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1.

INTRODUCTION
Government has to play an important role in all round development of society in the modern era.
It has not only to perform its traditional functions (defence, maintenance of law and order) but
also to undertake welfare and development activities such as health, education, sanitation, rural
development, water supply etc. It has also to pay for its own administration. All these functions
require huge public finance. Taxes constitute the main source of public finance whereby
government raises revenue for public spending. A tax may be defined as a "pecuniary burden laid
upon individuals or property owners to support the government, a payment exacted by legislative
authority. A tax "is not a voluntary payment or donation, but an enforced contribution, exacted
pursuant to legislative authority".
India has a well developed taxation structure. The tax system in India is mainly a three tier
system which is based between the Central, State Governments and the local government
organizations. In most cases, these local bodies include the local councils and the municipalities.
The authority to levy a tax is derived from the Constitution of India which allocates the power to
levy various taxes between the Centre and the State. An important restriction on this power is
Article 265 of the Constitution which states that "No tax shall be levied or collected except by
the authority of law". Therefore, each tax levied or collected has to be backed by an
accompanying law, passed either by the Parliament or the State Legislature.
Further, Article 246 (SEVENTH SCHEDULE) of the Constitution, distributes legislative powers
including taxation, between the Parliament and the State Legislature. Schedule VII enumerates
these subject matters with the use of three lists;
List - I entailing the areas on which only the parliament is competent to makes laws,
List - II entailing the areas on which only the state legislature can make laws, and
List - III listing the areas on which both the Parliament and the State Legislature can make laws
upon concurrently.
Separate heads of taxation are provided under lists I and II of Seventh Schedule of Indian
Constitution. There is no head of taxation in the Concurrent List (Union and the States have no
concurrent power of taxation). Any tax levied by the government which is not backed by law or
is beyond the powers of the legislating authority may be struck down as unconstitutional. The
thirteen heads List-I of Seventh Schedule of Constitution of India covered under Union taxation,
on which Parliament enacts the taxation law, are as under:

Taxes on income other than agricultural income;


Duties of customs including export duties;
Duties of excise on tobacco and other goods manufactured or produced in India except (i)
alcoholic liquor for human consumption, and (ii) opium, Indian hemp and other narcotic

drugs and narcotics, but including medicinal and toilet preparations containing alcohol or
any substance included in (ii);
Corporation Tax;
Taxes on capital value of assets, exclusive of agricultural land, of individuals and
companies, taxes on capital of companies;
Estate duty in respect of property other than agricultural land;
Duties in respect of succession to property other than agricultural land;
Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway
fares and freight;
Taxes other than stamp duties on transactions in stock exchanges and futures markets;
Taxes on the sale or purchase of newspapers and on advertisements published therein;
Taxes on sale or purchase of goods other than newspapers, where such sale or purchase
takes place in the course of inter-State trade or commerce;
Taxes on the consignment of goods in the course of inter-State trade or commerce.
All residuary types of taxes not listed in any of the three lists of Seventh Schedule of
Indian Constitution.

Taxes have been broadly categorized into direct and indirect taxes. "Direct taxes" include those
taxes which are paid by the person on whom these are levied like income tax, wealth tax etc. On
the other hand, "indirect taxes" are levied on one person, but paid by another e.g. sales tax,
excise duty, custom duty etc.
The indirect tax in India constitutes a group of tax laws and regulations. The indirect taxes in
India are enforced upon different activities including manufacturing, trading and imports.
Indirect taxes influence all the business lines in India. Charge levied by the State on
consumption, expenditure, privilege, or right but not on income or property. The indirect tax
system in India has undergone extensive reforms for more than two decades. One of the most
important reasons for recent tax reforms in many developing and transitional economies has been
to evolve a tax system to meet the requirements of international competition.
In general, the Indirect Tax in India is a complex system of interconnecting laws and regulations,
which includes specific laws of different states. For this there are many reliable organizations in
India, which employs efficient Indirect Tax professionals to help their clients. These tax
professionals with their in-depth knowledge and wide-ranging experience offers effective
planning methods to their clients in order to help in their cost minimization. The Indirect
Taxation regime encompasses various types of taxes like Sales Tax, Service Tax, Custom and
Excise Duties, VAT and Anti-Dumping Duties, and the organizations provide services in all these
related fields.
In the recent years, the Indian government has undertaken significant reform of indirect taxation
system. This includes the initiation of a region-based and state-level VAT on goods. However, it
should be noted that as taxes still forms a barrier to inter-state trading in order to obtain a secured

market for the activities related to services and goods more reform is needed. Some of the
reforms that can be introduced for a better indirect taxation system in India are

The serialized set of Indirect Taxes so far activated at the central and state levels should
be amalgamated and treated as a single tax.
The integrated Indirect Tax should be neutral at all levels such that chances of
fraudulence would be minimized.
The Central Sales Tax, which obstructs easy trading between different states, is being
under the process of termination that would help to abolish the control measures on the
inter-state trade.