B L Term Paper Final

8/8/2019 B L Term Paper Final

1/28

LOVELY SCHOOL OF BUSINESS (LSM)

Term PAPER

OF

Corporate and Business Law

TOPIC: - Impact of indirect taxes on an

organization/ sale

SUBMITTED TO: SUBMITTED BY:

Harendar, Sir

NAME: Sanjeev kumar

REG. NO: 10907431

ROLL NO: RS1905A34

Section: 1905


2/28

MEANING OF TAX

Tax is the amount paid by person staying with a territorial limit of sovereign State and is

levied compulsory on individuals, goods, property, business, services etc. tax constitutes

government revenue. The purpose of taxation is to apportion the cost of Government

among those who in some measures are privileged to enjoy its benefits and hence must

bear its burden. Therefore, the ordinary notion of taxation that it is a penalty imposed on

the subject by the sovereign power is not correct. Tax is also not a liability on the subject

emanating from any contract. But it is a payment without any direct Quid Pro Quo.

CHARACTERISTICS OF TAX;

Taxation is devoid of rational approach, Rates of taxation depend entirely on the will of the

Finance bill of country or State. There is no uniformity either in coverage of items or quantum of

levy in the state as the concept of fiscal policy for levy of tax differs. Though there may not be

any uniformity in taxation, determination of the rates of taxes is a part of fiscal policy pursued

by the Central Government or State Government as the case may be for economic growth in the

country. High or Low rates of taxes, exemption full or partial, inclusions or otherwise of a

particular section or taxation, etc., are broad policy issues decided by Government, keeping in

view the socio-economic compulsions, and revenue need. The incidence may vary depending on

ones abilities to pay, though attempts are made to see that persons with equal financial status

should make equal tax payment. The great Economist and Statesman Kautilya had cautioned the

sovereign power on arbitrary taxation policy when he observed that ones own root should not

be destroyed by giving up taxes not that of others (subject) by excessive taxation. John

Marshall had a dig at taxation when he observed that The power to tax involves power to

destroy and there appears a lot of sanity in the statement. Common man is burden by taxation

directly or indirectly.

INDIRECT TAX :

Indirect Taxes accordingly to John Stewart Mill, are those which are demanded from


3/28

one person on the expectation and intention that he shall indemnify himself at the expense

of another such are the Excise and customs. The tax is levied on goods and services

and not on income or profits. The incidence of tax is carried by the commodity to the

actual point of consumption.

TAXATION IN INDIA

Taxes in India are levied by the Central Government and the State Governments. Some

minor taxes are also levied by the local authorities such the Municipality or the Local

Council. The authority to levy a tax is derived from the Constitution of India which allocates the

power to levy various taxes between the Centre and the State. An important restriction on

this power is Article 265 of the Constitution which states that "No tax shall be levied or

collected except by the authority of law." Therefore each tax levied or collected has to be

backed by an accompanying law, passed either by the Parliament or the State Legislature.


4/28

INDIRECT TAX

Indirect Tax or the tax that is levied on goods or services rather than on persons or

organizations are of different types in India like Excise Duty, Customs Duty, Service Tax,

and Securities Transaction Tax. In India, there are a series of Tax laws and regulations in

order to control the indirect taxation, which can be either law, made by the central

government or even can be state specific laws. As a result these taxes are an important

part of the total cost of material sold. It is thus essential to make appropriate planning for

such payments, collection and payment of taxes in input, input services & collection of

the said taxes on sale of goods and services and payment of such taxes to the credit of

Government of India.

In general, the Indirect Tax in India is a complex system of interconnecting laws and

regulations, which includes specific laws of different states. For this there are many

reliable organizations in India, which employs efficient Indirect Tax professionals to help

the industry and/or to their clients. These tax professionals with their in-depth knowledge

and wide-ranging experience offers effective planning methods to their clients in order to

help in their cost minimization. The Indirect Taxation regime encompasses various types

of taxes like Sales Tax, Service Tax, Custom and Excise Duties, VAT and Anti-Dumping

Duties, and the organizations provide services in all these related fields.

In the recent year, the Indian government has undertaken significant reform of

indirect taxation system. This includes the initiation of a region-based and state-level

VAT on goods. However, it may be noted that as taxes still forms a barrier to inter-state

trading in order to attain a secured market for the activities related to services and goods more

reform is needed. Some of the reforms that can be introduced for a better indirect


5/28

taxation system in India are

The serialized set of Indirect Taxes so far activated at the central and state

levels should be amalgamated and treated as a single tax.

The integrated Indirect Tax should be neutral at all levels such that chances of

fraudulence would be minimized.

The Central Sales Tax, which obstructs easy trading between different states,

is being under the process of termination that would help to abolish the control

measures on the inter-state trade.

By the year 2011 the Indian government has planned to activate a goods and service

tax [GST} neutral at all levels in order to fulfill these objectives. The government can

undertake either an introduction of a national VAT or a system, which would permit both

a state VAT, or a central VAT. Along with this if the government also can incorporate a

central VAT that can be rebated, on the trade across the boundary lines, then there would

be minimum chances of fraudulence.

Now we defines different types of Indirect taxes in India.

Excise duty

Excise duty is imposed on the manufacturer of excisable products and is levied on a wide

variety of commodities manufactured in India. This duty is an important source of revenue for

the central government.

Rates vary depending on the type of commodity, and even for the same type of commodity the

rates often differ depending on circumstances such as end-use and taxability of inputs. Although

generally ad valorem, the rates may also be specific or a combination of ad valorem and specific.

They are prescribed in the Central Excise Tariff Act and are revised from time to tie by the

annual Finance Acts or through notifications. Reference to the former Act is required to

determine the applicable rate for any commodity in question.

