Indirect Tax

The Ministry of Finance (Department of Revenue) through the Central Board of Excise and Customs (CBEC), an apex indirect tax authority, implements and administers excise (central excise), customs and service tax laws. Circulars, notifications and clarifications issued by the CBEC supplement these indirect tax laws. Issues involving interpretation of tax laws are decided by the judiciary, which is independent of the legislature.

Value Added Tax / Sales Tax

India does not have a classic Value Added Tax (VAT) structure. Instead, separate tax on sale of goods and on rendering of services is imposed under different legislations. Sale and purchase of goods is subjected to charge of sales tax. Sales tax is levied under Central and State Sales Tax legislations depending upon the movement of goods in pursuance of a sale transaction. If the transaction involves movement of goods from one state to another (inter-state), the tax is levied under Central Sales Tax Act (CSTA), 1956. This Act also covers transactions of import of goods into or export of goods out of India. Sales tax is not imposed on import of goods into the country or export of goods out of the country. The Central Sales Tax (CST) Act is administered by the state governments and the tax is levied at the origination of transaction (origin based levy). The revenue collected under Central Sales Tax Act is retained by the state governments. The rates of tax under Central Sales Tax Act vary from state to state and product to product. The standard rate of CST is 4 per cent or the lower rate applicable in the state of seller if the purchaser is purchasing the same for resale or for use in manufacture of goods for sale or for specified purposes and both the seller and buyer are registered dealers. Otherwise, the rate is higher of 10 per cent or the rate applicable in the state of sale. The transactions of sales or purchases involving movement of goods within a state (intra-state) are governed by respective State Sales Tax Acts. States also levy tax on transactions which are "deemed sales" like works contracts and leases. A works contract essentially is a contract for carrying out work involving supply of labor and material where the property in the materials passes during the course of execution of the contract. Lease is a transaction involving transfer of right to use goods. From 1 April 2005, 21 states of India have replaced local sales tax with VAT. The rest of the states are still continuing to impose sales tax. The VAT, as introduced by 21 states, is not much different from local sales tax regime except that it captures value addition at each level of distribution network. The State VAT, as introduced by the states, continues to be a tax on sale of goods and does not include taxation of services. The standard rate of VAT is 12.5 per cent and there is reduced rate of 4 per cent. Besides that, there are exemptions and rate of 1 per cent and 20 percent for specified products. In addition to sales tax, some states also levy additional tax / surcharge, turnover tax or entry tax.

Sales tax / state VAT is payable by the seller to the government. Ordinarily, sales tax / state VAT is recovered from the buyer as a part of consideration for sale of goods.

VAT Audit
VAT legislation requires a VAT audit certificate/report issued by a chartered accountant in a prescribed format. The format for each state is different, but generally has the same requirements. The due date for signing the VAT audit report/certificate varies from state to state and ranges between the months of September and December. Generally, VAT audit is applicable to all dealers who are liable to pay VAT provided their turnover of either sale or purchase exceeds a specified limit. Further, VAT audit is also mandatory for specified categories of dealers, as prescribed by state legislation.

Custom Excise
Customs duties are levied on import of goods into India at the rates specified in the Customs Tariff Act, 1975. The effective rates of customs duties may vary pursuant to general and / or specific exemption or concession notifications issued by the government in this regard. Custom excise duty in India currently comprise the following:
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Basic Customs Duty (BCD) - Current general peak rate is 15 per cent. Countervailing Duty (CVD) - This duty is equivalent to central excise duty leviable on a like product manufactured in India. Current rate applicable to majority of the industrial products is 16 per cent plus 2 per cent education cess, taking the effective rate to 16.32 per cent. This duty is calculated on the value of product + basic customs duty. Additional Duty of Customs (ADC) - This duty is levied to countervail the sales tax, value-added tax, local taxes and other charges leviable on the like goods on their sale or purchase or transportation in India. Presently, this duty is levied at 4 per cent on certain items viz items bound under the Information Technology (IT) Agreement and on specified inputs / raw materials for manufacture of electronic / IT goods. This duty is levied on value of product +basic customs duty + countervailing duty. Education Cess - This cess is levied at 2 per cent on the amount of BCD +CVD. In addition, government also levies anti-dumping and safeguard duties on specified products for specified periods. "Value" for the purpose of levy of customs duty is "transaction value" in the course of international trade in arm's length unrelated party transaction. Import-Export Policy Import of goods into and export from India is regulated by the Foreign Trade Policy (the Policy) issued from time to time by Government of India. The Policy remains in force for five years and is amended from time to time. The Policy currently in force is for tax year 2004-09. Majority of goods are now freely importable.

