Prestige Institute of Management

Indirect taxes & law practices

By : Kavita Vijay
INDIRECT
TAXES
What Is Tax
 Taxes are generally an involuntary fee levied
on individuals or corporations that is
enforced by government entity , whether
local, regional or national in order to finance
government activities
 Tax is nothing but it is a money that people

have to pay to the government which is used

to provide public services
Two Forms of Tax
 Direct Tax
 Indirect Tax
Difference between direct tax and
indirect tax
 Direct Taxes
 Direct tax are paid
directly to government
 Burden of taxes cannot
be shifted
 Help in reduce inflation
 Tax evasion possible
 Adminstrative costs are
high
 Progressive in nature
 Indirect Taxes
 Indirect taxes are
ultimately paid by the end
consumer of goods and
services
 Burden of taxes can be
shifted
 Enhance inflation
 Tax evasion not possible
 Adminstrative costs are
low
 Regressive in nature
 Special Features of Indirect
Taxes
1. Shifting of burden
2. Promotes social welfare
3. Major source of Revenue
4. Inflationary in nature
5. Wider tax base
6. Regressive in nature
Merits of indirect tax
 Major source of revenue
 Convenience in assessment and collection
 Tax evasion difficult
 Less collection cost
 No resistance by consumers

Demerits of Indirect taxes

 Increase the price of goods
 The incidence is uniform
Central excise duty
 Before implementation of GST Excise duty was an important
tax which was levied by the Central Government.

 It was a major source of tax revenue of Government of India.

 Central Excise Duty was effective up to 30th june 2017, w.e.f

1-7-17 it was merged with GST

 For the proper implementation of excise duty , central Excise

duty Act 1944 and CentralExcise tariff Act 1985 are
applicable on various types of goods covered under 20
sections and 96 chapters.
Meaning
 Excise duty means a duty which is imposed
by govt. of India on manufacturing of goods
in India.
 Purchase or sale of goods is not connected

with it
 This is an indirect tax which is collected from

manufacturer.
Characteristics of Excise Duty
 Imposition
 Nature
 Basis of taxation
 Payment
 Scope
 Maintance of record
 Excise rate
Types of Excise Duties
 Central Excise Duty
 Provincial excise duty

Duties under other Acts

 National calamity Contingent Duty: A NCCD has been
imposed vide sec 136 of Finance Act,2001. The duty was
imposed on pan masala , tobacco and cigarettes varies
from 10% to 45%

 Additional Excise duty on Panmasala and tobacco:

Additional duty of excise by way of surcharge has been
imposed under clause 85 of finance Bill , 2005 w.e.f. 1-3-
2005.
Basic Conditions of Excise Duty
 The Excise duty levied on goods
 The goods must be excisable
 The goods must be manufactured or

produced
 Manufacture must be in India
Important Definitions
 Goods: Article 366 (12) of the constitution
defines goods as “ goods includes all materials,
commodities and articles

 Sale of goods Act defines “Every kind of

movable property other than actionable claims
and money; and includes stock and shares,
growing crops, grass, and things attached to or
forming part of the land which are agreed to be
severed before sale or under the contract
of sale will be considered goods
Contd.
The word “goods” for purpose of levy of excise duty must satisfy
two requirement:
 Goods must be movable

1. It should come into existence as a result of manufacture.

2. It should be capable of being moved to market to be bought and sold

 Goods must be marketable

1. Capable of being brought to the market

2. Actual sale is not necessary
3. Mere mention in tariff is not enough
4. Even one purchaser enough
5. Everything that is sold is not marketable
6. Actual open market is not necessary
Excisable Goods sec. 2 (d)
Excisable Goods means goods specified in the
schedule to the central Excise tariff Act 1985, as
being subject to a duty of excise and includes salt
 It should be specified in the tariff Schedule
 Goods not included in CETA are ‘non-excisable’
 Mere mention in CETA not enough
 Subject to duty
 Nil duty paid
 Goods manufactured in SEZ are excluded excisable

goods
 Dutiable and non dutiable goods
Manufacture- sec 2 (f)
Every action or process is manufacture, which
results into the transformation of raw
material into a commercial commodity or
finished product that has a separate identity.
 New substance having distinct name,

character or use must emerge

 Transformation or conversion
 Identity of original Article should be lost
 Assembling can be manufacture
 Commercial known product
Manufacturer
 Sec 2(f) which defines the word ‘manufacturer’
states that ‘the manufacturer is a person who
actually manufactures or produces excisable
goods i.e. one who actually brings into
exixtence new and identifiable product.
 Who is not Manufacturer?
 Raw material supplier
 Brand owner is not the manufacturer
 Franchise Agreement
 Loan licensee
Assessable value sec 4(1) (a)
 Assessable value is the value on which duty is
payable as a percentage.
 Basis of assessable value
 As per sec 4 excise duty is payable on basis

