EXCISE DUTY & CENVAT SALES TAX & VAT The citizens of a democratic countr enter into a contract

t into !er!etuit throu"h Constitution #hich $inds them to the State% Thus the Constitution of a countr $ecomes the fountain head of a&& or"anizations and their administration throu"h defined &a#s' ru&es and re"u&ations% Thus the State in turn has certain s!ecific res!onsi$i&ities to#ards its citizens% The most e(ident duties of the State are Defence' La# and )rder' De(e&o!ment and im!ro(ement of &i(in" standards of the constituent societ as a #ho&e% The State has to "enerate re(enue to meet these e*!enditures for maintenance of these% The Indian State is or"anised into three &e(e&s of "o(ernance #ith #e&& defined ro&e' duties and res!onsi$i&ities and sources of re(enue "eneration as the +edera& or Centra& "o(ernment' State "o(ernments and Loca& $odies% The re(enue is co&&ected $ the res!ecti(e "o(ernments direct& and indirect& % Such re(enue is "enerated throu"h Ta*es% Co&&ection of a&& ta*es direct& $ the "o(ernments is im!ossi$&e and hence indirect ta*ation is resorted to% Such indirect ta* co&&ection is throu"h (arious methods on the incidence of certain #e&& defined e(ents and conditions% The ,e(enue "enerations for these three are Centra& .o(ernment throu"h Income Ta* / Direct0' E*cise and Customs duties / Indirect0 State .o(ernment throu"h Sa&es Ta*' E*cise Dut on A&coho& and Loca& 1odies throu"h )ctroi and 2ro!ert Ta* )f these' Income Ta* is direct& !aid $ the citizens to the Centra& "o(ernment% E*cise Dut and Customs Dut are im!osed $ the Centra& "o(ernment on "oods !roduced in India and im!orted into India% Sa&es Ta* is &e(ied $ the States on e(er sa&e of "oods #ithin the state and $ the Centra& "o(ernment in case of interstate sa&e% There is a&so a se!arate scheme of sharin" the re(enues $et#een the Centre and the States% EXCISE DUTY 3 CENVAT E*cise dut is &e(ied on e(er item manufactured or !roduced in the countr #ith some e*em!tions% So it is a ta* on manufacturin"% 4hi&e 2roduction inc&udes $oth manufacturin" and ser(ice' on& "oods manufactured attract e*cise dut % Coa&' iron ore' a&& mined minera&s' ru$$er' coffee' tea' to$acco are !roduced% 1ut e*cise dut a!!&ies main& to manufactured "oods% 4hen one !roduct is con(erted into another' &i5e !& #ood is cut and made into ta$&es' manufacturin" ta5es !&ace and hence e*cise dut is &e(ia$&e $ the centra& "o(ernment% To 6ua&if for e*cise dut ' there must $e 7% 8anufacture of 9' mo(a$&e "oods :% #hich are mar5eta$&e% Therefore immo(a$&e !ro!erties attached to "round are not e*cisa$&e% Un&ess the "oods manufactured are mar5eta$&e' the "oods cannot $e su$;ect to e*cise dut % 8anufacture is !roduction of a different artic&e or "ood or commodit from the ra# materia&%)i& is !roduced from oi& seeds' su"ar from su"ar cane' furniture from #ood' utensi&s from meta& etc% The test is that the end !roduct must $e fit for commercia& use% It must $e mar5eta$&e% In De&hi C&oth 8i&&s case' the factor #as usin" "round nut and ti& oi& as ra# materia&s to manufacture (anas!ati% Durin" the manufacturin" !rocess refined oi& #as !roduced #hich #as actua&& consumed $ the factor for the fina& !roduct% The e*cise de!artment char"ed e*cise dut on the refined oi& as a distinct !roduct% The Su!reme Court fina&& he&d that the intermediate !roduct refined oi& #as not mar5eta$&e as it cou&d not $e consumed #ithout deodourisin" it% <ence the refined oi& #as not e*cisa$&e% The test #as not #hether the "ood #as for sa&e $ut #hether it is ca!a$&e of $ein" so&d% .ood must $e mo(a$&e not necessari& tan"i$&e% Thus' "as' steam' e&ectricit ' $randed soft#are and #here different !arts are assem$&ed to ma5e a com!&ete !roduct are a&& e*cisa$&e%

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81A I SE8 LA)1 9>79 <andout ?

