BUSINESS TAXATION

UNIT – 1

2 mark

Meaning of tax:
Tax is compulsory charged imposed by the government without any expectation of direct
return in benefit.
Definition if taxation:
Tax can be defining as ‘an involuntary payment. Pay by individual are business to a
government.
What is tax?
a tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a
functional equivalent of a state. A tax is not a voluntary payment or donation, but an enforced
contribution, exacted pursuant to legislative authority. Under the name of toll, tribute, tall age,
gabel, impost, duty, custom, excise, subsidy, aid, supply, or any other name.
what are Direct tax?
Direct tax are those which are paid by the persons on whom these are imposed and the real
burden is also borne by them such as taxes on income, wealth, consumption, inheritance, gift,
expenditure, etc.
What are the types of Direct tax?
1) Income Tax
2) Wealth Tax
3) Gift Tax
4) Corporation Tax
5) Capital Gain Tax
6) Expenditure Tax
What is Indirect Taxes?
The indirect taxes are those which the tax payer pays indirectly. While purchasing goods and
commodities, paying for services. Important indirect taxes are Central Excise Duty, Customs
Duty, Sales Tax, Octroi, Entry Tax, Service Tax, Expenditure tax.
What are the indirect tax?
1) Excise Duty
2) Custom Duty
3) Sales Tax
4) Value Added Tax.
What is Regressive Taxation?
In regressive taxation, the larger the time income of tax-payer, the smaller is the proportion that
they contribute. A schedule of regressive tax rate is one in which the rate of taxation decreases as
the base increases. The amount of tax payable is calculated by multiply the tax base with the tax
rate.

Canon of taxation:
Canon of equality.
Canon of certaining.
Canon of convenience.
Canon of economy.
Canon’s advantaging by others:
Canon of productivity.
Canon of elasticity.
Canon of diversity.
Canon of simplicity.
Canon of experiency.
Canon of co-ordination.
Canon of neutrality.

5 mark
Objectives of taxation:
1) Raising public revenue: Normally, there is only one objective for the imposition of
taxes, that is, to collect revenue for the government. All these expansions in the scope of
economic activities have created necessity of greater funds to be spent by the
government. Thus the first and the foremost objective of taxation is to raise public
revenue to meet the ever increasing public expenditure.
2) Regulation and Control: The other objective of taxation is the regulation and control.
The government not only raises public revenue through taxation but also imposes
restriction on the use of certain goods and service in a way desirable and respectable for a
healthy state of society. Similarly, luxury goods may be taxed heavily while being
imported so as to divert the national funds to some other forms of production necessitated
inside the country.
3) Reduction of Inequalities in Income and Wealth: Taxation reduce the inequality of
income and wealth. One of the chief characteristics of backward countries is that there is
a vast gap between the income of person in the highest in come group and of those in the
lowest income group. This is the objective of progressive taxes like income tax, death
duty, wealth duty, expenditure tax.
4) Bringing Business Stability and Maintaining Full Employment Condition: Taxation
helps in bringing about business stability and maintains full employment conditions.
Thus, tax policy may be used as a regulatory mechanism to achieve price stability, check
business booms and depression and also maintain full employment.
5) Promote Saving: One of the important objectives of taxation policy is to promote
savings. For this purposes various tax concessions, tax deductions are given on savings.

Canon’s of taxation:
Canon of equality:
 The subjects of every state ought of towards the support of government as nearly as possible
in professional to their ability, that is goods tax system should be based on the ability to be off
the people.
Canon of certain:
The tax which each individual is bound to pay ought to be certain and not oratory the time of
payment. The manner as payment. The quality to be paid should be clear and paid to the
contributed and every other person.
Canon of convenience:
Every tax ought to be levied at the time are in the manner in which it is most lightly to be
convenient for the contributed to paid. It includes the selection of suitable objectives for taxation
and also chose of convenience periods for requiring payment.
Canon of economy:
Every tax ought to be sold, countered as both to take out and keep out of the pockets of the
people as the little as possible. Over and above what it brings in to the public of the state.
Taxation should be in expensive in collection.
Taxation should be returned as little as possible to the growth.

MERITS AND DEMERITA IN DIRECT TAX:

A direct tax is paid by a person on whom its levied, indirect taxes the impact and incidence
felled on the person. If the impact and incidence of a tax fall on the same person it is called as
direct tax. It is born by the same person on whom its levied and cannot be passed on to others.
(ex) when a person is assessed to income tax are wealth tax he as to pay it and he cannot sifted
the tax pattern to anybody hells in India. Union government well direct taxes such as income tax,
wealth tax, gift tax and estate duty. Tax on agriculture income, professional taxes on stamp and
registration are levied by state government.
Merits of direct tax:
Ensure the principle of ability to pay.
Reduces the social and economical in equalities.
Certainty.
Economy.
Elasticity.
Educative effort.
Control the effect a trade cycle.
Demerits of direct tax:
Arbitrary in nature.
Difficulty in the formulation progressive tax greats.
In convenience.
Possibility of tax innovation.
Limited scope.
Dis-incentives to work save and invest.
Expensive to collect.
Explain the merits and demerits of indirect tax:
Under the indirect tax impact and incidence fall on different person. It is not born by the person
on whom it is levied and can be passed to the others.
(ex) when the excise is levied on the manufacture on the cement he sifted the pattern of tax to the
consumers by raising the selling price. The impact of excise duty falls on the manufacture and
the incidence on the ultimate consumers. The person who is require to pay the tax does not
Borden. Thus, indirect taxes can be sifted.
Merits of indirect taxes:
Convenience.
Wide scope.
Elasticity.
Tax innovation is not possible.
Substantial revenue.
Progressive.
Effective allocation of resources.
Discourages the conception of articlesinjurious to health.
Demerits of indirect tax:
Ability to pay principles violated.
Uncertainty.
Discourages saving.
High cost of collection.
Civic concaveness in not created.
 Inflationary.
10 mark

CANNON ADVANTAGING BY OTHERS:

Cannon of productivity:
According to C.F.Bastable that tax system should be productive enough is it should ensure
sufficient revenue, to the government and it should encourage productive activity by encouraging
the people to work save, invest.
Cannon of elasticity:
The next principle advanced by beatable is flexible it should be levied in such a way to
increase are decrease the tax revenue depending upon the need. The tax system should elasticity
is a desirable cannon of taxation.

