A project report on concise study of central excise tax at d link india ltd verna-goa

A PROJECT REPORT ON CONCISE STUDY OF CENTRAL EXCISE TAX AT
D-LINK (INDIA) LTD VERNA-GOA
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Introduction to D–Link (India) Ltd.
Company History
D-Link (India) Ltd. was incorporated on 31st
March, 1993 as ―Smart-Link Network Pvt.
Ltd.‖ originally located at 306, Rayu Chambers, Dr. A. Borkar Road, Panjim, Goa for
setting up a manufacturing unit. D-Link Corporation, Taiwan assured the Indian promoter
Mr. K. R. Naik that it will consider taking up a stake in the company only after
satisfactory commissioning of the project as per its stringent standards. It took almost one
year to set-up the factory and D-Link Corporation delegates on visiting India were
impressed enough to invest financially. The name of the company was thereafter changed
to ―D-Link India Pvt. Ltd.‖ after financial participation from D-Link Corporation, Taiwan
on 29th
March, 1995. The Company became Public Company on 1st
July, 1998 i.e.
D-Link (India) Ltd.
Today D-link (India) Ltd. has grown to be a brand with maximum visibility and
penetration in India in its market segment. It has its own distinct Brand image in
Networking, Internetworking and Structured Cabling Products. D-Link (India) Ltd. by
entering into newer segments of VoIP & digital Home Products has become a one stop
shop to all communication, Local Area Network (LAN), Wide Area Network (WAN),
Gigabit Area Network (GAN), Metropolitan Area Network (MAN), Virtual Private
Network (VPN), Voice Over IP, Intranet, Extranet & ICE needs.
D-Link (India) Software Engineers are being trained at D-Link Corporation, Taiwan in
specialized software for the networking field. The company plans to penetrate the
specialized software segment, which is major segment in the networking and
communications field.
D-Link (India) Ltd. has offices in Mumbai, Delhi, Bangalore, Kolkata, Chennai, Pune,
Secunderabad, Ahmedabad, Lucknow, Chandigarh, Indore, Goa to serve its customers.
D-Link (India) Ltd. has set up two manufacturing plants with three SMT (Surface Mount
Technology) lines at Goa, the first line was set up in 1994, the second line was set up in
1999 & the third SMT line was set up in March 2001. The ISO-9002 certified plant has a
capacity of 50000NIC, 10000 ubs and switches of various types besides a mix of more

that 20000 information outlets, patch cords, patch panels, fiber products etc. D-Link
(India) Ltd. has three state-of-the-arts ISO 9001:2000 and ISO 14001:1996 certified
plants in Goa; Software and R&D Centers in Goa and Bangalore; and a Global Tech
Support Call Center in Mumbai.
D-Link (India) Ltd. already embraced Six Sigma at its Goa factory and started getting
rich return in terms of minimum rejections reduced waste and greater consistency. The
Company also has OHSAS 180001 certification for Health and Safety. It has a
nationwide network of 17 offices, 21 territory distributors, 325 dealers and 3600 resellers
and three overseas distributors in SAARC countries providing active sales and service
support. D-Link is having two subsidiary Companies and five sister concerns, out of
which four companies are Public Limited Companies. The Secretarial department
monitoring overall requirements of various registrations, filing of forms, submission of
reports under the various Acts viz. Companies Act, FERA Act Industrial (R&D) Act
MRTP Act and Income Tax Act, etc of all subsidiaries and sister concerns in additions to
D-Link (India) Limited. One of the Subsidiary Company proposed to merge in Holding
Company, D-Link (India) Limited. The Subsidiary and other companies of D-Link Group
have increased their Authorized capital and Paid up Share Capital, special attention
required to be given on the foreign inward remittance funds through authorized dealers
under the provisions of FERA and issuing shares as per the provisions of Companies Act
1956.
Overview of the Management of the Company
The Company was founded by Mr. K. R. Naik, an Indian resident in the year 1993 with
the vision to make D-Link a premier technology company. The Board of Directors of the
Company consists of eight Directors, out of which two Directors are foreign nationals.
Mr. K. R. Naik, main promoter, Chairman and Managing Director of the Company is in
charge of the overall Management of the Company. The Company has a highly efficient
Board with its members having vast experience and proficiency in the field of
management, sales, marketing, business administration and more to take the Company to
new heights in networking line. Board has constituted various committees such as Audit
Committee and Investors Grievance Committee at the Board Level as per SEBI

Guidelines in respect of Corporate Governance. There is due compliance of the corporate
governance requirements - Board ensures equal treatment, transparency, timely
disclosures and more important accountability.
Business carried on by the Company
D-Link (India) Limited is a leading manufacturer of networking products. Its core
business is in the area of Networking and Communications. D-Link India is present in the
motherboard market through a joint venture with Gigabyte Technology Taiwan and in the
high-end enterprise segment with a complete range of co branded products of Foundry
Networks Inc of USA in India. D-Link India engaged in manufacturing, marketing and
distribution of the entire range of networking products providing complete range of
networking solutions. The company manufactures Switches, Structured Cabling, Leased
Line Modems, NICs, Hubs and Modems. Etc.
The Company has entered into Distributor Agreement with Cisco Systems Inc USA,
Clerent Corporation for marketing and distributing its products in India and SAARC
countries. D-Link (India) Ltd. has formed a strategic Joint Venture with Lanner
Electronics Inc Taiwan, which deal in industrial Automation and data acquisition and
control system products. D-Link (India) Ltd. started the Software Research and
development activity at Goa in February 2000 and subsequently at Bangalore, Mhape and
New Mumbai. Today most of its manpower is focused at designing and developing
products for itself. The current projects include development of IP phones, IPBX,
Wireless LAN and Network security.
D-Link India recently started its Global Tech Support Center at Mumbai. The Group's
principal activities are to manufacture and market networking and communication
products. The Group operates in three segments: Networking Products, Software
Development and Technical Support. The Group's products include Interface Cards,
Switches, Modems, Transceivers, Internet Servers and Routers. Its broadband products
include Cable Modem, wireless products/security products and networking storage
products.
Performance

In the financial year 2006-07 the Company achieved a turnover of Rs.3051.99 million as
compared to Rs. 3014.77 million in the previous year. The Net Profit of the Company
stood at Rs.219.27 million as compared to Rs. 232.06 million in the previous year. The
turnover grew marginally by 1.23%. The company has during the past 2 years transferred
a major portion of its motherboard business to its subsidiary, Gigabyte Technology
(India) Limited. This has resulted in the low revenue growth as compared to previous
years. However, the company‘s core business of networking and cabling products grew at
a healthy rate of 19.24% as compared to the previous year. The profits were lower as
compared to previous year primarily due to increase in depreciation and manpower costs.
The Company has shown significant growth in the core business of networking and
cabling products. The growth was primarily led by significant increase in sales from
switches, wireless products, broadband modems and copper products comprising of
cables, information outlets and patch cords.
During the year the company also launched several new products such as DRO-250i –
Multi Service Access Point, DVX-1000 – IPPBX Gateway, GLB-502T – ADSL Router,
DWL-3500 – Wireless Access Point, and DWL-8500 – Wireless Access Point which will
lead to higher revenue growth in future.
The Company has tied up with Aptec Distribution LLC as distributor for entire passive
networking products under the Digi-Link range of products in the territories of UAE,
Oman, Qatar, Bahrain and Kuwait The Digi-Link brand of passive products include the
end to end range of copper and fiber structured cabling products to support cable plant
infrastructure requirements. The Company has forged alliances with retail chains to
increase the number of its retail outlets in the metros and non-metros by the end of 2007.
The company has tied up with consumer durables and information technology (CDIT)
retail chains like croma, hyper city, e-zone and pantaloons in the country. The Company
has recently concluded a deal to outsource D-TAC (Call Center) support functions of
D-Link Europe. The services includes outsourcing telephone technical and email support
to customers based out of UK, Belgium, Netherlands, Luxemburg and Ireland.
D-Link India Ltd. has won the Channels Choice Award 2007 for Networking LAN and
Wireless LAN. The company is quite strong in LAN segment and has a well-networked
channel across the country. The company offers a wide range of products and stands for

quality and commitment. It continues to be the most demanded product, with best after
sales services and value for money. The Company has received the following awards
during the year under review:
360 Magazine - Golden Rhino Award - 2007 for Networking Cables
Voice & Data 100 award for Top Modem Company year - 2006
DQ Channel - Channel Choice Award - 2006 for Networking Products
360 Magazine - Golden Rhino Award – 2006 for Networking Cables
360 Magazine - Golden Rhino Award - 2006 for Routers & Switches
NASSCOM - The National Association of Software and Services Companies, has
included D-Link India Ltd. in its ‗Showcase of Innovation Book 2006‘ for its work on
IPPBX and Routers.
Channels
1. Home, SOHO and SMB
D-Link (India) Ltd. is a worldwide leader and award-winning designer, developer and
manufacturer of connectivity solutions for customers in the digital home, SOHO
(Small Office Home Office) and SMB (Small Medium Business) segments. More
home users and network administrators increasingly prefer a D-Link India
connectivity solution due to its overall reliability, quality, clear warranty policy,
service support and value-for-money offering. D-Link (India) Ltd. is the most popular
choice in wireless LAN equipment, unmanaged switching, broadband modems,
dial-up modems, network cards, structured cabling and digital home products like IP
cameras, videophones, etc. D-Link (India) Ltd. successfully extended its Channel
product portfolio in 2004 with numerous product introductions of next generation
networking, broadband, wireless, VoIP, firewalls, for the home, SOHO and SMB
market. The D-Link India Channel‘s strategy looks at the future where convergence is
a reality delivering new entertainment and communication devices so that consumers
can take advantage of a network-centric technology era. The explosion of high-speed
Internet access continues to open up opportunities for D-Link India in the world of
consumer computing. Voice, video and data convergence combining digital and
analog technology allows D-Link to deliver broadband driven products like digital

