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Cenvat credit on inputs sent to job worker

Queries on taxation and service tax liabilities, addressed by Vivek Sharma and Manav Saneja of EY

Our client is a manufacturer of garments. The company had purchased some inputs, which were subsequently sent to the job worker for further processing. The company does not avail of Cenvat credit when the inputs are sent to the job worker, because the inputs are not lying in the factory. The credit is availed of only when the inputs are received back from the job worker. We would like to know whether the company can avail of Cenvat credit upfront when the inputs are sent to the job worker.

The company is eligible to avail of Cenvat credit upfront on the inputs sent to the job worker. Rule 4(5)(a) of the Cenvat Credit Rules, 2004 provides that where the inputs or capitals goods as such or after being partially processed are sent to a job worker and the goods are received back within 180 days, then a credit of the goods/inputs shall be allowed. However, in case the goods are not received within 180 days, then the manufacturer would have to reverse the amount equivalent to the credit attributable to such goods and the manufacturer can take the credit again when the goods are received back in the factory.

New VAT rate on sunglasses

We are in the business of sunglasses and spectacles in New Delhi for the past few years. We wish to know the VAT rate on the sale of sun glasses as there was some confusion regarding the same.

Entry No 115 Schedule III of the DVAT Act, 2004 read as follows (before the amendment as discussed below) ?Spectacles, parts and components thereof, contact lens & lens cleaner?

Goods under Schedule III are taxable at the rate of 5%. The Delhi VAT authorities had issued a clarification dated 11 June 2013 stating that the sunglasses are not covered under Entry No 115, and are taxable at the rate of 12.5% under the residual category. This clarification was made applicable retrospectively with effect from 1 April 2005. However, subsequently, Entry No. 115 was amended vide notification dated 4 October 2013. As per the amendment, sunglasses were included in Entry No 115 with effect from 11 May 2005 to 10 June 2013, thereby taxable at 5%. However, with effect from 11 June 2013, sunglasses have been specifically excluded from the said entry. Therefore, from 11 June 2013, sunglasses would be taxable at the rate of 12.5% under the residual category.

Accordingly, the rates of sunglasses for different period are as follows:-

For the period 11 May 2005 to 10 June 2013 ? 5% (or 4% till 13 January 2010)

For the period 11 June onwards ? 12.5%.

Currency conversion method for service tax

We manufacture and export engineering equipment. We get the services of an engineering consultant from outside India and pay applicable service tax on the invoices raised by the overseas consultant under reverse charge mechanism. We use the RBI exchange rates for conversion of the invoice amount for computing our service tax liability. We would like to know whether the exchange rate used by us is correct or not.

Prior to the enactment of the Finance Act, 2012, no specific exchange rate was prescribed for currency conversion for computing service tax liability in a foreign currency transaction. The Finance Act 2012 has provided that the rate of exchange for determining the service tax liability would be in accordance with the manner prescribed under the custom laws. The Finance Act 2012 had been enacted on 28 May 2012 and accordingly, the new method shall be effective from that date. Notifications issued by the Central Board of Excise and Customs, from time to time, prescribing the exchange rates for various currencies would be applicable for a particular period. Therefore, with effect from 28 May 2012, the company should use the exchange rates as notified by the CBEC and not the RBI rates, for computing its service tax liability under reverse charge.

The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to

sme@expressindia.com

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First published on: 22-11-2013 at 02:40 IST
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