INDIRECT TAXES

Difference between direct and indirect

taxes

Point of
difference

DIRECT TAX

INDIRECT TAX

A tax is said to be direct

If impact of tax is on one
Incidence when impact and Incidence
person and incidence on
the another, the tax is
& Impact of a tax are on one and same
person.
called indirect
Direct tax is imposed on the
Indirect tax is imposed on
individual organisation and
commodities and allows
Burden
burden of tax cannot be
the tax burden to shift.
shifted to others.
Indirect taxes are borne
Direct taxes are lesser
by the consumers of
Viability burden then indirect taxes to
commodities and services
people as direct taxes are
of
irrespective of financial
based
income
earning
ability
payment
ability as the MRP
of people.
includes all taxes.
Cost of collecting indirect
The administrative cost of
are taxes is very less as
Administr
collecting direct taxes is
indirect taxes are
more and improper
ative
wrapped up in prices of
viability administration may result in
goods and services and
tax evasion.
cannot be evaded

Classification of TAXES
DIRECT TAX
INCOME TAX
CORPORATION TAX
PROPERTY TAX
INHERITANCE TAX
GIFT TAX
WEALTH TAX

INDIRECT TAXES
CENTRAL EXCISE
CENTRAL SALES TAX
CUSTOMS DUTY
SERVICE TAX
OCTROI ETC.
VALUE ADDED TAX (VAT)
SECURITIES TRANSACTION TAX
(STT)

Levy of taxes
CENTRAL GOVERNMENT

INCOME TAXES(EXCEPT ON AGRICULTURE)

CUSTOMS DUTY
EXCISE DUTY (EXCEPT ON LIQUOR)

TAX ON AGRICULTURE STATE GOVERNMENT

EXCISE ON LIQUOR
BOTH CST AND LST

LOCAL AUTORITIES

OCTROI
MUNICIPAL TAXES
TAXES ON HOUSE PROPERTY

Concept of Central Sales Tax (CST)

CST is an indirect tax as the burden falls on consumer

CST act came into force on 1.7.1957
This act applies to whole of India, including J&K
It is levied by Central Government on TAXABLE TURNOVER of
Inter-state sale of goods made by registered dealer in ordinary
course of business.
It is payable in the state in which movement of Goods
commences.
It is assessed, collected and administered by State
Government.

CENTRAL SALES TAX ACT1956

CONDITIONS
1. There should be A dealer
2. Should be A registered dealer
3. He must carry on any business
4. Sale should take place
5. Sale may be to A regd or unregd buyer
6. The sale should be of goods.
7. The sale can be of also declared goods (goods of specific importance)
8. The sale should take place in course of inter state
9. The sales should not be within the same state.
10.The sale should not be outside India

DEFINITIONS
DEALER U/S 2(b).

He is A person one who is involved in the activities of buying, selling, distributing the
goods directly or indirectly either for cash or for deferred payment ,for commission
,brokerage etc.
DEALER INCLUDES
1. Local authorities ,co-operative societies, A company, HUF, association of persons,
firms..
2. Suppliers, broker, del creder, commissioner, etc.
3. An auctioneer(govt, agent, etc)

REGISTERED DEALER SEC 7

A person should register himself u/s 7
The registration may be:
VOLUNTARY REGISTRATION OR
COMPULSORY REGISTRATION

SALE -2(G)
SALE INCLUDES
A transfer of goods for money
Transfer of goods for moneys worth
Transfer of goods on an agreement to pay on deferred system
Hire purchase system and installment system.
POINTS TO BE REMEMBERED
Sale may be to a registered buyer or unregistered buyer.
Element of price is essential.
Free supply is not sale.
Quantity discount is not a sale.
Mortgage is not a sale.
Depot transfer is not a sale.

GOODS-2(d)
Goods means any article, thing, commodity, and which is
movable ,however goods
DOES NOT INCLUDE: Newspapers, actionable Claims, stocks,
Shares, Securities.
DECLARED GOODS SEC2(C)
Declared goods are goods of special importance.If declared goods are
sold there are certain benefits which can be obtained by the dealer,
which is not available for the ordinary goods.
Cereals ,Pulses, Coal Including Coke But Not Charcoal, Cotton Waste ,
Hand Made Garments, tobacco, Raw Tobacco, Cheroots Of Tobacco ,Jute,
Oil Seeds, Cotton In Unmanufactured Form ,Crude Oil,sugar, khandsare
Sugar, Aviation Turbine Fuel, refused Tobacco, Cigars ,Hides And Skins,
Woven Fabrics Of Wool.

INTER STATE SALE-SEC 3

Once the goods are taken out of dealers place then final
destination should be taken into consideration and not the
route through which goods are transferred.

BASIS OF CHARGE
When all these conditions are satisfied then CST will be levied
AT SPECIFIED RATE ON TAXABLETURNOVER WHICH WILL BE
BASED ON SALES AND NOT ON PROFITS.

Rates of CST
Form C
Thesales taxon inter-state sale is 4% or the applicablesales tax ratefor sale within the
State whichever is lower ifthe saleis to a dealer registered under CST.
Form D
Sale to government is taxable @ 4% or applicablesales tax ratefor sale within the State
whichever is lower.
Form E1
This form is issued by the dealer who makes the first inter-state sale during movement of
goods from one State to another.
Form E2
This form is issued by the second or the subsequent seller when the goods move from
one state to another in a series of inter-state sales by transfer ofdocumentsof title.
Form F
This form is issued when goods are dispatched to another state as a consignment or to
the branch of a dealer in another State. The CST is not payable if there is only inter-state
stock transfer and there is no sale.
Form H
This form is issued by an exporter for purchase of goods. The purchase of goods is for an
export order or in pursuance of an export order.
Form I
This form is issued by a dealer located in a Special Economic Zone (SEZ). No CST is
levied when sales is made to a dealer located in SEZ.

Particulars

Amount

Price or value of Goods Sold

XXX

Less: Goods rejected/ Returns

XX
Net Sales XXX

Less:
Discounts
Insurance charges at request of Buyer
Transportation and Freight charges
Installation charges
Balance XXX
Add:
Packing charges
Central Excise Duty
Insurance charges (borne by seller)
Weighing charges
Aggregate Sale Price XXX
Less: CST (Aggregation of Sale price x Rate of tax /

XX

100+Rate of Tax
Taxable turn Over XXX

Value Added Tax

The value added tax was introduced as an indirect tax into the
Indian taxation system from 1 April 2005.
The existing General Sales Tax Laws were replaced with new
Value Added Tax Acts .
VAT is a tax, which is charged on the Increase in Value of
good and services at each stage of production and circulation.
It is charged by registered VAT businesses

Rate of TAX (VAT)

Rate of Tax:
Schedule A Essential Commodities (Tax free)- Nil
Schedule B Gold, Silver, Precious Stones, Pearls etc. - 1%
Schedule C' Declared Goods and other specified goods - 4%
Other goods w.e.f. 1/5/10 - 5%
Schedule D Foreign Liquor, Country Liquor, Motor Spirits, etc.
- At specified rates
Schedule E All other goods (not covered by A to D) - 12.5%

Calculation of VAT
Calculation of VAT (tax @10%)

Amount

Purchase price

200

Tax paid during purchase (Rs. 20 [input tax]10% on

200)
Selling price
Tax collected on resale (Rs. 25[output tax]10% on
250)
VAT payable (Output tax Input Tax) Rs. 5 (25-20)
Total tax collected by the Government
At the time of purchase by the dealer----Rs. 20
At the time of resale by the dealer---------Rs. 05
Total----------------------------------------------------Rs.
25

250

CENTRAL EXCISE ACT

The law of Central Excise duties is governed by the

following :
Central Excise Act 1994
Central Excise tariff Act 1985
Central Excise Rules ,1944

 Central Excise Act ,1994

This is the basic law related to the levy and collection of
duties of central excise. However this Act does not contain the
rate at which duties are imposed.

Central Excise Tariff Act ,1985

This Act classifies various goods on which central excise
duties are levied and prescribes the rates at which the duty is
payable.

