Constitutional Validity of Excise,Service&Customs

8/8/2019 Constitutional Validity of Excise,Service&Customs

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CONSTITUTIONAL VALIDITY OF

SERVICE TAX, EXCISE DUTY AND

CUSTOMS DUTY

Jatin Khemani

Emili Mathew

Poornima Saikumar

Sonal Sankhla

Surya Gopi

Venita Maria Sequeira


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Taxation under Constitution

In the basic scheme of taxation in India, it is

envisaged that (a) Central Government will gettax revenue from Income Tax (except onAgricultural Income), Excise (except onalcoholic drinks) and Customs (b) State

Government will get tax revenue from sales tax,excise on liquor and tax on Agricultural Income(c) Municipalities will get tax revenue fromoctroi and house property tax.


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Article 246(1) of Constitution ofIndia (unionlist):Parliament has exclusive powers to makelaws with respect to any of matters enumeratedin List I in the Seventh Schedule to Constitution.

Article 246(3): State Government has exclusivepowers to make laws for State with respect toany matter enumerated in List II of SeventhSchedule to Constitution.

Seventh schedule to Constitution (Article 246)indicates bifurcation of powers to make laws,

between Union Government and StateGovernments.


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Parliament has exclusive powers to make laws in

respect of matters given in listI

of the SeventhSchedule of the Constitution (called UnionList). List II (State List) contains entries underjurisdiction of States. List III(concurrent list)

contains entries where both Union and StateGovernments can exercise power.


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Union List pertaining to Taxation List I, called Union List, contains entries like

Defence ofIndia, Foreign affairs, War andPeace, Banking etc. Entries in this list relevant totaxation provisions are as follows :

ENTRY NO. 82 - Tax on income other thanagricultural income.

ENTRY NO. 83 - Duties of customs includingexport duties.


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ENTRY NO. 84 - Duties of excise on tobacco and

other goods manufactured or produced inIndiaexcept alcoholic liquors for human consumption,

opium, narcotic drugs, but including medicinaland toilet preparations containing alcoholic

liquor, opium or narcotics. ENTRY NO. 85 - Corporation Tax.


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ENTRY NO. 92A - Taxes on the Sale or purchaseof goods other than newspapers, where such saleor purchase takes place in the course ofInterstate trade or commerce.

ENTRY NO. 92B - Taxes on consignment ofgoods where such consignment takes placeduring Interstate trade or commerce.

ENTRY 92C - Service Tax

ENTRY NO. 97 - Any other matter not includedin List II, list III and any tax not mentioned inlist II or list III. (These are called Residual

Powers.)


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State List pertaining to Taxation

State Government has exclusive powers to make

laws in respect of matters in listII

of SeventhSchedule to our Constitution. These entriesinclude Police, Public Health, Agriculture, Landetc. Entries in this list relevant to taxation

provisions are as follows: ENTRY NO. 46 - Taxes on agricultural income.

ENTRY NO. 51 - Excise duty on alcoholicliquors, opium and narcotics.


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ENTRY NO. 52 - Tax on entry of goods into a

local area for consumption, use or sale therein(usually called Octroi).

ENTRY NO. 54 - Tax on sale or purchase ofgoods other than newspapers except tax on

interstate sale or purchase.


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Concurrent List

It includes matters where both Central

Government and State Government can makelaws. This list includes entries like Criminal Lawand Procedure, Trust and Trustees, Civilprocedures, economic and social planning, trade

unions, charitable institutions, price control,factories, etc. In case of entries included inconcurrent list, in case of conflict, law made byUnion Government prevails.


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Indirect tax

An indirect tax (such as sales tax, value addedtax (VAT), or goods and services tax (GST) is atax collected by an intermediary from the person

who bears the ultimate economic burden of thetax. The intermediary later files a tax return andforwards the tax proceeds to government with

the return. In this sense, the term indirect tax iscontrasted with a direct tax which is collecteddirectly by government from the persons on

which it is imposed.


