India Localization & VAT with respect to SD

Kumar Armugam
www.bcone.com

Copyright 2003 Bristlecone, Inc. | Dec 18th 2004

Modus Operandi Session - I

Introduction
CENVAT Concept CENVAT Rules and Terminologies India Localization in SAP R/3 CENVAT and Sales Process. India Localization Configurations in SD Q&A Conclusion

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Modus Operandi Session II

Introduction
Glossary of Terms VAT Basic Concepts VAT implications on SD SD Configuration with respect to 4.7 EE Q&A Conclusion

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Introduction
Hi

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What is CENVAT!?

Indian Tax Structure

Excise & Customs Duty - Excisable Goods of 4Ms Sales Tax & Value Added Tax Service Tax Cess Withholding Tax / TDS Maintaining and Printing of Statutory Registers

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CENVAT!?
Excise duty is a duty on production or manufacture of goods. It is a tax levied on manufacture of goods and the liability to pay excise duty arises immediately on manufacture or production of goods
Once manufacture of goods is complete, excise duty is payable, whether the goods are sold or self-consumed. Excise duty does not depend on the end use of the goods. Excise Duty is a tax on manufacture of goods but for the sake of administrative convenience, it is collected only on removable of goods from the factory. CENVAT Credit

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CENVAT Credit
Rs.100 ED: Rs.10

Rs.500 ED:Rs.50

RM-A FG-C RM-B

Rs.50 ED: Rs.5

Input Tax credit availed: Rs.15

Tax liability: OTL CENVAT credit Rs.35: Rs.50 Rs 15

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CENVAT!?
Types of excise duties
Under the excise laws, the following are the various types of duties, which are levied: Basic duty: This is the basic duty levied under the Central Excise Act. Special excise duty: This special duty is levied under special circumstances where the levy of such additional duty is justifiable or found necessary to protect other industries. Additional Duty in lieu of Sales Tax : It can be charged on all goods by the central government to counter balance exemptions from sales tax granted by various State Governments to the detriment of industries in other States. Additional Duty on specified items under the Act : If the Tariff Commission set up by law recommends that in order to protect the interests of industry, the Central Government may levy additional duties at the rate recommended on specified goods.

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CENVAT!?
WHEN AND HOW MUCH CREDIT CAN BE TAKEN
The Cenvat Credit in respect of inputs may be taken immediately on receipt of the inputs. The Cenvat credit in respect of Capital Goods received in a factory at any point of time in a given financial year shall be taken only for an amount not exceeding fifty percent of the duty paid on such capital goods in the same financial year and the balance of Cenvat Credit may be taken in any subsequent financial year. The Cenvat credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair etc. and it is established from the records that the goods are received back in the factory within180 days of their being sent to a job worker. Where any inputs are used in the final products which are cleared for export, the Cenvat Credit in respect of the inputs so used shall be allowed to be utilised towards payment of duty on any final product cleared for home consumption and where for any reason such adjustment is not possible, the manufacture shall be allowed refund of such amount.

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CENVAT
Rule 1. Short title, extent and commencement.Rule 2. Definitions.Act capital goods Customs Tariff Act exempted goods final products first stage dealer an importer input manufacturer or producer Rule 3. CENVAT credit.Rule 4. Conditions for allowing CENVAT credit.Rule 5. Refund of CENVAT credit.Rule 6. Obligation of manufacturer of dutiable and exempted goods.Rule 7. Documents and accounts.Rule 8. Transfer of CENVAT credit.Rule 9. Transitional provision Rule 10. Special dispensation in respect of inputs manufactured in factories located in specified areas of North East region and Kutch district of Gujarat.Rule 11. Power of Central Government to notify goods for deemed CENVAT credit.Rule 12. Recovery of CENVAT credit wrongly taken.Rule 13. Confiscation and penalty.Rule 14. Supplementary provision
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CENVAT
So far

Overview of Indian Tax Structure. What is Excise Duty and Types of Excise duties? What are CENVAT Rules? What is CENVAT credit? How and when CENVAT is availed?

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SAP R/3 and CENVAT

CIN Country India Version
India localization (earlier CIN) is no longer add-on component in version SAP 4.7EE
SAP provides following std. tax procedure for country india
Formula based tax procedure TAXINJ Condition based tax procedure TAXINN

Automatic tax code determination possible for inbound orders

Refer Oss notes 608238 & 607272

CIN data updation directly possible from

Material master Vendor master Customer master

Tax/Excise Duty set up for MM & SD Tax Procedures Pricing Procedures CENAVT registers Transaction Codes

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Tax/Excise Duty set up for MM & SD

Basic Settings
Master Data Account Determination Business Transactions Tools

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Basic Settings
Excise Registration IDs
Company Code Settings Plant Settings Excise Groups Series Groups Excise Duty Indicators

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Excise Registration IDs

A number assigned to each premises or location that has registered as a manufacturer with the excise authorities.

