Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Constitutional Background of GST [Pre-GST Regime]

According to Article 265 of the Constitution of India, no tax of any nature can be levied or collected by  Central or State Governments except by authority of law.

The authority to enact law and levy taxes and duties has been given by the constitution vide Article 246.  According to Article 246, law can be enacted by Parliament or the State Legislature, if such power is given by the  Constitution of India.

Constitutional Background of GST [Pre-GST Regime]
Constitutional Background of GST [Pre-GST Regime]
Such power is given by Article 246 in Seventh Schedule of the Constitution of India under the following three  lists:

List-I — Union list

Under List-I, the Parliament has  exclusive power to make laws  including the law for levy of taxes  in respect of the matter (entry)  enumerated in that list.

List-II — State list

Under List-II, the legislature of any  State has exclusive power to make  law for such state or any part  thereof in respect of the matter  (entry) enumerated in that list.

List-III — Concurrent list 

Under List-III, the Parliament or  the Legislature of a State has  power to make laws in respect of  the matter (entry) enumerated in  that list.

Further, the Parliament has power to make laws with respect to any matter for any part of the territory of India  not included in the State (i.e. for union territory) notwithstanding that such matter is a matter enumerated in State  list. In other words for union territories, parliament shall have the exclusive power to make laws even if that  matter in included in the State list.

1.   Types of taxes

Taxes can be broadly classified into the following two types:

(a) Direct taxes

and

(b) Indirect Taxes.

Every tax which is levied by any Government has the following two effects:

(1) Immediate effect:

When a tax is imposed, the immediate effect of the tax is on the person on whom the tax  has been imposed and he shall be liable to pay such tax. The immediate effect is also known as impact of  tax.

See also  GST Registration, Modification and Cancellation Procedure

(2) Ultimate effect:

The next issue involved in the imposition of tax is whether the burden of such tax, which  is imposed on a person, can be shifted to another person i.e. can this tax be recovered from the other  person. In other words who will be ultimately effected by the imposition of such tax. Ultimate effect of  tax is also known as incidence of tax.

If the impact and incidence of tax is on the same person i.e. the burden of the tax cannot be shifted or  recovered from other person, it is known as direct tax.

For example, income tax levied by the Central Government  and taxes (i.e. stamp duty) on land and buildings levied by the State Government. 

If the impact of tax is on one person and the incidence of the tax is on another person i.e. the burden of tax  can be shifted or the tax so paid by a person can be recovered from another person, it is known as indirect tax.  For example, Central Excise Duty levied by the Central Government and VAT levied by the State Government.

Thus, indirect tax is one that can be shifted by the taxpayer to some other person. Its incidence is borne by the  consumer who ultimately consumes the product or the service.

Further, direct taxes are imposed on persons, whereas indirect taxes are levied on goods and services e.g.  Excise duty, Customs duty, Service tax, VAT, etc. (and now GST).

2. Taxes levied by the Central Government

The Central Government levied both direct and indirect taxes as per the following entries contained in the  List I i.e. union list:

(A) Direct Taxes

(1)   Entry No. 82 — Taxes on Income other than agricultural income.

(2)   Entry No. 85 — Corporation Tax

(3)  Entry No. 86 — Taxes on capital value of assets i.e. wealth tax (wealth tax has been withdrawn, w.e.f.  A.Y. 2016-17)

(B) Indirect Taxes

(1)   Entry No. 83 — Duties of customs including export duties

(2)   Entry No. 84 — Duties of excise on tobacco and other Goods manufactured or produced in India  except on:

(a) alcoholic liquors for human consumption

(b) opium, Indian hemp and other narcotic drugs and narcotics.

See also  [Section 139(4A)]- Return of Income of Charitable Trust and Institution

but including medicinal and toilet preparations containing alcohol or opium/Indian hemp/narcotic  drugs/ narcotics  Excise duty has now been subsumed in GST.

(3) Entry No. 92A — Taxes on sale or purchase of goods other than newspapers in the course of inter  state trade and commerce.

Central Sales Tax (CST) on sale in the course of inter State Trade and Commerce has been levied  under this power.

CST has now been subsumed in GST.

(4) Entry No. 92B — Tax on consignment of goods.

(5) Entry No. 92C — Taxes on services.

However, service tax was levied as per entry No. 97 and no separate Service Tax Act was enacted.

Service tax has now been subsumed in GST.

(6) Entry No. 97 — Any other matter not enumerated in List II or List III including any tax not  mentioned in either of those Lists.

In other words, Entry No. 97 is a residuary power given to the Central Government to levy tax also  provided the matter is not enumerated in List II or List III of the Seventh Schedule.

3.   Taxes levied by the State Government

State Governments also levied both direct and indirect taxes as per the entries contained in the list II i.e. the  State list. Some of the important taxes levied by State Governments are as under:

(1) Entry No. 46 — Taxes on agricultural income.

(2) Entry No. 49 — Taxes on lands and buildings.

(3) Entry No. 51 — Duties of excise on the following goods manufactured or produced in the State and  countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in  India:—

(a) alcoholic liquors for human consumption;

(b) opium, Indian hemp and other narcotic drugs and narcotics,

but not including medicinal and toilet preparations containing alcohol or any substance included in subparagraph (b) of this entry.

(4) Entry No. 52 — Taxes on the entry of goods into a local area for consumption, use or sale therein i.e.

Octroi and Entry tax.  Octroi and Entry tax has now been subsumed in GST.

(5) Entry No. 54 — Taxes on the sale or purchase of goods other than newspapers i.e. State Level VAT.  State VAT has now been subsumed in GST.

See also  Payment of GST in GST Regime

(6) Entry No. 60 — Taxes on professions, trades, callings and employments.

(7) Entry No. 63 — Rates of stamp duty in respect of documents other than those specified in the provisions  of List I with regard to rates of stamp duty.

%d bloggers like this: