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Post Qualification Course in International Trade Laws & WTO

Post Qualification Course in International Trade Laws & WTO. Economic Offences : Central Excise Law. Tax – Price for Civilized Society. “Tax is the price which we pay for a civilized society” - Justice Holmes US Supreme Court. Direct & Indirect Taxes. Tax Collection (2004 – 05)

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Post Qualification Course in International Trade Laws & WTO

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  1. Post Qualification Course in International Trade Laws & WTO Economic Offences : Central Excise Law

  2. Tax – Price for Civilized Society “Tax is the price which we pay for a civilized society” • - Justice Holmes US Supreme Court

  3. Direct & Indirect Taxes • Tax Collection • (2004 – 05) • Union Excise Duty - Rs.1,04,1999 crore • Customs Duty – Rs. 54,250 crore • Income Tax & Corporate Tax – Rs.1,39,365 crore

  4. Offences – Causes • Central Excise Duty is an indirect tax • Result - Entrusted to Subordinate Management

  5. Offences – Causes II • Indirect taxes are regressive • Are they? • CE Duty is a kind of “expenditure tax”

  6. Offences – Causes III • High tax rates induce temptation to evade • To sell cheap & break barriers • (Anti dumping duty example) • To enjoy unjust enrichment.

  7. Minimal Control Necessary • But economic progress calls for industrial development • Industrial development requires liberalised environment

  8. Liberalization: CE Law & Procedure • 1968 – Introduction of SRP • 1986 – Modvat ( 2000 – cenvat) • 1992 – One time registration • 1994 – Modvat on capital goods • Invoice by Dealers

  9. Liberalization: CE Law & Procedure • 1996 : Mandatory penalty for evasion • 1999 : Rationalisation of tax rates • 2000 : Abolition of Statutory records • Reliance on private records

  10. Liberalization: CE Law & Procedure • 2001: New Central Excise Rates • 2004 : Integration of Cenvat credit of CE duty & ST

  11. Liberalization : CE Law Procedure • 10 September 2004 • Cenvat Credit Rules 2004 • Compounding of offences. • Duty liability from successor in business • Maximum 3 adjournments • Increase in fee for appeals

  12. Liberalization : CE Law & Procedure • Audit under section 14 A & 14AA • Excise Audit – 2000

  13. Excise Audit 2000 • Selective audit – unit & frequency based on risk assessment • Audit preceded by Desk Review • Specific audit duration: • Duty > 5 crore - 7 days • Duty 1 – 5 crore – 5 days • Duty 0.5 – 1 crore – 4 days • Duty 0.1 – 0.5 crore – 3 days • Duty < 0.1 crore – 2 days

  14. Why CAs Should Study Economic Offences • Certification role • Tax Auditor role • Advisory role

  15. Certification Role – Examples • Inventory • GSM case • Excess stock - not clandestine removal • Credit records • Disclosures • Suits involving audit certificates • Call as witness

  16. Tax Auditor Role • Waste and scrap is practically treated as final product for excise purpose • There are about 85 entries of waste in CETA • Waste & scrap - importance

  17. Case Study on Waste & Scrap • Activated clay is used for refining & bleaching edible oil. The spent earth is subsequently sold. It is specified in the tariff. Offence case was made for failure to pay daily. • Discuss.

  18. Waste & Scrap • Mention in CETA • Marketable commodity (spent nickel) • There should be manufacture • Ancillary process is not manufacture (Cinder)

  19. Offences vs. Activism • Thorough knowledge essential to guard against overzealousness

  20. Offences vs. Technology • Computer assembly is not manufacture • Triveni Engineering – Marketability test – goods “as such” • No duty on immovable property • No duty in case of dismantling • Removal without dismantling attracts duty • Turnkey project not dutiable but components, if marketable.

  21. Offences vs Technology • Computer assembly is manufacture • Information supplied by e-mail • Software is goods for ST & Octroi; but is software manufactured? • Recording of cassette is manufacture • Receiving cassette and recording music as per choice is service activity • Packing of CD, pan masala etc.

  22. Important Concepts • Manufacturer • Job Worker • Hired Labourer • Master-Servant relationship • Owner of Raw material • Brand name owner • Manufacturer should not be dummy

  23. Basic Procedures • Registration vs. exemption (> 40 / 100 lakh) • Daily stock register (R 10) for goods manufactured, cleared & in stock. • Form not prescribed • Nil entry- when entry – QC & packing • Clearance under invoice duly authenticated • Triplicate / Additional copy – proforma invoice

  24. Basic procedure • Monthly return in ER 1 • Quarterly return by SSI in ER3 • Monthly return by EOU in ER2 • ER4 by assessee paying duty > 1 crore

  25. Basic procedure • W.e.f. 25.11.2004 information about principal input in ER5 by 30th April • First return by 31st December, 2004 • Changes within 15 days in ER5 • Only for specific tariff heading and by assessees paying duty > 1 crore • Monthly return of receipt and consumption of principle input in ER6

  26. Basic procedure • Submission of list of records maintained for purchase, receipt, sale or delivery of goods including inputs and capital goods • Changes in boundary, management etc. to be intimated in EA 1.

  27. Cenvat Offences • If cenvat wrongly taken or availed, interest is payable. (R 14) (S 11 A & B) • Interest for wrong utilization - appears valid • Interest for wrong availment – debatable • Taking – attempting to commit offence • Utilising – committing offence

  28. Cenvat Offences • Penalty for taking wrongly cenvat credit (R 15) • Not ensuring inputs suffered duty • Contravention to Cenvat Credit Rules • Penalty – confiscation on goods + monetary penalty (limited to duty or Rs.10,000/- whichever is high.

  29. Cenvat Offences • Penalty in case of fraud, etc. (S 11/ R 15) • Mandatory penalty – equal to duty • 25% reduction in penalty for prompt payment • For service tax – mandatory minimum penalty = duty; maximum is twice duty.

  30. Offences – SSI Units • Common office, common partners • No financial flow back • No common funding • One unit belongs to FIL; another DIL; both under SIL; no common funding or financial flow back • One unit belongs to husband; another to wife; both managed by husband under POA • Other facts of case to be seen

  31. Payment under protest • Refund possible when payment under PLA • Refund not possible when payment through cenvat credit • No provision for cash refund of cenvat credit except for exports and other cases of departmental lapses.

  32. SCN & Time Limit • SCN for normal cases - one year • SCN for fraud – five years • Time limit valid even when there is interim stay • SCN needed even if party admitted liability • Mere letter is not SCN • Mere endorsement is not SCN • No SCN - No Penalty

  33. Suppression, Misstatement or Fraud • Conscious withholding not mere in action • No suppression, if no disclosure requirement • When facts disclosed, fraud cannot be alleged. • No suppression, if department knows the facts.

  34. Important Factors • Demand on fuel consumption basis is arbitrary. • Demand without reckoning wastage is unsustainable . • Raw material shortage is inadequate for clandestine removal. • False statement to bank etc. cannot prove suppression of production. • Demand on private slips basis without corroborative evidence not valid

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