Cannon of diversity:
According to this principle there should be diversity in tax system of the country. The
burned of the tax should be distributed widely on the enter people of the country. The burned of
tax should be decentralised. So, that every one should be according to his ability.
Cannon of simplicity:
This principle states that the tax system should be simple, easy and understand able to the
common man. If the system is varied the tax payer cannot extricate is cast liability and it will
cost irregularities in the payments and least to corruption.
Cannon of experience:
This principle states that the tax should be levied after considering all favourable and
unfavourable factors from different angles such as economical, political and social.
Cannon of co-ordination:
In a federal set up like India central, state and local government levied taxes so there should
be a proper co-ordination between different taxes imposed by various authorities. Otherwise, it
will affect people adversely.
Cannon of neutrality:
 This principle, stresses, that the tax system should not have any adverse effect that is it
shouldn’t create any reflection are inflations effects in the economy. Applying smith cannon t
any particular tax is largely a subjective undertaking. The property tax for instance, scores carely
low are conveniences and effectively but fairly in on.

UNIT – 2

What is Excise Duty?

An excise or excise duty is a types of tax charge on goods produced with in the countries as
opposed to customer’s duty’s, charged on goods from outside the country. Excise duty is tax
levied on certain goods and commodities produced are sold with in a country and on licences
greanded for certain activities. In India excise duty is levied in accidence with the profession of
central excise act 1944.
What are Excisable Goods?
Excitabilityof the product\goods is one of the main element or condition for imposing the excise
duty. ‘Goods specified in the schedule 2 of central excise tariff act, 1985 as being subject to a
duty of excise and includes salt’.
What are the basic conditions of levy of central excise duty?
1) The duty is on goods.
2) The goods must be excisable.
3) The goods must be manufactured or produced.
4) Such manufacture or production must be in India.

Define central excise act:

Under the excise duty is payable on the assessable value for which detailed valuation roles
are provided. However, goods on sold to related person’s the invoice price would be the price at
which the goods are subsequence sold. The roles regarding clubbing of the value of clearly
applies if the entities have common management are control through related whose are common
manufacturing facilities.
What are the Objectives of excise duty?
1) To raise the revenue.
2) To achieving the social economic objectives.
3) Price control.
4) For industrial growth.
5) Promotion for small scale industry.
6) Discourage the promotion of certain community.
Define classification of excise goods:
There are thousand number of varies of manufacture goods and all goods cannot carry on
same rate are amount of duty. It is also not possible to identify all product individually. It is
therefore necessary to identify the numorest product through groups and sub groups and them to
decide to duty, on each group and sub group. This is called classification of a product under
which theheading and sub heading of the particular product will be covered.

Define Appellate provisions:

Excise law as well as customs act makes elaborate provisions for departmental adjudication,
appeals and revision. The provisions are almost identical in both the acts.
Defined civil court:
As per section 9 of code of civil procedure, civil court has a wide, all embracing jurisdiction
to entertain a claim. It can try all civil suits except those which are expressed or impliedly barred.

5 mark

What are the Sources of central excise law?

Central excise act 1944.
Central excise tariff act 1985 (CETA).
Roles formed by central government in 1944.
Regulations made by central board of excise and customers (CBEC).
Notification issued by central government in official gazette.
The additional duties of excise duty (textiles and textiles group 1948).
Additional duties of excise (goods of special important-1957).
The medicinal and toilet preoperational excise duty in 1955).
Customers and revenue appellate tribal act – 1986.
 Mineral oil act in 1958.
Customers and excise and gold appellate tribunal roles in 1982.
Explain the Offences and Penalties?
Section 9 of Central Excise Act, 1944 provides for offences and penalties. Section 9(1)
provides that whoever commits any of the following offences, namely-
1) Evades the payment of any duty payable under this act;
2) Removes any excisable goods in contravention of any way provisions of this Act or any
rule made thereunder or in any way concerns himself with such removal;
3) Acquires possession of, or in any way concerns himself in transporting, depositing,
keeping, concealing, selling or purchasing, or in any other manner deals with any
excisable goods which he knows;
4) Contravenes any of the provisions of this Act or the rules made thereunder in relation to
credit of any duty allowed to be utilised towards payment of excise duty on final
products;
5) Fails to supply any information which he is required by rules made under this Act to
supply or supplies false information;
6) Attempts to commit, or abets the commission of any of the offenses mentioned in clauses
(a) and (b) of this section.

List the 10 items that are not eligible for SSI concession:
1) Goods chargeable at Nil rate of duty or exempted under any other notification.
2) Tea.
3) Extract or essence of tea or coffee.
4) Pan masala.
5) Tobacco products.
6) Sandal wood.
7) Matches.
8) Photographic plates, films and papers.
9) Polyurethane foam and articles of made from polyurethane.
10) Textile articles.

