A

Project Report on
Direct and Indirect taxes

By
Nisha Parmar
MBA 1st Year
A report submitted to Nis Academy
 Nis Academy

PROJECT COMPLETION CERTIFICATE

This is to certify that Nisha P Parmar, 1st year student of Nis

Academy, VADODARA, has completed her project work from
15-06-2010 to 24-07-2010 successfully and satisfactorily on
“Direct & Indirect tax” at RIL, Vadodara Manufacturing
Division” for partial fulfillment of the course of MBA degree.

Date:- 24/07/2010
Place:- Vadodara

PREFACE
TO BE AN MBA student is a matter of pride because you are in field, which
helps you to develop from a normal human being into a disciplined, and
dedicated professional. In the management field you cannot create success
stories if you are not a good learner. You need to be a good learner to sharpen
your knowledge in the particular field to achieve and attain the desired goals
and heights.
Mere bookish or theoretical knowledge cannot help you in any field whether it
is management, technology, research, or any other field. The only thing that can
help you is having a sound practical knowledge of the concerned field. As a part
of our learning in management field and also a requirement of the MBA
programmed, we have been very fortune to receive practical knowledge in one
of our country’s premier organization – RELIANCE INDUSTRY (BARODA
COMPLEX)
I received our training at RIL as a requirement of the MBA curriculum. This
training has made us clear the difference between the theoretical knowledge and
the practical scenario, making us aware of the importance of practical working
conditions.
I have tried to present whatever knowledge, I gained and learned at RIL during
our training period in a very systematic manner.

ACKNOWLEDGEMENT

Nothing concrete can be achieved an optimal combination of inspiration

and perspiration. No work can be accomplished without the guidance of
the experts. It only the critiques from ingenious intellectuals that help
transform a product into a quality product.
 First, I would like to express my gratitude towards

Mr.A.K. Rastogi and Ms Chitra shah my faculty guide who always

helped and provided guidance during the course of my project.

Finally I am grateful to to Mr. SAWANT (Training Officer) who

provided all the necessary suggestions, information and guidance to
complete this project.

At last but not the least, I take an opportunity to appeal my profound

gratitude to my adorable and beloved parents for their everlasting love,
strong moral support, encouragement and personal sacrifice without which
I was unable to reach the present status of education…

Nisha Parmar

History

1969

- The Corporation was incorporated on 22nd March, to manufacture

and distribute synthetic organic chemicals, plastics, fibre and
fibre intermediates from petroleum feedstock. It is the
country's first petrochemical complex in the pubic sector. The
corporation was converted into a public limited company on 21st
March, 1986.
2000

- The Company has won British Safety Council's safety award for
the year 1999-2000 for recording the lowest number of accidents.

- Indian Petrochemicals Corporation Ltd (IPCL) has entered into

a long term agreement with Oil and Natural Gas Corporation
(ONGC) Ltd for the supply of nearly 5,70,000 tonnes per year of
feedstock for its 4,00,000 tonne ethylene cracker at Nagothane.

- IPCL has been awarded excellent performance certificate' by

the Ministry of Heavy Industries and Public Enterprises for
achieveing competitive targets for the year 2000-2001.

- Operations at State-run Indian Petrochemicals Corporation

Ltd.'s plant in Baroda were partly affected after a minor fire
broke out near one of its units. A minor fire broke out in an
electrical sub-station near the Vinyl Chloride Monomer plant on
20th of November.

2001

- Indian Petrochemical Corporation Ltd. said it will sell its

Vadodara plant to Indian oil Corporation by next month.

- Indian Petrochemicals Corporation has signed memorandum of

understanding with the Government of India, department of
chemicals and petrochemicals for fiscal 2001-02.

- Indian Petrochemical Corporation has registered a 70 per cent

increase in export turnover in fiscal 2000-01. The export
turnover was Rs 291 crore against Rs 171 crore in the previous
fiscal. The combined capacity utilisation of all operating
plants of IPCL located at Baroda, Gandhar and Nagothane was over
98 per cent.

2002

-RIL acquired 26% stake and management control in its major rival
IPCL which created a monopoly in the domestic market and also a
major force in the petro industry.
-IPCL appoints Manjula Subramaniam as part time official director
to the board.

-GOI to divest 26% equity in IPCL to the strategic partner by

march-02.

-IPCL signs long term wage revision agreement with labour unions
in its petrochemical complexes and chalks out wage hike package.

-IPCL redeemed FCCB of US 6m, which is one of the highest

redemption in US dollars at a stroke for any foreign currency issue
by an indian corporate.

- ONGC refuses to supply gas to IPCL as per existing contact after

its sell-off.

2003

-Net profit of the company increased by 90% due to the cut in

interest cost.

-IPCL sacks 167 employees at Vadodara plant.

-Company has registered 18% growth in the production in its first

year
under Reliance group.

-Company announced one time Voluntary Retirement Scheme

to all its employees on medical ground, which cost the
company over Rs.150cr.

-IPCL and RIL mandated SBI and ANZ for raising 0m loan
through ECB route and succeeded in baging the loan
for a term of 5 years.

2005

- Shri Anil D Ambani has January 03, 2005, addressed a letter to Shri
Mukesh D Ambani, Chairman of the Company, tendering his resignation as
Vice Chairman and Director of the Company with a request to accept his
resignation.
VISION

Be a globally preferred business associate With responsible concern for

ecology,Society and stakeholders’ value.

MISSION
Continuously innovate to remain partner in human Progress by harnessing
science and technology In the petrochemicals domain.
Board of Directors of Reliance Industries Limited

Founder chairman Reliance group

Board of Directors of Reliance Industries Limited

 Shri Mukesh D. Ambani
Chairman & Managing
Director

Shri Nikhil R.
Shri Hital R. Meswani Shri PMS Prasad
Meswani
Executive Director Executive Director
Executive Director

Shri P.K.Kapil Shri Ramniklal H. Shri Mansingh L.

Executive Director Ambani Bhakta
 Shri Yogendra P.
Dr. D. V. Kapur Shri M. P. Modi
Trivedi

Prof. Ashok Misra Prof. Dipak C Jain Dr. Raghunath

Major Milestones

2009

• RIL joins the league of global deepwater oil and gas operators - RIL
commenced production of hydrocarbons in its KGD6 block in the
Krishna Godavari basin with the production of sweet crude of 420 API.
The production of oil in KG-D6 was commissioned in just over two
years of its discovery, making it the world’s fastest green-field
 deepwater oil development project.
• With the commissioning of the new refinery in its Special Economic
Zone (SEZ), Jamnagar has now become the petroleum hub of the world.
With 1.24 Million Barrels Per Day (MBPD) of nominal crude
processing capacity, it is the single largest refining complex in the
world.
• RPL merger with RIL: Value creation through scale and synergies - The
merger of Reliance Petroleum Limited (RPL) with Reliance Industries
Limited (RIL) has enabled seamless integration of operational scale and
financial synergies that existed between the two Companies. Assets and
liabilities of RPL have been transferred to RIL with effect from 1st
April 32008, as per the approval granted by the Hon. High Courts of
Mumbai and Gujarat. Shareholders of RPL received 1 share of RIL in
lieu of every 16 shares of RPL held by them, as per the scheme of
merger. Accordingly, 6.92 crore new equity shares of RIL have been
allotted to the shareholders of RPL.

2008

• During the year, Reliance signed an agreement to acquire certain

polyester (capacity) assets of Hualon, Malaysia.
• In the Refining & Marketing business, Reliance took over majority
control of Gulf Africa Petroleum Corporation (GAPCO) and started
shipping products to the East African markets.
• Reliance also signed MoU with GAIL (India) Limited to explore
opportunities of setting up petrochemical plants in feedstock rich
countries outside India.
• Reliance Petroleum Limited (RPL) continued the second year of
implementation of its refinery project with an overall project progress of
90%.
• During the year, Reliance Retail Limited (RRL) continued its rollout of
stores across various verticals and formats. Reliance Retail today
operates over 590 stores in 57 cities, spanning 13 states, with over 3.5
million square feet of trading space.

