Indian Indirect Tax Laws-A Brief Guide: Shammi Kapoor Vishal Kumar Purva Juneja
Indian Indirect Tax Laws-A Brief Guide: Shammi Kapoor Vishal Kumar Purva Juneja
Indian Indirect Tax Laws-A Brief Guide: Shammi Kapoor Vishal Kumar Purva Juneja
A Brief Guide
by
Shammi Kapoor [email protected]
Vishal Kumar [email protected]
Purva Juneja [email protected]
Service Tax
Taxation of Service ................................................................................................ 1
Important provisions governing levy of service tax are discussed in the
succeeding paragraphs............................................................................................ 2
General exemptions ................................................................................................ 3
Compliance under Service Tax .............................................................................. 4
Provision for centralized registration ..................................................................... 5
CENVAT Credit..................................................................................................... 6
Export and import of services ................................................................................ 7
Advance ruling ....................................................................................................... 8
Administration........................................................................................................ 9
Customs Duty
Chargeability of Customs Duty ............................................................................ 10
Levy of customs ................................................................................................... 11
Export duties ........................................................................................................ 12
Import duties ........................................................................................................ 13
Rate of duty .......................................................................................................... 14
Classification of Goods ........................................................................................ 15
Advance ruling ..................................................................................................... 16
Administration...................................................................................................... 17
Central Excise Act
Chargeability of Central Excise Duty .................................................................. 18
Levy of Central Excise Duty ................................................................................ 19
Levy of Excise Duty ............................................................................................. 20
Types of Excise Duty ........................................................................................... 21
Registration under the Central Excise Act ........................................................... 22
Persons Exempted from Registration ................................................................... 23
Liability to pay duty is on the manufacturer ........................................................ 24
Valuation of excisable goods ............................................................................... 25
Rate of Central Excise Duty ................................................................................. 26
Classification of Goods ........................................................................................ 27
Administration...................................................................................................... 28
The Finance Act provides for methods of levying service tax, the circumstances
in which the levy would arise, the procedures to be followed and allied matters
such as registration, self-assessment, penalty, etc. Initially, the levy of service
tax was confined only to three services. Since then, year after year, the scope of
service tax gradually increased and extended to over 120 services. The Finance
Act, which provides for levy of service tax has been substantially amended by
the Finance Act, 2012, w.e.f., 1.07.2012. There has in fact been a paradigm shift
in the law relating to levy of service tax, pursuant to the aforesaid amendments.
Generally speaking, service tax is now leviable on all services except those
mentioned in the negative list and exemption notification.
The relevant statutes governing the levy of service tax are as follows:
(i) Finance Act, 1994 Chapter V (ss 64 to 100): This chapter extends to
the whole of India except the State of Jammu and Kashmir
(ii) Service Tax Rules, 1994
(iii) Point of Taxation Rules, 2011
(iv) Service Tax (Determination of Value) Rules, 2006
(v) Service Tax (Advance Rulings) Rules, 2003
(vi) Place of Provision of Services Rules, 2012
(vii) CENVAT Credit Rules, 2004
2. Important provisions governing levy of service tax are
discussed in the succeeding paragraphs
Levy of service tax
Service tax is levied on all services except those mentioned in the negative list
and exemption notification.
Presently, the service tax is levied at the rate of 14% on the value of taxable
services.
Taxable services
Section 66B of the Finance Act is the charging section. The terms taxable
service is defined to mean any service on which service tax is leviable under s
66B of the Act. Hitherto, the liability to pay service tax was on realisation of the
value of taxable service. However, with the introduction of Point of Taxation
Rules, 2011, w.e.f. 01.06.2011, the liability to pay service tax has been shifted to
invoice method, ie, on raising of invoice.
Certain specified taxable services received by an exporter of goods and used for
export of goods (vide Notification No. 41/2012-ST dated 29.06.2012).
Every person who has provided taxable service of value exceeding Rs 9,00,000
(Indian Rupees Nine Hundred Thousand), in the preceding financial year, is
required to register with the concerned superintendent of Central Excise in
Form ST-1. In case a recipient of service is liable to deposit service tax (under
reverse charge method), he is also required to obtain registration.
