NOTE ON INDIRECT TAXES:
CUSTOMS; EXCISE; SALES TAX(VAT) & SERVICE TAX
CONTENTS
Introduction to Indirect taxes: Customs, Excise, Sales tax and Service Tax: Authority to levy;
Concept of 'Goods', 'Manufacture', 'Sale', 'Import', 'Export', 'Service'; Taxable event.
SYNOPSIS
Concept of Indirect taxes - overview - Authority to levy taxes - Article 265 of the Constitution of
India - Power to levy - 7th Schedule List, I, II & III of the Constitution - Entries 83, 84, 92A & B
and 92C of List I (Union List) - Entry 54 of List II (State List) - Concept of Goods - Sale of
Goods Act & General Clauses Act - Movables - Immovables - Concept of Excisable Goods Marketability an essential condition - Concept of Manufacture - Emergence of goods with
distinct name, character and use - Concept of Import - Entry into the territory of India - Concept
of goods and imported goods under Customs Law - Home Consumption - Concept of Sale Inter-State Sale - Inter State trade and Commerce, Concept of Service - Service provider; Taxable event in each type of indirect tax - What is "in India" - Concept of relevant date Distinction between taxable event, time to pay and relevant date.
SOURCE REFERENCE / CITATIONS
NOTES / REMARKS
*Constitution of India *Sale of Goods Act *General Clauses Act
*Territorial Waters, Continental Shelf, Exclusive Economic Zones
& Other Maritime Zones Act *Central Sales Tax Act *Customs Act
*Central Excises Act *Finance Act 1994 & subsequent Finance Acts
CITATIONS:
ECR C.640(SC)
1986 (25)ELT 580 (TR)
1987 (32)ELT 343 (AP)
1989 (40)ELT 280 (SC)
1989 (42)ELT 513 (SC)
1999(112)ELT 3 (SC)
1998 (97)ELT 3 (SC)
1998 (98)ELT 14 (GUJ)
2000(116)ELT 401 (SC)
1998 (98)ELT 199 (SC)
2000(120)ELT 273 (SC)
: re. Manufacture
: re. Excisable goods
: re. Taxable event - Excise
: re. Marketability - Excise
: re. Taxable event - Sales Tax
: re. Taxable event - Imports
: re. Dutiability of manufacture at site
: re. Service tax validity
: Unjust enrichment - Refunds
: Ministers Speech is not a promise &
is not binding
: Dutiability of manufacture at site
NARRATIVE
1.
TIT BITS
CONCEPT
In India major indirect taxes are - Customs,
Escise, Sales tax(vat)and Service Tax.
 Customs is on goods imported or exported
into or out of India.
 Excise is on goods manufactured in India.
 Sales tax (vat)is on goods bought/sold in
India.
 Service Tax is on value of specified services
provided in India OR PROVIDED
ABROAD BUT CLAIMED AS EXPENSE
IN INDIA
2.
AUTHORITY TO LEVY TAX
i.
Article 265 of the Constitution of India
states "NO TAX SHALL BE LEVIED
OR COLLECTED EXCEPT BY
AUTHORITY OF LAW"
ii.
The Seventh Schedule to the
Constitution, contains 3 "LISTS"
known as:
UNION LIST
(LIST I)
STATE LIST
(LIST II)
CONCURRENT LIST(LIST III)
(97 subjects)
(66 subjects)
(47 subjects)
List I contains subjects (known as "entries")
over which only the Union Parliament can
legislate upon. List II contains subjects
over which only the States can legislate
upon. Entries in List III are those subjects
over which both the Union Parliament and
also the States can legislate upon.
iii.
The entries relevant to Customs, Excise,
Sales tax and Service tax are:(List I)
83 Duties of Customs.....
84 Duties of Excise.........
92A- Tax on Inter-State Sales
92C- Services tax
97 Any other matter not enumer-ated
in List II or III including any tax not
mentioned in either of those lists.
(List II)
8Intoxicating liquors.....
46Tax on Agricultural income
54Tax on Intra-State Sales
60Taxes on Professions, Callings..
iv.
By virtue of the above entries, the
Union Parliament & State Legislatures
derive their power to levy the said taxes
respectively.
0806
The Arthasastra of Kautilya contains detailed and
elaborate provisions of various direct & indirect
taxes. In the Chapter "TREASURY, SOURCES OF
REVENUE, BUDGET, ACCOUNTS AND AUDIT"
the Sources of revenue are listed.
