Q1. Explain the five types of central excise duties.

Answer- Many people think that there is only one duty called as central excise. This is not true.
In fact, there are a number of duties that are collectively called central excise duty. At present,
the following duties are payable:
1. Basic Duty of Central Excise
This duty is levied at the rates specified in the First Schedule to Central Excise Tariff Act, 1985.
Basic Excise Duty is levied u/s 3(1) of Central Excise Act. The section is termed as charging
section. General rate of duty of central excise on non-petroleum products is 10% w.e.f. 27-022010.
2. Special Duty of Excise
Some commodities like pan masala and cars have special excise duties levied on them. These
items are covered in Schedule II to the Central Excise Tariff. Presently, special excise duty is
charged at the rate of 16 per cent on tyres, aerated soft drinks, polyester filament yarn, air
conditioners and components and motor cars.
3. Education Cess on Excise Duty
Education cess is a duty of excise that has to be calculated on the aggregate of all duties of
excise, including special excise duty or any other duty of excise. Education Cess @ 2% of excise
duty under section 93 of Finance (No. 2) Act (w.e.f. 9-7-2004). Secondary and Higher Education
Cess (S&H Education Cess) @ 1% of the total duties of excise vide section 136 read with section
138 of Finance Act, 2007 w.e.f. 1-3-2007.
4. Excise Duty on Clearances by 100 Per cent EOUs
100 per cent Export-oriented Units (EOUs) are expected to export all their production. However,
if they clear their final product in the domestic tariff area (DTA), the rate of excise duty will be
equal to that of the customs duty on like article if imported in India. Note that even if rate of
customs duty is considered for the payment of duty, the duty paid by them is actually the central
excise duty. The rate of customs duty is taken only as a reference.
5. National Calamity Contingent Duty
A National Calamity Contingent Duty (NCCD) is imposed on pan masala, chewing tobacco and
cigarettes. The rate of this duty ranges between 10 per cent and 45 per cent.
Q2. Explain the term transaction value. What dutiable factors have to be added to a
transaction value?
Answer- Transaction value refers to the price actually paid by the importer to the foreign
supplier. Ideally, the transaction value must be the basis for charge of duty, but the customs
department is often reluctant in accepting this as a basis for valuation.
The transaction value, to be acceptable for customs valuation must satisfy the following
conditions:
(a) There should be no restriction on the buyer on use or disposal of goods. However, restrictions
imposed by the law in India or restrictions on geographical areas within which goods may be

resold or restriction which does not affect the value of goods are not to be considered for this
purpose.
(b) The sale should be unconditional.
(c) The seller must not be entitled to any additional consideration for the goods.
(d) The buyer and seller should not be related. However, if it is proved that the relationship has
not affected the selling price or that the price is similar to identical or similar goods sold to
unrelated buyers in India, then such relationship is to be ignored.
The transaction price declared can be rejected when the customs officer has reasons to doubt the
truth or accuracy of the value declared.
The transaction value, if accepted by the customs authorities, should be adjusted by the valuation
factors. Valuation factors are of two types: dutiable factors and non-dutiable factors. Dutiable
factors must be added to the transaction value. Non-dutiable factors must be deducted from the
transaction value.
The following dutiable factors must be added to the transaction value (if they do not already
form a part of it):
(a) Commission and brokerage except buying commission, is includable. Buying commission
means fees paid by an importer to his agent for the service of representing him abroad in
purchase of the goods being valued.
(b) Commission to the local agent. Foreign suppliers may appoint a local agent in India for
promoting their business activities. These agents are often paid a commission in Indian rupees
directly by the Indian importers. Such commission, if not included, should be included for
valuation.
(c) Packing cost. The cost of primary packing is includable for valuation purposes. For example,
the cost of containers is treated as a part of goods.
However, the cost of reusable containers for packing goods for convenience of transport is not to
be considered for customs valuation if the importer executes a bond for re-exporting such
containers within six months of import.
(d) Goods supplied by the buyer. If the importer has supplied certain goods free of cost or at a
reduced cost for the purposes of production or export of goods, cost of such goods must be
included for custom valuation.
(e) Services rendered by the buyer. The expenses incurred by the buyer for development work,
art work, designing, and plans and sketches which are necessary for production of imported
goods is includible if such work is undertaken outside India.
(f) Royalties and license fees. If the importer has paid royalties and license fees separately in
connection with the imported goods, they are includable unless they are already included in the
selling price. Royalties include payments for patents, trademarks and copyrights. However, they
do not include charges for the right to reproduce goods in India should not be added and
payments made by importer for the right to distribute or resell imported goods if such expenses
are not a condition for export to India.