Sales tax


6/28

Sales tax is the most important source of revenue to the states and is imposed on virtually all

sales of goods. It is primarily the liability of the seller, who generally recovers it from the

purchaser. Each state has its own sales tax act under which tax is imposed at different rates.

Sales of imported items and sales by way of export are generally exempt from sales tax. Luxury

goods are normally taxed at a higher rate than other commodities. The sales tax acts of certain

states provide for certain additional levies, i.e., works contracts tax (imposed on a contractor for

manufacture, erection, repairs, etc.), turnover tax (imposed on the value of turnover exceeding a

certain limit) and purchaser tax (imposed on the value of goods purchased from suppliers that are

not registered under the sales tax laws).

The Central Sales Tax Act covers interstate sales. A concessional rate of sales tax is applicable if

the buyer is registered with the Sales Tax authorities.

It is advisable for an investor to be aware of sales tax liability under any proposed contract,

because its impact can be considerable.

Excise duty must be paid before the goods are cleared from the factory. Small-scale industries

enjoy exemption from excise tax up to the specified value of goods cleared. The state

governments are also empowered to levy excise duty on a few commodities, such as liquor, if

they are not taxed by the central government. Excise drawback is available if the goods

manufactured are exported.

Customs duties

Customs duties are levied on commodities imported into India. However, drawbacks may be

available if the imported items are reexported or used in manufacture for export. Customs duty is

also imposed on the value of certain exports. The rates are prescribed in the Customs Tariff Act,

1975 and are revised from time to time by the annual Finance Act or by various notifications.

Customs duties, particularly on imports, may be a significant cost factor in an Indian project due

to the generally high rates of duties, unless corresponding drawbacks are available upon export.

Stamp duty

Stamp duty is levied at various rates on documents, such as bills of exchange, promissory notes,

insurance policies, contracts effecting a transfer of shares, debentures, and conveyances for the

transfer of immovable property. Stamp duty on the transfer of shares and conveyances of

immovable property is normally payable by the purchaser. The rates are prescribed by central

government legislation, the Indian Stamp Act 1899, but rates on some documents have been

revised through state government legislation.

Expenditure tax


7/28

Expenditure tax is levied under the Expenditure Tax Act, 1987 at the rate of 10 percent on

payments made to hotels toward room charges, food, beverages, and other services. This tax is

collected by hotels from their customers and deposited with the central government. However, it

is not applicable to hotels with room charges of less than Rs 1,200 per day pr person.

Service tax

Service tax, introduced for the first time in 1994, is imposed at 5 percent on commissions and

brokerage fees charged by stockbrokers, the gross amount of telephone bills, and premiums for

nonlife insurance.

Wealth tax

Wealth tax is essentially a direct tax and is levied on the taxable wealth of individuals and

companies.

Other taxes

Various other taxes or rates are levied by the municipal authorities (e.g., on goods entering their

jurisdiction and on the annual value of property), by state governments (e.g., on motor vehicles

and amusements) and by the central government (e.g., on foreign travel and domestic air travel).

VALUE ADDED TAX [VAT]

VAT is a multi-stage tax levied at each stage of the value addition chain, with a provision to

allow input tax credit (ITC) on tax paid at an earlier stage, which can be appropriated against the

VAT liability on subsequent sale. VAT is intended to tax every stage of sale where some value is

added to raw materials, but taxpayers will receive credit for tax already paid on procurement

stages. Thus, VAT will be without the problem of double taxation as prevalent in the present tax

laws Presently VAT is followed in over 160 countries. The proposed Indian model of VAT will

be different from VAT as it exists in most parts of the world. In India, VAT will replace the

existing state sales tax system. One of the many reasons underlying the shift to VAT is to do

away with the distortions in our existing tax structure that carve up the country into a large

number of small markets rather than one big common market. In the present sales tax structure

tax is not levied on all the stages of value addition or sales and distribution channel which meansthe margins of distributors/ dealers/ retailers et al are not subject to sales tax at present. Thus, the

present pricing structure needs to factor only the single-point levy component of sales tax and

the margins of manufacturers and dealers/ retailers etc, are worked out accordingly. Under the

VAT regime, due to multi-point levy on the price including value additions at each and every

resale, the margins of either the re-seller or the manufacturer would be reduced unless the

ultimate price is increased. The States have reiterated their commitment to introduce Value


8/28

Added Tax (VAT) from April 1, 2003, after the Centre agreed to compensate them for any

revenue loss due to the introduction of this new taxation measure by up to 100 per cent.

The States, on their part, have decided that all their VAT legislation would have common

provisions in respect of all important matters and a simple VAT law will replace the existing

plethora of State laws such as those on sales tax, turnover tax, purchase tax, entry tax, and thelike. The VAT by the States would have two basic rates of 10 per cent and 12.5 per cent, which

would be revenue neutral rates for most items.. The two basic rates have been selected so that

States, which have lower sales tax rates, could raise it to 10 per cent while those levying higher

rates of 17-18 per cent would have to lower them to 12.5 per cent. Over time, the VAT rates

would be merged into one uniform rate. It has also been decided to phase out Central State Tax

(CST) within three years with the introduction of VAT as this causes distortions in internal trade

and impeded development of a common market

MERIT OF INDIRECT TAXES

CONVENIENCE IN ASSESSMENT & RELATIVE DIFFICULTY IN EVASION

The tax is required to be assessed by the assessee him self on appropriate forms and is submitted

to the concerned officers who checks it and if not found in order then explanation/ demands are

raised in terms of Act/Rules. The records of the assessee are periodically audited and

genuineness and truthfulness is reconfirmed. In this system it is difficult to evade the tax.