They are from:
 Crown agricultural lands
 Mining & Metallurgy
 Animal Husbandry
 Irrigation Works
 Forests
 Manufacture of textiles; Salt, Alcoholic liquor
 Leisure activities - Courtesans, Prostitutes &
entertainers
 Betting and gambling
 Customs duties
 Octroi & gate tolls
 Transaction tax
 Tax on butchers
 Countervailing duties
 Road cess
 Monopoly tax
 Royalties
 Army Maintenance tax
 Tax in kind by villages
 Surcharges
 Passport fees
 Stamping fees
 Port dues
 Land survey charges
 Testing fee
 Excort charges
 Ferry tax
 Weights & Measures tax etc.
In fact, in Sub-Chapter "ACCOUNTS" a
complicated form of accounts containing 10 columns
for Income, 13 columns for Expenditure and 9
columns for Balances have been prescribed. 7 types
of punishments are also prescribed if accounts are
not maintained in the said format. (See Annexure).
(Penguin Classics - English - Kautilya- The
Arthasastra by L.N.Rangarajan - 1987 Rs.150 pp
868)
From the various provisions as to violations &
penalties etc, we may derive perverse satisfaction
that our fore-fathers also faced similar problems we
face today.
NARRATIVE
TIT BITS
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3.
CHARGING STATUTES
GROUCHO MARX was once arrested for nonpayment of income tax. When the Judge
observed why a rich man like Groucho should
not pay tax with a smile, Groucho replied, "I did
try to pay the tax with a smile but they insist on
cash payment".
i.
Levy and Collection of the taxes are
exercised through the Statutes called
'Acts'. Statutes also specify the
maximum rates called "tariff rates".
They also confer the required powers to
the tax-collecting authorities (the Two things are certain in this world:
executive) to prescribe the procedures Death and taxes.
of collection, refund, exemption,
- BENJAMIN FRANKLIN
penalty, appeal etc.
ii.
Such authorities (normally called the
'Department') frame the necessary rules
& regulations of procedures. They also
issue directions, clarifications and
amendments through 'Notifications',
'Circulars' etc.
When goods at the time of "taxable event" were
wholly exempt from duty, are they chargeable
to duty if any, at the "relevant time" for payment
? This was a controversial issue. But it is now a
well settled law through Supreme Court
Judgements.
iii.
Down the line, the implementing fieldauthorities (known as Commissionerate,
Range, Circle etc) issue "Trade
Notices", "Public Notices" etc, giving
specific procedures or clarifications
appropriate to their jurisdiction.
In the case of Customs duty on imports, duty
shall be at the rates prevailing as on the date of
Bill of Entry or "entry inwards" whichever is
later, when the Bill of Entry is for "home
consumption", even if they were wholly exempt
at the time of entry into Indian territory.
iv.
The principal enactments regarding the
In the case of Excise, the duty shall be as on the
indirect taxes are the
date of clearance or removal of the goods from
* Customs Act;
the place of manufacture, even if the goods at
* Customs Tariff Act;
* Central Excises Act;
the time of manufacture (ie. Taxable event)
* Central Excise Tariff Act;
were wholly exempt.
* Central Sales Tax Act;
* General Sales Tax /VAT Acts of each State;
* Finance Acts since 1994 regarding Service Tax
v.
vi.
-
-
In the case of "Sale on approval or return", the
Sales tax chargeable will be as on the date of
In addition to the above there are change of ownership (ie. Title) and not as on the
several other enactments levying similar date of despatch or delivery.
types of taxes.
In the case of "deemed sale" contracts such as
The same goods can attract different Works Contract, the relevant date is the date of
types of Customs duty / Excise duty / appropriation of goods towards the contract.
Sales tax etc. For example - Imported goods can attract "Basic In India there is a practical difficulty in
Customs Duty", "Additional duty of implementation of a full fledged Value Added
Customs" & "Special Additional Tax (VAT) system. This is so, due to Sales tax
Customs Duties", "Surcharge" etc. being a State subject while Central Excise is a
(besides these, 'Anti-dumping duty', Union Subject. From 1.4.2003 many States
'Counterveiling duty' & 'Safeguard duty' have implemented VAT for sales tax. Already,
can also be there as per WTO norms).
the Central Govt. has implemented VAT for
Goods manufactured may attract "Basic Central Excise purposes called "CENVAT"
Excise Duty", "Special Excise duty", (and also for Service Tax)
"Additional Excise duties" etc.