of transaction value if the goods are sold at

the factory gate to an unrelated buyer when
price is the sole consideration.
Transaction value sec 4(3)(d)
 Sec 4(3)(d) defines ‘ Transaction value’ as the
price actually paid or payable for the goods
when sold and includes in addition to the
amount charged as price , any amount that
the buyer is liable to pay to, or on behalf of ,
the assessee, by reason of , or in connection
with the sale , whether payable at the time of
sale or at any other time.
Factory sec 2 (e)
 Factory means any premises including the
precincts in any part of which excisable goods
other than salt are manufactured or where in or
any part of which any manufacturing process
connected with the production of these goods is
being carried or is ordinarily carried on.
 Any premises
 Precincts
 Factory
 Salt pans
 Any place
Registration in central excise
 Persons Requiring registration: Acc to sec 6
of central excise act 1944 and rule 9 of the
central excise rules 2003

1. Manufacturer
2. Person who issue CENVAT invoice
3. Private warehouse holder
4. End use based exemption user
5. Exporters
Persons exempted from obtaining
registration
 Person who manufacture the excisable goods
which are chargeable to nil rate
 Small scale unit
 Supplier of raw material who gets manufactured
on his account from any other person
 Job worker need not get registered if the
principal manufacturer undertakes to discharge
the duty liability
 Persons who carries on wholesale trade or deals
in excisable goods
Registration in case of multiple
premises etc

 IN case of separate premises, separate

registration will be required.
 However separate registration will not be

required in cases where two or more

premises are actually part of the same factory
where processes are interlinked
Procedure of registration
 Application in Form A-I
1. Legal name of business and address
2. Boundaries of premises
3. Address of head office

4. Name of authorized person

5. Details of other existing businesses
6. Details of proprietor/partners/directors and
managing director
 Signature on Application
 Submission of ground plan
Procedure for issue of registration
certificate
 Verification of application
 Granting of certificate of registration
 Validity of registration certificate
 Excise control code
 Exhibition of registration certificate
 Fresh registration Certificate
 Surrender of certificate
 Revocation or suspension of certificate
Classification of goods
 Sections and chapters of CETA : CETA is divided
into 20 sections and 96 chapters.
 Grouping of Goods
 Classification of chapters under various headings

and subheadings
 Eight digit classification
 Division of excisable goods in 4 columns

1. Heading No
2. Sub heading no
3. Description of goods
4. Rate of duty
Interpretation of CETA
 In case chapters notes clearly determine
classification
 Incase of classification of incomplete or

unfinished goods
 Classification of goods classifiable under two

or more headings
 Classification under a heading most similar to

goods
 Determination of classification under a

subheading
Principles of classification
 Trade Parlance theory
 HSN and classification
 Main function of machinery important
 Dictionary meaning
 End use only in limited cases
 Principle of separate identity of machinery
 Exemption Notification cannot determine

clasification
Valuation under central excise
 Basis of calculation of duty payable:
1. Duty as percentage based on assessable
value (advalorem duty)
2. Duty based on maximum retail price
3. Specific duty
4. Duty as percentage of tariff value
Valuation based on transaction value
 As per sec 4(1) of the act, the excise duty is
chargeable on any excisable goods with
reference to their transaction value
 The transaction value will not be applicable

for the purpose of payment of duty if the

buyer and seller are related
 If the goods are sold to related person or if

the goods are not sold valuation will be done

on the basis of rule as may be prescribed.
Example
 Suppose a T.V. manufacturing company
supply a specific model of T.V. to dealers at
the invoice price Rs 8000. Apart from this the
manufacture also charged Rs 400 for
advertisement and RS 600 for after sale
service of the product. In this case the
transaction value shall be Rs
8000+400+600=9000 for determination of
assessable value.
MRP basis of charging excise duty
 Sec 4A of CEA empowers central govt. to
specify goods on which duty will be payable
based on retail sale price.

Specific Duty
 It is the duty payable on the basis of certain
unit like weight, length, volume, thickness
etc. for ex cigarette is payable on the basis of
length.
Duty based on tariff value
 In some cases tariff value is fixed by govt
from time to time.
 This is a ‘notional value’ for purpose of

calculating the duty payable.

 Once tariff value is fixed duty is payable as

percentage of tariff value and not the

assessable value fixed u/s 4. This is fixed u/s
3(2) of central excise Act.
Valuation in case of job work
 Assessable value = Full Intrinsic cost of raw materials+
processing charges+ costs and profits of the job worker.
 Inclusions: material handing charges of the inputs i.e.

freight, insurance and interest charges incurred in

relation to raw material
 Exclusions:

1. Profit on sale of the finished goods

2. Transport costs
3. Other expenses incurred after clearance of the finished
goods from job worker’s factory
4. Duty Paid on raw material which is allowed as CENVAT
credit
Captive consumption of excisable
goods
 As per rule 8 of the central Excise valuation
rules , where the excisable goods are not sold
by the assessee but are used for consumption
by him or on his behalf in production or
manufacture of other articles then such
captive consumption are to be valued at 110%
of cost of production or manufacture of such
goods.
Computation of Central Excise Duty