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EXCISE DUTY & CENVAT SALES TAX & VAT In order to a(oid the cascadin" effect of e*cise dut ' the centra& "o(ernment has a&read introduced CENVAT% This ena$&es to co&&ect the dut for the (a&ue added in the con(ersion% +or sim!&icit consider this e*am!&eAsho5 & Co $u s 7>> sheets of !& #ood for ,s% 7>>'>>> from 1asu & co% 1asu & co% had !aid an e*cise dut of sa @>>> % No# Asho5 & Co manufactures 7>> com!uter ta$&es out of the 7>> !& #ood sheets% It costs the com!an ,s% 9A> for each ta$&e% It se&&s to ,a; & Co% for ,s% 7A>> each% The e*cise dut !a a$&e norma&& #ou&d ha(e $een sa @B on the cost that is @B of ,s% 79A> ' #hich is e6ua& to ,s%A> each% Therefore the actua& e*cise dut !aid #ou&d $e @>/ at the time of !urchase of !& #ood0CA> / at the end of manufacturin" of a ta$&e0D,s% ?>% 1ut the actua& (a&ue added #as on& ,s% 9A> !er ta$&e% 1 CENVAT' the Asho5 & Co #ou&d !a ,s ?> as E*cise Dut and c&aim $ac5 ,s% @> a&read !aid $ him at the time of !urchase of !& #ood% Thus the E*cise dut !aid $ him for the con(ersion is &imited to the (a&ue addition of ,s 9A> !er ta$&e or ,s% 7> on& % Duties are &e(ied on the $asis of units &i5e #ei"ht !er 5" of cement' &en"th in cm of ci"arettes or metre of c&oth' (o&ume &itre of oi& as S!ecific Dut % Duties are &e(ied on (a&ue of "oods' as Ad (e&orem Dut % Simi&ar& in order to e&iminate the cascadin" effect of mu&ti!&e sa&es in a !roduct #hich actua&& o(er$urdens the consumer' incidence of ta* has $een shifted to the (a&ue that has $een added $ e(er su$se6uent !roducer se&&er% This is ca&&ed the Va&ue Added Ta* /VAT0% This has re!&aced the Sa&es Ta* in the States% It a!!&ies to sa&es #ithin the states% This means that the mu&ti!&e incidences of sa&es ta* on !rices is rationa&ized such that at e(er sta"e the ta* is added on& on that !ortion of the additiona& (a&ue that has $een $rou"ht u!on the !re(ious !roduct !urchased $ the se&&er% )n& the (a&ues that are added in different sta"es are ta*ed as Va&ue Added Ta* or sim!& VAT% Therefore it must $e c&ear that this (a&ue addition #i&& inc&ude the ser(ices rendered in addin" such (a&ue to the "oods% Nature of Excise Duty 7% 2o#er to &e( e*cise dut is deri(ed from Constitution% 9% E*cise is a dut on e*cisa$&e "oods manufactured or !roduced in India% :% Each #ord of this definition is (ita&& im!ortant to fi* &ia$i&it of Centra& E*cise Dut % 2o#ers of Centra& and State .o(t% EDuties 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.F Basic conditions of excise liability 7% The dut is on "oods% 9% The "oods must $e e*cisa$&e% :% The "oods must $e manufactured or !roduced @% Such manufacture or !roduction must $e in India% 5. Unless all of these conditions are satisfied, Central Excise Duty cannot be levied. G% .oods manufactured in S!ecia& Economic Hones are Ie*c&uded e*cisa$&e "oodsJ Thus' "oods manufactured or !roduced in SEH are Ie*cisa$&e "oodsJ $ut no dut is &e(ia$&e Taxable Event for Excise Duty 7% Ta* $ecomes !a a$&e #hen &ia$i&it to !a ta* arises % 9% Lia$i&it to !a ta* arises $ the ha!!enin" of the ta*a$&e e(ent% KE*cise dut is not direct& on the "oods' $ut manufacture thereof%