2007

• Value creation through integration - A landmark merger of Indian

Petrochemicals Corporation Limited (IPCL) with Reliance Industries
 Ltd. (RIL) has been completed.
• Reliance Retail entered the organised retail market in India with the
launch of its convenience store format under the brand name of
‘Reliance Fresh’.
• The world’s largest polyester expansion project commissioned during
the year. We brought a Polyester capacity of 550 KTA on stream at
globally competitive costs in a record time of eighteen months. With
this expansion, our polyester capacity has been augmented to 2 million
tonnes per year. Subsequently, Reliance now have 4% of global
polyester capacity and 6% of global production.
• During the year, we expanded our polypropylene (PP) capacity by 280
KTA at Jamnagar that increased the combined capacity to 1,710 KTA.
With this expansion, we now have 3.5% of global PP capacity and 3.6%
of global PP production.

2006

• RIL commences the setting up of a new export-oriented refinery through

its subsidiary, Reliance Petroleum Limited (RPL). The refinery will
have a total atmospheric distillation capacity of approximately 580,000
barrels per stream day with a Nelson Complexity of 14.0 and an
integrated polypropylene plant with a capacity of 0.9 Million TPA. The
capital cost of the RPL project is estimated at Rs 27,000 crore
(approximately US$ 6 billion). RPL completes its US$ 1.2 billion Initial
Public Offering of equity shares which received an overwhelming
response across different classes of investors.
• Reliance's debt ratings from S&P and Moody's pierce India's sovereign
ratings.
• Reliance becomes India's first private sector enterprise to cross US$2
billion profit mark.

2005

• The Mumbai High Court, shareholders and creditors approve demerger

proposal

2004

• Reliance Industries Limited (RIL) emerged as the 'Petrochemicals

 Company of the Year' at the prestigious sixth annual Platts Global
Energy Awards ceremony in New York, USA
• The Board of Directors of Reliance Industries Limited approved the
buyback of its fully paid up equity shares of Rs.10 each, at a price not
exceeding Rs 570 per share, payable in cash, up to an aggregate amount
not exceeding Rs 2,999 crore. This amount represents the limit of 10%
of the total paid up equity share capital and free reserves of the
Company as on March 31, 2004.
• The European Commission approved the acquisition of the German
specialty polyester manufacturer 'Trevira' by Reliance.
• Reliance Industries emerged as the first and only private sector company
from India to feature in the 2004 Fortune Global 500 list of World's
Largest Corporations.
• Reliance announced it had struck gas off the Orissa Coast in the Bay of
Bengal.
• RIL became the first private sector company in India to record a net
profit of US dollar of over 1 billion.
• Reliance Associate, Sunbright, signed a Memorandum of Understanding
(MoU) with National Organic Chemicals Industries Limited (NOCIL) to
take over its Petrochemicals and Plastics Products Divisions.

2003

• Reliance announces Strategic Alliance with Bongaigaon Refinery &

Petrochemicals Ltd. (BRPL) to restart PSF manufacturing at BRPL.
• Reliance Infocomm acquires FLAG Telecom, a multinational telecom
company providing bandwidth through its undersea cable network
comprising of over 50,000 kms of undersea fiber optic cable that spans
four continents and connects the key regions of Asia, Europe, Middle
East and the USA.
• State-of-the-art Research and Technology Centre is inaugurated at
Reliance's Patalganga complex to develop differentiated polyester
products.
• Reliance strikes oil in an onshore block in Yemen, where it has an
equity oil position.
• Reliance's refinery at Jamnagar was ranked best in Shell Benchmarking
 for the third consecutive year in 'Energy and Loss' performance from
amongst 50 refineries worldwide.
• Reliance dedicates 23rd January as Shareholder's Day on the occasion of
25 years of the company going public - A story of Relationship and
Trust.
• BSES, one of the premier utility companies of the country, engaged in
the generation, transmission and distribution of electricity becomes part
of the Reliance Group and Mr. Anil D Ambani is appointed its
Chairman.

2002

• Reliance Infocomm to launch various telecom services on 28th

December - beginning with Gujarat, the Infocomm revolution will cover
thousands of villages and hundreds of cities across the country. Reliance
Infocomm will become a major catalyst for changing the face of India
and improving the quality of life of Indians.
• Reliance announced India's biggest gas discovery in nearly three
decades and one of the largest gas discoveries in the world during 2002.
The in place volume of natural gas is in excess of 7 trillion cubic feet,
equivalent to about 1.2 billion barrels of crude oil. This is the first ever
discovery by an Indian private sector company.
• Reliance acquired control of Indian Petrochemicals Corporation Limited
(IPCL) - India's second largest petrochemicals company.
• Reliance signed MOU with DuPont Polyester Technologies to license
the revolutionary resin technology NG-3 from DuPont. Reliance
announced its plan for the expansion of PET capacity by 220,000 tonnes
per year.
• The merger of Reliance Petroleum Limited with Reliance Industries
Limited was announced - largest ever merger in India - Reliance
Industries became the largest private sector company in India on all
major financial parameters including sales, profits, net worth, assets,
and exports.

2001

• Reliance Industries Ltd. and Reliance Petroleum Ltd. became India's

two largest companies in terms of all major financial parameters
 • Dhirubhai Ambani was conferred The Economic Times Award for
Corporate Excellence for Lifetime Achievement

1999-2000

• Jamnagar Petrochemicals complex and bulk of integrated refinery

complex commissioned comprising:
• World's largest grassroots refinery
• India's largest port with capacity of 50 million tpa
• World's largest PX Plant of 1.4 million tpa
• World's largest PP plant of 0.6 million tpa
• Captive power plant of over 300 MW
• World-class product handling, storage, and despatch facilities
• Reliance started commercial production of 27 million tpa refinery, the
5th largest in the world

1998

• Dhirubhai Ambani was awarded the Dean's Medal by the Wharton

School, University of Pennsylvania, USA, for setting an outstanding
example of leadership.
• Reliance completed phase-II expansion of Hazira Petrochemicals
Complex including world's largest multifeed cracker, PET plant, MEG
plant, PTA plant, PE plant

1996-1997

• First corporate in Asia to issue 50 and 100 years bond in US debt market
• Reliance became the first private sector company to be rated by
international credit rating agencies. S&P rated BB+, stable outlook,
constrained by the Sovereign Ceiling. Moody's rated Baa3, Investment
grade, constrained by the Sovereign Ceilings.
1995

• Net profit crossed the Rs 1,000 crore mark (Rs 1,065 crores or US$ 338
million), unparalleled in the Indian Private sector

1994

• Reliance offered the second Euro issue of GDR

1993

• Reliance Petroleum Limited public issue - India's largest public offering.

• Reliance pioneered the first ever Euro Convertible Bond issue by an
Indian company.

1992

• Reliance raised funds by pioneering foray into overseas capital markets

with first ever international GDR offering by an Indian corporate.
• Reliance commenced the production of High Density Polyethylene
(HDPE) at Hazira.

1991

• Reliance commissioned phase-I of Hazira Petrochemicals Complex -

consolidated its position in polyesters and entered into attractive
polymers business - started VCM and PVC plants.

1988

• Reliance started the PX plant at Patalganga

1987

• Reliance commenced the Linear Alkyl Benzene (LAB) plant at

Patalganga

1986

• Reliance started PTA plant at Patalganga.

 • Reliance commissioned Polyester Staple Fibre (PSF) plant at
Patalganga.

1985

• Reliance entered phase-II of the Polyester Filament Yarn (PFY) plant at

Patalganga.

1982

• Reliance launched phase-I of the Polyester Filament Yarn (PFY) plant at

Patalganga.

1977

• Reliance went public with IPO - Dhirubhai Ambani introduced equity

cult in India, a new model of business leadership from a base of the
broadest public shareholding.

EXECUTIVE SUMMARY
I,Nisha P Parmar student of NIS ACADEMY, Vadodara, have completed
summer training as a part of MBA programme of 6 weeks at RIL Vadodara.

I have completed my training at material (finance) department. My area of work

was on direct and indirect taxes .I undertook a unique, step-by-step
methodology for preparation of the report. Reference books, RIL internal portal,
website, and the data available at central stores really help me to make this
report valuable.

