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An Overview of Indirect
Taxes
By
PROF V.N. PARTHIBAN, FICWA,
ACS, FIII, ASM, ADIM, MBA, LLM
Customs Duty
Basic Customs Duty :Levied under Customs Act, 1962 on :
Imported goods: (means any goods brought into India
from a place outside India)
Export goods : (means any goods which are to be taken
out of India to a place outside India)
Additional Duty equal to Excise duty (CVD) and Additional
duty equal to Sales Tax , local tax or any other charges
(SAD) is levied under Customs Tariff Act, 1975
Anti dumping duty and safeguard duty , if notified, are also
levied under Customs Tariff Act, 1975
Central Excise Duty
Basic conditions which must be satisfied for
deciding dutiability / Excisability of any article
are
1. The article should be “Goods” and,
2. It should have come into existence as
a result of “Manufacture”.
If either of the conditions is not satisfied,
Central Excise duty can not be levied.
CONCEPT OF
MANUFACTURE
Definitions of “Excisable Goods” & “Manufacture”
Goods: Central Excise Law does not define goods.
An article can be called “Goods” if
It is known to the market as such and
Can ordinarily come to the market for being bought and sold.
Concept of Marketability
An article to be excisable, it must be marketable.
The aspect of marketability has been further emphasized and elaborated
by the Hon’ ble Supreme Court in the following cases.
- Bhor Industries Ltd. vs Collector – 1989 (40) ELT 280(SC)
- Moti Laminates vs UOI – 1995 (76) ELT 241 (SC)
Even semi finished articles, sub-standard articles, by produce, residues,
process scrap, articles in unassembled or CKD condition would be
“Goods” if it fulfills test of marketability.
Immovable property or articles embedded to earth, structures, erections,
installations and turnkey projects are not “Good” because they can not
ordinarily come to the market to be bought and sold
Manufacture : - The expression ‘Manufacture’ has been defined under
Section 2 (f) of Central Excise Act, 1944.
Accordingly to which it includes any process-
(i) incidental or ancillary to the completion of a manufactured product
and
(ii) which is specified in relation to any goods in the Section or Chapter
Notes of the Schedule to the Central Excise Tariff Act, 1985 as
amounting to manufacture
(iii) which in relation to the goods specified in the Third Schedule
(MRP goods etc.) involves packing or repacking of such goods in a
unit container or labelling or relabelling of containers including the
declaration or alteration of retail sale price on it or adoption of any other
treatment on the goods render the product marketable to the consumer.
• The activity or process in order to amount to ‘manufacture’ must lead to
emergence of a new commercial product, different from the one with which
the process started. In other words, it should be an article with name,
character and use.
• It is not the nature of the process or activity which determines the issue but
the end- result of that process or activity - Empire Industries Ltd. vs UOI
1985 (20) ELT 179 (SC)
• Repair and reconditioning of an article does not amount to manufacture
because no new goods come into existence.
• Repacking of goods from bulk pack to smaller packs would not ordinarily
amount to manufacture unless there is ‘deemed manufacture’ clause in
relevant chapter.
• Putting together different duty paid items in a kit or box does not amount to
manufacture.
ORGANISATIONAL STRUCTURE OF CBEC
CBEC
ZONE-1 ZONE-III
ZONE-II
Commissionerate-
Commissionerate-I Commissionerate-II Commissionerate-III
IV
Division-I Division-II
Range- Range-
Range-I Range-
II III
IV
Important changes brought in
Administration of Central Excise Duty
Self removal procedure in 1969
Central Excise Tariff Act based on HSN in 1985
MODVAT scheme in 1986
In 1994, the Gate Pass used for clearances was
replaced by invoice and consequently filing of Price
declarations was dispensed with.
Filing of Classification list dispensed with during 1995
Self Assessment by assessees was introduced during
the year 1996
Fortnightly payment of duty in 2000
Concept of Valuation of Excisable goods on the basis of
‘Transaction value’ instead of ‘normal whole sale price’
introduced during 2000
Central Excise Rules, 2001 replacing Central Excise
Rules,1944 (32 Rules replacing 234 Rules)
Relaxation in Budget day restrictions
E-filing of returns from 2004
Formation of Large Tax payer Units during 2006
Introduction of ACES- A web based workflow based
application in 2009
GST- Overview
• GST is:
• An indirect tax on final consumption of goods and services
• Levied on businesses and recovered by them on supplies
• Collected at each stage in the commercial and production
chain by producers and suppliers
• GST is typically charged on registered businesses
• Input GST incurred in relation to taxable output supplies
of goods and services is available as an offset
• GST thus operates as a pure Value Added Tax (VAT)
GST-Global Scenario
• More than 150 countries have already introduced GST/National VAT
• Typically GST is a single rate system but two/three rate systems are also in
use depending upon requirements
• The standard GST rate in most countries ranges between 15-20%
• All sectors are taxed with very few exceptions/ exemptions
• Full input tax credits on inputs are available.