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EXCISE DUTY & CENVAT SALES TAX & VAT 7% Thou"h $oth e*cise dut and sa&es ta* are &e(ied #ith reference to "oods' the t#o are (er different im!osts% In one case' the im!osition is on the act of manufacture or !roduction' #hi&e in the other it is on act of sa&e% 9% In neither case' therefore' can it $e said that the e*cise dut or sa&e ta* is direct& on the "oods' for in that e(ent' the #i&& rea&& $ecome the same ta*K Person liable to pay excise duty 7% )nce dut &ia$i&it is fi*ed' the dut can $e co&&ected from a !erson at the time and !&ace found administrati(e& most con(enient for co&&ection% E*cise dut is !a a$&e $ the manufacturer or !roducer of e*cisa$&e "oods% 9% Dut &ia$i&it in case of "oods stored in #arehouse 3 These "oods are coffee' !etro&eum !roducts' $enzene' to&une etc% In such cases' the dut &ia$i&it is on the !erson #ho stores the "oods% :% Dut &ia$i&it in case of mo&asses !roduced in 5handsari su"ar factor 3 /e*ce!tion 0is of the !rocurer /i%e% !urchaser0 of such mo&asses% The dut is !a a$&e on the date of recei!t of such mo&asses in the factor of !rocurer% The dut on mo&asses !roduced in 5handsari su"ar factor is !a a$&e on& #hen the !rocurer !rocures the mo&asses for use in the manufacture of an commodit % Such commodit ma or ma not $e e*cisa$&e @% Dut &ia$i&it in case of ;o$ #or5 3 E(en in case of ;o$ #or5' the dut &ia$i&it is of actua& manufacturer and not of the ra# materia& su!!&ier% <o#e(er' a ;o$ #or5er manufacturin" "oods is e*em!t from e*cise dut ' I+ the ra# materia& su!!&ier underta5es that he #i&& use these "oods further to manufacture fina& !roduct or c&ear for e*!ort or !a dut on such "oods% Types of excise duties 7% Duties under Centra& E*cise Act 3 1asic dut is &e(ied under Centra& E*cise Act% 9% 1asic e*cise dut to $e termed as Cen(at :% The dut rate is "enera&& LB #%e%f% 9@3939>>? i%e% tota& L%9@B inc&udin" education and SA< cess Mear&ier' it #as 7@B i%e% tota& 7@%@9BN% @% Education cess is !a a$&e O 9B of the $asic dut and Secondar and <i"h Education Cess is 7B of $asic e*cise dut % A% Education Cess and SA< EDUCATI)N CESS on e*cise dut 3 If e*cise dut rate is LB' education cess #i&& $e >%7GB and SA< Education cess #i&& $e >%>LB% G% E*cise dut in case of c&earances $ E)U The E)U units are e*!ected to e*!ort a&& their !roduction% <o#e(er' if the c&ear their fina& !roduct in DTA /domestic tariff area0' the rate of e*cise dut #i&& $e e6ua& to customs dut on &i5e artic&e if im!orted in India% P% Note that e(en if rate of customs dut is considered for !a ment of dut ' actua&& the dut !aid $ them is Centra& E*cise Dut % The rate of customs dut is ta5en on& as a measure% The E)U unit can SELL !art of their fina& !roducts in India at A>B of customs dut or norma& e*cise dut in certain cases% L% Nationa& Ca&amit contin"ent Dut is dut is im!osed on !an masa&a' che#in" to$acco and ci"arettes% It (aries from 7>B to @AB% ?% NCCD of 7B #as im!osed on 2+Y' motor cars' mu&ti uti&it (ehic&es and t#o #hee&ers and NCCD of ,s A> !er ton #as im!osed on domestic crude oi&' (ide section 7G? of +inance Act' 9>>:% Goods 7% The #ord E"oodsF' for !ur!ose of &e( of E*cise dut ' must satisf t#o re6uirements i%e% /a0 the must $e mo(a$&e and /b0 the must $e mar5eta$&e% 9% Goods must be movable - Thus' immo(a$&e !ro!ert or !ro!ert attached to earth is not I"oodsJ and hence dut cannot $e &e(ied on it 3. Goods must be Marketable a% The item must $e such that it is capable of being $ou"ht or so&d%
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EXCISE DUTY & CENVAT SALES TAX & VAT $% This is the test of I8ar5eta$i&it J% c% The "oods must $e 5no#n in the mar5et% Un&ess this test of marketability is satisfied' dut cannot $e &e(ied as these #i&& not $e goods KThe mar5eta$i&it test re6uires that the "oods as such shou&d $e in a !osition to $e ta5en to mar5et and so&d% If the ha(e to $e se!arated' the test is not satisfiedK% Thus' if machiner has to $e dismant&ed $efore remo(a&' it #i&& not $e "oods% /a0 Dut cannot $e &e(ied on immo(a$&e !ro!ert /$0 If !&ant is so em$edded to earth that it is not !ossi$&e to mo(e it #ithout dismant&e' no dut can $e &e(ied% /c0 If machiner is su!erficia&& attached to earth for o!erationa& efficienc ' and can $e easi& remo(ed #ithout dismant&in"' dut is &e(ia$&e /d0 Turn5e !ro;ects are not dutia$&e' $ut indi(idua& com!onentQmachiner #i&& $e dutia$&e' if mar5eta$&e% Central Excise Tariff ct !CET " As internationa& trade increased' need #as fe&t to ha(e uni(ersa& standard s stem of c&assification of "oods to faci&itate trade f&o# and ana& sis of trade statistics% <ence' Internationa& con(ention of <armonised S stem of Nomenc&ature /<SN0' ca&&ed <armonised Commodit Descri!tion and Codin" S stem' #as de(e&o!ed $ 4or&d Customs )r"anisation /4C)0 /That time ca&&ed as Customs Coo!eration Counci&0% Indian Customs ado!ted this Sections and Chapters of C ! Centra& E*cise Tariff is di(ided in 9> sections% /97 sections in case of Customs Tariff0% A IsectionJ is a "rou!in" of a num$er of Cha!ters #hich codif a !articu&ar c&ass of "oods% Each of the sections is re&ated to a $roader c&ass of "oods e%"% Section I is IAnima& 2roductsJ' Section VII is I2&astics and Artic&es thereofJ' Section XI is ITe*ti&e and Te*ti&e Artic&esJ' Section XVII is IVehic&es' Aircrafts' Vesse&s and associated trans!ort e6ui!ment' etc% Section Notes are "i(en at the $e"innin" of each Section' #hich "o(ern entries in that Section% These notes are a!!