Module 1

Introduction
Meaning and definition of Indirect taxes-Nature-Scope-Constitutional Provisions-
Advantages-Disadvantages-Difference between Direct and indirect taxes-Types-Milestones
in the history of indirect taxation in India.
 Indirect Taxes in India-An Overview
TAX TAX LAW TAXABLE EVENT TAX VII schedule-
COLLECTION Constitution of
AUTHORITY India
 Customs Customs Act, Import / export Central GOVT. 83
duty 1962
 Central Central excise Manufacture/production Central GOVT. 84
Excise Act, 1944
 Central sales Central sales Interstate sales State GOVT. 92A
tax tax Act, 1956
 Service tax Finance act, Taxable service Central GOVT. 97
1994
 VAT State VAT Act sale within the state State GOVT. 54 of state list

 Direct Tax
A direct tax is a tax that is imposed directly on individuals or entities by the government.
direct taxes are paid directly by the individuals or entities on whom they are imposed.
Examples of direct taxes include:
Income Tax: This is perhaps the most common type of direct tax. It is levied on the income
earned by individuals, corporations, and other entities. Income tax rates may vary based on
the amount of income earned and other factors.
Corporate Tax: A tax imposed on the profits earned by corporations.
Property Tax: A tax levied on the value of real estate or other types of property owned by
individuals or businesses.
Capital Gains Tax: This tax is imposed on the profit earned from the sale of assets such as
stocks, bonds, real estate, or other investments.
Inheritance Tax or Estate Tax: A tax imposed on the transfer of assets from one person to
another upon the death of the owner.
 Indirect tax
Indirect taxes are taxes imposed on goods and services rather than on individuals or
entities directly. indirect taxes are typically collected by intermediaries such as businesses
and are ultimately passed on to consumers as part of the price of goods and services.
 Examples of indirect taxes include:
Value Added Tax (VAT): A tax levied on the value added at each stage of production or
distribution of goods and services. It is based on the increase in value of the product or
service at each stage of production or distribution.
Sales Tax: A tax imposed on the sale of goods and services. It is usually calculated as a
percentage of the sale price and is collected by the seller from the buyer at the time of sale.
Excise Duty: A tax levied on specific goods such as alcohol, tobacco, gasoline, and luxury
items. Excise duties are often applied to goods that are considered harmful or non-
essential, and the tax is usually included in the price of the product.
Customs Duty: A tax imposed on goods that are imported or exported between countries.
Customs duties are collected by customs authorities and are based on the value of the
goods being imported or exported, as well as other factors such as the country of origin.

 Difference between Direct Tax and Indirect Taxes

Direct Tax Indirect tax

1.Direct taxes are taxes directly incurred and paid Indirect taxes are taxes paid by one person (dealer),
by the person concerned. but the same is recovered from another person
(consumer).
2.There is no shifting of tax burden. Hence it is Tax burden is shifted to subsequent user
directly borne by the tax payer.
3.Income based tax (income from salary, income Supply based tax (sale, transfer, exchange, barter,
from house property, PGBP, capital gain, income license, rental, lease, and disposal)
from other sources)
4.Progressive in nature – high rate of taxes for Regressive in nature – all the consumers equally
people having higher ability to pay bear the burden, irrespective of their ability to pay
5.Entire revenue goes to Central government of Revenue source to Central government of India as
India well as State government (CGST & SGST)
6.CENTRAL BOARED OF DIRECT TAX (CBDT) is an CBEC- Centra Board of Excise and customs is
important part of department of revenue important part of Department of revenue. W. e. f 1-
02-2019, CBIC- Central Board of Indirect Tax and
Customs after getting legislative approval

 Features of Indirect tax

1.An important source of revenue - Indirect taxes are indeed significant sources of revenue for
governments. They contribute substantially to government budgets and can fund public services
and infrastructure.

2.Tax on commodities and services -It is levied on commodities at the time of manufacture or
purchase or sale or import or export. Hence, it is also known as commodity taxation.it is also levied
on provision of services.

3.Shifting of burden- the tax is initially levied on businesses, they may increase the price of goods
and services to offset the tax, ultimately leading consumers to bear the burden of the tax.