 Procedure of calculating Excise duty payable-

1. Computation of Assessable value

2. Calculating excise duty payable on
assessable value
3. Rebate for CENVAT
Computation of central excise
Illustration
 A manufacturer has agreed to supply a machine on following terms-
 FOR Price of the machine at Rs 4,50,000
 Packing for transportation of the machine 15,000 ( not charged separately

in invoice)
 Transport charges of machinery Rs 25000 (not charged separately in

invoice)
 Development and tooling charges Rs 40,000(charged separately)
 Excise Duty @ 12.5% plus VAT 5 %
 Interest will be charged @ 16% on delayed payment beyond 30 days.
 Special discount of Rs 5,000 if advance of Rs 2,00,000 is paid with order.

Work out the excise duty liability and based on following additional
information:
1. Actual transportation cost is Rs 26,000
2. The buyer paid advance with the order.
3. Interest of Rs 5000 was charged as party has failed to make payment
within 30 days
 Illustration
 Rupesh Engineering's corporation has entered into contrac
for supply 10 machines at the price of 2 lac each in the
month of april 2017. Besides the price the manufacturer
charges the following items-
a) Installation charges for each machine 20000
b) Design and drawing charges for machines 15000
c) Packing Charges(each machine) 5000
d) Loading charges and haulage within factory 1000
e) The outward transport cost incurred 8000
Effective rate for excise duty @12.5%
Find Assessable value and excise duty payable
Illustration2
Illustration 3
 BPL Limited manufactured 16500 V.C.D Sets , Prince 2000 brand
during the month June 2017, following particulars are available-
 Ex factory price is 15000 per VCD for distributors and
14000(net) for wholesale dealers.
 Discount to distributors @ 20%, but discount not allowed to
wholesale dealers.
 During the year 8800 VCD were sold to distributors and 5200
VCD sets were sold to wholesale dealers.
 2500 VCD sets were lying in stock at the end of year in godown.
 The company purchased inputs for manufacture of VCD rs 16
crores, out of these inputs worth rs 4 crores remained as closing
stock . Cost of inputs included basic excise duty rs 1 crore.
 Determine assessable value and calculate excise duty payable , if
rate is 12.5%
Illustration 4
Illustration 5
Calculation of taxable value under GST
Point of CHANGE Central excise duty GST

Price of Goods supplied or Transaction value is base Invoice price or supply value
issued is base

Items added transaction Packing, design charged, Apart from this external
value if separately charged after sales service, Internal freight , insurance, interest ,
transportation etc were loading charges while
added determination of taxable
value under GST

Tax rates Normal tax rate of excise Under GST tax rate
duty was 12.5% up to 30-6- applicable according to
2017 nature of goods e.g. 5%,
12%, 18%, 28%

Distribution of taxes Whole amount of Central Under GST system in case of

excise duty was deposited in intra state supply the tax
the fund of central amount is divided in the two
government. Some portion of heads equally- CGST
collection was distributed ii)SGST. In case of inter state
among various states supply the tax amount is
Computation of taxable value of supply by
Manufacturer
Transaction value or invoice price of goods
Add: Following items if these are not included in
transaction value
1.Taxes other than GST
2.Packing charges
3.Other cost and expenses related to supply
4.Loading weighment charges etc.
5.Freight and transit insurance
6.After sale service
7.Installation charges
8.Expenses by recipient on behalf of supplier
9.Interest , penalty for delayed payment
Subsidy
10. or incentive

Less: The following

Discount
11. before or at the time or after supply
Shown in invoice
(Trade discount, Cash discount or quantity discount)

Taxable Value of Supply

Computation of Gst payable on taxable supply

Value of taxable supply

(as per calculation)
a) IN case of Intra State Supply
I. CGST 50% of rate applicable
II. SGST 50% of rate applicable ……….. ………….
OR
b) Inter State Supply
Full rate 5%,12%,18%, 28%
Total GST payable ………….

Less: Input Tax credit or Inward supply ……………

Tax paid on purchase (-) …………

Net GST Payable ……..

Illustration :
Illustration
Illustration:
Value Based on Maximum Retail price

 Central government can imposed excise duty on goods based

on retail sale price. The provisions are as follows-
 The goods should be covered under provisions of Standard of

weight and measures Act.

 Central Government can permit reasonable abatement

(deduction) from the retail sale price

 If more than one retail sale price is printed on the same

packing , the maximum of such retail price will be considered.

 The retail price should be the maximum price at which

excisable goods in packaged forms are sold to ultimate

consumer. It includes all taxes, freight , transport charges ,
commission payable to dealers and all charges towards
advertisement, delivery , packing etc.
Practical problems for MRP based
Illustration:
 A company manufactured 15000 electric fans during the period up
to 30.6.17. In this connection the following information are available
 Retail price of fan rs 2000. It includes Excise duty
 Sold 12000 fans to whole sellers. Descount allowed @ 25% on retail

price
 Fan sold in retail 2000
 The balance 1000 fan not removed from factory
 The company purchased inputs for manufacture of fan Rs 3750000.

