We are engaged in sales of electronic goods such as computers, televisions and projectors. We have received an order for equipment from a unit located in an SEZ, and have been asked by the unit not to charge VAT on the same. Are sales to SEZ units exempt from VAT?
You have not mentioned in your query whether you are supplying goods to a unit located within your own state or in a different state. Inter-state sale of goods to a unit located in SEZ is exempt from payment of central sales tax, subject to the purchasing unit issuing a statutory declaration in ‘Form-I’.
Sale of goods to a unit located within the same state is governed by the VAT legislation of the relevant state. In most states, sales of goods to SEZ units are not exempt from VAT. Instead, such sales have been classified as ‘zero-rated’ sales. This implies that sales to SEZ are chargeable to VAT at 0%, and the seller is eligible to avail input tax credit, subject to other prescribed conditions.
We are a company engaged in the manufacture of glass bottles for soft-drink manufacturers. We charge lower prices from customers who pay in advance. We have been informed that there could be a potential excise duty liability in case of such price differentials, but are unable to understand why. Please advise.
In terms of the excise law and related rules, monetary value of any additional consideration flowing from the buyer to the seller has to be added to the price of the goods in order to arrive at assessable value chargeable to excise duty. The Supreme Court has held that in case the seller charges lower prices from the customers who have paid in advance, as against normal prices charged from the customers who have not paid in advance, notional interest calculated on the advance payment has to be added in order to arrive at the assessable value chargeable to excise duty. This is because an advance payment has been held to be an interest-free loan from the customer to the manufacturer, which enables him to charge lower prices from such customers.
On the other hand, in case the seller does not charge lower prices from the customers who have paid in advance, notional interest on such advances cannot be added for computation of excise duty.
In your case, it appears that you may be required to include the amount of notional interest on advance payments in the assessable value for excise purposes, if the price of goods is influenced by such advance payments.
We are a company engaged in the manufacture and sale of packaging material on payment of excise duty and VAT. We purchased certain machinery in August 2007 that was used for manufacturing purposes and sold in February 2008. We have been advised not to reverse the amount availed as Cenvat credit at the time of purchase, since the machinery was used before being sold. Please advise.
If capital goods are used before being sold, Cenvat credit is required to be reversed proportionally. The Cenvat Credit Rules provide for a reduction of 2.5% of the amount of Cenvat credit for each quarter in which the capital goods were used, from the credit amount required to be reversed. For example, in case capital goods have been used for one year before being sold, 90% of the Cenvat credit availed would have to be reversed—a 2.5% reduction for each quarter resulting in 10% for one year. Thus, in your case, you would be required to reverse 92.5% of the total Cenvat credit availed in respect of the machinery sold, as the machinery was used in three quarters: July 2007-September 2007, October 2007-December 2007 and January 2008-March 2008. Accordingly, you would be entitled to a 7.5% deduction in the reversal of Cenvat credit.