&ica$&e to a&& Cha!ters in that section% Section di(ided in Cha!ters 3 Each of the sections is di(ided into (arious Cha!ters and each Cha!ter contains "oods of one c&ass% +or e*am!&e' Section XI re&ates to Te*ti&e and Te*ti&e Artic&es and #ithin that Section' Cha!ter A> is Si&5' Cha!ter A7 is 4oo&' Cha!ter A9 is Cotton' Cha!ter A: is other (e"eta$&e te*ti&e fa$rics' Cha!ter G7 is Artic&es of A!!are& and so on% There are ?G cha!ters out of #hich cha!ter PP is $&an5% In Customs Tariff' there are ?? cha!ters out of #hich on& one i%e% Cha!ter PP is $&an5' #hich is 5e!t reser(ed for future use% #road grouping in CET - +o&&o#in" is $road "rou!in" of "oods in CETA Anima& 2roducts /Section I 3 Cha!ters 7 to A0 Ve"eta$&e 2roducts /Section II 3 Cha!ters P to 7@0 Anima& or (e"eta$&e fats /Section III 3 Cha!ter 7A0 2re!ared foodstuffs' $e(era"es /Section IV 3 Cha!ters 7G to 9@0 8inera& 2roducts /Section V 3 Cha!ters 9A to 9P0 Chemica&s' +erti&isers' soa! etc% /Section VI 3 Cha!ters 9L to :L0 2&astics and ,u$$er and their artic&es /Section VII 3 Cha!ters :? and @>0 Leather and artic&es /Section VIII 3 Cha!ters @7 to @:0 4ood' cor5' stra# and their artic&es /Section IX 3 Cha!ters @@ and @G0
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EXCISE DUTY & CENVAT SALES TAX & VAT 2u&!' 2a!er' 2a!er3$oard and artic&es /Section X 3 Cha!ters @P to @?0 Te*ti&e and Te*ti&e 2roducts /Section XI 3 Cha!ters A> to G:0 +oot#ear' <ead"ear' Um$re&&as' Artic&es of human hair /Section XII 3 Cha!ters G@ to GP0% Artic&es of stone' !&aster' ceramic' "&ass /Section XIII 3 Cha!ters GL to P>0 2ear&s' !recious meta&s /Section XIV 3 Cha!ter P70 1ase meta&s and artic&es of $ase meta& /Iron' Stee&' Co!!er' Nic5e&' Hinc' Tin etc%0% /Section XV 3 Cha!ters P9 to L:0 8achiner and mechanica& a!!&iances' e&ectrica& e6ui!ments' te&e(ision etc% /Section XVI 3 Cha!ters L@ and LA0 Vehic&es' Aircrafts' (esse&s / Section XVII 3 Cha!ters LG to L?0 )!tica&' !hoto"ra!hic' medica&' sur"ica& instruments' c&oc5s' musica& instruments /Section XVIII 3 Cha!ters ?> to ?90 Arms and Ammunition /Section XIX 3 Cha!ter ?:0 8isc% 8anufactured artic&es &i5e +urniture' to s etc% /Section XX 3 Cha!ters ?@ to ?G0 4or5s of Art' co&&ectorsJ !ieces and anti6ues /Section XXI 3 Cha!ters ?P to ??0 This section is on& in Customs Tariff and not in Centra& E*cise Tariff% "ho is the #manufacturer# - I8anufacturerJ is a !erson #ho actua&& manufactures or !roduces e*cisa$&e "oods' i%e% one #ho actua&& $rin"s into e*istence ne# and identifia$&e !roduct% 2erson #ho transforms commodit into another commodit ha(in" a distinct name and character is the manufacturer It is common to send #heat to a 8i&& to "rind the #heat and con(ert it into I4heat +&ourJ% No#' e(en if the I#heatJ $e&on"s to ou' the I8i&& )#nerJ #i&& $e the manufacturer of I#heat f&ourJ as !er definition of Centra& E*cise% Thus' Io#nershi!J and ImanufacturerJ ma $e different% If the cost of #heat is ,s% 79 !er =" and the 8i&& )#ner char"es one ru!ee as ;o$ char"es /con(ersion char"es for con(ertin" I#heatJ into I#heat f&ourJ0' I(a&ueJ of #heat f&our for Centra& E*cise (a&uation !ur!oses #ou&d $e ,s% 7:Q3% Simi&ar& ' #hen ou "i(e c&oth to tai&or to ma5e shirt' the tai&or #i&& $e the manufacturer of shirt e(en if c&oth $e&on"s to ou and the shirt has $een made as !er our re6uirements% E*cise dut is !a a$&e on one of the follo ing basis 7% S!ecific dut 9% Dut as B of Tariff Va&ue fi*ed % :% Dut $ased on annua& !roduction ca!acit @% Dut $ased on 8a*imum ,etai& 2rice !rinted on carton after a&&o#in" deductions A% Dut as B $ased on !ssessable "alue /ad valorem duty0 Specific $uty - 2resent& ' s!ecific rates ha(e $een announced for /a0 Ci"arettes /&en"th $asis0 /$0 8atches /!er 7>> $o*es Q !ac5s0 /c0 Su"ar /!er 6uinta& $asis0 /d0 8ar$&e s&a$s and ti&es /S6uare meter $asis0 /e0 Co&our TV #hen 8,2 is not mar5ed on the !ac5a"e or #hen 8,2 is not the so&e consideration /1ased on screen size in cm0% /f0 Cement c&in5ers /!er tonne $asis0 /"0 8o&asses resu&tin" from e*traction of su"ar /2er ton $asis0 $uty on basis of production capacity 3 2an masa&a and "ut5ha are co(ered under these !ro(isions% %ariff value - In some cases' tariff (a&ue is fi*ed $ .o(ernment from time to time% This is a E#otional "alueF for !ur!ose of ca&cu&atin" the dut !a a$&e%