It includes basic Excise duty of Rs 500000. The closing stock of

inputs is 400000
 The company incurred packing charges RS 200 each fan
 The company is liable to pay Basic Excise duty @ 12.5%
 Determine the gross Excise duty payable on retail sale price base .

35% Abatement allowed in case of fan.

Specific Excise duty
Valuation Rules
 If price of goods is not known at time of removal rule 4
 If Excisable goods are sold for delivery at a place other than
place of removal rules 5
 If excisable goods are transferred to a depot , premises of a
consignment agent or any other place or premises from where
they are to be sold rule 7
 Captive / self consumption Rule 8
 If price of goods is not sold consideration for sale
 If excisable goods are sold only to or through a related person
rule 9
 Valuation in case of goods manufactured by job worker on
behalf of principal manufacture Rule 10 A
 If value of any excisable goods cannot be determined under
foregoing rule 11
 Unit 2
Custom Duty
Meaning
 Custom duty means a tax which is levied by
the government on import of goods into India
and export out of India.
 It is a central tax and mainly imposed on

imported goods
 Govt. levies export duty on a very few items

due to export promotion

Features
 Custom duty levied on import and export
 Indirect Tax
 Goods under custom act
 Objects of custom duty
 Important source of revenue
Merits
 Regulating Import and Export
 Protection to Domestic Industries
 Regulating the international trade competition
 Checking on wasteful expenditure
Demerits
 Increases the prices
 Increase the cost of projects
 Domestic industries become lethargic
 Incidence of custom duty is uniform without
discrimination
 corruption
Important definition
Import and Importer sec 2 (23): Imported
goods means any goods brought into India
from a place outside India but does not
include goods which have been cleared for
home consumption
Importer in relation to any goods at any time
between their importation and the time when
they are cleared for home consumption
Export and exporter sec 2 (18) to 2(20)

Export With its grammatical variations and cognate expressions, means taking
out of India to a place outside India
Export goods means any goods which are to be taken out of India to a place
outside India
Exporter, In relation to any goods at any time between their entry for export
and the time when they are exported, includes any owner, beneficial owner or
any person holding himself out to be the exporter
Goods Sec2 (22)
Goods includes-

a. Vessels, aircrafts and vehicles

b. Stores
c. Baggage
d. Currency and negotiable instruments and other movable asset
BAggage
 Baggage means all dutiable articles, imported by
passengers or a member of a crew in his baggage
 Unaccompanied baggage if dispatched previously

or subsequently within prescribed period is also

covered
 Baggage does not include motor vehicles,

alcoholic drinks and goods imported through

courier
 Baggage does not include articles imported under

an import license for his own use or on behalf of

others.
Person in charge sec 2(35)

 Vessel - Master
 Aircraft - Commander or Pilot in Charge

 Train - Conductor or Guard

 Vehicle - Driver

 Other Conveyance - Person in Charge

Indian Custom Waters sec 2(28)

 Means the waters extending into the sea up to the

limit of contiguous zone of India sec 5 of the

territorial waters continental shelf , exclusive
economic zone and other maritime zones and
includes any bay, gulf harbour , creek or tidal river
Prohibited goods sec2 (33)
 Prohibited goods means any goods the
import or export of which is subject to any
prohibition under this act or any other law for
the time being in force but not include any
such goods in respect of which the conditions
subject to when the goods are permitted to
be imported or exported have been compiled
with
Custom Area sec 2 (11)
 Custom area means the area of a customs
station and includes any area in which
imported goods or export goods are
ordinarily kept before clearance by customs
authorities.
 Custom Station means any custom port ,

custom airport or land custom station

Entry sec 2 (16)
 Entry in relation to goods means any entry made
in a bill of entry , shipping bill or bill of export
and includes in the case of goods imported or to
be exported by post

Bill of Entry
 Bill of entry is a very vital and important
document which every importer has to submit to
customs officer in respect of imported goods
other than goods intended for transit or
transhipment
Shipping Bill
 Every exporter has to submit shipping bill for
export by sea or air and bill of export for
export by road .
 Goods have to be assessed for duty , even if

no duty is payable for most of exports as nil

duty assessment is also an assessment
Foreign going vessels and aircraft sec
2(24)
 Foreign going vessels or aircraft means any vessel or
aircraft for the time being engaged in the carriage of
goods or passengers between any port or airport in
India and any port or airport outside India , whether
touching any intermediate port or airport in India or
not and includes-
 Any naval vessel or a foreign government taking part
in any naval exercises
 Any vessel engaged in finishing or any other
operations outside the territorial waters of India
 Any vessel or aircraft proceeding to a place outside
India for any purpose whatsoever
Costal Goods sec 2(9)
 Costal goods means goods other than imported goods ,
transported in vessel from one port in India to another.

