INDIRECT TAXATION - ICMAI

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INTERMEDIATE : PAPER -INDIRECTTAXATIONSTUDY NOTESThe Institute of Cost Accountants of IndiaCMA Bhawan,12, Sudder Street, Kolkata - 700 01611INTERMEDIATE

First Edition : January 2013Revised Edition : April 2013Revised Edition : August 2013 (as per Finance Act, 2013)Revised Edition (Reprint) : April 2014 (as per Finance Act, 2013)Second Edition : November 2014 (as per Finance (No.2) Act, 2014)Third Edition : February 2016 (as per Finance Act, 2015)Published by :Directorate of StudiesThe Institute of Cost Accountants of India (ICAI)CMA Bhawan, 12, Sudder Street, Kolkata - 700 016www.icmai.inPrinted at :Repro India LimitedPlot No. 02, T.T.C. MIDC Industrial Area,Mahape, Navi Mumbai 400 709, India.Website : www.reproindialtd.comCopyright of these Study Notes is reserved by the Insitute of CostAccountants of India and prior permission from the Institute isnecessary for reproduction of the whole or any part thereof.

SyllabusSyllabus StructureThe syllabus comprises the following topics and study weightage:ABCDEFGCannons of taxations – Indirect TaxesCentral ExciseCustoms LawsEXIM PolicyService TaxCentral Sales Tax Act & VAT ActInternational Taxation & Transfer B20%A60%C15%ASSESSMENT STRATEGYThere will be written examination paper of three hours.OBJECTIVESTo provide an in depth study of the various provisions of indirect taxation laws and their impact onbusiness decision-makingLearning AimsThe syllabus aims to test the student’s ability to: U nderstand the basic principles underlying the Indirect Taxation Statutes (with reference to CentralExcise Act, Customs Act, Service Tax, Value Added Tax, Central Sales Tax) C ompute the assessable value of transactions related to goods and services for levy anddetermination of duty liability I dentify and analyze the procedural aspects under different applicable statutes related to indirecttaxation A pply the Generally Accepted Cost Accounting Principles and Techniques for determination ofarm’s length price for domestic and international transactionsSkill Set requiredLevel B: Requiring the skill levels of knowledge, comprehension, application and analysis.1. Canons of Taxation – Indirect Taxes2. Central Excise3. Customs Laws4. EXIM POLICY5. Service Tax6. Central Sales Tax Act & VAT Act7. Basic Concepts of International Taxation & Transfer Pricing in the context of Indirect Taxation5%20%15%10%25%15%10%

1.Canons of Taxation – Indirect Taxes(a)Features of Indirect Tax, Constitutional Validity(b) Indirect Tax Laws, administration and relevant procedures2.Central Excise(a)T he Central Excise Law – Goods, Excisable Goods, Manufacture and manufacturer, Classification,Valuation, Related Person, Captive Consumption, CAS 4 CENVAT, Basic Procedure, Export, SSI,Job Work(b) Assessments, Demands, Refund, Exemptions, Power of Officers(c) Adjudication, Appeals, Settlement Commission, Penalties.(d) Central Excise Audit and Special Audit under 14A and 14AA of Central Excise Act(e) Impact of tax on GATT 94, WTO, Anti Dumping processing(f)3.Tariff Commission and other Tariff authoritiesCustoms Laws(a)Basic concepts of Customs Law(b) Types of customs duties, Anti-Dumping Duty, Safeguard Duty(c) Valuation, Customs Procedures, Import and Export Procedures, Baggage, Exemptions,Warehousing, Demurrage, Project Import and Re-imports(d)4.5.Penalties and OffencesEXIM POLICY(a)EXIM Policy(b)Export Promotion Schemes, EOU(c)Duty Drawback(d)Special Economic ZoneService Tax(a) Introduction, Nature of Service Tax, Service Provider and Service Receiver(b) Registration procedure, Records to be maintained(c) Negative List of Services, Exemptions and Abatements(d)Valuation of Taxable Services(e)Payment of service Tax, Returns of Service Tax(f)CENVAT Credit Rules, 2004(g)Place of Provision of Service Rules, 2012(h)Other aspects of Service Tax(g) Special Audit u/s 72A of the Finance Act, 1994 for Valuation of Taxable Services6.Central Sales Tax Act & VAT Act(a)Central Sales Tax(i) Introduction, Definitions, salient features of CST Act(ii) Stock Transfer, Branch transfer, Inter State Sale(iii)Various forms for filing of returns under CST(iv)Procedures under Central Sales Tax (CST)

