The new assessee engaged in manufacture of jewellery may find it difficult to cope with compliance requirements under Central Excise law. The liability starts from 1st March 2016 though some procedural relaxations provided to the Jewellery segment.
Therefore, it would be essential for the assessee to engage a professional for assistance who can not only assist in compliance but could be helpful in adding value which could be in form of prompt advise on registration, what stocks liable to duty and what not, credit optimisation, export benefits, better tax planning etc. The important assistance areas for an assessee by a professional could be as under:
1. Certification / Break up of closing stock: Jewellery manufacturers who intend to avail Cenvat credit on inputs or inputs contained in goods lying in stock shall keep the stock declaration of finished goods, goods in process & inputs, as on 29.02.2016 duly certified by Chartered Accountant (CA). Therefore, unless the manufacturers opt for 1% duty payment without Cenvat credit, shall get the certification done from the professional. The professional shall ensure that the credits are availed subject to provisions of Cenvat credit Rules 2004 at the time of certification. This option however is not expected to be followed at all.
The bifurcation between the stock of goods manufactured prior to 1.3.16 and already removed from factory ( not liable to duty), goods manufactured prior but in factory ( liable to duty) and goods manufactured by others prior to and after 1st march may require to be bifurcated. The goods sent on job work (liable in hands of sender- Principal) and the goods received on job work would require to be bifurcated. A certificate of a professional on record may avoid demands at the time of audit after a few years.
2. Assistance for computing SSI exemption: Jewellery manufacturers having value of clearances (as differentiated from turnover) of less than Rs. 12 crore in the previous financial year 2014-15 shall be eligible for SSI exemption and there is no excise liability on first clearances up to Rs. 6 crore. For March 2016, for value of Rs.50 lakh, SSI exemption is eligible. However, for this purpose the SSI computation, a CA certificate shall be obtained based on the books of accounts of 2014-15. CA should ensure that the exemption is computed in accordance with Noti.no.8/2003-CE. The value of clearances includes only the manufactured goods and not the goods received on job work or the purely traded goods. The values included for 12 crores and 6 crores are different.
Error in computation could lead to loss of benefit for the manufacturer or lead to additional cost in form of penalty / interest.
3. Registration assistance: The registration process would be the first important process for manufacturers after ascertaining that SSI exemption is NOT available. Normally, registration is complete within a day/ few hours as deemed registration concept exists after filing online application. Now, there is a special provision for jewellers wherein the registration would be granted without physical verification of premises. Professional should ascertain the registration requirements including suggesting on centralised registration if it is feasible for the assessee. The time limit for registration and payment of duty has been extended post the agitation against the levy.
Professional should also ascertain if registration is required under service tax law as there are various services wherein the recipient of service would be liable for payment of service tax. Numerous errors being committed by the assessee in case of reverse charge compliance.
4. Initial disclosures to department: It is very important for an assessee to file an initial declaration letter with the department disclosing the detailed activities. The books of account, procedures followed for job work received, job work given, stock records maintained, credit mechanism, option opted etc. can all be provided. This practice would establish bonafide act of the assessee in case of future litigations which could reduce tax / penalty / interest liability if any. It is also a moral binding on the revenue to respond to confirm the practices so that the assessees avoid disputes.
5. Initial compliance hand holding: Initially the assessee would find it difficult to ascertain and maintain the required books of accounts for compliance with central excise law including method / format of raising bills, orders, filing returns, payment etc. Therefore, a good professional shall ensure that he offers assistance initially till assessee is confident enough to take care of compliance on his own. A simple checklist or standard operating procedure (SOP) can be designed to maintain consistency in compliance.
6. Monthly/ Quarterly payment of excise duty: Computation, availment of credit, net payment, liability as receiver etc., needs to be verified before remitting tax on monthly / quarterly basis. As the excise law and Cenvat credit provisions are still not free from litigation, professional should keep himself abreast of the latest changes to ensure that the client is not surprised at a later date from the department. The input services credit is available ( subject to Rule 6 (3)) and therefore the value add by reduction in cost maybe provided.