Explain the different bases of excise duty?

1) Specific Duty: It is the duty payable on the basis of certain unit like weight, length,
volume, thickness, etc. forexample, duty on Cigarette is payable on the basis of length of
the Cigarette, duty on sugar on based on per Kg basis. The disadvantage is that even if
selling price of the product increases, revenue earned by Government does not increase
correspondingly.
 2) transaction Value (Ad Valorem) Duty: Fixing specific duty or tariff value is possible
only for few selected items like sugar, pan masala, consumer goods, cigarette. This is
called “ad valorem duty”. This method is used with the intention of making the valuation
mechanism simple.
3) Duty on Basis of Production Capacity: Section 3A of central excise act provides for
payment of duty on basis of production capacity without any reference to actual
production. Provision of payment of duty on basis of production capacity does not apply to
EOU.
4) Compound Levy Scheme: Under compound levy scheme, the manufacturer has to pay
prescribed duty for specified period on the basis of certain factors relevant to production,
like size of equipment employed.
5) Tariff Value: IN some cases, tariff value is fixed by Government from time to time. This
is fixed 3(2) of central excise act. Government can fix different tariff values for different
classes of buyers.
6) Value Based on Maximum Retail Price (Retail Sale Price): Section 4A of CEA
empowers Central Government to specify goods on which duty will be payable based on
‘retail sale price’.

UNIT – 3
CUSTOMS DUTY

What is customs duty:

Customs duty is a duty or tax, which is levied by central government. On import of goods
into, and export of goods from, India. It is collected from the importer or exporter of goods, but
its incidence is actually borne by the consumer of the goods and not by the importer or the
exporter who pay it.
what is Basic Custom Duty?
All goods imported into India are chargeable to a duty under Customs act, 1962. The rates of this
duty, are indicated in the First Schedule of the customs tariff act, 1975. The duty may be fixed on
ad valorem basis or specific rate basis. The duty may be a percentage of the value of the goods or
at a specific rate.
What is Anti-Dumping Duty?
Such dumping may be with intention to cripple domestic industry or to dispose-off their excess
stock. This is called ‘dumping’. Under section 9A of custom tariff act, anti-dumping duty upto
margin of dumping on such articles, if the goods are being sold at less than its normal value.
Define Custom Area.
Customs Area means all area of customs station and includes any area where imported goods or
export goods are ordinarily kept pending clearance by customs authorities. ‘Customs Area’ could
include some area even outside the ‘Customs Station’.
Nature of customs duty:
Section 12 of customs act, (often called charging section) provides that duties of customs
shall be levied at such rates as may be specified under ‘the customs tariff act, 1975”.
Meaning of customs duty:
Customs duty means the customs duty levied under section 3 of the customs act, 1962.
Countervailing duty (cvd) means the additional duty of customs levied under section 3(1) of the
customs tariff act, 1975. ‘special cvd” means the additional duty of customs levied under section
3(5) of the customs tariff act, 1975.
Levy and collection of custom duty:
Custom duties are levied on goods that are exported or imported from india at a rate that is
specified under the customs act of 1975. Central government of india in order to maintain proper
surveillance. The different import and export activities happening within the country reserves the
power to notify the various ports and airports. The central board of excise customs is the body
that publishes books which provide information on the numerous tariffs rules.

Objectives of customs duty;

The customs duty is levied, primarily, for the following purposes:
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.
Mode of levy of customs duty:
1) Specific duties: specific custom duty is a duty imposed on each and every unit of a
commodity imported or exported. For example, $ 5 on each meter of cloth imported or $
500 on each T.V. set imported. In this case, the value of commodity is not taken into
consideration.
2) Ad valorem duties: ad valorem custom duty is a duty imposed on the total value of a
commodity imported or exported. For example, 5% of F.O.B. value of cloth imported or
10% of C.L.F. value of T.V. sets imported. In case if ad valorem customs duty, the physical
units of commodity are not taken into consideration.
3) Compound duties: compound custom duty is the combination of specific and ad valorem
custom duties. In this case, the quantities as well as the value of the commodity are taken
into consideration while computing tariff.

Methods of Valuation for customs:

1) Transaction value of imported goods [section 14(1) and rule 3(1)].
2) Transaction value of identical goods [rule 4].
3) Transaction value of similar goods [ rule 5].
4) Deductive value which is based on identical or similar imported goods sold in India [
rule7].
5) Computed value which is based on cost of manufacture of goods plus profits [rule 8].
6) Residual method based on reasonable means and data available [rule 9].
10 marks:
Organisation of the custom department:
Custom department in any country plays an important role in controlling the illegal
imports and exports of goods.
Every country has a separate custom rules and regulation in which export or import of certain
goods may be restricted or forbidden.
Customs department is the Federal Government Agent that is invested with Authority to
conduct customs valuation.
Collect import as well as Export Duties on behalf of the Government. These includes
airports, sea ports, on road border check posts and any other point of exit and entry into the
country.
Customers Departments are invested with quasi powers similar to the police and work in
close co-ordination with the border security.
Customs Departments work closely with border security forces and revenue intelligence
agencies to work on information related to smuggling and illegal entrants into the country.
 Structure of customs department:
CBEC (central Board of Excise and Customs).
Chief Commissioner Excise (CCEX).
Commissioner Excise (Executives).
Commissioner Excise (Adjudication).
Addition Commissioner Excise.
Deputy Commissioner Excise.
Assistant Commissioner Excise.
Superintendent.
Section Officers.
Functions \ Activities of Customs Department:
1) Collection of duties of customs on import and export goods including cesses, if any, in
items of customs act, 1962 read with customs tariff act, 1975, finance act and other
taxing statutes empowering levy of such cesses\taxes.
2) Enforcement of prohibitions and restrictions, if any, before allowing import into, or
export out of, the country in items of various allied acts\laws such as import and export
control act, 1947, foreign exchange management act, NDPS act.
3) Prevention of smuggling.
4) Collection of foreign trade and revenue statistics.

Functions of Officers of the Custom Department:

* Central Board of Excise and Customs (CBES):The Central Board of Excise and Customs
(CBEC) is the apex body for customs matters. CBEC is the administrative authority for its
subordinate organisations, including custom houses, central excise commissioner and the central
revenues control laboratory.
* Chief Commissioner Excise: Immediately below the CBEC there is chief commissioner.
Chief commissioners are responsible for all the matters under their jurisdiction and report the
CBEC as a whole. The chief commissioner exercise supervision and control on all the technical
and administrative work.
* Commissioner Excise (Executives): He is the head of the commissioner ate. He has both
executive power and quasi-judicial powers. He has to interpret law.
 * Commissioner Excise (Adjudication): He is exclusively engaged in passing of
adjudicating orders in terms of the powers granted under various sections of the Central Excise
Act, depending on jurisdiction and on the monetary amounts involved in the demands.
* Additional Commissioner Excise: Additional commissioner is equivalent to the
commissioner for all purposes other than for the purposes of appellate procedures. Appeal
against orders of the Additional Commissioner lies with the Commissioner only.
* Deputy Commissioner Excise: The Deputy Commissioner will exercise the overall
superintendent’s control and supervision of the excise and custom administration in respect of
his division. He shall control the problems of the division within the power given to him under
the rules and guidelines issued by Government, from time to time and report to Excise
Commissioner and Government, for appropriate orders.
* Assistant Commissioner Excise: The assistant commissioner is the highest – ranking field
level authority who holds active jurisdiction over manufacturing units and is charged with the
collection of duties. He is also the quasi- judicial authority who normally passes orders on all
matters of revenue concerning units falling under his jurisdiction and for which show casus
notices have been issued under various sections of the Act.
* Superintendent: He is an officer of the rank of a Gazetted Officer. He is the in charge of
renge officer which is the lowest field formation and having specific jurisdiction. He initiates
show cause notice for any dispute arising out of assessment.
* Section Officers: Section officers, also known as inspectors, work under superintendents and
are not a Gazetted Officer. The section officers are functional in charge day-to-day matters
pertaining to assesses.

Power of Customs Officers:

1) Power of Customs Officers to Inspect: Under section 106A, Customs Officers have
powers to inspect the premises intimated as storage places of ‘notified goods’ or specified
goods’. The officers can check the records and inspect the goods. Charge of premises is
required to produce accounts required to be maintained by ‘noticed goods’ or ‘specified
goods’.
2) Power to Stop and Inspect Conveyance: Customs Officer is empowered under section
106 to stop any aircraft, vessel, vehicle or vessel. It may be chased. If it refuses to stop
after firing a signal, the vehicle may be fired upon.
3) Power of Custom Officers to Search: Any person who has landed from or is about to
board or is on board of a vessel or foreign going aircraft or vehicle arrived from or going
to any place out of India. Any person who has entered or is about to leave India. Any
person in Customs area.
4) Power of Customs Officers to X-ray Bodies: Section 103 provide that if Custom Officer
has reasons to belive that any person coming India or leaving from India or any person in
customs area has secreted inside inside his body any goods liable to confiscation. He can
 order that body of such person may be X-rayed. He may direct that suitable action may be
taken to take out goods as per advise of qualified doctor.
5) Seizure by Customs Officers: The same canbe seized by Customs Officers under section
110. Custom officer is empowered to seize the goods if he has reasons to believe that such
goods are liable to confiscation under Customs Act. He should not remove or in any way
deal with the goods. [section 110(1)].

Infringement of The Law:

Under sub-section (d) of section 111 and sub-section (d) of section 113, any goods which are
imported or attempted. Under the customs act or any other law for the time being in force shall
be liable to confiscation.
The law provides heavy penalties for infringement of these prohibitions. Section 112 of the
customs act provides for penalty for improper importation and section 114 of the customs act
provides for penalty for attempted to export goods improperly.
The prohibition can either be absolute or conditional. The specified purposes for which a
notification under section 11 can be issued are maintenance of the security of India. Import of
sensitive goods such as coins, obscene books, printed waste paper containing pages of any holy
books, armored guard, fictitious stamps, explosives, narcotics drugs, rock salt, saccharine, etc.
Importer or exporter for being knowingly concerned in any fraudulent evasion.
Imprisonment for a maximum term of three years (seven year in respect of notified goods) under
section 135 of the custom act.
Guilty of an offence, punishable under section 135, may be arrested under the provisions of
section 104 of the customs act.

Offences and Penalties:

Provisions of penalties and offences are quite similar to Excise Law. Like Excise, Customs
Law envisages two types of punishments.
1) Civil Liability: Penalty for infringement of statutory provisions involving a penalty of
money and confiscation of goods.
2) Criminal Liability: Criminal punishment is of imprisonment and fine, which can be
granted only in a criminal court after prosecution. Both penalty and punishment can be
imposed for same offence.
Penalties are imposed on any person who, in relation to any goods, does or omits to do an act
which renders such goods liable for confiscation. It is necessary to first understand what are
goods liable for confiscation. Goods are liable for confiscation in case of improperly importing
goods or improperly attempting to export goods. Section 111 provides goods liable for
confiscation for improper imports while section of improper export.
Smuggling:
Smuggling, in relation to any goods, means any act or omission which will render such goods
liable for confiscation under section 111 to 113 [Section 2(39)].
Thus, improper importation, attempting improper export will amount to ‘smuggling’. Thus,
‘smuggling’ is much broader term than we normally understand.