Vehicles sec 2(46)

 Vehicles means conveyance of any type used on land
and includes a railway vehicle

Assessment sec 2(2)

 Assessment includes provisional assessment,
reassessment and any order of assessment in which the
duty assessed is nil
Custom Station sec 2 (13)
 Custom Station means any custom port , custom airport or land
customs station
 Custom airport sec 2 (10)
 Customs port sec 2(12)
 Land customs station sec 2 (29

Export manifest or export report

 The person in charge of a conveyance export shall, before

departure of the conveyance from a customs station , deliver to
the proper officer in the case of vessel or aircraft , an export
manifest and in case of a vehicle , an export report , in the
prescribed form.
Types of Custom duty
 Basic custom duty
 Social welfare surcharge
 Integrated tax for GST
 Safeguard duty
 Protective duty
 Countervailing duty
 Anti dumping duty
 Export duty
Computation of Assessable value
 Base of assessable value is Transaction value of imported or exported goods
 Transaction value: inclusions

1. Commission and brokerage

2. Packing cost
3. Value of goods supplied by buyer to be added
4. Services/documents/technical know how supplied by buyer to be added
5. Royalties and license fee
6. Other payments made to seller to be added
7. Cost of transport upto port should be added
8. Insurance cost should be added
9. Landing charges to be added
Exclusions:
10. Some specific charges
11. Payment not related to imported goods
12. Interest on deferred payment
Computation of Assessable value
Cont…..
Practice question
Practice question
Practice question
Practice question
Practice question
Practice question
Illustration 1
Illustration 2
Illustration:
Illustration:
 Unit 3
Central sales tax
Central sales tax
 Central sales tax is applicable on Inter state
sales i.e sales of goods from one state to
another.
 This tax is imposed by the Central Govt., but

it is collected by the states and the amount

collected is also used by state govt..
Objects of Central sales Act, 1956
 Defining the inter state trade
 Laying down the principles regarding the

levying and collection of tax on Inter state

sales
 Some important goods
Features of CST Act, 1956

 Jurisdiction
 Single point tax
 Tax collection
 Important goods
 Restrictions
 Rates of tax
 No minimum Tax free limit
 Process of tax assessment
 Right to frame rules
 CST administration
Important definitions
 Dealer sec 2 (b): 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,
is called Dealer under Central Sales Tax act.

 The following are included:

 Individual
 An authority or organisation
 An agent
 An auctioneer
 Branch
 Government
Goods sec. 2 (d)
 “Goods” includes all materials, articles, commodities and all other
types of movable , but does not include news papers, actionable
claims , stocks , shares and securities.

Declared Goods – sec 2c

 Declared goods means goods declared under section 14 to be of
special importance in inter state trade or commerce.

Sale Sec 2 (g)

 Sale means any transfer of property in goods by one person to another
for cash or for deferred payment or any other valuable consideration
and includes a transfer of goods on the hire purchase or other system
of payment by installments but does not include a mortgage or
hypothecation of or a charge or pledge on goods.
Transactions regarded as sale
 Transfer on hire purchase system
 Transfer of any goods without contract
 Right to use
 Supply to members

Transactions not regarded as sale

 Mortgage
 Pledge
 Hypothecation
 Charge
 Branch Transfer
 Job work
Sale price sec2(h)
 Sale price means the amount payable to a dealer as consideration for the sale of goods
 Inclusions:
 Cost price of stock
 Cost of packing materials
 Packing charges
 Excise duty
 Bonus for extra sales
 Expenses incurred by trader before invoicing of goods
 Central sales tax (if not shown separately)
 Exclusions :
 Freight or transport charges for delivery of goods
 Cost of installation
 Cash discounts
 Trade discount
 Insurance charges of goods
 Goods returned within 6 months of the date of sale
 Goods rejected
Turnover sec 2 J
 Turnover 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 sales of any goods in the course
of inter state trade or commerce made during
any prescribed period and determined in
accordance with the provisions of this act and
the rules made thereunder
Business sec 2 (aa)
 Business includes:
 Any trade , commerce or manufacture or any
adventure or concern in the nature of trade ,
commerce or manufacture ,whether or not such
trade commerce manufacture , adventure or concern
is carried on with a motive to gain or profit and
whether or not any gain or profit accrues from such
trade , commerce, manufacture, adventure or
concern and
 Any transaction in connection with , or incidental or
ancillary to , such trade , commerce, manufacture,
adventure or concern.
Plcae of Business sec 2(dd)
 “Place of business” includes-
 In any case where a dealer carries on

business through an agent the place of

business of such agent
 A warehouse, godown or other place where a

dealer stores his goods, and

 A place where a dealer keeps his books of

account.
Appropriate State sec 2 (a)
 Appropriate state means that state in which
such business is situated. If however a dealer
has places of business situated in different
states, every such states with respect to the
place of business situated within its territory
shall be treated as “appropriate state”
Provisions relating to inter state sales
When is a sale or purchase of goods said to take place in the course of Inter state Trade or
commerce [sec 3]
a) Sale/purchase which occasion the movement of goods from one state to another [sec 3(a)]
b)Sale by transfer of documents[sec 3 (b)]
 Cases where there is no Inter state sale

