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V. Nagarajan

V. Nagarajan discusses a model CA (Final) paper on indirect taxes

PRABHAT & Co is a dealer in engineering goods. It sells an item `A' at Rs 5,000 a piece. Prabhat approached Laxman & Co, which manufactures engineering items. It was agreed that Prabhat will supply raw material required for manufacture of A to Laxman, and charge Rs 1,500 as job charges per piece.

Other information: i) Raw material supplied by Prabhat, purchased from `Z' — Invoice break of which is as follows.

Net price of raw material per kg — Rs 40

Excise duty — Rs 6.40

Sales tax — Rs 1.86

Total — Rs 48.26

Prabhat generally sells goods after adding 10 per cent to the purchase price.

ii) Product A requires 50 kg of raw material per piece, which includes normal wastage of 5 per cent.

iii) Transport charges incurred by Prabhat for delivering raw material to factory of Laxman — Rs 100 per piece.

iv) Transport charges for returning the finished product to Prabhat — Rs 130 per piece. They are paid by Laxman and recovered from Prabhat by issuing a separate debit note.

v) The rate of duty is 16 per cent advalorem.

Who is liable for payment of excise duty? What will be the assessable value?

Answer: Laxman & Co is the job worker for Prabhat & Co. The job worker is the manufacturer and so Laxman is liable for payment of excise duty.

The assessable value will have to be worked out based on the decision of the Supreme Court in Ujagar Prints (1988), that is, assessable value = cost of raw material + job charges + margin of profit (owned by job worker or not)

Note: i) Cost of raw material will include transport charges of Rs 100 to job worker's premises. Rs 130 transport charge for return of finished goods is post-removal expense.

ii) Addition of 10 per cent to purchase price is only when sold — not relevant.

iii) No deduction for normal wastage.

iv) Raw material cost will exclude Central excise duty, but will include sales tax.

v) Job charges of Rs 1,500 is presumed to be inclusive or profit.

Arriving at assessable value: Cost of raw material per kg = Rs 41.86

Cost of 50 kg per unit = 41.86 x 50 = Rs 2,093

Transport charges inward = Rs 100

Job charges inclusive of profit = Rs 1,500

Assessable value = Rs 3,693

Brand law

UNDER CE Notification No. 8/20003 of March 1, 2003, branded goods (brand belonging to another person who is not eligible for SSI concession) are not eligible for the exemption. State the exceptions, if any, to this statement.

The exceptions include:

i) Goods in the nature of `original equipment parts' of any machinery, equipment or appliances are cleared under end-use-based exemption under the CE (Removal of goods at concessional rate of duty for manufacture of excisable goods) Rules, 2001 to manufacturers who use them as "OE Parts" in their final goods.

ii) Where the goods bear a brand/trade name of K.V.I.C, State K.V.I. Board, and National/State Small Industries Corporation; and

iii) The specified goods are manufactured in an SSI unit located in a rural area (village as per State revenue records).

Cenvat credit

STATE briefly with reasons whether Cenvat credit under the Cenvat Credit Rules, 2002 would be available in the following cases:

i) Light diesel oil used to generate electricity consumed within the factory.

ii) Caustic soda used in the factory to treat the wastewater let out to prevent water pollution.

iii) Chemicals used for maintaining the tea gardens of a tea factory.

Answer: i) Light diesel oil has been excluded in the definition itself for inputs. Cenvat credit is not available.

ii) As pollution control is connected with manufacture of final product, caustic soda is eligible for Cenvat credit.

iii) Production of green plant outside the factory premises cannot be considered as the starting point of manufacture. Cenvat credit is not available (KeomSong Tea Estate vs C.C.E. Shillong 2003 Tribunal Kolkata).

Credit allowable

FROM the following data determine the Cenvat credit allowable if the goods are purchased from a 100 per cent export-oriented unit (EOU).

Assessable value = Rs 770 per unit

Quantity cleared = 77,770 units

Basic customs duty = 30 per cent ad-valorem

CVD = 16 per cent

Answer: Note: 100 per cent EOU, when they sell their goods in DTA, will have CE duty equal to 50 per cent of Customs duty payable, worked out at each stage.

Working for one unit:

Value = Rs 770;

50 per cent thereof = Rs 385

BCD at 30 per cent = Rs 115.50

50 per cent of BCD = Rs 57.75

Value for CVD (385 + 57.75) = Rs 442.75

50 per cent thereof = Rs 221.38

BCD at 30 per cent = Rs 35.42

CVD at 50 per cent = Rs 17.71

Total duty per unit = Rs 75.46

Cenvat credit available for one unit = Rs 75.46

Total Cenvat credit for 77,770 units = 75.46 x 77,770 = Rs 58,68,524

Settlement Commission

WHAT are the conditions under which an application of an assessee can be accepted by the Settlement Commission? What are the advantages of moving the Settlement Commission under the provisions of the CE Act, 1944.

Answer: The conditions for acceptance of application by the Settlement Commission are: a) Monthly returns showing production, clearance, and duty paid have been filed;

b) Copy of the show-cause notice issued for recovery of duty, and so on, by the CE officer;

c) Additional duty accepted by the applicant in his application exceeds Rs 2 lakh;

d) The case should not be pending before the Tribunal or any court;

e) The case should not involve interpretation of the classification of excisable goods under the Central Excise Tariff Act, 1985; and

f) Where any excisable goods, books of account and other documents have been seized by the Department, the assessee can make an application in such cases only after the expiry of 180 days from the date of seizure.

Advantages in moving the Settlement Commission:

If the assessee cooperates with the Commission with full disclosure, he gets immunity against prosecution;

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