Levy of Tax under Constitution prior to GST

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In reference to the taxation, we need to refer to Part XII of the Constitution of India relating to “Finance, Property, Contracts and Suits”. Therein, Article 265 states that no tax shall be levied or collected without the authority of law.  It is pertinent to mention that Article 265 makes distinction between levy and collection.  Thus, both the levy and the collection should be within the four corners of law.  In the case of Mafatlal Industries v UOI [1997 (089) ELT 0247 SC], it was held that `No tax’ takes in every type of tax. It was observed by the Hon’ble Court that `Taxation’ has been defined in Article 366 (28) to include the imposition of any tax or impost, whether general or local or special, and `tax’ shall be construed accordingly. Therefore, the word `tax’ will include any tax general, local or special. And it was held that every kind of tax direct or indirect will come within the ambit of Article 265. In the case of Hukam Chand v. Union of India [AIR 1972 SC 2427], hon’ble Apex Court held as under:

 

“The fact that the rules framed under the Act have to be laid before each House of Parliament would not confer validity on a rule if it is made not in conformity with Section 40 of the Act.”

 

Thus, act passed without authority of law is void. Further, Schedule VII divides this subject into three categories-

  1. a) Union list (only Central Government has power of legislation)
  2. b) State list (only State Government has power of legislation)
  3. c) Concurrent list (both Central and State Government can pass legislation).

 

Important Indirect taxes in India:

Name of the Levy Governing Act Entry in Constitution from which it derieves power Administering Body
Customs Duty Customs Act, 1962 Entry 83 to List I – (Union List) of Seventh Schedule to Constitution reads ‘Duties of customs including export duties’. CBEC
Excise Duty Central Excise Act, 1944 Entry 84 to List I – (Union List) of Seventh Schedule to Constitution reads ‘Duties of excise on tobacco and other goods manufactured or produced in India except—

(a) alcoholic liquors for human consumption.

(b) opium, Indian hemp and other narcotic drugs and narcotics,

but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. ’

CBEC
Service Tax Finance Act, 1994

 

Entry 97 to List I – (Union List) of Seventh Schedule to Constitution reads ‘Taxes on Services’. CBEC
Value Added Tax VAT Acts of respective states and UTs Entry No. 54

of List II (State List) of Seventh Schedule to Constitution reads ‘Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I’.

Commissioner, State
Central Sales Tax Central Sales Tax Act, 1956 Entry No. 92A

of List I (Union List) of Seventh Schedule to Constitution reads ‘Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce’.

CBEC
Entry Tax Entry Tax Acts of respective states and UTs wherever enacted Entry No. 52

of List II (State List) of Seventh Schedule to Constitution reads ‘Taxes on the entry of goods into a local area for consumption, use or sale therein’.

Commissioner, State
Luxury Tax Luxury tax Acts of respective states and UTs Entry No. 62

of List II (State List) of Seventh Schedule to Constitution reads ‘Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling’.

Commissioner, State
Entertainment Tax Entertainment tax Acts of respective states and UTs Entry No. 62

of List II (State List) of Seventh Schedule to Constitution reads ‘Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling’.

Commissioner, State

The gravity of multiple taxes can be captured in one go as under:

Levy of Tax under Constitution prior to GST

Some of the other important levies in present regime are as under:

Purchase tax:

Some of the States felt that they are getting substantial revenue from Purchase Tax and, therefore, it should not be subsumed under GST while majority of the States were of the view that no such exemptions should be given. The difficulties of the foodgrain producing States was appreciated as substantial revenue is being earned by them from Purchase Tax and it was, therefore, felt that in case Purchase Tax has to be subsumed then adequate and continuing compensation has to be provided to such States. This issue is being discussed in consultation with the Government of India.

Tax on items containing Alcohol:

Alcoholic beverages would be kept out of the purview of GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the existing practice. In case it has been made Vatable by some States, there is no objection to that. Excise Duty, which is presently levied by the States may not also be affected.

Tax on Tobacco products:

Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST with ITC.

Tax on Petroleum Products:

As far as petroleum products are concerned, it was decided that the basket of petroleum products, i.e. crude, motor spirit (including ATF) and HSD would be kept outside GST as is the prevailing practice in India. Sales Tax could continue to be levied by the States on these products with prevailing floor rate. Similarly, Centre could also continue its levies. A final view whether Natural Gas should be kept outside the GST will be taken after further deliberations.