Exemption from Custom Duty:

some exemptions from duties are provided in customs act, while some are provided in customs
tariff act.
1) Exemptions by Notification: Section 25(1) of customs act, 1962 authorizes Central
Government to issue notifications granting exemptions form duty. Government can also
grant exemption by a special order in exceptional circumstances. The notification can be
issued only in ‘public interest’.
2) Imports by privileged persons and organizations: import by U.N. agencies,
Governors, Ford Foundation, Vice President of India. The car can be sold duty free after
four years of import. Totally damaged in accident or stolen, the amount of insurance
claim will be treated a scum-duty price and duty so calculated will be payable.
3) Import for Repairs, Reconditioning, etc.: Goods can be imported for repairs,
reconditioning or re-engineering. The repairs, reconditioning or re-engineering has to be
in a bonded warehouse under customs bond.
4) Ad hoc Exemptions: Section 25(2) of customs act permits Government to issue ad hoc
exemption from customs duty by issue of a special order in exceptional circumstances. It
has been clarified that such exemption can be granted even after duty is paid. In such
case, duty has to be refunded.
5) Exemption of Imports for Export: various schemes have been formed to allow duty
free imports of raw materials and components for exports.
6) Project Imports: heavy Customs duty on imported machinery for projects make the
initial project cost very high and project may become unviable.

Explain Custom Duty Drawback:

Various schemes like EOU, SEZ, DEE, manufacture under bond, etc., are available to obtain
inputs without payment of customs duty\excise duty or obtain refund to duty paid on inputs.
Manufactures of processes who are unable to avail any of these schemes can avail ‘duty
drawback’. Section 75 of customs act provide for drawback on materials used in manufacture or
processing of export product. Under these powers, ‘Customs and Central Excise Duties
Drawback Rules, 1995’ have been framed. Under section 75 is granted when imported materials
are used in the manufacture of goods which are then exports. Section 74 is application when
imported goods are re-exported as it is and article is easily identifiable.
When not Eligible for Drawback?
1) If sale proceeds of export goods are not received within time stipulated by RBI.
2) If no customs\excise duty is paid on the inputs or service tax is not paid on input services.
3) If imported inputs were obtained under advance License (DEEC scheme) without payment
of duty.
4) If imported avails DEPB or DFRC.
5) Goods manufactured under Customs Bond or Excise Bond where inputs were obtained
without payment of duty.
6) Goods manufactured by EOU or a unit in Special Economic Zone.
7) If CENVAT was claimed on indigenous inputs.
8) In case of negative value addition, selling price of exported goods is less than value of
imported goods.
9) Jute batching oil used in manufacture of jute yarn, twist, twine.
10)If wholesale market price of goods in India is less than the amount of drawback due.
11) Packing materials used in relation to export of jute yarn, jute fabrics and jute manufacture.
12) Exports to Nepal\Bhutan. However, exports to Nepal are eligible if payment is received
under hard currency.
13) No drawback of sales tax, other taxes – drawback is of customs and Central Excise duties
only.
14) Export of alcoholic liquor, cigarettes, cigar and pipe tobacco, as stores, to foreign going
vessel of less than 200 tons.

Define six free trade zones namely?

1) Kandla Free Trade Zone: Kandla, established in 1965, boasts to be India’s first free-
trade zone. Free-trade zone in kandla provides environment ensuring internationally
competitive duty free environment. Standard design factory buildings, power, water, and
customs clearance facilities are provided here.
2) Santa Cruz Electronics Export Processing Zone: it was established in year 1974 at
Mumbai with access to commercial, industrial, and social infrastructure. It has skilled
and experienced urban workforce and a well-developed financial and credit structure.
3) Falta Export Processing Zone: It declared a Customs Bonded Area on 16th of August,
1985.
4) Madras Export Processing Zone: MEPZ SEZ is a multi-product zone housing 86
functional units. Recent growth has been in engineering sector with special reference to
automobile ancillaries.
5) Cochin Export Processing Zone: This zone is situated on South-West India in the
State of Kerala, set-up for export-oriented production. With special rules for facilitating
foreign direct investment. It is run directly by the Government of India.
 6) Noida Export Processing Zone: Ministry of Commerce has set-up this Noida Export
Processing Zone in 1985 for 100% EOUS and the only one located off-the-shore. Noida
has strong industrial base with more than 3000 industries. It is located in 310 Acres of
land.

Unit – 4

What is Central Sales Tax?

Central Sales Tax (CST) is one of the most important indirect tax for purpose of taxation by
state government. Taxes on sales or purchase of goods in the course. Restrictions could be
imposed on the powers of state legislatures with respect to the levy of taxes on the sale or
purchase of goods.
Define Levy and Collection of CST [Section 9]?
the tax payable by any dealer under this Act on sales of goods effected by him in the course of
interstate trade or commerce. The Government of India and the tax so levied shall be collected
by that government in accordance with the provision of sub-section (2), in the state from which
the movement of the goods commenced.
Explain the Charging Section of CST?
tax on Inter State sale/purchase can be levied only by Union Government. Section 6(1) of CST
Act provides that subject to other provisions of the CST Act. The course of Inter-state trade or
Commerce. Section 6(1) is called as ‘Charging Section’ as it imposes levy on sale of goods on
Inter-state sale.

