Program on Indirect Taxation2 July09

8/13/2019 Program on Indirect Taxation2 July09

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Taxation

"For the sake of welfare of the Subject,

he (the king) received taxes from them

just as the sun extracts water in order torender it back a thousand fold"

~Reghuvansha Mahakavyam


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Taxes in India

Taxes levied by Central Govt.Direct Taxes

Tax on corporate income

Capital Gains Tax

Personal Income Tax


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Taxes in India

Taxes levied by Central Govt.

Indirect Taxes

Excise duty

Customs duty Service Tax


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Taxes in India

Taxes levied by State Govt. &

Local bodies

Sales Tax (CST / VAT)

Luxury Tax

Profession Tax

Stamp duty Property Tax

Entry Tax

Octroi


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What is Indirect Tax

The tax burden can be passed from person

liable to pay tax to person receiving goods

or services

Thus the person liable to pay tax and person

actually bearing the tax burden are different

Since it is recovered indirectly fromreceiver of goods or services, it is called

Indirect tax


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Activities attracting Indirect Tax

Indirect taxes are applicable on most of

the activities such as :

1. ImportsCustoms, CVD, Additional

CVD

2. ManufactureExcise duty

3. SaleSales Tax (VAT or CST)

4. ServicesService Tax


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SAME GOODS TAXED TO :

Excise Duty at time of Manufacture by

Central Government

Sales Tax at the time of Sale by State

Government

Octroi/Entry Tax at time of Entry into a

town by Town Government


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EXCISE DUTY

Attracted only if 3 Ms condition fulfilled

Rate specified in Excise tariff /

Notifications

Payable on transaction value

Liability is fastened as soon as manufacture

is complete, but payable on removal of

goods from factory of manufacture

Actual payment is on monthly basis


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VAT Leviable on sale of goods

On price charged for anything done by seller inrespect of the goods at the time of or before

delivery thereof. Cost of transit insurance and installation if

charged separately are excluded

Movement of material is within the same state

Credit of tax paid by seller is available to thebuyer as input tax credit

Mainly two rates of tax i.e. 4% & 12.5%.


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CST

Leviable on sale of goods

When the movement of goods is from one

state to another Credit of tax paid by seller is not available

to the buyer

Rate of CST depends upon VAT rate Various forms prescribed for concession in

tax rate like C, E-1, F, H & I


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Concessional CST FormsForm C :

2% Central Sales tax for interstate sales

Separate form for separate quarter w.e.f. 01.10.05

Form can be issued only when the goods purchased are used for:

- resale

- manufacture / processing of goods for sale

- mining

- generation / distribution of power- packing of goods for sale / resale

- telecomminication

Form E-1: CST is exempted

Sale effected by transfer of documents of title when goods are in transit I.e.before delivery from the carrier is taken.

All the parties taking part in sale transaction are registered and exchange ofC forms among them takes place

Our sale invoice should contain purchase particulars


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Concessional CST Forms

Form F : Applicable when stock transfer of material takes place between branches in

different states

Sales tax is exempted as there is no sale

Required to be issued monthly

Form H:

Sale tax is exempted

Sale is made to the dealer / agent who has export order in hand and inpersuence of such order goods are sold

Proof of export is required to be attached with the form

FORM I :

Sales tax is exempted

Goods supplied to SEZ units


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SCRUTINY OF FORMS - CHECKLIST

Purpose for which Form is issued should be ticked.

Date of issue of the form should be mentioned.

CST registration number and effective date thereof of the

Vendor must be mentioned.

Corrections if any, should be counter-signed by the

signatory of the Form. Invoice details if given on reverse of Form, must be signed

by the client.

One form should cover Invoices of only one Assessment

Location.

One Form can cover any number of P.O.s without monetarylimit for all invoices during one quarter.

Form H, N-14-B, etc. must have all enclosures for Proof of

Export


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Service Tax

Leviable on Services provided

On value charged for services

Payable on receipt of amount charged for

services rendered

Credit of service tax paid by service

provider is available to service availer

subject to certain conditions.


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Composite Contracts

Errection, commissioning, installation service

Works contract Service

Maintenance or Repair Service

Business auxiliary Services

Theoritically, the levy of VAT and ServiceTax are mutually exclusive. VAT rulesprovide for deductions in respect of labourand services. Similarly deduction has been

provided in respect of goods used in therendering of services, though it is subject tothe condition that documentary proofspecifically indicating value of the material

is available


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TYPES OF CONTRACTS

SALE CONTRACT

DIVISIBLE INDIVISIBLE

WORKS CONTRACT

Purely for Sale of

Goods

Property in goods

passes on delivery

Normal sales Tax

Split Contract

Sale

Erection

Property in GoodsPasses on delivery

(ex-Works)

Normal Sales Tax

(CST or Local)

Composite Contract

Supply & Erection

Property in Goods

passes on accretion Local Works

Contract Tax payable

on goods used.