4. No perception of direct pinch- Because indirect taxes are embedded in the price of goods and
services, consumers may not always perceive the direct impact of the tax on their finances.
5.Inflationary- Indirect taxes can be affected by inflation, as they are often based on the value of
goods and services. As prices rise due to inflation, the amount of tax collected from each
transaction may also increase, leading to an increase in overall tax revenue. However, this can also
result in a higher cost of living for consumers.

6. Wider tax base-Majority of the products or services are subject to indirect taxes with low
thresholds.

7.Promotes social welfare- Some indirect taxes, such as taxes on harmful products like cigarettes
or alcohol, can be used to promote social welfare by discouraging consumption of these goods.
Additionally, revenue generated from indirect taxes can be used to fund social programs and
services.

8.Regressive in nature-The rich and poor have to pay the same rate of indirect taxes on certain
commodities of mass consumption.

 Advantages of Indirect tax

1. Assured Collection- Indirect taxes are typically collected at the point of sale or
consumption, ensuring a relatively high level of compliance and collection. Since they are
integrated into the prices of goods and services, they are collected automatically whenever
a transaction occurs.
2. Psychological Effect-It creates an impression in the mind of manufacturers and service
providers ,that they are only collecting the tax and not paying tax out of their pocket .Also
the ultimate taxpayer may not feel the burden of levy ,since it is indirectly included in the
price of the product.
3. Luxury Vs. Necessary Goods - By imposing higher tax rates on luxury items and lower
rates on necessities, governments can influence consumer behaviour and promote social
welfare objectives.
4. Industrial Growth- Indirect taxes can be structured to encourage industrial growth and
development. For example, tax incentives or exemptions can be provided to certain
industries or sectors to stimulate investment, innovation, and job creation.
5. Low cost of collection- indirect taxes generally have lower administrative costs. This is
because they are collected at the point of sale or consumption, reducing the need for
extensive taxpayer compliance monitoring.
 Nature and scope of Indirect taxation in India

The nature and scope of indirect taxation in India are vast and diverse, reflecting the
complexity of the country's tax system and the variety of economic activities it
encompasses. Here's an overview of the nature and scope of indirect taxation in India:
1. Multi-level Taxation: Indirect taxation in India operates at multiple levels of
government - central, state, and local. Both the central government and state
governments have the authority to levy and collect various indirect taxes, leading to
a complex tax structure.
2. Diverse Taxes: Indirect taxes in India cover a wide range of economic activities,
goods, and services. These include taxes such as Goods and Services Tax (GST),
central excise duty, customs duty, service tax (now replaced by GST), state-level
value-added tax (VAT), central sales tax (CST), entertainment tax, luxury tax, entry
tax, and others.
3. Destination-based Taxation: With the introduction of GST, India adopted a
destination-based taxation system. GST is levied at each stage of the supply chain,
from manufacturing to consumption, and is based on the destination principle,
where tax is collected at the place of consumption rather than the place of
production.
4. Comprehensive Tax Reform: The implementation of GST in 2017 marked a
significant reform in India's indirect tax system. GST replaced a multitude of central
and state taxes with a single, comprehensive tax regime, streamlining the tax
structure, reducing tax cascading, and promoting ease of doing business.
5. Uniformity and Harmonization: GST aims to bring uniformity and harmonization
to indirect taxation across states and sectors. It eliminates the barriers to interstate
trade and promotes a common market by ensuring consistency in tax rates,
procedures, and compliance requirements across the country.
6. Revenue Generation: Indirect taxation is a significant source of revenue for both the
central and state governments in India. It provides funds for financing government
expenditures, infrastructure development, social welfare programs, and other public
services.
7. Regulatory Tool: Indirect taxation is also used as a regulatory tool to achieve
various policy objectives, such as promoting domestic industries, protecting the
environment, encouraging exports, discouraging consumption of harmful goods, and
fostering socio-economic development.
8. Tax Compliance: Indirect taxation in India requires businesses to comply with
various tax laws, rules, and regulations. It involves processes such as registration,
 filing of returns, payment of taxes, maintenance of records, and compliance with
audit and assessment procedures.

