An Overview of Indirect

Taxes
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 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

Section 2 (f) of Central Excise Act, 1944.

under

Accordingly to which it includes any process(i)

and

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
manufacture.

ORGANISATIONAL STRUCTURE OF CBEC

CBEC
ZONE-1

ZONE-III
ZONE-II

Commissionerate-I

Commissionerate-II

Division-I

Range-I

RangeII

RangeIII

Commissionerate-III

Division-II

RangeIV

CommissionerateIV

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

services

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
Existing Rate: 19-20%
GST: 16 %
8%- CGST
8%- SGST

Services
Existing Rate: 10%
GST: 16 %
8%- CGST
8%- SGST

* Figures are only indicative

Slide 17

Taxes subsumed in dual GST

Dual GST

Central Taxes

CGST

State Taxes

SGST

VAT
Entertainment tax
Luxury tax
Lottery taxes
State cesses and
surcharges
Entry tax not in lieu of
octroi

Central Excise
CVD
SAD
Service Tax

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
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 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
States

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

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 22

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.

Slide 23

Taxation of inter-State transactions IGST model

State 1

State 2

Invoice

Invoice
Input
IGST
CGST
SGST

Value
100
CGST
Nil
State 1 GST Nil
IGST
16 *
-----------------------116
------------------------

Dealer

Final
Consumer

Value
200
CGST
16
State 2 GST
16
------------------232
--------------------

*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