5. Provision for centralized registration
Service provider located in one or more premises having centralized accounting
or centralized billing system, may register such premises or office from where
such centralized billing or centralized accounting systems are located and thus,
hold centralized registration. The Commissioner of Central Excise in whose
jurisdiction centralized account or billing office of the assessees exists, is
empowered to grant centralized registration.
Filing of half-yearly service tax returns in Form ST-3. Return for half year
ending on 30th day of September and 31st day of March is required to be filed
by the 25th day of October and 25th day of April, respectively.
6. CENVAT Credit
Credit under central excise and service tax has been extended across goods and
services. The CENVAT Credit Rules, 2004 provide inter alia for availment of
the credit of (i) the service tax paid on input services; (ii) central excise duties
paid on inputs/capital goods; and (iii) additional customs duty leviable under
s 3 of the Customs Tariff Act, equivalent to the duties of excise. Such credit
amount can be utilized towards payment of service tax by an assessee on their
output services.
Such credit can also be availed by a manufacturer and utilised for discharging
their liability towards service tax and/or central excise duties.
8. Advance ruling
Advance ruling means the determination, by the Authority, of a question of law
or fact specified in the application regarding the liability to pay service tax in
relation to a service proposed to be provided by the applicant.
Authority for Advance Rulings for Central Excise, Customs and Service Tax is
meant to provide binding ruling on the important issues such that intending
applicants will have a clear-cut indication of their duty/ tax liability in advance.
9. Administration
The service tax law is administered by the Central Excise Commissionerates
functioning under the Central Board of Excise & Customs (CBEC), Department
of Revenue, Ministry of Finance, Government of India.
Customs Duty
Section 12 of the Customs Act, the charging section, provides that duties of
customs shall be levied at such rates as may be specified under the Customs
Tariff Act, 1975 (CTA), or any other law for the time being in force, on goods
imported into, or exported from India. Customs duties include both import and
export duties. However, since export duties contribute only nominal revenue
due to emphasis on raising competitiveness of exports, import duties alone
constituted major part of the revenue from customs duties.
Customs duties are levied on the goods at the rates specified in the Schedule(s)
to the CTA as amended from time to time. The taxable event is imported into or
exported from India.
5. Safeguard duty
Sections 8B, 8C, 9A, 9B and 9C of the CTA read with the Customs Tariff
(Identification and Assessment of Safeguard Duty) Rules, 1997 and the
Customs Tariff (Transitional Products Specific Safeguard Duty) Rules, 2002
form the legal basis for imposition of safeguard duty. The Central Government
is empowered to impose safeguard duty on specified imported goods if it is
satisfied that imports of a particular product, as a result of tariff concessions or
other World Trade Organisation (WTO) obligations undertaken by the
importing country, increase unexpectedly to an extent that they cause or
threaten to cause serious injury to domestic producers of like or directly
competitive products. The relevant provisions under the CTA seek to provide
relief to the domestic producers against injury caused by imports in accordance
with the WTO Agreements. These provisions are aimed at offsetting the
adverse effects of increased imports, subsidised imports or dumped imports and
imports from the Peoples Republic of China.
6. Anti-dumping duty
Sections 9A, 9B and 9C of the CTA read with the Customs Tariff
(Identification, Assessment and Collection of Anti-dumping Duty on Dumped
Articles and for Determination of Injury) Rules, 1995 form the legal basis for
anti-dumping investigations and for the levy of anti-dumping duties. These
laws are based on the Agreement on Anti-Dumping which is in pursuance of
Article VI of the General Agreement on Trade and Tariffs (GATT), 1994.The
domestic industry can seek necessary relief and protection against dumping of
goods and articles by exporting companies and firms of any country from any
part of the world in terms of the above legal framework.
Authority for Advance Rulings for Excise and Customs (AAR) is meant to
provide binding ruling on the important issues so that prospective investors will
have a clear indication of their customs duty liability in advance. It assures the
applicant of the finality of the customs duty liability.
