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 manufactureand distribute synthetic organic chemicals, plastics, fibre andfibre intermediates from petroleum feedstock. It is thecountry's first petrochemical complex in the pubic sector. Thecorporation was converted into a public limited company on 21st

March, 1986.

2000

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

- Indian Petrochemicals Corporation Ltd (IPCL) has entered intoa long term agreement with Oil and Natural Gas Corporation(ONGC) Ltd for the supply of nearly 5,70,000 tonnes per year offeedstock for its 4,00,000 tonne ethylene cracker at Nagothane.

- IPCL has been awarded excellent performance certificate' bythe Ministry of Heavy Industries and Public Enterprises forachieveing competitive targets for the year 2000-2001.

- Operations at State-run Indian Petrochemicals CorporationLtd.'s plant in Baroda were partly affected after a minor firebroke out near one of its units. A minor fire broke out in anelectrical sub-station near the Vinyl Chloride Monomer plant on20th of November.

2001

- Indian Petrochemical Corporation Ltd. said it will sell itsVadodara plant to Indian oil Corporation by next month.

- Indian Petrochemicals Corporation has signed memorandum ofunderstanding with the Government of India, department ofchemicals and petrochemicals for fiscal 2001-02.

- Indian Petrochemical Corporation has registered a 70 per centincrease in export turnover in fiscal 2000-01. The exportturnover was Rs 291 crore against Rs 171 crore in the previousfiscal. The combined capacity utilisation of all operatingplants of IPCL located at Baroda, Gandhar and Nagothane was over98 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 amajor force in the petro industry.

-IPCL appoints Manjula Subramaniam as part time official directorto the board.

-GOI to divest 26% equity in IPCL to the strategic partner bymarch-02.

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

-IPCL redeemed FCCB of US 6m, which is one of the highestredemption in US dollars at a stroke for any foreign currency issueby an indian corporate.

- ONGC refuses to supply gas to IPCL as per existing contact afterits sell-off.

2003

-Net profit of the company increased by 90% due to the cut ininterest cost.

-IPCL sacks 167 employees at Vadodara plant.

-Company has registered 18% growth in the production in its firstyearunder Reliance group.

-Company announced one time Voluntary Retirement Schemeto all its employees on medical ground, which cost thecompany over Rs.150cr.

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

2005

- Shri Anil D Ambani has January 03, 2005, addressed a letter to ShriMukesh D Ambani, Chairman of the Company, tendering his resignation as

Vice Chairman and Director of the Company with a request to accept hisresignation.

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. AmbaniChairman & Managing

Director

Shri Nikhil R. Meswani

Executive Director

Shri Hital R. MeswaniExecutive Director

Shri PMS PrasadExecutive Director

Shri P.K.Kapil Executive Director

Shri Ramniklal H. Ambani

Shri Mansingh L. Bhakta

Shri Yogendra P. Trivedi

Dr. D. V. Kapur Shri M. P. Modi

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

D.L. PandyaV.P.

P.F & SALARYDipak Srivastava

G.M.

Ms. KalyaniManager

CVPC GroupAmar Petiwala

G.M

Kushal ParekhManager

Chitra Shah

Manager

Cash Section A.K. Rastogi

G.M.

TaxationS.B. ShahAssi. V.P

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

Male Female Senior CitizenTax (%)

 For Income Between 0 to 1,60,000

 For Income Between 0 to 1,90,000

 For Income Between 0 to 2,40,000 0

 For Income Between 1,60,001 to 5,00,000

 For Income Between 1,90,001 to 5,00,000

 For Income Between 2,40,001 to 5,00,000

10

 For Income Between 5,00,001 to 8,00,000

 For Income Between 5,00,001 to 8,00,000

 For Income Between 5,00,001 to 8,00,000

20

 For Income above 8,00,001

 For Income above 8,00,001

 For Income above 8,00,001

30

     

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?

DateParticular Lf

noDebit(Rs)

Credit(Rs)

1 Salary A/C. . . .. Dr 30,000

To TDS A/C 5,000

To salary payable A/C 25,000

(Due entry)

2 TDS A/C…. Dr 5,000

Salary payable A/C…. Dr 25,000

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-PaymentIncome Tax DepartmentTax Applicable*(Tax Deducted/Collected At Source From) Challan No./

ITNS

(0020)COMPANY DEDUCTEES

(0021)NON-COMPANY DEDUCTEES

 281

Tax Deduction Account No*

Assessment Year*

Full Name*    

Flat/Door/BlockNo.