Mention whether AED, SED, CESS applicable. If blank will not be available for inputs

Permits deductible / non deductible ED at GR

Max no. of line items in outgoing EI

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Company Code Settings

User can edit Dr account during JV Utilizes from PLA in JV First month for excise year

Excise invoice selection

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Plant Settings
Plant defined as Depot or not

Multiple plants to one Excise Registration ID

GRs per EI can be set as below Multi GR Multi Credit Multi GR Single credit Single GR

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Excise Groups
Excise Reg ID linked to Excise group & Plant

Depot definition at Excise Grp & Plant

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Series Groups

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Excise Tax Indicators

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Account Determination
Describe which excise accounts (for excise duty and CENVAT) are to be posted to for the various transaction types including sub transaction type if any

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During transactions system determines which G/L accounts to post to by looking at the: Excise group, Company code & Chart of accounts

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Tax Procedures
SAP provides following std. tax procedure for country India
Formula based tax procedure TAXINJ Condition based tax procedure TAXINN

Pricing Procedures
Factory sales and Depot Sales
JINFACT, JDEPOT,JSTKTR w.r.t TAXINN JFACT, JINDEP, JINSTK w.r.t TAXINJ

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Excise Registers
Excise Laws require you to maintain a number of registers in a specified format relating to excise duty. They have to be printed out monthly and shown to the authorities in the event of an audit. The SAP captures this requirement. Type of Registers: RG23A PART I RG23A PART II RG23C PART I RG23C PART II RG I RG23D

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Excise Registers
RG23A: Raw Material The entries pertaining to quantity will go into RG 23 Part I and that of duty will go into Part II in the appropriate duty column. i.e. Basic Excise, SED, Additional duty, etc RG23C: Capital Goods RG23CI-Part I entry: Excise stock entry at the time of GR (only quantity) RG23CII-Part II entry: Credit entry of Capital goods (only value) RG-I : Finished Goods (only Quantity) The finished goods (manufactured, sub-contracted or gained) and sales or stock transfer are entered in the RG I Register Register RG I is updated after creation of an excise invoice while dispatching the goods from the factory premises with reference a commercial invoice or a pro-forma invoice RG23D: Depot (this indicates both the Quantity and the amount)
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CIN Master - J1ID

Maintain Chapter IDs
Excise Duty Indicators Determination of Excise Duty

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Excise rate Determination

Get SSI duty Rates. Yes Is the Customer SSI? No Get Excep duty rates Yes Excp rates Maintained? Get Ch ID Of the material Get Customer Excise indicator

Get plant Excise indicator

Get final Excise indicator Get rate Based on Ex Ind & CH ID

No

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CENVAT Availment and Utilization

On-Line Transactions
Goods Receipt
Credit CENVAT on-hold A/c

CENVAT on hold for Capital goods

Sales Excise Invoice Process

Debit ED Payable A/C

Despatch

Vendor Excise Invoice Process CENVAT Account

Credit CENVAT A/c Debit CENVAT A/c

Excise Duty Payable Account

Fortnightly Transactions
Deposit funds in PLA Account Select Register

Credit ED Payable A/C

Excise Duty Utilization Transaction

Credit PLA A/c

PLA Account
Debit PLA A/c

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CENVAT Utilization
Payment to be made to Excise Department for the Self Removals for the last month. Utilization to be done against the last months incoming excise duties and CVD. CENVAT utilization to be done before the 5th of next month.

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SAP Transactions
Activity Register Updates RG23 A (Part I & II and RG I) Register Extraction Register Printing SAP Transactions J1I5

J2I5 J2I6

Utilization

J2IU

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India Localization: Sales & Distribution

Features: It covers the following Sales from Factories Sales from Depots Stock Transfer Export Sales

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Factory Process - Materials

In the Process of Manufacturing the Factory uses materials. two kinds of

Input Material: Is defined as the one which loses its own identity finished product.

in the

Capital Goods: Is defined as the one which does NOT lose its own identity in the finished goods.