Central Excise Duty (CENVAT)

Central Excise Duty (CENVAT) is levied on goods manufactured and produced in India. It is levied under the authority of the Central Excise Act, 1944 at the rates prescribed in the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985 as amended by Central Excise Tariff (Amendment) Act, 2004. In addition, education cess at 2 per cent on excise duty amount is levied by Finance (No. 2) Act, 2004. The effective rates may be lower pursuant to general /specific notifications issued by the government granting whole or partial exemption from duty. The duty, in most cases, is levied on the basis of value of the excisable goods. Value, for this purpose, with effect from 1 July 2000 is the "transaction value" which is: For delivery at the time and place of removal; Where buyer is not a related person; and Price is the sole consideration. CENVAT is payable by the manufacturer but is, ordinarily, recovered from the buyer as a part of consideration for sale of goods. To reduce the cascading effect of CENVAT, a scheme known as MODVAT was introduced in 1986, which has now been renamed as CENVAT (effective 1 April, 2000). Under the CENVAT Scheme, a manufacturer can avail of the credit of the central excise duties or additional duties of customs (i.e. CVD) paid on specified inputs and capital goods used in the manufacture of excisable goods and also service tax paid on eligible input services and utilize it in discharging central excise duty on finished excisable goods.

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Service Tax
It is an indirect tax. Service tax is a tax on services provided .The provisions of service tax are contained in chapter V of the Finance Act, 1994 and administered by the Central Excise Department. The word Service is not defined in Finance Act, 1994.

Applicability of Service Tax:

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The Act extends to whole of India except the state of Jammu and Kashmir. Service tax not applicable on Export of services, subject to Conditions given in Export of service rules, 2005. Illustration : Mr. J of Jammu and Kashmir is providing advertisement service in the state of Jammu and Kashmir as well as in other parts of India. Service tax is not applicable for services rendered in the state of Jammu and Kashmir. However, he is liable to pay service tax on those services which are rendered outside the state of Jammu and Kashmir. Service tax liability is based on the place where the service has been rendered, but not the place from which the service is provided.

Statutes Governing The Levy Of Service Tax :

The following are the sources provide provisions relating to service tax. Service tax is governed by

y y y y y y

Finance Act, 1994. Rules Notifications Circulars/ Office letters Orders Trade notices

Various Rules in force 1. 2. 3. 4. 5. 6. 7. 8. Service tax Rules (1994). Service tax (Advance rulings) Rules 2003. CENVAT Credit Rules (2004) Export of Service Rules, 2005. Service tax (registration of special category of persons) Rules, 2005. Service tax (Determination of Value) Rules 2006. Taxation of services (provided from outside India and received in India) Rules 2006 Works contract (Composition scheme for payment of Service Tax) Rules 2007 Rules are supplementary to carry out the provisions of the Act. Rules can never override the Act and cannot be in conflict with the same.

Rate of Service Tax :

At present, the effective rate of Service tax is 10.30 %. The above rate comprises of Service tax @ 10 % on Gross Value of taxable service. Education cess [EC] @ 2 % on service tax amount. Secondary and Higher Education cess [SHE] @ 1 % on service tax amount.

Taxable Service :
The Act provides the list of services to which the Act applies in section 65 (105) of the Act. At present there are 119 services covered under the service tax net.

Taxable Value :
Valuation under service tax is only with reference to the valuation rules namely Service Tax (Determination of Value) Rules, 2006.

