Indirect TaxesProf. Mallikarjun BaliBLDEA’s VP Dr. P G Halakatti College of Engg & Tech.,Department of Management Studies-MBABijapur

Classification of Taxes

Components of Direct and Indirect TaxesDirect Taxes

Corporation Tax

Income Tax

Wealth Tax

Others

Indirect Taxes

Excise duty

Custom duty

VAT

CST

Service tax

Collection of Indirect Taxes (Rs. in crores)

Taxes/Year2011-

122012-13

Percentage of

Growth over last

year

Customs1,49,3

281,65,818 11.04%

Central Excise1,44,1

161,75,137 21.53%

Service Tax 97,509 1,32,498 35.88%

Total3,90,9

534,73,453 21.10%

Customs Central Excise Service Tax Total0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

11.04

21.53

35.88

21.10

Percentage of Growth over last Financial Year (2011-12)

Collection of Direct Taxes (Rs. in crores)

Taxes/Year 2011-12 2012-13Percentage of Growth over

last year

Corporate Tax 3,23,224 3,56,326 10.24%

Income Tax & Others 1,71,575 2,01,674 17.54%

Total 4,94,799 5,58,000 12.77%

Corporate Tax Income Tax & Others Total0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

10.24

17.54

12.77

Percentage of Grwoth over last year

Percentage of Direct and Indirect Tax in the Total Tax Revenue of the Govt. of India.

  2011-12 2012-13

Direct Tax Percentage 55.86% 54.1%

Indirect Tax

Percentage44.14% 45.9%

Percentage of Direct and Indirect Tax in the Total Tax Revenue of the Govt. of India.

2011-12 2012-130

10

20

30

40

50

6055.86

54.1

44.1445.9

Direct Tax PercentageIndirect Tax Percentage

DIRECT TAXES

Charged directly on person’s income, expenditure, wealth etc.

It is progressive in nature

Burden cannot be shifted.

It forms about 56% of the total tax revenue of the Govt of India.

It will not affect in the prices of the goods and services.

High income tax rates leads to tax evasion.

INDIRECT TAXES

Charged on goods and services.

It is regressive in nature.

Burden can be shifted. It means, in the first instance it will be

paid by one person and later on to be recovered from other person.

It forms about 44% of the total tax revenue of the Govt of India.

It will have an inflationary impact as high rate of excise duty, for example, will increase the cost of production.

High tax leads to smuggling etc.

Point of differences

Distribution of Power to levy taxesArticle 246 (1) of our Constitution states that the Parliament has

exclusive powers to make laws with respect to any matters enumerated in List I of the Seventh schedule to the Constitution (Called Union List)

Article 246 (3) states that State Govt has exclusive power to make laws in respect of the matter enumurated in List II (Called State List).

Seventh schedule of the Constitution consists the following three list. List I (Union List) contains entries over which central Govt has a

power List II (State List) Contains entries over which State Govt has a

power. List III (Concurrent List) Contains entries over which both

Central Govt and State Govt has a power.

Taxation under our ConstitutionUnion List (List I) State List (List II)

Entry No. 82 - Taxes on Income Except Agriculture income

Entry No. 46 - Taxes on Agriculture income

Entry No. 83 - Duties of CustomEntry No. 51 - Excise duty on Alcoholic Liquors, Opium and Narcotics

Entry No. 84 - Duties of Excise Entry No. 52 - Entry tax or Octrio

Entry No. 85 - Corporation TaxEntry No. 54 - Tax on sale or purchase of goods where such sales takes within state (VAT)

Entry No. 86 - Taxes on Capital Value of Assets

Entry No. 56 - Tax on goods and passengers carried by road or inland waters

Entry No. 92A - Taxes on sale or purchase of goods between two states

 

Entry No. 92C - Taxes on Services  

The law of Central Excise duties is governed by the following :

Central Excise Act ,1944 This is the basic law related to the levy and collection of duties of central

excise. However this Act does not contain the rate at which duties are imposed

Central Excise Tariff Act ,1985 This Act classifies various goods on which central excise duties are levied

and prescribes the rates at which the duty is payable. It has two schedule namely, Schedule I – It contains such goods on which

the basic excise levied at the prescribed rate. Schedule II – There are certain goods which find place not only in first

Schedule but also under this schedule. These goods attract only basic excise duty but also additional excise duties.