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Indivisible Works Contract Options available to the contractor

1.Composite rate of 4% applicable, provided all the purchases are from within the

state and purchases are not eligible for VAT credit + *Service tax (@ 10.30%or 4.12%) (UP, MP does not have this scheme)OR

2. Levy tax on applicable VAT rate on the commodity and avail ITC of localVAT paid purchases. Also form C can be issued for purchase of materialused in works contract + *Service tax (@ 10.3% or 4.12%) OR

3. Split the contract into material and labour on the basis of documentary proofavailable. Pay VAT on the material portion at applicable VAT rate andservice tax @ 10.3%

When part of the contract is sub-contracted, main contractor need not payVAT on sub-contracted amount. No such exemption is available under

service tax, however the main contractor can avail the credit of service taxcharged by the sub-contractor against discharge of his service tax liability.

In some states Scheme has to be opted for all contracts during Financial Yearwhereas in some States it is Contract Specific.

*When service tax is charged at full rate, Cenvat credit of excise duty paid on materials and servicetax paid on input services is available as credit, whereas if the service tax is charged @ 4%, noCenvat of excise duty paid on materials is available.


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TDS PROVISIONS

VAT-TDS at laid down rate to be deducted from

payments made toward Works Contract. Many States have provision to issue VAT-TDS

waiver in given cases where no tax liabilityinvolved.

Almost all States have VAT-TDS Provisionshaving rates ranging from 2% to 4%.

In most cases authorities tend to deduct TDSeven for Supply Bills in case of split Contractwhich is challengeable.

VAT-TDS deducted from payment of contractorcan be adjusted against payment of VAT liabilityof the contractor, provided the VAT-TDScertificate is obtained within the year ofdeduction and in prescribed form


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Relevant factors for tax planning under

WCT

Intention of Parties.

Ratio of goods v/s Services

Source of procurement of goods. Movement of goods (whether Intra / Inter-

State)

Whether goods used in same form or afterprocessing.


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Sales Tax Assessment process RRL is registered under sales tax in 15 states viz. Maharashtra,

Gujarat, Rajasthan, Delhi, Haryana, UP, Uttaranchal, WB, Orissa,Karnataka, AP, Chennai, Jharkhand, Punjab & HP

Notices sent to assessee calling for assessment

Sales invoices & Purchase invoices are called for verification

Description of material sold in sale invoices and the rate of tax chargedis compared and for discripancies differential tax is charged

Nature of material purchased i.e. whether inputs or capital goods etc,VAT registration number & date of the vendor, declaration as

prescribed under the VAT Rules is checked. For descripancies noticedtherein, ITC is disallowed

Reconciliation of Sales & Purchases as per returns filed and A/cs isdemanded

For non-receipt of sales tax concessional forms, VAT-TDS certificates,additional tax is levied. As on 01.07.09, our total forms outstanding isRs. 256 crores, hence contingent liability towards differential CST isRs. 26 crores

Based on above an assessment order is passed by the assessingauthority

Appeal remedies are available to assessee


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Tax Structurein India1) Qus. : What are you doing ?

Ans. : Business.

Tax : PAY PROFESSIONAL TAX !

2) Qus. : What are you doing in Business ?

Ans. : Selling the Goods.

Tax : PAY SALES TAX !!

3) Qus. : From where are you getting Goods ?

Ans. : From other State/Abroad

Tax : PAY CENTRAL SALRES TAX, CUSTOM DUTY & OCTROI !

4) Qus. : What are you getting in Selling Goods?

Ans. : Profit.

Tax : PAY INCOME TAX !

5) Qus. : Where you Manufacturing the Goods?

Ans. : Factory.

Tax : PAY EXCISE DUTY !

6) Qus. : Do you have Office / Warehouse/ Factory ?Ans. : Yes

Tax : PAY MUNICIPAL & FIRE TAX !

7) Qus. : Do you have Staff ?

Ans. : Yes

Tax : PAY STAFF PROFESSIONAL TAX !


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Tax Structurein India 14) Qus. : Do you have any Wealth ?

Ans. : Yes Tax : PAY WEALTH TAX !

15) Qus. : To reduce Tension, for entertainment, where are yougoing?

Ans. : Cinema or Resort.

Tax : PAY ENTERTAINMENT TAX !

16) Qus. : Have you purchased House ?

Ans. : Yes Tax : PAY STAMP DUTY & REGISTRATION FEE !

17) Qus. : How you Travel ?

Ans. : Bus

Tax : PAY SURCHARGE !

18) Qus. : Any Additional Tax ?

Ans. : Yes

Tax : PAY EDUCATIONAL, ADDITIONAL EDUCATIONAL &

SURCHARGE ON ALL THE CENTRAL GOVT.'s TAX !!!

19) Qus. : Delayed any time Paying Any Tax ?

Ans. : Yes

Tax : PAY INTEREST & PENALTY!


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ThankYou

Program on Indirect Taxation2 July09

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