CENTRAL SALES TAX ACT 1956

(Act 74 of 1956)

INTRODUCTION
The Central Sales Tax Act, 1956 is an Act of the Parliament to formulate the principles for determining when sale or purchase of goods takes place in the course of inter-State trade or commerce. It provides for levy and collection of tax on such inter-State sales of goods. It also formulates principles for determining when a sales or purchase of goods takes place outside a State or in the course of import into or Export from India. It also specifies and declares certain goods to be of special importance in Inter-State trade and commerce and specifies in relation to them there restrictions and conditions to which the state Sales Tax Laws shall be subject.

Sale has four Ingredients:

a. b. c. d. Contact/Bargain for sale Payment/promise of payment for goods Delivery of goods Actual passing of the title

On the basis of Act An Act to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-state trade of commerce or outside a State or in the course of imports into or export from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-state trade of commerce and to declare certain goods to be of special importance in inter-state or commerce and specify the restrictions and conditions to which state laws imposing taxes on the sale or purchase of such goods of special importance shall be subject.

Principles for Determining Inter-State Sales

Section 3 enunciates the principles when a Sale or purchase of goods can be said to have taken place in the course of inter-state-trade or commerce. It provides that a sale or purchase of goods shall be deemed to be an inter-State-sale or purchase if such sale or purchase either:

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(a) Occasions the movement of goods from One State to another (Or) (b) Is effected by transfer of document s of title to the goods during the movement from one State to Another. It is provided that if the movement of goods commences and terminates in the same State, it shall not be and inter-State transaction merely because in the course of such movement the goods pass through the territory of another State. It is also provided the where the goods are delivered to a carrier or other bailee for transmission, the movement of goods shall be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.Thus for an interState-sale or purchase material fact is movement of goods from One State to another, as a result of sale. Consequently the movement of goods should arise from or have a nexus to the sale. Similarly, inter-state sale also materializes when document of title to the goods are transferred during the movement of goods from one State to another.

Principles for Determining a Sale outside the State

Section4 of Central Sales Tax Act provides that when a sale or purchase of goods is determined to take place inside a State such sale or purchase shall be deemed to have taken place outside all other States. Section 4 also provides that a sale or purchase shall be deemed to take place inside a State if the goods are within the State: a) In the case of specific or ascertained goods at the time the contract of sale is made, and b) In the case of un ascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer.

Principles for Determining a Sale or Purchase in the Course of Import or Export

Section 5 of C.S.T. Act, provides that: (i) A sale or purchase of goods is deemed to take place in the course of Export only if the Sale or purchase either occasions. Such export or is effected by transfer of documents of title to the goods after the goods have crossed the Custom frontiers of India. A sale or purchase of goods, is deemed to take place in the course of Import of the goods into the territory of India, if the sale or purchase either occasions such Import or is effected by a transfer of documents of title to the goods before the goods have crossed the Customs Frontiers of India.

(ii)

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(iii)

Section 5(3) also provides that the last sale or purchase of any goods proceeding the sale or purchase occasioning the Export shall also be deemed to be in the Course of Export if the last sale or purchase took place after the was for the purpose of complying with agreement or order for or in relation to such Export.

Basic scheme of the Central Sales Tax Act

Sales tax revenue to the State Tax collected in the state where movement of goods takes place Tax on Inter state sale of goods State sales tax law applicable in many aspects (In respect of provisions like return, assessment, appeals etc., provisions of General Sales Tax law of the State applies.)

CST Act defines some concept (Sale Outside the State, sale during the course of import/import) Declared goods (Some goods are declared as goods of special importance and restrictions are placed on power of State Governments to levy tax on such goods.

