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The Tax Structure present in India is very strong and it follows the financial year. The taxation as per the tax structure in India is applicable for any kind of income pertaining to any person working as an employee in the public sector units or private sector units or foreign companies in India or in Departments of the State Governments of India, or Departments of the Central Government of India or is self employed and engaged in commercial activities which are legal in nature. Several corporations that are engaged in commercial activities also come under taxation. The public bodies as well as state governments and central government have clear demarcation of their functioning. Central government imposes tax on all types of income such as customs duties, central excise, and service tax apart from the income pertaining to agriculture. The State Governments of India are responsible for imposing tax such as sales tax, Value Added Tax (VAT), income from agriculture, professional tax, state excise duty, land revenue, etc. Taxes imposed by the local bodies pertain to Octroi tax, drainage and sewage utilities, water supply utilities, property tax, etc. Different types of taxes levied under tax structure in India:

Direct Taxes Personal Income Tax Tax on Corporate Income Tax Incentives Capital Gains Tax Indirect Taxes Securities Transaction Tax Service Tax Excise Duty Customs Duty Taxes Levied by the State Governments and Local Bodies Other Taxes Sales Tax or Value Added Tax

Different heads of income under tax structure in India:

Salary House property Profit in business or profession Capital gains Other sources

The different types of exemption schemes under tax structure in India:

Exemption on income spent for higher educational purpose Exemption on income spent on the treatment of a diseased person if he/she is dependent Exemption on income that is spent as contribution towards provident fund, insurance policies, etc Exemption on the income that is spent on buying national savings certificates as well as investments in other government based savings schemes Exemption on income of a disabled person Exemption on income spent for payment of interest on loan

Other important facts under tax structure in India:

The laws pertaining to central government income tax collection & recovery is governed by Department of Tax and Revenue under the Ministry of Finance, India The system of taxation completely depends on the personal assessment of income Penalties as well as interest are charged incase of non payment of taxes & failure to file returns The filing date cannot be extended. Any late filing is charged with interest Returns pertaining to losses need to be filed within the due date All the medium sized and large sized taxpayers are subject to investigative assessment For the purpose of filing returns, designated due dates are ascertained Tax is deducted at source by employers on behalf of employees as well as from all types of defrayments to non residents

Sales Tax In India

Sales tax is levied on the sale of a commodity which is produced or imported and sold for the first time. If the product is sold subsequently without being processed further, it is exempt from sales tax. Sales tax can be levied either by the Central or State Government, Central Sales tax department. Also, 4 per cent tax is generally levied on all inter-State sales. State sales taxes, that apply on sales made within a State, have rates that range from 4 to 15 per cent. Sales tax is also charged on works contracts in most States and the value of contracts subject to tax and the tax rate vary from State to State. However, exports and services are exempt from sales tax. Sales tax is levied on the seller who recovers it from the customer at the time of sale. Sales Tax in India is that form of tax which is imposed by the government on sale/purchase of a particular commodity within the country. It is imposed under Central Government (Central Sales Tax) and the State Government (Sales Tax) Legislation. Normally, each state has its own sales tax act and leviesthe tax at various rates. Apart from sales tax, certain states also impose extra charges such as works contracts tax, turnover tax & purchaser tax. Thus,sales tax plays a major role in acting as a major generator of revenue for the various State Governments. Under the sales tax which is an indirect form of tax, it is the responsibility of seller of the commodity to collect or recover the tax from the purchaser. Generally, the sale of imported items as well as sale by way of export is not included in the range of commodities that require payment of sales tax. Moreover, luxury items (such as cosmetics) are levied higher sales tax rates. The Central Sales Tax (CST) Act that comes under the direction of Central Government takes into consideration all the interstate sales of commodities. Hence, we see that sales tax is to be paid by every dealer when he sells any commodity, during inter-state trade or commerce, irrespective of the fact that there may be no liability to pay tax on such a sale of goods under the tax laws of the appropriate state. Sales tax is to be paid to the sales tax authority of the state from which the movement of the commodities starts or commences. VAT replaces sales tax However, most of the states in India, from April 01, 2005, have supplemented the sales tax with the new Value Added Tax (VAT). VAT in India is classified under the following tax slabs:

0% for the essential commodities 1% on gold ingots as well as expensive stones 4% on capital merchandise, industrial inputs, and commodities of mass consumption 12.5% on all other items Variable rates (depending on state) are applicable for tobacco, liquor, petroleum products, etc.

A Central Sales Tax which is at the rate of 4% is also levied on inter-State sales but would be eliminated gradually.

Municipal/Local Taxes

Octroi/entry tax: Certain municipal jurisdictions levy an Octroi/entry tax on the entry of goods

Other State Taxes

Stamp duty on the transfer of assets Property/building tax that is levied by local bodies Agriculture income tax levied by the State Governments on the income from plantations Luxury tax that is levied by certain State Government on specified goods

Budget 2009-2010 According to the budget 2009-2010, Central Sales tax is to be reduced to 2% from April Who Pays Sales Tax In India? Sales Tax i.e. the Central Sales Tax (CST) is an indirect tax as it is recovered from the buyers/consumers as a part of the consideration for the sale of goods. However, for the purpose of CST, the actual payment of the Sales Tax is made by every dealer on the goods sold by him in the course of inter-state trade or commerce. This tax is payable even though there may be no liability to pay the tax on the sale of goods according to the tax laws of that particular state. Person Liable to Pay Central Sales Tax Section 8(1) of the Central Sales Tax states that every dealer who is in the course of inter-state trade or commerce will be liable to pay tax on sale of goods under this Act. Thus, liability to pay Sales Tax lies with the dealer who sells the goods. Dealer for the purpose of this Act includes: Dealer Section 2(b) of the CST Act defines the word dealer. Dealer means any person who carries on the business of buying, selling, supplying or distribution of goods. The business could be carried on either regularly or otherwise, either directly or indirectly, either for cash or for deferred payment or for valuable consideration. Any person who is a dealer would be liable to pay Sales Tax. The term dealer includes: a. a local authority, a body corporate, a company, any cooperative society, club, firm, Hindu Undivided Family (HUF) or other Association Of Persons (AOP) which carries on such business; b. a factor, broker, commission agent, del credere agent, or any other mercantile agent, by whatever name called who carries on the business of buying, selling, supplying or distribution of goods belonging to any principal whether disclosed or not; and c. an auctioneer who carries on the business of selling or auctioning goods belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of principal.

Government as a Dealer Explanation 2 of Section 2(b) of the Act clarifies that the Government which buys, sells, supplies or distributes goods, whether in the course of business or not, whether directly or otherwise, whether for cash or deferred payment or for commission, remuneration or other valuable consideration, shall be a dealer and would require to pay Sales Tax. Government can be a dealer if specifically included in the definition of dealer. The exception to this clause is the sale, supply or distribution of un-serviceable or old stores or old materials or waste products or obsolete or discarded machinery or parts or accessories. This exception is made because of the fact that all Government departments have to make such sale of old goods. But, this exception is not applicable to private enterprises. It is made only for Government. Public Sector Undertakings (PSU i.e. Government Companies) are not Government and hence do not fall under the exemption. Ancillary, Incidental and Casual Business Dealer Any activity which is incidental or ancillary to the main business also constitutes business and thus, any person engaged in such business or any other casual business is also a dealer and is liable to pay Sales Tax. Club as a dealer A members club whether incorporated or unincorporated is a dealer and will require registration. It is stated that the supply of goods by an unincorporated body to its members will be considered sale. Thus a club that supplies goods to its members is a dealer and thus liable to pay CST. To Whom Central Sales Tax is Payable Sales Tax is paid to the Sales Tax Authority in the state from where the goods are moved, i.e. the state from where the movement of goods begin. The dealer would pay the tax to the state authority from where he makes the sale, even though there may be no liability of tax on sale of goods according to the tax laws of that state itself. Constitutes Of Sales Tax Act In India According to S2 (g), a sale refers to any transfer of property in goods by one person to another for cash or, deferred payment or, for any other valuable consideration. It also includes the following: 1. A sale or purchase of goods is said to take place when the transfer of property in the existing goods or future goods takes place for consideration of money. 2. The goods have been divided into different categories and different rates of sales tax are charged for different categories of goods. 3. In most of the cases related to the sales tax, the tax on the sale or purchase of goods is at single point. 4. Under the provisions of some state laws the assesses are divided into several categories such as manufacturer, dealer, selling agent etc. and such as assess is required to obtain a registration certificate to that effect. The sales tax or the purchase tax is levied on that assessee on the basis of his category such as dealer, manufacturer etc. on production of certain forms or certificates (and differential rates of sales tax are levied).

5. Generally , a quarter return of sales or purchases is insisted upon and the assessee is required to furnish the return in the prescribed form. 6. At the time of assessment, the assessee has to furnish all the documentary evidence and satisfy the concerned sales tax / commercial tax officer. 7. The sales tax laws of the states prescribe the procedure to be followed in case an assessee prefers to make an appeal. 8. Every dealer should apply for registration and obtain a registration certificate to that effect. The registration certificate number should be quoted in all the bill / cash memos. 9. A supply, by way of or, as part of any service or, in any other manner whatsoever of goods, of goods, being food or any other article for human consumption or any drink (whether intoxicating or not), where such supply or service if for cash, deferred payment or other valuable consideration. However, this does not include a mortgage or hypothecation of or a charge or pledge on goods. In order to constitute a sale, it is necessary that the following conditions must exist: 1. The parties are competent to contract. 2. There is an agreement between the parties for the purpose of transferring title to the goods. 3. It must be supported by money consideration. 4. As a result of the transaction, the property must actually pass in the goods. What are goods? Goods, for the purposes of the Act, include the following:

Materials. Articles. Commodities. All kinds of movable property. (Movable property is property, which is capable of being lifted, carried, drawn, turned or conveyed or in any way made to change place or position. The nature of movable property is such that its identity is not lost if it is moved from one location to another.). Standing crops, grass, trees, timber and other things attached to the earth, if it is agreed under the contract of sale that they will be severed or cut off the land where they are so attached; or, if the crop or timber is identified; the contract is unconditional; or the crop or timber is in a deliverable state. Electric meters, which are the equipments, used for measuring electricity for the purpose of selling it to consumers, are goods. It is important to note that only for the purposes of the CST Act, the following are not deemed to be goods and, therefore, are not assessable to CST. Newspapers. (Exception: sale of old or waste newspapers is taxable & a dealer may buy raw material for newspapers at a concessional rate on submission of Form C) Actionable claims. Stocks shares and securities.