(g) The value of subsequent resale. If any part of the sales proceeds on resale of imported
goods is payable to the foreign exporter, directly or indirectly, such part of the sale proceeds are
includible in the transaction value.
(h) Other payments to the seller. If an importer has, directly or indirectly, made payments to the
seller as a condition of sale, such payments are included in the transaction value for customs
valuation.
(i) Cost of transport. Cost of transport or freight from the exporting country to India is
includible in determining customs value. However cost of transport within India is not to be
considered. If the goods were transported to India through air, the amount of freight to be
included in the transaction value shall be restricted to an amount equal to 20 per cent of the Free
On Board (FOB) value of the imported goods.
(j) Landing charges. Cost of unloading and handling charges in connection with the imported
goods is to be considered in determining customs value. If the amount cannot be clearly
ascertained, then an ad hoc amount of one per cent of the value of goods is to be added to the
transaction value
(k) Insurance premia. Insurance charges on goods during transit are to be added. If such
expenses cannot be clearly ascertained, then an ad hoc amount of 1.125 per cent of the value of
the goods is to be added.
Q3. How is the professional tax levied in Tamil Nadu?
Answer1. There shall be levied by the Municipal Council a tax on profession, trade calling and
employment.
2. Every company which transacts business and every person, who is engaged actively or
otherwise in any profession, trade, calling or employment with in the Town Panchayat on the
first day of the half-year for which return is filed, shall pay half-yearly tax at the rates specified
in the Table below in such manner as may be prescribed:
S. No.
Six months income (`)
Old Tax (`)
New Tax (`)
1.
upto 21,000
2.
21,001 30,000
75
100
3.
30,001 45,000
188
235
4.
45,001 60,000
390
510
5.
60,001 75,000
585
760
6.
75,001 and above
810
1095
Profession Tax Collectable from the salary of August (Ist Quarter) and January (IInd Quarter)
3. The rate of tax payable under sub-section (2) shall be published by the executive authority in
such manner as may be prescribed.
4. Where a company or person proves that it or he has paid the sum due to account of the tax
levied under this chapter or any tax of the nature of a profession tax imposed under the

Cantonments Act, 1924 for the same half-year to any local authority or cantonment authority in
the State of Tamil Nadu such company or person shall not be liable by reason merely of change
of place of business, exercise of profession, trade, calling or employment or residence, to pay the
tax to any other local authority or cantonment authority. (Central Act II of 1924)
5. The tax leviable from a firm, association or Hindu undivided family may be levied on any
adult member of the firm, association or family.
6. Where a person doing the same business in the same name in one or more places within the
Town Panchayat, the income of such business in all places within the Town Panchayat shall be
computed for the purpose of levy of tax and such person shall pay the tax in accordance with the
provisions of this Chapter.
7. Where any company, corporate body, society, firm, body of persons or association, pays the
tax under this chapter, any director, partner or member as the case may be, of such company,
corporate body, society, firm, body of persons or association shall not be liable to pay tax under
this Chapter for the income derived by such director partner or member from such company,
corporate body, society, firm, body of persons or associations.
8. Every person who is liable to pay tax, other than a person earning a salary or wage shall
furnish to the executive authority a return in such form, for such period and within such date and
in such manner as may be prescribed.
Provided that subject to the provisions of sub-sections (10) and (11), such person may make a
self-assessment on the basis of average half-yearly income of the previous financial year and the
return filed by him shall be accepted without calling for the accounts and without any inspection.
9. Every such return shall accompany with the proof of payment of the full amount of tax due
according to the return and a return without such proof of payment shall not be deemed to have
been duly filed.
10. Notwithstanding anything contained in the proviso to sub-section (8), the executive authority
may select the per cent of the total number of such assessment in such manner as may be
prescribed for the purpose of detailed scrutiny regarding the correctness of the return submitted
by a person in this connection and in such cases final assessment order shall be passed in
accordance with provisions of this Chapter.
11. If no return is submitted by any person under sub-section (8) within the prescribed period or
if the return submitted by him appears to the executive authority to be incomplete or incorrect,
the executive authority shall, after making such enquiry as may be, consider necessary to assess
such person to the best of his judgement:
Provided that before taking action under this sub-section,
The person shall be given a reasonable opportunity of proving the correctness or completeness of
any return submitted by him.
12. Every person who is liable to pay tax under this section, other than a person earning salary or
wage: (a)
Shall be issued with a pass book containing such details relating to such payment of tax as may
be prescribed and if the pass book is lost or accidentally destroyed the executive authority may,