APPROPRIATE STATE [SECTION 2 (A)] Central Sales Act means In relation to a dealer who has one or more place of business situated in the same state, that state, and In relation to a dealer who has more than one place of business situated in different states, every such state with respect to the place or places of business situated within its territory

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OBJECTIVE To give out the principles for determining Inter State Sale (ISS) or Sale outside a state or Export sale or Import sale. Provide for the levy, collection and distribution of taxes on sale of goods in the course of inter-State trade. Declare certain goods to be of special importance (Called Declared goods). Specify the restrictions and conditions on state laws imposing taxes on declared goods. To provide for collection of tax in the event of liquidation of a company

IMPORTANT FEATURES 1. It extends to the whole of India. 2. Every dealer who makes an inter-state sale must be a registered dealer and a certificate of registration has to be displayed at all places of his business. 3. There is no exemption limit of turnover for the levy of central sales tax. 4. Under this act, the goods have been classified as: Declared goods or goods of special importance in inter-state trade or commerce and Other goods.

The rates of tax on declared goods are lower as compared to the rate of tax on goods in the Second category.

5. The tax is levied under this act by the Central Government but, it is collected by that state government from where the goods were sold. The tax thus collected is given to the same state government which collected the tax. In case of union Territories the tax collected is deposited in the consolidated fund of India.
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6. The rules regarding submission of returns, payment of tax, appeals etc. are not given in the act. For this purpose, the rules followed by a state in respect of its own sales tax law shall be followed for purpose of this act also

7. Even though the central sales tax has been framed by the central government but, the state governments are allowed to frame such rules, subject to such notification and alteration as it deem fit

BUSINESS [SECTION 2 (AA)]

(a) Any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not it is carried on with a motive to make gain or profit and whether or not any profit or gain accrues from it, and (b) Any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern. According to the above definition It is not necessary to have profit motive to call an activity a business. Regularity of business is not essential. Business may be legal or illegal.

Any transaction incidental or ancillary to business will also be treated as business. For example, if a registered dealer sells outdated machines, he will be liable to pay central sales tax on it.

DEALER [SECTION 2(B)]

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 It includes - .. a) A local authority, a body corporate, a company, any cooperative society, other society, club, firm, Hindu undivided family, association of persons which carries on such business. b) A factor, broker, commission agent who carries on business of buying, selling, supplying or distributing goods belonging to any principal

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c) An auctioneer who carrier on the business of selling or auctioning goods belonging to any principal. d) Government. However, in case of sale, supply or distribution of old obsolete or waste products, government is not liable to pay tax under this Act. This exception does not apply to government companies, public sector undertakings, and private enterprises. Under this Act services are not considered. Therefore, if a person is rendering professional service of any type say teacher, doctor etc. shall not be treated as dealer.

Registered dealer [Section 2 (f)]

It means a dealer who is registered under Section 7 of the Act)

DECLARED GOODS [SECTION 2(C)] It includes those goods which are considered to be of special importance in interstate trade or commerce under section 14.Some of these goods is Cereals Coal Cotton Crude Oil Jute Oilseeds Pulses Sugar

Goods [section 2(d)]

This includes all material articles or commodities and all kind of movable property excluding newspapers, actionable claims, stocks, shares, and securities. If newspapers are sold as scrap then, it will be charged to central sale tax if it is an inter state sale.

PLACE OF BUSINESS [SECTION 2 (DD)]

Central sales tax is collected by that state Government where the dealer has place of business. This includes a. The place of business of agent if, business is carried on through such agent. b. Place where dealer stores his goods like warehouse, godown. c. Place where a dealer keeps his books of accounts.
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SALE [SECTION 2 (G)]

It means transfer of property in goods by one person to another for cash or for deferred payment or for any valuable consideration. However, a mortgage, hypothecation of, or a charge, or pledge on goods is not included. Essential elements of sale: a. b. c. d. Goods should be transferred General property in good should be transferred Price must be paid There must be a seller and a buyer There must be a valid consent of both buyer and seller

SALE PRICE [SECTION 2 (H)]

It means amount payable to a dealer as consideration for the sale of any goods which includes the following Central sales tax Excise duty Cost of packing material Packing Charges Bonus given for effecting additional sales Insurance charges, if goods are insured by seller Freight charges if, not shown separately

