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Taxation, Custom & GST

CUSTOMS

Customs law is a duty or tax which is levied by the Central Government on import of goods into and export of goods from India. Quantum of Customs duty depends upon the provisions of Customs Act 1962 and Customs Tariff Act 1975 and related Customs Rules, Notifications, Circulars, case Laws and Annual Union Finance Acts. Customs Act 1962 is the main Act governing custom duty.

Customs Duty is an Indirect tax collected by Central Govt. on Imports and Export of goods. All the business entity who is interested in Import or export business needs to register with customs or engage a clearing forwarding agent before they can actually start the work. It provides a fair and equal opportunity to both entities to expand for their market. It proves a source of revenue for the government.

Mostly Custom duty is mostly charged on Import. It saves foreign exchange. Majority of exports of goods are free from Custom duty except few which Govt. wants to regulate or discourage the export of such items as per the precedent situations. Custom duty is very important for its local traders or manufacturers.

Customs duty is applied to provide protection to the local developing industries against multinational companies by charging them some amount for a fixed period of time.

Various types of customs duty are: Basic custom duty, Additional custom duty, Countervailing duty, Protective duty, antidumping duty, Education cess on custom duty.

TAXATION

Tax law or revenue law is an area of legal study in which public or sanctioned authorities, such as federal, state and municipal governments use a body of rules and procedures (laws) to assess and collect taxes in a legal context. Tax law is part of public law. It covers the application of existing tax laws on individuals, entities and corporations, in areas where tax revenue is derived or levied, e.g. income tax, estate tax, business tax, employment/payroll tax, property tax, gift tax and exports/imports tax. The rates and merits of the various taxes, imposed by the authorities, are attained via the political process inherent in these bodies of power, and not directly attributable to the actual domain of tax law itself.

Tax is the basic source of revenue for the Government and it is broadly divided into two parts i.e., direct taxes and indirect taxes. Moreover, the taxpayers are divided into two forms of residential purposes i.e., Resident of India and Non-Resident of India.

DIRECT TAX

Direct taxes are paid in entirety by a taxpayer directly to the government. It is also defined as the tax where the liability as well as the burden to pay it resides on the same individual. It is levied on income and activities conducted. The burden of tax cannot be shifted in case of direct tax. Direct taxes are collected by the central government as well as state governments according to the type of tax levied. Major types of direct tax include: Income Tax, Corporate Tax, Wealth Tax, Estate Duty, and Gift Tax.

INDIRECT TAX

Indirect tax is the tax levied on the consumption of goods and services. It is not directly levied on the income of a person. Instead, he/she has to pay the tax along with the price of goods or services bought by the seller. Some types of indirect taxes are : Excise Duty, Sales Tax, Custom Duty, Entertainment Tax, Service Tax.

GOODS AND SERVICES TAX (GST):

Goods and Services Tax (GST) is an indirect tax (or consumption tax) used in India on the supply of goods and services. It is a comprehensive, multistage, destination-based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many indirect taxes in India such as the excise duty, VAT, services tax, etc. Every state had a different set of rules and regulations. Inter-state sale of goods was taxed by the centre. CST (Central State Tax) was applicable in case of inter-state sale of goods. The indirect taxes such as the entertainment tax, local tax were levied together by state and centre. These led to a lot of overlapping of taxes levied by both the state and the centre.

There are three taxes applicable under this system: CGST, SGST & IGST.

CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction happening within Maharashtra)

SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction happening within Maharashtra)

IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra to Tamil Nadu).

The following is the list of indirect taxes in the pre-GST regime: Central Excise Duty, Duties of Excise, Additional Duties of Excise, Additional Duties of Customs, Special Additional Duty of Customs, Cess, State VAT, Central Sales Tax, Purchase Tax, Luxury Tax, Entertainment Tax, Entry Tax, Taxes on advertisements, Taxes on lotteries, betting, and gambling, CGST, SGST, and IGST have replaced all the above taxes.

GST LAWS

Goods and Services Tax is a critical stride in the change of backhanded tax collection in India. Moreover it is Amalgamating a few Central and State charges into a solitary assessment.

There are three taxes applicable under this system: CGST, SGST & IGST.

  • CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction happening within Maharashtra)
  • SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction happening within Maharashtra)
  • IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra to Tamil Nadu)

In most cases, the tax structure under the new regime will be as follows:

Transaction New Regime Old Regime Revenue Distribution
Sale within the State CGST + SGST VAT + Central Excise/Service tax Revenue will be shared equally between the Centre and the State
Sale to another State IGST Central Sales Tax + Excise/Service Tax There will only be one type of tax (central) in case of inter-state sales. The Centre will then share the IGST revenue based on the destination of goods.

Every state had a different set of rules and regulations. Inter-state sale of goods was taxed by the Centre. CST (Central State Tax) was applicable in case of inter-state sale of goods. The indirect taxes such as the entertainment tax, Octroi and local tax were levied together by state and Centre. These led to a lot of overlapping of taxes levied by both the state and the Centre.

The following is the list of indirect taxes in the pre-GST regime:

  • Central Excise Duty
  • Duties of Excise
  • Additional Duties of Excise
  • Additional Duties of Customs
  • Special Additional Duty of Customs
  • Cess
  • State VAT
  • Central Sales Tax
  • Purchase Tax
  • Luxury Tax
  • Entertainment Tax
  • Entry Tax
  • Taxes on advertisements
  • Taxes on lotteries, betting, and gambling
  • CGST, SGST, and IGST have replaced all the above taxes.

However, certain taxes such as the GST levied for the inter-state purchase at a concessional rate of 2% by the issue and utilisation of ‘Form C’ is still prevalent.

It applies to certain non-GST goods such as:

  • Petroleum crude
  • High-speed diesel
  • Motor spirit (commonly known as petrol)
  • Natural gas
  • Aviation turbine fuel and
  • Alcoholic liquor for human consumption.

It applies to the following transactions only:

  • Resale
  • Use in manufacturing or processing
  • Use in certain sectors such as the telecommunication network, mining, the generation or distribution of electricity or any other power sector

GST Compliance during Transition

The issues which will arise for GST compliance during transition will be as below:

  • Carry Forward of Cenvat Credit & VAT Input Tax Credit in respective returns.
  • Issues related to accounting of unveiled CENVAT credit in respect of Capital Goods
  • Price revision i.e. upward as well as downward by stipulated date.
  • Issuance of supplementary invoice or debit note within 30 days of such revision. Downward revision will require to be complied with tax reduction and reduction of input tax credit.
  • All previously filed refund claims will be sanctioned in cash and in accordance with old provisions i.e. pre GST laws.
  • Precautionary exercises
  • It must be understood that GST will require highest compliance of GST laws ever have to be done in any indirect tax regime.

There are further many hidden aspects which shall have to be taken care of during the transition period. The GST Compliance is not that difficult but going by the say that “a stich in time saves nine”, the due diligence will be the must to avoid any litigation.

GST is a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India and will replace taxes levied by the central and state governments. We will be able to guide you on how GST will be applicable on your business and the legalities around non-compliance to GST. We are available for you to give opinion on GST and its application to your business, defend you if a tax authority accuses you of under-reporting your taxes, and if you are in violation of any GST compliance in India.