Corporate Tax

On

Indirect Tax

Submitted to:

Mr. Surya V. Raju

Faculty, Corporate Tax

By:

Saurabh Das Manikpuri

Roll no. 143, Section A, Semester- VIII

B.A. LLB(Hons.)
Submitted on:

April, 06, 2018

Hidayatullah National Law University

Uparwara Post, Abhanpur, New Raipur – 493661 (C.G.)

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 DECLARATION

I hereby declare that the project work entitled “Indirect Tax” submitted to HNLU, Raipur, is
an original work, which has been done by me under the able guidance of MR. Surya V.
Raju, Faculty Corporate Tax, HNLU, Raipur.

SAURABH DAS MANIKPURI

ROLL NO. - 143

SEM – 8, Section- A

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 Acknowledgements

I feel elated to work on the project “Indirect Tax”. The practical realisation of the project
has obligated the assistance of many persons. Firstly I express my deepest gratitude towards
Mr. Surya V. Raju, Faculty of Corporate Tax, to provide me with the opportunity to work on
this project. His able guidance and supervision were of extreme help in understanding and
carrying out the nuances of this project.

I would also like to thank The University and the Vice Chancellor for providing extensive
database resources in the library and for the internet facilities provided by the University.

Some printing errors might have crept in which are deeply regretted. I would be grateful to
receive comments and suggestions to further improve this project.

Saurabh Das Manikpuri

Roll No. 143

Section A, Semester VIII

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 CONTENTS

Contents
INTRODUCTION ...................................................................................................................................................... 5
RESEARCH OBJECTIVES ........................................................................................................................................... 6
METHODOLOGY ...................................................................................................................................................... 6
QUESTIONS ............................................................................................................................................................. 6
HYPOTHESIS ............................................................................................................................................................ 7
MODE OF CITATION ................................................................................................................................................ 7
SCOPE OF STUDY .................................................................................................................................................... 7
INDIRECT TAX IN INDIA ........................................................................................................................................... 8
TYPES OF INDIRECT TAX .......................................................................................................................................... 8
STATE LEVEL TAXES ............................................................................................................................................... 13
GOODS AND SERVICES TAX (GST) IN INDIA .......................................................................................................... 15
CONCLUSION ........................................................................................................................................................ 18
BIBLIOGRAPHY ...................................................................................................................................................... 19

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INTRODUCTION

Unlike Direct Taxes, Indirect Taxes are not levied on individuals, but on goods and services.
Customers indirectly pay this tax in the form of higher prices. For example, it can be said that
while purchasing goods from a retail shop, the retail sales tax is actually paid by the
customers. The retailer eventually passes this tax to the respective authority. The indirect tax,
actually raises the price of a good and the customers purchase by paying more for that
product

Indirect taxes are the charges that are levied on goods and services. Some of the
significant indirect taxes include VAT (Value Added Tax), sales tax, excise tax, stamp duties
and expenditure tax.

BASIC DIFFERENCE BETWEEN DIRECT AND INDIRECT TAXES

The primary difference between a direct and indirect tax is that direct tax is levied directly by
the government from the taxpayer, but indirect taxes are collected by the intermediary.

Some of the examples of indirect taxes are Customs duties levied on imports, excise duties on
production, sales tax or value added tax (VAT) at some stage in production-distribution
process, and they are called indirect taxes because they are not levied directly on the income
of the consumer or earner.

MEANING OF INDIRECT TAXES

An indirect tax is the charge that is collected by intermediary (like retail store) from the
individual who holds the actual economic burden of the tax (like customer). The intermediary
files a tax return and eventually passes to the government. The indirect tax can be
alternatively defined as the charge that is paid by one individual at the beginning, but the
burden of which will be passed over to some other individual, who eventually holds the
burden.

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RESEARCH OBJECTIVES

The objective of this project is:

1. To study about the direct and indirect tax.
2. To study about the indirect tax in detail.

METHODOLOGY

This Research Project is doctrinal in nature. Accumulation of the information on the topic includes
wide use of primary sources such as cases as well as secondary sources like books, e-articles etc. The
matter from these sources have been compiled and analysed to understand the concept and
reproduced it afresh in this project.