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EXCISE DUTY & CENVAT SALES TAX & VAT d valore$ Duty +i*in" s!ecific dut is !ossi$&e on& for fe# se&ected items &i5e Su"ar' !an masa&a' consumer "oods' Ci"arette etc% Simi&ar& ' !a in" dut on the $asis of 8,2 is !ossi$&e on& in res!ect of a fe# se&ected commodities% In other cases' Centra& E*cise is !a a$&e on the $asis of Assessa$&e (a&ue% This is ca&&ed Ead valore$ dutyF% Basis of !ssessable &alue is char"ea$&e on Ktransaction (a&ueK 3 7% The "oods shou&d $e so&d at the time and !&ace of remo(a&% 9% 1u er and assessee shou&d not $e re&ated :% 2rice shou&d $e the sole consideration for the sa&e% @% Each remo(a& #i&& $e treated as a se!arate transaction and K(a&ueK for each remo(a& #i&& $e se!arate& fi*ed% 8ain re6uirements of Itransaction (a&ueJ% 7% 2rice actua&& !aid or !a a$&e 9% 2rice is for the "oods :% It inc&udes an amount that the $u er is &ia$&e to !a to' or on $eha&f of assessee% 1asic 2rocedures /70 E(er !erson #ho !roduces or manufactures e*cisa$&e "oods' is re6uired to "et re"istered' un&ess e*em!ted% /90 8anufacturer is re6uired to maintain Dai& Stoc5 Account /DSA0 of "oods manufactured' c&eared and in stoc5% /:0 .oods must $e c&eared under In(oice of assessee ' du& authenticated $ the o#ner or his authorised a"ent% In case of ci"arettes' in(oice shou&d $e countersi"ned $ E*cise officer% /@0 Dut is !a a$&e on month& $asis $ AthQGth of fo&&o#in" month' e*ce!t in 8arch% SSI units ha(e to !a dut on month& $asis $ 7AthQ7Gth of fo&&o#in" month% Assessee !a in" dut throu"h 2ersona& Led"er Account /2LA0 more than ,s A> &a5hs !er annum is re6uired to ma5e e3!a ment on& An assessee #ho has o$tained 7A di"it ECC num$er from Su!erintendent can o!erate a current account% No s!ecific !ermission is necessar % /A0 8onth& return in form E,37 shou&d $e fi&ed $ 7>th of fo&&o#in" month% SSI units ha(e to fi&e 6uarter& return /G0 Assessees !a in" dut of ,s one crore or more !er annum throu"h 2LA are re6uired to su$mit Annua& +inancia& Information Statement for each financia& ear $ :>th No(em$er of succeedin" ear in !rescri$ed form SALES TAX Sa&es Ta* is the most im!ortant Indirect Ta* for the State .o(ernments% This is re"u&ated $ the Centra& Sa&es Ta* Act% Sa&es Ta* is on the SALE )+ .))DS on& % .oods inc&udes a&& materia&s' artic&es' commodities and a&& 5inds of 8)VA1LE 2,)2E,TY% The Act s!ecifica&& e*c&udes Ne#s!a!ers' actiona$&e c&aims' Shares and securities% .oods must $e tan"i$&e% Sa&e means that there must $e transfer of o#nershi! of "oods from se&&er to the $u er throu"h a transaction% Such transaction must $e for a consideration and such consideration has to $e in CAS<% Therefore to attract sa&es Ta* there must $e7% .ood' 9 Se&&er' :% Transaction' @% $u er' A% consideration in Cash and G% Transfer of )#nershi! The ob$ects of the %&T !ct are 3 7% To formu&ate !rinci!&es for determinin" /a0 #hen a sa&e or !urchase ta5es !&ace in the course of inter3state trade or commerce /$0 4hen a sa&e or !urchase ta5es !&ace outside a State
8=otees#aran 81A I SE8 LA)1 9>79 <andout ?