• Canada and Brazil alone have dual GST
• US does not have a GST but only sales taxes
Slide 13
Objectives of GST
• Lowered tax rates due to broadening of the tax base and minimizing
exemptions & exclusions
• Creation of a common market across the country
• Redistribution of the burden of taxation equitably between manufacturing and
services
• Reduction in transaction and compliance costs.
• Facilitation of business decisions on purely economic considerations
• Enhanced efficiencies & productivity through the supply chain
Dual GST - Current State of Play – latest developments
• States have agreed to have two basic rates of GST.
• CGST will also be in conformity with the SGST
– Standard rate in the range of 8% to 9%
– Lower rate for essential commodities in the range of 4% to 5%
– Special rate for precious metals is expected to be at 1%
• Small set of specified products will be exempt from the GST
• The Central Government and State Governments have agreed to evolve a
mechanism for compensating States for revenue losses.
Slide 15
Dual GST – Structure
Dual GST will comprise
◦ the Central GST and the State GST
◦ Both taxes to operate in parallel and to apply on every transaction
◦ Stamp duty, toll tax, passenger tax and road tax not subsumed under
dual GST
◦ Coverage
◦ Tobacco products to be subjected to GST, Centre to levy excise duty over and
above the GST ?
◦ Alcoholic beverages to be kept out of the purview of GST ?
◦ Petroleum products also to be kept out of the purview of GST ?
Slide 16
Proposed dual GST Model
Dual GST
Goods Services
Existing Rate: 19-20% Existing Rate: 10%
GST: 16 % GST: 16 %
8%- CGST 8%- CGST
8%- SGST 8%- SGST
* Figures are only indicative
Slide 17
Taxes subsumed in dual GST
Dual GST
Central Taxes CGST State Taxes SGST
• VAT
• Central Excise • Entertainment tax
• CVD • Luxury tax
• SAD • Lottery taxes
• Service Tax • State cesses and
surcharges
• Entry tax not in lieu of
octroi
CST will be phased out
Slide 18
Significant features of proposed
dual GST Model
• Taxable Events in GST
- The Federal and State GST will both be leviable on supply of goods and
services
- Hence, the present taxable events of manufacture, for central excise, and
sale of goods for State VAT, will have no relevance
- Rules for determining the place and time of supply of goods and services to
be formulated
Slide 19
• GST on Imports
- Central & State GST on imports to replace Countervailing duty (CVD) and
Additional Duty of Customs (SAD) currently levied on import of goods as
part of customs duties
- GST paid on imports available as input tax credits
- Place of supply rules to determine the State in which the SGST on imports
is payable
Input tax credits
Full credits under the CGST and SGST that will operate in parallel
Cross-utilization of credits between CGST and SGST not permitted
Refund of unutilized accumulated ITC
Exports to be zero rated
Slide 20
• Inter-State supplies of goods and services
- Integrated GST (IGST) model to be adopted for taxing all inter-State
supplies of goods and services including stock / branch transfers
- Centre alone to tax inter-State supplies
- Centre to levy IGST which would be aggregate of CGST and SGST
- Input credits of IGST, CGST & SGST will be available as offsets
- Central agency to act as a clearing house for funds transfer amongst the
States
- Elegant and business friendly model of taxing inter-State supplies
Slide 21
• Treatment of Services
- Any economic activity which is not a supply of goods is a supply of
services
- All services to be taxed with few exceptions
- Central GST on services relatively easy to collect
- Services to be taxed in the State of consumption
- Supply rules to determine the place of consumption for cross-border
services
- State GST could be charged based on the location of the recipient of
services
Slide 22
Procedures :
Allotment of a PAN-linked taxpayer identification number with 13/15
digits.
- Uniform procedure for collection of both CGST & SGST to be prescribed in
the respective legislations.
- Single tax invoice for charging and collecting both taxes.
- Submission of periodical returns, in common format, to both the CGST &
SGST authorities.
Slide 23
Taxation of inter-State transactions – IGST model
State 1 State 2
Invoice Invoice
Input Value 100 Dealer
Input Value 200
IGST CGST Nil IGST CGST 16
CGST State 1 GST Nil CGST
SGST
State 2 GST 16
IGST 16 * SGST
-------------------
------------------------
232
116 Final
--------------------
------------------------ Consumer
*IGST, CGST & SGST can be used to offset IGST liability
•Input SGST used to pay IGST to be paid by exporting States to Central Govt.
•Central Govt to pay input IGST used to pay SGST in the importing State to the
importing State Govt.
•Central Clearing agency will manage the allocation of funds between States
Key Issues & Challenges
• Federal GST law to be drafted
• Uniform State GST law – model State GST code to be adopted
• Constitutional amendments required
- to enable Central Government to tax beyond manufacturing stage
- to enable States to charge service tax
- to enable levy of GST on imports
• Rates
- Integration of a large number of Central & State Taxes
- Multiplicity of taxes and tax rates
• Thresholds
• Continuation of area specific exemptions – Central GST and State GST
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