan to Indian Port 5,000 yen. (ii) Insurance paid to insurer in India Rs. 2,500. (iii) Designing charges paid to consultancy firm in Japan 7,500 yen. (iv) M/s Infotech spent Rs. 25,000 in India for development work connected with the machine. (v) Transportation cost from Indian Port to factory Rs. 7,500. (vi) Central Government had announced exchange rate of 1 yen = Rs. 0.40 by Notification under Section 14(3) of the Customs Act, 1962. The exchange rate prevailing on that day in the market was 1 yen = Rs. 0.4052. (vii) M/s. Infotech made payment to the Bank based on an exchange rate of 1 yen = Rs. 0.4150. (viii) The Commission payable to the agent in India was at 5% of the FOB price in Indian Rupees. The rate of Customs duty is 20%. Similar goods are subject to 16% excise duty in India. Education cess on duty is 2%. Special CVD under section 3(5) of Customs Tariff Act is applicable. Clearly showing your workings to arrive at the total Assessable value in Rupees for purposes of Levy of Customs duty. How much Cenvat can be availed by importer, if he is manufacturer? [CA Final November 2002 - adapted]
Ans - Not solved, as it is exactly as per aforesaid example.
Q 6 M/s. Premium Industries Ltd., has imported a machine from Japan at an F.O.B. cost of 1,00,000 Yen (Japanese). The other expenses incurred were as follows : (i) Freight from Japan to Indian Port 10,000 Yen; (ii) Insurance paid to insurer in India Rs. 5,000; (iii) Designing Charges paid to consultancy firm in Japan 15,000 Yen; (iv) M/s Premium Industries Ltd. spent Rs. 50,000 in India for development work connected with the machine, (v) Transportation cost from Indian port to Factory Rs. 15,000; (vi) Central Government has announced exchange rate of 1 Yen = Re. 0.40 by notification under section 14(3). However the exchange rate prevailing in the market was 1 Yen = Re. 0.4052 (vii) M/s Premium Industries Ltd. made payment to the bank based on exchange rate of 1 Yen = Re. 0.4150, (viii) The commission payable to the agent in India was @ 5% of F.O.B. price in Indian Rupees. - . - The rate of custom duty is 20%. Similar goods are subject to 16% excise in India. Education cess on duty is 2%. Special CVD under section 3(5) of Customs Tariff Act is applicable. Find the custom duty and other duties payable. How much Cenvat can be availed by importer, if he is manufacturer? [ICWA Inter June 2000 adapted]
Ans - Not solved, as it is exactly as per aforesaid example.
Q 7 Calculate the total Customs duty liability from the following data: - Product imported from France : Gears * C.I.F. value in French Franc : 20,000 * Exchange rate : 1 FF = Rs. 6.25. * Additional Information : (1) C.I.F. value includes Air Freight of 2,000 FF’s and Insurance of 200 FF. (2) Basic Customs duty : 20% (3) Excise duty chargeable on similar goods in India is 16% as per tariff rate. However, as per an exemption notification the effective rate is 8%. (4) Education cess on duty – 2%. (5) Special CVD under section 3(5) of Customs Tariff Act is applicable. [ICWA Inter December 2000 adapted] How much Cenvat can be availed by importer, if he is manufacturer?.
Ans - Not solved, since similar.
