SERVICE TAX

Service Tax:
It has been the policy of the govt. of India to
promote trade with other countries.
They therefore had been bringing down the
custom duties for past few years to liberalize the
trade.
The reduction in import duties was considerable
during past years.
As a result, the govt. found that revenue
collection was not commensurate with growing
expenditure.
Service Tax :
 They were exploring the new ways to
increase the revenue.
 They appointed a Tax Reforms Committee
under the Chairmanship of Dr. Raja
Chelliah to make a study and recommend
the sources for a new levy.
Service Tax :

The committee envisaged the excise

duties on commodities will gradually get
transformed into VAT at the manufacturing
level.
They therefore recommended a tax on
various services.
As a result the Service Tax was introduced
in Budget 1994.
Service Tax :
 Persons liable to pay Service Tax:
1. Stock Broker Services: A stock broker or a sub stock
broker who provides services to investor in connection
with the sale or purchase of securities in a recognized
Stock Exchange is required to pay the service tax.
Registration: Securities and Exchange Board of India
2. Manpower Recruitment Agencies: All commercial
concerns engaged in providing any service directly or
indirectly for recruitment of manpower to a client come
under this service and they are liable to pay service tax
for the services rendered.
Service Tax :
 Persons liable to pay Service Tax:
3. Market research Agencies: Service tax is payable by the
commercial concerns engaged in conducting marketing
research in relation to any product, service or utility
including all types of customized and syndicated research
services.
4. Management Consultants: The service rendered by a
management consultant in connection with the
management of any organization is taxable. The service
include advice, consultancy, technical assistance,
development, development , modification or upgrading of
any working system of any organization.
central [Link]
Service Tax :
 Registration:
Every person liable to pay tax has to apply
the Central Excise Officer appointed in the
Form ST.1 for Registration.
He has to obtain service tax code number
by applying for the same in application
form.
Service Tax :
 Registration:
If any person had rendering taxable services
before the introduction of the levy of service tax,
the application for registration is to be submitted
within a period of 30 days of the introduction of
service tax.
If the tax payer is not a resident of India and has
no office in India, the service tax is to be paid by
the person receiving the service.
Sales Tax:
 Registration:
If a person is providing taxable services from
more than one premises or office, but has a
centralized system of billing to clients, he can
opt for registering only the premises or office
from where billing is done.
A person providing more than one taxable
service can make one application for
registration.
Service Tax :
 Registration:
The time prescribed for a central Excise
Officer to grant a Certificate of Registration
is within 7 days from the receipt of
application. If the certificate is not issued
within the time specified, the registration
can be deemed to have been granted.
Service Tax :
 Registration:
If the registered person transfers his
business to somebody else, the transferee
has to obtain a fresh certificate of
registration.
When a registered person stops rendering
taxable services, he should surrender the
Certificate of registration.
Service Tax :
 Manner of Payment:
The service tax on the value of taxable
services received in any calendar month
should be credited to the bank designated
by the Central Board of Excise and
Customs in TR.6 challan by 25th of the
immediately following the calendar month.
Service Tax :
 central [Link]
SALES TAX
Sales Tax
Sales Tax is a tax levied by the state govt.
It is levied whenever goods are purchased
within the particular state.
When goods are purchased/procured from
sources outside the state, Central Sales
Tax, popularly known as CST, is levied.
Since it is a duty of the seller to charge
sales tax to buyers on behalf of the state
govt. and hand over the same to govt.
Sales Tax
It is optional for the enterprise to acquire a
registration for CST in the case if inter-
state trade.
However, CST registration becomes
essential as rates of CST are
comparatively lower than the rates of state
sales tax.
Business having registration are known as
Registered Dealers (RD).
Sales Tax
 Business which are not registers with
sales tax authority are known as Un-
Registered Dealers (URD).
 The rate of tax differs from state to state
that is why the obligation to pay tax begins
from the very first transaction of sale.
Sales Tax
 Registration of Business:
The relevant authority that registers and
regulates business is the Sakes Tax
Department of the state.
One should first find out under whose
jurisdiction one’s business falls and then
try to contact the concerned authority.
Sales Tax
 Registrationof Business:
If one is about to start a manufacturing unit
,one needs not to wait till production starts.
He can get registered as a dealer in the
meantime.
Normally no fees are required to be
submitted and registration is provided by
the department within a stipulated time
period.
Sales Tax