Inter State Trade or Commerce In Sales Tax A sale or purchase of goods shall be deemed to take place in the course of interstate trade or commerce if the sale or purchase-a. Occasions the movement of goods from one state to another. b. Is effected by a transfer of documents of title to the goods during theirmovement from one state to another. Where the goods are delivered to a carrier or other bailee for transmission, the movement of the goods for the purpose of clause is deemed to start at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Also, when the movement of goods starts and terminates in the same State, it shall not be deemed to be a movement of goods from one State to another. To make a sale as one in the course of interstate trade, there must be an obligation to transport the goods outside the state. The obligation may be of the seller or the buyer. It may arise by reason of statute or contract between the parties or from mutual understanding or agreement between them or, even from the nature of the transaction, which linked the sale to such transaction. There must be a contract between the seller and the buyer. According to the terms of the contract, the goods must be moved from one state to another. If there is no contract, then there is no inter-state sale. There can be an interstate sale even if the buyer and the seller belong to the same state; even if the goods move from one state to another as a result of a contract of sale; or, the goods are sold while they are in transit by transfer of documents. Transactions not amounting to inter-state sales : Not all despatches of goods from one state to another result in inter state sales rather the movement must be on account of a covenant or incident of the contract of sales. There are some instances wherein the goods are moved out of the selling state and yet they are not considered inter state sales :

Intra-state sales. Stock transfer from head office to branch & vice versa. Import and Export sales or purchases. Sale through commission agent / on account sales. Delivery of Goods for executing works contract.

Dealers In Sales Tax India A dealer under Section 2(b) means any person, who carries on (whether regularly or otherwise) the business of buying, selling, supplying or distributing goods directly or indirectly for cash or, for deferred payment or for commission remuneration or, other valuable consideration.

Dealer also includes:1. A local authority, a body corporate, a company, any co-operative society or other society, club, firm, Hindu undivided family or other association of persons which carries on such business. 2. A factor, broker, commission agent, del credere agent or any other mercantile agent, by whatever name called and, whether of the same description as mentioned earlier or not, who carries on the business of buying, selling, supplying or distributing goods belonging to any principal, whether disclosed or not. 3. An auctioneer, who carries on the business of selling or auctioning goods belonging to any principal, whether disclosed or not and, whether the offer of the intending purchaser is accepted by him or, by the principal or, a nominee of the principal. 4. Every person, who acts in any State, as an agent of a dealer residing outside that State and buys, sells, supplies or distributes goods in the State or, acts on behalf of such dealer aso A mercantile agent, as defined in the Sale of Goods Act, 1930. o An agent for handling of goods or documents of title relating to goods. o An agent for the collection or the payment of the sale price of goods or, as a guarantor for such collection or payment. Every local branch or office in a State of a firm, registered outside that State or, a company or, other body corporate, the principal office or headquarters that is outside that State, shall be deemed to be a dealer under the Act. Dealers Must Furnish Security. The Sales Tax Authority has the power to impose a condition for the issue of certificate of registration and requires the dealer to furnish security, as specified in the prescribed manner and, within the prescribed time. This security is required for the following reasons:

To insure that the tax payable is properly realized. For custody and use of forms.

Maximum amount of security that a dealer can be asked to furnish. There is an upper limit to the amount of security that can be asked for by the authorities to the dealer.

In the case of a dealer who applies for compulsory registration, the amount of tax, payable by him for the current year(I.e. for which the security or additional security is demanded), under the CST Act (tax payable is estimated on the basis of turnover of the dealer for the current year). In the case of a dealer, who has made an application under voluntary registration or, is otherwise registered under voluntary registration, a sum equal to tax, leviable under the CST Act (the amount, estimated in accordance with the sales to such dealer in course

of inter-state trade or commerce for the current year, had such dealer not registered under the Act. Import Or Export In Sales Tax India Inside Or Outside A State Sale Or Purchase. Section 4(2) Central Sales Tax Act states that a sale or purchase of goods shall be said to take place inside a state, if the goods are within the State, in the following situations:

If the goods are specific (Goods, identified and agreed upon at the time of making of the contract of sale) or ascertained, at the time the contract of sale is made. In the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party has been made prior or subsequent to such appropriation.

Hence, Sub-section 2 to S 4 lays down that the sale or the purchases of goods are deemed to take place inside a state in the following cases: 1. In case of ascertained goods or specific goodsi.e. such goods are within the state at the time of contract of sale. 2. In the case of unascertained or future goodsi.e. such goods are in that State in which the goods are situated at the time of their appropriation to the contract of sale by the buyer or seller. When goods are sold or purchased inside any state, as explained above, such sale or purchase is said to have taken place outside ALL other states. Where there is a single contract of sale or purchase of goods, situated at more than one place, the provisions of the Act will apply as if there were separate transactions in respect of the goods at each of such places. Sales Or Purchase In The Course Of Export. Section 5(1) Central Sales Tax Act states that a sale or purchase of goods is deemed to take place in the course of export of the goods out of the territory of India, only if the sale or purchase either occasions such export or is effected by a transfer of documents of title after the goods have crossed the customs frontiers of India. To constitute a sale in the course of export, there must be an intention on the part of both the buyer and seller to export. There must be an obligation to export and there must be an actual export. In order to prove that a sale was occasioned in the course of export, a person will not only have to prove that the goods have moved from a place inside India to a place outside India. The mere taking of the goods out of India does not amount to the export of the goods. Notwithstanding anything in sub-section (1), the last sale or purchase of any goods, preceding the sale or purchase occasioning the export of those goods out of the territory of India, shall also be deemed to be in the course of export. However, such last sale or purchase should have taken place after and was for the purpose of complying with the agreement or, order for or, in relation to such export.

Sales Or Purchase In The Course Of Import. Section 5(2) Central Sales Tax Act states that a sale or purchase of goods is deemed to take place in the course of import of the goods into the territory of India only if the sale or purchase either occasions such import or, is effected by a transfer of documents of title before the goods have crossed the customs frontiers of India. If a sale is effected by a transfer of documents of the goods before the goods have crossed the customs frontiers of India, a sale or purchase is deemed to have taken place in the course of import of the goods into the Indian territory. S 2(ab) defines Crossing the customs frontiers as crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities. Business, Manufacture And Works Contract In Sales Tax India What Is Business? Section 2(aa) states that a business includes the following:i. Any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such tradecommerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and, whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern. Any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern.


What Is Place Of Business? A place of business includes the following:1. In any case, where a dealer carries on business through an agent by (whatever name called) the place of business of such agent. 2. A warehouse, godown or other place where a dealer stores his goods. 3. A place where a dealer keeps his books of accounts. A dealer may have one or more places of business in more than one State or city. In such case, he will have to get himself registered under the sales taxauthority of each state. Thus, the place of business is the place where the business is actually carried out as well as where an agent carries on the business, where the goods are stored (e.g. godown or warehouse) and the place where the books of accounts of the business are stored. What Is A Works Contract? A works contract is an agreement, which is entered into for the following purposes: 1. For carrying out construction, fitting out, improvement or repair of any building, road, bridge or other immovable or movable property. 2. For cash, or for deferred payment, or for other valuable consideration.


In other words, whenever there is a contract, by which one person promises to make something which, when made, will not be his absolute property, and by which, the other person promises to pay for the work done, will be considered to be a contract for work. This will be the case even if the payment maybe called a price for the thing and if the materials, of which the thing is made, may be supplied by the maker. Though the Central Sales Tax Act still has no definition for a contract or works contract, the definition of sale includes a transfer of property in goods, involved in the execution of a works contract. In order to prevent evasion of tax by the transfer of property through a works contract, the Indian Constitution was amended to make such transactions taxable. Works contracts are taxable under most State sales tax laws (but not under the Central Sales Tax Act). However, it is only taxable to the extent of the value of the goods that have been transferred. This means that the full value of the Works Contract is not taken into account while calculating tax that is payable under the state sales tax laws. What Is Turnover? Turnover is defined under S 2(j) to mean the aggregate of the sale prices in respect of sales of any goods in the course of inter-State trade or commerce, made during any prescribed period. This is determined in accordance with the provisions and rules of the Act. What Is Meant By Manufacture? Manufacture refers to the conversion of goods into a new form, whereby an altogether different article emerges. The conversion of raw material to finished goods is termed as manufacture. A checklist of goods, which may be used in manufacture, is given below:1. 2. 3. 4. 5. 6. Raw material. Fuels and consumables. Machines, spare tools etc. Storage and handling equipment for materials. Goods required for research and development. Computer internal telephone system used for production purposes.