Central Excise Rules ,2002. All manufacturers of excisable goods are required to register under these

rules .The registration is valid as long as production activity continues and no renewals are necessary

Excise Duty

This Act is applicable to whole India, therefore, goods manufactured or produced anywhere in India, including Jammu and Kashmir, are liable to excise duty.

India includes-Territorial water of India - Extending up to 12 nautical miles from

the base lineIndian Contiguous Zone – Extends up to 12 nautical miles from

the outer limit of territorial waterNotified Designated Area – In the continental shell and exclusive

economic zone. EEZ extends up to 200 nautical miles from the base line.

1 Nautical miles = 1.1515 miles = 1.853 Kms

Any economic exploitation done within 200 nautical miles from the base line attract excise duty.

Scope of the Act

Chargeability of Excise DutyAn excise tax (sometimes called an excise duty) is a type of tax charged on

goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of a good. This tax is now known as the Central Value Added Tax (CENVAT).

Section 3 of the CEA 1944, often called as Charging Section, states that “there shall levied and collected in such a manner as may be prescribed duties on all excisable goods (Excluding goods or manufactured in SEZ) which are produced or manufactured in India”

Basic excise duty is levied u/s 3 at rates specified in first Schedule to the CETA

Charging section signifies that there are four basic condition for levy of excise duty;

1. Duty is on goods

2. Goods must be excisable

3. Goods must be manufactured or produced

4. Such manufacture or production must take place in India

Different Types of Excise Duties1. Basic Excise duty• This is a duty levied at a specified rate on all the goods mentioned in the

first schedule. This duty is leviable at 8%, exclusive EC and SAH Education cess

2. Special Excise duty• This is a duty leviable on the goods mentioned second schedule. There

are certain goods which are mentioned not only in the first schedule but also in the second schedule.

• This duty is in force from 1st Match, 2006

3. Duty on Branded Jewelry• This is a duty levied at 2% on branded article of Jewelry falling under

chapter no. 7113. This duty is leviable only if the brand name or trade name is indelibly affixed or embossed on the article of jewelry.

4. Additional duty on textile articles• Textile articles such as silk, wool, cotton fibers etc attract additional

duties of excise under the additional duties of excise (Textile and Textile article Act 1978)

Cont.,5. Additional duty on special importance

• The goods which are declared u/s 14 of the central sale Tax Act of 1956 are liable to an additional duty under the additional duties of excise (Goods of special importance) Act 1957.

6. Education cess• Finance Bill 2004 introduced Education Cess at the rate

of 2% on the excise duty payable.

7. Secondary and Higher Education Cess• The Finance Act 2007 introduced this levy which is

leviable at 1% on aggregate of all the duties of excise.

Basis of levy of Excise dutyExcise duty is levied on any one of the following basis;

1. Specific duty - based on some measures, like weight, volumes, length etc.

2. Tariff value u/s 3(2) - it is valued which is to be fixed by the Govt and duty is levied at a certain percentage on this value.

3. Duty based on annual production capacity u/s 3.

4. Duty based on compounded levy scheme under rule 15 of Central excise rule 2002

5. Duty based on assessable value u/s 4 - here transaction value is adopted as the assessable value subject to fulfillment of the following conditions.

Goods must have been sold For delivery at the time and place of removal Price must be the sole consideration The buyer and seller should not be related

6. Duty based on maximum retail price printed on the carton after allowing deduction u/s 4A

Custom DutyEntry No. 83 of Union List I empower the Central Govt to levy duty

on import of goods into India and export of goods from India.A various provisions of Custom Duty are covered under the

following Act;

1. Custom Act 1962 – this is a basic Act deals with levy of import/export duty on import or export of goods by any means.

2. Custom Tariff Act 1975 – deals with various types of duties to be levied as well as classification of import and export of goods. It has two schedule, namely;• Schedule I – provides rate of duty applicable to import of goods• Schedule II – provides rate of duty applicable to export of goods

3. Rules – Section 156 of Custom Act grants power to the Central Govt. to frame rules to enforce the Custom duty.

Chargeability Section 12 of the Act, often called as charging section, provides that duties of the Customs shall be levied at such rate as may be specified under CTA or any other law for the time being in force, on goods imported into India or export from India.