Similarly there can be Sales tax,
Purchase tax, Surcharge on Sales tax,
Turnover Tax, Additional Sales tax etc.
NARRATIVE
TIT BITS
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1204
4.
GOODS
i.
Only "goods" attract Customs or Excise
or Sales tax depending on the nature of
event ie. 'Imports' or 'Exports',
'Manufacture', 'Sale' etc.
ii.
There are several interesting aspects regarding
"territory", "territorial Waters", "Exclusive Economic
Zone" etc. To understand these correctly one has to
refer to provisions of several conventions, codes,
agreements etc.
Eg: UN Convention on the Law of the Sea.
The word 'goods' has to be understood
International Sea bed Treaty.
with reference to each type of tax, as
Conventions on Territorial Sea and Contiguous
per the provisions of that Act.
Zone, the High Seas, the Continental Shelf,
For example:Exclusive Economic Zones, Sovereignty over
the Air etc.
According to the Customs Act, Sec. 2(22),
"Goods" includes Some of the interesting but not much known facts:
a) Vessels, Aircrafts and Vehicles;
- India has been accorded 'pioneer status' in seab) Stores;
bed mining.
c) Baggage;
d) Currency & negotiable instruments; &
- India has been allocated 1,50,000 square
e) Any other kind of moveable property.
kilometers in the Sea-bed of Central Indian
This definition is applicable only for
Customs duty purposes on imports & exports.
-
iii.
iv.
Since 'goods' are not defined in the
Central Excise enactment, the definition
given in the Sale of Goods Act is
applicable
for
excise
purposes.
According to Sale of Goods Act, Sec.
2(7) "Goods" means every kind of
moveable property other than actionable
claims & money; and includes stocks &
shares, growing crops, grass & things
attached to or forming part of the land
which are agreed to be severed before
sale or under the contract of Sale.
-
The General Clauses Act, 1897 Sec.
2(36) states "moveable property" shall mean
property of every description except
immoveable property.
The same Act Sec. 2(26) defines
immoveable property:"immoveable property" shall include
land, benefit to arise out of land, and
things attached to earth, or permanently
fastened to any thing attached to earth.
v.
-
Thus it may be seen that while 'currency
and negotiable instruments' are 'goods'
for Customs duty purposes, they are not
goods for the purposes of Excise levy or
Sales tax.
Ocean and Indian Claim has been registered in
1987.
Each pioneer is required to pay $2,50,000 fee to
the Preparatory Commission for registration.
Each pioneer should pay $2,50,000 to the
International Sea-Bed authority for mining
contract + $ 1 million a year from the year of
approval.
The Sea-bed allotted to India contains 3,000
billion tonnes of 'potato' nodules containing
copper, nickel, cobalt, zinc, lead, vanadium etc.
India can become an exporter of these metals by
mining our allocated area.
Some of the areas of the sea allocated to India
contain 21 kg of nodules per square metre.
These nodules are at an average depth of 3000 6000 metres.
(Source: International Law by Dr. S.K. Kapoor Central Law Agency 8th Edition. 1990 Rs.110/pp 832; The International Law of the Sea Progress Publishers, Moscow, 1988 ISBN 5-01000454-2 pp 255; Public International Law by
M.P. Tandon - Allahabad Law Agency, 11th
Edition. 1991, Rs.90/- pp 474).
According to our Territorial Waters, Continental
Shelf, Exclusive Economic Zone & Other Maritime
Zones Act, 1976, the territorial waters extend to 12
nautical miles in the sea. Our Exclusive Economic
Zone extends to 200 nautical miles. Hence any
exploration activity, eg. Oil drilling, outside 12
nautical miles is technically not in Indian Territory.
However, once we have erected an installation in this
Exclusive Economic Zone, Ministry of External
Affairs (MEA) can issue a gazette notification
declaring such installation & 500 metres around it as
part of our territory. This is permitted under Article
5.3 of the Territorial Sea & The Contiguous Zones of
U.N. Convention dt. 10.9.1964 (Source: Basic
Documents in International Law: OXFORD-4th Edn.
By Ian Brownlie ISBN 0-19-876381 - 6)
NARRATIVE
TIT BITS
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0806
5.
TAXABLE GOODS & TAXABLE EVENT
i.