Tax Liability :
One major change made in service tax effective from 01-04-2011 is the introduction of Point of Taxation Rules, 2011 to (a) introduce the provisions relating to payment of service tax on accrual basis instead of receipt basis and (b) to specify date relevant for determining rate of service tax. So far the provision was that service tax was payable on receipt basis i.e. on receipt of payment of the invoice or bill from the customer or receipt of advance, whichever is earlier. Now w.e.f. 01-042011, service tax will be payable on billing basis and not on receipt of payment basis i.e. on accrual

basis and not cash basis (option has been granted to assessee to continue payment on receipt basis upto 30-06-2011, if they so desire.

Point of taxation at a glance S.No. Scenario Normal Situation (not covered under rule 4 to 9) Relevant Rule First event Subsequent event Completion of service or receipt of payment Issue invoice within 14 days Invoice not issued within 14 days Invoice or completion of service Point of Taxation Time of invoice

3(a)

Issue of invoice

3(a)

Completion of service

Time of Invoice

Proviso to 3(a) 3(b) and explanation to rule 3 Taxable Service provided before change in effective rate of service tax

Completion of service Receipt of payment or advance Invoice issued and payment received after the change in effective rate Invoice issued prior to change in effective rate Payment received before change in effective rate of tax

Date of completion of service Time of receipt of payment Date of receipt of payment or date of issuance of invoice, whichever is earlier

4(a)(i)

N.A.

4(a)(ii)

Payment received after change in effective rate of tax Invoice issued after change in effective rate of tax

Date of issue of invoice

4(a)(iii)

Date of receipt of payment

Taxable Service provided after change in effective rate of service tax

4(b)(i)

Invoice issued prior to change in effective rate Invoice issued and payment received prior to change in effective rate Payment received before change in effective rate of tax

Payment received after change in effective rate of tax

Date of receipt of payment

4(b)(ii)

Taxable Service provided

Date of receipt of payment or date of issuance of invoice, whichever is earlier

10

4(b)(iii)

Invoice issued after change in effective rate

Date of issuing of Invoice

11

New service brought under tax net

5(a)

N.A.

No Service tax payable No Service tax is payable

12

5(b)

Payment received before service became taxable

Issue invoice within 14 days of provision of service Invoice within 14 days and payment received after tax became effective Completion of service or receipt of advance payment Invoice

13

3(a)

Service provided before tax became effective

No service tax is payable

14

15

Continuous supply of service (applicable separately to each event

6(a)

Issue of Invoice

Time of Invoice

6(a)

Completion

Time of

as specified in contract)

of service

issued within 14 days Invoice not issued within 14 days Invoice or completion of service Payment received within the period specified by RBI Payment not received within the period specified by the RBI Payment made to service provider in advance or within six months of date of invoice or service provider Payment not made to service provider in advance or within six months of date of invoice or service

Invoice

16

Proviso to 6(a) 6(b) and explanation 2 to rule 6 Export of Service

Completion of service Receipt of payment or advance

Date of completion of service Time of receipt of payment

17

18

7(a)

Completion of service

Date of receipt of payment

19

7 (a) and first proviso to rule 7

Completion of service

As per rule 3,4,5,6 or 8 (as applicable) Interest will be payable.

20

Service where tax payable by recipient of service under reverse charge

7(b)

Receipt of Service

Date of payment

21

7 (b) and second proviso to rule 7

Receipt of Service

As per rule 3,4,5,6 or 8 (as applicable) Interest will be payable.

provider Professional and firms providing specified taxable service Service Provided from associate enterprises when service provider outside India Invoice, completion of service or receipt of payment in any sequence Date of credit in books of account of person receiving service

22

7 (c)

Date of receipt of payment

23

Third proviso to rule 7

Date of making payment

Date of credit in books of account of person receiving service

24

Third proviso to rule 7

Date of making payment

Date of credit in books of account of person receiving service

Date of making payment

25

Intellectual property service, where consideration not ascertainable at the time of service

Receipt of payment or benefit is received by service provider

Invoice issued by the service provider

Receipt of payment or benefit is received by service provider

26

Invoice issued by the service provider

Receipt of payment or benefit is received by service provider

Invoice issued by the service provider Issue of invoice or date of receipt of payment