Article 246(1) of the Constitution of India confers exclusive powers upon the
Parliament to make laws with respect to any of matters enumerated in the
Union List.
Article 246(3) of the Constitution of India confers exclusive powers upon the
State Government to make laws for the State with respect to any matter
enumerated in List II of the Seventh Schedule to the Constitution of India (the
State List). Power to impose excise on alcoholic liquors, opium and narcotics
is vested with State Governments under Entry No. 51 of List II of the Seventh
Schedule to the Constitution of India and it is called State Excise. The Act,
Rules and rates for State excise on liquor are different for each State.
Matters in respect of which both the Union and State Governments can exercise
power to make laws are contained in List III of the Seventh Schedule to the
Constitution of India (the Concurrent List). However, in case of Union
Territories, the Union Government can make laws in respect of all the entries in
all three lists.
In exercise of its powers, the Parliament enacted the Central Excise Act, 1944
(the Central Excise Act) and Rules thereunder, which inter alia provide for
levy, collection and connected procedures with respect to central excise duty
(called CENVAT).
Section 3 of the Central Excise Act, the charging section, provides that there
shall be levied and collected, in such a manner as may be prescribed, a duty of
excise to be called the Central Value Added Tax (CENVAT) on all excisable
goods (excluding goods produced or manufactured in Special Economic Zones)
specified in the Second Schedule to the Central Excise Tariff Act, 1985
(CETA) which are produced or manufactured in India, as, and at the rates, set
forth in the said Second Schedule.
The central excise duty is on the act of manufacture or production. The duty is
collected, on the goods manufactured or produced, at the time of their removal
from the factory. Generally, the manufacturer of goods is responsible to pay
duty to the Government. The rates at which the central excise duty is to be paid
are stipulated in the CETA.
From the above, it can be observed that there are four basic conditions for levy
of central excise duty, namely
(i) the duty is on goods; the word goods has not been defined the Central Excise
Act. Article 366(12) of the Constitution of India defines goods includes all
material, commodities and articles. This definition is wide for the purpose of
central excise and case law on this is quite well developed.
(ii) the goods must be excisable;
(iii) the goods must be manufactured or produced; the term manufacture is defined
under s 2(f) of the Central Excise Act as to include 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 First Schedule) to
the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture;
or (iii) which, in relation to the goods specified in the Third Schedule, involves
packing or repacking of such goods in a unit container or labelling or re-
labelling of containers including the declaration or alteration of retail sale price
on it or adoption of any other treatment on the goods to render the product
marketable to the consumer, and the word manufacturer shall be construed
accordingly and shall include not only a person who employs hired labour in
the production or manufacture of excisable goods, but also any person who
engages in their production or manufacture on his own account;
(iv) such manufacture or production must be in India.
Unless all of these conditions are satisfied, central excise duty cannot be levied.
Further, a special duty of excise, in addition to the duty of excise specified in s
3(1)(a) above, on excisable goods (excluding goods produced or manufactured
in Special Economic Zones) specified in the Second Schedule to the CETA
which are produced or manufactured in India, as, and at the rates, set forth in the
said Second Schedule shall be levied and collected in such manner as may be
prescribed.
Choosing the right heading or sub-heading of the tariff and determining the
applicable rate for the particular goods is commonly referred to as classification
of goods.
For the purpose of excise duty, a manufacturing unit shall be eligible to claim
exemption as an SSI unit if the turnover of such manufacturing unit is less than
Rs 4,00,00,000 (Indian Rupees Forty Million) during the previous financial
year. Further, turnover of up to Rs 1,50,00,000 (Indian Rupees Fifteen Million)
is fully exempted from excise duty provided CENVAT Credit is not availed on
inputs, etc. SSI units do not require registration until the threshold limit is
crossed.
However, a person has the option not to avail this exemption. Such a person
should intimate his intention of not availing exemption before removing goods
on the payment of duty. In such a case, the person can pay normal rate of duty
and avail credit and such option cannot be withdrawn during the financial year.