Dr. Manmohan Singh, the then Union Finance Minister, in his Budget speech for the year 199495 introduced the new concept of Service Tax and stated that '' There is no sound reason for exempting services from taxation, therefore, I propose to make a modest effort in this direction by imposing a tax on services of telephones, non-life insurance and stock brokers.'' Service Tax has been introduced in order to explore new avenues for taxation and to bring more people into the tax net. Service Tax generated revenue of Rs 2612 crores in 2000-2001. In 20012002 it is estimated at 3600 crores. Bringing services under taxation is not simple as the services are intangible and are provided by large groups of organized as well as unorganized service providers including retailers who are scattered across the country. Further, there are several services, which are of intermediate nature. The low level of education of service providers also poses difficulties to both-tax administration and assessees. The Service Tax assessee is the person/firm who provides the service. Hence, the Service Tax must be paid by the person/firm providing the service. As stated earlier, service tax was introduced in India for the first time in 1994. Chapter V of the Finance Act, 1994 (32 of 1994) (Sections 64 to 96) deals with imposition of Service Tax interalia ona. Service rendered by the telegraph authorities to the subscribers in relation to telephone connections. b. Service provided by the insurer to the policy-holder in relation to general insurance business. c. Service provided by a stockbroker. The Finance Acts of 1996, 1997, 1998, 2001, 2002 and 2003 added more services to tax net by way of amendments to Finance Act, 1994. At present total number of services on which Service Tax is levied has gone upto 58 despite withdrawal of certain Services from the tax net or grant of exemptions (Goods Transport Operators, Outdoor Caterers, Pandal and Shamiana Contractors, and Mechanized Slaughter Houses). Service tax Includes Service tax is a form of indirect tax that is applicable to the services that are taxable in nature. This tax came into existence as government wants an easy option that is transparent in nature that can generate revenue for the nation in an easy way. In past few years service tax is applied on various new services. Unlike value added tax that is applicable on goods and commodities, this tax is imposed on various services that is provided by the financial institutions such as banks, stock exchange, colleges, transaction providers, telecom providers. Banks are the first that charges service tax to its customer since inception often they termed service charges as processing fees. The responsibility of collecting the tax lies with the Central Board of Excise and


Customs (CBEC) its a body under the Ministry of Finance. This body formulates the tax structure in the country. Service tax was imposed first in India in July 1994. The service tax is applicable all over India however due to the national interest and for the betterment of the people of Jammu and Kashmir it is waved off. In 2006- 2007 service tax was increased from 10% to 12% however it was again reduced from 12% to 10% in the Union budget of 2009. It is often noticed that there is a lack of service tax information among the people. Government has gradually increasedthe list of taxable services to increase the revenue. Lets have a look at the major services that comes under the scanner of service tax: - Telecommunication - Traveling agencies (air, road and railway services) - Architects - Management consultants - Universities, colleges and schools - Credit rating agencies - Market research analyst - Broadcasting services (television and radio) - Banking and other financial services - Authorized service stations - Export import unit - Cargo and shipping - Telegraph services - Hospitals and health care services - Storage and warehousing services - Maintenance and repair services - Franchise owner - Retail stores - Transportation of goods - Packaging services - Airport services - Cable operators - Event managements - Beauty parlors - Dry cleaning services - Real state agents - Consultants of different services - Insurance underwriting agencies Classification Of Services The provisions relating to Service Tax were brought into force with effect from 1st July 1994 vide notification No. 1/94 dated June 28, 1994 published in the Gazette of India.. It extends to

- Stock broker - Passport services - Immigration services - Legal advising units - Chartered accountant firms - Customer service units - Technical support advising firms - Tourists services - Automobile service stations - Electronic and electrical service stations - Human resource services - Membership of clubs and association - Share and stock transfer agent - Survey and exploration of minerals - Cost accountant - Internet telephony services - Security agencies - Transport of goods by air - Health clubs - Pager services - Real state agent - Ship management services - Port services - Custom house agent - General insurance services - Containers by rail - Postal services

whole of India except the state of Jammu & Kashmir. Set out hereunder are the services hat have been brought within the purview of service tax since its introduction vide the Finance Act, 1994: The services, brought under the tax net in the year 1994-95, are as below: 1. Telephone 2. Stockbroker 3. General Insurance The Finance Act (2) 1996 enlarged the scope of levy of Service Tax covering three more services, viz., 1. Advertising agencies, 2. Courier agencies 3. Radio pager services. But tax on these services was made applicable from 1st November, 1996. The Finance Acts of 1997 and 1998 further extended the scope of service tax to cover a larger number of services rendered by the following service providers, from the dates indicated against each of them. 7. Consulting engineers 7th July, 1997 8. Custom house agents 15th June, 1997 9. Steamer agents 15th June, 1997 10. Clearing & forwarding 16th July, 1997 agents 11. Air travel agents 1st July, 1997 exempted upto 31.3.2000 Notification No.52/98, 12. Tour operators 8th July, 1998, reintroduced w.e.f. 1.4.2000 exempted upto 31.3.2000 Vide Notification No.3/99 13. Rent-a-Cab Operators Dt.28.2.99, reintroduced w.e.f. 1.4.2000 14. 1st July, 1997 Manpower recruitmentAgency 15. Mandap Keepers 1st July, 1997 The services provided by goods transport operators, out door caterers and pandal shamiana contractors were brought under the tax net in the budget 1997-98, but abolished vide Notification No.49/98, 2nd June, 1998.


Government of India has notified imposition of service Tax on twelve new services in 1998-99 union Budget. These services listed below were notified on 7th October, 1998 and were subjected to levy of Service Tax w.e.f. 16th October, 1998. 16. Architects 17. Interior Decorators 18. Management Consultants 19. Practicing Chartered Accountants 20. Practicing Company Secretaries 21. Practicing Cost Accountants 22. Real Estates Agents/Consultants 23. Credit Rating Agencies 24. Private Security Agencies 25. Market Research Agencies 26. Underwriters Agencies In case of mechanized slaughter houses, since exempted, vide Notification No.58/98 dtd. 07.10.1998, the rate of Service Tax was used to be a specific rate based on per animal slaughtered. In the Finance Act2001, the levy of service tax has been extended to 14 more services, which are listed below. This levy is effective from 16.07.2001. 27. Scientific and technical consultancy services 28. Photography 29. Convention 30. Telegraph 31. Telex 32. Facsimile (fax) 33. Online information and database access or retrieval 34. Video-tape production 35. Sound recording 36. Broadcasting 37. Insurance auxiliary activity 38. Banking and other financial services 39. Port 40. Authorised Service Stations 41. Leased circuits Services In the Budget 2002-2003, 10 more services have been added to the tax net which are listed below. This levy is effective from 16.08.2002. 42. Auxiliary services to life insurance 43. Cargo handling 44. Storage and warehousing services 45. Event Management 46. Cable operators 47. Beauty parlours

48. Health and fitness centres 49. Fashion designer 50. Rail travel agents. 51. Dry cleaning services. and these services have been notified on 1-8-2002 and were subject to levy of Service Tax w.e.f. 16-8-2002. In the Budget 2003-2004, more services have been added to the tax net, which are listed below. This levy is with respect to the belowstated services was effective from July 1, 2003. 52. Commercial vocational institutes, coaching centres and private tutorials 53. Maintenance and repair services. 54. Commissioning and installation services 55. Business auxiliary service 56. Technical testing and analysis; technical inspection and certification 57. Internet cafe services 58. Franchise services In the budget 2004-2005 13 more services are proposed to be added, to the list of taxable services. The services are: 59. Airport services 60. Transport of goods by air 61. Survey and exploration of minerals 62. Business exhibition services 63. Transport of goods by road 64. opinion poll services 65. Intellectual property services 66. Broker of forward contracts 67. Pandal and shamiana contractors 68. Outdoor caterers 69. Independent TV/radio programme producers 70. Construction services in respect of commercial and industrial constructions 71. Travel agents The basis for classification of services can be found in Section 65A of the Finance Act, 1994 according to which, classification of taxable services shall be determined in terms of the sub clauses of clause (104) of Section 65 of the Finance Act, 1994. It has been seen that in practice, the classification of services is not a watertight chamber. On the contrary, it has been seen that there are numerous overlaps when related services are concerned. It is to obviate such confusion that the principles that underlie the classification of services, in instance where a service is classifiable under more than one sub clause of clause (104) of Section 65 of the Finance Act, 1994, have been further elaborated as under:


1. The service shall be placed in a sub clause which provides the more specific description; 2. Services consisting of a combination of services shall be classified based on the service that gives them their essential character. In other words, composite services should be classified on basis of essential character, if no specific description can be found for such specific services; 3. When the service cannot be classified by either 1 or 2, i.e. either specific description or essential character it shall be classified under the sub clause that occurs first among the sub classes that merit consideration for the purpose of classification. As a chronological list of services has been provided above the same need not be stated again Taxable Services In terms of Section 66 of the Finance Act, 1994, there shall be charged a tax (hereinafter referred to as service tax) at the rate of eight per cent (proposed to be raised to 10% by the Finance Bill 2004) of the value of the taxable services referred to in any sub clause of clause 105 of Section 65 of the FinanceAct, 1994 . Value of service shall be the gross amount charged by the service provider for such service rendered by him as stated in Section 67 of FinanceAct, 1994. Being in the nature of an indirect tax, it is levied on the persons using the services and the persons responsible and liable to collect service tax are authorised to collect service tax on services rendered by them. Thus in terms of Section 68(1) of the Finance Act, 1994, the responsibility for the payment of service tax at the prescribed rates rests on every person providing taxable service, whether he receives it from the client or not. However, in terms of Section 68(2) of the Finance Act, 1994, Central Government is empowered to specify, with respect to specific services, that service tax shall be paid by another person in the manner as may be prescribed. Further, in case of the service provider being a person who is non-resident The Finance Act does not make a distinction between the various categories of service providers viz. individuals, firms or corporate with respect to the tax liability. This was emphasised in TCS v. Union of India [2001(130) ELT 726 (Karnataka)] where it was held that the term ''every person'' was wide enough to cover both natural and juristic persons. In terms of Section 68(1) of the Finance Act, 1994 service tax is to be paid in the manner and within such period as may be specified. Rule 6 of the Service Tax Rules, 1994 states that in case the assessee is an individual or proprietary firm or partnership firm, the tax on the value of the taxable service received in any quarter shall be paid to the credit of the Central Government by the 25th day of the month immediately following calendar month on which the said quarter ended. In all other cases the tax on value of taxable services received during any calendar month is required to be paid be paid by the 25th day of the month immediately following the said calendar month. Quarter for this purpose shall be a calendar quarter and each month a calendar month. It may be worthwhile to mention that the liability to pay service tax is on the value of taxable services actually received. Thus, service tax is not payable on amounts charged in the bills / invoice, but on amounts actually received. In principle, no tax is payable for reimbursement of expenses incurred on behalf of client. Department has clarified that out of pocket expenses like traveling, boarding and lodging on