Q 8 ‘A’ imports by air from USA a Gear cutting machine complete with accessories and spares. Its HS classification is 84.6140 and Value US $ f.o.b. 20,000. - - Other relevant date/information: (1) At the request of importer, US $ 1,000 have been incurred for improving the design, etc. of machine, but is not reflected in the invoice, but will be paid by the party. (2) Freight - US $ 6,000. (3) Goods are insured but premium is not shown/available in invoice. (4) Commission to be paid to local agent in India Rs. 4,500. (5) Freight and insurance from airport to factory is Rs. 4,500. (6) Exchange rate is US $ 1 = Rs. 45. (7) Duties of Customs : Basic – 20% CVD – 16% Education cess on duty – 2%. Special CVD under section 3(5) of Customs Tariff Act is applicable. - - Compute (i) Assessable value (ii) Customs duty. How much Cenvat can be availed by importer, if he is manufacturer? [ICWA Inter December 2002 adapted]
Answer 8 (i) Computation of Assessable Value
FOB Value of Machine US $
$
20,000
Add: Expenditure for improving design
$
1,000
Add - Freight limited to 20% of FOB [Rule 9 (2)]
$
4,000
Insurance @ 1.125% of FOB [Rule 9(2)c(iii)]
$
225
Sub-Total
$
25,225
Sub-Total In Rs @ Rs 45 per Rupee
Rs
11,35,125
Add - Agents Commission [Rule 9(1)(i)]
Rs
4,500
Total CIF Value
Rs
11,39,625
Add – Landing charges 1% of CIF
Rs
11,396
Assessable Value
Rs
11,51,021
Duty payable will be as follows –
Calculation of duty payable is as follows -
Duty Rate %
Amount Rs
Duty Rs
(A)
Assessable Value Rs
1,151,021.00
(B)
Customs Duty
20
230,204.20
(C)
Sub-total for calculating CVD (A+B)
1,381,225.20
(D)
CVD as % of C
16
220,996.03
(E)
Education cess of excise - 2% of 'D'
2
4,419.92
(F)
Sub-total for calculating Edu Cess (B+D+E)
455,620.15
(G)
Education Cess of Customs (2% of 'F')
2
9,112.40
(H)
Sub-total for Special CVD (C+D+E+G)
1,615,753.55
(I)
Special CVD (4% of 'H')
4
64,630.14
(J)
Total Duty Rs B+D+E+G
529,362.69
(K)
Total duty (rounded)
529,363.00
A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.
Q 9 - Determine the total Customs Duty payable from the following data - Quantity imported : 100 MTs, FOB value : Swiss Franc : 10000, AIR Freight : Swiss Franc : 2500, Insurance : Data not available, Exchange rate : 1 Swiss Franc = Rs. 34, Rate of BCD 30%, Rate of Cenvat under First Schedule to CETA : 16%, Rate of SED under Second Schedule to CETA : 16%, Rate of AED (GSI) under Additional Duties of Excise (GSI) Act : Rs. 10/kg, Rate of NCCD 1%, Education cess – 2% of duty. Special CVD under section 3(5) of Customs Tariff Act is applicable. How much Cenvat can be availed by importer, if he is manufacturer? [ICWA Inter June 2003 adapted]
Answer 9 FOB price is 10,000.00 Swiss Francs. Since air freight is more than 20% of FOB, freight is required to be limited to 20% of FOB i.e. 2.000 SF (Swiss Francs). Since insurance data is not available, insurance cost is to be taken @ 1.125% on FOB, i.e. 112.50 SF. Hence, CIF value is 12,112.50 SF (FOB 10,000 + Freight 2,000 + Insurance 112.50 SF). Add landing charges of 1% of CIF i.e. 121.13. Hence, ‘Assessable Value’ or ‘Customs Value’ is 12,233.63 SF i.e. Rs 4,15,943.25.
The duty calculations are as follows –
Calculation of duty payable is as follows -
Duty Rate %
Amount Rs
Duty Rs
(A)
Assessable Value Rs
415,943.25
(B)
Customs Duty
30
124,782.98
(B1)
NCCD 1%
1
4,159.43
(C)
Sub-total for calculating CVD (A+B)
544,885.66
(D)
CVD as % of C
32
174,363.41
(E)
Education cess of excise - 2% of 'D'
2
3,487.27
(E1)
AED (GSI) @ Rs 10 per Kg
1,000,000.00
(F)
Sub-total for calculating Edu Cess (B+D+E+E1)
1,306,793.09
(G)
Education Cess of Customs (2% of 'F')
2
26,135.86
(H)
Sub-total for Special CVD (C+D+E+E1+G)
1,748,872.20
(I)
Special CVD (4% of 'H')
4
69,954.89
(J)
Total Duty Rs B+D+E+G
1,402,883.84
(K)
Total duty (rounded)
1,402,884.00
A manufacturer/importer can avail Cenvat credit of duty as specified in columns D (i.e. CVD) and G i.e. Spl CVD.