1 Stock transfer or branch transfer

 Consignment agent
 C & F Agent
 Branch Transfer

2 Movement of Goods Commences and terminates is the same state

3 Intra state sales
4 Transfer of goods from factory to the place of sale

 When a sale or purchase of goods shall be deemed to take place inside a state : Under the
following condition the purchase or sale of goods be treated to have been in one and same
state
1. Ascertained goods
2. Unascertained goods

 Sale or purchase of goods said to take place in the course of import or export. ( sec 5)
Practical Problems
 Mahendra Nath is a trader of Mumbai and he sells some goods to
Ram Ahuja of Delhi under a contract of sale. The goods are
transferred through transport and delivery of goods is taken by Ram
Ahuja.
 A trader of Indore goes to Kanpur and purchase some goods. The

trader of Kanpur books the goods in the name of Indore Trader and
send goods through Transport
 A trader of Rajasthan comes to Indore purchases some goods and

takes the delivery in Indore by paying the said amount. He then

takes the goods with him and books the same to Rajasthan through
transport.
 Indore based dealer of Lakhani Shoes makes a contract of sale with

dealer of Mumbai, but Lakhani shoes books the goods under its own
name from Indore and the delivery of goods is taken by their agent
in Mumbai and the agent delivers the goods to the party in Mumbai
Exemptions from Central Sales TAx
 Sales in course of Export or Import
 Exemptions from CST if sale to SEZ
 Exemption from Central sales Tax on

subsequent sale
 Goods exempted within state , also exempt

for Inter state sale

 Goods sent to branch , agent or other office
Important points in respect of
subsequent Sales
 First sale should be inter state
 Transfer of documents of title
 Meaning of During movement of goods
 Transfer to government
 Transferred to Register Dealer
 Certificate Required
 Various form applicable regarding

subsequent sale
Form for declaration
 A dealer has to issue certain declarations in
prescribed forms to buyers or sellers.
 These forms are prescribed in central sales tax
rules 1957.
 Out of these forms C, E-I, E-II, F , H and I are
printed and supplied by sales txa or commercial
tax authorities and are supplied by them
 Dealer has to issue declarations in the forms
printed and supplied by sales tax only
 Form D is to be issued by government and can be
printed by the government dept. making purchases
Declaration in Form C
 Under CST act, sales tax on Inter state sale is 2%
or VAT rate for sale within the state whichever is
lower , if sale is to registered dealer and the
goods are covered in the registration certificate
of the purchasing dealer .
 Otherwise the actual tax leviable on sale of

goods inside the state.

 If the selling dealer pays CST @ 2% or lower, he

has to produce proof to his sales tax assessing

authority
Some important points
 Authority to issue C form
 Contents of C form under CST
 Time of submission
 How many transactions can be recorded in

one C form
 Consequences in case of loss of C form
Rates of Tax on Inter state sale
Formula for tax calculation
 The formula for deduction of such sales
included in the sale price is as under-
 Aggregate of the sale price*Rate of Tax/100+

Rate of Tax
 If CST is not included in the rate price :
 Aggregate of the sale price*Rate of Tax/100
Illustration
Illustration:
Taxable Turnover and computation of
Tax
 Step I : Computation of the gross turnover- All types
of sales taxable or not taxable will be included while
computing gross sales –
i. Sales inside the state either taxable or exempted
ii. Sales outside M.P.
iii. Sales to other states i.e inter state Sales
iv. Exports
 Step II: Deduction of sales other than Inter state
sales-
i. Sales within the state
ii. Sales outside the state
iii. Exports to various countries
Cont…
 Step III: Deductions
I. Sales Return within six months
II. Railway freight and delivery charges
III. Cash discount
IV. Subsequent sales
V. Tax free goods to other state
VI. Sales to SEZ
 Step IV: Deduction of Tax
i. If the amount of tax is included in the sales ,
then the amount of tax will bededucted to get
taxable turnover
Illustration
Illustration
Illustration
Exempted goods
Registration of dealer under CST act
 Procedure for registration
1. Application for registration
2. Period for application
3. Signature on application
4. In case of more than one place of business
5. Fees for registration
6. Issuance for the certificate of registration
7. Rejection of application
8. Amendments in certificates
Assessment Procedure
 Tax assessment authority
 Submission of the statement of sales
 Information to be supplied in the return
 Signature upon the return and its verification
 Documents to be enclosed with the return
 Duration of sales
 Proceeding of tax Assessment
Penalty and Prosecution
 Under sec 10 or CST act only dealer may be fined
in the following conditions or may be prosecuted
or may both be penalized as well as prosecuted
 Furnishing wrong declaration
 Giving false information regarding goods
mentioned in the certificate of registration
 Not registration himself
 Submitting false declaration
 Collecting the tax unlawfully
 Furnished false information regarding registration
IGST on Inter state supply
Illustration
Illustration 2
Unit 4
Meaning of VAT
 The value added tax has been levied on the
value added by the dealer.
 The value added means the selling price of