INCLUSION OF TAX IN THE PRICE

Since it is a indirect tax the assessee is entitled to increase the price of goods by adding the tax in

the value thus, the burden of tax is transferred is shouldered by the purchaser.

MAY NOT BE REGRESSIVE IF LEVIED ON AD-VALORUM BASIS

The tax is levied on ad-valorem basis on every value addition the tax is levied progressively.

DIFFICULT TO EVADE

If attempted is made to evade the tax the result is counterproductive because of ad- valorem rates

and CENVAT system.

TAXES ON DRINKS, NARCOTICS & TOBACCO, SERVE A SOCIAL PURPOSE BY

DISCOURAGING THEIR CONSUMPTION

Tax rate on such items is more in percentage thus, making the drinks, narcotics, & tobacco

dearer.


9/28

DEMERIT OF INDIRECT TAXES

Regressive Character.

Do not create social Consciousness as payment of tax is not felt by the payer.

Government is not certain about the proceeds of these taxes.

Burden of Indirect taxes can be shifted forward or backward as such consumers have to

bear the ultimate burden of tax.

Can be evaded by methods as Smuggling, Falsification of Account etc.

MERGER OF INDIRECT TAXES I.E.

GSTBefore parting and to bring an end to this article we summarize that GST is a harmonized

consumption tax system, whose introduction will bring an end to a varied number of

Indirect taxes presently being levied by Central Government and State Government. The

proposed date of Introduction of GST has been announced by the Government to

1st April, 2011. Till now Government has not yet issued any Draft of GST model or

various provisions to be applied, all we can do is to wait for the Draft to release. Till then

we can only predict the outlook of the GST model in India and nothing can be said with

utmost certainty. However so far the proposal is to merge following taxes collected by Centre

and State Government and to announce a composite rates of tax to be collected

and one point to be called as GST.

GOODS AND SERVICE TAX

underlying principle is that the GST will have a simple structure and goods as well as

services will be taxed at a uniform rate. It is aimed to be a simple, nation-wide.

GST is a tax on goods and services with comprehensive and continuous chain of set-off


10/28

benefits from the producers point and service providers point up to the retailers level. It

is essentially a tax only on value addition at each stage, and a supplier at each stage is

permitted to set-off, through a tax credit mechanism.

IMPACT OF GST

It is debatable whether India Inc is ready for a rollout of GST by April 1, 2011. The

implications for India Inc are enormous. Overall, GST is expected to reduce tax incidence

for several goods and services in the country. Lesser taxes and cost means higher demand

for goods and services. GST is expected to bring in uniform indirect tax system across the

country which is easy to understand and implement. Its effective implementation will

have beneficial impact on Indian companies in the form of lower working capital needs,

better supply chain management, reduction in ware house costs, and others. Reduced

working capital requirement would result in less interest costs

A company, like, Maruti Suzuki, is readying itself for GST rollout. The

company thinks with GST, the tax incidence on their cars will come down

substantially which means the car will be dearer and demand for their cars

would go up.

Tax experts are of the opinion that GST will result in reduced taxes for many

goods and services

GST is going to change the way FMCG and other manufacturing companies

do business in India. Companies have to be better prepared for its rollout and

make their processes (IT, business, etc) stronger well before GST

implementation.

Industries, like, cement, aluminium, copper, VFY, telecom, FMCG suffer

from not only heavy taxation but also, multiple taxation and various slabs.

Once GST is implemented these sectors will be relieved of the twin problems of higher and


11/28

multiple taxation. It will have a salutary impact on the operations of these companies.

The impact on FMCG sector will be from a different perspective also. After

GST, the need for maintaining several warehouses across the states will be

removed. This is big scope for FMCG companies to restructure their

operations, logistics and ERP systems in a big way.

In the existing regime, companies set up several warehouses in many states to

avoid certain taxes. With the introduction of GST, companies need not resort

to such practice of setting up warehouses in many states.

Once GST is introduced, several bottlenecks in the supply chain can be

removed and companies will save substantial costs

A corollary of the reorganization on the part of FMCG sector will be felt on

the logistics sector. This entire supply chain will undergo a thorough overhaul

and this will create huge opportunities, for integrated logistics players in India.

The dynamics involved in this massive exercise are yet to fully appreciated or

analysed in the investor community. However, industry veterans, like, Adi

Godrej, have been expressing the readiness of their companies for the GST

rollout.

The implementation of GST across the Centre and States and UTs presupposes

the existence of a robust information technology (IT) services. This is a great

opportunity for IT and IT-related companies, especially, in the medium-sized

IT players.

The operations of NBFCs too will undergo as they too suffer from various

forms of service taxes. It is hoped that the GST rollout will create tremendous

scope for NBFCs to ease their burden of multiple taxes.


12/28

CONCLUSION

The implementation of GST in India in the form of a comprehensive value added tax is

contingent on several key decisions. While there is clarity that the tax would be in the

form of a dual VAT, that is the only detail about the tax that is available in the public

domain. Presuming that the country is going to witness considerable tax reform, it is only

fair on the taxpayers that the details be worked out well in advance so that preparations

for a smooth transition can be made.

On the key issues that needs to be resolved is the treatment of inter-state transactions in goods

and services. The existing consensus of zero-rating by itself would not be adequate to address

the potential concerns of evasion in such transactions. Zero-rating with pre-payment

appears to be a superior alternative. The related issue concerns taxation of services which

span more than one tax jurisdiction. International experience points towards self assessment in

the case of registered taxpayers and taxation in the jurisdiction of the

supplier in other cases, with some revenue sharing among the member states. Some of the

details need to be worked out before the tax on services can be implemented at the state

level. A second concern relates to the need to integrate tax administration at the two

levels in order to maximise on the efficiency of administration. While there are options

available, a final choice needs to be made, once again

Apart from these design issues, one important concern relates to the rate of tax. It is

believed and correctly so, that if the rate of tax is too high, it induces non-compliance.