Not all "goods" are taxable. They have
to be 'specified' goods ie., specified to
levy of tax under each statute. Further
they are charge-able to tax only on the
happening of an 'event' specified in the
relevant statute.
ii.
iv.
v.
vi.
i.
incidental or ancillary to the completion
of a manufactured product, and
ii.
which is specified in relation to any
goods in the Section or Chapter notes of
the Schedule to the Central Excise
Tariff Act, 1985 (5 of 1985) as
amounting to manufacture,
The 'taxable events' are as follows:
-
iii.
Section 2 (f) of Central Excise Act defines
"manufacture" as follows:
"manufacture" includes any process,-
"Import" or "Export" for Customs
"Manufacture" or "Production" for Excise
"Sale" or "Deemed Sale" for Sales tax
rendering of service for service tax
and the word "manufacture" shall be construed
accordingly and shall include not only a person
who employs hired labour in the production or
manufacture of excisable goods, but also any
person who engages in their production or
manufacture on his own account;
To attract tax, the goods should be
'Specified goods' in the respective tariff.
For example "Electrical Energy" are
"goods" but not "excisable goods" as
they are not specified in the Central
Excise Tariff.
It would be useful to know the exact text of the
'entries' regarding the indirect taxes in the
To know whether a particular item is Seventh Schedule to the Constitution of India.
specified goods or not, one should be
thorough with the appropriate tariff LIST I - UNION LIST
classification.
ENTRY
83 Duties of Customs including export duties.
Customs duties can be charged only on 84 Duties of Excise on tobacco & other goods
goods imported or exported. The
manufactured or produced in India excepttaxable event is "Import" or "Export".
a) alcoholic
liquors
for
human
Import or Export is said to happen when
consumption;
the goods enter into or exit out of India.
b) opium, Indian hemp & other narcotic
For Eg. Customs Act, Sec. 2(25) states drugs and narcotics,
"Imported goods" means any goods brought
but including medicinal and toilet
into India from a place outside India but
preparations containing alcohol or any
does not include goods which have been
substance included in sub-paragraph (b)
cleared for home consumption;
of this entry.
Excise duty can be charged only on
'excisable goods', 'manufactured' in
India. Thus the taxable event is
'manufacture'. The word "manufacture"
has been ill defined in the Central
Excise Act. Courts have held that
'manufacture' does not mean mere
processing
but
emergence
of
'excisable goods' with distinct name,
character and use different from that
of the goods used as inputs; also they
should be capable of being bought
and sold.
ENTRY
92A Taxes on the sale or purchase of goods other
than newspapers, where such sale or
purchase takes place in the course of interState trade or Commerce.
92B Taxes on the consignment of goods
(whether the consignment is to the person
making it or to any other person), where
such consignment takes place in the course
of inter-State trade or commerce.
97 Any other matter not enumerated in List II
or List III including any tax not mentioned
in either of those lists.
NARRATIVE
TIT BITS
Page of 11
0806
In certain instances "upgradation" does not LIST II - STATE LIST
amount to "manufacture" though what goes ENTRY
in is distinctly different from what comes 51 Duties of Excise on the following goods
out. For example, upgradation of Computer
manufactured or produced in the State and
does not amount to manufacture of a new
countervailing duties at the same or lower
Computer vide CBEC circular 454/20/99 rates on similar goods manufactured or
CX dt. 12.4.1999.
produced elsewhere in India :Under Central Excise "manufacture"
includes any process specified in any
Section or Chapter Note of Excise Tariff as
"amounting to manufacture". For example
under Note 5 of Chapter 30 of the Central
Excise Tariff, for goods falling under 30.03,
even labeling or re-labeling container
intended for consumer and re-packing bulk
to retail packs shall amount to manufacture.
a) alcoholic
liquors
for
human
consumption;
b) opium, Indian hemp & other narcotic
drugs and narcotics,
but including medicinal and toilet
preparations containing alcohol or any
substance included in sub-paragraph (b)
of this entry.
54 Taxes on the sale or purchase of goods other
"Marketability" is yet another criteria to
than newspapers, subject to the provisions
determine excisable goods. For example
of Entry 92-A of List I.
molten sulphur, reformer-gas are not
excisable goods. They have only transient RATE OF TAX
The rate of tax in each type of tax
life and are not capable of being bought and i.
depends upon the 'relevant date' for
sold as such.
determination of the rate of tax.
Similarly emergence of an item as a part &
Under the respective enactments
parcel of immovable property cannot be ii.
