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Basic differences

DEVYANI SIDDHAPURA (CA Final Student) (73 Points)

19 August 2016

What is the difference between duty and taxes? Eg why don't we call excise tax instead of excise duty? It would be greatful if it can be explained in simpler terms.

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4 Replies

Abhimanyu (CA) (316 Points)
Replied 19 August 2016

Dear Devyani,
Thanks for the query,
Basically duty is a tax, as you might have also heard that In CA final chapters of Excise duties and Customs are covered in Indirect tax subject.
So, basically duty is a tax, it I believe originates from the word dues maybe actually it is not though, but reason why I relate dues to duty is the fact that they are based on dues to govt. for import/mfg of things ie please give us(govt.) our cut in the money you pay/get since you are using our(nation's) resources.
The concluding diff. will be as follows,
A tax is charged on person,
whereas duty is charged on things.
Since all duties are taxes collection mechanism maybe same.
We call excise duty because it is a cut of govt. on prod. of goods in there territory ie. charge on the product and not on the person producing it, but due to recovery reasons person liable to deposit is that person, thats why premise of factory has importance in excise laws.

Hopefully, this gives you an idea about the diff., should you have any issue please revert back.

Thanks,
Abhimanyu

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U S Sharma (glidor@gmail.com) (21056 Points)
Replied 20 August 2016

The following are the major differences between tax and duty:

Tax is a financial obligation which is to be paid to the government compulsorily. Duty is a fee payable to the government on the manufacture and import/export of goods.
The duty itself is a type of tax.
Tax is charged on individuals, wealth, services and sales, whereas Duty is charged on goods.
There are two major types of taxes, i.e. Direct Tax and Indirect Tax. Conversely, the major types of duties are Excise Duty and Customs Duty.
The Central Government or State Government can impose taxes, but only the Central Government has got the authority to levy duty.

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DEVYANI SIDDHAPURA (CA Final Student) (73 Points)
Replied 01 September 2016

Thanks Abhimanyu & U S Sharma

But I still have some query regarding the same.

If duty is charged on goods/things then looking at the substance over form VAT is also charged over goods only(although it is chargeable only when there is sale of 'goods'), then why don't we call value added duty?

And if duties are derived because of 'dues', then taxes are also due in case of sales, income, services, etc. to government.?

Would this be the reason that in case of tax, government can only cease and have a right to file complaint to recover their taxes whereas
in case of duty they have right to cease as well as sell the ceased goods and recover their dues ?

Abhimanyu (CA) (316 Points)
Replied 04 September 2016

Thanks for reverting,
VAT is actually not on goods but on the activity of sale, though you may put an argument of duty being charged on manufacturing activity (ie. in case of excise) but you would appreciate the fact that it is charge over the goods themselves.
Now to your queries,
VAT is tax on sales or simply sales tax charged on sale activity of movable property, "VAT" the name comes from its ad- valorem characteristic, as you know.
It has nothing to do with goods themselves as because of our constitution of India the power to charge tax on sale of goods is with states ( GST ,COI amendment being new development though) it though seems to be charge on goods but actually is charge on sale activity and because of COI separation between states and union it seems little difficult to gulp.
So, it is not tax on goods but on sale activity.

As I said tax is that bigger circle in which duty is also included but the fact that duty is goods/ things specific it is called to be a little different from tax as a whole, sales, income, service taxes does not have direct nexus to any goods/ things, please do mind that sale of goods might appear to be having nexus with sales tax but not in the manner it has with in case of excise or imports as I am trying to explain.

Thus, there is, since no direct nexus to goods no goods can be held or confiscated or seized in case of all taxes, but that person or that entity or assessee be charged or penalized or even prosecuted, but in case of duty both seizure of such goods plus prosecution be done as it is charge on goods, direct nexus to goods and right over such goods.(please do differentiate such goods from things which are property of assessee which can be auctioned etc. in either cases)

Hope it answers your query,
Should you have any issue please write back.

Thanks for reading, sorry for being too lengthy.

Abhimanyu