 Disadvantages of Indirect tax

1.Increase cost - Indirect taxes are often passed on to consumers by businesses, leading to
higher prices for goods and services. This can result in an increased cost of living for
individuals and may impact the affordability of certain essential items, especially for lower-
income groups.
2. lower demands - Higher prices due to indirect taxes can lead to a decrease in demand
for goods and services. When consumers have to pay more for certain items, they may
choose to purchase less or seek alternatives, which can affect businesses' sales and
profitability. This decrease in demand can also have broader economic implications,
potentially leading to reduced production and employment in affected industries.
3 Regressive nature- Indirect taxes tend to be regressive, meaning they take a
proportionally larger share of income from lower-income individuals compared to higher-
income individuals. Since indirect taxes are typically applied uniformly regardless of
income level, they can place a relatively heavier burden on those with lower incomes. This
can exacerbate income inequality and contribute to socioeconomic disparities within a
society.
 Different Types of Indirect tax Before GST
Before the implementation of the Goods and Services Tax (GST) in India in 2017, there were
several types of indirect taxes levied by the central and state governments. Here are some
of the major types:
1.Service Tax 2. Excise Duty 3. VAT 4. Customs Duty 5. Stamp Duty 6. Entertainment Tax
1. Service tax -was a type of indirect tax levied by the central government on the provision
of various taxable services in India. It was governed by the Finance Act, 1994, and was
introduced in India in 1994. Entry 97 of List I of schedule VII of the constitution of India
extends the constitutional rights to the Central Government to levy service tax. Here are
some key points about service tax:
Taxable Services: Service tax applied to a wide range of services, including to
telecommunications, banking and financial services, insurance, advertising, consulting,
transportation, hospitality, and professional services.
Taxable Event: The taxable event for service tax was the rendering of a taxable service.
Unlike goods, which are tangible and can be sold or manufactured, services are intangible,
so the tax was imposed when the service was provided rather than when it was sold or
produced.
Taxpayer: The person liable to pay service tax was typically the service provider. However,
in certain cases, the responsibility for paying service tax could be shifted to the service
recipient, such as under the reverse charge mechanism for specific services.
Tax Rate: The rate of service tax varied over time and depended on the type of service
provided. It was usually a percentage of the gross value of the taxable service provided. The
rate could be uniform across all services or different for different categories of services.
Exemptions and Abatements: Certain services or service providers were exempt from
service tax, and specific abatements or reductions in the taxable value were provided for
certain services. These exemptions and abatements were granted through notifications
issued by the central government.
Registration and Compliance: Service providers whose aggregate value of taxable services
exceeded a specified threshold were required to register with the central excise department
and obtain a service tax registration number. They were also required to file periodic
service tax returns and remit the tax collected to the government within the prescribed
time frame.
2.Excise duty- also known as excise tax, was a type of indirect tax levied by the central
government on the manufacture, production, or sale of certain goods within the country.
The Excise Duty Act, 1944 governs the regulations related to excise duty in India and the
tax is administered by the Central Board of Excise and Customs.
some key points about excise duty:
Taxable Event: Excise duty was typically levied at the point of manufacture or production
of goods. It applied to goods produced or manufactured within the country for domestic
consumption, regardless of whether they were sold or not.
Manufacturer's Responsibility: The liability to pay excise duty rested primarily with the
manufacturer or producer of the goods. The duty was usually included in the cost of
production and was ultimately borne by the consumer as part of the price of the goods.
Ad Valorem or Specific: Excise duty could be levied in two ways: ad valorem or specific. Ad
valorem excise duty was calculated as a percentage of the value of the goods, while specific
excise duty was imposed at a fixed rate per unit of quantity, such as per liter, kilogram, or
meter.
Central Tax: Excise duty was a central government tax, and the rates and rules were
determined by the central authorities. However, excise duty revenue was shared with the
states as per the provisions of the Constitution.
Scope of Taxation: Excise duty applied to a wide range of goods, including but not limited
to alcohol, tobacco products, petroleum products, automobiles, textiles, pharmaceuticals,
and consumer durables. However, certain goods were exempted or subjected to lower rates
based on government policies.
Registration and Compliance: Manufacturers or producers of excisable goods were
required to register with the central excise department and obtain a unique registration
number. They were also obligated to maintain proper records, file periodic excise returns,
and pay the duty within the specified time frame.
Revenue Generation: Excise duty served as a significant source of revenue for the central
government. The revenue collected from excise duty contributed to funding government
expenditures, infrastructure development, and various public welfare programs.
Types of Excise duty
Excise duty in India was categorized into different types based on various factors such as
the nature of goods, the method of assessment, and the purpose of taxation. Here are some
of the main types of excise duties that existed before the implementation of the Goods and
Services Tax (GST):

1.Basic Excise Duty: Basic excise duty, also known as central excise duty, was the most
common type of excise duty levied on the manufacture or production of goods in India. It is
levied under Sec 3 of the Central Excises and Salt Act,1944.It applied to a wide range of
goods, including manufactured products such as textiles, chemicals, machinery, and
consumer goods.