on an application made by the person accompanied by such fee as may be fixed by the municipal
council, issue to such person a duplicate of the pass book.
(b) Shall be allotted a permanent account number and such person shall:
(i) Quote such number in all his returns to, or correspondence with the executive authority;
(ii) Quote such number in all chalans for the payment of any sum due under this chapter.
13. The rate of tax specified under sub-section (2) shall be revised by the municipal council once
in every five years and such revision of tax shall be increased not less than twenty-five percent
and not more than thirty five percent of the tax levied immediately before the date of revision.
Q4. Explain five advantages and five disadvantages of GST.
Answer- Advantages of the GST
The main advantages of the GST system that will lead to equity in the business sector and
economic growth are:
1. Input tax credit mechanism, which will effectively make all inputs available to registered
businesses, free of any tax. It should be noted here that allowable input taxes are limited to inputs
and expenses wholly and exclusively incurred to undertake a taxable activity. What can be
claimed is not limited to the raw materials used for the production of a product but also includes
office supplies etc.; and this is particularly evident in the service sector where office charges such
as electricity, stationery and office equipment is common.
2. Investment decisions made without the consideration of tax advantages and this will lead to an
even spread of investors in all sectors of the economy as opposed to a more tax friendly retail
sector under the sales tax system.
3. Capital of businesses will be enhanced as GST will provide registered businesses with short
term finance as the due date for submission of returns and payments are longer than that of the
sales tax system. This pipeline theory is good for businesses as we now see an economic
meltdown in the world due to the credit crunch in the western world, which has led to less
finance loans available.
4. Promotes exports for better balance of payment account because GST removes the competitive
disadvantage and gives a boost to Sierra Leone exports in global markets. Exporters are in the
privileged pedestal of always being refunded as exports will be zero-rated. This means that they
will be able to claim all their input GST but will charge 0 per cent on their exports leaving them
in a constant refund position.
5. Foreign direct investment is dependent on the fiscal structure of any country. For Sierra Leone
to be rated highly as a good country to do business in, our tax structure needs to be fair,
comparative and better to other countries. With GST we will now have that luxury.
6. Reduce the cost of doing business with the National Revenue Agency (compliance costs).
Under GST a registered business selling a variety of goods and services will only deal with one
NRA office and will be required to fill in at regular limited intervals a simple return on one page
with twelve boxes.

7. More revenue for government developmental projects such as good roads, electricity and
water supply that will also help to promote businesses.
8. It will boost up economic unification of India; it will assist in better conformity and revenue
resilience; it will evade the cascading effect in Indirect tax regime.
Disadvantages of GST
1. Not using the correct accounting method.
2. Incorrectly claiming GST credits on bank fees.
3. Incorrectly claiming GST credits on government chargessuch as land tax, council rates, water
rates.
4. Incorrectly claiming a GST credit on the 'total cost' of a business insurance policy. Because
there's a stamp duty component in the premium which is not subject to GST, a GST credit cannot
be claimed on this portion of the payment.
5. Not remitting GST on some government grants and incentives which are received inclusive of
GST.
6. GST is not paid on the sale of cars and equipment including the trade of motor vehicles.
7. Incorrectly claiming GST credits on wages and superannuation payments.
8. Incorrectly claiming GST credits on GST-free purchases such as basic food items, exports and
some health services.
Q5. Discuss the changes in the surcharge leviable as per the taxation laws (amendment) act
2011.
Answer- (a) The surcharge leviable is:

Domestic
Other Company

Total Income
Exceeds
` 1 crore
` 1 crore

Rate of Surcharge on
Income Tax
7.5%
2.5%

(b) In the following cases, the rates of surcharge have been changed:
115A Tax on Dividends, Royalties and Technical Service Fees in case of foreign
companies.
115AB Tax on income from units purchased in foreign currency or capital gains arising
from their transfer.
115AC Tax on income from bonds or Global Depository Receipts purchased in foreign
currency or capital gains arising from their transfer.
115ACA Tax on income from Global Depository Receipts purchased in foreign currency or
capital gains arising from their transfer.
115AD Tax on income of Foreign Institutional Investors from securities or capital gains

arising from their transfer.