Any sum charged for anything done by the dealer in respect of goods at the time of or before delivery thereof Sale price does not includes the following Freight or transport charges for delivery of goods, if charged separately Cost of installations, if charged separately Cash discounts for making timely payments. Trade discount Insurance charges of goods insured on behalf of the buyer Goods rejected Goods returned within 6 months

SALES TAX LAW [SECTION 2 (I)] It means any law for the time being in force in any state, or part thereof, which provides for the levy of taxes on the sale or purchase of goods generally. Now VAT Legislation of a state shall also be included within the ambit of the definition of State Tax Law.

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TURNOVER [SECTION 2 (J)] It is the aggregate of the sale prices received and receivable by the dealer in respect of sales of any goods in the course of inter-state trade or commerce made during a prescribed period. Prescribed period is the period in which sales tax return is filed.

YEAR [SECTION 2(K) It means the year applicable in relation to a dealer under the general sales tax law of the appropriate state, and if, there is no such year applicable, it is the financial year.

SALE OR PURCHASE OF GOODS OUTSIDE A STATE

As per section 4 (1) when a sale or purchase is inside a state as per section 4 (2) such sale or purchase shall be deemed to have taken place outside all other States Sale inside a state as per section 4 (2) means a. In case of specific goods or ascertained, if goods are within the state at the time of the contract of sale is made b. In case of unascertained or future goods, if goods are within the state, at the time of their appropriation to the contract.

RATES OF TAX
The rate of central sales tax is 4 % or local state rate whichever, is lower on the first point of inter-state sale if, the goods are sold to the government or to a registered dealer, and on the fulfillment of specified condition, subsequent sales during the movement of same goods will be exempted from tax. But, if any of the dealers in these subsequent sales is or an unregistered dealer then the last registered dealer will collect tax @ 10% from an unregistered dealer to whom goods have been sold. (1) Every dealer, who in the course of inter-State trade or commerce sells to the Government any goods; or sells to a registered dealer other than the Government, goods of the description referred to in sub-section (3) (2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade or commerce not falling within sub-section (1) in the case of declared goods, shall be calculated (at twice the rate) applicable to the sale or purchase of such goods inside the appropriate State

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 in the case of goods other than declared goods, shall be calculated at the rate of 37(ten per cent) or at the rate applicable to the sale or purchase of such goods inside the appropriate State,38 whichever is higher and ; in the case of goods, the sale or, as the case may be, the purchase of which is, under the sales tax law of the appropriate State, exempt from tax generally shall be nil, (3) The provisions of sub-section shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in the prescribed form obtained from the prescribed authority; or if the goods are sold to the Government, not being a registered dealer, a certificate in the prescribed form duly filled and signed by a duly authorised officer of the Government. (4) Not withstanding anything contained in this section, the State Government may on the fulfilment of the requirements laid down in sub-section(4) by the dealer. if it is satisfied that it is necessary so to do in the public interest, by notification in the Official Gazette, and subject to such conditions as may be specified therein direct that no tax under this Act shall be payable by any dealer having his place of business in the State in respect of the sales by him, in the course of inter-State trade or commerce, [to a registered dealer or the Government] from any such place of business of any such goods or classes of goods as may be specified in the notification, or that the tax on such sales shall be calculated at such lower rates than those specified in sub-section or sub-section as may be mentioned in the notification; that in respect of all sales of goods or sales of such classes of goods as may be specified in the notification, which are made, in the course of inter-State trade or commerce, [to a registered dealer or the Government] by any dealer having his place of business in the State or by any class of such dealers as may be specified in the notification to any person or to such class of persons as may be specified in the notification, no tax under this Act shall be payable or the tax on such sales shall be calculated at such lower rates than those specified in sub-section or sub-section as may be mentioned in the notification. (5) Notwithstanding anything contained in this section, no tax under this Act shall be payable by any dealer in respect of sale of any goods made by such dealer, in the course of inter-State trade or commerce to a registered dealer for the purpose of setting up operation, maintenance, manufacture, trading, production, processing, assembling, repairing, reconditioning, reengineering, packaging or for use as packing material or packing accessories in an unit located
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in any special economic zone or for development, operation and maintenance of Special Economic zone by the developer of the Special Economic zone, if such registered dealer has been authorised to establish such unit or to develop, operate and maintain such Special Economic Zone by the authority specified by the Central Government in this behalf. (6) The goods referred to in sub-section (6) shall be the goods of such class or classes of goods as specified in the certificate of registration of the registered dealer referred to in that subsection. (7) The provisions of sub-sections (6) and (7) shall not apply to any sale of goods made in the course of inter-State trade or commerce unless the dealer selling such goods furnishes to the prescribed authority referred to in sub-section (4), a declaration in the prescribed manner on the prescribed form obtained from the authority specified by Central Government under sub-section (6)], duly filled in and signed by the registered dealer to whom such goods are sold.

