Business Standard answers questions from readers on SME-related issues pertaining on taxes, Exim policies or registrations/reservations, etc.
We are setting up a new small-scale unit. We have already received some capital goods on which excise duty has been paid and the necessary duty paying document is also available with us.
This financial year, our turnover will be less than Rs 1 crore (Rs 10 million) and so we do not intend to register with central excise duty or pay duty. We are not too sure whether we can take credit of full duty paid on the capital goods next year when we start paying excise duty on our finished goods, as this year we are not eligible to take credit as we will be under the exemption notification no. 8/2003-CE dated 1.3.2003. Kindly clarify.
Para 2 of the notification no. 8/2003-CE dated 1.3.2003 specifies certain conditions for availing the exemption.
According to Para 2 (iii) of the notification, the manufacturer shall not avail the credit of duty on inputs under rule 3 or rule 11 of the CENVAT Credit Rules, 2002 (herein after referred to as the said rules), paid on inputs used in the manufacture of the specified goods cleared for home consumption, the aggregate value of first clearances of which, as calculated in the manner specified in the said Table does not exceed rupees one hundred lakhs;
According to Para 2 (iv) of the notification, the manufacturer also does not utilise the credit of duty on capital goods under rule 3 or rule 11 of the said rules, paid on capital goods, for payment of duty, if any, on the aforesaid clearances, the aggregate value of first clearances of which does not exceed rupees one hundred lakhs, as calculated in the manner specified in the said Table;
It is apparent, therefore, that you are restrained from taking the credit of only the duty paid on the inputs used in the manufacture of the final products that you will manufacture this year but not of the duty paid on the capital goods. You can very well take the credit of duty paid on the capital goods but you can utilise the credit only after you start paying duty on final products that you clear after reaching the limit of Rs. 1 crore (Rs billion) for home clearances.
Rule 2 (a) of Cenvat Credit Rules, 2004 says that the CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of output service at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year:
Therefore, you can take credit of only 50% of the duty paid on the capital goods this year itself and take the balance credit in the beginning of the next year. You can, however, start utilising the credit only after you start paying duty on the final products.
I have a query on service tax regarding Cenvat credit. Can Cenvat credit be availed where service tax plus education cess paid on input services has been applied at rate less than 10.2% due to abatement available for such taxable services. For example, where service tax has been paid to Rent-a-cab operator who charges service tax @ 4% plus education cess of 2% after abatement of 60% available for such service provider.
Will the answer to above query remain the same in all cases wherever lower service tax has been paid on taxable services?
There is no bar against taking credit of the service tax plus education cess that you have paid to a service provider, even if the service provider has availed of any abatement available to him.
In fact, most abatements are available if the service provider has not taken Cenvat credit but as far as the service recipient is concerned, credit can very well be taken so long as the other conditions for taking credit are fulfilled. This applies to all services but once again, let me say that there should be no other condition that comes in the way of your taking credit.
For example, there are differing views regarding whether the service tax on outward freight can be taken as credit in all the situations because of the definition of 'input service' in the Cenvat Rules, 2004. So, you have to examine the issue from all angles.
We are in manufacturing business and manufacturing components form automotive and engineering sectors. A certain area in Rajkot (Gujarat) has been identified to be declared as SEZ. We would like to know what is the major benefit in SEZ and whether that particular industry can supply their goods to DTA units anywhere in our country and secondly, we are seeking to have a consultant for the Auto park area (SEZ) in Rajkot, Pl guide us to whom should we contact to proceed further in this regard.
I do not know of any Special Economic Zone notified near Rajkot area. There is an SEZ at Kandla. The Government has granted approval for setting up SEZ at Positra but as far as I know nothing worthwhile has happened there.
You may contact the Development Commissioner at Kandla SEZ for any guidance, as he has jurisdiction over all the SEZ areas in Gujarat.
Units set up in SEZ, whether trading or manufacturing or processing units, can sell their goods in DTA without any limit provided the goods are allowed for import and full import duties are paid. However, it must be noted that SEZ unit has to be a net foreign exchange earner.
The major benefits in SEZ include hassle free environment and tax exemptions.
Can we export chrome ore or its concentrates (in any other form) from India? Is there any restriction?
As per Table B of Schedule II to Indian Trade Classification (Harmonised System) of Import and Export Items, Chrome ore lumps with Cr2O3 not exceeding 40 percent covered under Exim Code 26100030 can be exported only through MineXrals and Metals Trading Corporation Ltd. Beneficated chrome ore fines / concentrates (maximum feed grade to be less than 42% Cr2O3) covered under Exim Code 26100030 and 26100040 can be exported freely i.e. without any restriction. Chrome ore (covered under Exim Code 26100000) other than beneficated chrome ore fines / concentrates (maximum feed grade to be less than 42% Cr2O3) and those categories of Chrome ores mentioned as permitted through State Trading Enterprises are restricted for export and need a license.
Our Company is into the business of Software Development. It is situated in Noida Special Economic Zone doing export of software. I have a query that if we make any domestic sale within India, are we liable to pay Sales Tax?
Sales Tax laws differ from state to state. In general the states have exempted goods supplied from Domestic Tariff Area to SEZ from sales tax but I have not come across any general exemption covering sale of goods from SEZ to DTA.
Queries can be sent to smequeries@business-standard.com.
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