27

Service completed on or before 3006-2011

Issue of Invoice

Receipt of payment

Persons Liable To Service Tax :

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Any provider of taxable service whose aggregate value of taxable service received in any financial year exceeds Rs.10,00,000/An input service distributor. Service receivers as specified in sec 68 (2) of Finance Act. *Where a provider of taxable service provides one or more taxable service from one or more premises, the aggregate value of all such taxable services and from all such premises and not separately for each services or each premises shall be taken into account for computing aggregate value of taxable service. *Input service distributor means on office managing the business of manufacturer or producer of final products or provider of output services, which receives credit towards purchase of input services and issues invoice, bill or, challan for the purpose of distributing the credit of service tax paid.

1. The Input service distributor shall distribute Cenvat credit in respect of service tax, among its manufacturing units or among those providing output services. 2. The Input service distributor must ensure that such a distribution should not exceed the service tax paid. 3. In case of an input service is attributable to service use in a unit exclusively engaged in manufacture of exempted goods or exempted services, the such credit of service tax shall not be distributed. Illustration: X ltd has a place of business at Chennai and is registered under Service tax in Chennai. He has factories at Trichy, Coimbatore with separate registrations and a unit in Hyderabad. X ltd make centralized purchases for its entire unit and distribute the input goods and services. It decides to distributes available tax on input services of Rs.20, 000/- in the suitable ratio (as the case may be) in the ratio 20:30:20:30. Every input service distributor, distributing credit of taxable services should issue an invoice, a bill or challan signed by him or a person authorized by him for each of the recipient of credit distributed. The invoice or bill must be serially numbered. Services covered under section 68 (2): [Deemed service providers] The following table summarizes such services and the person liable to pay service tax Sl.no. 1

Nature of the service

Service Provider

Service Receiver

Person liable to pay tax

Insurance

Insurance

Insurance

Insurance

auxiliary service Service provided to a Person in India from outside India

agent

Company

Company

Person outside India Goods transport agency

Person in India

Person in India

Goods transport agency for transport of goods by road. Note: If the service receiver is individual, HUF etc., tax is payable by the Service provider (GTA)

Any registered Factory. Any company. Any corporation. Any registered Society cooperative society. Any registered dealer Of excisable goods. Any registered firm Or body corporate.

The service receiver or his agent.

Business Auxiliary Service Mutual Fund distribution Sponsorship services

Mutual fund Distributor of an agent Any person

Mutual fund company

Mutual fund company

Body Corporate of firm

Body Corporate of firm

Who Is Liable To Register ?

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Any provider of taxable service whose aggregate value of taxable service received in any financial year exceeds Rs.9,00,000/An input service distributor is liable to register as per Notifn No: 26/2005 ST dated 07/06/2005 as amended. Service receivers as specified in sec 68 (2) of Finance Act.

Registration Procedures :
Any person liable to pay service tax has to register with the Superintendent of Central Excise within 30 days from the date of commencement of the business of taxable service. Invoice should be issued within 14 days from the date of completion of taxable service or receipt of any payment towards value of taxable service.

Registration procedure under Service Tax :

Step 1: Apply for registration in Form ST 1 to the Superintendent of Central Excise. Online application can also be made. Step 2: Submit along with Form ST 1 the following documents
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Permanent Account Number (PAN) Affidavit declaring the commencement of the services Copy of passport or ration card or any other document of residential proof. Passport size photograph of the assessee in case of individual and of partners in case of firm and of directors in case of a company. Partnership deed in case of firm. Memorandum and Articles of Association in case of company Step 3: The Superintendent of Central Excise will grant a certificate of Registration in Form ST- 2 within 7 days of the date of receipt of application. Step 4: Certificate of Registration can be surrendered if the assessee ceases to provide the taxable service for which he had been registered. Where a service rendered from different location falling under different Commissionerates, multiple registrations are required, however, even in this case a single Registration is possible, with the permission from the Department, if the assessee maintains centralized accounting for multiple services provided from more than one premises. If the registration certificate issued by the department is lost, the assessee can make written request for duplicate registration certificate.