5 mark

List any five transactions which have been excluded form CST?
1) Section 6(2) which provide for exemption of tax in respect of sales during movement of
goods.
2) Section 6(3) which provide that Central Government can grant exemption to foreign
diplomatic missions, UN, international organisations etc.
 3) Section 8(1) which provides for lower/nil sales tax rate when sale is to registered
dealer/Government, when local sales tax is lower than 4%/Nil.
4) Section 6(1) provides exemption for when sale is penultimate to export as defined u/s
5(30.
5) Section 8(2)(c) provide exemption for it local sales tax is generally exempt.

Features of CST Act?

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) Declared goods or goods of special importance in inter-state, trade or commerce and other
goods.
5) The rates of tax on declared goods are lowers as compared to the rate of tax on goods in
the second category.
6) The tax is levied under this act by the Central Government but, it is collected by that state
government form where the goods were sold. In case of union Territories, the tax collected
is deposited in the consolidated fund of India. 304.
7) The rules regarding submission of returns, payment of tax. 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.
8) The state governments are allowed to frame such rules, subject to such notification and
alternation as it deem it.

10 marks

Definition by the importance to the CST?

1) Appropriate State [Sec. 2(A)]: Appropriate state means: In relation to a dealer who has
one or more places of business situated in the same state, that state; In relation to a dealer
who has place of business situate in different state, every such state with respect to the
place or places of business situate within its territory.
2) Business [Sec. 2(AA)]: Business includes: Commerce or manufacture, or any adventure or
concern in the nature of trade, commerce or manufacture. Whether or not any gain or
profit accrues from such trade, commerce, manufacture, adventure or concern.
3) Dealer [Sec. 2(B)]: Dealer means any person who carries on 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.
 4) Goods [Section 2(d)]: Goods includes all materials, articles, commodities and all other
kinds of movable property, but does not includes newspapers, actionable claims, stocks,
shares and securities.
5) Place of Business [Sec. 2(DD)]: In any case where a dealer carries on business through an
agent. A warehouse, godowns, or other place where a dealer stores his goods. A place
where a dealer keeps his books of account.
6) Sale [Sec. 2(G)]: Sale with its grammatical variations and cognate expressions, means any
transfer of property in goods by one person to another for cash or for deferred payment or
for any other valuable consideration.
7) Sale Price [Sec. 2(H)]: Sale price means the amount payable to a dealer as consideration
for the sale of any goods, less any sum allowed as cash discount according to the practice
normally prevailing in the trade.
8) Turnover [Sec. 2(J)]: it is used in relation to any dealer liable to tax under this act means
the aggregate of the sale prices received and receivable by him in respect of sale of any
goods in the course.

Explain the Sale or purchase in course of Export or Import [Section – 5]?

State Government cannot impose any tax on sale or purchase of goods in course of import and
export. Central sales tax are imposed, and tax is also not imposed on imported goods because
they are already subjected to custom duties.
Articles 286(1)(b) of Constitution of India prohibits imposition of sales tax on import and
export
by State Government. Charging section 6(1)of CST Act levies tax only on inter-state sale,
naturally, there is no CST on sale during export/import.
Sale in Course of Export:
Section 5(1) of CST Act defines when a sale or purchase is said to be in course of export as
follows – A sale or purchase of goods is demand to be in course of export of the goods out
of the territory of India.
Section 5(3) states that provisions of section 5(1), last sale or purchase of goods preceding the
Sale or purchase occasioning the export of these goods out of territory of India shall also deemed
to be in the course of such export.

Sale should Occasion the Export/Import:

Occasion means ‘to be immediate cause of’. Sale and Export should constitute part of an
integrated activity. Unless such sale occasions export, it is not a sale in course of export.
Sale on Course of Export by Transfer of Documents:
It is possible to have sale by transfer of documents after goods cross the customs frontier, goods
are cleared by customs authorities and are handed over to carrier for loading in vessel / aircraft.

Explain Registration of Dealers [ Section 7]?

1) Compulsory Registration under CST: Section 2(f) states that ‘registered dealer’ means a
dealer who is registered under section 7 of CST Act. According to section 7(1), every dealer
liable to pay tax under this Act. State as the Central Government may, by general or special
order, specify, and every such application shall contain such particulars as may be
prescribed.
2) Voluntary Registration: A dealer registered with state sale tax authorities may voluntary
apply for registration under CST act even if he is not liable to pay central sales tax [section
7(2)]. He can make purchases in inter-state at concessional rate only if he is registered.
3) Additional places of Business: If a dealer has places of business in different States, he has
to obtain separate registration in each state. He has to get only one registration with
additional places of business endorsed on the Certificate.
4) Security from Dealer under CST Act: As per section 7(2SA) of CST act, the registering
authority can ask for proper security from the applicant for realisation of taxes due and
proper custody and use of from which are supplied by sales tax authorities for use by the
dealer [section 7(2A)].
5) Application for Registration: Application for registration should be made in prescribed
from ‘A’ as per CST.
i. Proprietor of business.
ii. One of the partners in case of business owned by partnership firm.
iii. Karta or manager of HUF.
iv. Director or principle officer of company.
6) Other Documents Required at Time of Registration:
i. Particulars of directors/partners.
ii. Copies of rent agreements.
iii. Nominations as manager.
iv. List of places of business, godowns.
v. Details of bankers.
vi. Photographs of directors / partners.
7) Certificate of Registration under CST: as per section 7(3), the registering authority will
ensure that application is in conformity with provisions of CST act. A copy of the same will
be issued for every additional place of business in the state.
8) Amendment of Certificate: The certificate can be amendment such as change of name,
change of business, warehouse.
 9) Cancellation of CST Registration: Registration can be cancelled either on request of
dealer or by sales tax authorities. the authority shall, unless the dealer is liable to pay tax
under this act, cancel the registration accordingly, and where he does so, the cancellation
shall take effect from the end of the year [Section 7(5)].

