Facebook Pixel Code

Modes of meeting export obligation

Queries on taxation and service tax liabilities, addressed by Saloni Roy & Jayanta Kalita of Ernst & Young.

We manufacture and export electronic goods. We have obtained a licence under the Export Promotion Capital Goods (EPCG) Scheme for importing of capital goods. However, during the current financial year, we have not been able to fulfill our export obligation. Kindly advise on other modes for fulfilling our export obligation.

The Foreign Trade Policy 2009-14 (FTP) stipulates that the specified export obligation has to be fulfilled by export of goods manufactured/services rendered by the EPCG licence-holder. The specified export obligation under the EPCG Scheme is over and above the average level of exports achieved by the licence-holder in the preceding three years.

It is also provided that up to 50% of the specified export obligation of the license holder may be fulfilled by exports of goods manufactured or services provided by a group company which also has an EPCG authorisation.

In such cases, the average level of exports achieved by the group company in the preceding three years shall be considered for determining the specified obligation. Further, under para 5.5 (g) of the FTP, ?deemed exports? shall also be counted towards fulfillment of EO.

Tax on dam construction

We provide works contract services in dam construction. Prior to July 1, 2012, service tax was not applicable on our services i.e. construction of dams. Our auditors have informed us that the negative list regime has brought about a number of changes. Would such exemption still be available to us?

Prior to July 1, the service of construction of dams was specifically excluded from the definition of ?works contract services?. Accordingly, the service of construction, erection, commissioning, etc. rendered in respect of dams did not attract service tax, irrespective of the nature/constitution of project owner.

Under the negative list regime, service tax exemption is available only on the services provided to government, a local authority or a governmental authority by way of construction, erection, commissioning, and installation of dams. Hence, the scope of exemption has been restricted as the same is now available only to projects executed for government, local authorities or governmental authorities. In all other cases service tax would be leviable.

CST on job-work material

We manufacture office furniture and mouldings. At our factory we prepare intermediate goods from raw materials. The intermediate goods are then transported to the job workers premises for manufacturing the finished goods. The finished goods are transported back to our plant for sale. The VAT authorities are demanding payment of Central Sales Tax on the interstate transfer of intermediate goods. Is CST payable on such movement of goods?

Central Sales Tax is payable on interstate sales. In the given case there is interstate movement of goods from your factory to the job worker?s premises. However, there is no transfer of property in the intermediate goods and the same are returned as finished goods.

A similar matter has been addressed in the case of Ambica Steels Limited vs. State of UP. It was observed that there was interstate movement of goods that was not accompanied by the statutory forms as prescribed under the Central Sales Tax Act, 1956 (Form F or Form C).

The High Court observed that in cases of interstate movement of goods from the principal to its job worker, the job worker shall be required to issue Form F to the principal to establish that there is no transfer of property in goods. In the event Form F is not issued by the job worker, the tax authorities may uphold that the interstate movement of goods was tantamount to sale and accordingly, compute Central Sales Tax on the same.

The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to fesmes@gmail.com

Get live Share Market updates, Stock Market Quotes, and the latest India News and business news on Financial Express. Download the Financial Express App for the latest finance news.

First published on: 20-07-2012 at 03:19 IST
Market Data
Market Data
Today’s Most Popular Stories ×