reimbursable basis are not subject to service tax. The assessee will however have to provide documentary evidence substantiating his claim from the gross amount. The levy of service tax covers only services rendered within India. It may therefore be said that: 1. No service tax is leviable on export of service. 2. No service tax is leviable on service provided by an Indian outside India. 3. No service tax is leviable on technical consultancy provided by foreign collaborator provided outside India. However, if the foreign technicians visit India and provide technical services, tax will be payable. In instances where value received becomes refundable if service is not provided by the assessee either wholly or partly for any reason, the assessee can adjust the amount payable from service tax liability of service tax payable and pay net amount as service tax. Such adjustment is permissible only if the assessee refunds the value of taxable service along with service tax thereon from whom it was received. Service tax is a payable on the value of taxable services received during the period under consideration. It follows therefore, that in instances where advance payment is made and no service is provided at that time, the same shall not be chargeable to service tax till the actual rendering of the service (vide Circular No. 65/14/2003 dated November 5, 2003). In terms of Rule 6 (2) of the Service Tax Rules, 1994 the service tax, liable to be paid by the assessee, shall be deposited only in a bank designated by the Central Board of Excise and Customs in Form TR-6 or any manner prescribed by the Central Board of Excise and Customs. Taxable services rendered as under are exempt from service tax: 1. Service rendered to the United Nations or other international organisation (Notification No. 16/2002-ST, dated August 2, 2002). 2. Export of services (Notification No. 2/2003-ST of March 01, 2003). 3. Services rendered to Special Economic Zone (SEZ) developer or to a unit located in SEZ for the development, operation and maintenance or setting up SEZ units. (Notification No. 17/2002-ST, dated 21.11.2002 as amended by Notification No. 4/2004ST dated 31.3.2004). 4. The cost of goods or material sold by the service provider to the receiver of such services, during the course of provision of the taxable services (Notification No. 12/2003-ST dated 31.03.2004). 5. Payment received in India in non-repatriable convertible foreign exchange, is exempt from Service Tax for the period 09.04.1999 to 28.02.2003 and from 20.11.2003 onwards. (Notification No. 6/99-ST, dated 09.04.1999 and Notification No. 21/2003-ST dated 20.11.2003).


Refund In Service Tax India The Service Tax is required to be paid only on the value of taxable service received in a particular month or quarter as the case may be and not on the gross amount billed to the client. However, in all such cases where the amount received is less than the gross amount charged/billed to the client, theService Tax assessee are required to amend the bills either by rectifying the existing bill or by issuing a revised bill and by properly endorsing such charge in the billed amount. In case an assessee fails to do so, his liability to pay Service Tax shall be on the amount filled by him to the client for the services rendered. Facility for adjusting excess payment of service tax by the assessee towards future liability is now provided for in the law. In cases, where an assessee has paid to the credit of Central Government service tax in respect of a taxable service which is not so provided by him either wholly or partially, for any reason, the assessee can adjust the excess service tax so paid by him calculated on a pro-rata basis against his service tax liability for the subsequent period, provided that the assessee has refunded the value of taxable service and the service tax thereon to the person from whom it was received. However, the assessee is required to file the details in respect of such suo-moto adjustments done by him at the time of filing the service tax returns. In all other cases of excess payment, the refund claims have to be filed with the department. The procedure for claiming refund for the amount due from the Department is as mentioned below:1. Submission of application in prescribed Form-R in triplicate to the jurisdictional Assistant Commissioner. 2. Application should be filed within the prescribed period, i.e. before the expiry of six months from the relevant date as defined in Section 11B of the Central Excise Act, 1944 which is made applicable to service refund matters also. Application should be accompanied by documentary evidence to establish that the amount of Service Tax in relation to which such refund is being claimed has been paid by the assessee in excess and the incidence of such tax had not been passed on to any other person. The ''Relevant Date'' for the purpose of refund (under section 11B of Central Excise Act, 1944) is date of payment of Service Tax. Thus, the limitation period of six months is to be calculated from the said date. Service Tax Code Number (STC) Number The Central Board of Excise and Customs (CBEC) has vide Circular No. 35/3/2001-CX4 dated August 27, 2001 and No. 40/03/2002 dated March 21, 2002 making it compulsory for the assessee to use a new 15 digit PAN based registration number called the Service Tax Code (STC) Number. It is used as a unique identifier of the records of an assessee by the computer. For the purpose of e-filing, this number is compulsory. The code must be mentioned in every challan through which tax has been paid in the bank.


The STC number is alphanumeric. The first 10 characters of Service Tax Code is the PAN which is issued to the assessee by the income tax authorities. The next part consists of a pre-decided 2 character alpha code ST. The third part is a numeric code 001, 002, 003 etc. based on the number of premises or offices registered in the name of the assessee. Thus, the STC number is PAN + alpha code ST + numeric code 001. If the assessee has more than one office or premise registered in his name, and the PAN for all the offices or premises is the same, then the last numeric code of the STC will be 001, 002, 003 etc. For example:

Assessee with one registered office o Suppose the PAN is ABCDE1234F, the STC would be ABCDE1234F ST 001. Assessee with more than one office with the same PAN Suppose PAN is ABCDE1234F, the STC for different offices will be o ABCDE1234F ST 001 o ABCDE1234F ST 002 o ABCDE1234F ST 003

PAN is necessary to obtain a STC number. The CBEC, through its circular No. 35/3/2001-CX.4 dt.27.08.2001, has instructed that a PAN based STCnumber should be allotted to all the service tax payers. The assessee who does not have a PAN is issued a temporary 15-digit STC number. As soon as the assessee gets his PAN, he must inform the authorities, and his new STC number based on his PAN will be allotted to him. Allotment of Service Tax Code Number Every service tax assessee is required to obtain a Service Tax Code number. He must apply for the number as per the process given in the Trade Notice issued for this purpose. The STC number will be allotted by the Jurisdictional Central Excise Division. The assessee must fill in the application (in duplicate), and attach a copy of the PAN card/letter along with it. All the Service Tax Cells i.e. the Headquarters and Divisions will have a special counter for receiving such application. The application will be acknowledged immediately. Where the application is complete, and the office of the assessee is within the jurisdiction of the Commissionerate, the STC number will be allotted in 3 working days and the letter will be issued to the applicant. In case of multiple applications by an assessee, if the offices of assessee fall under the jurisdiction of different divisions of the Commissionerate, all such applications will be forwarded to Directorate General of Service Tax (DGST) within 3 working days. DGST will process the application and allot the STC to the applicant. The applicant will be informed about the same.


Registration Procedure For Service Tax Section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 prescribe the manner and form for registration as an assessee, of any person liable to pay service taxin accordance with the provisions of Section 68 of the Finance Act, 1994. Below set, in brief is the procedure for registration:

An application for registration in Form ST-1 has to be made to the concerned Superintendent of Central Excise within 30 days from the date on which service tax becomes leviable. However, where a person has commenced his business for providing taxable services after the date whenService Tax is levied, the application for registration is to be made within 30 days from the date of commencement of business. For an assessee providing more than one taxable service, a single registration needs to be filed by him mentioning therein, all the taxable services provided by him. If taxable services are provided by the assessee from more than one premise, and has a centralized billing system at any one of such premises then he has the option to get registration for only one premise from where such centralized billing is done. On the other hand if taxable services are provided by the assessee from more than one premise, and he does not have a centralized billing system, he has to make a separate application forregistration in respect of each of such premises. The assessee has to give some information like his name, address and the category of services rendered except in the case of registration of a Stockbroker. The Service Tax (Amendment) Rules, 2001, with effect from 16-7-2001, has inserted a new column No 2A in Form ST-1 for furnishing PAN Number by the Assessee. If PAN has not been allotted or applied for, the same is to be indicated. A certificate of registration in Form ST-2 shall be issued within 7 days from the date of receipt of the application in Form ST-1. However if theregistration certificate is not granted within the 7-day period, the registration applied for shall be deemed to have been granted. In the latter case where registration is deemed to have granted a slight anomaly may arise owing to the non-allotment of registration number in the light of the fact that Circular No. V/DGST/30-Misc-29/2001/3674 dated September 18, 2003 read with the Service Tax Credit Rules, 2002 require all service providers providing taxable services to quote their registration number on their invoices. Every instance of transfer of business of a registered assessee to another would entail the obtaining of a fresh certificate of registration. Every registered assessee, who ceases to provide taxable service, for which he is registered, shall surrender his registration certificate immediately. The registration certificate issued to an assessee can be amended on various grounds namely change in address of business premises, change in name and style of firm etc. There is no minimum/threshold limit that is prescribed for registration.

It may be noted that Section 75 A of the Finance Act, 1994, providing for a penalty of Rs. 500/to be imposed on such person who has failed to obtain aregistration, being liable to pay service tax, is proposed to be omitted by the Finance Bill 2004. Rules For Payment Of Service Tax


Service Tax is payable on the value of taxable services charged. Where the assessee is an individual or a proprietary firm or a partnership firm: The due date for payment of Service Tax is on or before 25th of the month immediately following that quarter when the value of taxable services is received. For other assessees: The due date for payment of Service Tax is on or before 25th of the month immediately following the month in which the value of taxable services is received. A Non-Resident Indian (NRI) or a person from outside India who is liable to pay Service Tax on taxable services rendered, but does not have any office in India, shall pay the Service Tax through any other person authorized by him. Where an assessee is unable to correctly estimate the actual amounts of Service Tax payable for any month or quarter, the assessee may make a request in writing to the Central Excise Officer to make a provisional assessment of tax on the basis of the amount that is deposited. The Central Excise Officer may, on receipt of such request, order the provisional assessment of tax. Service Tax has to be paid to the credit of the Central Government and the service tax, liable to be paid by the Assessee, shall be deposited in a bank designated by the Central Board of Excise and Customs in Form TR-6 or any manner prescribed by the Central Board of Excise and Customs.