2.Special Excise Duty: Special excise duty was an additional duty imposed on certain goods
in addition to the basic excise duty. It was typically levied on items like tobacco products,
aerated drinks, and luxury cars. Special excise duty was often imposed to achieve specific
policy objectives, such as discouraging the consumption of certain goods or generating
additional revenue.

3.Additional Excise Duty: Additional excise duty, also known as additional customs duty,
was levied on goods imported into India. It was imposed in addition to basic customs duty
and was intended to provide protection to domestic industries by making imported goods
more expensive.

4.Cess: Cess was a type of excise duty levied on specific goods or services for a particular
purpose, such as funding government initiatives or programs. Cesses were often earmarked
for specific sectors or activities, such as education, health, or environmental conservation.

5.Education Cess and Secondary and Higher Education Cess: These were additional
levies imposed on excisable goods and services to fund educational initiatives and improve
the quality of education in India. The proceeds from education cess and secondary and
higher education cess were dedicated to financing education-related programs and
schemes.
6.Special Additional Duty (SAD): Special additional duty was applicable to imported goods
under the Customs Act, 1962. It was levied in addition to basic customs duty and was aimed
at providing protection to domestic industries against cheaper imports.

3.VAT stands for Value Added Tax, and it was a type of indirect tax levied on the value
added to goods and services at each stage of production or distribution. Here are some key
points about VAT:
Taxable Event: VAT is imposed on the value added to goods and services at each stage of
the supply chain. The taxable event occurs when goods are sold or services are provided,
and VAT is levied on the difference between the selling price and the cost of inputs used to
produce the goods or services.
Multi-Stage Tax: VAT is a multi-stage tax, meaning it is applied at each stage of production
and distribution. Businesses collect VAT on their sales and remit it to the government, while
also claiming credit for VAT paid on purchases from other businesses.
Input Tax Credit (ITC): One of the key features of VAT is the mechanism of input tax credit
(ITC), which allows businesses to claim credit for the VAT paid on purchases of goods and
services used in their business activities. This helps avoid double taxation and ensures that
VAT is only levied on the value added at each stage of production.
Thresholds and Exemptions: VAT may have thresholds below which businesses are not
required to register for VAT and exemptions for certain goods and services deemed
essential or for public policy reasons. These thresholds and exemptions vary by
jurisdiction.
Rates: VAT rates may vary depending on the type of goods or services being taxed and the
jurisdiction. In many countries, there are multiple VAT rates, with higher rates applying to
luxury goods or goods considered non-essential, and lower rates or exemptions applying to
necessities.
VAT in India is categorised under 4 heads:
1.Nil-Khadi, salt…
2.1%-VAT is charged at 1% on expensive goods is because increasing the rate of VAT will
considerably increase the prices of the items. Ex: Gold, silver, precious stones…
3.4-5%-VAT is charged on a daily basis. Ex: cooking oil, tea, medicines.
4.General—12% to 15. Ex: Cigarettes, alcohol….
Revenue Generation: VAT is an important source of revenue for governments around the
world. The revenue collected from VAT is used to fund public services, infrastructure
development, and other government expenditures.
Compliance and Administration: VAT systems require businesses to register for VAT, file
regular VAT returns, and maintain proper records of transactions. Tax authorities are
responsible for administering and enforcing VAT laws, ensuring compliance, and combating
tax evasion and fraud.