Notes – (1) Basic Excise Duty (Cenvat) is 16% and Special Excise Duty (SED) is 16%. Hence, CVD, which is equal to excise duty will be 32%. In addition 2% education cess is payable. Hence, total CVD is 32.64% (2) As per Notification No. 77/2003-Cus dated 14-5-2003, NCCD of excise is not required to be considered while calculating CVD.
Q 10 - Determine the assessable value and customs duty amount from the following data: # Name of the raw material—X # FOB value – Euro 1 million # Ocean freight – Actual data not available # Ocean Insurance – Actual data not available # Freight from sea port to godown paid in India Rs. 10,000 # Transit insurance in India – Rs. 2,000 # Selling commission paid to agent in India – 5% # Royalty on manufacture and sale of final product payable to foreign collaborator – 5% # Interest payable on raw material imported at 180 days credit (on FOB value) 12% p.a. # Dividend paid to the foreign supplier of raw material on their equity participation for the year 2001-02 - Rs. 2 per share on 1 million shares of face value Rs. 10/ share. # Importer supplied design and drawings worth Euro 10,000 to the foreign raw material supplier. # Landing charges as per Customs provisions # Customs duty rates : BCD - 20%, CVD - 16%, Education Cess on duty – 2%. Special CVD under section 3(5) of Customs Tariff Act is applicable. # Exchange rate: 1 Euro = Rs. 42. How much Cenvat can be availed by importer, if he is manufacturer? [ICWA June 2002 adapted]
Answer 10 – Since ocean freight is not available, it has to be taken at 20% of FOB. Insurance will have to be taken @ 1.125% of FOB Value.
Royalty on manufacture and sale of final products payable to foreign collaborators has no relation to goods imported. Hence, it is not includible in Assessable Value for customs. Similarly, dividend paid to foreign supplier has no relation with supply of raw materials. It is not includible in Assessable Value.
Interest payable for credit is not includible in assessable value for customs purposes, as it is not part of ‘transaction value’.
Freight from seaport to godown and transit insurance in India are post-importation costs and are not includible.
It is assumed that selling commission to selling agent in India is payable on basis of CIF Value of goods including cost of drawings supplied by buyer.
As per rule 9(1)(b)(iv) of Customs Valuation Rules, cost of engineering drawings is includible only if work was undertaken outside India. Since, payment has been made in Euro, it is assumed that the design and drawing work was done outside India.
Landing charges will be 1% of CIF Value, as per Customs Valuation Rules.
Hence, calculation of customs duty will be as follows –
(A) Value of goods in Euro
10,00,000 Euro
(B) Add – Freight @ 20% of FOB
2,00,000 Euro
(C) Add – Insurance @ 1.125% of FOB
11,250 Euro
(D) Total CIF Value (A+B+C)
12,11,250 Euro
(E) Add designing and drawing charges
10,000 Euro
(F) Total CIF Value
12,21,250 Euro
(G) CIF Value in Rupees @ Rs 42.00
5,12,92,500.00 Rs
(H) Local Agency Commission @ 5%
25,64,625.00 Rs
(I) Total Value
5,38,57,125 Rs
(J) Add – Landing Charges @ 1% of ‘I’
5,38,571.25 Rs
(J) Assessable Value (I+J)
5,43,95,696.25 Rs
Calculation of duty payable is as follows -
Duty Rate %
Amount Rs
Duty Rs
(A)
Assessable Value Rs
54,395,696.25
(B)
Customs Duty
20
10,879,139.25
(C)
Sub-total for calculating CVD (A+B)
65,274,835.50
(D)
CVD as % of C
16
10,443,973.68
(E)
Education cess of excise - 2% of 'D'
2
208,879.47
(F)
Sub-total for calculating Edu Cess (B+D+E)
21,531,992.40
(G)
Education Cess of Customs (2% of 'F')
2
430,639.85
(H)
Sub-total for Special CVD (C+D+E+G)
76,358,328.50
(I)
Special CVD (4% of 'H')
4
3,054,333.14
(J)
Total Duty Rs B+D+E+G
25,016,965.39
(K)
Total duty (rounded)
25,016,965.00
A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.