Websites, dictionary and articles have also been referred.

QUESTIONS
This project aims to answer questions such as

 What is indirect tax?

 Which indirect tax are sum up as to form GST?

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HYPOTHESIS
This Project attempts to study about the indirect tax. The types of indirect tax in deatail. And
to study how the GST substituted other indirect taxes.

MODE OF CITATION

This project follows a uniform Bluebook 19th Ed. Citation format for footnotes and
bibliography.

SCOPE OF STUDY

This is aimed at the study of the indirect taxes. This project includes the types of indirect
taxes in detail and to know about what is GST. This project does not cover the criteria of the
taxation of indirect tax.

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INDIRECT TAX IN INDIA

The indirect taxes in India are enforced upon different activities including
manufacturing, trading and imports. Indirect taxes influence all the business lines in India.

In general, the Indirect Tax in India is a complex system of interconnecting laws and
regulations, which includes specific laws of different states. The Indirect Taxation regime
encompasses various types of taxes like Sales Tax, Service Tax, Custom and Excise Duties,
VAT and Anti-Dumping Duties, and the organizations provide services in all these related
fields.

At present the Indirect Taxes in India are under a transformation due to the changing
fiscal reforms of the Indian government. Many new acts and laws are being introduced
replacing the old laws and all related issues, which have become redundant. The reforms
includes the initiation of a region-based and state-level VAT on goods.

TYPES OF INDIRECT TAX

 Sales tax
 Value added tax
 Customs duty
 Excise duty
 State Level Taxes like octroi, property tax, stamp duty etc.
 GST
 Securities transaction tax
 Service tax

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 SALES TAX

A sales tax is a consumption tax charged at the point of purchase for certain goods and
services. The tax is usually set as a percentage by the government charging the tax. There is
usually a list of exemptions. The tax can be included in the price (tax-inclusive) or added at
the point of sale (tax-exclusive). Most sales taxes are collected by the seller, who pays the tax
over to the government which charges the tax. The economic burden of the tax usually falls
on the purchaser, but in some circumstances may fall on the seller. Sales Tax is a tax, levied
on the sale or purchase of goods. There are two kinds of Sales Tax i.e.
1. Central Sales Tax, imposed by the Centre
2. Sales Tax, imposed by each state

TO WHOM IS THESE TAX PAYABLE PAYABLE

 Central Sales tax is generally payable on the sale of all goods by a dealer in the course
of inter-state Trade or commerce or, outside a State or, in the course of import into or,
export from India.
 Sales tax is payable to the sales tax authority in the state from which the movement of
goods commences. It is to be paid by every dealer on the sale of any goods affected
by him in the course of inter-state trade or commerce.

VALUE ADDED TAX

A Value Added Tax is a type of indirect tax that is imposed on goods and services which is
being produced or rendered to the consumer. The increase in tax rate is borne directly by
these firms and institutions that operate within the country by reducing the profit of these
organizations. Therefore, these firms levy the tax indirectly on the goods/services they
produce/render at a percentage rate so as to reduce the tax burden imposed on them by the
government and this burden is borne by the final consumer that purchases these goods
produced by these firms. This type of tax is known as value added tax. It is also collected at
each stage of production and distribution i.e. if a supplier sells goods to the manufacturer, the
manufacturer pays VAT on the goods bought and sells to the wholesaler also with the same

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VAT rate. Value Added Tax is also fiscal policy tool used by the government to control
certain economic variables (problems) that persist or have effect on the activities in the
economy.

Value added tax (VAT) is a consumption tax (CT) levied on any value that is added to a
product. In contrast to sales tax, VAT is neutral with respect to the number of passages that
there are between the producer and the final consumer; where sales tax is levied on total
value at each stage. A VAT is an indirect tax, in that the tax is collected from someone who
does not bear the entire cost of the tax. In India, VAT replaced sales tax on 1 April 2005.

