An Overview of Indirect An Overview of Indirect TaxesTaxesAn Overview of Indirect An Overview of Indirect TaxesTaxes

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 DutyCentral 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 CBECORGANISATIONAL STRUCTURE OF CBEC

ZONE-1

ZONE-II

ZONE-III

Division-II

CBEC

Division-I

Range-IRange-

IIRange-

IIIRange-

IV

Commissionerate-I Commissionerate-II Commissionerate-IIICommissionerate-

IV

Important changes brought in Important changes brought in Administration of Central Excise DutyAdministration of Central Excise Duty

Self removal procedure in 1969Central Excise Tariff Act based on HSN in 1985MODVAT scheme in 1986In 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 1995Self Assessment by assessees was introduced during

the year 1996

Fortnightly payment of duty in 2000Concept 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 restrictionsE-filing of returns from 2004Formation of Large Tax payer Units during 2006Introduction of ACES- A web based workflow based

application in 2009

GST- OverviewGST- 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)

Slide 13

• 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

GST-Global Scenario

• 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

Objectives of GSTObjectives of GST

Slide 15

• 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.

Dual GST - Current State of Play – latest developments

Slide 16

Dual GST – StructureDual 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 17

Proposed dual GST ModelProposed dual GST Model

* Figures are only indicative

Dual GST

Goods Services

Existing Rate: 19-20%

GST: 16 %

Existing Rate: 10%

GST: 16 %

8%- CGST8%- SGST

8%- CGST8%- SGST

Slide 18

Taxes subsumed in dual GST Taxes subsumed in dual GST

CST will be phased out

Dual GST

• Central Excise • CVD• SAD• Service Tax

• VAT• Entertainment tax• Luxury tax• Lottery taxes• State cesses and

surcharges• Entry tax not in lieu of

octroi

Central Taxes CGST State Taxes SGST

Slide 19

Significant features of proposed Significant features of proposed dual GST Modeldual 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 20

• 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 21

• 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 22

• 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 23

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.

Taxation of inter-State transactions – IGST model

State 2

Dealer

Final Consumer

Value 100CGST NilState 1 GST NilIGST 16 *------------------------ 116------------------------

*IGST, CGST & SGST can be used to offset IGST liability

Value 200CGST 16State 2 GST 16

------------------- 232

--------------------

•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

State 1

InvoiceInvoiceInputIGSTCGSTSGST

• 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

Key Issues & ChallengesKey Issues & Challenges