DETERMINATION OF TURNOVER As per section 8 (A), to determine turnover following amounts will be deducted Central sales tax Sale price of goods returned within six months Other items as the central government may notify Central Sales Tax If tax forms a part of aggregate sales price then amount of tax collected by a registered dealer shall be deducted from his gross turnover. Tax is calculated by the following formula.

Rate of tax (x) Aggregate of sales price _________________________________ 100+Rate of tax If the turnover of a dealer is taxable at different rates, then above formula shall be applied separately in respect of each part of the turnover liable to a different rate of tax. Returned Goods shall be deducted if goods are returned by the buyer within 6 months, its sales price will be deducted from aggregate sale price after submitting necessary evidence. Sale price of rejected goods will be deducted even after six months.

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DECLARATION FORMS
DECLARATION UNDER RULE 9 OF THE CENTRAL SALES TAX RULES 1957 I/Weof........................................ ..... Carrying on the business (es) known as........................................................at......................... and other places in the State of Tamil Nadu as.................................................... and liable to the tax under the Central Sales Tax Act, 1956 do hereby declare that I/we, Shri/Shrimathi ............................. (Here give address).................................................... Whose Signature is appended below of the said concern shall be deemed to be the manager of said Business (es) at......................................... all places within the State of Tamil Nadu for the Purpose of the said Act and shall at all times, comply with the provisions of the said Act, and The rules made there under. Place: Signature Date: Status ... Enter here one of the following, as may be Applicable: a. The guardian/trustee, at.................................................................. On behalf, 1. A Hindu undivided family known as .. 2. An association /club/society known As... 3. A firm known as . 4. A private limited company known as .... 5. A public limited company/co-operative society known as....................................................... The declaration shall be signed in the case of: 1. A Hindu undivided family by its manager. 2. An association, club, societyby the president or Chairman and the Secretary. 3. A firm by the partners having a total share of not less than 50 per cent. 4. A private limited companyby all its directors or where there are on directors by the Authorized representative of the company nominated by the Chairman, and 5. A public limited company or co-operative society by the managing agents, or where no managing agents, by the managing directors or the chairman Board of Directors and the Secretary.

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PERMANENT ACCOUNT NUMBER

(SEC139 (A))

INTRODUCTION
Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department, to any person who applies for it or to whom the department allots the number without an application. PAN enables the department to link all transactions of the person with the department. These transactions include tax payments, TDS/TCS credits, returns of income/wealth/gift/FBT, specified transactions, correspondence, and so on. PAN, thus, acts as an identifier for the person with the tax department. PAN was introduced to facilitates linking of various documents, including payment of taxes, assessment, tax demand, tax arrears etc. relating to an assessee, to facilitate easy retrieval of information and to facilitate matching of information relating to investment, raising of loans and other business activities of taxpayers collected through various sources, both internal as well as external, for detecting and combating tax evasion and widening of tax base.

PAN defined under section 139A.