 Registration of Business:
Docs to be submitted:
– Registration Form,
– copies of partnership deed,
– Memorandum and Articles of Association,
– proof of permanent place of business,
– registration under Shop and Establishment Act,
– rent receipt,
– municipal tax bill or electricity bill.
Sales Tax
 Periodic Returns:
After having registered yourself as a
dealer, the second step is to maintain
books of account and file returns.
The tax payable must be deposited in the
govt. treasury directly or through
authorized banks in the prescribed form
known as challan.
Sales Tax
 Periodic Returns:
Return and challan should be submitted together
within the prescribed time limit. There are
penalties for failure and late filing of the returns.
Assessment of Returns:
The sales tax authority calls the assesse to
inspect various records maintained to verify the
correctness.
The final assessment takes place 2 to 3 yearss
after completion of the financial year.
Sales Tax
 Other Formalities:
There are other formalities that have to be
fulfilled like providing information about changes
in name and style of business, change in
constitution of enterprise, change in the place of
business.
The invoice will show the date, sales tax
registration no, name and add of the purchaser,
description of goods sold, amount of
consideration, rate of tax charged, amount of
tax.
 CENTRAL
SALES TAX
Central Sales Tax:
Sales Tax is one of the most important Indirect
Tax for purpose of taxation by State
Governments.
Revenue from CST goes to State from which
movement of goods commences.
Total CST revenue in 98-99 was Rs 8,538
Crores. Revenue of some major States was -
Maharashtra - Rs 1,442 Crores. Tamilnadu -
Rs 934 Crores. West Bengal - Rs 799 Crores.
Gujarat - Rs 787 Crores, Haryana - Rs 739
Crores.
Central Sales Tax:
As regards sales tax, Central Sales Tax is
levied by Central Government.
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.
Central Sales Tax:
 Liability to pay tax:
Every dealer is liable to pay tax under this act on
all sales of goods other than electrical energy
effected by him in the course of inter-state trade
or commerce during any year.
 Goods under CST Act
Sales tax liability is on ‘goods’. ‘goods’ includes
all materials, articles, commodities and all kinds
of movable property, but does not include
newspapers, actionable claims, stocks, shares
and securities.
Central Sales Tax:
 Stock Transfer/Branch Transfer:
If a manufacturer sends goods to his branch in
other State, it is not a ‘sale’ as you cannot sell to
yourself.
Similarly, if a dealer sends goods to his Agent in
other State who stocks goods on behalf of the
dealer, it is not a sale.
This is called ‘stock transfer’ or ‘branch transfer’.
Here, movement of goods takes place from one
State to another, but it is not an inter State sales.
Central Sales Tax:
 Transfer of goods:
When any dealer claims that he is not liable to pay tax, in respect of
goods on the ground that the movement of such goods from one
state to another was occasioned by reason of transfer of such
goods by him to any other place of his business or to his agent or
principal, and not by reason of sale, the burden of proving that the
movement of those goods was so occasioned shall be on that
dealer and for this purpose he may furnish to the assessing
authority, within the prescribed time or within such further time as
that authority may, for sufficient cause, permit, a declaration, duly
filled and signed by the principal officer of the other place of
business, or his agent or principal, as the case may be, containing
the prescribed particulars in the prescribed form obtained from the
prescribed authority, along with the evidence of dispatch of such
goods.
Central Sales Tax:
If the assessing authority is satisfied after
making such inquiry as he may deem necessary
that the particulars contained in the declaration
furnished by a dealer are true, he may, at the
time of, or at any time before, the assessment of
the tax payable by the dealer, make an order to
that effect and thereupon the movement of
goods to which the declaration related shall be
deemed for the purpose of this Act to have been
occasioned otherwise than as a result of sale.
Central Sales Tax:
 Registrationof Dealers:
Every dealer liable to pay tax shall, within
time make an application for registration to
such authority in the appropriate State as
the Central Government may, by general
or special order, specify, and every such
application shall contain such particulars
as may be prescribed.
    Central Sales Tax:
 
‘Business’ under CST’:
 

Profit motive is immaterial.
Business normally implies something done on
regular basis.
Incidental or ancillary business is also covered
e.g. sale of used car, sale of scrap, sale of old
machinery, sale of old furniture etc. is taxable,
though normally the dealer may not be in
business of selling cars, furniture or machinery
e.g. Central Excise Authorities selling the goods
confiscated by them are liable to pay sales tax.
Central Sales Tax:
 Application for registration:
Application for registration should be made in
prescribed form ‘A’ within 30 days from the date
when dealer becomes liable to CST.
Application fee of Rs. 25 is payable
Application has to be signed by (a) proprietor of
business (b) one of the partners in case of
business owned by partnership firm (c) Karta or
Manager of HUF (d) director or principal officer
of Company (e) principal officer in case of
association of individuals or (f) officer authorized
by Government in case of Government.
Central Sales Tax:
 Other documents required at time of registration: Other
documents required at the time of registration vary from
State to State.
Particulars of Directors/ partners
Copies of articles of association,
memorandum in case of company and partnership deed
if applicant is a firm
Copies of rent agreements
Nominations as Manager
List of places of business, godown
Details of machinery
Details of bankers
Photographs of directors / partners.
Central Sales Tax:
 Amendment of Certificate:
The certificate can be amended e.g.
change of name, change of business,
change of class of goods in which he
carries business, change/addition of place
of business, warehouses etc.
INCOME TAX
Income Tax:
Income tax is one of the most important tax for
Entrepreneurs.
The person is liable to pay income tax only when
he earns income above certain specified limits,
below which he is exempted from tax.
In either case, one should always be careful to
file the mandatory income tax returns regularly.
Non-payment or non-filing is an offense.
What is Income?
Income includes:
Profit and gains
Dividends
Voluntary contributions received by a trust
The value of perquisites or profits in a salary
Any winnings from lotteries, races, card game
Any capital gains
Any other sum chargeable to income tax
Assessment Year:

It refers to the period of 12 months

commencing on April 1 every year.
Tax is levied for each financial year
commencing from that day and ending on
31st March immediately.
The tax ix charged on the taxable income
of the previous year.
Income Tax Authorities:
There are seven income tax authorities:
The Central Board of Direct taxes
Directors of Inspection
Commissioner is Income Tax and Additional
Commissioners of Income tax
Appellate Assessment Commissioners
Inspecting Assisting Commissioner
Income Tax Officers
Inspectors of Income Tax
Income Tax Officer is the most important official
Income Heads and Computation:
 Salaries
 Interest on securities
 Income from House properties
 Profits and gains of business
 Capital gains
 Income from other sources
Income Tax Returns:
 It requires every assesse to compute the
tax payable on the basis of the return
required to be submitted by him.
 The tax has to be paid whatever the
amount may be; it must be paid before the
return is submitted.
Income Tax Returns:

There is a system of allocating a

Permanent Account No. to every assesse.
It is for the identification of the person
concerned.
If a person having taxable income in
respect of any accounting year and does
not have such no., he has to make an
application to the relevant IT officer.
 CENTRAL
EXCISE TAX
Central Excise Tax:
Excise is a tax on articles produced or
manufactured in a country and intended
for domestic consumption.
It is an indirect tax by the govt. It is paid by
the manufacturer who passes it on to the
consumer.
Thus, Excise is a central tax and Central
Excise Dept. is responsible for its levy and
collection.
Laws regarding Central Excise:
Central Excise and Salt Act
Central Excise tariff Act
Central Excise Rules
Additional Duty of Excise Act
Central Excise (Valuation) Rules
 The govt. is empowered to levy excise on all
articles manufactured in India excluding alcohol,
alcoholic preparations and narcotics.
 The liability of excise duty begins the moment a
new commodity is manufactured.
Basis of Excise Duty:
 A specific duty, i.e. a rate fixed per unit or
by weight, volume or area
 A duty as a percentage of value
 A rate of duty which varies with the total
volume
 A duty which is levied on production
capacity, irrespective of actual production
Registration of Units:
 Every manufacturer of goods on which
duty is applicable is required to get himself
registered before commencing production.
 As excise duty is now applicable to
practically all goods, raw materials,
intermediates, components, sub-
assemblies, capital goods or final
products.
 VALUE
ADDED TAX
Value Added Tax
 Basic Concept of VAT
Generally, any tax is related to selling price of product.
In modern production technology, raw material passes
through various stages and processes till it reaches the
ultimate stage
e.g., steel ingots are made in a steel mill. These are
rolled into plates by a re-rolling unit, while third
manufacturer makes furniture from these plates.
Thus, output of the first manufacturer becomes input for
second manufacturer, who carries out further processing
and supply it to third manufacturer.
This process continues till a final product emerges. This
product then goes to distributor/wholesaler, who sells it
to retailer and then it reaches the ultimate consumer.
Value Added Tax
If a tax is based on selling price of a product, the tax burden goes
on increasing as raw material and final product passes from one
stage to other.
For example, let us assume that tax on a product is 10% of selling
price. Manufacturer ‘A’ supplies his output to ‘B’ at Rs. 100.
Thus, ‘B’ gets the material at Rs. 110, inclusive of tax @ 10%. He
carries out further processing and sells his output to ‘C’ at Rs. 150.
While calculating his cost, ‘B’ has considered his purchase cost of
materials as Rs. 110 and added Rs. 40 as his conversion charges.
While selling product to C, B will charge tax again @ 10%. Thus C
will get the item at Rs. 165 (150+10% tax). As stages of production
and/or sales continue, each subsequent purchaser has to pay tax
again and again on the material which has already suffered tax. This
is called cascading effect.