Constitutional Validity (Excise Duties, Custom Duties & Service Taxes)

8/8/2019 Constitutional Validity (Excise Duties, Custom Duties & Service Taxes)

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INDIRECT TAXATION

Constitutional Validity

(Excise Duties, Custom Duties &Service Taxes)

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CONSTITUTION

Power to levy and collect taxes whether direct or indirect

emerges from the Constitution of India.

Article 265 of the Constitution lays down that no tax shall be

levied or collected except by the authority of law. Schedule

VII divides this subject into three categories:

Union list (Article 246(1) of the Constitution specifies thatParliament has exclusive powers to make laws with respect of

any of the matters enumerated in List I in the Seventh

Schedule to Constitution)

State list (As perArticle 246(3) State Government hasexclusive powers to make laws with respect to matters

enumerated in List II)

Concurrent list (both Parliament and State Government can

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Constitution of India is foundation and source of powers to all laws in

India.

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.

Article 246 of our Constitution indicates

bifurcation of powers to make laws, between Union Government and StateGovernments.

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'').

The Parliament is authorised by virtue ofArticle 271 to increase any of thetaxes or duties by imposing a surcharge and the amount collected as such

shall form part of the Consolidated Fund of India.

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Article 246 of Constitution of India gives the respective authority to Union andState governments for levying tax.

Seventh Schedule to the Constitution of India contains three lists setting outmatters under which the State and Union have got the authority to make laws.

List I known as Union List contains 97 entries. The Union Legislature has anexclusive power to make laws in respect of matters listed in List I.

List II known as State list contains various matters like taxes on agriculturalincome, excise duty on alcoholic liquors, opium and narcotics, etc., in respect ofwhich State legislatures have the exclusive powers to make laws.

List III also known as Concurrent list lists out the matters like criminal law and

procedure, trust and trustees, civil procedures, economic and social planning etc., inrespect of which Central Government has authority to make laws.

Part XII of the Constitution of India contains matters related to Finance, Property,Contracts and Suits in the Articles 264 toArticle 300A.

Article 265 states that no tax shall be levied or collected except by authority oflaw.

It has been held by the Supreme Court in Kunnathat v. State of KeralaAIR1961 SC

552 that the term authority of law means that tax proposed to be levied must bewithin the legislative competence of the Legislature imposing the tax.

The law must not be a colourable use of or a fraud upon the legislative power totax.

It must not also violate the fundamental rights such as Article 14, 19 etc.

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TYPES OF INDIRECT TAXES

Central Excise, Customs, Service tax

Central Sales Tax, VAT, State Excise Tax

Paid by one person but he records the same fromother person.

Tax payer pays while purchasing goods and / or

services

Paid before goods/ services reach the tax

payer.

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EXCISE DUTY

An excise or excise tax (sometimes called an

excise duty) is a type of tax charged on goods

produced within the country. It is a tax on the

production or sale of a good.

Typical examples of excise duties are taxes on

tobacco, alcohol and gasoline.

"a tax levied on certain goods andcommodities produced or sold within a country

and on licenses granted for certain activities".

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VALIDITY OF EXCISE DUTY

Entry No. 84

Duties of excise on tobacco and other goods manufactured or produced in India except alcoholic liquors for humanconsumption, opium, narcotics, but including medical and toilet

preparations containing alcohol, opium or narcotics.

Power to impose excise on alcoholic liquors, opium and narcotics isgranted to States under entry No. 51 of list II of Seventh Schedule tothe Constitution and it is called 'State Excise'. The Act, Rules andrates for excise on liquor are different for each State. Thus, power tolevy Central Excise duty by Union Government is clearly based onconstitutional authority.

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Central Excise duty is an indirect tax levied on goods manufactured inIndia.

The tax is administered by the Central Government under theauthority of Entry 84 of the Union List (List 1) under SeventhSchedule read with Article 226 of the Constitution of India.

The Central Excise duty is levied in terms of the Central ExciseAct, 1944and the rates of duty, ad valorem or specific, are prescribedunder the Schedule I and II of the Central Excise TariffAct, 1985.

The taxable event under the Central Excise law is manufacture and theliability of Central Excise duty arises as soon as the goods aremanufactured.

The Central Excise Officers are also entrusted to collect other types of

duties levied underAdditionalDuties (Goods of Special Importance)Act,AdditionalDuties (Textiles and TextilesArticles)Act, Cess etc.

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The Central Excise law is administered by the CentralBoard of Excise and Customs (CBEC).

Central Board of Excise and Customs is a part of theDepartment of Revenue under the Ministry of Finance,Government of India.

It deals with the tasks of formulation of policyconcerning levy and collection of Customs and Central

Excise duties, prevention of smuggling andadministration of matters relating to Customs, CentralExcise and Narcotics to the extent under CBEC'spurview.

The Board is the administrative authority for itssubordinate organizations, including Custom Houses,Central Excise Commissionerates and the CentralRevenues Control laboratory.

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Section 3 of Central Excise Act ( often called the'Charging Section')states that 'There shall be levied and

collected in such manner as may be prescribed dutieson all excisable goods other than salt which areproduced or manufactured in India'. These words aresame as those used in Entry No84 to list I.

This definition of Central Excise duty is vital, because

it clearly signifies that there are four basic conditionsfor levy of Central Excise duty.(1) The duty is on goods.(2) The goods must be excisable

(3) The goods must be manufactured or produced(4) Such manufacture or production must be in India.