4. Customs Duty
Customs duty is a type of indirect tax imposed by a country's government on goods
imported into or exported out of its customs territory. Here are some key points about
customs duty:
Import Duty: Customs duty is primarily levied on imported goods when they enter a
country's customs territory. It is calculated based on the customs value of the goods, which
includes the cost of the goods, insurance, and freight charges.
Export Duty: In some cases, customs duty may also be levied on goods exported out of a
country. Export duties are less common than import duties and are typically imposed to
regulate the export of certain goods or to generate revenue for the government.
Types of Customs Duty: Customs duties can be categorized into several types, including:
Basic Customs Duty: This is the main customs duty levied on most imported goods. It is
calculated as a percentage of the customs value of the goods and varies depending on the
nature of the goods and the country of origin.
Additional Customs Duty (Countervailing Duty - CVD): Also known as CVD, this duty is
imposed to offset the impact of indirect taxes (such as excise duty) imposed on similar
goods produced domestically. It is usually levied at the same rate as the domestic indirect
tax.
Special Additional Duty (SAD): SAD is an additional customs duty imposed on imported
goods at a flat rate, typically to protect domestic industries or to provide parity between
imported and domestically produced goods. It is often levied on a wide range of imported
goods.
Education Cess: it is levied at 2% and higher education cess at another 1% of aggregate of
customs duty.
Anti-dumping duty-it may be imposed if the good being imported is at below fair market
price.
Safeguard duty- if the government feels that a sudden in export can potentially damage the
domestic industry.
Revenue Generation: Customs duty serves as a significant source of revenue for
governments around the world. The revenue collected from customs duties is used to fund
government expenditures, infrastructure development, and various public welfare
programs.
Trade Policy Tool: Customs duty is also used as a trade policy tool to regulate imports and
exports, protect domestic industries from foreign competition, promote exports, and
achieve other economic objectives.
Tariff Schedules: Customs duties are usually specified in tariff schedules, which list the
rates applicable to different categories of goods. These schedules may be updated
periodically based on changes in government policy, international trade agreements, or
economic conditions.
5. Stamp duty is a type of tax levied by governments on various types of transactions,
documents, and instruments. Here are some key points about stamp duty:
Transaction Tax: Stamp duty is primarily levied on documents related to the transfer of
property, such as real estate, stocks, bonds, and other assets. It is also applicable to certain
legal documents, commercial contracts, leases, agreements, and other instruments.
Revenue Generation: Stamp duty serves as a significant source of revenue for
governments at both the central and state levels. The revenue collected from stamp duty is
used to fund various government programs, infrastructure projects, and public services.
Ad Valorem or Fixed Amount: Stamp duty can be calculated either as an ad valorem tax,
which is a percentage of the transaction value, or as a fixed amount based on the type of
document or transaction. The rates and calculation methods may vary depending on the
jurisdiction and the nature of the transaction.
Legal Requirement: In most jurisdictions, stamp duty is a legal requirement for certain
transactions and documents. Parties involved in such transactions are required by law to
pay the applicable stamp duty and affix stamps or seals on the relevant documents as proof
of payment.
Enforcement and Compliance: Governments enforce stamp duty laws through stamping
agencies or revenue departments responsible for collecting the tax. Failure to pay the
required stamp duty may result in penalties, fines, or legal consequences, including the
invalidation of the documents in question.
Exemptions and Relief: Some jurisdictions offer exemptions, concessions, or relief
measures for certain types of transactions or parties, such as first-time homebuyers,
charitable organizations, or specific industries. These exemptions are designed to promote
economic activity, affordability, or social welfare objectives.
Stamp Duty Variations: Stamp duty rates and regulations may vary significantly between
different jurisdictions, regions, or countries. Each jurisdiction may have its own stamp duty
laws, rates, exemptions, and enforcement mechanisms tailored to local economic and legal
conditions
6. Entertainment tax is a type of tax levied by governments on various forms of
entertainment activities, such as movie screenings, theatrical performances, amusement
parks, sporting events, concerts, and other forms of leisure and entertainment. Here are
some key points about entertainment tax:
Scope of Taxation: Entertainment tax applies to a wide range of entertainment activities
and events that are considered non-essential or recreational in nature. It may cover both
live performances and recorded media, including movies, concerts, plays, exhibitions, and
theme parks.
Revenue Generation: Entertainment tax serves as a source of revenue for governments at
the state or local level. The revenue collected from entertainment tax is used to fund
various cultural programs, public amenities, infrastructure projects, and other government
expenditures.
Ticket Sales or Revenue-Based: Entertainment tax can be levied either as a percentage of
ticket sales or as a fixed amount per ticket sold. In some cases, it may also be calculated
based on the total revenue generated by the entertainment event or activity.
Regulatory Tool: Entertainment tax is often used as a regulatory tool to promote cultural
activities, regulate the entertainment industry, and discourage excessive consumption of
entertainment services. It may also be used to promote local talent, heritage, or cultural
events.
Exemptions and Concessions: Some jurisdictions offer exemptions, concessions, or
reduced tax rates for certain types of entertainment activities or events. For example,
educational or charitable events may be exempt from entertainment tax, and small-scale
cultural events may qualify for reduced rates.
Collection and Compliance: Entertainment tax is typically collected by government
authorities or local municipalities responsible for regulating entertainment activities
within their jurisdiction. Event organizers, venue owners, or entertainment businesses are
usually responsible for collecting the tax and remitting it to the appropriate government
agency.
Enforcement and Penalties: Governments enforce entertainment tax laws through audits,
inspections, and penalties for non-compliance. Failure to pay the required entertainment
tax may result in fines, legal consequences, or closure of the entertainment venue or event.
Constitutional Background (pre -GST Regime)