Section 139A of the Income-tax Act, 1961. This section lays down the framework for The manner of applying for PAN is laid down in Rule 114 of the Income-tax Rules, Rule 114B lists down the documents in which PAN is required to be quoted while exempted from quoting PAN on furnishing a declaration in Form 60. Rule 114C lists agricultural income by furnishing declaration in Form 61, non-residents, and Central Penalty of Rs.10, 000/- is imposable u/s 272B for failure to comply with the players Penalty of Rs.10, 000/- is imposable u/s 272B for failure to comply with the provisions of section 139A.

Structure and validation

A typical PAN is AFZPK7190K. First three characters i.e. AFZ in the above PAN are alphabetic series running from AAA to ZZZ Fourth character of PAN i.e. P in the above PAN represents the status of the PAN holder. P stands for Individual, F stands for Firm, C stands for Company, H stands for HUF, A stands for AOP, T stands for TRUST etc. Fifth character i.e. K in the above PAN represents first character of the PAN holders last name/surname. Next four characters i.e. 7190 in the above PAN are sequential number running from 0001 to 9999. Last character i.e. K in the above PAN is an alphabetic check digit.
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Uses
It is mandatory to quote PAN on return of income, all correspondence with any income tax authority. From 1 January 2005 it will be mandatory to quote PAN on challans for any payments due to Income Tax Department. It is also compulsory to quote PAN in all documents pertaining to the following financial transactions:-

a) Sale or purchase of any immovable property valued at five lakh rupees or more; b) Sale or purchase of a motor vehicle or vehicle, [the sale or purchase of a motor Vehicle or vehicle does not include two wheeled vehicles, inclusive of any detachable Side-car having an extra wheel, attached to the motor vehicle;] c) A time deposit, exceeding fifty thousand rupees, with a banking company. d) A deposit, exceeding fifty thousand rupees, in any account with Post Office Savings Bank. e) A contract of a value exceeding one lakh rupees for sale or purchase of securities; f) Opening a bank account. g) Making an application for installation of a telephone connection (including a cellular telephone connection). h) Payment to hotels and restaurants against their bills for an amount exceeding Twenty-five thousand rupees at any one time. i) Payment in cash for purchase of bank drafts or pay orders or bankers cheques for an amount aggregating fifty thousand rupees or more during any one day. j) Deposit in cash aggregating fifty thousand rupees or more with a bank during any one day. k) Payment in cash in connection with travel to any foreign country of an amount exceeding twenty-five thousand rupees at any one time.

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PAN LEGAL FRAMEWORK

The legal authority for allotment and use of the new series of PAN is derived from PAN, e.g., who is required to apply for PAN, who else can apply for PAN, who will allot PAN, transactions where PAN is required to be quoted, use of PAN in TDS certificates and TDS returns, that one person can have only one PAN and the manner of applying for PAN. 1962. This rule, amended in 2003, also specifies the copies of documents required to be submitted along with the PAN application as proof of identity and address of the PAN applicant. Entering into specified transactions/activities, Persons who do not have PAN are the persons to whom section 139A does not apply. These are persons who have Govt./State Govt. and Consular offices, where they are payers.

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VALUE ADDED TAX

Origin
Value Added Tax or VAT is a broad based tax levied at multiple stage with tax on inputs credited against taxes on output. The origin of VAT can be traced as far back as the writing of F V on Siemens, who proposed it in 1919 as a substitute for the then newly established German turnover tax. Since then numerous economists have recommended it in different contexts. In addition, various committees have examined the tax in detail. However, for its rejuvenation, the tax owes much to Maurice Faure and Carl Shoup. The recent evolution of VAT can be considered as the most important fiscal innovation of the present century.

Introduction
It is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its manufacture or distribution. The manufacturer remits to the government the difference between these two amounts, and retains the rest for themselves to offset the taxes they had previously paid on the inputs. The "value added" to a product by a business is the sale price charged to its customer, minus the cost of materials and other taxable inputs. A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. With the VAT, collections, remittances to the government, and credits for taxes already paid occur each time a business in the supply chain purchases products.