'relevant dates' are specified for each
subject to excise. For example, component
type of transaction. For example:
parts of a lift are excisable goods when
manufactured. But 'lift' itself is not
Relevant date for imports for home
excisable since it comes into existence as a
consumption is the date of filing the Bill of
part of immovable property, namely a
Entry or "entry inwards" whichever is later.
building.
For warehoused imports, the relevant date is
the date of physical removal of the goods
There has been a controversial decision in
from the warehouse.
regard to Plant & Machinery at site arising
out of a Supreme Court decision in Sirpur
Relevant date for excise duty is the date on
Paper Mills case [1998 (97) ELT 3 (SC)] &
which goods are removed or cleared from
Triveni Engineering & Industries case
the factory).
[2000 (120) ELT 273 (SC)]
Relevant date for Sales Tax is "sale" ie., the
vii.
Sales tax/VAT is chargeable on goods
time of passing of the title or ownership
only when a 'sale' takes place. Transfer
from the buyer to the seller. In the case of
of title ie., change in ownership, is the
goods forming part of a 'Works Contract',
essential aspect of a sale. Thus transfer
the relevant date is the date of "deemed
of goods from one branch to another
sale" ie., when the goods are appropriated
does not attract Sales tax. Similarly
into the works contract.
there cannot be sales tax on goods given
to a job-worker for processing and
return. State Sales tax is chargeable on
sales within a State while Central Sales
tax is chargeable for Inter-State sale.
However it should be noted that by 46 th Amendment to the Constitution of India, the concept of
"deemed sale" has been incorporated. This brings into the ambit of sales tax, transactions which
are not strictly "sale". (Eg. Lease, hire, stock transfer, works contract etc.)
But in all these cases, the tax can be only on the value of goods.
NARRATIVE
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0806
6.
SERVICES:
Tax on Services rendered in India was introduced by Finance Act, 1994 and each year the types of
taxable services have been expanding. An uniform rate of 5% was in vogue on all types of taxable
services to start with. The service provider is the assessee for this tax except in a few specified
cases. It is permitted to be recovered from the service user by the service provider. The rates are
revised UPWARDS EACH YEAR with facility of CENVAT credit from Sept 2004.
7.
COLLECTION AUTHORITIES
i.
Customs, Central Excise & Service tax is collected by the officials of Central Excise &
Customs of the Department of Revenue, Ministry of Finance of the Union Government.
Central Board of Excise & Customs (CBEC) is the administrative authority.
8.
ii.
Intra-State Sales tax /VAT are collected by the Sales tax authorities of the States.
iii.
Inter-State Sales tax (CST) are also collected by the same State Sales tax authorities
(through delegated legislation) from where the goods are sold.
TIME TO PAY TAX
i.
Whatever be the 'taxable event', the time to pay the tax is different in each type of tax. The
respective enactments specify the time of payment of tax.
ii.
Customs duty on imports is payable at the time of taking delivery after the completion of
"Assessment" for home consumption. "Assessment" is defined in the Customs Act,
Sec.2(2):
"assessment" includes provisional assessment, re-assessment and any order of assessment in
which the duty assessed is nil;
In other words 'assessment' means determination of duty including 'nil' duty.
9.
iii.
Excise duty is payable on 5th of each month on removal or 'clearance' in the earlier month,
of the manufactured goods from the place of manufacture. This includes captive
consumption or use also.
iv.
Sales tax is payable on or before a 'specified date' in a month for the sales effected in the
preceding month. The 'specified date' is determined by the State Governments. (Normally
20th of each month)
v.
Service Tax is payable monthly or quarterly as specified only on cash collection basis
OVERVIEW OF INDIRECT TAXES
TYPE OF
TAX 
Tax Is On
Specified
Taxable
Event
CENTRAL
EXCISE
SALES
TAX / VAT
SERVICE
TAX
IMPORTS
(CUSTOMS)
EXPORTS
CUSTOMS)
Goods
Goods
Services
Goods
Goods
Manufacture
Sale (Or
Deemed Sale)
Rendering
Service
Import
Export
Specified Time
By The States
Quarterly/
monthly as
Specified
Clearance For "Home
Consumption"
"Let Export"
As on date of
sale or deemed
sale
As per
Finance
Act
As on date of Bill of
Entry or "Entry Inward"
whichever is later
As on date of
export
5th
Time Of
Payment
Rate
of
Tax
10.
of each
month except
March (31st
March)
As at the time
of clearance
from place of
manufacture
CONCLUSION
Each type of indirect tax should be understood with reference to the specific enactments. The
essential feature of dealing with indirect taxes be any one should be that of strict compliance with
the statutory requirements. The tendency to look for loopholes for avoidance or circumventing the
tax should be avoided. The motto should be 'Not a paise more, not a paise less'.