In discussions on VAT in India, a rate of 20 percent has often been proposed as a feasible

rate. Section 4 demonstrates that with the informal sector accounting for 30 percent of

economic activity in taxed transactions, a rate of 20 percent with non-rebatable excises of

10 percent on a few selected commodities would be required to generate the target


13/28

revenue. If the non-rebatable excises are assigned to the union government, this translates

into about 14 percent rate for the states and 6 percent for the centre. It may be mentioned

that in deriving this rate, all agricultural commodities were considered to be exempt. This

should mitigate the regressivity normally associated with VAT regimes. The above is

however a conservative estimate since a number of activities currently taxed have been

assumed to be exempt for the purposes of arriving at these estimates. Any expansion in

the tax base to include some of the activities would allow for a lower rate of tax to be

implemented. Further, as observed earlier, the share of informal activities in total as

proxied by the share of unregistered manufacturing in total GDP from manufacturing is

registering some decline in recent times. If this trend persists, there is scope for

considering lower rates of tax.

Finally, the impact of the tax on different states would be different. Careful assignment of

tax powers is crucial for the new regime to be acceptable. In the absence of the same,

transition to the new regime would require some other revenue transfers. With the new

regime, instruments for the same would be limited, and can generate perverse incentives

and/or unstable finances for some of the governments involved

VAT (Indirect Tax) - What happensto market prices?

There are two main types of indirect tax - a per-unit tax and an ad-valorem tax. A per-unit tax is

one where the amount charged is always the same on each unit. Examples of these in the UK are

the duties on alcohol and cigarettes. An ad-valorem tax, by contrast is one where the tax is

charged as a percentage of the value of the good. This is where VAT comes in, as it is always

17.5% of the value of the good.

The effect on the market equilibrium will be slightly different for each of these two types of tax.

Let's look first at the per-unit tax. This sort of tax will be paid over to the government by the


14/28

firm and will therefore shift the firm's supply curve. To be willing to supply the same quantity as

before, it will now want the price to be higher by the amount of the tax. The tax has therefore

shifted the supply curve vertically upwards by the amount of the tax. The impact of this on the

market is shown below:

As you can see from the diagram, the equilibrium price has risen and the equilibrium quantity has fallen.

The extent to which this happens depends on the elasticity of demand for the good or service

For an ad-valorem tax, the principles are the same but the effects very slightly different. The tax will still

shift the supply curve vertically upwards as the firm will want a higher price to compensate it to supply the

same quantity. However, because the tax is a percentage of the value of the good, it will shift by different

amounts according to the price of the good. For example, the VAT on a good costing 10 will be 1.75,

but for a good costing 100 it will be 17.50. The effect of this on the supply curve is shown in the

diagram below:

The impact on the equilibrium price and quantity therefore depends on the amount of the tax and

the original price level. The elasticity of demand will also be important

After analyzing the above figure we come to know that increase/ decrease in tax affects the

prices in the market. In this way sale will be affected because when price increases in the market


15/28

then according to the rule of Demand and Supply, the demand will be less from the customer

side. So changing in the indirect taxes affects the sale of an organization.

GST Impact on Logistic Industry

The consumption tax system in India is complicated and multi-layered with levies both at the

federal and State levels. Taxes on goods are levied by the Centre at the manufacturing level

through CENVAT, on services through the Finance Act, and on sale of goods via the Central

Sales Tax Act. States levy tax on the sale of goods independently, under their own laws. Though

some degree of uniformity had been arrived at after the introduction of the Value Added Tax,

differences do persist.

Impact of GST on industry

Manufacturing sector in India is one of the highly taxed sectors in the world. A complex and

high taxation structure has the tendency to render products uncompetitive in the international

market or eats up large portions of the cost arbitrage available in manufacturing set-ups in low

cost economies such as India. For instance, the manufacturing cost of most products in India is

nearly half than in the west. But, the incidence of multistage taxation i.e. customs duty on

imports, central excise duty on manufacture, central sales tax (CST) / value added tax (VAT) on

sale of goods, service tax on provision of services and levies such as entry tax, octroi and cess by

the State or local municipal corporations and related costs such as loss of tax credit, compliance

and litigation cost chip away this advantage to the extent of almost 50 per cent.

Cascading impact of taxes on landed costs

Let us understand the cascading impact of indirect taxes through an example of a typical value

chain.

There are multiple incidences on taxes and cascading impact on the cost of finished goods.

a) Custom Duty + Counter Veiling Duty + Cess paid on imported Goods


16/28

Sales Tax / VAT paid on domestic purchases, which include the excise duty paid by the raw

material manufacturer. Sales Tax / VAT are also charged on the excise duty element.

b) Excise duty on the cost of manufactured goods. So, this excise duty also gets levied on thesales tax element (or custom duty & cess) paid on raw materials imported as stated above.

c) Service Tax on Transportation

Sales Tax (CST or VAT) on the sales of Finished Goods cost, which also includes the excise

duty elements, sales tax paid on raw materials and service tax paid on transportation. Practically,

the sales tax at this stage gets levied on all the taxes paid in the previous steps.

