R. Kumar, B.Com. MBA
Government needs funds for various purposes like maintenance of law and order, defence, social & health services etc. Government obtains funds from various sources, out for which one main source is taxation. Taxes are conventionally broadly classified as Direct Taxes and Indirect Taxes. In the case of indirect taxes, they are paid by one person, but he recovers the same from another person. Thus, the person who actually bears the tax burden (the ultimate ‘consumer’) pays it indirectly through some other person, who practically, merely acts as collecting agents.
Indirect Taxation under Constitution:-
In the basic scheme of taxation of India, it is envisaged that (a) Central Government will get tax revenue from Income Tax (except on Agricultural Income), Excise (except on alcoholic drinks) and Customs (b) State Government will get tax revenue from sales tax, excise on liquor and tax on Agriculture Income (c) Municipalities will get tax revenue from octori and house property tax. Income Tax, Central Excise and Customs are administered by Central Government. As regards sales tax, Central Sales Tax is levied by Central Government while State Sales Tax is levied by individual State Governments. Through Central Sales Tax is levied by Central Government, it is administered by State Governments and tax collected in each State is retained by that State Government itself.
Article 246(1) of Constitution of India states that Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to Constitution. As per Article 246(3), State Government has exclusive powers to make laws for State with respect to any matter enumerated in List II of Seventh Schedule to Constitution.
Seventh Schedule to Constitution (referred to in Article 246) indicates bifurcation of powers to make laws, between Union Government and State Governments. Parliament has exclusive powers to make laws in respectof matters given in list I of the Seventh Schedule of the Constituion (Called ‘Union List’). List II (State List) contains entries under jurisdiction of States. List III (concurrent list) contains entries where both Union and state Governments can exercise power.
Constitution of India has given powers to Central Government and State Government to levy various taxes and duties. Powers of Central and State Government are enlisted in Seventh Schedule to our Constitution: Entry No. 84 of list 1 of Seventh Schedule to the Constitution read as follows: “Duties of excise on tobacco and other goods manufactured or produced in India, except alcoholic liquors for human consumption, opium, narcotics, but including medical and toilet preparations containing alcohol, opium or narcotics”.
The Article 265 of the Constitution states that “no tax shall be levied or collected except by authority of law”. Article 300A of the Constitution states that “no person shall be deprived of its property save by authority of law”. The effect of these provisions is that any taxation which is found to be beyond the power of Law is illegal and Government has no authority to levy that tax. If any amount is collected under a law which is found to be illegal, Government cannot retain such amount and must repay such illegally collected tax. Thus, whenever it has been found that Govt. has collected tax without proper authority of law, courts have held that the illegally collected taxes must be refunded, subject to provisions of ‘Unjust Enrichment’ in respect of Indirect Taxes.
Excise & Custom (Interim Budget 2014):-
In the Interim Budget 2014 presented by the finance minister, excise duty rates were reduced from 12 per cent to 10 per cent on most machinery, equipment, appliances, etc, and parts thereof under chapters 84 and 85 of the Central Excise Tariff. Other existing duty concessions, by way of tariff entry or notifications, continue to be available. The excise duties on small cars, motor cycles, scooters, commercial vehicles (CVs) and trailers have been reduced from 12 to eight per cent and on sports utility vehicles from 30 to 24 per cent. Those on large and mid-segment cars have been reduced from 27 and 24 per cent, respectively, to 24 and 20 per cent. In line with the duty reduction on commercial vehicles (CVs), the duty on chassis was reduced appropriately. Duty has also been reduced on hybrid motor vehicles and hydrogen vehicles. The existing concessions (e.g. on tractors) by way of notifications continue to be available as before. These duty reductions notified on February 17 be available till June 30.
Customs duty rates have been reduced on some items that interest only a few importers. The reduction in excise duty means the additional duty payable on goods of chapter 84 and 85 of the Customs Tariff will also see a reduction. Consequently, the aggregate import duties on most capital goods come down from 25.85 per cent to 23.55 per cent, a reduction of 2.3 per cent. Whether these reductions will help revive investor sentiment or demand for capital goods and vehicles is doubtful.
Changes in Tax Rates:-
a. Following changes in some indirect tax rates are proposed:
• States to partner in development so as to enable the Centre to focus on Defence, Railways, National Highways and Tele-Communication.