Before the implementation of the Goods and Services Tax (GST) in India in 2017, the
constitutional framework for taxation was based on the provisions outlined in the
Constitution of India, which came into effect in 1950. Here is a brief overview of the
constitutional background regarding taxation in the pre-GST regime:
Seventh Schedule: The Seventh Schedule of the Indian Constitution describes the division
of legislative powers between the Union (central) government and the state governments. It
consists of three lists: the Union List, the State List, and the Concurrent List. Each list
contains subjects on which the respective governments have exclusive authority to
legislate. Taxation-related subjects are primarily listed under the Union List, State List, and
Concurrent List.
Union List (List I): This list includes subjects on which only the central government can
legislate. It covers taxes such as customs duties, central excise duties, service tax, and
income tax (except taxes on agricultural income).
State List (List II): This list includes subjects on which only the state governments can
legislate. It covers taxes such as taxes on agricultural income, land revenue, stamp duty, and
taxes on goods and passengers carried by road or inland waterways.
Concurrent List (List III): This list includes subjects on which both the central and state
governments can legislate. It covers taxes such as taxes on the sale or purchase of goods
other than newspapers and taxes on entertainments and amusements.
Articles 245-255: These articles of the Indian Constitution provide for the distribution of
legislative powers between the Union and the states, specifying the subjects on which each
level of government can legislate. They ensure that the powers of taxation are exercised in
accordance with the constitutional provisions.
Article 265: This article states that no tax shall be levied or collected except by the
authority of law. It ensures that taxation in India is governed by law and cannot be
arbitrary. Any tax imposed must have a legal basis provided by legislation.
Article 246A: This article, inserted by the Constitution (101st Amendment) Act, 2016,
provides for the Goods and Services Tax (GST). It confers concurrent powers to both the
central and state governments to levy and collect GST on the supply of goods and services.