Taxation of Services:

As indicated earlier, both the Centre and the States will have concurrent power to levy tax on goods and services. In the case of States, the principle for taxation of intra-State and inter-State has already been formulated by the Working Group of Principal Secretaries/Secretaries of Finance / Taxation and Commissioners of Trade Taxes with senior representatives of Department of Revenue, Government of India. For inter-State transactions an innovative model of Integrated GST will be adopted by appropriately aligning and integrating CGST and IGST.

It further provides that the various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:

  1. Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.
  2. Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.
  3. The subsumation should result in free flow of tax credit in intra and inter-State levels.
  4. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.
  5. Revenue fairness for both the Union and the States individually would need to be attempted.

Nature of Taxes and their governing laws

  1. Customs Duty: Customs Duty is a levy of duty on Imports as well as exports. This governs all the imports and exports in or out of the country. Customs Duty is governed by Customs Act, 1962, Customs Tariff Act, 1975 and corresponding Rules. The said Statutes are explained and discussed as under:
    • Customs Act, 1962
    • Customs Tariff Act, 1975
    • Rules Under Customs Act – Major among these are :
      • Customs Valuation Rules, 1988 : for valuation of imported goods for calculating duty payable;
      • Customs and Central Excise Duties Drawback Rules, 1995 : mode of calculating rates of duty drawback on exports; Baggage Rules, 1998 : rules and allowances for bringing in baggage\ from abroad by Indians and tourists;
      • Customs (Import of goods at concessional rate of duty for manufacture of excisable goods) Rules, 1996 : provides procedure to be followed when goods are imported for export purposes;
      • Rules regarding notified goods, specified goods
      • Rule regarding determination of additional duty for dumping, determination of origin of goods etc.
  2. Excise Duty: Excise Duty is levied on certain goods for their production or sale catering or on licenses on specific services and activities. Excise duty is an inland tax unlike custom duties is an inland tax. Also this duty charges are a form of indirect tax. Indirect taxes are generally collected by a retail store or an intermediary body from the person who ultimately bears the responsibility of paying the tax as a consumer. The producer of the goods then pays this tax to the government. This amount is excise of the VAT (Value Added Tax) and sales tax that is charged to the consumers when purchasing a good. The tax is however, collected by the Government when the good are being removed from the factory and dispatch. The governing laws for the excise duty are given as under:
    • Central Excise Act, 1944
    • Central Excise Tariff Act, 1985
    • Additional Duties of Excise (Textiles and Textile Articles) Act, 1975
    • The Additional Duties of Excise (Goods of Special Importance) Act, 1957
    • Rules under Central Excise Act: Major among these are:
      • Central Excise Rules, 2002
      • Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000
  3. Service Tax: Service tax is a tax levied by Central Government of India on services provided or to be provided excluding services covered under negative list and considering the Place of Provision of Services Rules, 2012 and collected as per Point of Taxation Rules, 2011 from the person liable to pay service tax. Person liable to pay service tax is governed by Service Tax Rules, 1994 he may be service provider or service receiver or any other person made so liable. It is an indirect tax wherein the service provider collects the tax on services from service receiver and pays the same to government of India. Few services are presently exempt in public interest via Mega Exemption Notification 25/2012-ST as amended up to date & few services are charged service tax at abated rate as per Notification No. 26/2012-ST as amended up to date. Presently from 1 June 2016, service tax rate has been increased to consolidated rate @ 15% of value of services provided or to be provided. The service tax rate now is consolidated rate as education cess & secondary higher education cess are subsumed with 2% of “Swachh Bharat Cess(0.50%)” has been notified by the Government. From November 15, 2015, the effective rate of service tax plus Swachh Bharat Cess, post introduction of Swachh Bharat Cess, was 14.5%. Currently, Swachh Bharat Cess and Krishi Kalyan Cess would also be levied on all services on which Service Tax is being levied. And therefore, the Service Tax (incl. Swachh Bharat Cess and Krishi Kalyan Cess) applicable from June 1, 2016 has become 15%. The governing laws for the service tax are given as under:
    • Finance Act, 1994
    • Rules under Service Tax: Major among these are:
      • Service Tax Rules, 1994
      • Service Tax (Determination of Value) Rules, 2006
      • Place of Provision of Service Rules, 2012
      • Point of Taxation Rules, 2011
  4. Value Added Tax: Value-added taxation in India was introduced as an indirect value added tax (VAT) into the Indian taxation system from April 1, 2005. The existing general sales tax laws were replaced with the Value Added Tax Act (2005) and associated VAT rules. A few states (Gujarat, Rajasthan, MadhyaPradesh, Chhattisgarh, Jharkhand, Uttarakhand and Uttar Pradesh) opted to stay out of VAT taxation system during the initial introduction of VAT but adopted it later.) As of 2 June 2014, VAT has been implemented in all the states and union territories of India except Andaman and Nicobar Islands and Lakshadweep Island. The governing laws for various states as applicable under VAT are given as under:
    • Andhra Pradesh Value Added Tax Act, 2005
    • Arunachal Pradesh, 2005
    • Assam Value Added Tax Act, 2003
    • Bihar Value Added Tax Act, 2005
    • Chhattisgarh Value Added Tax Act, 2003
    • Delhi Value Added Tax Act, 2004
    • Goa Value Added Tax Act, 2003
    • Gujarat Value Added Tax Act, 2003
    • Haryana Value Added Tax Act, 2003
    • Himachal Pradesh Value Added Tax Act, 2005
    • Jammu & Kashmir Value Added Tax Act, 2005
    • Jharkhand Value Added Tax Act, 2005
    • Karnataka Value Added Tax Act, 2005
    • Kerala Value Added Tax Act, 2003
    • Madhya Pradesh Value Added Tax Act, 2002
    • Maharashtra Value Added Tax Act, 2005
    • Manipur Value Added Tax Act, 2005
    • Meghalaya Value Added Tax Act, 2003
    • Mizoram Value Added Tax Act, 2005
    • Nagaland Value Added Tax Act, 2005
    • Orissa Value Added Tax Act, 2003
    • Punjab Value Added Tax Act, 2005
    • Sikkim Value Added Tax Act, 2005
    • Tamil Nadu Value Added Tax Act, 2006
    • Tripura Value Added Tax Act, 2004
    • Uttar Pradesh Value Added Tax Act, 2007
    • Uttarakhand Value Added Tax Act, 2005
    • West Bengal Value Added Tax Act, 2003
  5. Central Sales Tax: The Central Sales Tax(CST) is a levy of tax on sales, which are effected in the course of inter-State trade or commerce. According to the Constitution of India, no State can levy sales tax on any sales or purchase of goods that takes place in the course of interstate trade or commerce. The governing laws for the central sales tax are given as under:
    • Central Sales Tax Act, 1956
    • Central Sales Tax Rules, 1957
  6. Entry Tax: Entry Taxis a tax imposed by the state governments in India. It is levied on movement of the goods from one state to into another and is levied by the recipient state to protect their tax base. The governing laws for the entry tax under certain states are given as under:
    • Uttar Pradesh Entry Tax Act, 2008
    • Himachal Pradesh Entry Tax Act, 2010
    • Rajasthan Entry Tax Act, 1999
    • West Bengal Entry Tax Act, 2012
    • Tamil Nadu Entry Tax Act, 2001
    • Odisha Entry Tax Act, 1999
    • Goa Entry Tax Act, 2000
    • Assam Entry Tax Act, 2008
  7. Luxury Tax: A luxury taxis a tax on luxury goods: products not considered essential. A luxury tax may be modeled after a sales tax or VAT, charged as a percentage on all items of particular classes, except that it mainly affects the wealthy because the wealthy are the most likely to buy luxuries such as expensive cars, jewelry, etc. The governing laws for the luxury tax under certain states are given as under:
    • Tamil Nadu Tax on Luxuries Act, 1981
    • Karnataka Tax on Luxuries Act, 1979
    • Haryana Tax on Luxuries Act, 2007
    • Kerala Tax on Luxuries Act, 1976
    • Goa Tax on Luxuries Act, 1988
    • Delhi Tax on Luxuries Act, 1996
    • Rajasthan Tax on Luxuries Act, 1990
    • Jharkand Luxury Tax Act, 2011
  8. Entertainment Tax: Entertainment Taxis a tax imposed by the government on feature films getting a wide release in India and are reduced from gross collections, major commercial shows and big private festivals. The governing laws for the entertainment tax under certain states are given as under:
    • Maharashtra Entertainment Duty Act, 1923
    • Madhya Pradesh Entertainmentduty and Advertisement tax Act 1936
    • Karnataka Entertainment Tax Act, 1958
    • Delhi Entertainmentand Betting Tax Act and Rules 1996
    • UttarPradesh Entertainments and Betting Tax (Amendment) Act, 1965
    • Punjab EntertainmentDuty Act, 1955
    • West Bengal Entertainment-Cum-Amusement Tax Act, 1982
    • Gujarat Entertainments Tax Act, 1977
    • Andhra Pradesh Entertainment Tax Act, 1939

Levy of major indirect taxes currently on different class of transactions:

Levy of major indirect taxes currently on different class of transactions
Levy of major indirect taxes currently on different class of transactions

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