Background
Registration with tax authorities is first step for any assessee to make compliance with the law and similar is the case for jewelers who have been brought within excise ambit in Budget 2016-17. But it is very interesting that special provisions have been made for registration of person engaged in manufacturing of jewellery under excise and these provisions could sometime offer tremendous planning opportunities to optimize the tax liability. The paper writers have discussed few of such aspects in the article.
Provisions for registration under central excise:
Section 6 of the Central Excise Act provides that every person engaged in the production or manufacture or any process of production or manufacture of any excisable goods shall get him registered with the proper officer of excise. Rule 9 of the Central Excise Rules prescribes specified categories of person liable to take registration and also provides power to issue notification to exempt certain categories of persons. Notification No. 35/2001- CE (NT) provides detailed procedure for taking registration while Notification No 36/2001-CE (NT) exempts certain categories of persons from taking registration.
The salient features of registration process
in general are as below:
i. Registration needs to be applied in the prescribed form within 30 days of commencement of liability to pay duty of excise.
ii. It needs to be applied online by making application on www.aces.gov.in.
iii. Separate registration needs to be taken for different premises of same registered person. If a person is having two or more premises of the same factory located within a close area in the jurisdiction of a Range Superintendent, commissioner may allow single registration subject to terms and conditions as specified.
iv. Registration is PAN based. The assessee is required to give details of e-mail ID and phone number.
v. Registration is granted within 2 days of the duly completed online application form.
vi. Specified documents are required to be submitted at the time of verification of premise.
vii. Premise is physically verified by specified officer within seven days of making application. If premise is found non-existent, registration shall stand cancelled.
Special provisions for manufacturers of articles of jewellery
It may not be feasible for a jeweler to obtain separate registrations for multiple workshops. Hence, exemption has been granted to take separate registration and the concept of centralized registration has been introduced vide Notification No 5/2016-CE (NT). Following options have been provided for registration:
Centralized Registration:The scheme of centralized registration is as below:
i. The registration is limited to person engaged in manufacturing of jewellery falling under chapter heading 7113 only. If a person is manufacturing articles falling under chapter heading other than 7113, then he is not entitled to take centralised registration.
ii. Registration can be taken for premise which has centralised billing or centralised accounting system in respect of goods falling under 7113 manufactured or produced by different factories or premises.
iii. In addition to centralised billing or centralised accounting system, it is necessary to maintain accounts/records showing receipts of raw materials and finished excisable goods and received from job workers at such premise.
iv. There is no need to have these units within one Commissionerate. Factories falling anywhere in the country may be registered within single registration.
v. Details need to be given for each of the premises/factories in the application for centralised registration. However, there is no need to give details of job work premises.
Centralised registration is not compulsion
It is to be noted that facility of centralized registration is an option not compulsion. A manufacturer may take separate registration for all factories or premise where accounts/records showing receipts of raw materials and finished excisable goods manufactured or received back from job workers are kept. (no need of centralised accounting/billing system).
Decision making for taking registration
Though above options appear to be very simple but it is very important to understand the implications arising under each of the options to take final call as to which option to be chosen.
Place of manufacture vs. place of removal vs. place of registration
These three concepts are very relevant to understand to arrive at particular options:
Place of manufacture: This is the place where manufacturing activity is undertaken. This could be workshop of jeweller. In some cases, showroom could also be factory where a part of manufacturing process may be undertaken. If affixing of brand is done at showroom, it would be considered as factory. Duty needs to be paid at the time of removal of goods from the place of manufacture.
Place of removal: This is the place from where goods are sold to customers. If the goods are directly sold from the workshop, the place of removal is such workshop. In case manufactured jewellery is brought to showroom and sold to customer from there, place of removal would be such showroom. Place of removal is important as the duty needs to be paid at the price prevalent at place of removal (i.e. showroom) at the time of removal of goods from the place of manufacture (workshop). In a transaction where place of manufacture and place of removal is same, there is no complexity.
Place of registration: A manufacturer may register -
(i) each of the place of manufacture separately
(ii) register only such places where records maintained for receipt of raw materials/finished goods and goods received on from job worker
(iii) Centralised registration where centralised billing or accounting system maintained and records for receipt of raw material/finished goods maintained. It is needless to mention that this place could be different from the place of manufacture and/or place of removal. This place is responsible for making all the compliances under central excise.
Practical illustration for decision making: A jeweler has corporate office at Gurgaon. It has regional back offices in 10 states to maintain the track of inventory within respective state and for internal controlling purpose. Each State has 5-6 showrooms and multiple workshops. The jewellery is manufactured through job workers also. Software is maintained at Gurgaon office which records movement of inventory across the country. The software also records inventory movement at each of the back offices and showroom level also. What are the options for taking registration?
Option 1: Take registration at Gurgaon covering all the workshops in the country. Showrooms would be only trading office. The duty needs to be paid at the time of sending of goods from each of the workshop to showroom at the price prevalent at showroom. There is no duty liability when goods are sold from the showroom to customer. In respect of goods lying at the showroom on 29.2.2016, there is no duty liability as these have already been removed from place of manufacture.
Option 2: Take registration at each of the back office in each state covering all workshops in that state. The liability to pay duty shall be in the same manner as discussed above under option 1.
Option 3: Take registration at each of the showroom from where jewellery is sold to customers giving details of workshops linked to that showroom. Record is maintained at such place for goods sent to and received from different workshops. It is suggested to avoid registering the showroom as there could be complexities in cases of trading, goods sent for approval, exhibition, repair etc. The showroom should be maintained as duty paid warehouse so that excise complexities could be minimized.
Option 4:Take separate registration at each of workshop. All the goods removed from such premise would be duty paid. But this option may not be feasible as it involves huge compliance cost at large number of workshops.
Option 5: Workshops to be treated as job work units: Under options 1 to 3, there is need to mention each of workshops where manufacturing process are undertaken in the registration application. A manufacturer could otherwise consider each of the workshops as job work premise and if done so there is no need to mention the workshops in the registration certificate and neither can officer of central excise make visit to such job work units.
Registration as Input Service Distributor (ISD): Under each of the option, the manufacturer need to decide as to if any of the unit needs to be registered as input service distributor to distribute the credit on input service to each of the registered premise. This become very critical to decide in light of the fact that the many of the showrooms may be doing trading activities also and there could be need to reverse the credit under Rule 6 of Cenvat Credit Rules on common input services attributable to trading turnover/other exempted turnover (silver jewellery etc.) Incorrect planning could lead to denial of huge credit.
Registration under service tax for reverse charge liability: There could be service tax liability on jeweller under reverse charge i.e. rent a cab, sponsorship, import of service, security, works contract etc. There is option of taking separate registration for each of the premise or centralized registration. The registration needs to be taken in light of the options evaluated for taking registration under excise and ISD registration.
Conclusion: As discussed above, there could be multiple possibilities for taking registrations under excise and service tax depending upon the nature of operations, number of locations, manner of maintenance of inventory records and similar other aspects. The complexities is further enhanced where goods manufactured through job workers along with one’s workshops, doing job work for others, sending the goods on approval basis, sale return, place of branding, repair of jewellery etc. All aspects should be carefully evaluated so that there is least compliance complexities and maximization of credit on input services.
The authors can also be reached at ashish@hiregange.com or rajesh@hiregange.com
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