Multiple warehouses, inefficient distribution

Besides these tax implications, complex state-wise tax structures have serious repercussions on

the manufacturers. Inventory and distribution decisions are based on tax avoidance rather than

operational efficiency. Accordingly, most manufacturers maintain warehouses in different states

to evidence movement of goods from one warehouse to another to save on the CST. Also, quite a

few entities set up warehouses in locations like Pondicherry or Daman, often impractical from a

distribution point of view, as the CST rate at such locations were previously lower than the rates

prevalent in other states.

Typically, most large consumer durables or FMCG companies in India operate with 25 to 50

warehouses all over India, which is a very high number compared to developed economies (less

than 5-8) or even developing countries (less than 10-15) with similar geographical expanse. This

has severe implications on cost structure and operational efficiency levels, which is ultimately

borne by the end consumer either in terms of cost-quality trade-offs.

More sum total space & inventory requirement: It is estimated that if tax avoidance is not a

factor for deciding distribution network, the total warehouse space can be reduced by 20-50 per

cent immediately.

Small & inefficient warehouses: Given the large spread of 4,000-10,000 sq ft warehouses, the

average size of a warehouse has remained small causing duplication of overheads and making it

unviable for owners and operators to introduce racking or automation. According to a broad


17/28

estimate, scale economies start to positively affect warehouses only when they are larger than

30,000 sq ft.

Distribution cost and inefficiencies: There are significant cost and inefficiency implications of

running a distribution network over a spread of 25-50 warehouses in terms of smaller loads,

smaller trucks, state boundaries being the determinant of transportation routes.

Other Costs: High cost ERP linkages throughout the warehousing network to ensure real-time

visibility of inventory result in higher IT costs. Further, multiple handling across the various

layers of distribution and multi-layered compliance requirements result in higher material

handling and compliance costs.

INDIRECT TAXATION IN RELIANCE COMMUNICATIONS

Reliance Communications has widened itself into group of companies in order to

look into all the services properly and carry the business smoothly. Reliance

Communications Group of Companies are:-

RICL- Reliance Communications Infrastructure Ltd.

RTIL- Reliance Infratel Ltd

RCPL-Reliance Communications Ltd

MNPL-Macronet Pvt. Ltd.

RBTV-Reliance Big TV Ltd.

RWSL-Reliance Web stores Ltd.

The rules of the company are as such that no data was provided and the data that

was calculated via SAP was provided by the assigned authority. The process is

explained for each operation as under:-

VAT

Value Added Tax (VAT) is a general consumption tax assessed on the value added

to goods and services. It is the tax paid to the government on the sales. VAT is a

multi-point sales tax. It means tax paid by the dealer is deducted from the tax

payable collected at every point of sale and the tax already paid. The companies

paying VAT under the brand name Reliance Communications are RICL, MNPL, RCPL,


18/28

RBTV and RWSL. These companies deals in sales of items like handsets, data cards,

PCO, DTH (Direct to Home) etc... Tax rates for these items are:-

Handsets and Data Cards 4%

PCO and DTH 12.5 %

Scrap (if any) 12.5%

Tax is calculated for the sale of these items. For calculating VAT following is the process

that gives sales reports of all these companies which helps in calculation of VAT on

monthly basis. The process of calculation of Sales report is:-

Log into SAP and enter the required command that is ZPPV for sales report. A

New dialog box opens in which select option Report-1 and then select option

Sales report-2 that gives another dialog box. Fill in the fields with company

name and date from which report is required. After filling the required fieldspress F8 and the process starts that give the sales report as per the

requirements. This report is saved by copying it to the local excel file on the

system. From this report the taxes are calculated for each and every group of

company under the brand name of Reliance Communications.


19/28

Quarterly Returns

Quarterly returns are compilation of VAT that was paid on monthly basis. The

monthly VAT is compiled and returns are calculated, this way it becomes easy to

keep a check on the tax process of the company. The quarterly returns are alsoimportant from the governments point of view because quarterly returns helps the

company like Reliance Communications to reexamine the tax that was paid per

month. Quarter starts from month of April for all companies. For the preparation of

Quarterly Returns, we need to have the following data:- Sales report, Stock transfer

(both in and out of the state) , sales returns data, purchases (both within the sate

and outside the state and with and without C Forms) purchase returns data etc.

Haryana VAT format have separate forms for all the details mentioned above. This

format for preparing VAT is applicable only in Haryana as every state has differentformat. This format contains separate annexure for purchases, sales, returns etc...

The format of the quarterly returns is attached as Annexure No. 1.

C Forms

Form C is issued by the dealer for purchasing goods from the dealer out-side the

state. As per section 8(1) (b) of CST Act, sales tax on Inter State sale is 4% or sales

tax rate for sale within the State whichever is lower, if sale is to registered dealer

and the goods are covered in the registration certificate of the purchasing dealer. If

the selling dealer pays CST @ 2% or lower (if applicable), he has to produce proof to

his sales tax assessing authority that the purchasing dealer is eligible to get these

goods at concessional rate. Otherwise, the selling dealer will be asked to pay

balance tax payable plus penalty as applicable. Section 8(4) (a), therefore, provides

that concessional rate is applicable only if purchasing dealer submits a declaration

in prescribed form C. The amount on C Form is mentioned after deduction of

freight charges.

F Forms

Section 6A(1) of CST Act provides that when a dealer claims that the Inter State

movement of goods is not a sale, he has to prove the same & must produce a

declaration in F form received from Consignment Agent or Branch Office in


20/28

another State. This means F Forms are meant for the purpose of showing that the

movement of stock from one state to another is not sales but stock transfer only.

When the goods are dispatched to another State on consignment basis or to branch

of dealer in another State, there is Inter State movement of goods but there is no

sale. This provision is often misused and goods are dispatched in the garb of

consignment or branch transfer though actually it may be a sale. Goods can be sent

to other State for further manufacture.