Payment Of Service Tax :

1. Service tax is payable on accrual basis as per point of taxation rule. Where the service provider receives only a part of the total service charges, Service tax shall be paid on proportionately only on such part and not on the entire consideration. The balance service tax will have to be paid on receipt of consideration. Therefore the service tax is payable only on realized value and not on bill value. 2. Due dates for payment of service tax Due date for the March and Quarter ending March 31st March 31st March

Service provider Individuals and Firms Others

Monthly/ Quarterly Due dates 5th of the month following the quarter ended June, Sep, Dec. 5th of the following month

3. 4. 5. 6. 7. o

In case of e- payment, due date shall be 6th of the respective month / quarter. If last date for paying tax is a public holiday, tax may be paid on the next working day. Tax is paid through GAR 7 challan. Big assesses with a service tax liability of Rs.10 lakhs and above should pay tax electronically. Interest in case of delayed payment of service tax. Delay in payment of tax attracts interest at the rate of 18 % p.a. (but relief of 3% to assessee having turnover less than of Rs.60 lakhs . o The interest shall be payable for the period by which payment of tax is delayed.

Filing Of Returns :
Returns are filed half yearly in Form ST 3 [ Form ST 3A for PA]. If the service provider is not able to estimate the tax amount properly, he may apply for Provisional Assessment. Due dates are as follows: (a) 25th October for the half year ending 30th September. (b) 25th April for the half year ending 31ST March. Revised returns can be filed within 90 days from the date of filing of original return. Nil return has to be filed even there is no tax liability and no taxable services rendered. DELAYED FILING Period of Delay Up to 15 days 16 days to 30 days More than 30 days Late fee Rs.500 Rs.1,000 Rs.1,000 plus Rs.100 per day till the date of filing return [Max Rs.20,000]

Records To Be Maintained :
The records as maintained by the assessee in accordance with the various laws in force shall be accepted. Every assessee is required to furnish to the Superintendent of Central Excise a list of accounts maintained by him in relation to service tax. This is to be submitted only once at the time of filing the first ST- 3 return.
y y y y

Sales register Purchase register Cash book General ledger. Such records need to be preserved at least for a period of five (5) years immediately after the financial year to which such records pertain.

PENALTIES

Nature of

Penalty

SEC. 76, 77 & 78Sl.no

Violation Not less than Rs.100 per day of default or 2 % p.m. of tax due which ever is higher. In no case penalty exceed the tax amount. 100% of service tax sought to be charged Rs.10,000 Rs.200 per day which ever is higher from the 1st day after due date till the day of Actual compliance Rs.10,000 or Rs.200 per day which ever is higher from the 1st day after due date till the day of Actual compliance

Failure to pay Service Tax [sec.76] Suppression of value Failure of Registration Failure to furnish information called by officer or Central Excise officer

Entry Tax
Stamp Duty Stamp duty is imposed on execution of specified instruments. The levy is governed by the Indian Stamp Act, 1899 or the State Stamp Acts. Some states have enacted separate legislations, whereas some have adopted Indian Stamp Act with or without modifications. The rates vary from state to state. Research and Development Cess A research and development cess is a special levy on all payment made for the purchase of technology from abroad, including royalty payments, payments for technicians, lump sum payments, and payments for design and drawings. Local Property Taxes Property tax is payable as per local municipal laws on commercial and residential property We provide following service like residential, local & commercial property tax for their service tax clients:
y y y y

Registration Record to be maintained and invoice. Payment of tax Classification of goods/services

y y y y y y y

Adjustment of excess tax paid Credit of service tax paid Interest and penalty Notice and visit by departmental officer Assessment Revision and appeal. Refund of tax