In this report first I have given the general information regarding the company.
It includes the history of company; its disinvestments, milestones, board of
directors, quality policy, financial position of the company, and the products. I
have also given the functional department of the company like Production
department, stores, finance department, etc.

In the second part, I have focused on my core project regarding the direct and
indirect taxes at RIL. In the end, the conclusion and the bibliography are given.
The report totally depends on the secondary data and it may be possible that the
data from which the report is made may not appear in the report because some
data is confidential for the company.

Nisha Parmar

DECLARATION

I,Nisha Parmar, hereby declare that the report on “Summer

Training” entitled “Direct and Indirect taxes” is a result of
my own work and my indebtedness to other work
publications, if any, have been duly acknowledged.

Place: Baroda

Date: 3/8/2010 Nisha Parmar

 Products & Brands

The Company expanded into textiles in 1975. Since its initial public offering in
1977, the Company has expanded rapidly and integrated backwards into other
industry sectors, most notably the production of petrochemicals and the refining
of crude oil.
The Company from time to time seeks to further diversify into other industries.
The Company now has operations that span from the exploration and
production of oil and gas to the manufacture of petroleum products, polyester
products, polyester intermediates, plastics, polymer intermediates, chemicals
and synthetic textiles and fabrics.
The Company's major products and brands, from oil and gas to textiles are
tightly integrated and benefit from synergies across the Company. Central to the
Company's operations is its vertical backward integration strategy; raw
materials such as PTA, MEG, ethylene, propylene and normal paraffin that were
previously imported at a higher cost and subject to import duties are now
sourced from within the Company. This has had a positive effect on the
Company's operating margins and interest costs and decreased the Company's
exposure to the cyclicality of markets and raw material prices. The Company
believes that this strategy is also important in maintaining a domestic market
leadership position in its major product lines and in providing a competitive
advantage.
The Company's operations can be classified into four segments namely:
• Petroleum Refining and Marketing business
• Petrochemicals business
• Oil and Gas Exploration & Production business
• Others
The Company has the largest refining capacity at any single location.
The Company is:
• Largest producer of Polyester Fibre and Yarn
• 4th largest producer of Paraxylene (PX)
• 5th largest producer of Polypropylene (PP)
• 7th largest producer of Purified Terephthalic Acid (PTA) and Mono
Ethylene Glycol (MEG)
PLANTS

The Vadodara Complex houses 21 plants on over nearly 500 hectares of land
and produces large variety of products consisting of Linear Alkyl Benzene,
Acrylic Fibers, Acrylic Esters, Ethylene Glycol, Polyvinyl chloride,
Polyethylene, polypropylene, Butadiene rubber, etc. The company's registered
office is located in Vadodara Complex and that was the first manufacturing
facility setup by the company.

NAME OF PLANTS CAPACITY (MT)

Naphtha cracker (ethylene) 130000
LDPE plant 110000
Ethylene glycol 20000
VCM plant 57300
PVC plant 60000
PPCP plant 25000
PP4 plant 75000
Acrylonitrite plant 30000
Acrylates plant 10000
Butadiene extraction plant 54000
Poly butadiene rubber plant -| 20000
Poly butadiene rubber plant - || 30000
 COMPANY LOGOS

The first logo, which consisted of a tetrahedron -

representing the molecular structure of the simplest organic chemical, methane -
in a circle.

This decision of the government, “Everything under one

roof” inspired the second logo of IPCL. IPCL took up the challenge of setting

up the entire integrated complex at Vadodara. IPCL, as a

corporate entity, is and what it shall strive to be. This symbol, or logo, reflects
what IPCL is a single matrix of the many; a diversity of activities and products,
emerging from one sourceand branching out in different directions, yet retaining
its unity and identity. The lines flow upwards and outwards from a common
base into infinity, reaching for unending growth, universal goodwill, general
prosperity and excellence in everything. The green colour used in the design
reinforces the theme - aspiration and growth, rooted in the earth and in harmony
with the other elements - water, light, air and space.

The government of India handled over management control to Reliance group

on June 4, 2002, since then the company is being managed by reliance.
 Organizational Hierarchy of Finance of RIL(VMD)

DEPARTMENTS UNDER FINANCE DEPARTMENT:

 Finance and Accounting- head

 MIS
 Material
 Costing
 Salary payments
 Budgeting

SWOT ANALYSIS OF RELIANCE INDUSTRIES LTD.

Strengths:
 Consolidation: The Indian petrochemicals industry has witnessed
consolidation over the last few years and nearly 85% of the polymer
capacity in the domestic market is with the top three participants
(Reliance, IPCL and Haldia Petrochemicals (HPL)). Of the three
companies mentioned, IPCL forms a part of the Reliance stable while
 GAIL is set to pick up stake in HPL. Such high concentration is likely to
benefit these players, as this would help reduce duplication of production.

 Synergies: Most of the petrochemical players have integrated facilities,

thereby reducing external dependence to a large extent. To put things in
perspective, Reliance Industries uses naphtha from its own Jamnagar
refinery as a feedstock for the petrochemicals production. IPCL uses
Reliance's vast and widespread marketing network to reach out to global
consumers. On the other hand, GAIL utilizes natural gas for its
petrochemicals capacity. Rich natural gas is evacuated into the pipelines
and after separation of the hydrocarbons such as ethane, propane and
butane, the lean gas is transmitted to consumers such as power and
fertilizer industry. Further, petrochemicals business being a high value
add, would add further to the profitability of these integrated companies.

Weaknesses:
 Low bargaining power vis-à-vis the suppliers: Input costs form nearly
50% to 60% of the raw material costs. Further, gas prices are regulated
but in short supply, while naphtha is an expensive source of feedstock.
Refineries realize the import parity prices on naphtha produced and in
case of high feedstock prices, petrochemical players have little bargaining
power against the suppliers. These players are therefore vulnerable to raw
material prices.

 Low Bargaining power vis-à-vis customers: In case of increase in input

costs, the companies might not be able to pass on the rise to the
consumers as the prices of products is highly influenced by factors such
as international prices and supply.
Opportunities:
 Low per capita consumption: Currently, domestic per capita polymer
consumption is nearly 4 kgs while the global average is nearly 20 kgs.
This underlines the fact that there is immense scope of capacity
expansion in the country as the market to be tapped is huge. Further,
spending on R&D activities is around 2% of sales as compared to an
international average of 18%. This leaves enough room for product
development. Also, currently, India has a chemicals trade deficit of about
US$ 1.5 bn a year, which leaves enough investment opportunities in the
industry.
  Increased economic activity:The government has set aside nearly Rs
400 bn for infrastructure projects such as roadways, airports and
convention centers and also towards rural housing augur well for the
petrochemicals industry as this is likely to increase demand for various
products (high density polyethylene, low density polyethylene among
others) for the purpose of road development, packaging, cables and
wiring. Also sustained growth in the auto sector is likely to keep the
demand for petrochemical products high. As per our estimates, the auto
sector is likely to grow at nearly 12% over the next few years.
Threats:
 Customs duties: Historically, the domestic industry has been protected
from overseas competition by high import duties imposed by the
government. However, of late, Import duty on polymers has been steadily
reduced and is currently at 20%. As part of its commitment to various
multilateral and bilateral trade agreements, the government is likely to
reduce duties going forward and this is likely to reduce the cushion
enjoyed by the domestic players as against the landed cost of imported
products.

 Growing competition: The domestic industry is likely to witness

immense competition going forward with IOC all set to enter the segment
with its Rs 64 bn project in FY06. Further, ONGC is also venturing into
petrochemicals business. With commitments to reduce and eliminate
tariff and non-tariff barriers, India, with huge market potential, might
witness entry of global majors such as ExxonMobil, Dow Chemicals and
Shell into the business. These global majors with deep pockets can
actually lead into a pricing war, which could result in squeezing margins.