Historical Background
Unhealthy competition Tax rate war State introduce first point sale , which resulted in easy tax evasion Cascading effect of tax due to CST

Meaning
VAT is a tax, which is charged on the increase in value of goods and services at each stage of production and circulation. It is also chargeable on the value of all imported goods. It is charged by registered VAT businesses/persons/taxpayers. VAT has replaced a number of other taxes and its introduction has not resulted in either increased prices to final consumers or reduced profitability of business. VAT is levied on the difference between the sale price of the goods produced or the services rendered, and the cost thereof that is, the difference between the output and the input.

Input tax credit

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1. Input Tax: It is the tax paid or payable in the course of business on purchases of any goods made from a registered dealer of the state 2. Output tax: It means the tax charged or chargeable, by registered dealer for the sale of goods in the course.

Basic principle
Tax should be levied on the Value Added at each stage and not on the gross sales price Value added means difference between selling price and purchase price VAT avoids cascading effect of a tax

FEATURES OF VAT:

Tax levied and collected at every point of sale. Tax collected at every point of sale and the tax already paid by the dealer at the time of purchase of goods will be deducted from the amount of tax paid at the next sale. Dealers reselling tax paid goods will have to collect VAT and file returns and pay VAT at every stage of sale (value addition) It is transparent and easier. VAT dispenses with such forms and sets off all tax paid at the time of purchase from the amount of tax payable on sale. The returns and the challans are filed together in a simple format after self assessment done by the dealer himself. At the most a few forms are required. Tax on goods and services both. Self assessments by dealers. Penalties will be stricter.

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Variants
1. Gross product variant

Principle
The gross product variant allows deductions for taxes on all purchase of raw materials and components. No deduction is allowed for taxes on capital inputs

Limitation
Capital goods are taxed twice i.e., at the time of purchase and at the time of sale of goods produced using those capital goods. Modernization and upgrading of plant and machinery is delayed due to this double tax treatment

2. Income variant Principle:

a. The income variant of VAT allows for deductions on purchase of raw materials and components as well as depreciation on capital goods. (i.e.) b. Credit on Capital purchases are allowed in the ratio of Depreciation over the life of the capital asset. c. This method provides incentives to classify purchase as current expenditure to claim set off.

Limitation:
There are difficulties connected with the specification of any method of measuring depreciation, which basically depends on the life of an asset as well as on the rate of inflation.

3. Consumption variant Principle:

Consumption variant of VAT allows for deduction on all business purchases including capital assets. Gross investment is deductive in calculating value added. It neither distinguishes between capital and current expenditures nor Specifies the life of assets or depreciation allowances for different assets.

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 Merits:
1. It does not affect decisions regarding investment because the tax on capital goods is also set off against the VAT liability. Hence, the system is tax neutral in respect of techniques of production (labor or capital intensive). 2. Convenient from the point of administrative expediency as it simplifies tax administration by obviating the need to distinguish between purchases of intermediate and capital goods on the one hand and consumption goods on the other hand. LIMINATION 1. The system is tax neural from the view point of Government as it leads to loss of revenues to the Government.

Methods for computation of Tax

A. Addition Method Suitability: it is mainly used with income variant of vat Computation Step.1 Its aggregate all the factor payments including profits to arrive at the total value addition Step. 2 Apply the rate on step 1 to calculate the tax

B. Invoice Method Suitability. Its under central excise law, Computation Step 1. Compute the tax to be imposed on each stage of sales on the entire sale value Step 2. Set off the tax paid at the earlier stage Step 3. The differential tax is paid

C. Subtraction Method Suitability Its normally applied where the tax is not charged separately Computation Step.1 compute the value added at each stage of the sales of the goods. Value added is taken the difference between the sales and purchases. Step.2 apply the rate of tax on the amount calculated step 1
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Tax rates under VAT

1. 4% category There are largest numbers of goods, common for all the states, comprising of items of basic necessities such as medicines and drugs, all agricultural and industrial inputs, capital goods and declared goods. The schedules of commodities are attached to the VAT acts of the sates. 2. 12.5% category The remaining commodities, common for all the states, fall under the general VAT rate of 12.5%. 3. 1% category The special rate of 1% is meant for precious stones, bullion , gold and silver ornaments etc 4. Non VAT goods Petrol, diesel, ATF, other motor spirit, liquor and lottery tickets are kept outside VAT. The states may or may not bring these commodities under VAT laws. However, it is agreed that all these commodities will be subjected to 20% floor rate of tax.