media players, IP-based remote security devices and video conferencing devices to
consumers. D-Link (India) Ltd. continues to remain the most admired Networking
Company as per various channel studies conducted by third parties. D-Link India‘s
channel friendly policy, product reliability, regular training programs, widespread
service support and unambiguous warranty policy has made it the most trusted vendor
among channel partners. D-Link India Ltd. has won the Channels Choice Award 2007
for Networking LAN and Wireless LAN, D-Link has been awarded the Best
Networking Vendor Award by VAR India, Top Modem company in 2006 from
V&D 100, voted as the Most Admired Company as per CRN Survey November
2004 and the Golden Rhino Award 2005 by 360 Magazine.
2. Enterprise: Institutional and Corporate
D-Link India enterprise connectivity products offer standard based complete
end-to-end solution for business environments. D-Link‘s focus on price-performance
based technology leadership delivers increased network performance, increased
network scalability, and decreased costs over time for the IT manager and decision
maker. Core, Distribution and Workgroup switching options available from D-Link
India provide a range of deployable configurations and switch features for a scalable
and robust business-class networking infrastructure. D-Link India delivers powerful
solutions for deploying or upgrading to Gigabit Ethernet throughout an entire network
including server farms, ISP backbone and campus-wide connectivity. D-Link India
engineers continually push the innovation envelope to develop next-generation,
standards-based IT solutions that businesses, whether small or large, can experience
today. This philosophy strengthens D-Link‘s stature as a viable alternative to more
expensive, proprietary-based solutions by bringing the same level of performance
with better value. D-Link India has a co-branding agreement with Foundry Networks,
Inc. to provide the full range of Foundry Networks products in India. Foundry
Networks is a leading provider of high-performance enterprise and service provider
switching, routing and Web traffic management solutions including Layer 2/3 LAN
switches, Layer 3 Backbone switches, Layer 4 - 7 Web switches and Metro Routers.
The enterprise customer thus gets the complete Enterprise Solution from a Single

Vendor and also enjoys the assurance of world class service support from D-Link.
Keeping in mind the CIO‘s end objective to offer the best available network solution
by reducing Total Cost of Ownership, D-Link India is today, offering a wide range of
network switches, WAN routers, wireless LAN products, security firewalls, VoIP and
Copper & Fiber Structured Cabling products.
3. Telecom and ISP
D-Link (India) Ltd. offers cost effective, feature-rich telecommunications solutions
for any network. Telecom service providers know the future of their business depends
on how well they migrate their core networks onto an IP based platform and how
efficiently and cost effectively they roll out value added services like broadband,
VoIP, IP VPN, videoconferencing etc. to the end customers. Internet service
providers are also marketing business applications, such as VPN and integrated voice
and video applications, as reasons for businesses to go broadband. Operational and
economic efficiencies from network convergence will prompt business users to layer
voice services on top of their IP VPN circuits. Increasingly, VoIP is seen as a logical
and desirable complementary service to VPNs. D-Link (India) Ltd. foresees
broadband to the home would pave the way for convergence in vendor, medium and
services i.e. single service provider offering voice, video and data over a single
medium either telephone line copper or fiber or Ethernet Copper with unified billing.
D-Link along with Foundry Networks offers a range of proven core network options
and last mile connectivity options for the Telecom and Internet Service providers.
These include LAN, MAN, WAN switching options, Layer 4-7 Web Switches, last
mile broadband connectivity products (CPEs) and broadband application products
and copper and fiber based structured cabling products. D-Link‘s industry recognized
broadband, media and networking solutions provide valuable cost savings and
enhanced communication features for the home or business network and present a
new set of business opportunities to the Telecom and Internet service provider.

CHAPTER II
Overview of tax structure in industry
Introduction
India has a well developed tax structure with a three-tier federal structure, comprising the
Union Government, the State Governments and the Local Bodies. The power to levy
taxes and duties is distributed among the three tiers of Governments, in accordance with
the provisions of the Indian Constitution. The main taxes/duties that the Union

Government is empowered to levy are Income Tax (except tax on agricultural income,
which the State Governments can levy), Wealth Tax, Customs duties, Central Excise,
Sales Tax and Service Tax. The principal taxes levied by the State Governments are Sales
Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State
Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for
agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions &
Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.),
Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax
on Markets and Tax/User Charges for utilities like water supply, drainage, etc.
Direct Taxes
A direct tax is one paid directly to the government by the persons (juristic or natural) on
whom it is imposed (often accompanied by a tax return filed by the taxpayer). Examples
include income tax, corporate tax, welth tax, transfer tax such as estate (inheritance) tax
and gift tax.
o Income Tax
Tax
Direct Tax Indirect Tax
Income Tax
Individual Corporate
Excise Service Sales Customs Cess Entry
Tax

Income tax is an annual tax on income. The Indian Income Tax Act provides that in
respect of the total income of the previous year of every person, income tax shall be
charged for the corresponding assessment year at the rates laid down by the Finance Act
for that assessment year. The Act further provides that for the purpose of charge of
income tax and computation of total income all income shall be classified under the
following heads of income:
 Salaries
 Income from house property
 Profits and gains of business or profession.
 Capital gains
 Income from other sources.
The total income from all the above heads of income is calculated in accordance with the
provisions of the act as they stand on the first day of April of any assessment year.
Taxable Income Slab Rate (%)
1,00,000
1,35,000 (for women)
1,85,000 (for senior citizens)
NIL
1,00,001 - 1,50,000 10%
1,50,001 - 2,50,000 20%
2,50,001 upwards 30%
10,00,000 upwards 30%*
* A surcharge of 10% on income tax is levied where taxable income exceeds Rs.1
million which makes it effective 33% including surcharge.
o Corporate Income Tax
For domestic companies, the tax is levied @ 30% plus surcharge of 2.5%, where as for a
foreign company (including branch/project offices), it is @ 40% plus surcharge of 5%.
An Indian registered company, which is a subsidiary of a foreign company, is also
considered an Indian company for this purpose.
Indirect Tax:

An indirect tax (such as sales tax value added tax or excise and service tax) is a tax
collected by an intermediary (such as a retail store) from the person who bears the
ultimate economic burden of the tax (such as the customer). The intermediary later files a
tax return and forwards the tax proceeds to government with the return. The Indirect tax
in India includes a series of tax laws and regulations, which are central laws and state
specific laws. As a result these taxes become a significant part of the total cost. It is thus
essential to factor in such costs through appropriate planning. Indirect taxes are
applicable to most of the activities ranging from manufacturing to final consumption,
trading and imports as well as services. As a result it impacts all business lines.
CHAPTER III A
Overview of Central Excise Tax
Introduction
The Central Excise duties are the largest source of revenue for the country.
Approximately 30% of the total revenue receipts are collected from Central Excise.
Central Exice duty is an indirect tax levied on goods manufactured. The tax is
administered by the Central Government under the authority of Entry 84 of the Union

List (List 1) under Seventh Schedule. The Central Excise duty is levied in terms of the
Central Excise Act, 1944. The taxable event under the Central Excise law is
‗manufacture‘ and the liability of Central Excise duty arises as soon as the goods are
manufactured. The liability of payment of excise is on the Manufacturer. Excise is
collected, on the goods manufactured or produced at the time of their removal from the
factory for administrative convenience. There are four basic conditions for levy of
Central Excise duty.
(1) The duty is on goods.
(2) The goods must be excisable.
(3) The goods must be manufactured or produced
(4) Such manufacture or production must be in India.
Unless all the above conditions are satisfied, Central Excise Duty cannot be levied.
The Central Excise law is administered by the Central Board of Excise and Customs
(CBEC or Board) through its field offices, the Central Excise Commissionerates. For this
purpose, the country is divided into 10 Zones and a Chief Commissioner of Central
Excise heads each Zone. There are total 61 Commissionerates in these Zones headed by
Commissioner of Central Excise. Divisions and Ranges are the subsequent formations,
headed by Deputy/Assistant Commissioners of Central Excise and Superintendents of
Central Excise, respectively.
Types of Excise Duties
1. Duties under central excise act - basic duty and special duty of excise are levied under
central excise act.
2. CENVAT- Basic excise duty (also termed as Cenvat) is levied at the rates specified in
First Schedule to Central Excise Tariff Act.
3. Special Duty of Excise (SED) - Some commodities like pan masala, cars etc. are
leviable with special duty. Presently, SED on tyres, aerated soft drinks, polyester