79A

EXCISE DUTY & CENVAT SALES TAX & VAT /c0 4hen a sa&e or !urchase ta5es !&ace in the course of im!orts into or e*!ort from India 9% To !ro(ide for &e( ' co&&ection and distri$ution of ta*es on sa&es of "oods in the course of inter3state trade or commerce :% To dec&are certain "oods to $e of s!ecia& im!ortance in inter3State trade or commerce and s!ecif the restrictions and conditions to #hich State &a#s im!osin" ta*es on sa&e or !urchase of such "oods of s!ecia& im!ortance /ca&&ed as dec&ared "oods0 sha&& $e su$;ect @% Ne#s!a!er s!ecifica&& e*c&uded 'asic scheme of the %&T !ct 7% Sa&es Ta* ,e(enue to States 3 The CST Act !ro(ides for &e( on Inter3State sa&es and a&so defines #hat is IInter3State Sa&eJ% Thus' thou"h it is ca&&ed %entral &ales Tax !ct' the ta* co&&ected under the Act in each State is 5e!t $ that State on& % 9% Ta* is co&&ected in the State #here mo(ement of "oods commences The Centra& Sa&es Ta* is !a a$&e in the State from #hich mo(ement of "oods commences /i%e% from #hich "oods are so&d0% The ta* co&&ected is retained $ the State in #hich it is co&&ected% :% Ta* on Inter State sa&e of "oods 3 CST is ta* on inter State sa&e of "oods% Sa&e is Inter3 State #hen /a0 sa&e causes mo(ement of "oods from one State to another /b0 is effected $ transfer of documents durin" their mo(ement from one State to another% @% State Sa&es Ta* &a# a!!&ica$&e in man as!ects 3 CST Act ma5es !ro(isions for (er fe# !rocedures and ru&es% In res!ect of !ro(isions &i5e return' assessment' a!!ea&s etc%' !ro(isions of .enera& Sa&es Ta* &a# of the State a!!&ies% %&T concepts ISa&e )utside the StateJ and Isa&e durin" the course of im!ortQim!ortJ% Dec&ared "oods Some "oods are dec&ared as "oods of s!ecia& im!ortance and restrictions are !&aced on !o#er of State .o(ernments to &e( ta* on such "oods% .oods must $e tan"i$&e% Com!uter is a "ood% The soft#are &oaded is not as it is intan"i$&e set of information or codes% If the same soft#are is made a(ai&a$&e in CD' the CD $ecomes a "ood and ta*a$&e% An artist ma se&& a !aintin"% It is a .ood% 1ut if the same artist is en"a"ed for !aintin" a !ortrait' it is neither sa&e nor "ood as the artist offers his s5i&& and &a$our on& % Inter(&tate and Intra(&tate &ale ) Union List - ITa*es on the sa&e and !urchase of "oods other than ne#s!a!ers' #here such sa&e or !urchase ta5es !&ace in the course of Inter3state trade or commerceJ% State List - ITa* on sa&e or !urchase of "oods other than ne#s!a!ers e*ce!t ta* on Inter State sa&e or !urchaseJ% Thus' sa&e #ithin the State /Intra3State sa&e0 is #ithin the authorit of State .o(ernment' Sa&e outside State /Inter3State sa&e0 is #ithin the authorit of Centra& .o(ernment% Sa&e #here $oth $u er and se&&er are from same State is Intra3State sa&e e%"% from R 8um$ai to 2une or R Ahmeda$ad to Surat or R<o#rah to =o&5ata or R 8 sore to 1an"a&ore etc% These are Intra3State sa&es% 4hen $u er and se&&er are in different States' it is Inter3state sa&es% e%"% Chennai /Tami& Nadu0 to Tri(andrum /=era&a0 or R A&&aha$ad /U20 to < dera$ad /Andhra 2radesh0 or R 1hu$anesh#ar /)rissa0 to Daman /Union Territor 0 etc% Ta*a$&e e(ent in sa&es ta* is the act of sa&e%It is not a ta* direct& on "oods% %ategories of &ales ) Sa&es can $e $road& c&assified in three cate"ories% /a0 Inter3State Sa&e /$0 Sa&e durin" im!ortQe*!ort /c0 Intra3State /i%e% #ithin the State0 sa&e%
8=otees#aran 81A I SE8 LA)1 9>79 <andout ?

