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Compliance

 Direct Taxes  Company Law Matters

 2. Indirect Tax

2.1] Value Added Tax

Meaning

VAT, in simple terms, is a multi-point levy on each of the entities in the supply chain with the facility of set-off of input tax-that is, the tax paid at the stage of purchase of goods by a trader and on purchase of raw materials by a manufacturer. Only the value addition in the hands of each of the entities is subject to tax. For instance, if a dealer purchases goods for Rs. 1000 from another dealer and a tax of Rs. 100 has been charged in the bill, and he sells the same goods for Rs. 1250 on which the dealer will charge a tax of Rs. 125 at 10 percent, the tax payable by the dealer will be only Rs. 25, being the difference between the tax collected of Rs. 125 and tax already paid on purchases of Rs. 100. Thus, the dealer has paid tax at 10 percent on Rs.250 being the value addition in his hands.

Method:

VAT can be computed by using any of the three methods mentioned below:

  • Subtraction Method: The tax rate is applied to the difference between the value of output and the cost of input.
  • Addition Method: The value added is computed by adding all the payments that is payable to the factors of production (viz. wages, salaries, interest payments, etc.)
  • Invoice Method: Also known as the tax credit method, it entails set-off of the tax paid on inputs from tax collected on sales.

In India, the Invoice method (tax credit method) is prevalent.

Applicable to

  • VAT is applicable only to Registered Dealer. Dealer can get himself registered voluntarily or compulsorily.
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2.2] Service Tax

Meaning

Service Tax is a form of indirect tax imposed on specified services called "taxable services". Service tax cannot be levied on any service which is not included in the list of taxable services. Service tax is a part of Central Excise in India. It is a tax levied on service providers in India, except the State of Jammu and Kashmir.

Applicable to

Service Tax is applicable to service providers whose total value of services provided (including exempt and non taxable services) is more than Rs 10,00,000/- in previous year. Registration is required if turnover exceeds Rs. 9,00,000/- in the previous year.

Due Dates

Due date for payment of service tax for individual & Partnership firm is 5th of the following month after each quarter ending i.e for the quarter of April-June, the due date is 5th July and so on and for the last quarter payment has to be done by 31st of March.

Due Date for payment of service tax for others is 5th of the following month after the end of every month i.e for the month of April, the due date is 5th of May and so on but for the month of March it is 31st March.

Due Date for filing of service tax return for all the assesses are as follow:

Particular Due date for filing return
April To September 25th October
October To March 25th April

2.3] Excise & CENVAT

Meaning

Excise Duty is charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of excisable goods. This tax is now known as the Central Value Added Tax (CENVAT). Every person who manufactures, produces, carries on trade, holds warehouses for excisable goods shall have to obtain registration under the excise laws.

No excisable goods may be removed from the factory or a warehouse except under an invoice signed by the owner of the factory or his authorized agent.

Applicable to

The liability to pay tax excise duty is always on the manufacturer or producer of goods. As per Rule 4 of Central Excise Rules, the excise duty is payable by the manufacturer or producer of excisable goods. In case where goods are allowed to be stored without payment of duty, the duty liability is of the person who stores the goods. Rule 4 makes it clear that goods can be removed from the place where they are manufactured or produced or warehoused, only on payment of duty. In case of molasses produced in khandsari sugar factory, the duty liability is of the procurer (i.e.; purchaser) of such molasses.

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