The above analysis is just to provide a view of the sector and by no way
advocates any opportunities to invest in the petrochemicals sector. Taking a cue
from their global counterparts, Indian majors such as IOC and ONGC are
entering into this value add business in a huge way and this is likely to change
the entire business dynamics of the companies, not only in India but Asia as
Asia is fast becoming the largest petrochemicals manufacturing hub. Going
forward, investors need to be aware of this reality and make informed
investment decisions in the energy sector.
TDS
 &
TCS

What is TDS?
TDS is Tax Deducted At Source.
When an employee is drawing a salary of Rs. 1,50,000, his employer is liable
to deduct TDS (read Income Tax) on his salary part above Rs. 1,50,000 once the
employee claims all his/her savings done through LIC, Insurance schemes, PPF,
Children School Fees, EPF, House Loans etc.

At the end of the year, the employer issue TDS Certificate in the form 16A
which employee submit with the Income Tax Return to the Income Tax
department while filing ITR.
Assesses pays tax in the assessment year on income earned in previous year.
Due to this rule the tax collection is delayed till the completion of the previous
year. Even sometimes people conceal their income and the tax is not paid at all.
In order to overcome these problems, government started to deduct some
amount of tax from the amount which is receivable by the assessee. The amount
of tax so deducted is called as "Tax Deducted At Source" or TDS in India.

AdvanceTax In some cases, the assessee is required to make a payment of

advance tax. Such taxes paid in advance are called prepaid taxes.

Tax deduction is mainly done to reduce ones taxable income. In a way tax
deductions can reduce the taxable income and thus provide tax relief.

Tax deducted in this manner needs to be deposited in the Government treasury

and assigned to the Central Government, within a stipulated time period. Indian
Government is adhering to the policy of TDS to broaden its tax bracket in the
country. Income gained through several sources falls under the tax deduction at
source or TDS scheme. Some of such income that is subjected
• Salary.
• Interest.
• Rental fee.
• Interest on Securities.
• Insurance commission.
• Dividends from shares and UTI/Mutual Funds.
• Commission and brokerage.
• Prize money won from lotteries, horse races, etc.
• Payments to non-resident sportsmen or sports associations.
 • Commission on sale of lottery tickets.
• Fees for professional and technical services and the like.
• Compensation for compulsory acquisition.
• Income from units of an offshore fund.
• Income from foreign currency bonds or shares of Indian Companies
(unless specified as tax-free).

TDS rates for Financial Year 2010-11

Tax
Male Female Senior Citizen
(%)

For Income Between 0 For Income Between 0 For Income Between 0

to 1,60,000 to 1,90,000 to 2,40,000 0

For Income Between For Income Between For Income Between 10

1,60,001 to 5,00,000 1,90,001 to 5,00,000 2,40,001 to 5,00,000

For Income Between For Income Between For Income Between 20

5,00,001 to 8,00,000 5,00,001 to 8,00,000 5,00,001 to 8,00,000

For Income above For Income above For Income above 30

8,00,001 8,00,001 8,00,001

Surcharge 0
Education Cess 3

For Example:--
If salary of an employee is 20,000 p.m. then 1,60,000 will be exempted from tax
and his remaining salary i.e. 80,000 will be taxable.

2,40,000
- 1,60,000
80,000

➢ TDS should be paid in 7th of the next month,

➢ If TDS is paid after 7th then interest will be charged,
➢ TDS certificate is issued to employee on quarterly basis,
➢ TDS is deducted either,
➢ At the time of payment or
➢ At the time of credit {whichever is earlier}
How to record journal entry for TDS on salary on quarterly basis?
 Particular L De Credit
f bit
Dat (Rs)
e n (Rs
o )
1 Salary A/C. . . .. 30,
Dr 000
To TDS A/C 5,000

To salary payable A/C 25,000

(Due entry)

2 TDS A/C…. 5,0

Dr 00
Salary payable A/C…. 25,
Dr 000
To Bank A/C 30,000

(Payment entry)
What is TCS?
TCS is tax collected at source. When company sells its scrap then it collects tax
from vendor it is TCS.

For Example
If company sells its scrap worth Rs 1oo and if TCS is 1% then company will
collect Rs101 from vendor,
100 (Sale)
+ 1 (TCS)
101 (collected from vendor)
 TCS is not collected on all scrap it depends on different products.
e-Payment

Income Tax Department

Tax Applicable*(Tax Deducted/Collected At Source From)

Challan No./
(0020)COMPANY (0021)NON- ITNS
DEDUCTEES COMPANY DEDUCTEES
281

Tax Deduction Assessment Assessment Year

Account No* Year*

Full Name*

Name of
Flat/Door/BlockNo. premises/Building/
Village

Road/Street/Lane Area/Locality

State
City/District* State*

Pin Code *

Email ID

Mobile No.

Type Of Payment*
 (400)TDS/TCS Regular
(200)TDS/TCS Payable by Taxpayer
Assessment (Raised by I.T. Deptt.)

Nature
Of 1 9 3 - In te r e s t o n S e c u r itie s

Payme
nt*

Bank Name
Bank Name*
SERVICE TAX
What is service tax?

➢ The scheme of the taxation in India for long concentrated only taxation of
goods whether it was excise duty or customs duty.
➢ Only marginally the states used to levy some cess / surcharge etc. on
water or electricity.
➢ But the union government was constrained in the nineties to look for
scope for taxation of service as the requirements of revenue for meeting
various expenditure of the government.
➢ Services are necessary adjunct to any distribution of goods primarily.
Even otherwise there are many services which have no link with the
manufacture / distribution of goods.
➢ But services have a positive nexus with the growth and development the
economy.
➢ Roughly over 50% of the contribution to GDP in India comes from the
service sector.
➢ The Tax Reforms Committees recommended for the first time tax on
services primarily as a measure of broadening the base of indirect taxes.
➢ Even the expert group on Taxation of services constituted by the
Government of India recommended that there should be a revenue
generating tax reform & service sector was stated to be the engine if
economic growth in number of growing economics.
List of the services:-