(b)Value Added Tax (VAT)(i) Introduction, definitions, salient features of Sate VAT Act(ii) Treatment of stock & branch transfer under State VAT Act(iii)Filing of return under State VAT Act(iv)Accounting & Auditing VAT7. Basic Concepts of International Taxation & Transfer Pricing in the context of Indirect Taxation(a) International Taxation & Transfer Pricing issues in the context of Indirect Taxation(b)Indirect Taxation issues in cross-border services(c) General Anti-Avoidance Rule (GAAR) – concept and application(d) Advance Pricing Agreement (APA) – concept and application

ContentINDIRECT TAXATIONAmendments brought in by the Finance Act, 2015Study Note 1 : Canons of Taxation- Indirect taxes1.1Basis for Taxation1.11.2Direct Taxes and Indirect Taxes1.11.3Features of Indirect Tax,1.21.4Constitutional Validity1.41.5Administration and Relevant Procedures1.4Study Note 2 : Central Excise Act, 19442.1Constitutional Background2.12.2Laws Relating to Central Excise2.22.3Central Excise Act, 19442.22.4Duties Leviable2.22.5Levy, Collection & Exemptions from Excise Duty2.32.6Goods2.62.7Excisability of Plant & Machinery, Waste and Classification of Goods2.162.11Valuation of Goods2.212.12Valuation in case of Job Work – Rule 10A2.342.13Some Critical Issues in Central Excise2.352.14Assessable Value under Section 42.422.15Value Based on Retail Sale Price2.432.16MRP Based Valuation2.442.17Assessment under Central Excise Law2.562.18Procedural Aspects under Central Excise Duty2.592.19Refund & Other Important Provisions2.612.20Other Procedures in Central Excise2.652.21Excise Audit2.702.22Warehousing2.742.23Export Benefits and Procedures2.752.24Excise on Small Scale Industries2.782.25Demands and Penalties2.882.26Appeals2.892.27Important Provisions of Central Excise Act, 19442.90

2.28Important Provisions of Central Excise Rules, 20022.992.29Important Rules of Central Excise Valuation Rules, 20002.1012.30Rules of Classification2.103Study Note 3 : Cenvat Credit3.1Background of Cenvat Credit3.13.2Highlights of Cenvat Credit Scheme3.23.3Utilization of Cenvat Credit3.133.4Reversal of Cenvat Credit3.153.5Refund of cenvat Credit3.193.6Obligation of a manufacturer or Producer offinal Products and a provider of taxable services3.233.7Input service Distributor3.253.8Documents and Accounts3.263.9Other Provisions3.28Study Note 4 : Customs LawSection A4.1Introduction4.14.2Types of Custom Duty4.134.3Valuation in Customs4.224.4Methods of Valuation4.274.5Export Goods- Valuation for Assessment4.444.6Self assessment on basis of ‘Risk Management System’ (RMS)4.444.7Procedures for Import4.454.8Procedures for Export4.494.9Transit and Transhipment of Goods4.504.10Exemptions and Remission4.514.11Refund of Customs Duty4.544.12Appointment of Officers of Customs4.574.13Appointment of Customs Station, Warehousing Stations etc.4.584.14Central Government Power of Prohibition, Detection of IllegalImported and Export Goods4.594.15Warehousing in Customs4.614.16Provisional Assessment of Duty (Section 18)4.734.17Baggage, Courier and Import and Export through Post4.754.18Drawback4.884.19Other provisions in Customs4.924.20Project Imports4.934.21Offences, Power and Penalties under Custom4.97

