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INTRODUCTION TO INDIRECT TAXATIONFeatures of Indirect Taxes

Government needs funds for various purposes like

maintenance of law and order, defence, social/healthservices etc. Govt’s. main source of fund is taxation.

 Taxes are conventionally broadly classied as Direct Taxes and ndirect Taxes.

Direct taxes are paid directly by the personconcerned, and in case of indirect taxes, they arepaid by one person !collectin" a"ent#, but herecovers the same from another person !consumer#.

Direct Taxes $ ncome Tax, Gift Tax and %ealth Tax.ndirect Taxes $ &entral 'xcise !Duty onmanufacture#, customs !duty on imports andexports#, (ales Tax, )ctroi, 'ntry Tax, (ervice Tax,

'xpenditure Tax etc.

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Advantages of Indirect Taxes:

*sycholo"ical advanta"e to tax payer

+anufacturers’/Dealer’s psycholo"y favorsindirect taxes.

'asier to collect

(li"htly less tax evasion

ower collection costs&ontrol over wasteful expenditure

&hanneli-e industrial "rowth

(upportin" local industryi"h revenue from ndirect Taxes

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Disadvantage of Indirect Taxes:

e"ressive in nature

educes demand of "oodsncreases pro0ect costs

(hields ine1cient local industries

+odern technolo"y becomes costly

ncreases smu""lin"/Tax evasion

ndirect taxes are perceived as in2ationary

&onstitution of ndia3

4dministration of (tate3 )r"ans $ e"islative,'xecutive and 5udicial

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6ill, 4ct, )rdinance and ules $ +ode of passin" the4ct7 )rdinances

%hat is dele"ated le"islation8

 Trade &irculars and Trade 9otices

 Taxation under &onstitution

:nion ist relevant to taxation $ ist $ called;:nion ist’ $ contains entries like defence of ndia,<orei"n a=airs, %ar and *eace, 6ankin" etc. !'ntry9o.>?@.'ntry 9o.AB3 4ny other matter not includedin ist , ist and any tax not mentioned in ist or ist . $ These are called Cesidual *owers’#

(tate ist pertainin" to taxation3 (tate Govt. hasexclusive powers to make laws in respect of mattersin ist of (eventh (chedule to our &onstitution. These

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entries include *olice, *ublic ealth, 4"riculture,and etc. 'ntry 9o.EF@Taxes on a"riculturalincome7 'ntry 9o. H3 'xcise duty on alcoholic

liIuors, opium and narcotics7 'ntry 9o. ?3 Tax onentry of "oods into a local area for consumption,use or sale therein !usually called )ctroi#7 'ntry 9o.E3 Tax on sale or purchase of "oods other than

newspapers except tax on interstate sale orpurchase.J

ist of (eventh (chedule called Cconcurrent ist’includes matters where both &entral Govt. and

(tate Govt. can make laws. This list includes entrieslike &riminal aw and *rocedure, Trust and Trustees,civil procedures, economic and social plannin",trade unions, charitable institutions, price control,factories etc.

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n case of entries included in concurrent list,in case of con2ict, law made by :nion Govt.

prevails. The only exception is that if law made by

(tate contains any provision repu"nant toearlier law made by *arliament, law made by

(tate Govt. prevails, if it has received assentof *resident.

'ven in such cases, *arliament can makefresh law and amend, repeal or vary law made

by (tate 4rt.?E of the &onstitutionJ.