INDIRECT TAXES
Government has to perform many functions in the discharge of its duties like infrastructure development, health, education, defence of the country, removal of poverty, maintenance of law and order, etc. To meet these requirements huge amount of capital is required. The question arises, from where does government get money for fulfilling all these activities and for the development of the nation? The government collects money from public through a wide variety of sources i.e. fees, fines, surcharges and taxes which are defined later in this lesson. The most

important of these is taxation. In this lesson we will discuss various types of indirect taxes in details. OBJECTIVES After studying this lesson, you will be able to: l acquaint yourself with the sources of revenues of the government; l define direct taxes and indirect taxes; l distinguish between direct taxes and indirect taxes; l state merits and demerits of direct taxes and indirect taxes; l enumerate sources of direct taxes and indirect taxes; l define various types of indirect taxes like, excise duty, customs duty(import and export),production linked tax, and Value Added Tax (VAT); and l distinguish between sales tax and value added tax. SOURCES OF REVENUE As we know that government has to perform its various functions for the welfare of the society,MATHEMATICS Notes 182 Indirect Taxes OPTIONAL - II Mathematics for Commerce, Economics

and Business so it requires revenue. The income of government from all sources is called public income or public revenue. Public revenue includes income from taxes, income from goods and services supplied by public enterprises, revenue from the administrative activities, such as fees, fines, etc., gifts and grants, while public receipts include all the income of the government which it may have during a given period of time i.e. public receipts = public revenue + income from all other sources, such as, a public borrowing from individuals and banks and income from public enterprises. Local bodies like Municipal Corporation, Municipal Committees, Town Panchayat, Cantonment Board, etc can also levy certain taxes like property tax, professional tax, octroi, education cess, etc. Thus, taxes are contributions made by the citizens of the country towards its development and expenditure, which the government has to incur in its social and economic activities. Taxes are paid by the individuals, corporate houses of trade and industry etc. There are different types of taxes like income tax, wealth tax, gift tax, property tax, sales tax, excise and custom duty etc.

40.1.1 Tax A tax is legally compulsory payment levied by the government on the persons or companies to meet the expenditure incurred on conferring common benefits upon the people of a country. In other words a tax can also be describe as a compulsory levy where those who are taxed have to pay the sums irrespective of any corresponding return of services or goods by the government. 40.1.2 Fee Fee is also compulsory payment made by a person who receives in return a particular benefit or services from the government. 40.1.3 Fines These are compulsory payments without any quid pro que but are different from taxes because fines are imposed to curb certain offences and discipline people and not to get revenue for the State. In this sense, fines are not taxes. 40.1.4 Surcharges It is an additional charge or an extra fee for a special service. It is also called tax on tax e.g. a 10% surcharge is applicable on income tax for incomes above Rs. 10 lakh. In other words

surcharges are often a charge in addition to a charge, or a tax added to the original tax. Two aspects of tax follow from the definition: 1. A tax is a compulsory payment and no one can refuse to pay it. 2. Proceeds from taxes are used for common benefits or general purposes of the state. It means there is no direct quid pro que involvement in the payment of a tax.

axes are mainly classified into direct and indirect taxes:

T

http://download.nos.org/srsec311new/L.No.40 -A.pdf

INTRO
The term indirect tax has more than one meaning. In the colloquial sense, an indirect tax (such as sales tax, a specific tax [a tax per unit], value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is imposed. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be."[1] An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products.[2] Examples would be fuel, liquor, and cigarette taxes.

An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately the manufacturer transfers the burden of this duty to the buyer of the car in form of a higher price. Thus, an indirect tax is such which can be shifted or passed on. The degree to which the burden of a tax is shifted determines whether a tax is primarily direct or primarily indirect. This is a function of the relative elasticity of the supply and demand of the goods or services being taxed. Under this definition, even income taxes may be indirect.

GOODS AND SERVICES TAX AN INTRODUCTION

http://www.indiajuris.com/indtax%20july11.pdf http://www.google.co.in/#sclient=psyab&hl=en&source=hp&q=indirect+taxes+in+india+2011+pdf&pbx=1&oq=INDIRECT+TAXES+IN+INDIA+& aq=2&aqi=g4&aql=&gs_sm=c&gs_upl=83368l93199l0l96345l35l20l1l7l7l2l1879l13620l32.0.2.2.7.1l28l0&bav=on.2,or.r_gc.r_pw.,cf.osb&fp=ce2910f112fa0607&biw=1366&bih=667