Offences and Penalties [Section 10]:

1) Furnishes a certificate or declaration under sub-section (2) of section 6 or sub-section
(1) of section 6A or sub-section (4) or sub-section (8) of section 8, which he knowns, or
has reason to believe, to be false [section 10(aa)].
2) Fails to get himself registered as required by section 7 or fails to comply with an order
under sub-section (3A) or with the requirements of sub-section 3(C) or sub-section (3E)
of that section [section 10(aa)].
3) Being a registered dealer, falsely represents when purchasing any class of goods that
goods of such class are covered by his certificate of registration [section 10(b)].
4) Not being a registered dealer, falsely represents when purchasing goods in the course of
inter-state trade or commerce that he is a registered dealer [section 10(c)].
5) After purchasing any goods for any of the purpose specified in sub-section (3) or sub-
section (6) of section 8 fail, without reasonable excuse, to make use of the goods for
any such purpose [section 10(d)].
6) Has in his possession any form prescribed for the purpose of sub-section (4) or sub-
section (8)of section 8 which has not been obtained by him or by his principal or by his
agent in accordance with the provisions of this act or any rules made there under
[section 10(e)].
7) Collects any amount by way of tax in contravention of the provisions contained in
section 9A [section 10(f)].

Unit – 5

What is VAT?
The VAT is a tax to be paid sellers of goods and services on the basis of the value-added by their
respective firms, value added being computed as the difference between the actual or presumed
value of sale or output in the given period and the value of goods and services purchased from
outside and used in the production of that output.
What are the objectives of VAT?
1) To have a relatively simple tax system to administer and to achieve complete compliance
of books of account.
2) To implement a uniform tax-base throughout the country.
3) To provide a mechanism to collect taxes with reference to location of economic
activities.
4) To have uniform rules of taxation on international flow of goods across the nation.
5) To facilities enforcement by providing audit trial through different stages of production
and sales.

Define the addition method of computing VAT?

This method is based on the identification of value-added, which can be estimated by summation
of all the elements of value added. This method is known as addition method or income
approach. This is in line with the income method of calculating national income. The chief
drawback of his method is that it does not require matching of invoices in order to check tax
evasion.
What is Input Tax?
Input tax is the tax paid or payable in the course of business on purchases of any goods made
from a registered dealer of the state. Which includes the goods that he purchases for resale, raw
materials, capital goods as well as other inputs for use directly in his business.
What is Service Tax?
Service tax is a form of indirect tax imposed on specified services called “taxable service”.
Service tax cannot be levied on any service which is not included in the list of taxable service.
On manufacturing and trade without forcing the government to compromise on the revenue
needs.
Who are liable for registration under VAT?
Registration is the process of obtaining certificate of registration from the authorities under
the VAT acts. A dealer registered under the VAT acts is called a registered dealer. The state
and is liable to pay tax, cannot carry on the business unless he is registered and holds a vaild
registration certificate under the act.
All dealers must be registered with sales tax authority. Registration should be within 30 days.
There are two types of registration:
 1) Compulsory registration, and
2) Voluntary registration.
Registration is essential for a dealer for availing the benefit of VAT credit. If a dealer is either
not registered or is registered as TOT dealer then such dealers are not eligible for VAT credit on
their purchases, they cannot pass the VAT credit to others.
Set Off / Input Tax Credit?
Input tax is the tax paid or payable in the course of business on purchases of any goods made
froma registered dealer of the state. The tax charged or chargeable under the act, by a registered
dealer for the sale of goods in the course of business.
Which includes the goods that he purchases for resale, raw materials, capital goods as well as
other inputs for use directly or indirectly in his business. Output tax is the tax that a dealer
charges on his sales that are subject to tax.
The essence of VAT is in providing set-off for the tax paid earlier, and this is given effect
through the concept of input tax credit/rebate. This input tax credit in relation to any period
means setting/off the amount of input tax a registered dealer against the amount of his output tax.
This credit availability is called input tax credit; it can also be referred to as sale within the
state or in the course of inter-state trade or commerce.
The VAT paid on purchase of raw material can be offset against the VAT payable on
manufacture of finished goods. In this case, the VAT on raw material adjusted against the VAT
on finished goods called Input tax credit.
Purchases Eligible for Input Tax Credit:
1) For sale/resale within the state.
2) For sale to other parts of India in the course of inter-state or commerce.
3) Containers or packing materials, Raw materials, or Consumable stores.
4) For being used in the execution of a works contract.
5) To be used as capital goods required for the purpose of manufacture or resale of taxable
goods.
6) Raw materials; capital goods; consumable stores; and packing materials/containers.
7) For making zero-rated sales other than those referred to in clause above.
Assessment of VAT Liability: Explain
Unlike assessment taken-up at the end of the year, the concept of assessment under the VAT
Law is assessment of the return field under the VAT Law. Technically, a dealer liable to file to
file monthly return is liable for 12 such assessments in a year, while a dealer who is liable to file
quarterly return may be called for 4 assessments in a given year. Under the VAT regime, the
trust is on the self-assessment and only in very selective cases, the dealer would be called upon
for security assessment. A dealer may be called upon for assessment for just one or two returns.
The correctness and completeness of information filled in the return is very important. The
limitation period various from 3 years to 4 years in case of returns filed in the time and in case of
tax evasion cases from 6 to 8 years under various state VAT enactments.
The basic simplification in VAT is that VAT liability will be self-assessed by the dealer
themselves in terms of submission of returns upon setting off the tax credit. If no specific notice
is issued proposing departmental audit of the books of accounts of the dealer within the time-
limit specified in the act, the dealer will be deemed to have been self-assessed on the basis of
returns submitted by him.
Because of the importance of the concept of self-assessment in VAT, provision for ‘self-
assessment’ will be stated in the VAT Bills of the States.
Name any ten service that are subject to service tax:
Service tax
Service tax is form of indirect tax imposed on specified services called ‘taxable service’. Service
cannot be levied on any service which is not included in the list of taxable service.
The degree of intensity of taxation on manufacturing and trade without forcing the government
to compromise on the revenue needs. The intension of the government is to gradually increase
the list of taxable service until most services fall within the scope of service tax.
The purpose of levying service tax, the value of any taxable service should be the gross
amount charged by the service provider for the service rendered by him.
Ten Services that are Subject to Service Tax:
1) Advertising.
2) Air Travel Agent.
3) Banking and other Financial Service.
4) Broadcasting.
5) Cable Operator.
6) Charted Accountant.
7) Dredging.
8) Erection, Commissioning, or Installation.
9) Fashion Designer.
10) Intellectual Property Service.
Five goods exempted under VAT Act?
1) Agricultural implements manually operated of animal driven as notified by the government.
2) Aids and implementation for physically challenged person as notified by the government.
3) Aluminium domestic utensils not operated by pressure and electricity.
4) Appalam, pappad, vadam and vathal.
5) Articles made of sea shells.
Need for Service Tax:
It is the prime responsibility of the government to fulfil the increasing developmental needs of
the country and its people by way of public expenditure. India being a developing economy is
striving to fulfil the obligations of a welfare state within its limited resources.
Central excise duty on the goods manufactured/produced in India and customs duties on
imported goods constitute the two major sources of indirect taxes in India. Revenue receipts
from customs and excise are not keeping pace with the growth in economy to WTO
commitments and rationalization of commodity duties.
It is also well-known that services constitute a larger proportion of the consumption of the rich
rather than of the poor as the demand for services is income-elastic. Depending on the socio-
economic compulsions, each country evolved a taxation system on services adopting either a
comprehensive approach or a selective approach.