Unless all of these conditions are satisfied, CentralExcise Duty cannot be levied

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Excise duty is not levied on:

Services such as doctors treating the patients,

accountants preparing the accounts, in these casesservice tax are levied

Immovable goods such as roads, bridges andbuildings.

Non-Marketable goods, i.e.,goods for which nomarket exists, e.g. Melted iron ore at 1600 degreeCelsius.

Goods that are not mentioned in CETA; and

Goods manufactured or produced out of India. Ifproduction or manufacture is in special economiczone then no excise duty is levied(depending onthe prevalent laws)

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CUSTOMS DUTY

Customs is a form of indirect tax.

Standard English dictionary defines the term Customs as dutiesimposed on imported or less commonly exported goods. Thisterm is usually applied to those taxes which are payable upon goodsor merchandise imported or exported.

The term Customs derives its colour and essence from the termCustom, which means a habitual practice or course of action thatcharacteristically is repeated in like circumstances.

Duties on import and export of goods have been levied from timeimmemorial by all the countries. In the times, when the predominantsystem of governance was monarchy, it was customary for a trader

bringing the goods to a particular kingdom to offer certain offeringsas gifts to the King for allowing him to sell his goods in thatkingdom. Over a period of time, the system of governance took a

paradigm shift from monarchy in favour of democracy.

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The Constitution forms the base upon which thesystem of democracy works on. The taxes arelevied, imposed and collected under express

powers derived from statutes.

These statutes have the legal backing, which isnecessary for their enforcement and these statutes

andActs are passed by Legislature under thepowers conferred upon it by the Constitution ofIndia.

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In India, the Customs Act was passed and promulgated bythe Parliament in the year1962which replaced the erstwhileSea Customs Act, 1878.

Further, The Customs TariffAct was passed in the year1975 to replace the Indian TariffAct, 1934.

The Customs TariffAct was amended in the year1985 tomove in times with and to deal with the complexitiesresulting from the rapid development in science and

technology and consequent industrial development andexpansion of manufacturing and trading activities.

The Customs Act as it stands now, consolidates the entirelaw on the subject of import and export duties, which wereearlier contained in various enactments like the SeaCustoms Act, 1878, In-land Bounded Warehousing Act,1896 and Land Customs Act, 1924.

Thus now the Act stands as a complete code in itself as tothe levy and the collection of duties on import and exportsof goods.

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SERVICE TAX

The shortfall in revenue necessitated exploringnew avenues of taxation. Thus service tax wasborn.

Secondly, services contribute to approximately50% of the GDP. Government's argument hence,is substantial revenue should come from theservice sector. Thus the tax on goods (excise duty)

has to be complemented with the tax on services.The Government's plan is to introduce service taxon all services and exempt a few.

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The imposition of service tax was in sequel to theReport of the Chelliah Committee on Tax Reforms.

On these recommendations Dr. Manmohan Singh, thethen Union Finance Minister, in his Budget speech forthe year1994-95 introduced the new concept of ServiceTax and stated that

There is no sound reason for exempting services fromtaxation, when goods are taxed and many countriestreat goods and services alike for tax purposes. The TaxReforms Committee has also recommended impositionof tax on services as a measure for broadening the base

of indirect taxes. I, therefore, propose to make a modesteffort in this direction by imposing a tax on services oftelephones, non-life insurance and stock brokers.''

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ENTRY 92C -Taxes on services

A new Article 268A was inserted in the Constitution which reads asfollows:

"268 -(1)Taxes on services shall be levied by the Government of Indiaand such tax shall be collected and appropriated by the Governmentof India and the State in the manner provided in clause (2).

(2)The proceeds in any financial year of any such tax levied inaccordance with the provisions of clause (1) shall be--(a)Collected by the Government of India and the States;

(b)Appropriated by the Government of India and the States,In accordance with such principles of collection and appropriationas may be formulated by the Parliament by law."

A consequential amendment to Article 270 of the Constitution wasalso made to enable Parliament to formulate by law, principles fordetermining the modalities of levying the service tax by the Central

Government and collection of the proceeds thereof by the CentralGovernment and the State Government.

With this amendment in the Constitution, the Central Governmenthas become competent to enact a separate legislation on service tax

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ENTRY TO VARIOUS LISTS Entries 82 to 92C ofList I enumerate the subjects where the

Central Government has power to levy taxes. Entries 45 to 63 ofList II enumerate the subjects where the

State Governments have power to levy taxes

Entry 92C of the Union List of the Seventh Schedule to the

Constitution of India enables the Union to levy Taxes on

Services. Initially there was no specific entry in the Union

List for levying service tax. Service tax was levied by the

Central Government by drawing power from entry 97 of the

Union List. Entry 97 is a 'residuary entry' in List-I, which has

been reproduced below: 97 - Any other matter not enumerated in List II or List III

including any tax not mentioned in either of those Lists.

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The 'residuary entry'provides wide powers tothe Central Government in respect of taxation ofthe subjects not mentioned in the Lists given bythe constitution.

However, as a result of deliberations between theStates and the Centre and as per therecommendations of the various expertcommittees, entry 92C was introduced in the VII

Schedule in the Union List vide Constitution(92ndAmendment)Act, 2003 with effectfrom07.01.2004.

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Constitutional Validity (Excise Duties, Custom Duties & Service Taxes)

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