0806
VALUE ADDED TAX (VAT)
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1. Almost all the countries in the world charge tax on sale or purchase of goods and services.
Only the terminologies differ eg. Transaction Tax, Consumption Tax, Sales Tax, Purchase
Tax, Services Tax etc. The principle behind this taxation is that the burden is ultimately on
the consumer. Since the tax is not collected by the Government directly from the consumer,
it is termed "indirect tax". ie., Government gets the tax through an "intermediary" (typically
a manufacturer or trader) who charges the tax to the ultimate consumer.
2. The same product may be sold several times, commencing from the manufacturer / importer
to the ultimate consumer through wholesalers, distributors, retailers etc. who are
intermediaries in the chain. Obviously each of the intermediary will add his margin (called
"value addition").
3. If tax is charged on each sale of the same product at each stage, then this will lead to
"cascadence" of tax (tax on tax again). The following is the example:
Cost of product
Margin
Price
Tax @ 10%
Price to buyer
Manufacturer
(A)
1000
500
1500
150
1650
Distributor
(B)
1650
350
2000
200
2200
Wholesaler
(C)
2200
300
2500
250
2750
Retailer
(D)
2750
250
3000
300
3300
Consumer
(E)
3300
4. In the above example the total tax ultimately borne by the consumer is Rs.900 (150 + 200 +
250 + 300) on a total product value (including margins of Rs.2400. Much worse is that the
consumer really does not know that the product has suffered a total tax of Rs.900.
5. It will also be noticed in the given example that out of Rs.900 tax, only Rs.240 (10% of
Rs.2400) belongs to the value of goods + value addition. Out of the balance Rs.660, the tax
on tax already paid Rs.110 as follows:
10 % of Rs.150 in B
10 % of Rs.350 in C
10 % of Rs.600 in D
15
35
60
110
Another Rs.550 is tax on the value of goods already charged to tax.
6. From the economist's point of view this cascadence is not desirable. In all fairness value of
an item taxed once should not be charged to tax again excepting the value added portion
which has not suffered tax yet.
7. This is the background of introduction of a system called "Value Added Tax" known as
VAT. Under this system at each stage of transaction, only the value addition in the
transaction is taxed in effect. However, to protect the confidentiality of the value addition
(margin), the method adopted is that of "Input Tax Reimbursement System". Under this
methodology, the consumer will know what is the exact 'tax' element of his purchase but will
not know the value additions (margins) built in the earlier stages by the 'intermediaries'.
8. Illustration of VAT:
Manufacturer
(A)
Distributor
(B)
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Wholesaler
(C)
Retailer
(D)
Consumer
(E)
Input Cost
Profit Margin
Total Cost
Less:
Input Tax Credit
Net Price
Tax @ 10%
Gross Price
1000
500
1500
1650
350
2000
2035
300
2335
2365
250
2615
NA
1500
150
1650
150
1850
185
2035
185
2150
215
2365
215
2400
240
2640
2640
Under the above example it will be found that at each stage, the seller "reimburses" himself
to the extent of "input tax" suffered by him and only the balance is given to the government.
Thus the government gets a total tax of Rs.240 as follows:
From
From
From
From
A
B (185 – 150)
C (215 – 185)
D (240 – 215)
Total
Rs. 150
Rs. 35
Rs. 30
Rs. 25
Rs. 240
In the above method, the ultimate consumer "E" knows that the total product value is
Rs.2400 and tax on the same is Rs.240/-. He does not know the margins built by each earlier
seller.
9. This VAT system is prevalent in more than 150 countries. In India, as per our constitution,
sales tax is a "State" subject and not a "Union" subject. Each "State" has to legislate VAT
law and implement the same. Further, as per our constitution, tax on 'inter-state' sales
belongs to the State from which the goods originate. This means that the State to which the
goods are sent cannot extend VAT credit to the buyer as the tax has been collected by the
originating State.
10. Consequently the problem of implementation of VAT in India has become a legal nightmare. However, many States have already implemented VAT. There are also steps
afoot to eliminate (bring zero tax) tax on inter-state sales. As this means loss of revenue
to the States from which the goods originate, Central Government is grappling with this
as to the means of compensating the same. .
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