On 1st April 2005, VAT replaced the single point sales tax. Single point sales tax had a
number of disadvantages, primarily that of double taxation. VAT is a modern and progressive
taxation system that avoids double taxation. In addition to offering the possibility of a set-off
of tax paid on purchases, VAT has other advantages for both business and government.
1. It eliminates cascading impact of double taxation and promotes economic efficiency.
2. It is primarily a self-policing, self-assessment system with more trust put on dealers.
3. It provides the potential for a stronger manufacturing base and more competitive export
pricing.
4. It is invoice based, and as a result it offers a better financial system with less scope for
error.
5. It has an improved control, mechanism resulting in better compliance.
6. It widens the, tax base and promotes equity.

CUSTOMS DUTY

The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods.
Duties of customs are levied on goods imported or exported from India at the rate specified
under the customs Tariff Act, 1975 as amended from time to time or any other law for the
time being in force. For the purpose of exercising proper surveillance over imports and
exports, the Central Government has the power to notify the ports and airports for the
unloading of the imported goods and loading of the exported goods, the places for clearance
of goods imported or to be exported, the routes by which above goods may pass by land or
inland water into or out of Indian and the ports which alone shall be coastal ports.

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In order to give a broad guide as to classification of goods for the purpose of duty liability,
the central Board of Excise & Customs (CBEC) brings out periodically a book called the
"Indian Customs Tariff Guide" which contains various tariff rulings issued by the CBEC. The
Act also contains detailed provisions for warehousing of the imported goods and manufacture
of goods is also possible in the warehouses.
For a person who do not actually import or export goods customs has relevance in so far as
they bring any baggage from abroad. Rates of customs duty for goods imported from
countries with whom India has entered into free trade agreements such as Thailand, Sri
Lanka, BIMSTEC, south Asian countries and MERCOSUR countries are provided on the
website of CBEC. Customs duties in India are administrated by Central Board of Excise and
Customs under Ministry of Finance.

SERVICE TAX

Service tax is charged on the gross value of services and is generally payable on receipt basis.
It is an indirect tax - it is payable by the service provider but it is ordinarily recovered from
the recipient of services. Service tax is levied at the rate of 10% (plus 2% education cess) on
certain identified taxable services provided in India by specified service providers.
Ordinarily, every person liable to pay service tax is required to register it with service tax
authorities and comply with procedural requirements like paying taxes, filing returns, etc.
However, in case of non-residents, who do not have any office in India and who are liable to
pay service tax in India, this burden is shifted to the recipient of service with effect from 16
August, 2002. Service tax is a comparatively new levy in India and very few judicial
precedents are available on the subject.

EXCISE DUTY

Central Excise levy was existing for years. But in 1944, 11 different Acts were
combined into one Act and this was then named as "The Central Excise and Salt Act, 1944".
It was then renamed as "The Central Excise Act, 1944". This Act is the original Act for
excise, which contains the Tariff Items 1 to 67. In 1975 the Tariff Item 68 was introduced
with the description "all other goods not elsewhere specified

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 Excise is one of the important indirect taxes which is based on this principle. To
simply state Excise is a tax levied on goods manufactured or produced in India. Central
Excise duties are the single largest source of Revenue for the Central Government of India.
On an average, out of every one Rupee Government earns, 19 paisa is contributed by Excise.
Apart from the Basic Excise duty, the following types of duties are also levied:

1. Special duty of excise specified in the Second Schedule to the Central Excise Tariff Act,
1985 leviable under the Central Excise Act, 1944.
2. Additional duty of excise under the Additional Duties of Excise (Textiles & Textile
Articles) Act, 1978.
3. Additional duty of excise under section 3 of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957.

SECURITIES TRANSACTION TAX

When the ministry of finance announced it’s Annual Budget for the year 2004-2005,
it also announced a new tax which would be levied on capital gains on financial securities --
Securities Transaction Tax.

It is a tax being levied on all transactions done on the stock exchanges. Securities
Transaction Tax is applicable on purchase or sale of equity shares, derivatives, equity-
oriented funds and equity-oriented mutual funds in a recognized stock exchange.

The Securities Transaction Tax was introduced by Chapter VII of the Finance Act
(No.2) Act, 2004. STT has been an efficient instrument to collect the taxes, as many market
players falsify transactions to evade capital gains taxes but it would be erroneous to consider
STT (indirect tax) as a substitute to capital gains tax (direct tax). If there are problems in
collecting capital gains taxes, these should be sorted out rather than reducing and abolishing
it altogether. Further, to justify the introduction of STT only in terms of smooth collection of
taxes would be a serious mistake. There are several other benefits of STT in the Indian
financial markets.

