Case lets on Indirect Tax

And
Models of GST

GROUP NO. 3
NAMES MARKS OBTAINED

ABHILASH G.S (03)

RAJSHREE BHUYAN (39)

ABHISHEK SINHA (64)

Signature:
Case 01: A factory that manufactures sugar, during the processing of sugar cane ends up
producing bagasse as waste. Even though the factory only sells processed sugar and pays
excise duty for the same and disposes all waste such as bagasse. The central excise depart
issued a show cause notice to the factory asking it why it should not charge excise duty on
bagasse because it is also a product of processing.

Assesses
The company only markets sugar and the process at the factory is aimed at producing
sugar and nothing else.
Bagasse is waste product of the process
Apart from sugar from sugarcane no other marketable product is intended to be formed
from the processing unit in the company
Court Decision
Court has held that bagasse arising as a residue waste of sugarcane during crushing of
sugarcane as a part of process of manufacture of sugar is not a manufactured product.
Though not intentionally manufactured, CET ACT makes bagasse marketable product.
Hence Excise duty as to be paid on the bagasse produced

Case 2:

Does the process of preparation of tarpaulin made-ups after cutting and stitching the tarpaulin
fabric and fixing the eye-lets amount to manufacture?
 Assesse:
The assesse was engaged in manufacture of tarpaulin made-ups. the tarpaulin made-
ups was the tarpaulin cloth prepared by a series of steps.
Thereafter, the tarpaulin made-ups were prepared by cutting the cloth into various sizes
and stitched and eye-lets were fitted.
Hence, they were eligible to duty. however, the assesse stated that the process of mere
cutting, stitching and putting eyelets did not amount to manufacture and hence, the
department could not levy excise duty on tarpaulin made-ups.

Decision of Court:
The apex court opined that stitching of tarpaulin sheets and making eyelets did not
change basic characteristic of the raw material and end product.
The process did not bring into existence a new and distinct product with total
transformation in the original commodity. the original material used i.e., the tarpaulin,
was still called tarpaulin made-ups even after undergoing the said process.
Hence, it could not be said that the process was a manufacturing process. therefore, there
could be no levy of central excise duty on the tarpaulin made-ups.

Case 3:
A trader of aluminum articles purchases steel bars of 20 meters. He cuts the bars as per the
requirements of customers and supplies the cut bars to them. He seeks clarification whether he
will be liable to pay excise duty on the cut bars sold by him.
 ALUMINIUM TRADER

Solution:
Supreme Court has held that 'manufacture' can be said to have taken place when after a
process, a new and different article emerges having a distinctive name, character or use.
However, in this case, after cutting, the product continues to be a bar. there is no change
in name ,character or use. Hence, the activity is not 'manufacture' and excise duty will not
be payable.
 Three Prime Models Of GST

Central GST
Central will collect most of the countries total tax revenue giving very little for state
Governments.
The 2 levels of Government would combine there levies to form a single national GST.
With appropriate revenue sharing arrangements among them.
Eg: Australia

Pros
If levied on a comprehensive base at a single rate. It would reduce economic distortions
and classification disputes.
Compliance cost will reduce if one GST replaces 36 Taxing statutes.
Hence, This free up resources can be put for more productive pursuits.
 A common market for India with no check-post, internal tax frontiers or other barriers to
trade.
Ideal structure from business perspective- greater stability and facilitation of decision
making.
Businesses will have to deal with only one tax authority and comply with only one tax
Consumers will know how much is the indirect tax resulting in more transparency.
Increase competitiveness as there will be no cascading effect.

Cons:
Drastic modification required in constitution of India along with huge change in the
present taxation infrastructure
States may mot agree to give up the power of taxation and depend on the union for
resources.

State GST
Only the states levy GST and the centre withdraws from the field of GST Or VAT
completely.
This will significantly enhance the revenue capacity of the states and reduce there
dependence on the Centre.
Eg: USA
A complete withdrawal of the Centre from the taxation of inter-state supplies of goods
and services could undermine the states ability to levy their own taxes.

Pros
Reduction of cascading effect of taxes , as there will not be tax at two levels.
Revenue capacity of states enhanced and reduced the dependence on the Centre.

Cons
Centre access to revenue for future needs reduced.
Major amendments to the constitution of India will be required.
 The option may not be revenue netural for individual states, would benefit the higher
income states, while a reduction in fiscal transfers would impact disproportionately the
lower income states.
Tax laws for each state- will lack uniformity, harmony, decision making and business
stability.
It would be impractical to bring inter-state services within the ambit of the state GST
without a significant coordinating support from the Centre
Governments, both States and Unions will not find it workable as it require complete
change in its finances and allocation of resources. Redistribution of taxes will become an
issue.
There may be unhealthy competition among the states using local tax structure as a tool
to attract industry within the states. Leading to retaliatory measures.

Dual GST

1.) NON-Concurrent Dual GST

As suggested in the Poddar-Ahmed working paper, GST on goods can be levied by the
states only and on services by the Centre only.
VAT on services, Centre would essentially play the coordinating role. Revenues collected
from the taxation of services could be transferred back to the states.
Cascading could be completely eliminated.
Constitutional amendment would still be required in this model since the states are not
presently empowered to levy sales tax on goods.

2). Concurrent Dual GST

The GST will be levied by both tiers of governments concurrently.

There will be central GST administered by the central government (as excise duty on service tax,)
and state GST- administered by state Governments (VAT, octroi, entry taxes etc...).
 Pros
This model is achievable in the short term and no significant changes are required.
It removes cascading effect of taxes significantly.
Good balance between fiscal autonomy of the Centre and states.
Improves the competitive environment for company working globally.

Cons

Compliance costs may not reduce significantly.

There will always be uncertainty since states might depart from the principles of uniformity.
Sharing of revenue amongst the state will be a challenge. And services provided nationwide will
pose challenge at state level.

Expected Model of GST in India

Dual GST is expected to be implemented in India along with certain constitutional

amendments.

In the Budget Speech for the year 2009-10, Finance Minister Shri Pranab Mukherjee
informed the House :
The board contour of the GST Model is that it will be a dual GST comprising of a Central
GST and a State GST
INDIAN MODEL DUAL GST-DUAL
GST

As per the recommendations of Joint Working Group (JWG), it will be a quadruple tax structure
having 4 components:
1. Central tax on goods extending upto the retail level
2. A Central service tax
3. State VAT on goods
4. State VAT on services.

# In this system, the tax payer may be required to calculate tax liability separately for different
rates of taxes.

FEATURES:
1. Central GST to be administered by the Central Government and there will be a state GST
to be administered by State Government.
2. Central GST will replace CENVAT and service tax.
3. State GST will replace state VAT.
4. Taxable event in case of goods would be sale instead of manufacture.
5. Taxes collected by Local Bodies would not get subsumed in the proposed GST system.
6. Central GST may subsume :
CENVAT
Those levied under Additional Duties of Excise Act ,1957.
Additional customs duties like CVD, SAD.
Cesses levied by the union . (Cess on rubber, coffee,etc.)
Service Tax.
Central Sales Tax
Surcharges levied by the union.
7. State GST may subsume :
a) VAT
b) Purchase Tax.
c) State Excise Duty.
d) Entertainment Tax.
e) Luxury Tax.
f) Octroi
g) Entry tax in lieu of Octroi.
h) Taxes on Lottery, Betting and Gambling

Railways and Construction Sector might also be included in GST.