Answers to Unsolved Practical Examples in ‘Indirect Taxes'
Question 1 A dealer effected following sales during January-March, 1997 quarter - (i) Invoice No. 65 dated 10th January, 1997 for Rs. 1,76,800.00 (inclusive of tax) (ii) Invoice No. 66 dated 21st January, 1997 for Rs. 1,25,000.00 plus tax @ 4% (iii) Invoice No. 67 dated 5th February, 1997 for Rs. 40,000.00 plus C.S.T. @ 4% - Rs. 1,600.00. Goods worth Rs. 10,400.00 (inclusive of taxes) were returned within 6 months. Calculate the turnover and sales tax payable, if rate of tax is 4%. (ICWA Inter - June 1997)
Answer 1 - Aggregate sale price (which is inclusive of CST) is total of three invoices less sales return within six months. Hence, aggregate sale price is (i) Rs 1,76,800 + (ii) Rs 1,30,000 + (iii) Rs 41,600 Less (iv) Sale Return Rs 10,400. Hence, aggregate sale price is Rs 3,38,000.
If aggregate of sale price is ‘S’ and rate of tax is ‘R’; ‘turnover’ and ‘tax payable’ will be as follows :
100 x S
Turnover =
------------
100 + R
Now, S = 3,38,000 and R = 4
100 x 3,38,000
Turnover =
-----------------
100 + 4
3,38,00,000
Turnover =
-------------------
104
Turnover =
3,25,000
S x R
Tax Payable =
------------
100 + R
3,38,000 x 4
Tax payable =
------------------
100 + 4
13,52,000
Tax payable =
-----------------
104
Tax payable =
Rs. 13,000
Check that 4% of turnover i.e. Rs 3,25,000 is Rs 13,000. Aggregate sale price is Rs 3,38,000 [3,25,000 + 13,000].
Question 2 How would you arrive at taxable turnover under the Central Sales Tax Act, 1956 from the following particulars : (i) Gross sales as per accounts : Rs. 10,00,000. (ii) Gross sales include : (a) Rs. 50,000 being trade discount allowed to wholesale dealers in terms of agreement. (b) Rs. 20,000 being quantity discount allowed to buyers on the basis of off-take in a specified period. (c) Rs. 70,000 being excise duty paid on goods but recovered from customers by charging the same in invoices. (iii) No sales tax is included in gross sales. (iv) Gross sales figures are net of sales returns detailed below : (a) Goods worth Rs. 25,000 received back after the expiry of six months from the date of sale as the customer rejected the goods not found in accordance with the order. (b) Goods worth Rs. 40,000 returned by the buyers after six months because of inability to the price. (v) A sum of Rs. 75,000 has been recovered from the customers towards freight which has been separately charged in the invoices. The amount of freight is not included in gross sales. (ICSI Final Dec. 1991)
Answer 2 – Allowability of each head is as follows - (a) Trade discount of Rs 50,000 is allowed as deduction. (b) Quantity discount of Rs 20,000 is allowable as deduction. (c) Excise duty is not allowed as deduction, i.e. sales tax is payable on excise duty amount. (d) Rejection is allowable as deduction even if received after six months. Hence, that amount is not addible. (e) Goods returned after six months are not allowable as deduction. Hence, Rs 40,000 will have to be added back. (f) If freight is separately charged, it is not includible in gross turnover.
Hence, taxable turnover is Rs 10,0000 – Rs 50,000 (trade discount) – Rs 20,000 quantity discount + Rs 40,000 (Goods returned after 6 months added back) i.e. Rs 9,70,000/-.
