We manufacture and sell steel pipes. For the purpose of manufacturing, our parent company transfers us intermediate products and charges excise duty on the value at which they were selling the goods to unrelated buyers. However, we have been informed that going forward, our sister unit would charge excise duty on 110% of their cost of production. Please advise the correct method of valuation.
For payment of excise duty, the value of goods sold to related parties is determined as per Rule 9 and Rule 10 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (valuation rules).The above rules have been amended vide Notification No. 14/2013 – CE (N.T.) dated November 22, 2013 with effect from December 1. Prior to the above amendment, goods sold to related parties were to be valued per Rule 9 or Rule 10 of the valuation rules only if such goods were exclusively sold to related parties. Vide the amendment, Rule 9 and Rule 10 have been made applicable even in cases where goods are partly sold to related parties and the balance sold to unrelated buyers. The exclusivity for applicability of the method prescribed under Rule 9 and Rule 10 has been withdrawn. In the present case, since the goods are sold to related and non-related persons, value of goods sold to related persons would be determined as per Rule 10 of the valuation rules i.e. excise duty would be payable on 110% of cost of production of such goods. The same is effective for removals made from December 1 onwards.
Services provided under brand name taxable
We are an authorised service centre of a consumer electronics company and we provide maintenance and repair services to their customers. We have no other business operations and work under the guidelines and set by the multinational company. We began operations in FY11 and did not register or pay service tax, since we did not exceed the prescribed threshold. The service tax authorities have issued us a notice demanding service tax on the ground that since we are associated with the brand name of the multinational company, the threshold would not be applicable to us. We did not collect service tax on our services based on the view that we did not exceed the threshold limit. Please advise.
Notification No. 6/2005-ST dated
1 March 2005 (as amended from time to time to change threshold limit) provides an exemption to service providers whose aggregate value of taxable services does not exceed Rs 10 lakh. However, such an exemption is not available for taxable services which are provided under a brand name or trade name (whether registered or not). Brand name or trade name has been defined to mean name, mark etc. which is used in relation to such specified services which indicate a connection between such specified services and some person using such brand name. In the case of CCE, Chennai-II vs. Australian Foods India (P) Ltd. 2013 (287) E.L.T. 385 (S.C.), the Supreme Court held that goods can be said to be branded as long as the environment conveys so viz. invoices, hoarding/display cards of outlets etc. and such other factors, all of which together or individually or in parts may convey that the goods are branded. The judgment would be squarely applicable for services as well.
In the present case, since you are the authorised service centre of the brand owner, the above judgment would be applicable and hence, the benefit of exemption of the threshold limit would not be available to you.
VAT rate on sale of trousers in Delhi
We manufacture and sell men?s trousers. We purchase cloth from a wholesale dealer in Delhi and the same is used to manufacture the trousers which are sold to end users. Please provide the VAT rate applicable on the sale of trousers. Further, please clarify the value on which VAT is required to be paid?on the total value at which the trousers are sold or only on additional value consideration .
VAT would be levied on the sale of trousers in Delhi. As per entry no. 57 of the Third Schedule of the Delhi Value Added Tax Act, 2004, ?readymade garments costing up to R5,000 but not including those made up of khadi are taxable at 5%. Since trousers sold by you qualify as readymade garments, trousers costing up to R5,000 each would be taxable at 5%. In case the trousers cost more than R5,000, the same would be taxable at a higher rate of 12.5%.
Further, VAT is required to be charged on the total sales proceeds received upon the sale of goods. Since VAT is a tax on value addition, you would be eligible to claim set off of input VAT paid on purchase of cloth in Delhi against the output VAT liability on sale of trousers in Delhi. No VAT is required to be paid if the taxable turnover in a year is less than R10 lakh. Hence, in case your annual sales are less than R10 lakh, no VAT is to be paid.
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