Name of premises/Building/ Village

Road/Street/Lane Area/Locality

City/District* State*

Pin Code *  

Email ID

Mobile No.  

Type Of Payment*

(200)TDS/TCS Payable by Taxpayer (400)TDS/TCS Regular

Assessment (Raised by I.T. Deptt.)

Nature Of Payment*

Bank Name*

Assessment Year

State

193 - Interest on Securities

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 date1. Stock broker 1-7-19942. Telephone connection 1-7-19943. General insurance 1-7-19944. Paging service 1-11-19965. Advertising agency 1-11-19966. Courier service 1-11-19967. Consulting engineers 7-7-19978. Customs house agents 15-6-1997

9. Steamer agent 15-6-199710. Clearing and forwarding including consignment

agent16-7-1997

11. Manpower recruitment agency 7-7-199712. Air travel agency 1-7-199713. Mandap keeper 1-7-199714. Tour operator 1-9-199715 Rent-a-cub operator 16-7-199716 Architects 16-10-199817 Interior decorators 16-10-199818 Management consultants 16-10-199819 Practicing chartered accountants 16-10-199820 Practicing cost accountants 16-10-199821 Practicing company secretaries 16-10-199822 Real estate agents/ real estate consultants 16-10-199823 Credit rating agencies 16-10-199824 Private security agencies 16-10-199825 Market research agencies 16-10-199826 Underwriting agencies 16-10-199827 Photography services 16-7-200128 Convention services 16-7-200129 Scientific and technical consultancy services 16-7-200130 Consulting services 16-7-200131 On-line information and data-based access 16-7-200132 Insurance auxiliary service 16-7-200133 Authorized service stations of motor car 16-7-200134 Broadcasting services 16-7-200135 Sound recording 16-7-200136 Leased circuit 16-7-200137 Port services 16-7-200138 Telex services 16-7-200139 Facsimile services 16-7-200140 Video tape production agency 16-7-200141 Telegraph services 16-7-200142 Banking and other financial services 16-7-200143 Beauty parlors relating to beauty treatment 16-8-200244 Cable operators 16-8-200245 Cargo handling excluding service provided in

relation to export cargo and passenger baggage16-8-2002

46 Storage and warehouse 16-8-200247 Event management 16-8-200248 Fashion designing 16-8-2002

49 Rail travel agent 16-8-200250 Dry cleaning service 16-8-200251 Life insurance including insurance auxiliary

services relating thereto16-8-2002

52 Banking and financial service provided by a body corporate other than a banking company, including non-baking financial services

16-8-2002

53 Commercial training or coaching services 1-7-200354 Technical testing and analysis and technical

inspection and certification1-7-2003

55 Commissioning and installation service 1-7-200356 Maintenance and repair services 1-7-200357 Business auxiliary services 1-7-200358 Internet cafes 1-7-200359 Franchise services 1-7-200360 Repair if light motor vehicles by authorized

service stations1-7-2003

61 Forex brokers 1-7-200362 Business exhibition service 10-9-200463 Airport services 10-9-200464 Goods transport agency 10-9-200465 Transport of goods by air 10-9-200466 Survey and exploration of mineral 10-9-200467 Opinion poll services 10-9-200468 Intellectual property services other than copy right 10-9-200469 Forward contract services 10-9-200470 Pandal or shamiana service 10-9-200471 Outdoor catering services 10-9-200472 TV and radio program production 10-9-200473 Construction, repair, alteration or similar services

in respect of commercial building and civil structure

10-9-2004

74 Travel agents 10-9-200475 Transport of goods through pipeline or other

conduit16-6-2005

76 Site preparation and clearance, excavation, earth moving and demolition services

16-6-2005

77 Dredging services of rivers, ports, harbors and backwater

16-6-2005

78 Survey and map making other than by government

16-6-2005

79 Cleaning services other than in relation to 16-6-2005

agriculture80 Membership of clubs or association 16-6-200581 Packing services 16-6-200582 Mailing list compilation and mailing 16-6-200583 Construction of residential complexes having