Question 3 A dealer effected the following sales during the first quarter of 1997-98 (April to June) - (i) Invoice No 1171 dt 2.4.97 for Rs 26,000 plus tax @ 4%. (ii) Invoice No 1172 dt 19.4.97 for Rs 70,000 plus tax @ 4%. (iii) Invoice No 1173 dt 2.5.97 for Rs 52,000 (inclusive of tax). (iv) Invoice No 1174 dt 4.6.97 for Rs 12,200 plus tax @ 4%. (v) Invoice No 1175 dt 25.6.97 for Rs 20,000 plus tax @ 4%. (vi) Goods worth Rs 6,100 (exclusive of tax) against invoice No 1174 were returned on 28.6.1997 (vii) Goods worth Rs 5,200 (inclusive of tax) sold on 25.12.1996 were returned on 30.6.1997. All the goods were made in the course of inter state trade. Calculate the turnover and sales tax payable if the rate of tax is 4%. (ICWA - Inter- June, 1998).
Answer 3 - Aggregate sale price (which is inclusive of CST) is total of five invoices less sales return within six months. Hence, aggregate sale price is (i) Rs 27,040 + (ii) Rs 72,800 + (iii) Rs 52,000 (iv) Rs 12,688 (v) 20,800 Less (vi) Sale Return Rs 6,344. Hence, aggregate sale price is Rs 1,78,984.
If aggregate of sale price is ‘S’ and rate of tax is ‘R’; ‘turnover’ and ‘tax payable’ will be as follows :
100 x S
Turnover =
------------
100 + R
Now, S = 1,78,984 and R = 4
100 x 1,78,984
Turnover =
------------
100 + 4
1,78,98,400
Turnover =
-------------------
104
Turnover =
1,72,100
S x R
Tax Payable =
-------------
100 + R
1,78,984 x 4
Tax Payable =
--------------------
100 + 4
7,15,936
Tax Payable =
--------------
104
Tax Payable =
Rs. 6,884
Check that 4% of turnover i.e. Rs 1,72,100 is Rs 6,884. Aggregate sale price is Rs 1,78,984 [1,72,100 + 6,884].
Question 4 From the following details, compute the central sales-tax payable by a dealer carrying on business in New Delhi : Gross Turnover – Rs 16,00,000. Other details - i) Trade commission for which credit notes have to be issued separately - 48,000 ii) Installation charges - 25,000 iii) Excise duty - 80,000 iv) Freight, insurance and transport charges recovered separately in the invoices - 60,000 v) Goods returned by dealers within six months of sale, but after the end of financial year - 40,000 vi) Central Sales-tax. - Buyers have issued ‘C’ forms for all purchases. (CA Inter May 1998)
Answer 4 – Following deductions are permissible from Gross Turnover (GTO) of Rs 16 lakhs – (a) Trade Commission – Rs 48,000 (presumed that these are not included in GTO of Rs 16 lakhs) (b) Installation Charges – Rs 25,000 (Presumed to be included in GTO) (c) freight and insurance shown separately – Rs 60,000 (d) Goods returned within 6 months – Rs 40,000.
Thus, deductions of Rs 1,73,000 are permissible. Hence, GTO for purpose of tax will be Rs 14,27,000. CST @ 4% on GTO will be Rs 57,080/- [The term ‘Turnover’ for purpose of CST is net of sales tax. It is presumed that the term is used in the same sense in the question].
