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Excise calculation on packaged software

Patil VC (senior accountant ) (46 Points)

12 March 2012

Dear All,

Need working of excise duty on packaged software CD's, is it 85% on MRP? Can i have any notification regarding this. Also request to give me a link where update on latest excise rules are posted.

thanking you,

vaibhav

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7 Replies

Sunil Kumar G (AGM Taxation) (373 Points)
Replied 11 April 2012

Packaged software or canned software, is at present exempted from so much of the excise duty, as is equivalent to the duty payable on the portion of the value of Packaged software determined under section 4 of the Central Excise Act, or the rules made thereunder, which represents the consideration paid or payable for transfer of the right to use such goods provided that the transfer of the right to use shall be for commercial exploitation. The condition of commercial exploitation is being removed. Consequently, the exemption would be available on packaged software in all cases. (Notification 17/2010-Central Excise dated 27.02.2010 refers).

Let's also take a look at a similar notification issued under the Customs Act. In terms of Notification No. 31/2010-Customs dated February 27, 2010, imports of packaged/canned software are exempted from the levy of counterveiling duty on the value of the licenses, so long as the importer has registered himself with the Service Tax Department and has made a declaration to that effect to the Deputy/Asst Commissioner of Customs. Here again, the Government would seem to have bungled up, in as much as, the intention seems to be to exempt from CVD, packaged software imports which have suffered service tax. But the Notification only states that the importer has to register himself with the Service Tax Department. This Notification would seem to have achieved nothing as most ports and air cargo complexes are refusing to implement this Notification even after four months of its issue. The Board would do well to check this fact for itself.

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Mihir Doshi (B.Com, CA, CS, LLB) (2187 Points)
Replied 11 April 2012

Dear Mr. Sunil, Could you guide me on the following issues: In malls, we have seen many offers like buy 1 get 1 free or buy 1 get 5 free, in this case how the tax will be computed i.e. VAT, Excise, CST....Could you clarify with an example. Also take the case of manufacturing concern, who provides this kind of service to wholeseller.

Sunil Kumar G (AGM Taxation) (373 Points)
Replied 11 April 2012

Central Excise Duty: Central Excise duty liability arise at the of manufacture, payment of duty is postpone to at the time clearance from the factory. If any goods offer at free of cost also attracts Central Excise duty.

VAT/CST:- VAT/CST liability arise at the time of sale. If there is no sale No VAT/CST. If you supply at Free of Cost also there is no CST/VAT.

If you want to give any product as free of cost you should mention in the Commercial Invoice./ Tax Invoice, the value of goods is Zero, supplied Free of cost.

Mihir Doshi (B.Com, CA, CS, LLB) (2187 Points)
Replied 11 April 2012

Thanks for the reply.

Would like to know under which rule and how we can sell these manufactured goods. Suppose, there is an offer for plastic bottle. Buy 1 get 1. How would we consider the same for excise purpose. What do we mention or how we show the same in Excise. i.e. Assessable value, Quantity etc. Expect you to provide me practical example.

Thanks

Sunil Kumar G (AGM Taxation) (373 Points)
Replied 11 April 2012

There are two option,

1) You should prepare Central Excise invoice under Rule 11 and Commercial Invoice (Tax Invoice/ Invoice separtely. The Central Excise Invoice should contain Assessable Value (Section 4 or 4A) and duty should calculate accordingly. There is no VAT/CST in Central Excise Invoice and not required to hand over to the Customer. You can keep internally. You should prepare commercial Invoice for One product with value and applicable VAT/CST. Value means Your transfer rate + Central Excise duty as captured in Central Excise Invoice (Central Excise duty of both the products) and VAT/CST as applicable. The free product you should mention in the Commercial invoice as free of cost so there is no VAT/CST.

2) You should prepare only one invoice under Central Excise Rule as well as VAT/CST. You should add one more colomn as Assessable value. You should mention assessable value in that particular colomn and Transfer Rate (Sales Value of one porduct) mention in the Value Colomn. Central Excise Duty should calculate on Assessable value not on Selling rate. and finally VAT/CST should be added.

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Mihir Doshi (B.Com, CA, CS, LLB) (2187 Points)
Replied 11 April 2012

Dear Sunilji,

Thanks for your kind reply. I dont have knolwedge on Excise part but inclined to know more about it. You have given a very good explanation but as far as praticality is concerned I am not getting like Preparation of Invoice by Rule 11. How many bills we need to generate?? Which invoice we should send to client?? Excise will be on two bottles or on one bottle?? Is there separate inovices for Excise, VAT and CST.

Hope you would clarify further..

Thanks in advance