Central Excise Rules ,1944

All manufacturers of excisable goods are required to register
under these rules .The registration is valid as long as
production activity continues and no renewals are necessary

Taxable event for central excise duty

Taxable event for charge of duty of central excise is the
manufacturer or production of goods in India.
In this context ,the Supreme Court has observed:
Excise duty is not directly on the goods, but manufactured thereof.
Though both excise duty and sales duty levied with reference to goods,
the two are very different imposts.
In one case, the imposition is on the act of manufactured or production,
while in the other it is on the act of sale.

Liability for central excise

For condition must be present for the
charge of central excise duty:

1. 1.The duty is on goods

2. 2.The goods must be excisable
3. 3 .The goods must be manufactured or produced
4. 4.Such manufacture or production must be take place in
India

1.GOODS
For an item to be considered goods for the purpose of the levy
of central excise duty ,it must satisfy two requirements:
Movability
Goods must be movable. Duty cannot be levied on immovable property .Central
excise duty cannot imposed on plant and machinery
Marketability
Goods must be marketable .The goods must be known in the market and must be
capable of being bought or sold

2.Excisable goods
For the liability of duty of central excise to arise, the item in
question should not only be goods it should also be excisable
goods.
A goods become excisable if and only if it is mentioned in the
Central Excise Tariff Act 1985

3.Goods must be manufactured or produced

The third condition that must be satisfied for becoming liable to pay
duties of central excise is that the goods must be manufactured or
produced.

4. Manufactured or production must in India

Finally ,for the liability to pay central excise duty to arise the
goods must be manufactured or produced in India.

5. Who is liable to pay central excise duties?

The central excise duty is a tax on manufacture or production of
goods. Hence, the liability to pay excise duty lies on
manufacturer or the producer

Basis for valuation of goods

1. Specific duty
2. Tariff duty
3. Maximum retail price
4. Ad -valorem basis

Basis for valuation of goods

The duty of central excise is charged on four bases:
1.Specific duty
2.Tariff duty
3.Maximum retail price
4.ad -valorem basis

1.Specific duty
It is the duty payable on the basis of some physical feature of
the product unit like weight, length, volume, thickness, etc.
Some of the goods on which duty is charged on the basis are
as follows
item

Basis

Cigarette

Length

Matches

Box of 100

Sugar

Quintal

Cement

Per tonne

2.Tariff value
1. The government has the power to declare a value on the
basis of which duty of central excise will be charged.
2. When the government declare the value, the duty is charged
on the value and the actual value of the goods is ignored.

3.MRP based valuation

Some manufactures had started the practice of central excise by

resorting to some questionable practices. In order to check these
malpractices, a new basis of valuation was introduced, that is, the
maximum retail price(MRP)-based valuation.
E.g.: television sets, DVD players, Cosmetics, Toilet preparations and
chocolates

4.Ad Valorem duty

The first three bases of valuation are applied for only a few goods. In a
large majority of cases the duty of central excise is payable on the
basis of the value of the goods, called the assessable value.

Meaning of customs duty

1. Duty or tax, which is levied by central govt.
2. Collected from the importer or exporter of
goods.
3. Duties are usually ad valorem rates
4. Ad valorem rates
5. Duty as a percentage of the value of goods

Scope and coverage of

customs law
1.

Basic act for levy and collection of customs duty.

2.

Contain various provisions relating to imports and

exports of goods and merchandize as well as baggage
of persons.

3.

The main purpose of customs act, 1962.

4.

Prevention of illegal imports and exports.

5.

The act extends to the whole of the India.

6.

Two acts.
1.
The customs act, 1962
2.
The customs tariff act, 1975

Objects of customs duty

The customs duty is levied, primarily, for the
following purpose:
1. To raise revenue.
2. To regulate imports of foreign goods into India.
3. To conserve foreign exchange, regulate supply of
goods into domestic market.
4. To provide protection to the domestic industry from
foreign competition by restricting import of selected
goods and services, import licensing, import quotas,
and outright import ban.