goods less the cost of goods sold

 VAT was charged on sales of goods with in

state.
Features of VAT
 Levied by state govt.
 Indirect tax
 Multi point tax
 Tax on value addition
 Amount of VAT should be shown separately in
Invoice
 Composition Facility
 Registration
 Self assessment System
 Administrative set up
Merits of VAT
 Not Cascading effect
 Easy implementation
 Lesser cost of compliance
 Less complications
 Facility of Input Tax rebate
 Check on tax evasion
 Payment in various stages
demerits
 Difficulty in set off
 Problem in refund
 Accounting problems
 Higher price
 More formalities
Methods of VAT charging
 Subtraction method : In subtraction method
VAT is charged on difference between sale
price and purchase price

 Tax credit method: In this system firstly

dealer charge VAT on selling price and
thereafter gets input tax rebate in respect of
goods purchased from registered dealer
Important Definitions
 Purchase Price- sec 2 (S)
 Purchase price shall comprise of-
 Consideration
 Packing cost
 Transport cost
 Trade commission
 Handling Charges
 Insurance Premium
 Local taxes
 Excise Duty
 Cost of packing material
 Other cost
Features of VAT in M.P
 Scope of VAT act
 Dealers covered by VAT(sec 5)
 Threshold limit for registration sec 5
 VAT is payable on value addition
 Method of charging VAT
 Taxable events
 Transactions not liable to VAT
 Sale price
 Sales return
 Tax paid goods
 Input tax rebate
Registration of Dealers Under VAT
 Every dealer whose turnover during the twelve
months immediately preceding the commencement
of this act exceeds the limit prescribed Rs 5 lacs
shall get himself registered in the prescribed manner
within thirty days of the commencement of this act.
Main provisions for registration are as under-
 Existing Registration
 Existing registered dealers having turnover below Rs

5 lac
 New dealers
 Voluntarily registration
Procedure for registration
 Making an application for grant of registration
certificate
 Application for grant of registration certificate
 Signature on application
 Verification and accompanied documents
 Grant of Registration Certificate
 Verification of particulars
 Supply of certified copies of registration
certificate and its exhibition
 Display of registration Certificate
Computation of Taxable turnover
illustration
Illustration
Illustration
Illustration
Illustration
Illustration
Computation of taxable supply under
GST
Cont…
Illustration
Illustration
Input tax rebate
 ITR shall be available only to a registered
dealer
 Goods entitled for ITR
 Goods not entitled for ITR
 ITR in respect of plant & machinery
 Availability of ITR
 How and when to claim
 How to calculate the ITR
 Carry forward / refund of ITR
Illustration
Illustration
Assessment Procedure
 Assessment procedure consists two things-
 First filling of return
 Second assessment by officer
Submission of Return -Sec 18
 The following types of dealers shall furnish
return of sales and purchases to concerning
commercial tax authority-
 Every registered dealer.
 Dealer whom notice served by commercial tax

officer to file the return

 Every Dealer whose registration certificate has

been cancelled by the department

Types of Return
 Quarterly Return
 Annual Returns
 Cases in which permission to file annual return cannot be

granted
Except in case of Central or state Govt. or any of their
departments the permission to file annual return shall not be
granted to a dealer-
1. Who is required to furnish monthly returns; or
2. Who has failed to pay the tax; or
3. Who is convicted of an offence punishable under the act
4. Who has not submitted all the returns for the year immediately
preceding the year in respect of which the permission is sought
 Revised return (Rule 23)
Revision question for excise duty
Revision question for excise duty
Rules regarding Return
 Period of submission
 Mention Tin Number
 Challan Accompanied
 List of purchase
 Consolidate Return
Types of Assessment
 Self Assessment Sec 20
 Scrutiny Assessment
 Best Judgement Assessment
 Re-Assessment sec 21
Tax Audit sec19
 Procedure and Provisions for Tax audit-
1. The tax audit shall be generally taken up in the office , business premises or
warehouse of the dealer
2. For the purpose of tax audit the commissioner or an agency authorised by him shall
examine the correctness of the return or returns filed and admissibility of various
claims including input tax rebate
3. For the purpose of tax audit , the commissioner or an agency authorised by him may
enter the place of business, office or warehouse of the dealer and require him to
produce books of account and documents relating to his business .The dealer shall
produce books of account and documents relating to his business as required
4. Tax audit shall be completed within a period of six calendar months from the date of
institution of the proceedings. After completion of tax audit , a report shall be
prepared and in case of tax audit by an agency authorised by the commissioner. The
report shall be submitted to the commissioner , who shall send a copy of the report
to the dealer.
5. After such audit if the return filed by the dealer are not found to be correct , the
commissioner shall by issue of a notice in prescribed form require such dealer to
make the payment of the additional amount of tax and or interest payable by him at
such rate as may be prescribed. Such amount shall be paid by the dealer within the
period specified in such notice
6. If the dealer does not comply with the requirments made in the notice , the
commissioner shall assess or re assess him to tax and interest and/or to impostion
of penalty
Manner of Tax AUdit
 A registered dealer, who is selected for tax
audit under sec 19 shall be intimated by issue
of a notice, as far as may be , in form 17
specifying the date and place for audit.
 The tax audit report under sub section (5) of