Sl. no. Nature of services Effective date

1. Stock broker 1-7-1994
2. Telephone connection 1-7-1994
3. General insurance 1-7-1994
4. Paging service 1-11-1996
5. Advertising agency 1-11-1996
6. Courier service 1-11-1996
7. Consulting engineers 7-7-1997
8. Customs house agents 15-6-1997
9. Steamer agent 15-6-1997
10. Clearing and forwarding including consignment 16-7-1997
agent
11. Manpower recruitment agency 7-7-1997
12. Air travel agency 1-7-1997
13. Mandap keeper 1-7-1997
14. Tour operator 1-9-1997
15 Rent-a-cub operator 16-7-1997
16 Architects 16-10-1998
17 Interior decorators 16-10-1998
18 Management consultants 16-10-1998
19 Practicing chartered accountants 16-10-1998
20 Practicing cost accountants 16-10-1998
21 Practicing company secretaries 16-10-1998
22 Real estate agents/ real estate consultants 16-10-1998
23 Credit rating agencies 16-10-1998
24 Private security agencies 16-10-1998
25 Market research agencies 16-10-1998
26 Underwriting agencies 16-10-1998
27 Photography services 16-7-2001
28 Convention services 16-7-2001
29 Scientific and technical consultancy services 16-7-2001
30 Consulting services 16-7-2001
31 On-line information and data-based access 16-7-2001
32 Insurance auxiliary service 16-7-2001
33 Authorized service stations of motor car 16-7-2001
34 Broadcasting services 16-7-2001
35 Sound recording 16-7-2001
36 Leased circuit 16-7-2001
37 Port services 16-7-2001
38 Telex services 16-7-2001
39 Facsimile services 16-7-2001
40 Video tape production agency 16-7-2001
41 Telegraph services 16-7-2001
42 Banking and other financial services 16-7-2001
43 Beauty parlors relating to beauty treatment 16-8-2002
44 Cable operators 16-8-2002
45 Cargo handling excluding service provided in 16-8-2002
relation to export cargo and passenger baggage
46 Storage and warehouse 16-8-2002
47 Event management 16-8-2002
48 Fashion designing 16-8-2002
49 Rail travel agent 16-8-2002
50 Dry cleaning service 16-8-2002
51 Life insurance including insurance auxiliary 16-8-2002
services relating thereto
52 Banking and financial service provided by a body 16-8-2002
corporate other than a banking company,
including non-baking financial services
53 Commercial training or coaching services 1-7-2003
54 Technical testing and analysis and technical 1-7-2003
inspection and certification
55 Commissioning and installation service 1-7-2003
56 Maintenance and repair services 1-7-2003
57 Business auxiliary services 1-7-2003
58 Internet cafes 1-7-2003
59 Franchise services 1-7-2003
60 Repair if light motor vehicles by authorized 1-7-2003
service stations
61 Forex brokers 1-7-2003
62 Business exhibition service 10-9-2004
63 Airport services 10-9-2004
64 Goods transport agency 10-9-2004
65 Transport of goods by air 10-9-2004
66 Survey and exploration of mineral 10-9-2004
67 Opinion poll services 10-9-2004
68 Intellectual property services other than copy right 10-9-2004
69 Forward contract services 10-9-2004
70 Pandal or shamiana service 10-9-2004
71 Outdoor catering services 10-9-2004
72 TV and radio program production 10-9-2004
73 Construction, repair, alteration or similar services 10-9-2004
in respect of commercial building and civil
 structure
74 Travel agents 10-9-2004
75 Transport of goods through pipeline or other 16-6-2005
conduit
76 Site preparation and clearance, excavation, earth 16-6-2005
moving and demolition services
77 Dredging services of rivers, ports, harbors and 16-6-2005
backwater
78 Survey and map making other than by 16-6-2005
government
79 Cleaning services other than in relation to 16-6-2005
agriculture
80 Membership of clubs or association 16-6-2005
81 Packing services 16-6-2005
82 Mailing list compilation and mailing 16-6-2005
83 Construction of residential complexes having 16-6-2005
more than 12 residential houses
84 Registrar to an issue 1-5-2006
85 Share transfer agent 1-5-2006
86 Automated teller machine operations or 1-5-2006
management
87 Recovery agent 1-5-2006
88 Sale of space or time for advertisement, other than 1-5-2006
in print media
89 Sponsorship services provided to any body 1-5-2006
corporate
90 Transport of passengers embarking on 1-5-2006
international journey by air other than in economy
class
91 Transport of goods on containers by rail provided 1-5-2006
by any person other than government
92 Business support services 1-5-2006
93 Auctioneer’s services other than in relation to 1-5-2006
auction of property under direction of a court of
law
94 Public relation service 1-5-2006
95 Ship management services 1-5-2006
96 Internet telephony services 1-5-2006
97 Transport of persons by cruise ship 1-5-2006
98 Credit card, debit card or other card related 1-5-2006
services
99 Services in relation to the execution of woks 1-6-2007
contracts
100 Renting of immovable property for use in the 1-6-2007
 course of business
101 Services in relation to the execution of works 1-6-2007
contracts
102 Development and supply of content service for 1-6-2007
use of telecom service providers
103 Asset management including portfolio 1-6-2007
management and all forms of fund management
104 Design services 1-6-2007
105 Telecommunication services 1-6-2007
106 Services provided in relation to information 16-5-2008
technology software for use in business
107 Services provided in relation to management of 16-5-2008
investment under VLIP scheme
108 Services provided by recognized stock exchange 16-5-2008
in relation to securities
109 Services provide by commodity exchanges in 16-5-2008
relation to sale or purchase of any goods
110 Services provided by a processing and clearing 16-5-2008
house in relation to securities / goods / forward
contracts
111 Services provided in relation to supply of tangible 16-5-2008
goods without transferring right of possession and
effective control of goods
112 Internet telecommunication services 16-5-2008
113 Transport of good through rail 1-9-2009
114 Transport of coastal goods, gods transported 1-9-2009
through inland water / national waterways
115 Legal consultancy services 1-9-2009
116 Cosmetic and plastic surgery services 1-9-2009

REGISTRATION
 Single Service Multiple Service

One Premise Multiple Service One Premises Multiple

Service

Centralized Independent Single Multiple Centralized

Independent
A/C & A/C & Brand Brands A/C & A/C
&
Billing Billing Name Names Billing
Billing

Single Centralized Independent Single Multiple Centralized

Independent
Reg. Reg. Reg. Reg. Reg. Reg. Reg.

PROCEDURE FOR REGSTRATION OF SERVICE TAX:-

1. FORM: the application should be submitted in form no ST-1.

2. TIME LIMIT: WITHIN THE 30 DAYS FROM THE DATE ON

WHICH-
 a. service tax is levied, or
b. Business is commenced, whichever is later.

1. SUBMISSION: the application should be submitted to the Superintendent

of Central Excise or such other person notified by the Central Government
having jurisdiction over the place of business of the service provider.

2. DOCUMENT TO BE ENCLOSED:

GENERAL CENRALISED
REGISTRATION
a) Proof of address. a) Residential address of the
b) Copy of Permanent proprietors / partners.
Account Number (PAN) b) Name and address of the
card or PAN allotment “authorized signatory”
letter. c) Address and telephone nos.
c) Articles of association and of the premises / office
memorandum of association where centralized
(for companies). accounting / billing is being
d) Copy of partnership deed carried out.
(for partnership firms). d) Proof of address of the
e) In case of professionals like premises / office sought to
CA’s, CS, etc. who are be centrally registered.
members of professional e) PAN / TAN No. of the
institutes and have been assesses.
granted certificate of f) Whether the application is
practice, a copy of such on the basis of Centralized
certificate may also be billing or centralized
attached. accounting system.
f) Extract of board resolution g) List of taxable services /
authorizing any of the services to be rendered.
directors / employees of the h) List of branches, offices or
company to sign, deal and premises of the assesses
comply with service tax along with postal addresses,
provisions. e-mail addresses and
telephone numbers.
i) Information whether
recoveries are affected
through credit / debit notes.
j) previous year’s audited
balance sheet, if any
k) Reasons for seeking
centralized registration.
 1. Certificate Of Registration:
a) The Jurisdictional Superintendent of Central Excise, after due
verification of the application, will issue the certificate of registration
in FORM ST-2 within 7 days from the date of receipt of the
application.
b) If the registration certificate is not granted within 7 days, the
registration applied shall be deemed to have been granted. [Rules
4(5)].
c) Where the application for registration submitted by the assesses
contains more than one taxable service, the Certificate of registration
shall also indicate details of all taxable services provided by him.

 What is service tax code number:-

1. SCT is a 15 digit alpha numerical code obtained by the service provider

on an application made to Jurisdictional Superintendent of the central
excise.
2. It is a combination of Permanent Account number (PAN) + alpha code
(ST) + Numeric code Example: AABCC5588K-ST-001.
3. SCT code will be allotted within 3 working days from the date of
application in the prescribed format by the Assistant Commissioner /
Deputy Commissioner.
4. It is mandatory to quote the STC number on all documents relating to
service tax.
5. In respect of e-filling of service tax returns, STC is referred to as STP
code without which e-filling is not possible.
Checklist for validation of vendor service tax invoice:-

Sr. Particular
No.
1 Pre printed / computer generated / typed serial No. and date. Invoice
serial number should not contain any alpha-prefix/alpha-suffix, e.g. 113-
A, 1134-A/1. It should be purely numerical.
2 Name, address and the registration no. of the service provider
3 The name and address of the person/company receiving taxable service.
4 Description and category of taxable service provided.
5 Value of taxable service provided, with abatements applicable, if any,
with relevant notification No. and date / declaration, for the same.
6 Rate of the service tax and amount payable.
7 Rate of Education cess / SHE cess & amounts payable [ should be shown
separately]
8 Bill should be raised from the office of the service provider for which
service tax registration is obtained.
9 Corrections in the bill / invoice / challan, if any, should be made neatly
under the signature of a person who has signed the invoice. Use of
correction fluid is not permitted.
10 Location / plant where service is rendered need to be indicated.
11 Copy of existing service tax registration certificate of the service provider
must be on our record. (and fresh copy of registration to be demanded in
case of addition of a new service category)
12 It is noticed that many service providers are raising bills claiming
abatement for the rate of service tax. claim of abatement warrants certain
declaration in the service provider’s invoice stating that specified credit
have not been availed by them,
13 Invoice need to be original copy on Letter Head of service provider if
invoices are not pre-printed. Invoice on plain paper is not a valid
document.
14 Period of service to be mentioned in the invoice. It should be a month of
from to date or quarterly, half yearly, yearly, as the case may be.

