We are a company which has recently started importing bicycle parts. The imported parts are assembled into complete bicycles at our facility in Maharashtra, after which they are sold. The imported parts are assessed to customs duty as ?complete bicycles?. We have recently been informed that the assembling operations undertaken within India may amount to ?manufacture? of bicycles under central excise laws. Please advise whether we are required to pay excise duty, even though we are already importing complete bicycles for customs purposes.
Under customs laws, it is possible that parts of a product may be assessed to customs duty together as the complete product. Such assessment may take place in cases where the imported parts can be assembled into the complete product, or an article that contains its essential characteristics. However, for excise purposes, such an assessment is not relevant. Under the Central Excise Act, 1944 (Excise Act), duty is payable on the ?manufacture? of goods. For this purpose, manufacture is understood to have taken place when a new product having a distinct name, character and use is created. In this regard, whether assembly amounts to manufacture would depend upon the facts of each individual case. Therefore, the exact scope, nature and technology used in the assembly process would have to be examined to conclusively determine whether excise duty would be payable in your case.
We are a firm dealing in electronic goods. We have observed that under many state Value Added Tax (VAT) Acts, different sales have been categorised as ?exempt? or ?zero-rated?. In both the cases, we don?t charge VAT on local sales. If both are not chargeable to VAT, then what is the difference between exemption and zero-rating?
Exemption implies that the dealer is not required to charge VAT on sales, such as sales of goods which are exempted generally in the Schedules to the state VAT Acts etc. However, a dealer effecting exempt sales is not entitled to avail credit of input VAT paid in respect of exempt sales. On the other hand, a dealer effecting ?zero-rated? sales is not required to charge VAT, but can avail input credit of VAT paid. For example, an export sale is zero-rated under most state VAT Acts. Thus, zero-rating provides a dual benefit to the dealer. On the other hand, exemption may be counter-productive in certain cases since the dealer effecting exempt sales may seek to pass on the loss of input VAT credit to his customers, consequently increasing their cost of procurement.
We are a company engaged in the manufacture of solar power generation equipment. Our products are exempt from excise duty. We have paid a significant amount of service tax on import of services in relation to foreign consultancy and technical assistance. Is it possible for us to voluntarily forego the exemption from excise duty? This would allow us to avail cenvat credit of the service tax paid and help in bringing down our costs. Please advise.
Under Section 5A (1A) of the Excise Act, in case excise duty has been exempted unconditionally in respect of a particular product, it is necessary for the manufacturer to avail such exemption. The manufacturer cannot voluntarily forego such exemption under any circumstances. Accordingly, you would have to continue availing the exemption and would not be able to avail cenvat credit of the service tax paid.
We have recently started the manufacture of glass bottles at our manufacturing facility in Haryana, and are paying excise duty in respect of the same. We have our head office in Delhi. Various taxable services are received at the Delhi office, such as chartered accountant?s service, management consultant?s service, cleaning activity service etc. However, no taxable services are provided from the office, and it is unable to avail cenvat credit of the service tax charged by various service providers. Is there any mechanism by way of which the credit can be utilised by our company?
Under service tax laws, it is possible for the office of a manufacturer of excisable products to distribute input services to the manufacturing unit. For this purpose, the manufacturer is required to obtain service tax registration as an ?input service distributor? (ISD) in respect of such office premises. Under this mechanism, the office premises registered as an ISD would receive invoices in respect of procurement of taxable services, and would be eligible to issue an invoice, bill or challan for distributing the credit of the service tax paid to the manufacturing facility. The manufacturing facility could then avail cenvat credit of service tax paid at the head office and distributed through such a mechanism. Accordingly, in your case, the head office receiving taxable services may be registered as an ISD, which could then transfer credit of the service tax paid to the manufacturing facility in Haryana.
?Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice, but are based on interpretation of facts available in readers? queries to the professionals. Neither Ernst & Young nor this publication is liable for any action taken on the basis of this information