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STATE LEVEL TAXES
Apart from various indirect taxes collected by center the state also imposes certain
taxes. These taxes are as follows

OCTROI DUTY

Octroi is a tax levied on the entry of goods into a municipality or any other specified
jurisdiction for use, consumption or sale. Octroi is levied at the time when the goods enter the
municipal limits where the goods are to be ultimately sold, used or consumed.

Generally, octroi is borne by the purchaser. Goods in transit are exempted from octroi.
Octroi rates differ for different local areas. Goods are classified into groups for levying the
octroi at different rates. Currently, octroi is being levied only in certain states.

Octroi as a tax in the BMC was introduced in 1965. Prior to that only 'town duty' was
being levied on a very few items. At that time yield from property tax was the mainstay of
municipal tax revenue for Mumbai. For example, in 1964, total revenue of BMC was
Rs.23.64 Crore, out of which Rs. 18.59 Crore were from property tax while Rs. 1.54 Crore
only were from 'town duty'. Property taxes accounted for 78.61% of total municipal revenue
while town duty accounted for only 6.53%. The dictionary definition of Octroi terms it to be
“a local tax collected on various articles brought into a district for consumption.”

Octroi has clearly contributed to the tune of 33 per cent of MCGM's annual budget and it has
been enjoying a 4,500-strong assessment and collection department

The octroi department of Brihanmumbai Municipal Corporation (BMC) has registered

a record tax collection to the tune of Rs 4252 crore- in 2007-08 an increase of around 20 per
cent as compared to previous year. This is 10 per cent higher than the sales tax, thus
indicating the sharp increase of business in Mumbai.

STAMP DUTY

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 Stamp Duty is payable at the prescribed rates on instruments recording certain
transactions, including transfers of immovable property, shares, etc. Generally, stamp duty is
levied by respective states as per the state Act. In the absence of such a state Act, the
provisions of the central Act (i.e. Indian Stamp Act) apply.

The basic purpose of Indian Stamp Act, 1899 is to raise revenue to Government.
However, over a period of time, the stamped document has obtained so much value that a
‘stamped document’ is considered much more authentic and reliable than an un-stamped
document. It is a tax and must be paid in full and on time. A delay attracts penalty at 2% per
month, subject to maximum penalty of 200% of the deficit amount of stamp duty.

WHO PAYS STAMP DUTY?

In the absence of an agreement to the contrary, the purchaser/transferee has to pay or in case
of property exchange, both parties have to bear it equally. Stamp papers are to be purchased
in the name of one of the parties to the document. Stamp paper is valid for six months from
the date of purchase.

PROPERTY TAX

A property tax is a tax imposed on property by reason of its ownership. Property tax
can be defined as "generally, tax imposed by municipalities upon owners of property within
their jurisdiction based on the value of such property." Property tax is a tax that an owner of
property (usually real estate) is liable to pay. Property Tax India is levied on residents by
local municipal authorities to upkeep the basic civic services in the city.

Property taxes are usually charged on a recurrent basis (e.g., yearly). A common type
of property tax is an annual charge on the ownership of real estate, where the tax base is the
estimated value of the property.

Property again consists of three entities:

1. Land

2. Improvements to Land (immovable man made things)

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 3. Personalty (movable man made things)

LUXURY TAX

A luxury tax is a tax on luxury goods -- products not considered essential. A luxury
tax may be modeled after a sales tax or VAT, charged as a percentage on all items of
particular classes, except that it mainly affects the wealthy because the wealthy are the most
likely to buy luxuries such as expensive cars, jewelry, etc.

A luxury good may be a Veblen good, which is a type of good for which demand
increases as price increases. Therefore the effect of a luxury tax may be to increase demand
for certain luxury goods. In general, however, since a luxury good has a high income
elasticity of demand by definition, both the income effect and substitution effect will decrease
demand sharply as the tax rises.