Journal entries of service tax (Example)

Sr. Particular Debi Cred
no. t it
(Rs. (Rs.)
)

1 When the service received:-

Professional service 100

a/c…………………………………………………………………. Dr. 100
To Provision for liabilities for service
a/c………………………………..

2. Provision for liabilities for service 100

a/c……………………………………………. Dr. 90
To vendor 10
a/c………………………………………………………………………
…
To TDS
a/c………………………………………………………………………
………

3 Service tax receivable 10

a/c………………………………………………………….... Dr. .2
Education cess receivable .1
a/c……………………………………………………... Dr. 9.27
Secondary and higher secondary education cess 1.03
receivable a/c……. Dr.
To vendor
a/c………………………………………………………………………
……
To TDS liabilities a/c (10%)
………………………………………………………..

4 Vendor 99.2
a/c……………………………………………………………………… 7 99.2
……..……… Dr. 7
To bank
a/c………………………………………………………………………
………

5 TDS liabilities 1.03

a/c……………………………………………………………………… 1.03
……. Dr.
To bank
a/c………………………………………………………………………
………….
Excise Duty
CENTRAL EXCISE DUTY-1944

INTRODUCTION

An excise or excise tax (sometimes called an excise duty) is a type of tax

Charged on goods produced within the country (as opposed to customs
Duties charged on goods from outside the country). It is a tax on the
Manufacture of excisable good.
Typical examples of excise duties are taxes on tobacco, alcohol and
Gasoline.
Definition
The New Oxford English Dictionary says the same thing: "a tax levied on
Certain goods and commodities produced or sold within a country
And on licenses granted for certain activities
APPLICABILITY OF EXCISE DUTY
As per section 3 of Central Excise Act (CEA) excise duty is levied if: -

✔ If There is a good,
1. Goods must be moveable
2. Goods are marketable
3. Goods are mentioned in the central excise tariff act (CETA).

✔ Goods are manufactured in India. Therefore we can say that excise duty
is not levied on:

1) Services such as doctors treating the patients, accountants preparing

The accounts, in these cases service tax are levied.

2) Immovable goods such as roads, bridges and buildings.

3) Non-Marketable goods, i.e., goods for which no market exists, e.g.

Melted iron ore at 1600 degree Celsius.

4) Goods that are not mentioned in CETA; and

5) Goods manufactured or produced out of India. If production or

Manufacture is in special economic zone then no excise duty is levied
VALUE ADDED
TAX
(VAT)
 Introduction
 CENVAT" means Central Value Added Tax. Earlier it was known as
MODVAT. CENVAT is introduced to remove the cascading effect

 As the stages of production and sales continue, each subsequent

purchaser has to pay tax again and again on the duty paid material. By
this process cost of product goes on increasing until it reaches to the
ultimate consumer.

 By this scheme, manufacturer, 1st stage dealer, 2nd stage dealer can take
the credit commonly called as CENVAT Credit on "duty paid" on raw
material or the eligible inputs for the payment of duty on final products.
For this purpose Government has prescribed CENVAT Credit Rules,
2002

 W.e.f. 10.9.2004 New CENVAT Credit Rules, 2004 has been introduced
vide which has superseded CENVAT Credit Rules, 2002.

 This new cenvat credit rules,2004 has introduced inter sectoral credit
scheme.

➢ Conditions for allowing CENVAT credit.-

✔ The CENVAT credit in respect of inputs may be taken immediately on
receipt of the inputs in the factory of the manufacturer:

✔ 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 per cent. of the duty paid on such capital
goods in the same financial year.

✔ The balance of CENVAT credit may be taken in any financial year

subsequent to the financial year in which the capital goods were received
in the factory of the manufacturer, if the capital goods, other than
components, spares and accessories, refractories and refractory materials
and goods falling under heading No. 68.02 and sub-heading No. 6801.10
of the 1ST Schedule to the Tariff Act, are in the possession and use of the
manufacturer of final products in such subsequent years.

Illustration. - A manufacturer received machinery on April 16,

2001 in his factory. CENVAT of two lakhs rupees is paid on this
machinery. The manufacturer can take credit up to a maximum of
one lakhs rupees in the financial year 2001-2002, and the balance in
subsequent years.

✔ The CENVAT credit in respect of the capital goods shall be allowed to a

manufacturer even if the capital goods are acquired by him on lease, hire
purchase or loan agreement, from a financing company.

✔ The CENVAT credit in respect of capital goods shall not be allowed in

respect of that part of the value of capital goods which represents the
amount of duty on such capital goods, which the manufacturer claims as
depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961).
 Restriction on Credit

✔ Capital Goods- Upto 50% Cenvat amount is to be availed in Current

financial year.

✔ Balance 50% credit to be availed in next financial Year.

✔ Capital Goods acquired in Office premises is not eligible for credit.

✔ Capital Goods are used exclusively for exempted product not eligible for
credit.

✔ The Cenvat Credit can be allowed only to the extent II stage dealer and
not beyond that.

✔ Material Send for the job work must be received within 180 days or
required to pay duty.

✔ Direct delivery of inputs to sub contractor - credit allowed only after

receipt of material.

➢ Documents and accounts.-

The CENVAT credit shall be taken by the manufacturer on the basis of any
of the following documents, namely.

An invoice
 A manufacturer for clearance

Inputs or capital goods from his factory or from his depot or from
the premises of the consignment agent of the said manufacturer or
from any other premises from where the goods are sold by or on
behalf of the said manufacturer.

Inputs or capital goods as such.

An importer.

An importer from his depot or from the premises of the

consignment agent of the said importer if the said depot or the
premises, as the case may be, is registered in terms of the
provisions of Central Excise (No. 2) Rules, 2001.

A bill of entry.

The manufacturer or producer taking CENVAT credit on inputs or

capital goods shall take all reasonable steps to ensure that the inputs or
capital goods in respect of which he has taken the CENVAT credit are
goods on which the appropriate duty of excise as indicated in the
documents accompanying the goods, has been paid.

✔ On the strength of a certificate given by a person with whose handwriting

or signature he is familiar; or

✔ On the strength of a certificate issued to the manufacturer or the supplier,

as the case may be, by the Superintendent of Central Excise within
whose jurisdiction such manufafactory or the supplier has his place of
business,
✔ And where the identity and address of the manufacturer or the supplier is
satisfied on the strength of a certificate, the manufacturer or producer
taking CENVAT credit shall retain such certificate for production before
the proper officer on demand.

Journal entries of excise duty

SR. PARITICUARS DEBIT CREDIT
NO

1. Inventory 100
a/c………………………………………………………… 100
…….. Dr.
To provision for liabilities for material
a/c……………..

2 Provision of liabilities for material 100

a/c…………………………… Dr. 100
To vendor
a/c…………………………………………………………
3. Assume excise duty is 8 %
(for inputs)
RG 23A input receivable 8
a/c……………………………………………. Dr. .16
RG 23A Edu. cess receivable .08
a/c……………………………………… Dr. 8.24
RG 23A SHE cess receivable
a/c………………………………………. Dr.
To vendor a/c 4
.08
(for capital goods) .04
RG 23C capital goods receivable 4.12
a/c……………………………… Dr. 8.24
RG 23C Edu. cess receivable
a/c…………………………………….. Dr.
RG 23C SHE cess receivable
a/c……………………………………. Dr.
Capital credit receivable
a/c………………………………………….. Dr.
To vendor a/c

4. Vendor a/c 108.24

…………………………………………………………… 108.24
………. Dr.
To bank
a/c…………………………………………………………
……
Utilization of credit on discharge of liabilities

Sr Particular Debit Credit

no.
1 CenVAT payable (basic) 20.00
CenVAT Edu cess payable a/c 00.04
CenVAt SHE cess payable a/c 00.02
To Service tax receivable a/c 10.00
To Education cess receivable a/c 00.20
To Sec. and higher sec. edu. cess 00.10
receivable a/c 08.00
To RG 23A input receivable a/c 00.16
To RG 23A Edu. cess receivable a/c 00.08
To RG 23A SHE cess receivable a/c 02.06
To Bank / cash a/c
MERITS OF EXCISE DUTY
Central excise revenue is the biggest single source of revenue for the
Government of India. The Union Government tries to achieve different socio-
economic objectives by making suitable adjustments in the scope and quantum
of levy of Central Excise duty. The scheme of Central Excise Levy is suitably
adapted and modified to serve different purposes of price Control, sufficient
supply of essential commodities, industrial growth, and Promotion of small
scale industries and like Authority for collecting the Central Excise duty.

