Federal system of taxation

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Querist : Anonymous

Querist : Anonymous (Querist)

01 October 2011 The State Govt collects VAT, while the Central Govt collects Service Tax. This federal system of taxation fails because the govts are not ready to set-off tax amongst each other.

What does it mean, can you give an example please? Thanks a lot.

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 well as my friend you must have heard about union list of articles
in which the matter on which central govt, state govt & both are elegible to make law are given

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CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 The same list gave the state govt. power to charge tax on the sales of goods taken place in that state

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CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 Because of the above, the various state govt. have passed the various VAT acts and have prescribed the corresponding rates of VAT to be charged on the goods

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CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 Similarly the Central government has started to charge service tax under article 97 of the union list.

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 the power to levy the tax on services lies with the central govt.
therefore the central government charges service tax on the notified services

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 now, since the different government are charging the different taxation, both are not agree to give credit of any of one taxes in the payment of other tax

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 i.e. the central govt. is not allowing the credit of VAT paid on the goods consumed in providing the services, while payment of service tax as they are allowing the credit of Excise duty paid on the goods which is also a central government tax levy

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 Similarly on the same lines the state government vat acts are not allowing the credit of service tax paid on the services utilised for trading i.e. sales of the goods like agent commision, rent, telephone services

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 the federal taxation fails because the party is not entitled to get proper credit of the taxes paid by it.