filament yarn, air conditioners and components and motor cars is 8% w.e.f. 1-3-
2003. Thus, total duty on these products will be 24% i.e. 16% basic and 8% special.
4. Education Cess - Education cess is a ‗duty of excise‘, to be calculated on aggregate of
all duties of excise including special excise duty or any other duty of excise, but
excluding education cess on excisable goods. It is calculated at 2% of the excise
duty.
5. SHE Cess – It refers to Secondary and Higher Education Cess which is calculated at
1% of the excise duty.
6. Clearance by EOU - The EOU units is expected to export all their production.
However, if they clear their final product in DTA (domestic tariff area), the rate of
excise duty will be equal to customs duty on like article if imported in India.
7. National Calamity and Contingent Duty - A ‗National Calamity Contingent Duty‘
(NCCD) has been imposed vide section 136 of Finance Act, 2001. This duty is
imposed on pan masala, chewing tobacco and cigarettes. It varies from 10% to 45%.
8. Additional Duty - The 'Additional Duty' is in addition to excise duty. Rules,
procedures, penalties etc. for collecting these duties are same as basic duty. Some
items covered under this Act are textile articles like cotton fabrics, silk and wool
fabrics, man-made fibers, terry fabrics, metallised yarn, embroidery; sugar, branded
tobacco, pan masala containing tobacco and cigarettes.
ECC code number and its utility
ECC code is known as Electronic Computer Code and is allotted to all registrants of
Central Excise. This code comprises of 10 digits. The first 2 digits represent the
Commissionerate, next 2 digits represent the division, next 2 digits represent the range,
the 7th digit indicates the sector, 8th & 9th digit represent the unit within the sector and
the last digit is a check digit. The ECC code number facilitates proper account of
Assessee's records. This code number is a mandatory requirement and is given to the
registrant by the Pay and Accounts officer. But the application in this regard is to be
submitted to the jurisdictional Range Officer. ECC code number is required to be
mentioned on all the statutory documents issued and maintained by the registrant.

Basis of calculation of duty payable
When rates of duty are expressed as a percentage of value of goods, which is now the
increasing trend, assessable value of the goods has to be found out before the amount of
duty leviable thereon is determined and paid. Earlier there was a practice of assessee
filing a price list, the assistant commissioner approving the assessable values after
enquiry and then the assessee determining the duty on the basis thereof. But with the
budget of 1994, the said practice stands abolished. Now it is the assessee‘s responsibility
to determine assessable values of the goods, declare them on his invoice and pay duty on
the basis thereof.
1. Tariff value – where under section 3(2) of the Act, the Central government has fixed
tariff values for the goods, the assessee‘s task is easy, viz. to find out the tariff value
for the particular variety from the relevant notification and pay duty thereon. But
tariff values are rarely fixed by the government.
2. M.R.P. Value – a new section 4A has been inserted with the object of enabling the
government to change excise duty with the reference to maximum retail price, with
such deductions as the government allow. In respect of packaged commodities which
under any law are required to be marked with Maximum Retail Price of the product,
(vide standards of Weights and Measurement Act, 1976), the government has now
acquired power under new section 4A to notify them for assessment on the basis of
such MRP less such abatement (The Government, by issue of a notification,
announces the percentage of abatement to be allowed from MRP in order to arrive at
the assessable value for charging excise duty) as may be notified. The marked MRP
should be the sole consideration for sale. Declaration of retail sale price of multi-
piece packages and individual pieces contained in the multi-piece package (if such
individual pieces are capable of being sold separately) is statutorily required and
hence they will also be assessed under section 4A. But where affixation of MRP is
not statutorily required, such packages, even if voluntarily marked with MRP, will be
assessed. Where more than one retail price is declared on a package, then the
maximum of such retail sale price has to be taken into account. But where different
retail price are declared on different packages for the sale of any excisable goods in
packaged form in different areas, each such retail price shall be the retail sale price

for the purpose of valuation of the excisable goods intended to be sold in the area to
which the retail sale price relates. In case of slashed down prices, duty is to be
charged on the lower MRP at which actual transaction takes place and not on the
higher MRP printed alongside in scored out style to attract customers.
3. Transaction Value – if a product is not notified under section 4A and there is no tariff
value fixed for it under section 3(2), it has to be assessed according to its transaction
value determined under section 4 as substituted with effect from 1-7-2000.
―Transaction Value‖ includes receipts / recoveries or charges incurred or expenses
provided for in connection with the manufacturing, marketing, selling of the excisable
goods to be part of the price payable for the goods sold.
Returns to be filed
Form of Return Description
Who is required to
file
Time limit for filing
return
ER-1
Monthly Return by
large units
Manufacturers not
eligible for SSI
concession
10th of following
month
ER-2 Return by EOU EOU units
10th of following
month
ER-3
Quarterly Return by
SSI
Assessees availing
SSI concession
20th of following
quarter
ER-4
Annual Financial
Information
Statement
Assessees paying
duty of Rs one crore
or more per annum
through PLA
Annually by 30th
November of
succeeding year
ER-5
Information relating to
Principal Inputs
Assessees paying
duty of Rs one crore
or more per annum
through PLA and
manufacturing goods
Annually, by 30th
April for the current
year (e.g. return for
2005-06 is to be filed
by 30-4-2005].

under specified tariff
headings
ER-6
Monthly return of
receipt and
consumption of each
of Principal Inputs
Assessees required
to submit ER-5 return
10th of following
month
Registration of factory / warehouse
o Application for registration should be made in the prescribed Form A-1.
o Separate registration is required for each separate premise, if person has more than
one premise.
o Registration is not transferable. If business is transferred, fresh registration has to be
obtained by the transferee.
o Change in constitution of partnership firm or Company should be intimated within 30
days of change. In case of such change, fresh registration is not required.
o Registration can be revoked or suspended if the holder of registration or any person in
his employment commits breach of any of the provisions of Central Excise Act or
Rules
Payment of Duty
Assessee should pay duty through Current Account popularly known as PLA
(Personal Ledger Account). The PLA is credited when duty is deposited in bank by
TR-6 challan and duty is required to be paid by making a debit entry in the PLA
on monthly basis. PLA and Cenvat credit should be used only for payment of excise duty.
It is not necessary that there must be some minimum credit balance in PLA. It is
sufficient if there is balance at the time of debit in PLA on monthly basis.
Requirements of Return
1. Product description should tally with description actually used in invoices.

2. Production and removal details must be given for each commercially separate product
/ group of products of similar nature falling under same sub-heading having same rate
of duty, based upon data maintained under DSA (Daily Stock Account). For product
group having separate classification / rate of duties, separate entries must be given.
Commissioner can relax this requirement by a general or special order.
3. Duty liability will be consolidated adjustment in current account (PLA) and Cenvat
credit account, as may be decided by assessee. (Thus, he can show pro rata through
PLA and Cenvat credit or in some products he can show full payment through PLA
and in some other products, he can show full payment through Cenvat credit).
4. If same product is cleared under different rates of duty under different notifications,
the details are required to be given separately.
5. Goods received for repairs, reconditioning or export return are required to be shown
in appropriate column.
6. Fine, penalties and interest cannot be paid through Cenvat credit. It must be paid
through PLA only. [In fact, they should be paid through TR-6 challan as PLA is
meant only for payment of duty].
7. If there is delay in payment of duty, interest should also be paid and details of interest
calculations should be shown along with return.
8. If duty on some invoices is paid under protest or on provisional basis, the details are
required to be given in the ER-1 return.
Administration
Being the single largest contributor to the tax revenues of the Government, central excise
revenues and administration have a critical role in the Indian economy. Naturally, any set
back or slow down in central excise revenue mobilization adversely impacts economic
planning. Therefore, it is important to devise a suitable tax administration which
facilitates voluntary compliance by the tax payer and leads to the collection of revenue at
minimum cost. In this regard a number of steps have been taken in the recent past to
improve central excise administration. Some of these are:
1. With exception of cigarettes, self assessment of Central Excise duty by the
manufacturer without reference to or interaction with the department has become the
norm of Central Excise Administration.

2. Central Excise rules earlier numbering over 234 have been considerably simplified
and replaced by new set of Central Excise Rules, wherein the number of rules has
been reduced to only 72.
3. Payment of duty has been simplified with the introduction of a fortnightly payment
system. As a measure of further relaxation the units in the small scale sector are
required to pay duty on monthly basis.
4. Documentation is reduced to the minimum and largely reliance is placed upon the tax
payers own records. Further, the filing of statutory return with the department has
been made less rigorous by increasing the periodicity. Tax payers are required to file
a simple monthly return and those in the small scale sector have to furnish the return
only on a quarterly basis.
5. A statutory body has been set up for giving Advance Rulings on matters of
classification and valuation of goods and applicability of notifications with the
objective of introducing uniformity and certainty in Central Excise Administration.
6. Computerization has been initiated on a large scale and the emphasis is on effective
monitoring, analysis of data base, and use of Information Technology to carry out day
to day functions.
7. New PAN based excise registration has been adopted with the objective of moving
towards on-line registration to facilitate the tax payer.
8. Manufacturer exporters have been facilitated by dispensing with the requirement of
bonds and security. Further a simplified procedure has been introduced for self credit
of the duty on the goods exported. In respect of merchant exporters also the
requirement of security for exports is not insisted upon.
9. Disputes with the tax payer have been sought to be reduced with the introduction of
new valuation; rules and extension of the scheme of assessment based on Maximum
Retail Price.
10. To ensure speedy disposal of cases pending adjudication and in appeal a time period
for deciding the cases has been prescribed in the law.
11. Selective Audit based upon risk assessment has been introduced.
12. For greater facilitation the administration has been brought closer to the tax payer by
an increase in the number of Central Excise Chief Commissioners from 10 to 23,

Commissioners from 61 to 92 and Commissioners of Central Excise (Appeals) from
18 to 71.
It is the perception that the introduction of self-assessment in Central Excise has reduced
responsibility of the Central Excise officers in ensuring the correctness of assessment
including correct availment of Cenvat credit. By and large the officers feel that since the
tax payer is responsible for self-assessment of the return their own responsibility is
reduced to mere confirmation of mathematical accuracy. This is not correct. The
C.B.E.C. had clearly laid down the responsibilities of the assessing officer‘s right up to
the level of Addl. Commissioner in ensuring correctness of assessment and availment of
Cenvat credit by the tax payer. The instructions also empower the officers to call for any
document to confirm the assessment of the tax payer. However, it is a finding that this is
not being done properly, furthermore there is an absence of monitoring mechanism and as
a result proper checks are not carried out. Infact, the assessing officers take the stand that
with the introduction of self assessment and the non submission of invoices with monthly
returns the responsibility of finding out short levy is on the Audit or Anti-Evasion.
It is the view that assessment should be the primary function of the Central Excise
officers. Self assessment on the part of the tax payer is only a facility and cannot and
must not be treated as a dilution of the statutory responsibility of the central excise
officers in ensuring correctness of duty payment. No doubt Audit and Anti-Evasion have
their roles to play but assessment or confirmation of assessment should remain the
primary responsibility of the Central Excise officers.
Scrutiny of Assessment
The Central Excise Officers having jurisdiction over the factory/premises of the assessee
is responsible for the scrutiny of returns. For this purpose, the said officer(s) may require
the relevant documents. Though the statutory records have been dispensed with, the
assessee is required to maintain private records containing all requisite information as
required by different rules and also provide a list of all records maintained by him to the
Range Office. The Officer responsible for scrutiny of return may require the invoices
issued by the assessee, Daily Stock Account, Cenvat Account, cash ledgers, Ledger of all

receipts and payments and the source documents etc. It shall be compulsory for the
assessee to provide the necessary records upon receiving the "Requisition Letter‘ from
the Range Officer or other superior officers. He shall hand over the records under proper
acknowledgement and receive them back under proper acknowledgement too. The
Officer scrutinizing return may require presence of the assessee or his authorized person
at mutually convenient time, for seeking certain information relating to the records.
The Superintendent of Central Excise in-charge of the Range Office, with assistance of
the Inspectors in-charge of the factory of an assessee, will scrutinize all the returns. They
shall, in selected cases, call all connecting documents including invoices and the records
and scrutinize the correctness of assessment.
CHAPTER III B
Analysis of 6 cases
Case 1:
In the following example we have assumed that a product ‗X‘ which is an excisable
commodity requires two inputs i.e. raw material ‗A‘ and raw material ‗B‘ purchased at
the rate of Rs.100 which are excisable.
Table 1.1: Input Tax Calculations
Raw
Material Quantity Rate Value
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
A 1 100 100 16% 16 2% 0.32 1% 0.16
B 1 100 100 16% 16 2% 0.32 1% 0.16
Total 32 0.64 0.32

By considering the rate of the raw materials as Rs.100, the conversion cost as Rs.60 and
the profit margin as Rs.40 the following calculations are made.
Table 1.2: Cost Sheet
Particulars
Amount
(Rs.)
Raw Material (A) 116.48
Raw Material (B) 116.48
Total 232.96
Less: Excise paid 32.96
Input cost 200
Add: conversion cost 60
Add: profit margin 40
Ass. Value 300
Add: 16% excise duty 48
Add: 2% education
cess 0.96
Add: 1% she cess 0.48
Product Price 349.44
In Table 1.2 we can see that the total expenses incurred in purchasing the raw material is
Rs.232.96. As this amount is inclusive of excise of Rs.32.96, it is subtracted from the
total and the actual cost incurred on the inputs is ascertained. This is possible as the
government has provided us with the Cenvat credit facility which helps us to avoid the
cascading effect.
Table 1.3: Calculation of excise liability on finished goods
Finished
Good Quantity
Ass.
Value
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
X 1 300 16% 48 2% 0.96 1% 0.48
Table 1.4: Total liability
Particulars Excise Cess SHE Cess

Excise Paid 32 0.64 0.32
Output tax liability 48 0.96 0.48
Tax paid through cash 16 0.32 0.16
Tax paid through credit 32 0.64 0.32
In the above Table 1.4 the column of excise paid shows the excise duty, cess and she cess
paid on input goods. The column of output tax liability shows the total tax liability on the
finished goods calculated on the assessable value i.e. Rs.300/-. As per the Central Excise
Act we have a provision to avail Cenvat credit i.e. the amount already paid by us during
our purchase of raw materials. Hence the column tax paid through credit shows the credit
availed by us and the column tax paid through cash is the difference between the excise
liability and the Cenvat credit which is actually paid to the government.
Case 2:
In the following example we have assumed that a product ‗Y‘ which is exempt from
excise duty requires two inputs i.e. raw material ‗C‘ and raw material ‗D‘ purchased at
the rate of Rs.100 which are also exempt from tax liability.
Raw
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
C 1 100 100 16% 0 2% 0 1% 0
D 1 100 100 16% 0 2% 0 1% 0
Total 0 0 0

Cost Sheet
Amount
(Rs.)
Raw Material (A) 100
Raw Material (B) 100
Total 200
Less: Excise paid 0
Input cost 200
Ass. Value 300
Add: 2% education
cess 0
Add: 1% she cess 0
Product Price 300
Rs.200. There is no excise duty paid in this case as the materials purchased are exempt
from tax.
Finished
Good Quantity
Ass.
Value
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
Y 1 300 16% 0 2% 0 1% 0
Particulars Excise Cess SHE Cess
Excise Paid 0 0 0

Output tax liability 0 0 0
Tax paid through cash 0 0 0
Tax paid through credit 0 0 0
In the above table we can see that all the columns are nil as the raw material as well as
the finished goods are exempt from tax. The price of the final product in this case is the
cheapest as the product does not have to bare the pressure of the tax liability.
Case 3:
excise duty requires two inputs i.e. raw material ‗A‘ which is excisable and raw material
‗C‘ which is exempt from tax liability purchased at the rate of Rs.100.
Raw
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
A 1 100 100 16% 16 2% 0.32 1% 0.16
C 1 100 100 16% 0 2% 0 1% 0
Total 16 0.32 0.16

Cost Sheet
Amount
(Rs.)
Total 216.48
Ass. Value 316.48
Add: 2% education
cess 0
Add: 1% she cess 0
Rs. 216.48. As this amount is inclusive of excise of Rs.16.48, it is subtracted from the
cascading effect.
Finished
Good Quantity
Ass.
Value
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
Y 1 300 16% 0 2% 0 1% 0
Particulars Excise Cess
SHE
Cess

Credit available 16 0.32 0.16
paid on input goods. The column of output tax liability is nil as the finished product is
exempt from tax. As per the Central Excise Act we have a provision to avail Cenvat
credit i.e. the amount already paid by us during our purchase of raw materials but as the
output product is exempt from tax this facility is not available.
Case 4:
In the following example we have assumed that a product ‗X‘ which is excisable requires
two inputs i.e. raw material ‗A‘ which is excisable and raw material ‗C‘ which is exempt
from tax liability purchased at the rate of Rs.100.
Raw
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
A 1 100 100 16% 16 2% 0.32 1% 0.16
C 1 100 100 16% 0 2% 0 1% 0
Total 16 0.32 0.16

Cost Sheet
Amount
(Rs.)
Total 216.48
Less: Excise paid 16.48
Input cost 200
Ass. Value 300
Add: 2% education
cess 0.96
Rs. 216.48. As this amount is inclusive of excise of Rs.16.48, it is subtracted from the
cascading effect.
Finished
Good Quantity
Ass.
Value
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
Y 1 300 16% 48 2% 0.96 1% 0.48
SHE
Cess

Tax paid through credit 16 0.32 0.16
paid on input goods. The column of output tax liability shows the total tax liability on the
finished goods calculated on the assessable value i.e. Rs.300/-. As per the Central Excise
Act we have a provision to avail Cenvat credit i.e. the amount already paid by us during
our purchase of raw materials. Hence the column tax paid through credit shows the credit
availed by us and the column tax paid through cash is the difference between the excise
liability and the Cenvat credit which is actually paid to the government.
Case 5:
excise duty requires two inputs i.e. raw material ‗A‘ and raw material ‗B‘ purchased at
the rate of Rs.100 which are excisable.
Raw
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
A 1 100 100 16% 16 2% 0.32 1% 0.16
B 1 100 100 16% 16 2% 0.32 1% 0.16
Total 32 0.64 0.32