Replenishment of F forms: - In Case when the F forms are not adequate to be issued then a

procedure is followed for replenishing from the department. Firstly a letter, requesting for the

forms to be issued, is submitted in the department along with the annexure in which the details

of the forms to be issued to the vendors is mentioned. Then a Vakalatnama, Power of attorney

and the original register containing the details of forms issued earlier is submitted in the

department. Department go through all this and issues the required forms to the assigned

authority and this person issues the pending forms as per the details available.

VAT D-3 Forms

VAT D-3 Forms commonly known as ST -38 Forms are issued just for the transfer ofgoods from one state to another state or within state for the condition where the

value of goods is more than Rs 25,000/-. VAT D-3 is applicable in some states of

India only and Haryana is one of them. This form is of two types: - Inward and

Outward. Inward form is used by the consignee company at that point of time when

the purchases are made from outside state. Outward forms are issued by the

consignor to the consignee for sales made outside state as well and for within state.

The assigned authority for the issuance of ST-38 forms, submit the forms along with

the details to the department and the department keeps a track of all the forms andmaintains it in a passbook that looks like a bank passbook. This way the company

maintains the details of the forms issued to the consignee and issued by the

consignee in a passbook. The data for this purpose could be taken from SAP but in

most cases the data is sent by consignor to the consignee and in case of stock


21/28

transfer from one state to another F form is issued and if it is sale C form is issued.

The format of ST- 38 is shown in Annexure No: - 4.

Replenishment of ST- 38 forms: - In Case when the ST-38 forms are

not adequate to be issued then a procedure is followed for replenishing from the

department. Firstly a letter, requesting for the forms to be issued, is submitted in

the department along with a Vakalatnama and the passbook containing the details

of forms issued earlier is submitted in the department. Department go through all

this and issues the required forms to the assigned authority and this person issues

the pending forms as per the details available.

Works and Contract Tax

Some contracts are of contracts for labor, work or service and not for sale of goods, though

goods are used in executing the contract for labor, work or service e.g. when a contractor

constructs a building, the buyer pays for cost of building which includes cost of building

material, labor and other services offered by the Contractor. WCT is paid @ 4% for civil

construction being done by the contractor.

In most of the State VAT Acts, the provisions of Tax deducted at source (TDS) are incorporated.

The logic behind the TDS (WC) provisions is that the Contractors are not organized in many

cases and they do not pay taxes on time, therefore in this provision the contractee deducts the

prescribed % of TDS from the Contract Price and pays the same before the prescribed dates,

directly, to the respective State Government through the specified challan. The TDS is to be

deducted by the specified contractees only as notified by the State Governments. It is

responsibility of the Contractee to deduct the prescribed % of TDS (As provided in the relevant

VAT Act & Rules) and pay the same to the State Government before the prescribed date,

otherwise interest / penalty is leviable on such Contractees.

However, as per the State VAT Act a provision, the Seller (Contractor) is liable to pay VAT, if

No TDS is made by the Contractee. The State Governments have prescribed different VAT


22/28

Forms under the provision of TDS (WC). In certain States, the Contractee has to obtain TAN

(Tax deductible Account Number) and file Annual Returns of TDS under the TDS provisions.

The process of calculating WCT is as under:-

Log into SAP and enter the code YFAP. Select the required option for the WCT data.Fill in the company code with fiscal year and press F8 that gives the report of the

contracts given and work done by the vendors. The data so obtained is then

compiled and challans are made according to the amount deducted and the same

will be filed with the department along with the Demand Draft and challans. The

data is obtained from SAP and then it is compiled and challans are made according

to the amount deducted and the same will be filed with the department along with

the Demand Draft and challans. For WCT form format refer to Annexure No: - 5.

After the payment of challans, the certificate is issued that contains the details ofthe contractor on whose name it is issued along with the name of the dealing

company. A table is made showing the date of contract, bill amount, WCT amount,

date of deposit of tax and demand draft number. The certificates are issued on

quarterly basis and for the format of the certificates refer to Annexure No: - 6.

Annual Returns

Annual returns are compilation of VAT that was paid on monthly basis and then

complied in quarterly returns .The Quarterly VAT is compiled and returns are

calculated, this way it becomes easy to keep a check on the tax process of the

company. This return calculation is necessary for every company because


23/28

Keeps the track of the work done by the company in a financial year.

It is a way to summarize the tax payments made in a year.

One of the easiest ways for self assessment for a huge company like

Reliance Communications.

If some discrepancy was made while calculation of monthly or

quarterly returns then it can be rectified in the annual returns.

So this way the annual returns are necessary for a company in the corporate world.

For the preparation of Annual Returns, we need to have the quarterly reports of the

company for the required year which must include the sales report, stock transfer

(both in and out of the state) , sales returns data, purchases (both within the sate

and outside the state and with and without C Forms) purchase returns data etc..

Haryana VAT format have separate forms for all the details mentioned above. This

format for preparing VAT is applicable only in Haryana as every state has different

format. This format contains separate annexure for purchases, sales, returns etc.

Assessment of the Company

Assessment of a company means checking /auditing or verification of the tax

activities of the previous years of a company. For the assessment process a proper

procedure is carried in which a notice is sent to the company by the Excise and

taxation Officer of that district in which the company is registered. During the

assessment the company has to provide the quarterly returns, annual reports,

yearly form details that is all the registers of the forms like C Forms, F Forms, and

ST 38 Forms etc...Must be completed and trading accounts are shown. Apart from

this the details on the SAP of the trades done and tax descriptions are cross

checked with the tax calculated by the company. If the values of the calculated tax

mismatches then the company must have appropriate answer for it otherwise the

assessment team is liable to charge the company and the company has to pay the

penalty for this.