Records Required To Be Maintained The assessee is not required to maintain separate records for the purpose of service tax. However, the assessee is advised to maintain the following documents:

A bill file, containing the bills in serial, issued to the clients in respect of taxable service rendered; Receipt, issued to the client in respect of payment received; A service tax register containing the details of the bills issued, payments received and service tax deposited; Proper records for all the credit notes issued to the clients; A list of all accounts, maintained in relation to service tax including memoranda received from branch offices, only at time of filing of return for the first time, is to be furnished to the Superintendent of Central Excise.

Service Tax Returns In India The filing of returns are provided for in Sections 70 and 71 A of the Finance At 1994 and the manner for filing such returns is set our in the Service Tax Rules, 1994. The Service Tax assessees are required to file a half yearly return in Form ST-3 or ST-3A, in triplicate, to the Superintendent, Central Excise, dealing with Service Tax work. The return is to be filed within 25 days from the last day of the half-year it relates to and should be accompanied by copies of all T.R.6 challans issued in the relevant period. Thus, the returns for half year ending 30th September and 31st March are required to be filed by 25th October and 25th April, respectively. Further, assessees filing the return for the first time should also furnish to the Department the list of all the accounts maintained by them, relating to the Service Tax. no services have been

provided during a half year and no Service Tax is payable; the assessee may file a Nil Return within prescribed time limit. E filing is a facility for the electronic filing of Service Tax returns by the assessee from his office, residence or any other place of choice, through the Internet, by using a computer. Introduced in 2003 with respect to only 10 services, the scope of the same was enlarged to facilitate the filing of e- returns for all taxable services (vide circular no. 71/1/2004-ST dated January 2, 2004). It is to be kept in mind that e-filing of returns is purely optional and the manual filing has not been dispensed with. Those assessees have 15 digit Service Tax Payer Code allotted to them, should file an application to their jurisdictional AC/DC as laid out in Trade Notice issued in this regard. They should mention a trusted e-mail address in their application, so that the department can send them their userword and password to help them file their return. They should log on to the Service Tax E-filing Home Page using the Internet. On entering their STP Code, user word and password in the place provided on the Home Page they will be permitted access to the E filing facility. They should then follow the instructions given therein. An assessee failing to file half-yearly returns or failing to file them on time could be penalised from Rs.100 to Rs.200/- for every week or part thereof, during the period for which the failure continued. Filing of single return has been clarified by Circular No. 72/2/2004-ST dated January 2, 2004. However, details in each of the column in Service tax the Forms ST-3 has to be furnished separately for each of the taxable service rendered by the assessee. No specific records have been prescribed to be maintained by a service Tax assessee. The records, including computerised data if any, being maintained by an assessee as required under any other laws in force (eg. Income tax, Sales tax) is acceptable to the Central Excise Department for the purpose of Service Tax Rates Of Service Tax For Different Classes Of Assesses The service tax rate paid by the different classes varies from service to service. Service tax on house rent Service tax of 12.36% is applicable on rent that is received by an owner or proprietor of the house. Service tax on hiring and leasing of equipment - As per section 137 of the finance act 2001 service tax includes on equipment leasing and hire-purchase. Service tax on banking and financial services- Under the finance tax act of 2001 service tax is also applicable on banking and financial services. In the present budget of 2010 the service tax of 12% is implemented on various products unlike the previous service tax of 10.3%. Air line fares are still not subjected to the current service tax of 12 percent. A service tax of 10.3 percent is still the same on airline fare like previous year.


The standard service tax rate for the current financial year (2010-2011) on various services is of 12 percent. The service tax structure is not applicable on agriculture. Any income generated from agriculture, irrigation and harvesting is not subjected to the service tax. As per new law under which any service related to photography such as developing, printing, chemical related to printing and other components related to photography is exempted from the service tax.

Actuary or intermediary or insurance intermediary or insurance agent. Advertising agency. Air travel agent (On domestic and international booking a flat rate of 10.3%service tax is applicable). Authorized automobile service stations services to be extended to multi utility vehicles viz. Maxi Cabs. Authorized automobile service station. Banking company or financial institution or a non-banking financial institution. Beauty parlor. Broadcasting agency. Business auxiliary service [business promotion and support services including customer care services (excluding any information technology service)]. Cable operator. Cargo handling agency. Hotels and resorts. Clearing and forwarding agent. Commercial concern offering convention service. Commercial concern providing online information and data base access and/or retrieval services. Commercial training and coaching centers - private tutorials. Commissioning and installation services. Consulting engineer. Courier agency. Credit rating agency. Custom house agent. Dry cleaner. Event manager. Fashion designer. Foreign exchange broking by any person now included i.e. Individuals, partnership firms (hitherto it was limited to banking company, financial institutions, non-banking finance companies (NBFC) covered (w.e.f. 16/07/2001) & body corporate (w.e.f- 16/08/2002). Franchise services. Health club and fitness center. Insurer carrying on general insurance business services. Insurer carrying on life insurance business. Interior decorator. Internet Cafe - (Cyber Cafe). Maintenance and repair services excluding motor vehicles. Management consultant. Mandap keeper.

Manpower recruitment agency. Market research agency. Photography studio. Port or person authorized by the port for conducting port services. Port services to be extended to all minor ports also (hitherto, it was limited to major ports). Practicing chartered accountant. Practicing company secretary. Practicing cost accountant. Rail travel agent. Real estate agent. Rent-a-cab operator. Scientist or technocrat or science or technology institution. Security agency. Sound recording studio. Steamer agent. Stock broker. Storage or warehouse keeper. Technical inspection and certification services excluding inspection and certification of pollution levels. Technical testing and analysis, excluding health and diagnostic testing in relation to human beings and animals. Telegraph authority providing facsimile services. Telegraph authority providing lease circuit services. Telegraph authority providing pager services. Telegraph authority providing telegraph services. Telegraph authority providing telephone services. Telegraph authority providing telex services. Tour operator. Underwriter. Video production agency.

In this financial year there are eight more services came into force that comes under service tax bracket from the current financial year 2010 1. 2. 3. 4. 5. 6. 7. 8. Organizing, promoting and marketing games of chance(i.e. lottery). Health services undertaken by hospitals for their employees. Health services provided under health insurance. Operations work related to maintenance of medical record. Services provided by electricity exchanges. Special services by builders or real estate agents such as providing preferential location. Promotion of brands and events. Events and business entity.


Service Tax Appeals Any person may appeal to the Commissioner of Central Excise (Appeals) in the following cases:

If he is aggrieved by any assessment order passed by the Assistant or Deputy Commissioner of Central Excise; Against an order passed under Section 71 (Assessment) or S 72 (best judge assessment) or S 73 (escaped assessment); If denying his liability to be assessed.

An assessee aggrieved by the order of Assistant Commissioner/Deputy Commissioner in respect of Service Tax, may file an appeal to the Commissioner of Central Excise (Appeals) in Form ST4, in duplicate along with a copy of order appealed against. The appeal should be presented within three months from the date of receipt of the decision or order of the Central Excise Officer. Any person aggrieved by any order passed by any assessing officer or adjudicating authority below the rank of Commissioner may file an appeal before the Commissioner, Central Excise (Appeals). 1. The appeal shall be filed in the prescribed form ST-4 2. It shall be presented within three months from the date of receipt of order which is being appealed against. If the Commissioner of Central Excise (Appeals) is satisfied that the appellant was prevented by sufficient cause, from presenting the appeal within the statutory period of three months, he may allow the appeal to be presented within a further period of three months. 3. It should be filed in duplicate. 4. It should be accompanied by a copy of the order appealed against. The law provides for filing an appeal against the order of Commissioner of Central Excise or Commissioner (Appeals). Such appeals can be filed with the CESTAT within three months of the date of receipt of the order sought to be appealed against. The procedure is as stated under: 1. Any assessee aggrieved by the Commissioner of Central Excise or the Commissioner (Appeals) may file an appeal before the Appellate Tribunal i.e. CESTAT. 2. The appeal should be filed within three months from the date of receipt of the order appealed against. 3. It should be filed in the prescribed form ST-5. iv) It shall be filed in quadruplicate. 4. It should be accompanied by a copy of the order appealed against, one of which should be a certified copy. 5. The appeal should be accompanied by a fee of Rs. Two Hundred only. procedure for an appeal

The appeal is to be filed in Form ST-4 and shall be verified in the manner specified. It is to be filed in duplicate along with the copy of the order that is appealed against.


The appeal must be filed within 3 months from the date of receipt of the order relating to service tax, interest or penalty. The specified time limit can be extended by another 3 months on sufficient cause by the Commissioner of Central Excise.

Service Tax Penalties The Finance Act, 1994 provided for the imposition of penalties in the following cases when the assessee: 1. 2. 3. 4. fails to pay service tax to the Government in time. fails to file half-yearly return with the department in time or. fails to obtain registration u/s. 69. willfully suppresses or conceals the value of taxable service or furnishes inaccurate value of such taxable service. 5. fails to comply with a notice requiring him to produce within the specified time limit, such accounts, documents or other evidence as considered necessary by the Superintendent of Central Excise or Asst./Deputy Commissioner for assessment. It is interesting to note that originally, provisions had been made in the law for prosecution for violations of requirements of Service Tax. The same, however, have been deleted by the Government by the Finance Act, 1998, as a measure of goodwill to the new assessees. In terms of Section 75 of the Finance Act, 1994, every person, liable to pay the tax in accordance with the provisions of Section 68 of the Finance Act, 1994, or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed shall pay simple interest at the rate of fifteen per cent per annum (proposed to be amended by the Finance act 2004 to read ''at such rate not below 10 percent and not exceeding 36% per annum'') for the period by which such crediting of the tax or any part thereof is delayed. This penalty is to be computed on theservice tax due or unpaid. Section 76 of the Finance Act, 1994 provides that any person, liable to pay Service Tax in accordance with the provisions of Section 68 of the Finance Act, 1994 or the rule made thereunder, who fails to pay such tax shall pay in addition to paying such tax, and interest on that tax in accordance with the provisions of Section 75 of the Finance Act, 1994, a penalty which shall not be less than one hundred rupees but which may extend to two hundred rupees for every day during which such failure continues, so, however, that the penalty under this clause shall not exceed the amount of Service Tax that he failed to pay. Penalties under this Section shall be over and above the payments of actual amount of tax due under Section 68 of the Finance Act, 1994 and interest under Section 75 of the Finance Act, 1994.The penalty under Section 76 is of mandatory nature and can not exceed the amount of Service tax in question. Section 78 of the Finance Act, 1994 provides for levy of penalty for two specific default or offences, with the intent to evade the payment of Service tax: i.e. 1. Suppression or concealment of value of taxable service. 2. Furnishing inaccurate particulars of value of taxable service.

