An Overview of Indirect Taxes by 76B4do4S


									An Overview of Indirect

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
       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.
     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

  (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

             ZONE-1                                       ZONE-III

Commissionerate-I   Commissionerate-II     Commissionerate-III

                        Division-I          Division-II

                    Range-        Range-
   Range-I                                         Range-
                      II            III
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

•   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
                                                   • Entry tax not in lieu of

                          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


   -   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
   -   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

   -   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

   -   State GST could be charged based on the location of the recipient of

                                                                         Slide 22
    Procedures :

    Allotment of a PAN-linked taxpayer identification number with 13/15


-   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
                                                                       State 2 GST            16
           IGST              16 *                            SGST
                           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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