This way the taxation work was carried forward in Reliance Communications and

taxes were paid but unfortunately no one was allowed to provide the data to

outsiders. Hence only the processes were taught.


24/28

THE EFFECTS OF SALES TAXES ONRETAIL ACTIVITY

There are three main ways in which sales taxes affect retail sales. First, they may increase the

after-tax price of goods and thus they may have a negative wealth effect that reduces total sales.

Second, selective taxation of goods induces substitution from the taxed goods towards the non-

taxed goods. And third, if the tax rate varies across jurisdictions, it induces geographic

substitution of purchases. This paper will consider the third of these effects. sales tax does have a

significant impact on sales, establishments and employment per capita, as well as on the size of

establishments, as measured by the number of employees per establishment. Measured by sales

per establishment, the sales tax does not seem to affect the size of establishments. The estimated

coefficients suggest that, approximately, increasing the local tax rate by 0.1 decreases the

logarithm of sales per capita by .006, the log of establishments per 10,000 inhabitants by .005,

the log of employees per 10,000 inhabitants by .008 and the log of employees per establishment

by .003.

It has been confirmed that sales taxes play an influential role in the geographic distribution of

retail activity within a state. Controlling for some characteristics of the population, places with

higher tax rates are characterized by weaker retail industries in terms of sales and number of

employees. Second, it suggests that the traditional approach to the measurement of the sales tax

elasticity is biased. Using instrumental variables to correct for the endogeneity of the tax as it is

obtained negative, generally significant and always much larger coefficients for the effect of the

tax on retail activity. The sets of instruments passed the test of overidentifying restrictions for

the case of sales as dependent variable, but not for the rest.

Article Analysis


25/28

Article 1. TAXATION: 'Taxes are the smallest factor

influencing fuel prices'

impact of the duty reductions on the retail price of petrol and diesel really bring in any change,

apart from short-term price reduction? Not much, if you ask Mr Vivek Mishra. Vivek is a tax

partner based in New Delhi and leads the indirect tax practice of Ernst & Young in India. "In our

view, these types of questions are slightly misplaced for one key reason. In a scenario of rising

crude oil prices, the taxes on pe trol and diesel are a small component of a much bigger

phenomenon," says the expert, who has worked with several leading companies assisting them

make the transition into the VAT regime. Business Line caught up with him over the email to

quiz on the tax angle affecting fuel prices. Here's what he had to say...

What role do you see State governments playing with the excise duty and VAT rate cuts?

Customs duty has been reduced from 5 per cent to nil on import of crude oil, 7.5 per cent to 2.5

per cent on petrol and diesel and 10 per cent to 5 per cent on naphtha and aviation turbine fuel.

There has also been a reduction of Re 1 in the excise duty on unbranded petrol and diesel.

Simultaneously, various State governments have reduced the VAT rates applicable on petroleum

products. For example, the VAT rate on sale of petrol and diesel has been reduced from 28 per

cent to 26 per cent in Maharashtra and from 25 per cent to 20 per cent in West Bengal.

Cumulatively, these measures would result in an across-the- board reduction of approximately

15 per cent in the retail price of petroleum products. The government has increased the prices of

petrol by Rs 5 per litre, diesel by Rs 3 per litre and LPG by Rs 50 per cylinder.

Article 2. India tax changes and challenges

Three changes that are likely to have the most impact on US multinationals doing business in

India are examined. Two issues come under the umbrella of indirect tax - the structural change

that accompanies broad implementation of VAT, and the expanding net of the service tax. The

transition from sales tax laws to the VAT regime entails a significant impact on companies

across the board, as it touches virtually all industries and aspects of doing business. The

expansion of the service tax net and the year-by-year rate creep both indicate that India is

moving toward a goods and services tax. Another change is the introduction of transfer pricingregulations. Transfer pricing law is still evolving in India and there is a learning curve for the

authorities and taxpayers. It is the creation of SEZs that represents the most significant change in

India's tax landscape. SEZs are geographically demarcated areas for setting up businesses.


26/28

Article 3. What's likely on the indirect tax front

Additional duty of customs in lieu of VAT / sales tax is to be synchronised with the CST

structure. A reduction in the peak rate of customs duty especially in the case of FMCG would

adversely impact the domestic manufacturers of those goods as the Indirect tax costs in India areon the rise.

On the taxation of services-

A much-awaited clarification is in respect of the export of services as contemplated in Rule 3 (c)

of the Export of Service Rules, 2005. The Government should frame definitive guidelines in

respect of the interpretation of the words 'used' and 'delivered'

In terms of Section 66A and the Import of Rules, it is understood that the taxable service

provided from out a country other than India and received by a person in India is to be taxed in

the hands of the service recipient

However, notification No 22/2005 dated June 7, 2005 exempts the taxable service provided

outside India and consumed outside India in the course of sailing a ship. By virtue of the

exemption notification confusion is caused as to whether the services that are not specifically

exempted but consumed outside of India would be taxable. Clarification is due in respect of the

import of services

Article 4. India: Plea for a better deal

In most cases, these are not given credit by the State governments. Of the 25 States, only a few

neutralise sales tax on raw materials used for export production. Even in such cases, Central

Sales Tax (CST) and octroi are not neutralised. If the inputs used for export production pass

through more than one stage of processing/manufacture in different factories, the impact of taxes

will be at multiple stages. Therefore, if the Government proposes to neutralise only CST and

octroi at 4 per cent and 1 per cent respectively, it would only amount to partial neutralisation of

the indirect-tax cost suffered by the exporters. Moreover, the sales-tax rates applied by the

southern and western Sates is much higher than the 4 per cent taken for the purpose of the

proposed scheme. Thus, there is no rationale in restricting sales tax to 4 per cent and octroi to 1

per cent. The refund of sales tax and octroi should, like other levies, be on actual-payment basis

and not restricted to these levels. The countries which have a VAT system of indirect taxation or

a one- point tax, can identify the total impact of indirect taxes on export production.