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Indirect Tax

The tax rates have been rationalized and tax laws

have been simplified resulting in bettercompliance, ease of tax payment and betterenforcement. The indirect tax can bealternatively defined as the charge that is paid by

one individual at the beginning, but the burdenof which will be passed over to some otherindividual, who eventually holds the burden.


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Service Tax

Service Tax is a form of indirect tax imposed on

specified services called "taxable services. The objective behind levying service tax is to

reduce the degree of intensity of taxation onmanufacturing and trade without forcing the

government to compromise on the revenueneeds.


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Service Tax

The intention of the government is to gradually

increase the list of taxable services until mostservices fall within the scope of service tax. Forthe purpose of levying service tax, the value ofany taxable service should be the gross amount

charged by the service provider for the servicerendered by him.


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Service Tax

Initially only three services were brought under

the net of service tax and the tax rate was 5%.But today it covers a wide range ofservices(around 109 services).


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Constitutional Validity of Service Tax

Article 265 of the Constitution lays down thatno tax shall be levied or collected except by theauthority of law. Schedule VII divides thissubject into three categories-

a) Union list (only Central Government haspower of legislation)

b) State list (only State Government has powerof legislation)

c) Concurrent list (both Central and StateGovernment can pass legislation).


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The Constitutional validity of levy of Service Tax

was the subject matter of litigation in a numberof cases in India. The bone of contention hasbeen whether the said service is a part of List I(Union), List II (State) or Concurrent List III of

the Seventh Schedule to the Constitution.


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History of Service Tax shows that whenever the

Constitutional validity has been challenged, theCourts have come to the rescue of the Revenuerather than the service providers. The MandapKeepers Association in Tamilnadu challenged

the Constitutional Validity however; the HonbleMadras High Court had different viewsfavouring the Service Tax Department.


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The Tour Operators also challenged the

Constitutional validity, however the entireexercise and efforts went in vain and finally theTour Operators had to shell out Service Tax.


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A number of trade bodies and individual service

providers have challenged the levy of service taxby the Union Government .

The contention was that the service tax isnothing but a tax on professions, which is

specifically listed, in the State list. Therefore, the Union Government is not

empowered to levy service tax on professionalservices.


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Additionally, the levy has also been challenged

on the grounds of hostile discrimination vis--vis other services and/or the service providerswithin the same category. The Institute ofArchitects and certain representative bodies of

Chartered Accountants have been in theforefront of this litigation.


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The Gujarat High Court and the Mumbai High Courthave held that the tax on profession (which is in the

State list) is a tax on the privilege of carrying onsuch profession. Therefore, such a tax is irrespectiveof the fact whether professional does or does notrender professional service for remuneration.

Whereas the service tax is a levy, which has to be

paid each time a professional renders services forremuneration. Thus, professional tax and service taxare different in pith and substance. Therefore, thereis no ground to challenge the levy on the grounds ofdiscrimination.


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The Gujarat High Court has held that levy of taxon advertising service is not unconstitutional. It

was held that this is not a tax on any profession,trade, calling or employment, but in respect ofservice rendered. If there is no service, there isno tax. It was further held that 'the tax is not on

advertisement' but on the services rendered withreference to the advertisement and there is aclear distinction between the advertisementservice and advertisement.


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Recently, the Supreme Court has upheld theconstitutional validity of the levy of Service Taxon those availing services rendered by the goodstransport operators, and forwarding andclearing agents. It was held that since ServiceTax was not a levy on passengers and goods, but

on the event of service in connection with thecarriage of goods, it was not possible to hold thatthe power to levy such a tax vested with theStates.


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SUMMARISING

The constitutional validity of the followingservices has been upheld and is subject to levy ofservice tax

Service of Chartered Accountans, Consulting

Engineers and Architects Service of courier agencies

Catering Services

Advertising agencies

Mandap keeper services

Services of goods and transport operators andtransport and clearing agents


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Excise Duty

Excise duty is an indirect tax which is levied and

collected on the goods/commoditiesmanufactured in India.