Cost Sheet
Amount
(Rs.)
Raw Material (B) 116.48
Total 232.96
Ass. Value 332.96
Add: 2% education
cess 0
Add: 1% she cess 0
Rs.232.96. As this amount is inclusive of excise of Rs.32.96, it is subtracted from the
cascading effect.
Finished
Good Quantity
Ass.
Value
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
Y 1 300 16% 0 2% 0 1% 0
SHE
Cess

Credit available 32 0.64 0.32
paid on input goods. The column of output tax liability is nil as the finished product is
exempt from tax. As per the Central Excise Act we have a provision to avail Cenvat
credit i.e. the amount already paid by us during our purchase of raw materials but as the
output product is exempt from tax this facility is not available.
Case 6:
In the following example we have assumed that a product ‗X‘ which is an excisable
commodity requires two inputs i.e. raw material ‗C‘ and raw material ‗D‘ purchased at
the rate of Rs.100 which are also exempt from tax liability.
Raw
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
C 1 100 100 16% 0 2% 0 1% 0
D 1 100 100 16% 0 2% 0 1% 0
Total 0 0 0

Cost Sheet
Amount
(Rs.)
Raw Material (A) 100
Total 200
Less: Excise paid 0
Input cost 200
Ass. Value 300
Add: 2% education
cess 0.96
Rs.200. There is no excise duty paid in this case as the materials purchased are exempt
from tax.
Finished
Good Quantity
Ass.
Value
Excise
Rate Excise
Cess
Rate Cess
SHE
Cess
Rate
SHE
Cess
X 1 300 16% 48 2% 0.96 1% 0.48
SHE
Cess
Excise Paid 0 0 0
Tax paid through credit 0 0 0

In the above Table 6.4 the column of excise paid is nil as the raw material purchased was
exempt from tax. The column of output tax liability shows the tax liability on the finished
products. As we have not paid excise duty on input goods the total liability shown in the
column tax paid through cash has to be paid to the government.
CHAPTER IV A
Overview of Cenvat
Introduction
CENVAT (Central Value Added Tax) has its origin in the system of VAT (Value Added
Tax), which is common in West European Countries. Concept of VAT was developed to
avoid cascading effect of taxes. VAT is found to be a very good and transparent tax
collection system, which reduces tax evasion, ensures better tax compliance and increases
tax revenue.
MODVAT (Modified Value Added Tax) was introduced in India in 1986 (MODVAT
was re-named as CENVAT w.e.f. 1-4-2000). The system was termed as MODVAT, as it
was restricted upto manufacturing stage and credit of only excise duty paid on
manufacturing products (and corresponding CVD (Countervailing Duty) paid on
imported goods) was available.
Credit of duty paid on input and input services

The CENVAT scheme is principally based on system of granting credit of duty paid on
inputs and input services. A manufacturer or service provider has to pay excise duty and
service tax as per normal procedure on the basis of ‗Assessable Value‘ (which is mainly
based on selling price). However, he gets credit of duty paid on inputs and service tax
paid on input services.
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
No credit is available if final product is exempt from duty or final service is exempt from
service tax. If a manufacturer manufactures more than one product, it may happen that
some of the products are exempt from duty. Similarly, in case of service provider, some
services may be taxable while some services may not be covered. In such cases, duty paid
on inputs and service tax paid on input services used for manufacture of exempted
products/services cannot be used for payment of duty or tax on other final
products/services which are not exempt from duty/tax. If the manufacturer/service
provider uses common inputs both for exempted as well as un-exempted goods/services,
he should maintain separate records for inputs/input services used for manufacture of
exempted final products and should not avail CENVAT on such inputs/input services.
However, if he does not maintain separate records and inventories of inputs/input
services used in exempted final products/services, he has to pay an ‗amount‘ of 10% of
price of exempted goods and education cess is payable only on ‗duties of excise‘.
‗Amount‘ is not ‗duty‘. Hence, education cess is not payable on such ‗amount‘. In case of
exempt services, he can utilize CENVAT credit only upto 20% of service tax payable on
output service.
Credit of duty on inputs can be taken up instantly, i.e. as soon as inputs reach the
premises. In case of capital goods, upto 50% credit is available in current year and
balance in subsequent financial year. In case of input services, credit is available only

after the amount of bill is paid to person who had provided the service. In some cases, it
may happen that, duty paid on inputs and service tax paid on input services may be more
than duty payable on final products. In such cases, though the CENVAT credit will be
available to the manufacturer/service provider, he cannot use the same and the same will
lapse. There is no provision for refund of the excess CENVAT credit. However, the only
exception is in case of exports where duties paid on input material or services used for
goods exported are refundable. Another exception is that the Tribunal can order refund
when CENVAT credit could not be availed due to fault / wrong action of the department.
Refund may also be granted if assessee could not utilize credit for some other reason.
CENVAT on inputs or input services is available only if the process is 'manufacture'.
Otherwise, CENVAT is not available. (In fact, in such cases, no duty is payable on the
final product and question of CENVAT does not arise at all).
CENVAT in Service tax and Central Excise
The system of VAT was introduced in Central Excise in 1986. The concept was also
introduced in case of Service Tax in 2002. However, these two were independent of each
other. Since both excise (goods tax) and service tax are under Central Government, the
Government intends to integrate these two taxes. Full integration of goods and service tax
will take considerable time, as it can be achieved only after political consensus is
achieved. However, a beginning has been made by making credit of service tax and
excise duty inter-chargeable w.e.f. 10-9-2004.
Overview of CENVAT System
oCredit of duty paid on input and input services and capital goods - The CENVAT
scheme is principally based on system of granting credit of duty paid on inputs, input
services and capital goods. A provider of taxable output services has to charge service
tax in his invoice as per normal procedure. However, he gets credit of (a) duty paid on
inputs and capital goods and (b) service tax paid on input services. This is termed as
CENVAT Credit. This CENVAT Credit can be used for payment of service tax on his
output services.

oInput services eligible for credit - An output service provider will be entitled to credit of
service tax paid by him on input services, which are used by him directly or indirectly
in or in relation to provision of output services. Even input services relating to setting
up an office premises will be eligible. In addition to this, services like advertising,
activities relating to business like accounting, auditing, storage, transport etc., which
are only indirectly related to provision of output services would also be permitted for
credit. In fact, all input services relating to all activities relating to business are eligible
for CENVAT credit.
oInputs goods eligible for CENVAT to service provider - Credit will be available of
excise paid on inputs used for providing output services, except high speed diesel oil
(HSD), Light Diesel Oil (LDO) and motor spirit (petrol).
oCENVAT on Capital Goods - Capital goods used for providing output taxable service
will be available. Credit of duty paid on machinery, plant, spare parts of machinery,
tools, dies, etc., is available. However, upto 50% credit is available in current year and
balance in subsequent financial year or years. A service provider can take out capital
goods from his premises, provided that he brings them back within 180 days. This
period can be extended by Assistant/Deputy Commissioner.
oCredit on motor vehicles used to provide output service - Motor vehicles are not
‗capital goods‘ for purpose of ‗manufacture‘, but credit on motor vehicles would be
allowed as ‗capital goods‘ only to the service providers of courier, tour operator, rent-a-
cab scheme operator, cargo handling agency, outdoor caterer, pandal and shamiana
operator and goods transport agency. Motor vehicle will not be treated as ‗capital
goods‘ for manufacturers or other service providers.
oNo CENVAT credit if output service exempt from service tax - No credit is available if
output service is exempt from service tax.
oService provider providing exempted as well as unexempted services - If the service
provider uses common inputs both for exempted as well as un-exempted services, he
should maintain separate records for input services used for exempted output services
and should not avail CENVAT on such inputs/input services. However, if he does not
maintain separate records and inventories of inputs/input services used in exempted

output services, he can utilize CENVAT credit only upto 20% of service tax payable on
output service.
For example, assume that service tax payable on output service is Rs.100. Service tax
paid on input service is Rs.15. These input services are used both for taxable output
services and exempt/non-taxable output services. In such case, assessee can avail and
utilize credit of entire Rs.15. However, if tax paid on input services is Rs.75, and these
are used both for exempted and taxable services, then assessee can actually utilize credit
of only Rs.20. He will have to pay balance in cash, even if credit of Rs.55 is still
available in his books. He can carry forward balance credit and can utilize it in
subsequent month/s, if opportunity arises.
Inputs eligible for CENVAT
All goods, except (a) light diesel oil, high speed diesel oil, motor spirit, commonly known
as petrol and (b) motor vehicles are eligible, but these should be used for providing
taxable output service.
Input service for purpose of CENVAT Credit
―Input service‖ means any service used by a provider of taxable service for providing an
output service. The services that will be covered are services in relation to -
a. Setting up, modernization, renovation or repairs of a factory, premises of provider of
output service or an office relating to such factory or premises
b. Advertisement or sales promotion
c. Market research
d. Storage upto the place of removal
e. Procurement of inputs
f. Activities relating to business, such as accounting, auditing, financing, recruitment
and quality control, coaching and training, computer networking, credit rating, share
registry and security, inward transportation of inputs or capital goods and outward
transportation upto the place of removal.