Article 265 of the Constitution of India has laid down that both levy and
Collection of taxes shall be under the authority of law. The excise duty is levied
in pursuance of Entry 45 of the Central List in Government of India Act, 1935
as adopted by entry 84 of List I of the seventh Schedule of the Constitution of
India. Charging section is Section 3 of the Central Excises and Salt Act, 1944.
Limitations of the excise duty

Critics of excise tax - such as Samuel Johnson, above - have interpreted

And described excise duty as simply a government's way of levying further and
unnecessary taxation on the population. The presence of "refunds of duty" under
the UK's list of excisable activities has been used to support this argument, as it
results in taxation being implemented on persons even where they would
normally be exempt from paying other types of taxes – hence why they are
getting the refund in the first place.

INVENTORY MANAGEMENT
“Inventory is a very expensive asset that can be replaced with a less expensive
asset called ‘information’. In order to do this, the information must be timely,
accurate, reliable, and consistent. When this happens, you carry less
inventory, reduce cost and get products to customers faster.”

-J. David Viale

RIL vadodara complex is the only unit in whole Asia, which is having 22 plants
in a single complex. RIL has various department like finance, marketing, human
resource, material procurement, research and development and safety and
security etc.

My focus of study is on finance (material) department. We all know that

material is required for the any organization and it cost about the 60% to 70% of
the total cost of the organization. The basic work of material management is to
procure the material to the required department and to maintain the stock. The
materials that are purchased are both indigenous and imported. The inventory
can be classified in to various categories.

• Raw material, chemical and catalysts.

• Fuel and lubricants.
• Instrumentation items.
• Mechanical consumables.
• Safety and fire items.
• Steel and cement.
• Packaging items.
• Scrap.

Classification of inventory
Inventory can be classified in to different types
 ➢ Raw material
➢ Work in progress
➢ Finished goods
➢ Scrap
➢ Spares
➢ Tools
➢ Consumables.
Techniques of inventory management

1. ABC analysis
2. VED analysis
3. FSN analysis
4. JIT
5. MRP
6. MRP – II

1. ABC analysis

ABC in ABC analysis stands for Always Better Control that is the control
should be there on the more costly items to less costly items.
The inventory whose cost is round about 70% of the total cost of inventory
are regarded as type A, while inventory with 20% to 25% of total cost are
known as type B and 5% to 10% cost is of type C. imported items and costly
items are included in A type. For RIL they are doing the ABC analysis every
six months and get the information.

2. VED analysis

VED means Vital Essential Desirable, by it name only it tell how it manages
the inventory. The items that is vital for the production process without
which the whole plant can be shutdown. So these types of items are known
as Vital, they can be chemicals, catalysts and spares equipments. While the
essential types of item are those, which are needed for, the production
process but they will not create the shutdown of the plant. And Desirable
items are those which is also required but that can be stocked or can be
purchased whenever required.
3. FSN analysis

FSN stands for Fast moving, Slow moving, Non-moving inventory, it states
the movement of the inventory, if any inventory is been not used for more
than 5 years then it is included in non – moving inventory, the inventory
which are been used within the year are known as fast moving inventory, and
the inventory which is not used for 0 – 4 years are included as slow moving
inventory.

4. Just In Time

Just in time is also known as JIT, this type of purchasing will avoid the
overstocking. In JIT the inventory is purchased only when it is required, this
type of inventory management is used for only those inventories, which are
easily and at a time available. So that the shutdown may not arise due to its
shortage. In RIL only seals are purchased under the JIT, and all other
inventory are been stocked.

5. MRP

MRP stands for Materials Requirement Planning; this is time-phased priority

planning system. This is the tool that helps the management to forecast the
proper amount of production and on that basis purchase planning of
inventory is made.

It takes into account the valid master production planning

Materials required for the production process.
 Accurate and timely inventory status.
Order policy
Lead time for purchasing and production process.

➢ It also comprises of following steps

1. Gross requirement of inventory.

2. On hand inventory.
3. Residual open orders.
4. Plan new orders.

Benefits of MRP

➢ Reduction inventory
➢ Quick response in demand and supply

RIL does not follow the MRP technique

1. MRP – II

MRP – II stands for Manufacturing Resources Planning, it provides the

necessary tools for effective planning controlling and managing the
resources of manufacturing organization.
It helps in various stages like resources, planning, business plan, and
production plan. It also helps in providing information to plan priorities and
respond the production changes, meet delivery schedule and material costs
under control.
 Benefits of MRP – II

➢ Optimizes the inventory investment

➢ Improves productivity
➢ Improves product quality
➢ Reduce purchase cost
➢ Reduce obsolescence

ABC ANALYSIS

PARTICULARS AMT (IN CRORE)

ITEM A 157.5
ITEM B 45
ITEM C 22.5
TOAL 225.0
 ABC Analysis

200
157.5
Rs. in crores

150

100
50 45
22.5
0
ITEM A ITEM B ITEM C

ITEM A ITEM B ITEM C

Mechanical Catalyst
126.0 24.7 Electrical 12.73
Items Chemicals
Lubes
Inst. Items 26.05 and .89
Grease
Other and Packing
32.67 1.89
Consumer Material

CONCLUSION
 ABC in ABC analysis stands for Always Better Control that is the control
should be there on the more costly items to less costly items.
The inventory whose cost is round about 70% of the total cost of inventory
are regarded as type A, while inventory with 20% to 25% of total cost are
known as type B and 5% to 10% cost is of type C. imported items and costly
items are included in A type. For RIL they are doing the ABC analysis every
six months and get the information. The above chart shows the value &
category of item according to their classification.

FSN ANALYSIS

PARTICULARS AMT IN CRORE.

MOVING MATERIAL 159.75
NON-MOVING MATERIAL 065.25
TOTAL 225.00

Above chart mention that out of total non-moving stock near about 29% of the
total stock.
BASIS OF DECIDING FSN
The general practice to decide the block of material at RIL is
Fast Moving: 2-4 years
Slow moving: 4-6 years
Non-moving: More than 8 year

DISTRIBUTION OF NON MOVING MATERIAL

NON-MOVING INVENT. Rs. IN

ITEMS
CRORE
FUEL & LUBRICANT 00.82
ADM/SAFTY 03.28
RM/CHE/CAT. 01.60
ELECTRIC STORES 01.43
PACKAGING 05.4
INSTRUMENTS 01.99
MECH. CONSUME 50.7
STEEL/CEMENT 00.03
TOTAL 65.25

From the above chart we can conclude that a large share of 79% of mechanical
consume remains in non moving material. This is a fairly large amount. Non-moving
material is having I ideal time of maximum of 17 to 20 years.
PERCENTAGE PROVISION OF NON-MOING MATERIAL

ITEMS PROVISIONS PERCENTAGE

FUEL & LUBRICANT 0.12%
ADM/SAFTY 11.63%
RM/CHE/CAT. 00.14%
ELECTRIC STORES 40.39%
PACKAGING 00.00%
INSTUMENTATION 21.51%
MECH.CONSUME 27.95%
STEEL/CEMENT 06.85%

On the above chart we see that company can able to write off 40% value of
electrical stores and 28% value of mechanical stores, but company can not write
off any value of packaging stores. Very important matter is that purchase value
of RM/CHE/CAT is very high but company writes off its value only 0.143% it
is very low compare to other materials. There for company should take certain
steps against RM/CHE/CAT stores.