 Reason for implementation of a new indirect tax regime

The reasons for implementing a new indirect tax regime like the Goods and Services Tax
(GST) in India included addressing several shortcomings and inefficiencies in the previous
taxation system
1. Plethora of Taxes - Before GST, India had a complex and fragmented indirect tax
structure with multiple taxes levied by both the central and state governments. These
included excise duties, service tax, value-added tax (VAT), central sales tax (CST), entry tax,
and others. The plethora of taxes led to administrative complexities, increased compliance
costs for businesses, and difficulties in tax administration and enforcement.
2. Plenty of Taxable Events- Under the pre-GST regime, each stage of the supply chain was
subject to different taxes, leading to multiple taxable events. For example, goods produced
and sold within a state were subject to state-level VAT, while goods sold across state
borders attracted central sales tax (CST). This multiplicity of taxable events resulted in
cascading taxes, where taxes were levied on top of taxes, leading to inflated prices for
consumers and reduced competitiveness for businesses.
3 Double taxation- The coexistence of central and state-level taxes often resulted in
instances of double taxation, particularly in inter-state transactions. For example, goods
manufactured in one state and sold in another were subject to both central excise duty and
state-level VAT or CST. This led to increased compliance burdens, confusion, and disputes
between taxpayers and tax authorities.
4 Multiplicity of compliances- Businesses operating across multiple states had to comply
with different tax laws and file multiple tax returns, leading to administrative burdens,
increased paperwork, and higher compliance costs.
i. Lack of Cross- utilization facility between goods and service
ii. Non- availability of set off arrangement against other State or central
government levies
 Milestones in the history of Indirect taxation in India
The history of indirect taxation in India is marked by several milestones, reflecting the
evolution of the tax system over time. Here are some key milestones in the history of
indirect taxation in India:
1. Introduction of Central Excise Duty: The levy of central excise duty on
manufactured goods was introduced in India during British rule. The Central Excise
and Salt Act, 1944, laid down the legal framework for the imposition and collection of
excise duty by the central government.
2. Enactment of State Sales Tax Laws: the first set of reform was suggested by the
Taxation Enquiry Commission under the chairman ship of Dr. John Matthayi, The
Commission recommended that sales tax should be used specially by Sattes as a
source of revenue with Union Government intervention allowed generally only in the
case of inter -states sales. So, state governments began to levy sales tax on the sale of
goods within their respective territories.
3. Introduction of Central Sales Tax (CST): The Central Sales Tax Act, 1956, was
enacted to regulate the inter-state sale of goods and to provide for the levy of central
sales tax. CST was levied by the central government on the sale of goods from one
state to another.
4. Introduction of Service Tax: Service tax was introduced in India in 1994, initially on
a select few services like General Insurance, tele communication and Stock broking.
The tax rate on 3 services was 5% which gradually increased and in 2017 it was 15%.
Over time, the scope of service tax expanded to cover a wide range of services,
making it an important source of revenue for the central government. In 2012
 budget, negative list approach was adopted where 17 services were out of taxation
net.
5. Value Added Tax (VAT) Reforms: In the early 2000s, India began transitioning from a
sales tax regime to a value-added tax (VAT) regime. VAT was introduced to replace
the existing state sales tax laws and to bring about uniformity and transparency in
the taxation of goods across states.
6. Enactment of Goods and Services Tax (GST) Act: The Goods and Services Tax (GST)
Act was enacted by the Indian Parliament in 2017, accompanying in a landmark
reform in the country's indirect tax system. GST replaced a multitude of central and
state taxes, including central excise duty, service tax, VAT, CST, and others, with a
single, comprehensive tax regime.
7. Implementation of GST: The implementation of GST on July 1, 2017, marked a
significant milestone in India's tax history. GST is a destination-based tax that is
levied at each stage of the supply chain, from manufacturing to consumption, with
input tax credits available for taxes paid at previous stages.
 Need for Constitutional amendment
Article 265 - No taxation without authority of law: Article 265 mandates that no tax shall
be levied or collected except by the authority of law. The introduction of Goods and Services
Tax (GST) required amending this article to empower the Union and the States to levy and
collect GST.
Article 245 - Extent of laws made by Parliament and by the legislatures of States: Article
245 defines the territorial jurisdiction of laws made by Parliament and State legislatures.
The implementation of GST necessitated amendments to ensure that both the Union and
the States could levy and collect tax on the supply of goods and services.
Article 246 - Subject-matter of laws made by Parliament and by the Legislatures of States:
Article 246 delineates the legislative powers of Parliament and State legislatures with
respect to various subjects. Amendments were required to confer concurrent powers to
both the Union and the States for the levy and collection of GST.
Seventh Schedule to Article 246 - Distribution of Legislative Powers: The Seventh Schedule
lists subjects under three lists - Union List (List I), State List (List II), and Concurrent List
(List III). Amendments were needed in this schedule to make provisions for GST and to
allocate legislative powers between the Union and the States regarding GST.
i. List I (Union List): Amendments were required to include provisions related to GST
within the Union List, empowering the Union to levy and collect GST on inter-state supply
of goods and services.
ii. List II (State List): Amendments were needed to allow States to levy and collect GST on
intra-state supply of goods and services.
iii. List III (Concurrent List): Amendments were necessary to provide concurrent powers to
both the Union and the States for the levy and collection of GST.
Article 246A - Special provision with respect to Goods and Services Tax: Article 246A was
inserted to provide specific provisions for the levy and collection of GST. It empowers both
the Union and the States to make laws for GST, ensuring the implementation of GST as a
dual GST model.
Article 269A - Levy and collection of GST on inter-state supply: Article 269A was inserted
to provide for the levy and collection of GST on inter-state supply of goods and services. It
facilitates the mechanism for the collection of Integrated Goods and Services Tax (IGST) on
inter-state transactions, ensuring uniformity and efficiency in the GST regime.
These constitutional amendments were necessary to provide the legal framework for the
implementation of GST, ensuring clarity, uniformity, and effectiveness in the taxation of
goods and services across the country.