The Finance Bill 2004 has substantially enlarged the scope of Section 78 of the Finance Act, 1994 by clearly elucidating the evasion on grounds of : 1. 2. 3. 4. 5. Fraud. Collusion. Evasion. Willful misstatement. Suppression of facts, or any contravention under the parts or the rules.

The penalty under this section shall be a minimum of the amount of Service Tax sought to be evaded and a maximum of twice the amount of Service Tax. This penalty shall be in addition to the tax and interest payable. Thus, the penalty is a sum which shall not be less than, but which shall not exceed twice the amount of Service Tax sought to be evaded. Section 79 provides for imposing a penalty for failure to comply with the notice issued to assessee under Section 71. It is the duty of the assessee to produce any accounts, documents or other documents, etc., as the Superintendent of Central Excise may call for the purpose of verification of the Service Tax return filed by the assessee. The jurisdiction to initiate the penalty under Section 79 vests with the Assistant or Deputy Commissioner of Central Excise. Thus, for failure to comply with the provisions of Section 71 in respect of self-assessment and verification of tax assessed by the assessee, the penalty leviable is 1. a maximum of 10% and/or 2. a maximum of 50% or not more than 50% This provision is sought to be deleted by the Finance Bill 2004. In terms of Section 80 of the Finance Act, 1994, no penalty under Section 76, 77, or 78 can be imposed if the assessee proves that there was a reasonable cause for default or failure under these sections. Section 80 does not have a mention of Section 75A and therefore, it can be said that Section 75A penalty is not covered under Section 80. Even if there were a reasonable cause for default under Section 75A, penalty would be levied. In Ashwani & Associates v. Commissioner of Central Excise, New Delhi [(2000) 118 ELT 57 (Tribunal)], it was observed that it is mandatory on the part of revenue to follow the principles of natural justice i.e. audi altarem paartem rule meaning that other party should be heard, before imposing any penalty and provide an opportunity to assessee to prove that there was a reasonable cause. In CCE, Bhubaneswar - II v. Tyazhpromexport [(2003) 157 ELT 576 (CES-TAT, Kolkata)], it has been held that there cannot be an intention to evade Service Tax by a non-resident foreign company which is under the direct control of the Ministry for Economic Affairs and Trade of Russian Federation. It has been held that when under a contract, taxes payable in India were to be borne by the Indian company and when there was some dispute regarding the payment of tax on the services which were being provided and when the matter was resolved, immediately the


tax was paid with interest, there was a reasonable cause under Section 80 for failure to deposit Service Tax and penalty was not imposable. In R.B. Bahutule v. CCE, Mumbai [(2004) 166 ELT 233 (Tribunal, Mumbai)], it was held that the adjudicating authorities do not have a discretion for not imposing penalty for not applying for registration for Service Tax purposes. Section 75A or Section 80 does not allow any such discretion to the adjudicating authorities. They have discretion not to impose any penalty for delay in paying Service Tax and delay in furnishing returns but they have no such discretion for not imposing or reducing penalty for failure to apply for registration. The power to search for documents, papers or things is contained in Section 82 of the Finance Act, 1994 subject to the provisions of Code of Criminal Procedure, 1973. As per Section 82 of the Finance Act, 1994, 1. Search may be conducted by Commissioner himself. 2. Commissioner may authorize search to be conducted by Assistant or Deputy Commissioner of Central Excise. 3. Search should be for any documents, papers or things. 4. Such search of documents, etc., should be useful for or relevant to any proceedings. 5. There must be reason to belief that such documents, etc., are secreted in any place. This section provides for search of documents, books or things by Commissioner of Central Excise or any other officer authorized by him. The pre-condition to search is that the CCE should have reason to believe that there are certain books etc., in secret possession at any place which may be useful for any proceedings under this Act. Section 82(2) of the Finance Act, 1994provides that provisions relating to search under Code of Criminal Procedure, 1973 shall apply. The relevant sections under Code of Criminal Procedure are as under for ease of reference: 47 Search of place entered by person proposed to be arrested. 51 Search of person arrested. 94 Search of a place where books, documents, property, etc., are suspected 99 Search warrants 100 Persons in charge of closed place to allow search. 101 Disposal of things found in search beyond jurisdiction 103 Magistrate's discretion for search in his presence. 165 Search by a police officer. 166 Officer-in-charge of police station requiring another to issue search warrant. Service Tax Credit The Raja Chelliah Committee which initially recommended the levy of tax on service in India saw such a levy the context of the gradual movement towards unified VAT, covering both services and commodities, and eventually resulting in an indirect taxation regime which was, to the extent possible, revenue neutral. The input tax credit mechanism with respect to the levy of

service tax is a step in that direction, and is expected to benefit the taxpayer and the tax administration by:

Ensuring greater levels of tax compliance. Promoting transparency. Reducing cascading effect of taxes. Increasing service sector competitiveness. Minimising disputes in service tax administration.

The Finance Act, 2002 has amended Section 94 of the Finance Act, 1994 to provide for credit of Service Tax paid on input services used in the output services where both the input and output services fall within the same category of taxable services. As per section 94(2)(ee) of the Finance Act, 1994, Central Government has been empowered to make rules for the credit of service tax paid on the services consumed for providing a taxable service in case where the services consumed and service provided fall in the same category of taxable service. Section 94(2)(eee) of the Finance Act, 1994 inserted with effect from May 14, 2003 empowers Central Government to make rules for the credit of service tax paid on the services consumed or duties paid or deemed to have been paid on goods used for providing taxable service. Presently, credit may only be availed in respect of service tax paid on inputs. The Service Tax Credit Rules, 2002 have come into force from 16th August, 2002 for availing credit of input Service tax under same category. The date of applicability for availing credit under different categories is from 14th May, 2003. The applicable dates are, thus, as follows:

Where input and output services fall under same category input service challan/ bill/invoice issued on or after 16.8.2002; In any other case input service challan/bill/invoice issued on or after 14.5.2003.

The manner of availing credit has been prescribed under the Service Tax Credit Rules 2002 as amended by the Service Tax Credit (Second Amendment) Rules, 2003 vide Notification No. 5/2003-Service Tax dated May 14, 2003 (''Credit Rules''). In terms of Rule 3 of the Credit Rules an output service provider shall be allowed to take credit of the Service Tax paid on input service in the following manner, namely:1. Where the input service falls in the same category of taxable service as that of output service, Service Tax credit shall be allowed to be taken on such input service for which invoice or bill or challan is issued on or after the sixteenth day of August, 2002. 2. In any case, Service Tax credit shall be allowed to be taken on such input service for which invoice or bill or challan is issued on or after the fourteenth day of May, 2003. Provided that the output service provider shall be allowed to take such credit, on or after the day on which he makes payment of the value of input service and the Service Tax paid or payable as indicated in invoice or bill or challan referred to in sub-rule (1) of rule 5. No credit is available if


the output service is exempt from service tax. In the interest of clarity it is imperative to explain the following terms in detail: Output services - 'Output service' means any taxable service rendered by service provider to a customer, client, subscriber, policy holder or any other person. [Rule 2(b) of Credit Rules]. Input services - 'Input service' means any service received and consumed by a service provider in relation to rendering output service. [Rule 2(c) of Credit Rules]. Meaning of 'same category of taxable service' - Two services shall be deemed to be falling in the same category of taxable service, if the input service and the output service fall within the same sub-clause of clause (105) of section 65 of the Finance Act, 1994. Illustration: The services provided by a photo studio to a customer and by a developing and processing lab to a studio fall in the same category of service i.e. 'photography service' Meaning of 'in relation to' - Service tax paid on input services is eligible for credit only when it is received and consumed in relation to taxable output service. The Supreme Court in Doypack Systems Pvt. Ltd. vs. Union of India [1988 (36) ELT 201 (SC)] held that the expression 'in relation to' is a very broad expression, which pre-supposes another subject matter. These are words of comprehensiveness, which might both have a direct significance as well as an indirect significance depending on the context. The words 'in relation to' are the same as those used in Cenvat Credit Rules in respect of eligibility of inputs for Cenvat credit. This term has been interpreted in broad terms, i.e. as long as there is reasonable nexus (direct or indirect) between input and output services, the credit will be available. However, if input service is unrelated to output services, the credit will not be available. On the other hand, input services like courier services and telephone services may be held to be 'in relation' to taxable output service. Credit of tax on input service will be available only if service tax is payable on output services. If output services are exempt from tax or not taxable at all, credit of input service tax is not available. However, if input service is partly used for taxable service and partly for exempt or non-taxable service, credit of service tax paid on input services is available as per provisions of rules 3(4) and 3(5). [Rule 3(3) of Service tax Credit rules]. If the input and output service does not fall in same category, it may be than the input service may be used in relation to taxable output service as well as exempt service or service which is not taxable at all. In such case, assessee is required to maintain separate records for input services used in relation to taxable output services. In such case, he can avail full credit of service tax on input services. [Rule 3(4) of the Credit Rules]. In case of common services, assessee may not be able maintain separate records of input services used in relation to taxable service and other services, the assessee will be entitled to credit of service tax upto a maximum of 35% of output services. [Rule 3(5) of Credit Rules. Service tax is payable by 25th of following month [25th of following quarter if assessee is individual, proprietary firm or a partnership firm]. However, the assessee can only avail credit of service tax as available at the end of month/quarter as applicable. [proviso to Rule 4(1) of Service tax credit Rules]. Thus, even if tax is payable by 25th of following month/quarter, credit available as at end of month/quarter alone can be utilised for payment of service tax of that month/quarter. In terms of Rule 5 of the Credit Rules, credit can

be availed based on a bill, an invoice or a challan. Such a document shall contain details regarding: 1. 2. 3. 4. 5. 6. Name and address of the service provider. Service tax registration Number. Serial number. Date of issue. Description and value of the input service. Service tax paid/ payable.