more than 12 residential houses 16-6-2005

84 Registrar to an issue 1-5-200685 Share transfer agent 1-5-200686 Automated teller machine operations or

management 1-5-2006

87 Recovery agent 1-5-200688 Sale of space or time for advertisement, other than

in print media1-5-2006

89 Sponsorship services provided to any body corporate

1-5-2006

90 Transport of passengers embarking on international journey by air other than in economy class

1-5-2006

91 Transport of goods on containers by rail provided by any person other than government

1-5-2006

92 Business support services 1-5-200693 Auctioneer’s services other than in relation to

auction of property under direction of a court of law

1-5-2006

94 Public relation service 1-5-200695 Ship management services 1-5-200696 Internet telephony services 1-5-200697 Transport of persons by cruise ship 1-5-200698 Credit card, debit card or other card related

services1-5-2006

99 Services in relation to the execution of woks contracts

1-6-2007

100 Renting of immovable property for use in the course of business

1-6-2007

101 Services in relation to the execution of works contracts

1-6-2007

102 Development and supply of content service for use of telecom service providers

1-6-2007

103 Asset management including portfolio management and all forms of fund management

1-6-2007

104 Design services 1-6-2007105 Telecommunication services 1-6-2007

106 Services provided in relation to information technology software for use in business

16-5-2008

107 Services provided in relation to management of investment under VLIP scheme

16-5-2008

108 Services provided by recognized stock exchange in relation to securities

16-5-2008

109 Services provide by commodity exchanges in relation to sale or purchase of any goods

16-5-2008

110 Services provided by a processing and clearing house in relation to securities / goods / forward contracts

16-5-2008

111 Services provided in relation to supply of tangible goods without transferring right of possession and effective control of goods

16-5-2008

112 Internet telecommunication services 16-5-2008113 Transport of good through rail 1-9-2009114 Transport of coastal goods, gods transported

through inland water / national waterways1-9-2009

115 Legal consultancy services 1-9-2009116 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 CentralizedIndependent

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, orb. Business is commenced, whichever is later.

3. 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.

4. DOCUMENT TO BE ENCLOSED:

GENERAL CENRALISED REGISTRATION

a) Proof of address.b) Copy of Permanent

Account Number (PAN) card or PAN allotment letter.

c) Articles of association and memorandum of association (for companies).

d) Copy of partnership deed (for partnership firms).

e) In case of professionals like CA’s, CS, etc. who are members of professional institutes and have been granted certificate of practice, a copy of such certificate may also be attached.

f) Extract of board resolution authorizing any of the directors / employees of the company to sign, deal and comply with service tax provisions.

a) Residential address of the proprietors / partners.

b) Name and address of the “authorized signatory”

c) Address and telephone nos. of the premises / office where centralized accounting / billing is being carried out.

d) Proof of address of the premises / office sought to be centrally registered.

e) PAN / TAN No. of the assesses.

f) Whether the application is on the basis of Centralized billing or centralized accounting system.

g) List of taxable services / services to be rendered.

h) List of branches, offices or premises of the assesses along with postal addresses, 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.

5. 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. No.

Particular

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 provider3 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. no. Particular Debit (Rs.)

Credit(Rs.)

1 When the service received:-

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

100100

2. Provision for liabilities for service a/c……………………………………………. Dr. To vendor a/c………………………………………………………………………… To TDS a/c………………………………………………………………………………

1009010

3 Service tax receivable a/c………………………………………………………….... Dr.Education cess receivable a/c……………………………………………………... Dr.Secondary and higher secondary education cess receivable a/c……. Dr. To vendor a/c…………………………………………………………………………… To TDS liabilities a/c (10%)………………………………………………………..

10.2.1

9.271.03

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

99.2799.27

5 TDS liabilities a/c……………………………………………………………………………. Dr. To bank a/c………………………………………………………………………………….

1.031.03

Excise Duty

CENTRAL EXCISE DUTY-1944

INTRODUCTION

An excise or excise tax (sometimes called an excise duty) is a type of taxCharged on goods produced within the country (as opposed to customsDuties charged on goods from outside the country). It is a tax on theManufacture 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 onCertain goods and commodities produced or sold within a countryAnd on licenses granted for certain activities

APPLICABILITY OF EXCISE DUTYAs per section 3 of Central Excise Act (CEA) excise duty is levied if: -

If There is a good,1. Goods must be moveable2. Goods are marketable3. 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 preparingThe 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 orManufacture 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. NO

PARITICUARS DEBIT CREDIT

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

100100

2 Provision of liabilities for material a/c…………………………… Dr. To vendor a/c…………………………………………………………

100100

3. Assume excise duty is 8 % (for inputs)RG 23A input receivable a/c……………………………………………. Dr.RG 23A Edu. cess receivable a/c……………………………………… Dr.RG 23A SHE cess receivable a/c………………………………………. Dr. To vendor a/c

(for capital goods)RG 23C capital goods receivable a/c……………………………… Dr.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

8.16.08

4.08.044.12

8.24

8.24

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

108.24108.24

Utilization of credit on discharge of liabilities

Sr no.