Advantages of VAT:
VAT being a broad based tax levied at multiple stages is generally perceived as an explicit replacement of State sales tax for raising additional revenue for the Government. The purpose of a tax system is to bring in revenues to the Government. Tax revenues can be raised in many ways. However, the main characteristic of good tax system should be a. The tax system should be fair or equitable; b. It should cause the least possible harmful effects to the economy and to the extent possible; it should promote growth to the economy. c. It should be simple both for its compliance by the payer and for its administration by the Government. d. It should be income elastic. Keeping in view the above objectives, VAT is being implemented in various states in place of the local sales tax payable by the seller. VAT is also expected to be more effective and efficient for every person including Government, manufactures, traders and consumers and hold the following advantages:

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1. Easy to Administer & Transparent: This system of charging tax is easy to administer because of its simplicity. It also reduces the cost of compliance by the dealers and is transparent, as tax is to be charged in every bill and there will be no local statutory forms. 2. Less Litigation: There will be no litigation with respect to allow ability of items, as under VAT no items will be specified in the registration certificate of the dealer. The dealer will be allowed to purchase any of the items of his choice in which he intends to deal. He will also be allowed to purchase any item he requires as raw material for the purpose of manufacturing or for packing. 3. Tax Credit on purchase of Capital Goods: The dealer will be allowed to purchase capital goods for manufacturing after paying sale tax and will be entitled to get set off sales tax paid on such purchases from his sales tax liability, which will arise on the sales made by him. 4. Abolition of Statutory Forms: There are no forms under VAT. Therefore, all problems related to forms automatically get resolved. 5. Self Assessment: Dealers are not required to appear before the Assessing Authority for their yearly assessments, as under VAT there is provision for self assessment. All the cases will be accepted by the department as correct and only a few will be selected for audit as is being done by Income Tax Department and Excise Department at present. 6. Deterrent against Tax Avoidance: It will act as deterrent against tax avoidance. Under the present system, tax is charged either on first point basis or at last point basis hence the incentive to evade tax is high because the dealer saves the whole amount of tax due on such transaction, whereas under VAT the incentive to evade tax is low because the dealer saves only a part of tax i.e. (tax amount which he is liable to pay less the amount of tax he has already paid on his purchases). 7. No Cascading Effect: It does not have cascading (tax on tax) effect due to system of deduction or credit mechanism. Since VAT does away with cascading, it avoids distorting business decisions. The need for vertical integration is dictated only by the market forces or technical considerations, and not by the tax structure