The service provider is required to maintain records reflecting the following details 1. 2. 3. 4. 5. 6. 7. 8. Serial number and date of document on which credit is availed. Name and address of the service provider. Service Tax registration number. Description of service received. Value of service received. Amount of credit availed. Date of utilisation of credit. Amount of credit utilised and balance thereof.

Return in the prescribed form (in terms of Rule 5(4) of the Credit Rules)is required to be filed along with Form ST3. It may be noted that the Finance Act, 1994 does not prescribe a time limit within which service tax credit should be availed and utilised. However,in CCE v. Mysore Lac & Paint Works Ltd. [1991 (52) ELT 590 (T)] it was held that MODVAT credit has to be taken within in a reasonable period. Further the Supreme Court in the case of Government of India v. Citedal Fine Pharmaceuticals [1989 (42) ELT 515 (S.C)] in the context of recoveries under Rule 12 of the Medicinal & Toilet Preparation Rules 1956 observed ''In the absence of any period of limitation it is settled that every authority is to exercise the power within a reasonable period. What would be reasonable period, would depend on the facts of each case''. Hence credit taken by an assessee, should be within a reasonable time, and such reasonable time within which to avail credit could be one year, in view of the analogous provisions of refund under section 11B of the Central Excise Act, 1944.. In any event, as far as 'utilisation' of such credit is concerned, it can be done at any time. In brief, the present position regarding the availing of service tax credit is as under:

Credit is only available if input service is in relation to output service. If input and output services fall in same category, full credit is available. Credit can only be availed once the service tax on the input service has been paid. No credit is available if the output service is exempt from service tax. No inter sectoral (i.e manufacturing and services and vice-versa) credit is allowed. The position has been clarified vide circular no. 56/5/2003 dated April 25, 2003.

If input and output services do not fall in same category, full input service tax credit will be available only if separate records of input services used in relation to output taxable services are maintained. If separate records are not maintained, then credit of input tax will be available subject to ceiling of 35% tax payable on output services. Even here, the input services should have been used in relation to output service.

Advance Ruling In Service Tax India A new Chapter V-A has been inserted by the Finance Act, 2003 in the Finance Act, 1994 to provide for advance rulings with respect to service tax.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, who may be any of the following:

a non resident setting up a joint venture in India in collaboration with a non resident or a resident. a resident setting up a joint venture in India in collaboration with a non resident. a wholly owned subsidiary Indian company, of which the holding company is a foreign company.

The same has been clarified in Re McDonalds India Pvt. Ltd. [(2004) 165 ELT 404 (AAR)], where it has been held that advance ruling can not be availed by ongoing business/undertaking which has already commenced business. The question on which advance ruling may be sought shall be in respect of :

classification of any service as a taxable service. the valuation of taxable services. the principles to be adopted for the purposes of determination of value of the taxable service. applicability of notifications. admissibility of credit of service tax.

Section 96C prescribes the application in Form AAR (ST) required to be made to the authority in prescribed form and manner. The application should be made in quadruplicate and accompanied by a fee of rupees two thousand and five hundred only. The application can be withdrawn within a period of 30 days from the date of the application. The authority is required to give its ruling within 90 days of the receipt of valid application. An application may be rejected by the prescribed authority if the question or subject matter of ruling sought in the application is such which is already pending before any assessing officer, Tribunal and court of law or such questions already stands decided by any court or bench of Tribunal.


The advance ruling pronounced on a matter referred to the authority is binding only on the applicant and his jurisdictional assessing officers and only in respect of question referred to by the applicant. However, if there is a change in the law or facts on the basis of which ruling was pronounced, such advanceruling will not be binding. Value Added Taxes (VAT) in India Value Added Tax (VAT) is nothing but a general consumption tax that is assessed on the value added to goods & services. It is the indirect tax on the consumption of the goods, paid by its original producers upon the change in goods or upon the transfer of the goods to its ultimate consumers. It is based on the value of the goods, added by the transferor. It is the tax in relation to the difference of the value added by the transferor and not just a profit. All over the world, VAT is payable on the goods and services as they form a part of national GDP. More than130 countries worldwide have introduced VAT over the past 3 decades; India being amongst the last few to introduce it. It means every seller of goods and service providers charges the tax after availing the input tax credit. It is the form of collecting sales tax under which tax is collected in each stage on the value added of the goods. In practice, the dealer charges the tax on the full price of the goods, sold to the consumer and at every end of the tax period reduces the tax collected on sale and tax charged to him by the dealers from whom he purchased the goods and deposits such amount of tax in government treasury. VAT is a multi-stage tax, levied only on value that is added at each stage in the cycle of production of goods and services with the provision of a set-off forthe tax paid at earlier stages in the cycle/chain. The aim is to avoid 'cascading', which can have a snowballing effect on the prices. It is assumed that because of cross-checking in a multi-staged tax; tax evasion would be checked, hence resulting in higher revenues to the government. Importance of VAT in India India, particularly being a trading community, has always believed in accepting and adopting loopholes in any system administered by State or Centre. If a well-administered system comes in, it will not only close options for traders and businessmen to evade paying their taxes, but also make sure that they'll be compelled to keep proper records of sales and purchases. Under the VAT system, no exemptions are given and a tax will be levied at every stage of manufacture of a product. At every stage of value-addition, the tax that is levied on the inputs can be claimed back from tax authorities. At a macro level, two issues make the introduction of VAT critical for India Industry watchers believe that the VAT system, if enforced properly, will form part of the fiscal consolidation strategy for the country. It could, in fact, help address issues like fiscal deficit


problem. Also the revenues estimated to be collected can actually mean lowering of fiscal deficit burden for the government. International Monetary Fund (IMF), in the semi-annual World Economic Outlook expressed its concern for India's large fiscal deficit - at 10 per cent of GDP. Moreover any globally accepted tax administrative system would only help India integrate better in the World Trade Organization regime. Advantages of VAT 1. Coverage If the tax is considered on a retail level, it offers all the economic advantages of a tax of the entire retail price within its scope. The direct payment of tax spreads out over a large number of firms instead of being concentrated only on particular groups, such as wholesalers & retailers. 2. Revenue Security - Under VAT only buyers at the final stage have an interest in undervaluing their purchases, as the deduction system ensures that buyers at earlier stages are refunded the taxes on their purchases. Therefore, tax losses due to undervaluation will be limited to the value addedat the last stage. Secondly, under VAT, if the payment of tax is avoided at one stage nothing will be lost if it is picked up at later stage. Even if it is not picked up later, the government will at least have collected the VAT paid at previous stages. Where as if evasion takes place at the final/last stage the state will lose only tax on the value added at that particular point. 3. Selectivity - VAT is selectively applied to specific goods & business entities. In addition, VAT does not burden capital goods because of the consumption-type. VAT gives full credit for tax included on purchases of capital goods. 4. Co-ordination of VAT with direct taxation - Most taxpayers cheat on sales not to evade VAT but to evade their personal and corporate income taxes. Operation of VAT resembles that of the income tax and an effective VAT greatly helps in income tax administration and revenue collection. To know more about advantages of VAT click here: Advantages of VAT Disadvantages of VAT 1. 2. 3. 4. VAT is regressive VAT is difficult to operate from position of both administration and business VAT is inflationary VAT favors capital intensive firms

Items covered under VAT

All business transactions that are carried on within a State by individuals/partnerships/ companies etc. will be covered under VAT.

More than 550 items are covered under the new Indian VAT regime out of which 46 natural & unprocessed local products will be exempt from VAT Nearly 270 items including drugs and medicines, all industrial and agricultural inputs, capital goods as well as declared goods would attract 4 % VAT in India. The remaining items would attract 12.5 % VAT. Precious metals such as gold and bullion will be taxed at 1%. Petrol and diesel are kept out of the VAT regime in India.


Tax implication under Value Added Tax Act Selling Price (Excluding Tax) 100 Tax Rate Invoice value (InclTax) Tax Payable Tax Credit Net TaxOutflow



4% CST 12.5% VAT 12.5% VAT 12.5% VAT

















15.50 VAT CST


Total to Govt.