Credit only after payment to service provider
Credit of input services can be availed only after the output service provider makes
payment of value of input services and the service tax payable on it, as shown in invoice
of input service provider. In case of input goods, credit is available as soon as goods are
received in premises, but not so in case of credit of service tax. Suppose the invoice is for
Rs. 100 and service tax is Rs. 12.24, can you avail CENVAT credit if you pay only
Rs.12.24 to the input service provider? The answer is no, as the words used are ‗value of
input services and the service tax payable on it‘.
Capital goods eligible for CENVAT credit
a. Tools, hand tools, knives etc., Machinery, Electrical machinery, Measuring, checking
and testing machines etc., Grinding wheels and the like goods, Abrasive powder or
grain on a base of textile material.
b. Pollution control equipment.
c. Components, spares and accessories of the goods specified above.
d. Moulds and dies
e. Refractories and refractory material
f. Tubes, pipes and fittings thereof, used in the factory
g. Storage Tank.
The capital goods should be used for providing output service. If these are exclusively
used to provide exempted services, credit of duty paid will not be available. Service
provider can send out capital goods for providing output service, but these should be
brought back within 180 days. Extension can be obtained from Assistant/Deputy
Commissioner. In fact, in case of large projects, it will be highly uneconomical to bring
back the capital goods to the premises of service provider. Hopefully, obtaining
permission from AC/DC should not be a problem. If permission is rejected, reasoned

order will have to be given. Order rejecting extension is an appealable order and appeal
can be filed with Commissioner (Appeals).
Depreciation cannot be availed on CENVAT portion
Manufacture cannot avail depreciation in respect of excise portion e.g. if cost of ‗capital
goods‘ is Rs. 1.15 lakhs, out of which Rs. 0.15 lakh is duty paid, assessee can claim
depreciation under Income Tax only on Rs.1 lakh, if he has availed CENVAT credit of
Rs.0.15 lakh.
Credit to be availed in two stages of 50% each
CENVAT credit on capital goods is required to be availed in more than one year, viz.
upto 50% credit can be availed when these are received and balance in any subsequent
financial year. The condition for taking balance credit is that the capital goods should be
in possession and use of final products in subsequent years.
The exception is that in case of consumables like spare parts, components, moulds and
dies, refractories, refractory materials and grinding wheels, the balance credit can be
availed in subsequent year, even if they are not in possession and use.
Duties and documents eligible for credit
All taxes and duties defined as ‗CENVAT Credit‘ will be eligible.
a. Basic excise duty on indigenous inputs [Paid on goods specified in First Schedule to
CETA (Central Excise Tariff Act)]. Corresponding CVD on imported goods is
allowable.
b. Education cess on manufactured excisable goods and CVD equal to education cess on
imported goods. This credit can be utilized only for payment of education cess on
final product or output services
c. National Calamity Contingent Duty (NCCD) and corresponding CVD paid on
imported goods. This credit can be used for payment of NCD on outputs only and not
for any other duty.
d. Service tax on input services.

e. Education cess paid on service tax. This credit can be utilized only for payment of
education cess on final product or output services.
f. Secondary and higher education cess paid on service tax. This credit can be utilized
only for payment of secondary and higher education cess on final product or output
services.
g. Additional Customs Duty paid. This duty is imposed w.e.f. 1-3-2005. This credit will
not be available to service providers. It is clear that even if the goods are ‗capital
goods‘, full 100% credit will be available in first year itself
h. Additional Excise duty paid under. Basic duty and service tax on input services are
inter-changeable, i.e. Credit of duty paid under one head can be utilized for payment
of duty under other head.
Restrictions on taking CENVAT credit
Credit of any duty can be utilized for payment of any duty on final product. However,
some exceptions are provided. Thus, excluding these exceptions as explained below,
input credit of any type of duty can be utilized for payment of any type of duty on final
product.
a. In respect of inputs/capital goods procured from EOU unit, CENVAT credit is
available only partially.
b. Education cess paid on input or input service can be utilized either for payment of
education cess on output services or education cess on final product, but cannot be
used for payment of other taxes.
c. Credit only upto input services, inputs and capital goods received upto end of
month/quarter.
Service tax is presently payable by 5th of following quarter in case of individual,
proprietary firm or partnership firm, and by 5th of following month in case of other
service providers except in month of March. However, only CENVAT credit available as
on last day of the month can be utilized for payment of duty even if tax is payable by 5th
of following month/quarter. CENVAT credit in respect of input services/inputs/capital

goods received after end of month cannot be utilized while paying service tax on 5th of
following month. The credit can be utilized in subsequent month only.
Eligible duty/tax paying documents
Credit can be taken on the basis of following documents
o Invoice of Manufacturer from factory.
o Invoice of manufacturer from his depot or premises of consignment agent.
o Invoice issued by registered importer.
o Invoice issued by importer from his premises or consignment registered with Central
Excise.
o Invoice issued by registered first stage or second stage dealer.
o Supplementary Invoice.
o Bill of Entry.
o Certificate issued by an appraiser of customs in respect of goods imported through
foreign post office.
o TR-6 Challan of payment of tax where service tax is payable by other than input
service provider.
o Invoice, bill or challan issued by provider of input service on or after 10-9-2004.
o Invoice, Bill or Challan issued by input service provider under rule 4A of Service tax
Rules.
Essential requirement of invoice
CENVAT credit cannot be denied as long as the document contains essential aspects of
duty/tax payment
a. Payment of duty or service tax
b. Prescription of goods or taxable service
c. Assessable value
d. Name and address of the factory or warehouse or provider of input service.
Thus, CENVAT cannot be denied if the documents contain these details and no
permission/condonation is required if the invoice/bill/challan contains these basic details.
Exempted output services

As per basic principle of VAT, credit of duty or tax can be availed only for payment of
service tax on output services. As a natural corollary, if no duty is payable on final
product or output services, credit of duty/tax paid on inputs or input services cannot be
availed. CENVAT credit is not admissible on such quantity of input or input service
which is used in manufacture of exempted goods or exempted services.
Thus, if inputs and input services are partly used in exempted final product/output
service, CENVAT credit of that portion of input/input service will not be available.
Returns to be submitted
A return has to be submitted to Range Superintendent of Central Excise in the prescribed
form, as follows –
o Half yearly return within one month from close of half year, by provider of output
services. The return should be in form ST-3.
o Half yearly return within one month from close of half year, by Input Service
Distributor. The return should be in form ST-3.
Revised return
There is no provision for submission of revised return. If assessee finds that he has made
some mistake, he should pay the amount by TR-6 challan and inform department
suitably. If he has paid excess amount by mistake, he is required to file refund claim. He
cannot adjust excess payment on his own, except in few cases where it has been
specifically permitted. If he has not taken CENVAT credit of certain inputs, input
services or capital goods, he can avail it in subsequent period, since there is no time limit
for availing CENVAT credit. This will be reflected in his return for that subsequent
period, as in normal course.
Tax to be paid in cash but CENVAT Credit can be availed

Taxable service will not be treated as output service of the recipient for purpose of
availing of CENVAT credit of duty of excise paid on inputs or service tax paid on any
input services. Thus, the recipient of service has to pay the service tax in cash by TR-6
challan. He cannot utilize his CENVAT credit for payment of this amount, as it is not his
‗output service‘, though he is liable to pay service tax. However, once the person
receiving the service pays service tax, it is his ‗input service‘. He can avail credit of
service tax paid, if it is his ‗input service‘ as defined. The TR-6 challan by which he has
paid the service tax will be eligible document for availment of service tax credit.
CHAPTER IV B
Brief introduction to Service Tax
Introduction
Service tax is said to be tax of 21st century. This tax made a small beginning in 1994.
This tax was first introduced with effect from 1-7-1994 on three services. The rate was
5% and it was subsequently increased to 8% w.e.f. 14-5-2003, it was enhanced to 10%
w.e.f. 10-9-2004. An education cess of 2% of service tax has been imposed w.e.f.
10-9-2004. Presently, Service tax is payable @ 12% w.e.f. 18-4-2006 (plus education
cess of 2% and secondary and higher education cess of 1% i.e. total 12.36%) on ‗taxable
services‘ w.e.f. 01-04-2007
Legally, you have to show service tax, education cess and secondary and higher
education cess separately in invoice. You cannot just charge 12.36% as ‗service tax‘. In
that case, department can ask you to pay further 0.24% plus 0.12% amount. You should
also pay it by showing separate account head in TR-6 challan, indicating appropriate
code.
Service Provider
In most of the cases, service provider, i.e. person who is providing taxable service is
liable to pay service tax. However, in few cases, exceptions have been made and other
person is made liable to pay service tax. The major exceptions are as follows