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Sales from Factory

J1IEX Capture EI Supplying Plant Excise Invoice J1IIN Dispatch

Add up to Excise Duty Payable A/c

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Factory Process- Registers

The Factory uses the following Excise Registers RG23 A - Part I (Captures the material A/c) RG23 A - Part II ( Captures the Duty A/c) RG23 C - (Captures Capital Goods Duty A/c)

RG 1

- Is a finished Goods Register

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Factory Process- Registers

RG23 A Part I & Part II
Material is received in the factory as for Quality inspection or for Direct Input.

Material after Quality Inspection or when used as Direct Input will go into the RG 23 A Registers.
The entries pertaining to quantity will go into RG 23 Part I and that of duty will go into Part II in the appropriate duty column. i.e. Basic Excise, SED, Additional duty, etc.

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Factory Process- Registers

RG23 C Purchase of Capital Goods by the factory for manufacturing purpose are only passed in RG23 C Register. The excise law permits claiming 50% MODVAT Credit in the current year and 50% in the next year for Capital Goods.

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Factory Process- Registers

RG I The finished goods(manufactured, sub-contracted or gained) and sales or stock transfer are entered in the RG I Register. Register RG I is updated after creation of an excise invoice while dispatching the goods from the factory premises with reference a commercial invoice or a pro-forma invoice.

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Depot Process:
The RG 23 D register is used to update the excise entries in case of
Exciseable Depots. The Excise duty is payable when the goods are sent from the factory. However, it is not levied again when the goods are sent from the DEPOT. However, while taking sale from the DEPOT and if price escalations happen, then the extra excise is paid using a A certificate. These details are entered in the RG23 D register and excise recovered from the customer.

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Sales From Depot

ME21N
J1IIN

MIGO
J1IG Excise Invoice

J1IJ

Plant

Depot

Dispatch

Add up to the Excise Duty Payable A/c Reduce the Quantity

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Depot Process
Transactions can happen through two scenarios:

Scenario1: Depot receives goods from the companys factory through stock transfer. Scenario 2: Depot procures goods directly from external sources.

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Depot Process:
For Doing Goods Receipt: Scenario 1: Stock Transfer Step1: Do GR (Transaction code:MB01) Step 2: Excise Invoice Capture at Depot (Transaction Code: J1IG) Scenario 2: Step 1: Do GR (Transaction Code: MIGO) Step 2: Excise Invoice Capture at Depot (Transaction Code: J1IG) At the time of Sale:

Sales Order Delivery J1IJ (always requires a delivery number) PGI Billing

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Export Process
In the process of Exports under bond duty is not payable and the
goods move out from the factory against an ARE1. However, goods not under bond move out of the factory by paying the duty and refund is separately claimed on showing proof of export I.e. shipping bill. In case of Deemed Exports, the same procedure is followed as in exports, However, the form used is ARE3.

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Important Things to Know

Determination of Excise Rate in Sales and Distribution Information on Tax Procedure and Conditions FI Entries related to Excise taking place in SD

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Determination of ED Rate in Sales and Distribution

Settings for the same done through Transaction Code J1ID Material: Material Chapter ID Customer Excise Details: Excise Indicator for Customer Plant Excise Details: Excise Indicator for Plant Excise Indicator Customer + Excise Indicator Plant = Excise Indicator Final Material Chapter ID + Excise Indicator Final = Excise Tax Rate

Refer Slide No.27

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FI Entries related to Excise in SD

During the passing of Billing document to Accounting: (VF02, Release to Accounting)
Dr Customer Cr Sale Cr Taxes During creation of Excise Invoice: (J1IIN) Dr Excise Duty Recoverable Rs.16/Rs. 125/Rs. 100/Rs. 16/Rs.9/-

Cr Excise Duty Recoverable

Cr Excise Duty Payable

During Monthly Utilization: (J2IU) Dr Excise Duty Payable Rs. 16/Cr CENVAT Clearing

Rs.16/-

Rs.16/-

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Information on Tax Procedure and Conditions

Menu Path:

SPRO Financial Accounting Financial Accounting Global Settings Tax on Sale and Purchase Define Procedure
Procedure: TAXINJ The various Condition types applicable in SD are:

Excise Conditions: JMOD, JSED, JAED , JCES, etc.

Tax Conditions:JIN1, JIN2,etc. Note: Excise Conditions are statistical. Since, these are determined from SD pricing procedure Tax conditions are non-statistical. Since, these are determined from TAXINJ While defining tax codes (using Transaction Code: FTXP), to maintain Excise Duty (JMOD) as a changeable field, remove statistical check and maintain 100% for JMOD. After the changes are made, one has to again put the statistical checks in procedure TAXINJ
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Lets Clarify our Doubts

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