8. Effective Audit & Enforcement Strategies:

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The input credit method by generating a trail of invoices is argued to be system that encourages better compliance since the purchaser seeks an invoice to get input tax credit. Further, this trail of invoices supports effective audit and enforcement strategies. 9. Minimum Exemptions: The system will be more effective because of minimum exemptions. 10. Removal of Anomaly of First Point Taxation: VAT eliminates the limitations of single point tax either at first point or last point. In the case of last point goods, the temptation to evade tax is high. Firstly, the quantum of tax at one point is high. Secondly, as the exemption is available against statutory forms, possibility of misuse of forms cannot be ruled out. Similarly, under first point tax system, tax avoidance by way of selling the goods at first pint to their sister concerns at lower rates and thereafter increasing the price of the goods because subsequent sales being exempt as tax paid. This anomaly is also being taken care or under VAT, without introducing cascading. LIMINATION OF VAT: India being a Federal Republic country has state level administration of the local sales tax which is being replaced by VAT and had been the reason for deferment of its implementation time and again. Inherently there are certain limitations of VAT due to which it being opposed by some of the trade associations. Moreover VAT undoubtedly has many advantages but without taking note of the limitation of VAT, one is just looking only at one side of the coin. The limitations of VAT are discussed hereunder . 1. Detailed Records: Like any other system VAT is also not free from all evils. Though on record it is said to be the simplest method, however, it is more complicated than a simple first point tax. Many small dealers maintain only primitive accounts and it is very difficult for them to keep proper and detailed records required for VAT purposes. 2. Cause Inflation: It is also argued that VAT causes inflation. Its impact will depend on various factors such as inventory holding period, demand supply position of that particular product, number of intermediaries etc. Investment in stock is bound to increase as tax will be paid at the time of purchase, hence one will have to carry tax paid stock. 3. Refund of Tax: Credit of tax paid on inputs/capital goods is available to be utilized against tax liability which will be calculated on the sale of final product. VAT credit cannot be availed if no tax is payable on final product being exempt or taxable at lower rate. 4. Functional Problems:
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The functional problem of VAT is that input tax credit is allowed on the basis of the invoices issued by the dealer. In respect of invoices where tax at the earlier stage is charged and collected, but not remitted to the State by the concerned dealer, the dealer who has paid the tax and who is entitle to take credit for the tax paid should not be made to suffer. Provisions to protect the interest of the dealers who have paid the tax should be made. 5. Increase in Investment: Dealer will be making purchases after paying tax, therefore investment in stock will go up the extent of tax paid. Under old system the dealer was making purchases against statutory forms, hence was not liable to pay tax on its purchases.

6. Not Credit for Tax paid on Interstate Purchases: The biggest problem of introduction of VAT is the non availability of credit for tax paid on interstate purchases in initial years. It will also result in some cascading effect, which goes against the basic spirit of VAT. 7. Audit under VAT: Most of the states introduced VAT on 1.4.2005 and they have incorporated audit provisions in the Legislation itself. Audit under VAT is important for better and effective implementation of the VAT system.

Return
VAT Returns are filed every month or every quarter depending on the amount of VAT you pay. The normal rule is that if you pay less than Rs 15,000 for VAT every month, a VAT Return is to be filed every quarter. It is all at the discretion of the VAT officer. At monthly or quarterly intervals on your VAT Return, you should subtract your Input Tax (attributable to taxable supplies only) from your Output Tax and pay the difference to the VAT Commissioner. If your Input Tax is greater than your Output Tax you can carry over the difference as a credit to your next VAT Return. In certain circumstances, the Commissioner may pay you any excess if he is satisfied that such an excess is a regular feature of your business. Under VAT laws there are simple forms of returns. Returns are to be filed monthly/ quarterly / annually as per the provisions of the state Acts/ rules. Returns will be accompanied with the payment challan.

CONCLUSION
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The primary objective of this report is to identify rules and procedure of Income tax in the Assessment year of 2011 -2012. As per income tax Act 1956 every year the amendments changing in way of including new rules as per Act. Contrary to what the wealthy have taught us to believe, a strongly progressive income tax does not take away from the economy or diminish incentive for honest work and creativity. The strongly progressive tax rates have been in effect for approximately 70 of the last 100 years and have served the public well. It has enhanced our freedoms and allowed the lower classes to advance rapidly. It funded important government programs and services which serve us all. So in that case if every individual follows income tax act the economics of the country may raise as per well being of the country. In many cases not all the individual follows certain rules, if its followed by everyone as being Indian citizen the source of income doesnt accumulate on one particular individual and the source of income of the country surely raise in way benefit and well fare of the country. As in the report we discussed about Central sales Tax and Value added tax, there is huge difference among both type of tax which controls the sales of the country and tax is on the changes Income tax Report proposes will not be realized without institutional accountability to ensure that they are carried out.

REFERENCE
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