Because of the non moving nature of items mentioned in previous chart it is

mandatory to create provisions as above.
 (Rs in crore)

Provision %
% Amt in
Amt in of
Components Proportion Rupees
Rupees Provision
Fuel and 00.12
1.28 00.82 .000984
Lubrication
ADM /Safety 5.05 03.28 .381464 11.63
RM/ CHE/ CAT 2.47 01.60 .0024 00.14
Electric stores 2.20 01.43 .5775 40.39
Packaging 8.09 05.40 .00 00.00
Instrumentation 3.05 01.99 .4280 21.51
Mechanical 27.95
77.81 50.70 14.17
Consume
Steel/ Cement 0.05 00.03 .002055 06.85
.S
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OBSOLETE ITEMS : Progress & Status

 ➢ Total 17660 Non- moving items (less than 4 years) ( valuation Rs 33.38
crores) got categorized as “Obsolete & Surplus.

➢ Out of 17660 Non moving items,

 10672 items (rs. 8.6 cr.) not moved since last 17 yrs.
 4379 items (rs. 5.3 cr.) not mved since last 11 to 16 yrs.
 1624 items (rs. 7 cr.) not moved since 7-10 yrs.
 704 items (rs. 4.3 cr.) not moved since last 5-6 yrs.
 rest < 5 years.

➢ Majority of the above items are the purchased ones and awaiting usage
and they are not plant returns or sub store returns.

➢ 17660 obsolete items: of rs. 33.38 cr. consists,

– Rotating equpts, and their spares worth rs. 11. cr.
– stationery equipments and their pares worth rs 7.8 cr.
– extruder, gears, sub-assemblies and spare worth rs. 5. cr.
– valves spares worth rs. 3 cr.
– Instruments and instimation spares worth rs. 2.8 cr
– Electrical items include cables worth rs 1. cr
– refractories (rs 48 lacs), W/S M/c and spares (rs. 30 lacs.)
– Gaskets (rs 10 lacs), Mec-seals (10 lacs) etc.

It can be concluded that majority of the items are not of the project- surplus
nature ( Pipe, Pipe fittings, structural and valves. etc

COMPARISON OF INVENTORY FLOW METHODS

PARTICULARS WAM FIFO LIFO
Goods Available for sale 5 Barrels 2200 2200 2200
Less: Ending Inventory 2 Barrels 880 950 800
Cost of Goods Sold 1320 1250 1400
Sales were: 2100 (700 × 3)
 WAM FIFO LIFO
Sales 2100 2100 2100
Less: Cost of Goods sold 1320 1250 1400
Gross Profit 780 850 700

WHICH METHOD WOULD YOU CHOOSE

• Life gives the lowest gross profit, therefore the lowest ta on profit.
• In General when the purchase price of inventory is going down, choose
FIFO.
• When the purchase price of inventory is going up, choose LIFO.
• When if goes up and down, choose weighted average.

INVENTORY RELATED RATIO

In respect of Sales

Inventory turnover ratio

Inventory turnover

10 8.07 7.9 7.77

8 6.22 6.77
ratio

6
4
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2005-06 2006-07 2006-07 2008-09 2009-10
Years

The inventory turn over ratio shows how much the inventory with compare to
sales. From the chart we can say that the company has decrease its inventory
compared to past years.
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The material cost component shows the Material cost with respect to earning.
From the last past five-year trend, we can see that the cost of material is
fluctuating. But this year the material cost is quite high if we see the last five-
year data.

.
 Net working capital to sales

10 8.41
8 6.88 6.53
5.39
6 4.48
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2005-06 2006-07 2006-07 2008-09 2009-10
Years

This ratio indicates the proportion of working capital in total sales. The lower
the ratio better for the company. From the past trend it shows that company has
tried to decrease the inventory and due to this the overall working capital is
decrease with respect to total sales.

Avg receivable Period

25 21.21
20 15.3 15.59 15.94 16.77
15
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2005-06 2006-07 2006-07 2008-09 2009-10
Years
 Inventory Conversion ratio(days)

40 33.01 34.09 34.08

30 26.08 23.45
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2005-06 2006-07 2006-07 2008-09 2009-10
Years

Inventory conversion periods indicate the time in which the money invested in
inventory convert into cash. In 2006 the company has lowest conversion cycle,
which indicates the good operating cycle.
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Operating cycle start with the material purchases and ends with the money
received after sales. The company has a fast operating cycle it completes in 4
months at maximum, which is considered good in such industries.
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Cash conversion cycle starts with purchase of raw material and end with the
receipt of cash after sales. The negative figure shows that company avail more
credit than the credit given to their supplier.
FINDING AND RECOMMENDATION
From the study of various functional department like Production, Finance, HR
and Purchase and stores department, we come to know that the company is
having latest technology and highly educated employees are adding the value of
Indian chemical industries. It can be considered that RIL is using backward
integration strategy .
RIL is using best technology for the production and increasing the GDP of India
by producing standard quality of products. The quality of products is up to the
mark as per ISO standards.
RIL is giving tremendous HR activities to the employees. Employees are getting
top class facilities like Medical, LTC, RLTE, Canteen facilities, Transport
services, children education assistance etc. Company has adapted ‘Six sigma’ to
improve quality in every aspect.
Finance department is working on continuous basis and it is highly facilitated
with SAP as its operating system. Here entries are continuously made as per the
merger has proved to he boon for RIL, it is indicative thought the lifetime high
turnover of Rs.1061 crore. There are other six sister concern which are merged.
Thus it is apparent that company is performing very well.
RECOMMENDATION
• The company should complete the pending inventory clean up exercise
and merge useful inventory in SAP as early as possible.
• It should takeover all pending sub- stores items (only useful one’s) and
eliminate sub-stores practices.
• The company communize and merge more and more items across all
sites.
• The company should crystallize bare minimum stock control items lists
and clamp on strict MRP levels to work with phased deliveries and
ARC’s (Annual Rate Contracts.).
• The company should developed and inculcate an Inventory efficient
culture in the complex
• Out of total inventory 28% working as non-moving, it is not to high but
company should reduce this level, it will help for increase profit margin
of company.
• In non moving materials, purchase value of RM/CHE/CAT store is near
about RS. 122.87 crore. It is 44% of total purchase value so it is very
high than other, company should take some steps for reduction of stock
with proper method of inventory.Company wrote provision in the balance
sheet for the non moving materials as depreciation fund. Company could
write off 40% value of electrical store, 28% of mechanical store and 21%
of instrumentation store. But for other material company could not write
off their value even more than 2% or 3% of their purchase value in these
17 years and for packaging Materials Company could not

• write off its any value. Therefore company should take some steps for
provision for the other than electrical stores.
• Company calculated Rs. 55.81crore for the provision during last 17 years;
it means company mention Rs.3.28 crore every year as provision. From
that provision company could benefited in tax saving.
• From the provision company could save near about 1.62 crore rupees
every year therefore company should also payable more 0.08 as EPS.
• Company should try to remove non moving materials because of without
non moving materials company should increase its inventory tern over
ratio 1 time from 4.63 to 5.56 times in the year. It will helpful for the
company to increase profitability of company.
 • If there is no any types of non moving material in company, inventory
holding period also decrease from 78.81 to 65.60 days. It will also benefit
for the company to increase efficiency of the operating cycle.
• Without non moving materials operating cycle makes also faster by 13
days and it will put very good position to the company
• Company has taken care to include Six Sigma in each and every
department but in inventory there is approximately 10% of non
moving inventory, we can reduce this to save at least 300 crore of non
moving inventory, it is suggested to reduce this to 5% to save at least
200 to 250 crore approximately.
• It is tough to have six sigma in weights that’s why it is nearly
impossible to have six sigma in this area.

BIBLOGRAPHY

Web-Sites

1. www.ipcl.co.in
2. www.ril.co.in
3. www.moneycontrol.com
 Books:-

1. Annul Report of RIL

2. Secondary data from RIL