Question 5 Mr. Vishal is a dealer. His sales during the first quarter of 1997-98 (April to June) are as under - (i) Invoice No 103/FCA/01/97 dated 5.4.97 - Rs 10,000 plus tax @ 4% (ii) Invoice No 103/FCA/02/97 dt 12.4.97 - Rs 80,000 plus tax @ 4% (iii) Invoice No. 103/FCA/03/97 dated 5.5.1997 - Rs 62,400 (inclusive of tax) (iv) Invoice No 103/FCA/04/97 dated 6.6.97 - Rs 14,000 plus C.S.T. @ 4% (v) Invoice No 103/FCA/05/97 dated 27.6.97 - Rs 18,000 plus C.S.T. @ 4% - . - . - Goods worth Rs. 7,000 (exclusive of tax) against Invoice No. 103/FCA/04/97 were returned on 29/06/97. Goods worth Rs. 13,000 (inclusive of tax) sold on 26/12/96 were returned on 30/06/97. Goods worth Rs. 6,500 (inclusive of tax) sold on 27/12/96 were returned on 30/06/97. All the above sales were made in the course of interstate trade. Calculate the turnover and sales tax payable if the rate of tax is 4% (8 marks). (CA Inter December, 1998)
Answer 5 – Similar examples have already been solved above. Student should solve the example himself and check that ‘Turnover’ is Rs 1,75,000 and CST is Rs 7,000/-
Question 6 Inter State sales of ‘XYZ Co. Ltd., Trivandrum, Kerala’ was Rs. 12 lakhs during April 95 - March 96 of their product ‘Quest’. The sales are inclusive of sales tax charged in Invoice at appropriate rates. The goods were liable to tax @ 4% if sold within State of Kerala. Out of the goods sold, goods of Rs. 80,000 were returned. These were sold by XYZ Co. Ltd. in January 96 and returned by buyer in May 96 as the buyer could not pay for the same. Some goods of Rs. 20,000, despatched in October 95 were rejected by buyer and sent back in November 96. The aggregate sale price of Rs 12 lakhs is without considering these returns and rejections. Find the CST payable if (a) all buyers are registered dealers giving declaration in form C. (b) All dealers are unregistered, not giving any declaration.
Answer 6 – Deduction of Rs 80,000 is allowable as return was within 6 months. Deduction of Rs 20,000 is allowable as limit of Rs 6 months does not apply in case of rejections. Hence, ‘aggregate sale price’ is Rs 11,00,000. Student can calculate and check his answers as follows – (a) If Buyers have issued ‘C’ form – Turnover = Rs 10,57,692.31. CST – Rs 42,307.69 (b) If Buyers have not issued ‘C’ forms – Turnover – Rs 10,00,000/- CST – Rs 1,00,000/-
Question 7 Gross Inter State sales of Sunil Machinery Manufacturers, Jaipur, Rajasthan were Rs. 17,00,000 during 95-96 (April 95 - March 96). The product, if sold within the State would attract local sales tax @ 12%. The CST was not shown separately in Invoice. Other information is as follows.
(a) Sale of Rs. 7 lakhs are inclusive of erection expenses of Rs. 80,000, excise duty of Rs. 70,000, transit insurance of Rs. 7,000 and packing charges of Rs. 20,000. These charges were shown separately in Invoice. Sunil Machinery Manufacturers gave cash discount of Rs. 20,000 who paid within 15 days. This was given by issuing a Credit Note. The sale of Rs. 7 lakhs is without considering this cash discount. Buyers of these goods have issued form ‘C’ for these purchases.
(b) Balance sale of Rs. 10 lakhs are inclusive of excise duty of Rs. 80,000 and outward freight of Rs. 20,000. The quotation to buyers was on CIF basis and these charges were not shown separately in Invoice. Buyers of these goods have not issued any declaration under Central Sales Tax Act. Sunil Machinery Manufacturers had given additional discount of Rs. 30,000 to the buyers who purchased goods more than the target fixed for them. This was given at year end by way of credit note. The sale of Rs. 10 lakhs is without considering these credit notes.
Find ‘taxable turnover’ and CST payable.
Answer 7 – (a) In case of sale of Rs 7 lakhs, deduction of Rs 80,000 and Rs 7,00,000 is available. Since cash discount is allowable as deduction, it need not be added to sale price. Thus, aggregate sale price is Rs 5,93,000/-. Hence, turnover is Rs 5,70,192.31 and CST is Rs 22,807.69. [Students, please use formula and check]
(b) In case of sale of Rs 10 lakhs, freight will not be allowable as deduction as it was not shown separately in invoice. Bonus discount is not allowable as deduction. Thus, aggregate sale price is Rs 10 lakhs. Hence, turnover is Rs 8,92,857.14 and CST is Rs 1,07,142.86. [Students, please use formula and check]
Answers to Unsolved Practical Examples in ‘Indirect Taxes'
Question 1 M/s Roy Brothers, Kolkata, West Bengal, are dealing in two products namely X and Y. The gross Inter State Sales are Rs. 8 lakhs and Rs. 10 lakhs respectively during 95-96. CST was not charged in the Invoice. If the products X and Y are sold within State of West Bengal, the sales tax rate is 8% and 4% respectively. Other information in respect of the year is as follows :
(a) Product X is not manufactured in India. It is imported. Product ‘Y’ is ‘declared goods’, included under section 14 of CST Act.