Features of Service Tax:

1) Indirect Tax: It is a source of revenue for the government in the formof indirect taxes.
2) Separate Act: There is no separate act for taxing the services. Central Government has
the power to make rules to carry-out the provisions of the act.
3) Administered by CBEC: It is administered by Central Board of Excise and Customs
(CBEC).
4) Uniform Rate: There is a uniform rate of tax on all services. Currently, it is 10:30 per
cent.
5) Double Taxation: Services falling under two or more sub-clauses cannot be taxed twice,
if the service is provided only once.
6) Not Applicable in Jammu and Kashmir: It is extended to the whole of India except the
state of Jammu and Kashmir.
7) Leviable on Taxable Services: Service tax is leviable on taxable services.
8) Small Service Provide Excluded: A threshold limit of ₹10 lakh has been prescriped,
upto which value of all taxable services provided by a service provider during a financial
year is fully exempt from tax.
9) Taxable Service/value Thereof: For this purpose, the ‘taxable service’ and the ‘value of
taxable service’ have been specifically defined.
10) Tax is Generally Payable by Service Provider: The act makes the person providing the
service to pay service tax in such manner. Except in situations provided in rule 2(1)(d) of
the service tax rules. The person receiving the service is liable to pay service tax.
Tax on Different Services:
1) Specific Description to be Preferred: The sub-clause which provides most specific
description should be preferred over sub-clause providing a more general description
[Section 65A(2)(a)].
2) Classification as Per Essential Character in Case of Composite: Composite service are
those consisting of combination of different services. The basis of specific description as
 per section 65A(2)(a) above, it shall be classified as if they consisted of a service which
gives them their essential character [Section 65A(2)(b)].
3) Service which Appears Earlier in List, if service cannot be Classified On Above Basis:
If a service cannot be classified on basis of above provisions, the service should be
classified under sub-clause which occurs first among the sub-clause which equally merit
consideration. [Section 65(2)(c)].

Administrative Mechanism: Explain?

1) CBEC: A central Board of excise and Customs, consisting of six/seven members, headed
by a Chairman, administers the excise, customs and service tax law. This board has its
headquarters at New Delhi.
2) Chief commissioner of central excise: The Chief commissioner within his zone. He
monitors matters related to collection of revenue, disposal of pendencies, redressal of
grievances.
3) Commissioner of central excise: In metropolitan cities of Delhi, Mumbai, Kolkata,
Chennai, Ahmedabad and Bangalore, there is a separate Commissioner of service tax but
in other places, the commissioner of excise looks afterthe work of service tax also.
4) Additional and Joint Commissioners: Each Commissionerates also has additional and
joint commissioners.
5) Directly General of Service Tax:
I. Proper Infrastructure: He ensures proper infrastructure so that different central
excise commissionerates can monitor the collection .
II. Staff Requirement: He determines the staff requirement at field level for
effective implementation of service.
III. Service Tax Procedures: He suggests measures for implementation and
streamlining service tax procedures for increasing the revenue collection.
IV. Database for Collection: He maintains a database for collection of service tax
for its proper monitoring.
V. Inspects Various Service Tax Cells: He inspects various service tax cells in the
commissionerates to ensure there effective functioning.