115B Tax on Profits and Gains of Life Insurance Business.
115BB Tax on winnings from lotteries, crossword puzzles, races including horse races, card
games and other games of any sort or gambling or betting of any form or nature whatsoever.
115BBA Tax on non-resident sportsmen or sports associations.
115BBC Anonymous donations to be taxed in certain cases.
115E Tax on investment income and long-term capital gains.
115JB Special Provision for payment if tax by certain companies (MAT). In the above
mentioned cases, surcharge leviable is:

Total income
exceeds
Domestic
Company
Other Company

` 1 crore
` 1 crore

Rate of surcharge on
income tax (calculated
as per relevant section)
7.5%
2.5%

(c) In the following cases:

1150 Tax on distributed profits of domestic companies (dividends by DC)
115R Tax on distributed income to unit holders
The surcharge leviable is 5% on income tax calculated as per relevant
section. (d) In the following cases:
194C Payments to Contractors
194F Payments to Non-resident sportsmen or sports associations
194EE Payments in respect of deposits under National Savings Scheme etc.
194F Payments on account of repurchase of units by Mutual Fund or UTI
194G Commission etc. on the sale of lottery tickets
194H Commission or brokerage

194-I Rent
194J Fees for professional or technical services
194LA Payment of compensation on acquisition of certain immovable property
194LB Income by way of interest from infrastructure debt fund (Newly
inserted section)
196B Income from
units
196C Income from foreign currency bonds or shares of Indian company
196D Income of Foreign Institutional Investors from
securities
Here, TDS shall be deducted as per relevant section and surcharge would be
leviable 2% (only for companies other than domestic companies) of such
tax, where the income or aggregate of such incomes paid or likely to be paid
and subject to the deduction exceeds ` 1 crore.
(e) Surcharge on TCS u/s. 206C is now 2% of such tax (for companies other
than domestic companies), where the amount or aggregate of such amounts
collected and subject to such collection exceeds ` 1 crore.
(f) Surcharge on Advance Tax computed w.r.t. Sections 115A, 115AB,
115AC,
115ACA, 115AD, 115B, 115BB, 115BBA, 115BBC, 115BBD, 115E,
115JB :
Rate of surcharge on
advance tax
income exceeds (calculated
as per
Domestic Company Total
` 1 crore
5%
Other Company

` 1 crore

2%

Q6. Discuss the provisions of the Income Tax Act,1961 regarding deemed dividend
Answer-

1. Meaning of dividend: It is the sum received by the shareholders of a company on the

distribution of its profits. However Sec. 2(22) defines dividends that are notionally or by friction
of law treated as dividend.
2. Dividend is not impressed with character of profit: Dividend in its ordinary connotation
means the sum paid to or received by a shareholder proportionate to his shareholding in a
company out of the total sum distributed. Dividend distributed by a company being a share of its
profits declared as distributable among the shareholders, is not impressed with the character of
the profits from which it reaches the hands of the shareholders.
3. A dividend u/s 205 of the Companies Act can be paid only out of the profits of a company
whether for that year or out of the profits of the company for any previous financial years as set
out in that section, and in the manner set out in that section.
4. While reading Sec. 2(22), the following sentences and particularly the italicized words must be
emphasized:
(a) To the extent to which distribution is attributable to the accumulated profits.
(b) To the extent to which the company possesses accumulated profits.
(c) Distribution which entails the release of companys assets.
5. As per Sec. 2(22), the following payments or distribution are not treated as dividend
(a) any payment made by a company on purchase of its own shares from a shareholder in
accordance with the provisions of Sec. 77A of the Companies Act, 1956.
(b) any distribution of shares pursuant to a demerger by the resulting company to the
shareholders of the demerged Company (whether or not there is a reduction of capital in the
demerged Company).