Particular Debit Credit

1 CenVAT payable (basic)CenVAT Edu cess payable a/cCenVAt SHE cess payable a/c To Service tax receivable a/c To Education cess receivable a/c To Sec. and higher sec. edu. cess receivable a/c To RG 23A input receivable a/c To RG 23A Edu. cess receivable a/c To RG 23A SHE cess receivable a/c To Bank / cash a/c

20.0000.0400.02

10.0000.2000.1008.0000.1600.0802.06

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 interpretedAnd 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 analysis2. VED analysis3. FSN analysis4. JIT5. MRP6. 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

6. 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

70%

20%10%

ABC ANALYSIS

ITEM A ITEM B ITEM C

ABC Analysis

157.5

4522.5

0

50

100

150

200

ITEM A ITEM B ITEM C

Rs.

in

cro

res

ITEM A ITEM B ITEM C

Mechanical Items

126.0Catalyst Chemicals

24.7 Electrical 12.73

Inst. Items 26.05Lubes and Grease

.89

Other and Consumer

32.67Packing Material

1.89

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

71%

29%

FSN ANALYSIS

MOVING MATERIAL NON-MOVING MATERIAL

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

ITEMSNON-MOVING INVENT. Rs. IN 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

1%5% 2%

2%

8%

3%

78%

0%

NON-MOVING INVENTORY

FUEL& LUBRICANT ADM/SAFTY RM/CHE./CAT.

ELECTRIC STORES PACKAGING INSTUMENTATION

MECH.CONSUME STEEL/CEMENT

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.

0%

11%

0%

37%

20%

26% 6%

PROVISIONS

FUEL& LUBRICANT ADM/SAFTY RM/CHE./CAT. ELECTRIC STORES

PACKAGING INSTUMENTATION MECH.CONSUME STEEL/CEMENT

Because of the non moving nature of items mentioned in previous chart it is mandatory to create provisions as above.

(Rs in crore)

//

0

5

10

15

20

25

30

35

40

45

Amt in Rupees

Non moving itemsAmt in Rupees Provision

Fuel and Lubrication ADM /Safety RM/ CHE/ CAT Electric stores

Packaging Instrumentation Mechanical Consume Steel/ Cement

.

Components

%

Proportion

Amt in Rupees

Provision

Amt in Rupees

%

of Provision

Fuel and Lubrication

1.28 00.82 .00098400.12

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 Consume

77.81 50.70 14.1727.95

Steel/ Cement 0.05 00.03 .002055 06.85

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 LIFOGoods Available for sale 5 Barrels 2200 2200 2200Less: Ending Inventory 2 Barrels 880 950 800Cost of Goods Sold 1320 1250 1400Sales were: 2100 (700 3)

WAM FIFO LIFOSales 2100 2100 2100Less: Cost of Goods sold 1320 1250 1400Gross 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

Material Cost component

63.53 64.74 61.3879.8 69.89

020406080

100

2005-06

2006-07

2006-07

2008-09

2009-10

Years

Material Costcomponent

\

Inventory turnover ratio

6.228.07 7.9 7.77

6.77

02468

10

2005-06 2006-07 2006-07 2008-09 2009-10

Years

Inven

tory

tu

rno

ver

rati

o

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.

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

4.485.39

8.416.88 6.53

02468

10

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

21.21

15.3 15.59 15.94 16.77

05

10152025

2005-06 2006-07 2006-07 2008-09 2009-10

Years

Inventory Conversion ratio(days)

26.0833.01 34.09 34.08

23.45

0

10

20

30

40

2005-06 2006-07 2006-07 2008-09 2009-10

Years

C

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.

Operating Cycle

118.22103.4

92.23105.87

58.17 62.4

0

20

40

60

80

100

120

140

2002 2003 2004 2005 2006 2007

Year

no.in Days

Operating Cycle

Cash Conversion Cycle

-25.27

19

-96.68

-13.26-27.83

-129.09-150

-100

-50

0

50

2002 2003 2004 2005 2006 2007

Year

Day

s

Cash Conversion Cycle

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.

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