Since Constitution of India is foundation and source of powers to all laws in India, it is necessary to understand general background of Constitution to enable us to understand and appreciate each individual Law. In India, Constitution which came into effect on 26th January 1950 is supreme and all laws and Government actions are subordinate to our Constitution.
The Constitution of India (COI) has given power to levy tax to central and state government under seventh schedule. The taxation in India is either charged by the state governments or by the central government. In the basic scheme of taxation in India, it is conceived that central government will levy and collect tax revenue from Income Tax (except on Agricultural Income), Excise (except on alcoholic drinks) and Customs while state government will get tax revenue from sales tax, excise on liquor and tax on Agricultural Income and the municipalities will get tax revenue from octroi and house property tax.
India is Union of States –
Our Constitution generally follows British pattern, though concepts of federal structure are borrowed from American and other constitutions. India is a Union of States. The structure of Government is federal in nature. Government of India (Central Government) has certain powers in respect of whole country. India is divided into various States and Union Territories and each State and Union Territory has certain powers in respect of that particular State. Thus, there are States like Gujarat, Maharashtra, Tamilnadu, Kerala, Uttar Pradesh, Punjab etc. and Union Territories like Pondicherry, Chandigarh etc.
Taxation under Constitution - In the basic scheme of taxation in 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 Agricultural Income
(c) Municipalities will get tax revenue from octroi 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. Though 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 matters enumerated in List I in the Seventh Schedule to Constitution. (Called ‘Union List’). 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 respect of matters given in list I of the Seventh Schedule of the Constitution (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. [In case of Union Territories, Union Government can make laws in respect of all the entries in all three lists].
Union List relevant to taxation –
List I, called “Union List”, contains entries like Defence of India, Foreign affairs, War and Peace, Banking etc. Entries in this list relevant to taxation provisions are as follows:
Entry No. 82 - Tax on income other than agricultural income.
Entry No. 83 - Duties of customs including export duties.
Entry No. 84 - Duties of excise on tobacco and other goods manufactured or produced in India except alcoholic liquors for human consumption, opium, narcotic drugs, but including medicinal and toilet preparations containing alcoholic liquor, opium or narcotics.
Entry No. 85 - Corporation Tax.
Entry No. 92A - Taxes on the Sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of Interstate trade or commerce.
Entry No. 92B - Taxes on consignment of goods where such consignment takes place during Interstate trade or commerce.
Entry No. 97 - Any other matter not included in List II, list III and any tax not mentioned in list II or list III. (These are called ‘Residual Powers’.)
State list pertaining to taxation - State Government has exclusive powers to make laws in respect of matters in list II of Seventh Schedule to our Constitution. These entries include Police, Public Health, Agriculture, Land etc. Entries in this list relevant to taxation provisions are as follows:
Entry No. 46 - Taxes on agricultural income.
Entry No. 51 - Excise duty on alcoholic liquors, opium and narcotics.
Entry No. 52 - Tax on entry of goods into a local area for consumption, use or sale therein (usually called Octroi).
Entry No. 54 - Tax on sale or purchase of goods other than newspapers except tax on interstate sale or purchase.
List III of Seventh Schedule, called “concurrent list”, includes matters where both Central Government and State Government can make laws. This list includes entries like Criminal Law and Procedure, Trust and Trustees, Civil procedures, economic and social planning, trade unions, charitable institutions, price control, factories, etc.
In case of entries included in concurrent list, in case of conflict, law made by Union Government prevails.
The only exception is that if law made by State contains any provision repugnant to earlier law made by Parliament, law made by State Government prevails, if it has received assent of President. Even in such cases, Parliament can make fresh law and amend, repeal or vary law made by State. [Article 254 of Constitution].
Taxes are of two types
Direct Tax and Indirect Tax
Direct Tax is the tax, which is paid directly by people to the government, while indirect tax is the tax, which is paid indirectly by people to the government. Income Tax is paid directly to the government therefore it is a direct tax while excise duty is paid by people to the manufacturer who pays it to the government, therefore it is an indirect tax.
Central Excise Law is a combined study of:
1. Central Excise Act (CEA), 1944;
2. Central Excise Tariff Act (CETA), 1985;
3. Central Excise Rules, 2002; and
4. CENVAT Credit Rules, 2004
5. Central Excise (Appeal) Rules, 2001
6. Central Excise (Settlement) of Cases) Rules, 2001
7. Central Excise (Removal of Goods & Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001
Customs Laws is combined study of
1. The Customs Act, 1962
2. The Customs Tariff Act, 1975 and
3. Rules and Notifications on the above Acts
Service Tax Laws
1. Chapter V of the Finance Act, 1994 on Service Tax
2. Service Tax Voluntary Compliance Encouragement Rules, 2013
3. Service Tax (Compounding of Offences) Rules, 2012
4. Service Tax (Settlement of Cases) Rules, 2012
5. Point of Taxation Rules, 2011
6. Service Tax (Determination of Value) Rules, 2006
7. Dispute Resolution Scheme Rules, 2008
8. Service Tax Dispute Resolution Scheme, 2008
9. Export of Service Rules, 2005
10. Service Tax (Provisional Attachment of Property) Rules, 2008
11. The Service Tax (Publication of Names) Rules, 2008
12. Service Tax (Advance Rulings) Rules 2003
13. Service Tax Return Preparer Scheme, 2009
14. Service Tax Rules, 1994
Disclaimer: In this note, we have attempted to summarise some of the significant aspects to be kept in mind by readers to ensure compliance of tax laws and regulations. Readers should ensure to verify specific provisions as applicable to each case before taking any business decisions. It would be pertinent to note that some changes are being made to the tax laws and rules and regulations on a continuous basis by way of notifications, clarifications etc issued by the department based on their practical experience in implementing the legislation.
It may be noted that nothing contained in this note should be regarded as our opinion. Professional advice should be sought for applicability of legal provisions based on specific facts. Though reasonable efforts have been taken to avoid errors or omissions in this note we are not responsible for any liability arising to readers directly or indirectly due to any mis-statements or error contained in this note. It must be noted that the views expressed in the note are based on our understanding of the law and regulations as published by the Government authorities and we may or may not agree or subscribe to such views.
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