Excises are distinguished from customs duties,which are taxes on importation.

An excise is an indirect tax, meaning that theproducer or seller who pays the tax to thegovernment is expected to try to recover the tax

by raising the price paid by the buyer


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Basic conditions for Excise Liability

The duty is on goods.

The goods must be excisable.

The goods must be manufactured or produced

Such manufacture or production must be inIndia. Unless all of these conditions are satisfied,

Central Excise Duty cannot be levied.


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Types of Excise Duties

Duties under Central Excise Act.

National Calamity Contingent Duty (NCD).

Additional Duty on goods of special importance

Additional Duty on Textile Articles

Duty on Medical and Toilet preparations

Additional duty on mineral products Cess


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Some Details

The liability of payment of excise is on theManufacturer. Once the liability of payment isestablished, the next question is what is theamount of duty payable.

The two step process is

(a) Correctly classify the goods(b) Find its assessable value.

There are over 1,000 tariff headings and 2,000sub-headings.


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Valuation under Central Excise

Excise duty is payable on one of the followingbasis :

1.) Specific duty2.) Duty as % of Tariff Value fixed under Section

3(2).3.) Duty based on Maximum Retail Price printed

on carton after allowing deductions - section 4Aof CEA (added w.e.f. 14.5.1997)4.) Duty as % based on Assessable Value fixedunder Section 4 (ad valorem duty)


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CONSTITUTIONAL VALIDITYThe 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.

ENTRY NO 84

Duties of excise on tobacco and other goods manufactured orproduced in India except alcoholic liquors for human consumption,opium, narcotics, but including medical and toilet preparationscontaining 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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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 on theprevalent laws)


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CUSTOMS DUTY Customs is duty imposed on imported or less

commonly exported goods. This term is usually applied

to those taxes which are payable upon goods or

merchandise imported or exported.

The Constitution forms the base upon which the system

of democracy works on. The taxes are levied, imposed

and collected under express powers derived from statutes.

These statutes have the legal backing, which is necessary

for their enforcement and these statutes and Acts are

passed by Legislature under the powers conferred upon it

by the Constitution of India.


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The Custom Duty in India is one of the mostimportant tariffs. The custom duty in India isregulated by the Customs Act of 1962. The mainpurpose of the custom duty in India is theprevention of the illegal export and import of

goods. The rates of the custom duty levied on theimported and exported goods are assigned in theCustom Act, 1962.


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The different duties under custom duty

in India:Basic Duty: This is the general kind of duty levied under theCustoms Act, 62

Additional Duty(Countervailing Duty): This duty is levied underthe Custom Tariff Act, section 3 (1)

Anti-dumping Duty: This duty prevents the dumping of foreigngoods by the transnational companies

Protective Duty: This duty protect the interests of the Indian

industrial sector

Export Duty: This duty is levied on the export of goods


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CONSTITUTIONAL VALIDITY

In India, the Customs Act was passed and promulgated by theParliament in the year 1962which replaced the erstwhile SeaCustoms Act, 1878.

Further, The Customs Tariff Act was passed in the year 1975 toreplace the Indian Tariff Act, 1934.

The Customs Tariff Act was amended in the year 1985 to move intimes with and to deal with the complexities resulting from the rapiddevelopment in science and technology and consequent industrialdevelopment and expansion of manufacturing and trading activities.

The Customs Act as it stands now, consolidates the entire law on thesubject of import and export duties, which were earlier contained invarious enactments like the Sea Customs Act, 1878, In-landBounded Warehousing Act, 1896 and Land Customs Act, 1924.

Thus now the Act stands as a complete code in itself as to the levy

and the collection of duties on import and exports of goods.


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Thank You

Constitutional Validity of Excise,Service&Customs

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