16.75 4.00

Silent Features Of VAT a. Rate of Tax VAT proposes to impose two types of rate of tax mainly: o 4% on declared goods or the goods commonly used. o 10-12% on goods called Revenue Neutral Rates (RNR). There would be no fall in such remaining goods. o Two special rates will be imposed-- 1% on silver or gold and 20% on liquor. Tax on petrol, diesel or aviation turbine fuel are proposed to be kept out from the VAT system as they would be continued to be taxed, as presently applicable by the CST Act. b. Uniform Rates in the VAT system, certain commodities are exempted from tax. The taxable commodities are listed in the respective schedule withthe rates. VAT proposes to keep these rates uniform in all the states so the goods sold or purchased across the country would suffer the same tax rate. Discretion has been given to the states when it comes to finalizing the RNR along with the restrictions. This rate must not be less than 10%. This will ensure By doing this that there will be level playing fields to avoid the trade diversion in connection with the different states, particularly in neighbouring states c. No concession to new industries Tax Concessions to new industries is done away with in the new VAT system. This was done as it creates discrepancy in investment decision. Under the new VAT system, the tax would be fair and equitable to all. d. Adjustment of the tax paid on the goods purchased from the tax payable on the goods of sale All the tax, paid on the goods purchased within the state, would be adjusted against the tax, payable on the sale, whether within the state or in the course of interstate. In case

of export, the tax, paid on purchase outside India, would be refunded. In case of the branch transfer or consignment of sale outside the state, no refund would be provided. e. Collection of tax by seller/dealer at each stage. The seller/dealer would collect the tax on the full price of the goods sold and shows separately in the sell invoice issued by him f. VAT is not cascading or additive though the tax on the goods sold is collected at each stage, it is not cascading or additive because the net effect would be as follows: - the tax, previously paid on the sale of goods, would be fully adjusted. It will be like levying tax on goods, sold in the last state or at retail stage. Top Advantages Of VAT 1. Simplification Under the CST Act, there are 8 types of tax rates- 1%, 2%, 4%, 8%, 10%, 12%, 20% and 25%. However, under the present VAT system, there would only be 2 types of taxes 4% on declared goods and 10-12% on RNR. This will eliminate any disputes that relate to rates of tax and classification of goods as this is the most usual cause of litigation. It also helps to determine the relevant stage of the tax. This is necessary as the CST Act stipulates that the tax levies at the first stage or the last stage differ. Consequently, the question of which stage of tax it falls under becomes another reason for litigation. Under the VAT system, tax would be levied at each stage of the goods of sale or purchase. 2. Adjustment of tax paid on purchased goods Under the present system, the tax paid on the manufactured goods would be adjusted against the tax payable on the manufactured goods. Such adjustment is conditional as such goods must either be manufactured or sold. VAT is free from such conditions. 3. Further such adjustment of the purchased goods would depend on the amount of tax that is payable. VAT would not have such restrictions. CST would not have the provisions on refund or carry over upon such goods except in case of export goods or goods, manufactured out of the country or sale to registered dealer. Similarly, on interstate sale on tax-paid goods, no refund would be admissible. 4. Transparency The tax that is levied at the first stage on the goods or sale or purchase is not transparent. This is because the amount of tax, which the goods have suffered, is not known at the subsequent stage. In the VAT system, the amount of tax would be known at each and every stage of goods of sale or purchase. 5. Fair and Equitable VAT introduces the uniform tax rates across the state so that unfair advantages cannot be taken while levying the tax. 6. Procedure of simplification Procedures, relating to filing of returns, payment of tax, furnishing declaration and assessment are simplified under the VAT system so as to minimize any interface between the tax payer and the tax collector. 7. Minimize the Discretion the VAT system proposes to minimize the discretion with the assessing officer so that every person is treated alike. For example, there would be no discretion involved in the imposition of penalty, late filing of returns, non-filing of returns, late payment of tax or non payment of tax or in case of tax evasion. Such system would be free from all these harassment 8. Computerization the VAT proposes computerization which would focus on the tax evaders by generating Exception Report. In a large number of cases, no processing or

scrutiny of returns would be required as it would free the tax compliant dealers from all the harassment which is so much a part of assessment. The management information system, which would form a part of integral computerization, would make the tax department more efficient and responsive. Methods Of Collecting And Charging The VAT Generally, there are 2 methods that are followed while charging and collecting the VAT: 1. Invoice or tax credit method The tax is collected and charged separately on the basis of the tax that is paid on the purchase and the tax that is payable on the sale, shown separately in the invoice. Therefore, the difference between the tax paid on purchase and the tax payable on sale as per the invoice is the VAT. 2. Subtraction Method Under this method, the tax is collected and charged on the aggregate value of the tax payable on sale and purchase by applying the rate of tax, applicable to the goods. Therefore, the difference between the sale price and purchase price would be VAT. It means VAT isthe tax which consumers ultimately face. It is collected at each stage. The tax earlier paid can be allowed as set off or credit. Therefore, it is called as Last Point Tax Top Constitutional Framework Which Deals With The Levy Of Sale Tax The states are empowered to impose sale tax on the goods that are subject to purchase or sale by enacting laws. The Parliament has enacted the CST Act and the states are in the process of enacting laws. The sale of goods or purchase includes: a. b. c. d. e. f. g. the sale of goods, defined under the Sale of Goods Act. transfer of goods used as otherwise in pursuance of the contract. transfer of goods used otherwise in Works Contracts. delivery of goods in pursuance to Hire Purchase Agreement or on installment. transfer of right to use to goods on lease or otherwise. supply of food by the club or body to its members. supply of food articles or drinks for consumption.

The transaction referred above from (c) to (g) are considered to be deemed sale and power can be exercised to impose tax on such sale by the states. States are also empowered to provide levy, creating a liability to pay tax and other payment assessment and certain procedural formalities like maintenance of accounts, records, appeals and issue of declaration of Tax Invoice, Input Tax Credit, etc. To determine the cost of tax on certain commodities, the VAT law maybe classified as prescribed goods and classified goods and computation of tax on the turnover of sale and the taxable turnover and assessment. Under VAT laws, tax is imposed on the sale or purchase of the goods. The states levy the rate of tax at the point of levy upon such goods. They are also empowered to prescribe modes and manners of set-off.

Top Levies Of Tax Under The VAT 1. Sale Tax or Output Tax including Deemed Sale within the state. It covers all kinds of transfer of goods, under the Sale of Goods Act including deemed sale that is transfer of goods by way of Works Contract delivery of goods on the basis of a hire purchase agreement or installment, etc. 2. Purchase Tax, including Deemed Purchase within the state. The tax paid on purchase of goods in certain circumstances. 3. Composition tax, that is in lieu of tax by way of lump sum tax. This means the amount paid by the dealers like retailers whose turnover is below the specified limit of the taxable turnover that is allowed to pay the amount at his option. Who Is The Dealer? Section 2(10) of the VAT Act, 2003 defines the term dealer. Dealer means the person, who is engaged in the activities in connection with or consequent to or incidental to trade or commerce. It also means the person, who supplies, distributes, sells or buys any goods against the valuable consideration or otherwise. He can be the merchandise agent, factor, broker, auctioneer or executes Works Contracts, transfer the goods by way of lease, delivers the goods on HirePurchase Agreement or installment or supplies goods or distributes them by way of or as part of the service. He can be a casual dealer or his agent or non-resident dealer or sub-agent. The dealer also means the local branch of any firm company, any association, body of individual, situated outside the state whether incorporated or not. Agriculturist or educational institutions will not be deemed to be dealers. Any dealer, registered under the earlier law or whose turnover exceeds the prescribed limits subject to tax; or any merchandise agent like factor, broker,auctioneer, etc, or non-resident dealer, are also liable to pay CST. Any dealer registered himself under voluntary registration under Section 25 or any successors to the business to which the predecessors are also liable to tax under section 60. Any dealer whose turnover exceeds the specified limit as prescribed by the state is liable to pay tax. The turnover will be considered on the total turnover of sale and purchase. It will be levied in the event of any sale or purchase. Special Additional Tax(SAT) SAT refers to the Special Additional Tax. It may either be independent of VAT or in addition to VAT. It maybe levied at the first stage or at any stage as may be notified in the state. The SAT will be levied on the sale of prescribed goods such as liquor, petrol, aviation turbine fuel, diesel, raw opium, tendoo leaves, natural gas. The rate on SAT would be levied as prescribed in respect of the relevant schedules or notifications. SAT will be payable along with the ordinary sales tax that is payable under the Act. This is done by furnishing returns within the prescribed time and in the stipulated form.

Relevant Components Of Calculating VAT

Sale or purchase price of the goods Turnover of sale or purchase including the taxable turnover Output Tax Input Tax Input Tax paid on purchase on which the credit or set off claim Net tax payable

VAT in Various States of India VAT or value added tax has replaced the sales tax in India. Earlier across the India there is a sales tax applicable on all the manufacturing goods however later on VAT or value added tax came into existence. This tax (VAT) helps the government to generate the revenue in a systematic way. The basicprinciple of the value added tax is to collect the tax at the inception of the goods that is going to be manufactured. For e.g. if the trader is purchasing goods at Rs 100 then he needs to pay the value added tax of 10% similar kind of tax will be paid by the manufacturer while purchasing the raw material. Lets have a look on the simplest way of calculation of VAT. Purchase price paid by the dealer 1 from broker Rs 100 + 10% tax= Rs 110 (here tax is Rs 10) If the dealer 1 sells the good to other dealer 2 Rs 120+10% tax = Rs 132 (here after including profit of Rs 10 by dealer1 tax is Rs 12) This will reduce the tax of dealer1 and added the excess amount while selling the goods to dealer2. VAT has been imposed on various states such as Andhra Pradesh, Maharashtra, Madhya Pradesh, Orissa, Kerala, Tamil Nadu and Rajasthan. The present VAT structure provided by the government is not turned out to be a foolproof formula hence central government keeps on removing it sometimes due to the agitation of the manufacturer and dealer. VAT is not a standard denomination in all the states it is varied in different part of the country. On an average there are two average tax slabs the first one is 4% that covers all the essential items where as the second slab consist of 10% that covers all the luxury items. There are two sub slabs also that is 1% for jewellery and 20% for non-essential goods. This should be noted that there are two ways to collect VAT: 1. In the very first method tax is charged both on the basis of the tax that is paid by the customer on its purchase this tax is simply applicable on sales. In a simple language the difference between the tax paid on purchase and tax paid on sales. 2. In other method tax is collected on the cumulative value of tax paid on sales and tax paid on purchase.


The key benefit that is given on the basis of Value added tax (VAT): A. Reduces tax evasion. B. Multiple taxes such as turnover tax, surcharge on sales tax, additional surcharge etc have been put an end to. C. Advocated an internal system of self assessment for VAT liability. D. Tax structure becomes easier and more visible. E. Enhances tax compliance and results in higher revenue growth. F. Encourages competitiveness of exports. There are several states that never allow to imposing of the value added tax (VAT) due to the agitation by the traders who opposed multiple taxes on the goods. Due to this reason there were several times state government remove the value added tax.