(a) When service provider is non-resident, service receiver is liable.
(b) In case of service of Goods Transport Agency (GTA), here consignor/consignee who
is paying freight is liable.
(c) In case of insurance agents and mutual fund agents, insurance company and mutual
fund are liable.
(d) In case of sponsorship service provided to a body corporate or firm, the body
corporate or firm receiving such sponsorship service will be liable.
Taxable Service
Service is taxable if service is provided by ‗any person‘. In some case, service is taxable
if provided to ‗client‘ or ‗customer‘. Hence, tax liability will often depend on who is
service provider and service receiver. Taxable service includes any taxable service
provided or to be provided by any unincorporated association or body of persons to a
member thereof, for cash, deferred payment or any other valuable consideration. Gross
amount charged for taxable service shall include any amount received towards the taxable
service before, during or after provision of taxable service. The service tax is payable by
5th of the month following the month in which payments are received toward value of
taxable services except in March. Service tax on value of taxable services received during
month of March or quarter of March is required to be paid by 31st March. If service
provider does not receive any payment from his customer, there is no liability of service
tax. Service tax is payable only on ‗value of taxable service‘ actually ‗received‘, and not
on amount ‗billed‘. The service provider is required to show service tax separately in his
invoice/bill. This is also required to enable the service recipient to claim credit of service
tax paid by the service provider.
Calculation of service tax by back calculations
The gross amount charged can be taken as inclusive of service tax and the ‗value‘ and
‗service‘ tax is to be calculated by back calculations. For example, if Bill amount is
Rs.1,000 and service tax is not shown separately in invoice, the tax payable is not

Rs.123.60, but Rs.110 and Assessable Value is Rs.890 (Check that 12.36% of Rs. 890 is
Rs.110 and total of Rs. 890 plus Rs.110 is Rs.1,000. In invoice, Rs.106.8 will be service
tax, Rs.2.1 will be education cess and Rs.1.1 will be secondary and higher education
cess).
Exclusion of value of material
If the amount charged includes value of goods and materials sold, service tax will not be
payable on that value. There should be documentary evidence showing value of goods
and materials sold. This exemption is available only if Cenvat credit of such material is
not taken. If such credit was taken, assessee should pay amount equal to the credit. Such
payment should be before sale of such goods and materials.
Abatement in certain cases from gross value of contract
In some cases, abatement has been provided from gross value of contract by way of an
exemption notification, e.g. in case of construction services, service tax is payable on
33% of value of gross amount including of material, in case of outdoor catering contracts,
service tax is payable on 50% of amount, etc. Thus, exemption notifications have been
used as ‗valuation provisions‘. The so called ‗exemption notification‘ is on the
assumption that in absence of such ‗exemption‘, service tax would be payable on value of
such goods also. This is incorrect as tax is payable only on ‗value of service‘ and not on
‗gross value of contract‘. Abatement is provided of certain percentage, probably on the
presumption that the abated amount represents value of material. ‗Exemption‘ is granted
in respect of certain value which is not taxable at all in the first place. You cannot
‗exempt‘ something which is not taxable at all.
Specific Exemption
In case of some services, service tax is payable at lower rates, i.e. partial abatement is
available from gross value. The lower rate is applicable if the service provider does not
avail Cenvat credit of duty/tax on inputs, input services and capital goods.

Taxable Service Partial abatement available
Relevant Notification
w.e.f. 1-3-2006
Accommodation booking
service by tour operator
10% of gross amount
charged
1/2006-ST dated 1-3-
2006.
Air Travel Agent
Option to pay service tax at
flat rate on ‗basic fare‘ @
0.6% in case of domestic
booking and 1.2% in case of
international booking
rule 6(7)
Business Auxiliary Service in
relation to processing of parts
and accessories used in
manufacture of cycle, cycle
rickshaws and hand operated
sewing machines
Tax on 70% of gross amount
if gross amount is inclusive
of cost of inputs and input
services, whether or not
supplied by the client
1/2006-ST dated 1-3-
2006.
Commissioning and
installation services
if gross amount includes
value of material
1/2006-ST dated 1-3-
2006.
Construction Service
if gross amount includes
value of material
1/2006-ST dated 1-3-
2006.
Goods Transport Agency
(GTA)
Tax only on 25% amount in
his invoice [Payment will be
made by consignor /
consignee who is actually
paying freight]
1/2006-ST dated 1-3-
2006.
Mandap keeper, hotels and
convention services,
providing full catering
services
Tax on 60% gross amount
charged
1/2006-ST dated 1-3-
2006.

Outdoor caterer
Tax on 50% amount if he
provides full and substantial
meal
1/2006-ST dated 1-3-
2006.
Package tours and other than
package tour
Tax is payable only on 40%
of gross amount charged
1/2006-ST dated 1-3-
2006.
Pandal and shamiana Service
70% of gross amount
charged if full catering
service provided
1/2006-ST dated 1-3-
2006.
Rent-a-cab operator
Tax payable on 40% of gross
amount charged
1/2006-ST dated 1-3-
2006.
Transport of goods in
container by rail
Tax payable on 30% of gross
amount charged
1/2006-ST dated 1-3-
2006.
Exemption from service tax
oSmall units whose turnover is less than Rs. 4 lakhs per annum are exempt from service
tax.
oThere is no service tax on export of services, if service is exported as per ‗Export of
Service Rules‘.
oServices provided to UN and International Agencies and supplies to SEZ or developer
are exempt.
oExemption form service tax has been provided to all taxable services provided by
Reserve Bank of India.
oService tax is not payable on value of goods and material supplied to the service
recipient while providing service. There should be evidence about its value. Such
exclusion is permissible only if Cenvat credit on such goods and material is not taken.
Exemption or Rebate of Service tax on export services: Exporter of service has three
options -
1.Export without payment of service tax and utilize Cenvat Credit for payment of service
tax on other services.

2.Export without payment of service tax and claim rebate of service tax paid on input
services and excise duty paid on inputs (or forget about rebate as procedure is too
complicated and impractical)
3.Pay service tax on exported services and claim rebate (by this, he can utilize his input
credit)
Procedure
The main procedures to be followed are:
1. Registration
2. Maintenance of records
3. Payment of service tax
4. Half yearly returns
There is no prescribed form of records. The records maintained by assessee including
computerized data maintained in accordance with various other laws are acceptable. In
the first return, the assessee should furnish a list of all accounts maintained by assessee
including the memoranda received from his branch offices. It is obligatory for an assessee
to preserve records at least for a period of five years.
Registration:
Administration of service tax is under Central Excise department. A ‗person liable for
paying service tax‘ has to register with Superintendent of Central Excise under whose
jurisdiction your premises fall. He should register within 30 days from date of
commencement of the business of providing taxable service. The person will have to
apply for registration in form ST-1. An acknowledgement will be given on duplicate copy
of ST-1 form by Superintendent of Central Excise, in whose jurisdiction the person
operates. If a person is providing more than one taxable service, he may make a single
application, i.e., even if the service falls under more than one heading, service tax is
payable only once. If one service provider is providing more than one taxable service, he
needs to take only one registration. However, the certificate shall be endorsed for all

taxable services and tax liability will have to be discharged separately for each of the
taxable services separately. He should mention in the application all the taxable services
provided by him.
Applicant should submit following at the time of filing application for registration (a)
copy of PAN (b) proof of residence and (c) constitution of applicant. The registration
certificate will be granted by Superintendent of Central Excise in seven days in form
ST-2. If the registration certificate is not granted within seven days, the registration shall
be deemed to have been granted.
Penalty for late registration
If there is delay, interest for delayed payment will have to be paid, which cannot be
waived. Though there is no mandatory penalty for delay in registration, penalty upto Rs.
1,000 can be imposed. In addition, penalty of Rs. 100 per day can be imposed for late
payment of tax. In case of suppression of facts, willful mis-statement, fraud and
collusion, higher penalty is payable. If an assessee proves that there was reasonable cause
for delay in registration or payment of service tax, the penalty can be waived.
Returns
Every assessee has to submit half yearly return in form ST-3 in triplicate within 25 days
of the end of the half-year. ‗Half year‘ means 1st April to 30th September and 1st
October to 31st March of financial year. The return should be accompanied by TR-6
challan, evidencing payment of duty.
Doctrine of unjust enrichment
Since service tax is indirect tax, it is recoverable from customer. If you recover the
amount from customer and again claim refund, you will get double benefit. Hence,
provision of ‗unjust enrichment‘ has been made in the law. As per the doctrine of unjust
enrichment, refund will be granted to assessee only if assessee has not passed on the tax
burden to the customer/client. As it will be presumed that assessee has passed on the
burden of service tax, he will have to prove that he has not passed on the burden to the
customer.

Penalty for non-payment or delayed payment of service tax
If service tax is not paid or belatedly paid, penalty shall be imposed, which will be
minimum Rs. 200 per day during which such failure continues or @ 2% per month,
whichever is higher, starting with the first day after due date till date of actual payment of
outstanding amount. Mercifully, the penalty cannot exceed the service tax which was
payable. In addition, of course, service tax and interest is payable.
Penalty in case of fraud, suppression of facts etc.
Where any tax is not levied or paid or erroneously refunded, the person shall be liable to
pay penalty which shall not be less than amount of service tax but can be upto twice the
amount of service tax not levied or not paid or erroneously refunded. The penalty can be
waived, if assessee proves that failure was due to reasonable cause. The penalty will be
reduced to 25%, if tax, interest and penalty are paid within 30 days from date of receipt
of order of Central Excise Officer.