Section B4.22Anti-Dumping Duty-An Overview4.100Study Note 5 : Exim Policy5.1Legal Framework and Trade Facilitation5.65.2General Provisions Regarding Imports and Exports5.125.3Exports from India Schemes5.245.4Duty Exemption / Remission Schemes5.305.5Exports Promotion Capital Goods (EPCG) Scheme5.415.6Export Oriented Units (EOUs), Electronics Hardware Technology Parks (EHTPs),Software Technology Parks (STPs) and Bio-Technology Parks (BTPs)5.445.7Deemed Exports5.535.8Quality Complaints and Trade Disputes5.575.9Definitions5.59Study Note 6 : Service Tax6.1Introduction6.16.2Registration Under Service Tax6.146.3Reverse Charge6.186.4Brand Name of Another Person6.226.5Payment of Service Tax [Rule 6]6.226.6Rate of Service Tax6.236.7Invoices Under Service Tax6.246.8Records to be Maintained6.256.9Automation of Central Excise and Service Tax (ACES)6.256.10Electronic Accounting System in Excise and Service Tax (EASIEST)6.266.11Negative List, Exempted Services & Mega Exemptions6.286.12Point of Taxation6.536.13Taxable Event in Service Tax6.606.14Place of Provision of service Rules6.616.15Valuation of Taxable Services (Section 67)6.826.16Important Issues under Service Tax Provisions6.896.17E-Payment of Service Tax6.926.18Self Adjustment of Excess Tax Paid6.926.19Special cation & Appeals6.97

Study Note 7 : Adjudication, penalties and appeals in indirect taxes7.1Common Topics in Indirect Taxes7.17.2Adjudication in Indirect Taxes7.37.3Enforcement Powers of Revenue Officers7.77.4Penalties in Indirect Tax Laws7.107.5Appeal provisions under Central Excise, Service Tax and Customs7.157.6Settlement Commission7.307.7Authority for Advance Ruling7.41Study Note 8 : State Level VAT8.1Background of State VAT8.18.2Basic Principle of VAT8.38.3Registration Under VAT8.58.4Overview of State VAT8.108.5Purchase Tax in VAT or ‘Reverse Change’8.118.6Tax Rates Under VAT8.128.7Valuation of Taxable Turnover8.158.8Procedural Provisions under VAT8.168.9Assessment of Tax8.178.10Impact of VAT on CST8.188.11Role of Cost Accountant under VAT8.208.12Agriculatural Products or Commodities8.218.13High Seas8.218.14Phased out inter-state Sale Tax (i.e Central Sales Tax)8.21Study Note 9 : Central Sales tax act, 19569.1Introduction9.19.2Constitutional Provisions & Nexus Theory9.29.3Principles & Objects of CST Act, 19569.29.4Definition (Section 2)9.39.5Sale or purchase in the course of Interstate Sale (Section 3)9.99.6Sale or purchase outside a State (Section 4)9.119.7Sale in the course of Export/Import (Section 5)9.119.8Person liable to pay CST [Section 6(1) & 6(1A)]9.139.9Exemption in respect of Subsequent Sale [Sec 6(2)]9.139.10Taxability of Transfer of Goods made otherwise than by way of Sale (Sec 6A)9.149.11Registration of Dealer9.159.12Rates of Tax in the course of Inter-state Trade or Commerce [Section 8(1) & 8(2)] 9.18