79G

EXCISE DUTY & CENVAT SALES TAX & VAT Ta* on Inter3State sa&e is &e(ied $ Union /i%e% Centra&0 .o(ernment #hi&e ta* on Intra3 State sa&e is &e(ied $ State .o(ernment of the State in #hich sa&e ta5es !&ace% No ta* is &e(ied on sa&es durin" im!ort or e*!ort% Sa&e #ithin the State is Iresiduar sa&eJ As #e #i&& see &ater' Isa&e #ithin StateJ is residuar sa&e% Thus' first #e ha(e to decide if sa&e is IInter StateJ% If not' #e ha(e to find if it is ISa&e durin" e*!ort or im!ortJ% If not' then the sa&e is IIntra StateJ% Thus' if a sa&e is Inter State of durin" e*!ort or im!ort' it cannot $e ISa&e #ithin the StateJ% ,estrictions on !o#ers of ta*ation State .o(ernment cannot im!ose ta* on sa&e or !urchase durin" im!orts or e*!ortsS or ta* on sa&e outside the State% 8ode of a sa&es transaction Initia&& ' $u er !&aces an order on se&&er for su!!& of "oods' ca&&ed I2urchase )rderJ% After the "oods ordered are read ' the $u er ma come to the $usiness !&ace /"odo#n' factor or #arehouse0 of se&&er and o$tain de&i(er of "oods% This #i&& $e ISa&e #ithin the State &ale hich *+ccasions movement of goods, ( As !er section :/a0' IInter State sa&eJ ta5es !&ace if the sa&e occasions movement of goods from one State to another% In %&T (% &uresh %hand -ain ' it #as he&d that a sa&e can $e said to $e in the course of inter3state on& if t#o conditions concur (iz% sa&e of "oods and a trans!ort of those "oods from one State to another% Essential ingredients of inter(&tate sale 7% Transaction must $e a com!&eted sa&e% 9% Location of $u er and se&&er is immateria&% Thus' e(en if $u er and se&&er are #ithin the same State' sa&e #i&& $e inter3state' if sa&e occasions mo(ement of "oods from one State to another% e%"% the $u er ma ha(e construction site in another State and ma as5 se&&er to des!atch "oods direct& to the site% Inter State sa&e $ transfer of documents is a&so !ossi$&e e(en #hen $u er and se&&er are in same State% :% There shou&d $e an a"reement to sa&e #hich contains a sti!u&ation /e*!ress or im!&ied0 re"ardin" mo(ement of "oods from one State to another @% It is immateria& #hether a com!&eted sa&e !recedes the mo(ement of "oods or fo&&o#s the mo(ement of "oods or ta5es !&ace #hi&e the "oods are in transit% 4hat is im!ortant is that mo(ement of "oods and the sa&e must $e inse!ara$& connected A% E(en if "oods mo(e from one state to another in !ursuance of a"reement to sa&e and the sa&e is com!&eted in the State in #hich "oods are recei(ed' it #i&& $e an inter3 State sa&e% 3 Mif there is sti!u&ation in the a"reement re"ardin" transfer of !ro!ert in "oodsN% G% There shou&d $e !h sica& mo(ement of "oods from one State to another% Such mo(ement must $e ine*trica$& connected #ith sa&e% 3 P% The contract ma not !ro(ide for mo(ement of "oods% It is enou"h if such mo(ement is resu&t of co(enant of sa&e or is incidenta& to the contract% It is sufficient if the mo(ement of "oods is im!&icit in the sa&e L% It is immateria& in #hich State the !ro!ert /i%e% o#nershi!0 of "oods !asses to the $u er% 3% 2ro!ert ma !ass in either State ?% 8ode of trans!ort is immateria&% It ma $e aircraft' rai&' !ost' motor trans!ort' an"adia' shi! or hand cart 7>% E(en if $u er ta5es de&i(er from the se&&er' it can $e inter3State sa&e if mo(ement of "oods to other State is a necessar !art of transaction' e%"% if cement is issued #ithin the State to a $u er $ut as !er a&&otment order the $u er had to necessari& ta5e the "oods out of the State' it is an Inter3State Sa&e%
8=otees#aran 81A I SE8 LA)1 9>79 <andout ?