• The general excise duty on all machinery & equipment, appliances etc and parts thereof falling under Chapters 84 and 85 of the Central Excise Tariff has been reduced from 12% to 10%. The existing duty concessions, whether by way of tariff entry or notifications, will continue to be available as before [Sl.No.345 and 346 of the Table of notification No.12/2012-Cental Excise, dated 17.03.2012 as amended by notification No.4/2014-Central Excise, dated 17.02.2014 refers].
It may be noted that the duty rates notified against Sl.Nos.345 and 346 for the above goods are valid up to 30-06-2014 only. After this date, the rates applicable would be the rates as mentioned elsewhere in the Table of the notification or in the Tariff against the respective items.
• The excise duty on small cars, motor cycles, scooters, commercial vehicles and trailers has been reduced from 12% to 8% and on SUVs from 30% to 24%. The excise duties on large and mid-segment cars have been reduced from 27% and 24% to 24% and 20% respectively. In line with the duty reduction on commercial vehicles, the excise duty on chassis has been reduced appropriately. Duty has also been reduced on hybrid motor vehicles, hydrogen vehicles, etc. The existing duty concessions (e.g. on tractors) by way of notification will continue to be available as before [Sl.No.347 to 369 of the Table of notification No.12/2012-Cental Excise, dated 17.03.2012 as amended by notification No.4/2014-Central Excise, dated 17.02.2014 refers].
It may be noted that the duty rates notified against Sl.Nos.347 to 369 for the automobile items are valid up to 30-06-2014 only. After this date, the rates applicable would be the rates as mentioned elsewhere in the Table of the notification or in the Tariff against the respective items.
• It is also proposed to make appropriate reductions in the excise duties on chassis and trailors – The rates can be reviewed at the time of regular Budget
• The excise duty structure on mobile handsets has been restructured so as to provide that all mobile handsets will attract 1% excise duty if CENVAT benefit is not availed of. The duty will be 6% if CENVAT benefit is availed of. Consequently, all imported mobile handsets shall attract 6% CVD [Sl.No.263A of the Table of notification No.12/2012-Cental Excise, dated 17.03.2012 as amended by notification No.4/2014-Central Excise, dated 17.02.2014 refers].
• To encourage domestic production of soaps and oleo chemicals, the custom duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols is rationalized at 7.5 percent.
• To encourage domestic production of specified road construction machinery, the exemption from CVD on similar imported machinery is withdrawn.
• A concessional custom duty 5 percent on capital goods imported by the Bank Note Paper Mill India Private Limited is provided to encourage domestic production of security paper for printing currency notes.
b. The loading and un-loading, packing, storage and warehousing of rice is exempted from Service Tax.
c. The services provided by cord bloodbanks is exempted from Service Tax.
Manufacturers of items covered under Chapter 84 or 85 with very little value addition might now find higher duty rates on their inputs and lower duty rates on their final products could lead to accumulation of unutilised Cenvat Credit, as service tax on input services also add to their credit balances. Such manufacturers with high import intensity are finding ways to import through their own trading arms, so that goods imported can be resold by the trading outfits to the manufacturers on payment of value added tax and refund of four per cent special additional duty can be claimed. That way, credit accumulation of four per cent special additional duty can be avoided. Reduction of aggregate import duty on capital goods would mean the amount of duty saved on imports under the Export Promotion Capital Goods (EPCG) scheme would go down. Consequently, the amount of bond to be furnished, as well as the export obligation under the Export Promotion Capital Goods (EPCG) scheme, will also go down. More capital goods can now be cleared under duty credit scrips issued under the Focus Market Scheme, Served from India Scheme, etc, as a lesser amount of duty will be debited to the scrips than earlier.
In this Budget, the finance minister said the modest export growth rate of 6.3 per cent had to be seen in the context of a 2.7 per cent growth in global trade. Imports are down and this does not augur well for either manufacturing or domestic trade. The finance minister outlined many measures to revive manufacturing and infrastructure projects but could not generate much confidence that the economy would revive quickly. Hopefully, the commerce minister would include more products under the Focus Product Scheme before the election code of conduct takes effect.
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