The buyers, on the basis of tax invoice issued by the manufacturers, would be
allowed to avail CENVAT credit in respect of the duty paid/payable on such
goods immediately on receipt of the goods by them.
Advance ruling
Advance rulings enable a non-resident investor to know in advance the central
excise duty liability on the proposed imports into India and proposed exports
from India.
Authority for Advance Rulings for Excise and Customs (AAR) is meant to
provide binding ruling on the important issues so that prospective investors will
have a clear indication of their customs duty liability in advance. It assures the
applicant of the finality of the customs duty liability.
The Central Excise (Advance Rulings) Rules, 2002 notified vide Notification
No. 28/2002-C.E. (N.T.) dated August 23, 2002 as amended provide for the
format to be used for filing an application.
Persons eligible to apply for advance ruling
(i) A non-resident setting up a joint venture in India in collaboration with a non-
resident or a resident;
(ii) A resident setting up a joint venture in India in collaboration with a non-
resident;
(iii) A [Indian] wholly owned subsidiary Indian company, of a foreign company,
which the holding company is a foreign company, who or which proposes to
undertake any business activity in India;
(iv) A joint venture in India; and
(v) A resident falling within any such class or category of persons, as the Central
Government may, by notification in the Official Gazette, specify in this behalf,
and which or who, as the case may be, makes application for advance ruling
under s 23C of the Central Excise Act. The notified class of person also
includes (i) the limited liability partnership as defined in cl (n) of sub-s (1) of
the s 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); or (ii) limited
liability partnership which has no company as its partner; or (iii) the sole
proprietorship; or (iv) one person company;
Voluntary registration
A dealer not liable to pay CST, for the reason that he is not effecting inter-state
sales, may need to obtain registration under the CST Act if he is effecting inter-
state purchases. For this purpose, s 7(2) provides for voluntary registration to a
dealer if he is holding a registration certificate under the local sales tax law.
Capital goods (machinery, plant, spare pats of machinery, tools, dies, etc) as
defined in r 2(a) of the CCR, used for manufacture of final product and/or used
for providing output taxable services, will be eligible for CENVAT Credit.
Capital goods should be used in the factory. Under the CENVAT Credit
scheme, 50% credit is available in the year in which the capital goods received
in a factory or in the premises of the provider of output services at any point of
time and balance in subsequent financial year or years [r 4(2) of CCR].
However, the CENVAT Credit in respect of capital goods shall not be allowed
in respect of that part of the value of capital goods which represents the amount
of duty on such capital goods, which the manufacturer or provider of output
services claims as depreciation under s 32 of the Income-tax Act, 1961 [r 4(4)
of CCR].
32. Compliances
In terms of r 9A(1) of CCR, a manufacturer of final products is required to
furnish annually by 30th April of each financial year, a declaration in Form ER-
5, in respect of each of the excisable goods manufactured or to be
manufactured, the Principle inputs, etc.
33. Introduction
It is speculated that Goods and Services Tax will be introduced in India in April
2016. The Constitution (One Hundred and Twenty Second Amendment) Bill,
2014 was introduced in the Lok Sabha on 18.12.2014. The Bill makes enabling
provisions for introduction of GST. As per Statement of Objects and Reasons
appended to the Bill, the object to have common national market and avoid
cascading effect of taxes.
The model of GST proposed to be adopted in India is one of Dual GST, whereby
a Central Goods and Services Tax (CGST) and a State Goods and Services Tax
(SGST) will be levied on the taxable value of every transaction of supply of
goods and services. The taxes which are proposed to be subsumed under GST
are as follows:
Goods and Services Tax means a tax on supply of goods or services, or both,
except taxes on supply of alcoholic liquor for human consumption. 1 The word
used in the Bill is supply and not sale. Thus, stock transfers, branch transfers
will also get covered under GST net. Services has been defined to mean
anything other than goods.2 GST is consumption based tax, ie, tax will be
payable in the State in which goods and services are to be consumed.
by
Shammi Kapoor [email protected]
Vishal Kumar [email protected]
Purva Juneja [email protected]
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