Services at D-Link (India) Ltd.
1. Business Auxiliary Service
Tax on this service was introduced with effect from 1-7-2003. Any service provided or to
be provided to a client, by any person in relation to business auxiliary service is a
‗taxable service‘. ‗Business auxiliary service‘ means any service in relation to —
o Promotion, marketing or sale of goods produced or provided by or belonging to the
client; or
o Promotion or marketing of service provided by the client; or
o any customer care service provided on behalf of the client; or
o procurement of goods or services, which are inputs for the client;
o a service incidental or auxiliary to any activity such as billing, issue or collection or
recovery of cheques, payments, maintenance of accounts and remittance, inventory
management, evaluation or development of prospective customer or vendor, public
relation services, management or supervision
2. Commercial Training or Coaching Services
be provided to any person, by a commercial training or coaching center in relation to
commercial training or coaching, is a ‗taxable service‘. ‗Commercial training or coaching
centre‘ means any institute or establishment providing commercial training or coaching
for imparting skill or knowledge or lessons on any subject or field other than sports, with
or without issuance of a certificate and includes coaching or tutorial classes but does not
include pre-school coaching and training centre or any institute or establishment which
issues any certificate or diploma or degree or any educational qualification recognized by
law for the time being in force. Only private coaching or training services are covered.

Teaching in Government recognized institutes will not be a taxable service. Pre-school
coaching has been specifically excluded from the definition.
Commercial coaching for board, university or competitive examinations:
Commercial coaching and training services provided by institutes that prepare applicants
for Board examinations, University examinations and competitive examinations like
entrance examinations of IIT, Civil services etc. are chargeable to service tax [However,
it will not be taxable if service is provided by recognized colleges]
Postal coaching taxable:
Service provided by postal coaching are taxable, including postal charges collected for
rendering postal tuition service
Commercial training which forms essential part of course leading to recognized
certificate/diploma exempt:
Some institutes like CA/ICWA/ICSI issue recognized diplomas/degrees. They have
provided that the students must undergo compulsory training in some subject (e.g.
language or computer training). However, the training is provided by some commercial
institutes recognized by the institute which gives recognized diploma. In such case, the
service rendered by the commercial training centre or coaching centre will be exempt
from service tax, if following conditions are satisfied -
(a) The training or coaching should form essential part of the course or curriculum
leading to issuance of recognized certificate, diploma, degree or other educational
qualification
(b) The student should make payment of fees to the institute or establishment issuing
such certificate (e.g. ICAI, ICWAI or ICSI etc.) and not to the commercial
coaching or training centre.
Vocational training Institutes:

It means a commercial training or coaching centre which provides vocational training or
coaching that impart skills to enable the trainee to seek employment or undertake self-
employment, directly after such training or coaching.
Recreational Training Institutes:
It means a commercial training or coaching centre which provides training or coaching
relating to recreational activities such as dance, singing, martial arts or hobbies, foreign
language institutes, hobby classes, institutes teaching martial arts, painting, dancing etc.
would not be chargeable to service tax.
3. Manpower Recruitment or Supply Agency’s services
be provided to a client, by manpower recruitment or supply agency in relation to the
recruitment or supply of manpower, temporarily or otherwise, in any manner, is a
‗taxable service‘. ―Manpower recruitment or supply agency‖ means any person engaged
in providing any service, directly or indirectly, in any manner for recruitment or supply of
manpower, temporarily or otherwise, to a client. Services of manpower recruitment were
taxable from 7-7-1997. Services of manpower supply (usually termed as ‗labour
contractor‘) have been made taxable w.e.f. 16-6-2005.
The coverage includes services provided by an agency for following services –
o preliminary stage of building a database of manpower for different categories of
personnel employment, whether white collared or blue collar, whether for
employment in India or overseas;
o determining manpower requirement for the client, preliminary identification, short
listing and screening of prospective candidates, providing specialists for interviewing
prospective candidates, arranging for their interviews at every stage;
o placing advertisements for recruitment of manpower in the print or electronic media.
In short, it will cover entire gamut of services from incipient stage of
selecting/identifying manpower requirement till stage of final selection.

If the person approaches manpower recruitment agency for employment (as usually
happens for employment in Gulf countries), the prospective candidate for employment
becomes the client for purposes of service tax.
4. Transport of Goods by Road Service
Any service provided or to be provided to a customer, by a goods transport agency, in
relation to transport of goods by road in a goods carriage is a ‗taxable service‘. The basic
scheme is that the goods transport agency (GTA) will be preparing the consignment note
and invoice containing details as required. Service tax payable will also be shown on the
invoice/bill/challan prepared by goods transport agency. However, payment of service tax
will be made by the consignor or consignee who is actually paying the freight, if the
consignor/consignee paying freight is a company, body corporate, cooperative society,
registered society, factory, partnership or dealer registered under Central Excise. All sort
of services of goods transport by road are not liable to service tax. There is no general
service tax on all goods transport. The tax is only on services provided by Goods
Transport Agency (GTA). Only GTA which issues a consignment note is liable to service
tax. One essential requirement is that the GTA is one who issues a ‗consignment note‘.
Finance Minister, in his speech, has also clarified that the service tax is on transport
booking agents and not on truck owners or truck operators. There is no general service
tax on all goods transport. Service tax is payable only when service is provided by ‗goods
transport agency‘, as defined in the Act.
A GTA can avail either of the 2 benefits given to him i.e. (a) He can enjoy abatement of
75% on value of service & pay tax on only 25% of the value of service (b) he can claim
the benefit of Cenvat Credit on duties paid on inputs & capital goods. In both the cases
mentioned above, he is not barred from taking credit for service tax paid by him on value
of input services availed by him for the purpose of rendering the taxable service. There is
no specific provision, but normally, a choice cannot be changed during a financial year.
However, in the case of GTA, only a person who is out of his mind will avail Cenvat on
inputs and capital goods and show full service tax in his invoice. Rest will not avail
Cenvat on inputs and capital goods and will show 25% tax in their invoice. Person who is

showing full i.e. 10.2% service tax in his invoice will soon go out of business and hence
any further question will not arise.
Normally, service tax is payable @ 12% plus 2% education cess plus 1% secondary and
higher education cess on service tax i.e. total 12.36%. However, there is partial
exemption and as per exemption notification dated 3-12-2004, actually service tax is
payable on 25% of gross amount charged from customer by goods transport agency.
Thus, service tax payable will be 3% of gross amount charged plus 2% education cess
plus 1% secondary and higher education cess i.e. total 3.09%.
Tax @ 25% is payable only if
(a) the credit of duty paid on inputs or capital goods used for providing the taxable
service has not been taken under the provisions of the Cenvat Credit Rules, 2004; or
(b) the goods transport agency has not availed the benefit [As per this exemption
notification, if the service provider supplies certain goods while providing service, he
is not required to pay service tax on the value of goods supplied]. It is apparent that
these conditions for exemption are required to be fulfilled by goods transport agency
and if he fulfills those conditions, the consignor/consignee paying service tax will
also be eligible for this concession.

CHAPTER V
Central Excise applied to D-Link (India) Ltd.
Introduction
D-link (India) Ltd. has a separate company secretary department for the management of
indirect taxes which is lead by the Company Secretary, Asst. Company Secretary, and is
assisted by the commercial executive. Together these people are responsible for handling
the entire system. The activities pertaining to Central Excise are carried on in an
appropriate pattern by the concerned persons at D-Link (India) Ltd. The Commercial
Executive is specifically responsible for the calculations, documentations, credit
availment and payment of the excise duty liable to D-Link (India) Ltd.
The ERP (Enterprise Resource Planning) system at D-Link (India) Ltd. helps maintain
records of all the activities from the issue of PO (Purchase Order) to the GIN‘s (Goods
Inward Note) prepared, from the job orders made to the sales invoice and from the excise
duty payable to the CENVAT credit availed. All the details regarding the purchase, sales,
inventory, finances and so on are been maintained in an ERP system in a systematic
format as would be necessary to satisfy the requirements of the government.
Record Maintenance and Procedure for Excise
1. Every person who produces or manufactures excisable goods is required to get
registered, unless exempted.
2. Manufacturer is required to maintain Daily Stock Account (DSA) of goods
manufactured, cleared and in stock.
3. Goods must be cleared under Invoice of assessee, duly authenticated by the owner or
his authorized agent.

4. Duty is payable on monthly basis through TR-6 challan / Cenvat credit by 5th of
following month, except in March. SSI units have to pay duty on monthly basis by
15th of following month.
5. Cenvat records and return by 10th of following month.
6. Monthly return in form ER-1 should be filed by 10th of following month. SSI units
have to file quarterly return in form ER-3 and EOU/STP units to file monthly return
in form ER-2.
7. Assessees paying duty of rupees one crore or more per annum through PLA are
required to submit Annual Financial Information Statement for each financial year by
30th November of succeeding year in prescribed form ER-4
8. Inform change in boundary of premises, address, name of authorized person, change
in name of partners, directors or Managing Director in form A-1.
Documentation
S. No.
Documents and
Records
Designation
of Authorized
Person Work Process
1
MRS (Material
Requisition Slip)
Specific Dept.
HOD
As and when there is requirement for material
the concerned department places an MRS which
consists all the details regarding the
requirement.
2 PO (Purchase Order) Asst. Materials
When details of the requirement are received in
the form of an MRS, a PO is prepared and sent
to the supplier.
3
BOE (Bill of
Exchange) Exim Asst.
After the packing list and invoice is received a
BOE is prepared.
4 GIN (Goods Inward GIN Asst. After the input goods are unloaded the GIN is

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