7. Monthly / Quarterly return review and filing: Verifying the collated information and filing of information required properly in the specified return format (ER-1 / ER-3 / ER-8) is critical. Department depends on the information provided by the assessee in periodical return. Therefore, assessee should fill and file the return with utmost care. An experienced professional could help the assessee in this regard. However, it should not become review of only arithmetic accuracy of computation. He should try to add value to the assessee in every possible manner by examining the invoices, the valuation mechanism, credit availment and reversal, stock control and important reconciliations.
8. Periodical review (half year / annual: Many manufacturers find periodical review of indirect tax compliance as value added service. Review by independent professional can build confidence in assessee of compliance as well as face departmental audit. The review by professionals and departmental are not the same as the latter is only a revenue leakage exercise. This is because a professional would not only highlights the mistakes / errors but he provides solution for rectifying the errors and provide a balanced and independent advice on matters. Also gives suggestion for obtaining all eligible benefits legally.
9. Opinions/ Clarifications: Assessee could also find it worth to seek opinions/ clarifications on grey areas in indirect tax including excise levy and the procedures ot be followed to comply and avoid risk. The opinion would not only clarify the doubts of the assessee but acts as a defence tool in case of investigation/ audit by department if any. Availing of the proper opinion and understanding the correct position aids management’s decision making and can also lead to focus on areas where tax is optimal.
Alternatively, assessee could hire the professional on retainer basis with provision of regular clarifications (e-mail / telephone) including review on periodical basis. Request could be made to provide regular updates as well as indirect tax laws keep changing. This would put assessee in comfort as he need not approach professional every time and wait for appointment to seek clarifications. However, it is very important that the experienced professional is approached for this purpose as slight mistake in indirect tax could be very costly.
10. Training the employees: A good professional can not only execute the work but he can train the assessee and the employees handling day to day affairs in indirect tax to ensure compliance. Assessee could request a professional to train the employees to handle the compliance independently.
11. Assistance during department’s audit: As self assessment has been introduced in indirect tax laws, there is no concept of assessment by the tax department. However, this does not mean that department does not look into the compliance of assessee. Therefore, department would conduct the audits of assessee on regular basis depending on various criteria like type of goods being manufactured, amount of duty paid etc. It is very common for assessee to panic during department’s visit. In such cases, professional help could be sought to handle the audits. If assessee has chosen for regular review by a professional, in such cases there would be no / less room for panic as all possible errors would be known in advance and rectified. The assistance could also be in form of reply to audit notes, compilation of necessary information for submission with department etc. Professional shall ensure that only correct and relevant information is filed to department with proper covering letter with the department. This exercise may start only in 2017 July onwards.
12. Show Cause Notice (SCN) reply: It may so happen that the department do not agree for contention of assessee and issues show cause notice for payment of any tax / interest / penalty. When assessee is not clear about the future step, then he shall approach professional who could guide on course of action. If the liability is genuine, then it should be responsibility of professional to inform the assessee about the same and should not try to drag the case with an intention to make more money. On the other hand, when assessee has stronger case, a proper reply shall be filed with the department with regular follow up. Assessee should approach professionals in these matters unless he is very confident to handle the matter. Expected for this industry after a few years.
13. Representation before adjudicating authority: This normally follows the SCN reply. All the important evidences and defenses should be put forward at this point before the authorities. Therefore, assessee or the professional appointed should be ready with all necessary information for representation before the authorities. Expected for this industry after a few years.
14. Reply / Representation at appellate forums: After SCN stage, unless the litigation is dropped, the appeal and representation before the Commissioner ( Appeals) and then to tribunal is to be made. At these stages, the chances of litigation getting solved are high though it is very time consuming. It is practically not possible for assessee himself to handle the litigation at these stages as it is time consuming and tedious. Regular follow up would be essential to solve the issues. An experienced professional could help the assessee to reduce this burden from assessee. Where stakes are high, assistance should be sought from an experienced professional who could be an advocate or a chartered accountant. Advocates could help the assessee even at High court and Supreme court stage. Expected for this industry after a few years.
Conclusion: In this industry the value fo stock being high the accounting for the movement, scrap, wastage, reconciliation would be very important. The professional can act as a shock absorber, clarity provider, value adder, pre auditor and compliance checker. Acknowledgements to CA Mahadev for base article.
The author can also be reached at madhukar@hiregange.com or mahadev@hiregange.com
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