(b) Out of sale of product X, goods worth Rs. 2.50 lakhs were rejected by customer. The goods were despatched in December 95 and returned by customer in October 96 as these were not to the specification.
(c) In case of sale of Rs. 2 lakhs of X, goods were imported by Roy Brothers. These were unloaded in Kolkata port. Before goods were cleared from customs, they were sold by transfer of documents to a buyer in UP. Customs duty was paid by the buyer from UP.
(d) D form was received in respect of balance sales of ‘X’. The sales price is inclusive of packing charges of Rs. 10,000, shown separately in Invoice.
(e) Out of total sales of Y, sales of Rs. 6 lakhs were inclusive of packing charges of Rs. 15,000, transport charges of Rs. 12,000 and transit insurance charges of Rs. 6,000. These charges were separately shown in Invoice. C form was received in respect of the sales. These goods were purchased by Roy Brothers from a manufacturer in West Bengal for Rs. 4,57,600, which included West Bengal State sales tax of Rs. 17,600.
(f) Balance sale of ‘Y’ was to unregistered dealers. A cash discount of Rs. 20,000 was given to buyers in respect of the sale. Roy Brothers had introduced a scheme of additional discount to those who effect sales more than 10% of their sales of previous year. Such additional discount amounted to Rs. 25,000 during the year on these sales. The sale of Rs. 4 lakhs is without considering these discounts of Rs. 20,000 and Rs. 25,000. These goods were purchased by Roy Brothers from a manufacturer in West Bengal for Rs. 2,99,200, which included local sales tax of Rs. 11,800.
You are required to (a) find the turnover and the CST liability of Roy Brothers for 95-96. (b) Will Roy Brothers be able to obtain any refund of tax paid on their purchases ? If so, how much ?
Answer 1 – (a) In case of ‘X’, the position is as follows – (i) Time limit of 6 months is not applicable to rejected goods. Hence, deduction of Rs 2.50 lakhs is permissible. (b) If the goods are sold before crossing of customs barrier, it will be a sale during import and hence no sales tax is payable. Thus, aggregate sale price of ‘X’ for tax purposes is Rs 3.50 lakhs (out of total sale of Rs 8 lakhs). Since D form is received, CST @ 4% is payable. Hence, turnover is Rs 3,36,538.46 and CST payable is Rs. 13,461.54 [Students, please use formula and check].
(b) In case of sale of ‘Y’ of Rs 6 lakhs, deduction of transport charges of Rs 12,000 and transit insurance charges of Rs 6,000 is permissible. Thus, aggregate sale price of ‘Y’ for tax purposes is Rs 5,82,000 (out of total sale of Rs 6 lakhs). Since C form is received, CST @ 4% is payable. Hence, turnover is Rs 5,59,615.38 and CST payable is Rs. 22,384.62 [Students, please use formula and check].
(c) In case of sale of ‘Y’ of Rs 4 lakhs, deduction of cash discount of Rs 20,000 is permissible but deduction of bonus discount is not permissible. Thus, aggregate sale price of ‘Y’ for tax purposes is Rs 3.80 lakhs (out of total sale of Rs 8 lakhs). Since sale is to unregistered dealer and ‘Y’ is ‘declared goods’, CST @ 8% is payable. Hence, turnover is Rs 3,51,851.85 and CST payable is Rs. 28,148.15 [Students, please use formula and check].
(d) Thus, total aggregate sale price (total of a, b and c above) is Rs 13,12,000, turnover is Rs 12,48,005.69 and CST is 63,994.31
(e) If declared goods are sold inter-state, refund of local tax paid on purchases is permissible. Hence, Roy Brothers are entitled to get refund of Rs 29,400/-
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