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INDIRECT TAX ASSIGNMENT CIA TYPES OF INDIRECT TAXES

VISHAL AGARWAL 1011641

INDIRECT TAXES General Introduction: Indirect taxes are the charges that are levied on goods and services. They are of different types in India like Excise Duty, Customs Duty, Service Tax, and Securities Transaction Tax. There are a series of Tax laws and regulations in order to control the indirect taxation, which can be either national law, made by the central government or even can be state specific laws. As a result these taxes are an important part of the total cost. It is thus essential to make appropriate planning for such costs. Nearly all of the activities that are subjected to indirect taxation range from manufacturing to those required for final consumption. Activities related to trading, imports, and services are also included in this list. As a result Indirect Tax has an impact on all business lines. In general, the Indirect Tax in India is a complex system of interconnecting laws and regulations, which includes specific laws of different states. For this there are many reliable organizations in India, which employs efficient Indirect Tax professionals to help their clients In the following pages is a brief about three of the main kinds of Indirect taxes in India: 1. 2. 3. Sales tax Customs Duty Excise Duty

SALES TAX

Sales Tax or the tax on consumption is liable for payment during the purchase for certain goods and services as they form a part of national GDP. It means every seller of goods and service provider 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. The question of whether they are generally progressive or regressive is a subject of much current debate. People with higher incomes spend a lower proportion of them, so a flat-rate sales tax will tend to be regressive. It is therefore common to exempt food, utilities and other necessities from sales taxes, since poor people spend a higher proportion of their incomes on these commodities, so such exemptions make the tax more progressive. This is the classic "You pay for what you spend" tax, as only those who spend money on non-exempt (i.e. luxury) items pay the tax. 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.

Who collects 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. It is imposed under Central Government (Central Sales Tax) and the State Government (Sales Tax) Legislation. 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. Normally, each state has its own sales tax act and levies the 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. The Central Sales Tax (CST) Act that comes under the direction of Central Government takes into consideration all the interstate sales of commodities. However, most of the states in India, from April 01, 2005, have supplemented the sales tax with the new Value Added Tax (VAT).

CUSTOMS DUTY

The Custom Duty in India is one of the most important tariffs. The custom duty in India is regulated by the Customs Act of 1962. The main purpose of the custom duty in India is the prevention of the illegal export and import of goods. The rates of the custom duty levied on the imported and exported goods are assigned in the Custom Act, 1962. This act was formulated to prevent illegal imports and exports of goods. Besides, all imports are sought to be subject to a duty with a view to affording protection to indigenous industries as well as to keep the imports to the minimum in the interests of securing the exchange rate of Indian currency. Duties of customs are levied on goods imported or exported from India at the rate specified under the customs Tariff Act, 1975 as amended from time to time or any other law for the time being in force. For the purpose of exercising proper surveillance over imports and exports, the Central Government has the power to notify the ports and airports for the unloading of the imported goods and loading of the exported goods, the places for clearance of goods imported or to be exported, the routes by which above goods may pass by land or inland water into or out of Indian and the ports which alone shall be coastal ports.

Who collects Customs Duty: The national authority that is entrusted the task of realizing taxes on international trade is often referred to as Customs department. Normally the Customs department operates under a national law and is authorized to examine the cargo in order to ascertain actual description, specification volume or quantity, so that the assessable value and the rate of duty may be correctly determined and applied. In India this department is called the Central Board of Excise and Customs (CBEC). In order to give a broad guide as to classification of goods for the purpose of duty liability, the CBEC brings out periodically a book called the "Indian Customs Tariff

Guide" which contains various tariff rulings issued by the CBEC. The Act also contains detailed provisions for warehousing of the imported goods and manufacture of goods is also possible in the warehouses.

EXCISE DUTY

An excise is an indirect tax, meaning that the producer or seller who pays the tax to the government is expected to try to recover the tax by raising the price paid by the buyer (that is, to shift or pass on the tax). Excises are typically imposed in addition to another indirect tax such as a sales tax or VAT. In common terminology, an excise is distinguished from a sales tax or VAT in three ways: i. i. i. (i) an excise typically applies to a narrower range of products; (ii) an excise is typically heavier, accounting for higher fractions (sometimes half or more) of the retail prices of the targeted products; and (iii) an excise is typically specific (so much per unit of measure; e.g. so many rupees per quintal), whereas a sales tax or VAT is ad valorem, i.e. proportional to value (a percentage of the price in the case of a sales tax, or of value added in the case of a VAT). Typical examples of excise duties are taxes on gasoline and other fuels, and taxes on tobacco and alcohol (sometimes referred to as sin tax). The Central Excise duty is levied in terms of the Central Excise Act, 1944 and the rates of duty are prescribed under the Schedule I and II of the Central Excise Tariff Act, 1985. The taxable event under the Central Excise law is manufacture / production and the liability of Central Excise duty arises as soon as the goods are manufactured or produced. As per the Central Excise Act, duty is leviable only on excisable goods. i.e., Goods specified in Central Excise Tariff Act, 1985. The rates of the Excise Tax vary depending on the nature of commodity. Sometimes, even for the similar commodity the tax rates are different depending on circumstances. Factors like end-use and taxability of inputs are responsible for this. The Excise Tax rates are notified in the Central Excise Tariff Act but can be revised accordingly by the annual Finance Acts. However, the former Acts should be considered to determine the applicable excise duty rate for any commodity. According to the Central Excise Tax provisions, such excise duty can be imposed on any goods either produced or manufactured, although the payment can be done during the time of removing the

goods. In India, the revenue from the Excise Tax is the biggest single financial source. The main objective of the central Government is to achieve different socio-economic policies by making suitable adjustments regarding the scope, nature, and quantum of levy of the Central Excise Tax. Such schemes of the Excise Tax taken by the central government modifies and serves various purposes of price control, adequate supply of essential commodities, promotion of small scale industries and industrial growth.