sec 19 shall be prepared and if required the

notice under sub section (6) of section 19
shall be issued in form 18.
Composition of Tax sec 11
 A registered dealer whose turnover in a year does not
ordinarily exceed rs 1 crore may opt to pay a lump sum tax
at fixed rate
 In case of 2014-15 and onwards composition fees is

payable @ ½%
 The main provisions and rules regarding composition is

discussed here-
 Eligible dealer

 Conditions for composition

1. Only registered dealer

2. Turnover should not exceed one crore in a year

3. Taxable goods should be purchased from registered

dealer only
illustration
Cont…
 Option to dealer
 Application for composition
 Rate of Composition fees
 Payment of lump-sum
 Rubber stamp on issued invoice
 Maintaining of Books
 Recovery not allowed
 Not eligible of input tax
 Purchases from a dealer who has opted for composition

Purchases from a dealer who has opted for composition of the VAT
Act shall be treated like a purchase from an unregistered dealer .
It is important to note that no input tax rebate shall be available
on purchases made from a dealer who has opted for
composition.
Beneficial for whom
 If the dealer sales such goods which are taxable at higher rates
i.e. 14%
 The profit margin of dealer is high

Example:
M/s Abhigyan Electronics is a retailer to supply electronics
goods . The firm purchases total goods from the depot of the
companies situated in M.P. The goods taxable @ 14% in Mp VAT .
Estimated sale fro the year 2016-17 of the firm is as under-
Estimate turnover of the year 26,00,000
Estimated purchases of the year 20,00,000
VAT to be paid to registered dealers of MP 2,80,000
Should the firm adopt composition alternative or not?
Give answer in both situation
Unit 5
Payment of Tax
 From the point of view of tax payment , the
dealers have been divided into the following
categories-
 Dealers liable to pay tax more than 15,000

per quarter or Rs 60,000 per annum but not

exceeding Rs 25 lacs per annum
 Dealers liable to pay tax more than Rs 6.25

lacs per quarter or Rs 25 lacs per annum

 Dealers liable to pay tax less than 15,000 per

quarter or Rs 60,000 per annum.

Appeal and Revision
 Appeal against which orders
1. The original Assessment order with or without fine
2. Reassessment order with or without fine
3. Against the order for correction of mistakes
4. Against the original orders regarding imposing fines
5. Against the refund order
 Payment of tax or penalty before appeal
 Time period for appeal
 Submission of application regarding appeal
 Stay of recovery of the remaining amount
 Disposal of appeal , hearing and decision
 Supply of copy of order to the officer concerned
 Period for decision on appeal
Power of Revision by commissioner
sec 47
 The commissioner may revise an order in the
following conditions –
1. Either on his own motion
2. On the application by a dealer or person
made within the prescribed period from the
date of order
Difficulties in implementation of VAT
 Long term Process
 Difficulty in set off
 Problem in refund
 Multiple rates of tax
 Accounting Problems
 Conflict between VAT & CST
 Higher prices
 More Formalities
 Corruption
Service Tax

 Service Tax is a tax on provisions of services.

 It is a tax on the economic activity which results
in value addition.
 It is a destination based consumption tax
leviable on services provided within the country
 Service means a useful result/ product of
labour which is intangible.
 As per section 65B(44) of the Finance Act
1994 , Service means an activity carried out by
one person for another for a consideration
Features of levy of service tax
 Scope
 Negative list for non taxable services
 Exempted services
 Declared services
 Taxable territory
 Rate of service tax
 Valuation of services
 Payment of service tax
 CENVAT Credit
Important Definition
 Service sec 65B(44)
 Service provider
 Service receiver
 Taxable service sec 65B(51)
 Non Taxable service
 Exempt Services
 Declared Services
 Tax
 Person
Objects of service tax
 To expand the scope of taxation
 To get more revenue
 To apply the principle of justice
 Huge public expenditure
 Rapidly growth in the service sector
 To take contribution for national

development
 Check on luxuries and inequality of wealth
Main Provision of service tax

 Imposition
 Taxable service
 Number of taxable services
 Rate of service tax
 Collection from service tax
 Applicability of service tax
 Value of taxable services for charging service tax
 No tax if service provided free
 Person who has to pay service tax
 When service tax shall be payable
Classification of services

 The services provided for valuable

consideration may be classified in the
following three categories
 Exempted Services or not taxable(negative

list)
 Declared services( Taxable after certain

abatement)
 Services fully TAxable
Procedure
Illustration:
Illustration
Illustration