GOODS AND SERVICES TAX (GST) IN INDIA

The multi level taxes on goods and services in the present regime leads to distortion
and inefficiency in tax administration and raises compliance issue, therefore, a Goods and
Services Tax (GST) on all commodities and services is most suitable taxation system for a
growth oriented and developing economy of India.

MEANING OF GST

The concept of Goods and Services Tax (GST), which is also called Value Added Tax
(VAT), is a tax on every economic supply in the distribution chain. The taxable event is
‘supply of goods’ and ‘supply of services’. Any transfer of right to use goods will constitute
supply of goods, and, any supply not involving goods will be supply of service. However, the
tax is worked out on the value-added component of the supply. This is achieved by working
tax on the full intrinsic value of the goods or service and giving set off/credit of tax suffered
at previous stage, called input stage, to avoid cascading effect. Thus, the entire supply chain
up to final consumer gets taxed with in-built mechanism of input stage credit. In this system,
the final consumer ends up bearing the full burden of tax without any set off benefit. As

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supplies not involving goods will be supply of service, the ambit for services will be very
large. Generally for services to be taxed global best practices are considered. The supply is
sub-classified as destination and consumption based from taxation perspective. Further, the
supply to be taxed could be Business-to-Business or Business-to-Consumer depending on the
feasibility in individual case. The GST will subsume present indirect taxes of Central Excise,
Customs, Central Sales tax, Service Tax under Union List and Sales Tax, Value Added Tax,
Entry Tax, Purchase Tax, State Excise duty, Luxury Tax, Entertainment tax, Octroi Tax on
consumption or sale of electricity, etc. under State List. Thus, it is aiming at a comprehensive
GST as a substitute for a multi-tax regime.

BENEFITS OF DUAL GST

The Dual GST is expected to be a simple and transparent tax with one or two CGST and
SGST rates. The dual GST is expected to result in:-

1. Reduction in the number of taxes at the central and state level.

2. Decrease in effective tax rate for many goods.
3. Removal of the current cascading effect of taxes.
4. Reduction of transaction costs of the taxpayers through simplified tax compliance.
5. Increased tax collections due to wider tax base and better compliance.

GST stands for "Goods and Services Tax." GST is proposed to be a comprehensive indirect
tax levy on manufacture, sale, and consumption of goods as well as services at the national
level. The main logic behind implementing GST was to consolidate all indirect tax levies into
a single tax, except customs replacing multiple tax levies, overcoming the limitations of
existing indirect tax structure, and creating efficiencies in tax administration. In GST only
value addition will be taxed, and burden of the tax is to be borne by the final consumer.

Taxes currently levied and collected by the Centre

a. Central Excise duty

b. Duties of Excise (Medicinal and Toilet Preparations)

c. Additional Duties of Excise (Goods of Special Importance)

d. Additional Duties of Excise (Textiles and Textile Products)

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e. Additional Duties of Customs (commonly known as CVD)

f. Special Additional Duty of Customs (SAD)

g. Service Tax h. Central Surcharges and Cesses so far as they relate to supply of goods and
services.

State taxes that would be subsumed under the GST are:

a. State VAT
b. Central Sales Tax
c. Luxury Tax
d. Entry Tax (all forms)
e. Entertainment and Amusement Tax (except when levied by the local bodies)
f. Taxes on advertisements
g. Purchase Tax
h. Taxes on lotteries, betting and gambling
i. State Surcharges and Cesses so far as they relate to supply of goods and services.

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 CONCLUSION

Bringing greater transparency in tax system and removing inequities amongst

different taxpayers and bleaching ‘gray economy’ is a challenging task. Under the present
scenario, it has become all the more necessary to have a Single tax on all goods and services.
It would encourage voluntary tax compliance, discourage tax evasion, reduce compliance and
transaction cost and improves the tax to GDP ratio. It will encourage expansion of tax base,
rationalize tax structure and will improve efficiency of tax administration. Truly unified
domestic common market is the ultimate object of tax reform process which can be achieved
by simplifying the tax system and for this abolition of too many levels of tax slabs and
integration of services under one umbrella of ‘GST’ is the only way.

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BIBLIOGRAPHY

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