How to recover additional charges

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 October 2014 Sir,

We are manufacturing unit registered in excise. We charge excise on the product we manufacturer in our invoice. We also provide additional service to party for developing design. Can we add development charges in my excise invoice?

Arun Kumar Singh

Arun Kumar Singh (Expert)
Follow

30 October 2014 Development charges are the services, service tax will be paid on these services and ssi exemption will be available upto 10 lakhs.

Querist : Anonymous

Querist : Anonymous (Querist)

04 November 2014 Firstly Thankyou sir for your kind revert.

But i would like to know if i can charge developing charges on the same invoice without attracting excise duty on the same?

Thanks

Upgrade to CAclubindia Pro. Subscribe Now!

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

28 July 2024 When dealing with excise duty and additional service charges in India, it's crucial to ensure compliance with the relevant tax laws to avoid any issues. Here’s how you can handle development charges in your invoice without attracting excise duty:

### **1. Understanding Excise Duty and Service Charges**

**1.1. Excise Duty**:
- Excise duty is applicable on the manufacture of goods. It is calculated based on the value of the goods manufactured and is charged on the product itself.

**1.2. Development Charges**:
- Development charges for services like design development, consulting, or other services are typically subject to Service Tax (now GST, if applicable), but they are separate from the excise duty on goods.

### **2. How to Include Development Charges in Your Invoice**

**2.1. Separate Components**:
- To ensure clarity and compliance, you should separate the excise duty and development charges in your invoice.

**2.2. Format of Invoice**:
- **Product Cost**: Mention the cost of the manufactured product.
- **Excise Duty**: Show the excise duty on the product as per the applicable rate.
- **Development Charges**: Mention this separately as a service charge, and ensure it is clear that this charge is for additional services and not part of the product's value.

**Example Invoice Format**:
```
--------------------------------------------------------
Invoice No: [XXXXX] Date: [DD/MM/YYYY]
--------------------------------------------------------
Product Description Qty Unit Price Total
--------------------------------------------------------
Manufactured Product [X] [Price] [Total Price]
Development Charges [Charge]
Excise Duty [Excise Amount]
--------------------------------------------------------
Total [Total Amount]
--------------------------------------------------------
```

### **3. Accounting for Excise Duty and Development Charges**

**3.1. Excise Duty**:
- Excise duty must be calculated on the value of the product. This amount is to be paid to the government and cannot be included in the development charges.

**3.2. Development Charges**:
- These should be billed separately and will attract Service Tax/GST, depending on the applicable tax regime. Ensure that you issue a separate service invoice if required or clearly demarcate it on the same invoice.

### **4. Compliance and Tax Filing**

**4.1. Service Tax/GST**:
- If you are providing development services, these are subject to Service Tax (if before July 1, 2017) or GST (after July 1, 2017). Ensure you are registered for the applicable tax and include this tax in your calculations.

**4.2. Documentation**:
- Maintain detailed records and supporting documents for both the manufacturing and service parts of your business. This includes invoices, payment receipts, and any correspondence related to the development services.

**4.3. Consult a Professional**:
- If there is any uncertainty regarding tax regulations or invoice formatting, consult with a tax professional or accountant who is well-versed in excise duty and GST.

### **5. Important Points**

- **Excise Duty and Service Charges are Different**: Ensure that excise duty is only applied to the value of the manufactured goods and not to the service charges.
- **Clear Documentation**: Keep clear and separate documentation for product sales and service charges.
- **Tax Compliance**: Ensure that both excise duty and service charges are properly accounted for and reported in your tax returns.

By following these guidelines, you can correctly include development charges in your invoice while ensuring that excise duty is applied only to the manufactured product, maintaining compliance with tax regulations.