/i0 /ii0

79P

EXCISE DUTY & CENVAT SALES TAX & VAT Simi&ar& ' if a dea&er sends "oods to his A"ent in other State #ho stoc5s "oods on behalf of the dealer' it is not a sa&e% Such a"ent is usua&& ca&&ed IConsi"nment A"entJ% .oods are des!atched to another State on consi"nment $asis and the !erson des!atchin" "oods retains o#nershi! of "oods% Since no sa&e is in(o&(ed' there is no IInter State Sa&eJ% Essentials of valid sale ) there must $e transfer of "oods "enera& !ro!ert in the "oods shou&d $e transferred to $u er from se&&er consideration i%e% !rice must $e !aid or a"reed to $e !aid% It ma $e cash' deferred !a ment or an other (a&ua$&e consideration ISa&eJ inc&udes hire !urchase' "oods in(o&(ed in #or5s contract' &ease or sa&e of food artic&es% Transactions #hich are not Isa&esJ 2&ed"e is $ai&ment of "oods as securit for !a ment of a de$t or !erformance of a !romise% In mort"a"e' the !ossession of immo(a$&e !ro!ert ma or ma not $e handed o(er% In !&ed"e' !ossession of "oods is handed o(er $ o#ner to !erson ma5in" the ad(ances% < !othecation means a !&ed"e #ithout immediate !ossession of "oods% Sa&es ta* rate for sa&e #ithin the State Ni& 7B 9B :B @B LB 7>B 79%AB 9>B CST rate in case of sa&e to re"istered dea&ers Ni& 7B 9B 9B 9B 9B 9B 9B 9B VALUE ADDED TAX <o# does it #or5T Let us assume that a dinin" ta$&e set is so&d and $ou"ht $ A !arties at !rices sho#n $e&o# and the sa&es ta* is 7>B for that item% At 7>B ST the sa&es ta* &ia$i&it and the actua& (a&ue addition are sho#n in each case of transactionSe&&er 1u er Se&&in" 2rice Ta* O7>B Va&ue Addition Ta* Ani& 1a5shi 7>>>> 7>>> 1a5shi C riac 77>>> 77>> 7>> C riac Damu 79>>> 79>> 7>> Damu E(an 7:>>> 7:>> 7>> E(an +aza& 7A>>> 7A>> 9>> CST rate in case of sa&e to unre"istered dea&ers Ni& 7B 9B :B @B LB 7>B 79%AB 9>B

/a0 /$0 /c0 /d0 /e0 /f0 /"0 /h0

8=otees#aran

81A I SE8 LA)1 9>79 <andout ?

79L

EXCISE DUTY & CENVAT SALES TAX & VAT In the !re(ious s stem' Ani& had to !a 7>>> as sa&es ta*% Thereafter' it #as difficu&t to esta$&ish the transactions and actua& sa&e% S) there #as &ar"e sca&e ta* e(asion% No#' an one se&&in" had to !a the VAT% Thus 4hen 1a5shi $u s' he #i&& "et !roof from Ani& that sa&es Ta* of 7>>> #as !aid and inc&uded% So no# #hen he se&&s to C riac' he has to !a 77>> as ta*% 1ut he has a&read !aid 7>>>% Therefore $ !roducin" !roof of ha(in" !aid 7>>> at the time of !urchase from Ani&' he can rec&aim 7>>> and actua&& !a the VAT on 7>>> that is 7>>% This s tem $rin"s interna& disci!&ine in trade and commerce and a&so fi*es res!onsi$i&it on the $u er to 5ee! !roof of !a ment of ta*% The o(era&& $urden is a&so reduced% E(er trader has to re"ister himse&f as a dea&er #ith sa&es ta* authorities and o!en an account for a&& transactions to c&aim refunds and ad;ustments% A dea&er cou&d $e a trader or distri$uter or manufacturer% E(er dea&er #hen he !urchases ra# materia& or "oods for trade #ou&d ha(e "ot !roof of the se&&er ha(in" !aid the sa&es Ta*% This is the first in!ut ta* $ the $u er%This $u er ma se&& on man occasions the "oods o(er a time% The ta* !a a$&e is out!ut ta*% The difference $et#een the out!ut and in!ut ta* for a !eriod is the VAT !aid $ the $u er% VAT is a!!&ica$&e on& for INT,A STATE sa&es N)T for INTE,STATE sa&es% ,am & Co se&&s s!orts "oods to ,ahim & Co in 8um$ai% It is interstate sa&e% VAT is not a!!&ica$&e%1ut Centra& Sa&es ta* is a!!&ica$&e% E*cise dut and Ser(ice Ta* ha(e no re&ationshi! #ith Sa&es Ta*% ,a; & Co $u s "oods from ,adha & Co for 9A &a5hs #ith VAT 7&a5h !aid in Uanuar % It se&&s for 9> &a5hs in Uanuar % The VAT is at @B ' is L>>>>% ,a; & Co can either c&aim $ac5 9>>>> or carr the $a&ance 9>>>> for#ard for VAT to $e !aid in +e$ruar % Cases7% Anand is constructin" a house in Chennai and 1harat $oth $ased in Chennai % Anand is constructin" a house in 1an"a&ore% <e enters into contract #ith 1harat for su!!& of furniture for dis!atch to 1an"a&ore for Anand% Is it interstate or intrastate sa&eT 9% A1C & Co has manufacturin" !&ant in 2une and has dea&ers in a&& o(er the countr % A&& !a ments are made to its <) at De&hi% De&i(eries are from 2une% Is it interstate or intrastate sa&eT

8=otees#aran

81A I SE8 LA)1 9>79 <andout ?

79?