India Tax Firm

Any decision given by the Supreme Court becomes a law which will be binding on all the courts, Appellate Tribunals, the Income-tax Authorities as well as on all the assessees. Where there are apparently contradictory rullings by the Supreme Court, the decision of larger bench should always prevail. However, where the apparently irreconcilable decisions are given by benches having equal number of judges, the principle of the later decision being applicable would be attracted.

        The CBDT in exercise of the powers conferred on it under section 119 has been issuing certain circulars and clarifications from time to time, whcih have to be followed and applied by the Income-tax Authorities. Such circulars or clarifications are binding upon the Income-tax Authorities, but the same or not binding on the assessee and ITAT, although the assessee can claim benifit under such circulars.

        Every Act normally gives power to an authority, responsible for implementation of the Act, to make rules for carrying out purposes of the Act. Section 295 of the Income-tax Act has given power to the Central Board of Direct Taxes to make such rules, subject to the control of Central Government, for the whole or any part of India. These rules are made applicable by notification in the Gazette of India.

The provision of income tax are contained in the Income-tax Act,1961 which extended to the whole of India and became effective from 1-4-1962 (Sect.1).

Scope of Income-tax Act: The Income-tax Act contains provisions for determination of taxable income, determination of tax liability, procedure for assessment, appeals, penalties and prosecutions. It also lays down the powers and duties of various Income-tax authorities.

(a) Compulsory issue of tax invoice and Retail Invoice: The entire design of VAT with input tax credit is crucially based on tax invoice, or retail invoice.

Tax invoice: Every registered dealer, having turnover of sales above an amount specified, shall issue to the purchaser serially numbered tax invoice with the prescribed particulars.

   The tax invoice will be signed and dated by the dealer or his regular employee, showing the required particulars.

Retail invoice: Where sales are made to a consumer or in the course of inter-State trade and commerce, the dealer shall issue retail invoice. No input credit is available to purchaser on the basis of this retail invoice.

(b) Registration

(c) Composition scheme

(d) Tax Payer Identification Number (TIN)

(e) Simplified return of VAT are to filed monthly or quarterly as specified by each State.

(f) Self-assessment by dealers.

(A) Lack of Education among Traders Community

(B) Lack of Resources with Taxation Authorities

(C) Self-Assessment under VAT regime

   India being a Federal Republic country has state level administration of the local sales tax which is being replaced by VAT and had been the reason for deferment of its implementation time and again. Inherently there are certain imitations of VAT due to which is being opposed by some of the trade associations. Moreover VAT undoubtedly has many advantages but without taking note of the limitation of VAT, one is just looking only at one side of the coin.

    VAT being a broad based tax levied at multiple stages is generally perceived as an explicit replacement of State sales tax for raising additional revenue for the Government. The purpose of a tax system is to bring in revenue to the Government. Tax revenues can be raised in many was. However, the main characteristic of good tax system should be-

* The tax system should be fair or equitable;

* It should cause the least possible harmful effects to the economy and to the extent possible, it should promot growth to the economy;

* It should be simple both for its compliance by the payer and for its administration by the Government;

* It should be income elastic.

Variants of VAT

VAT has three variants namely:-

(a) gross product variant,

(b) income variant,

(c) consumption variant.

These variants can be further distinguished according to their methods of calculation,-

(1) additional method,

(2) invoice method,

The subtraction method could be further divided into :

(a) direct subtraction method,

(b) intermediate subtraction method, and

(c) indirect subtraction method.

The following two principles are relevant for implementation of VAT-

(a) Origin principle.

(b) Destination people.

(a) Origin principle: Under ‘origin principle’, valued added domestically on all goods whether they are meant for exports or to be comsumed in India is subjected to tax. Hence, if there is value added abroad tax cannot be levied on such value added in India. This principle confines VAT only to goods originating in the country of comsumption. Whereas exports are taxable under this principle but imports are exempt. It is mostly used in conjuction with income VAT and is unpopular for obvious reasons.

(b) Destinationprinciple: Under this principle, value added irrespective of the place of origin is taxable. All goods are taxed if they are consumed within the country. Consequently, exports are exempt while imports are subjected to tax. Destination principle is normally used along with consumptin VAT. In a federal set-up like India, destination principle is preffered for taxation of products consumed within the various States of the country. A very important feature of this principle is that imported goods are treated at par with domestic products whereas in the origin principle imported goods are not taxable and hence it gives preference to goods produced abroad. In the EEC countries, origin principle was once considered for eliminating border controls and problem of valuation, but was subsequently give up as being impractical. Thus the destination principle is now being followed in those countries.