9.13Purchase of Goods by a Registered Dealer [Section 8(3)]9.199.14Furnishing of Declaration [Section 8(4)]9.199.15Power to Exempt or Impose Tax at Concessional Rates [Section 8(5)]9.199.16Sale for units located in Special Economic Zone [Section 8(6)]9.209.17Determination of Taxable Turnover (Section 8A)9.209.18Levy & Collection of Tax (Section 9)9.219.19Penal provisions under CST Act (Section 10)9.219.20Imposition of Penalty in Lieu of Prosecution (Section 10A)9.229.21Cognizance of Offences (Section 11 & 12)9.229.22Goods of Special Importance (Section 14)9.239.23Liability of liquidator of company in Liquidation (Section 17)9.249.24Liability of Directors of Private Company in liquidation (Section 18)9.259.25Central Sales Tax Appellate Authority (Section 19)9.259.26Appeal (Section 20)9.259.27Procedure on Receipt of Appeal (Section 21)9.269.28Powers of the CST Appellate Authority (Section 22 & 23)9.269.29Authority for Advance Rulings (Section 24)9.269.30Transfer of Pending Proceedings (Section 25)9.279.31Applicability of Order Passed (Section 26)9.279.32Forms under CST9.27Study Note 10 : International Taxation and Transfer Pricing10.1International Taxation and Transfer Pricing – In the contest of IndirectTaxation – Introduction10.110.2International Transaction10.110.3Arm’s Length Principle10.110.4Transfer Pricing – Classification of Methods10.310.5Steps in the process of computing Arm’s Length Price –Transfer Pricing (TP) Study10.310.6Transfer pricing issues in the content of Indirect Taxation10.610.7Indirect taxation issues in Cross-Border Services10.910.8Classification of “Cross-Border Services”10.13

AMENDMENTS BROUGHT IN BY THE FINANCE ACT, 2015AMENDMENTS MADE IN INDIRECT TAX LAWAmendments relating to Central Excise1.Amendment to section 3AIn the Central Excise Act, 1944 (1 of 1944) (hereinafter referred to as the Central Excise Act), in section3A, after Explanation 2, the following Explanation shall be inserted, namely :‘Explanation 3.–– For the purposes of sub-sections (2) and (3), the word “factor” includes “factors”.’.2.Amendment of section 11AIn the Central Excise Act, in section 11A,(i) sub-sections (5), (6) and (7) shall be omitted;(ii) in sub-sections (7A), (8) and clause (b) of sub-section (11), the words, brackets and figure “or subsection (5)”, wherever they occur, shall be omitted;(iii) in Explanation 1, (A)in clause (b), in sub-clause (ii), the words “on due date” shall be omitted;(B)after sub-clause (v), the following sub-clause shall be inserted, namely :-“(vi) in the case where only interest is to be recovered, the date of payment of duty to which suchinterest relates.”;(C)clause (c) shall be omitted;(iv) after sub-section (15), the following sub-section shall be inserted, namely :“(16) The provisions of this section shall not apply to a case where the liability of duty not paid orshort-paid is self-assessed and declared as duty, payable by the assessee in the periodicreturns filed by him, and in such case, recovery of non-payment or short-payment of dutyshall be made in such manner as may be prescribed.”.(v) for Explanation 2, the following Explanation shall be substituted, namely :“Explanation 2. — For the removal of doubts, it is hereby declared that any non-levy, short-levy,non-payment, short-payment or erroneous refund where no show cause notice has been issuedbefore the date on which the Finance Bill, 2015 receives the assent of the President, shall begoverned by the provisions of section 11A as amended by the Finance Act, 2015.”;3. Substitution of new section for section 11ACIn the Central Excise Act, for section 11AC, the following sec

INDIRECT TAXATION. Amendments brought in by the Finance Act, 2015. Study Note 1 : Canons of Taxation- Indirect taxes. 1.1 Basis for Taxation 1.1 1.2 Direct Taxes and Indirect Taxes 1.1 1.3 Features of Indirect Tax, 1.2 1.4 Constitutional Validity 1.4 1.5 Administration and Relevant Procedures 1.4. Study Note 2 : Central Excise Act, 1944

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