The basic Custom Duty is 10%.

• Taxable Event• In case of import, duty is leviable when the goods are cleared from home

consumption. • Export duty is leviable when the goods crosses territorial water of India.• Import commences when the goods enter into India and import is

completed when the goods joins landmass of India and importer files the bill of entry for home consumptions.

• Export starts when an exporter files shipping bill in respect of export and it is complete when goods crosses territory water of India.

Basic Concepts: Goods u/s 2(22): Includes

Vessels, aircrafts & Vehicles Stores Baggage Currency & Negotiable instruments and Any other kind of movable property.

Baggage u/s 2(3): Includes Unaccompanied baggage but does not include motor vehicles

Bill of Entry u/s 2(4): It is filed for import of goods with details

Shipping bill u/s 2(37)Includes It applies in case of export by Vessels / Aircrafts

Bill of Export u/s 2(5): It applies when the goods are exported by road.

Cont’dCustoms Port u/s 2(12): Means

Any port appointed u/s 7 to be a custom port and Includes a place appointed u/s 7 to be an inland container depot.

Customs Airport u/s 2(10): Means Any airport appointed u/s 7 to be a customs airport and Includes a place appointed u/s 7 to be an air freight station.

Land customs station u/s 2(29): Means any place appointed u/s 7(b) to be a land customs station.

Customs station u/s 2(13): Means Customs port Customs airport or Land customs station

Custom Area u/s 2(11): Means The area of a customs station and Includes any area in which:-

Imported goods or export goods are ordinarily kept Before clearance by customs authorities

Rate of Duty and Tariff:Imported goods: It is levied at a rate prevailed on

Date on which the bill of entry in respect of such goods is presented or

Date of entry inwards of the vessels or the arrival of the aircraft by which the goods are imported, whichever is later

Exported goods: It is levied at a rate prevailed on the date on which the proper office makes an order permitting clearance & loading of the goods for exportation u/s 51

Service Tax

Service Tax is said to be a tax of 21st century.This tax made a small beginning in 1994. Its scope has been increasing every year. In a span of 19 years, it has grown from a baby to a monster.The share of service sector to the GDP has increased to 55% from

mere of 30% of GDP in 1950-51.When it was introduced there were only 3 services under its net

but today we are taxing almost all services except those which are listed in the negative list. (since 1-07-2012)

Central Board of Excise and Custom (CBE&C) has been entrusted the task of administration of this tax.

It has been one of the faster growing source of revenue to the Govt. ever since it was introduced in the year 1994.

From To Service Tax Rates

1994 2003 5%

2003 2004 8%

2004 2006 10% + 2% of EC on S T payable

2006 2007 12% + 2% of EC on S T payable

2007 200912% + 2% of EC on S T payable + 1%

of the SAH on S T

2009 201210% + 2% of EC on S T payable + 1%

of the SAH on S T

2012 Till date12% + 2% of EC on S T payable + 1%

of the SAH on S T

Service Tax Rates

Interim Budget 2014: Highlights* Income tax rates kept unchanged

* 10 % surcharge on ‘super-rich’ having annual income above Rs 1 crore to continue

* 10 % surcharge on domestic corporates with income of Rs 10 crore

* Excise duty on small cars, motorcycles and commercial vehicles cut from 12 to 8%

* Excise duty on SUVs cut from 30 to 24%

* Large and mid-segment cars from 27-24% to 24-20%

* Excise duty on mobile handsets to be 6% on CENVAT credit to encourage domestic production

* Excise duty cut on capital goods, non-consumer durables cut from 12 to 10%

The success rate of Departmental orders are pitiable

84 per cent of departmental orders are set aside at Tribunal stage.

70 per cent in high court stage.90 per cent in the Supreme Court.Rs 86,000 crore were held up in court cases.

But it should not give the impression that the government will get this much money, if the litigations are finalised.

It will only get about 10-15 per cent of this amount which may be about Rs 12,000 crore, if all cases are decided, which is not possible.

Thank You!