27/28

Conclusion

After analyzing the impact of indirect tax we come to know that an organization and its sale is

affected by the indirect taxes. An organization has to make its strategies according to the implied

indirect taxes in the particular region/ country. If imposed indirect tax will be more the price of

product or service will be more that will affect the strategies and sale of the organization,

Reference

http://home.uchicago.edu/~ftorralb/New%20evidence%20on%20the%20effect

%20of%20the%20sales%20tax%20on%20retail%20activity.pdf

http://www.planetearth-india.info/mgw/index.php?

option=com_content&view=article&id=46:india-after-

gst&catid=51:article&Itemid=126

http://www.grant-thornton.co.uk/large_corporates/tax/indirect_tax_services.aspx

http://www.deloitte.com/view/en_SG/sg/services/tax/indirect-tax/index.htm

http://proquest.umi.com/pqdweb?

index=64&did=39152802&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD

&RQT=309&VName=PQD&TS=1289837711&clientId=129893


index=15&did=1192294691&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=P

QD&RQT=309&VName=PQD&TS=1289837150&clientId=129893


index=13&did=1304196011&SrchMode=1&sid=3&Fmt=4&VInst=PROD&VType=P

QD&RQT=309&VName=PQD&TS=1289837150&clientId=129893


index=8&did=1492077921&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQ

D&RQT=309&VName=PQD&TS=1289836807&clientId=129893
http://home.uchicago.edu/~ftorralb/New%20evidence%20on%20the%20effect%20of%20the%20sales%20tax%20on%20retail%20activity.pdfhttp://home.uchicago.edu/~ftorralb/New%20evidence%20on%20the%20effect%20of%20the%20sales%20tax%20on%20retail%20activity.pdfhttp://www.planetearth-india.info/mgw/index.php?option=com_content&view=article&id=46:india-after-gst&catid=51:article&Itemid=126http://www.planetearth-india.info/mgw/index.php?option=com_content&view=article&id=46:india-after-gst&catid=51:article&Itemid=126http://www.planetearth-india.info/mgw/index.php?option=com_content&view=article&id=46:india-after-gst&catid=51:article&Itemid=126http://www.grant-thornton.co.uk/large_corporates/tax/indirect_tax_services.aspxhttp://www.deloitte.com/view/en_SG/sg/services/tax/indirect-tax/index.htmhttp://proquest.umi.com/pqdweb?index=64&did=39152802&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837711&clientId=129893http://proquest.umi.com/pqdweb?index=64&did=39152802&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837711&clientId=129893http://proquest.umi.com/pqdweb?index=64&did=39152802&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837711&clientId=129893http://proquest.umi.com/pqdweb?index=15&did=1192294691&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=15&did=1192294691&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=15&did=1192294691&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=13&did=1304196011&SrchMode=1&sid=3&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=13&did=1304196011&SrchMode=1&sid=3&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=13&did=1304196011&SrchMode=1&sid=3&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=8&did=1492077921&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289836807&clientId=129893http://proquest.umi.com/pqdweb?index=8&did=1492077921&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289836807&clientId=129893http://proquest.umi.com/pqdweb?index=8&did=1492077921&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289836807&clientId=129893http://home.uchicago.edu/~ftorralb/New%20evidence%20on%20the%20effect%20of%20the%20sales%20tax%20on%20retail%20activity.pdfhttp://home.uchicago.edu/~ftorralb/New%20evidence%20on%20the%20effect%20of%20the%20sales%20tax%20on%20retail%20activity.pdfhttp://www.planetearth-india.info/mgw/index.php?option=com_content&view=article&id=46:india-after-gst&catid=51:article&Itemid=126http://www.planetearth-india.info/mgw/index.php?option=com_content&view=article&id=46:india-after-gst&catid=51:article&Itemid=126http://www.planetearth-india.info/mgw/index.php?option=com_content&view=article&id=46:india-after-gst&catid=51:article&Itemid=126http://www.grant-thornton.co.uk/large_corporates/tax/indirect_tax_services.aspxhttp://www.deloitte.com/view/en_SG/sg/services/tax/indirect-tax/index.htmhttp://proquest.umi.com/pqdweb?index=64&did=39152802&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837711&clientId=129893http://proquest.umi.com/pqdweb?index=64&did=39152802&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837711&clientId=129893http://proquest.umi.com/pqdweb?index=64&did=39152802&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837711&clientId=129893http://proquest.umi.com/pqdweb?index=15&did=1192294691&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=15&did=1192294691&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=15&did=1192294691&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=13&did=1304196011&SrchMode=1&sid=3&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=13&did=1304196011&SrchMode=1&sid=3&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=13&did=1304196011&SrchMode=1&sid=3&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289837150&clientId=129893http://proquest.umi.com/pqdweb?index=8&did=1492077921&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289836807&clientId=129893http://proquest.umi.com/pqdweb?index=8&did=1492077921&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289836807&clientId=129893http://proquest.umi.com/pqdweb?index=8&did=1492077921&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289836807&clientId=129893


28/28

Date post:	10-Apr-2018
Category:	Documents
Upload:	sanjeevsanjay
View:	215 times
Download:	0 times

B L Term Paper Final

Documents