Goods And Service Tax In India

1. GOODS AND SERVICE TAX
GST (Goods and Service Tax) was tabled by the Indian Finance minister in Lok Sabha. A lot
has been talked about its implementation and the implications it would have on the Indian
taxation structure. Let’s have a look on what shape it may take.
INTRODUCTION
GST is a tax on goods and services with comprehensive and continuous chain of set-off
benefits from the producer's point and service provider's point upto the retailer's level. It is
essentially a tax only on value addition at each stage, and a supplier at each stage is
permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of
goods and services as available for set-off on the GST to be paid on the supply of goods and
services. The final consumer will thus bear only the GST charged by the last dealer in the
supply chain, with set-off benefits at all the previous stages.
GST is structured to simplify the current indirect tax systems in India. It integrates the Union
Excise Duty, Custom Duty, VAT/CST and Service Tax to a single point levy i.e. GST. To make
this taxation system at par with the internationally adopted best practices, GST has been
proposed by the Finance Minister then in 2006, now proposed to be in place by April 2016.
HISTORY
Adopted initially by Union of Canada and Brazil followed by many nations, GST is a
composite tax to be charged on the supply of goods & services to be divided by State and
Centre among themselves. Almost 140 countries have already implemented the GST.
In India, the Vajpayee Government started discussion on GST in 2000 by setting up an
empowered committee. The committee was headed by Asim Dasgupta (Finance Minister,
Government of West Bengal). It was given the task of designing the GST model and
overseeing the IT back-end preparedness for its rollout.
An announcement was later made by Palaniappan Chidambaram, the Union Finance
Minister, during the central budget of 2007–2008 that it would be introduced from April 1,

2. 2010 and that the Empowered Committee of State Finance Ministers, on his request, would
work with the Central Government to prepare a road map for introduction of GST in India.
However, it was officially deferred until April 2013 and then unofficially shelved in
perpetuity.
JUSTIFICATION OF GST
With the introduction of GST, the additional burden of VAT and services tax would be
comprehensively removed, and a continuous chain of set-off from the original producer's
point and service provider's point upto the retailer's level would be established which would
eliminate the burden of all cascading effects, including the burden of VAT and service tax.
This is the essence of GST. Also, major Central and State taxes will get subsumed into GST
which will reduce the multiplicity of taxes, and thus bring down the compliance cost. With
GST, the burden of CST will also be phased out.
The illustration shown below indicates, in terms of a hypothetical example with a
manufacturer, one wholesaler and one retailer, how GST will work.
Let us suppose that GST rate is 10%, with the manufacturer making value addition of Rs.30
on his purchases worth Rs.100 of input of goods and services used in the manufacturing
process. The manufacturer will then pay net GST of Rs. 3 after setting-off Rs. 10 as GST paid
on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the
goods to the wholesaler. When the wholesaler sells the same goods after making value
addition of (say), Rs. 20, he pays net GST of only Rs. 2, after setting-off of Input Tax Credit of
Rs. 13 from the gross GST of Rs. 15 to the manufacturer. Similarly, when a retailer sells the
same goods after a value addition of (say) Rs. 10, he pays net GST of only Re.1, after setting-
off Rs.15 from his gross GST of Rs. 16 paid to wholesaler. Thus, the manufacturer,
wholesaler and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value
addition along the entire value chain from the producer to the retailer, after setting-off GST
paid at the earlier stages. The overall burden of GST on the goods is thus much less. This is
shown in the table below. The same illustration will hold in the case of final service provider
as well.

3. Stage of
Supply Chain
Purchase
Value
Of Input
Value
Addition
Value at
Which Supply
Goods and
Services
Made to
Next Stage
Rate
of
GST
GST
on
Output
Input
Tax
Credit
Net GST=GST
on output-
Input Tax
Credit
Manufacturer 100 30 130 10% 13 10 13–10 = 3
Whole Seller 130 20 150 10% 15 13 15–13 = 2
Retailer 150 10 160 10% 16 15 16–15 = 1
BENEFITS TO INDUSTRY, TRADE AND AGRICULTURE
The GST will give more relief to industry, trade and agriculture through a more
comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming of
several Central and State taxes in the GST and phasing out of CST. The transparent and
complete chain of set-offs which will result in widening of tax base and better tax
compliance may also lead to lowering of tax burden on an average dealer in industry, trade
and agriculture.
BENEFIT TO THE EXPORTERS
The subsuming of major Central and State taxes in GST would reduce the cost of locally
manufactured goods and services. This will increase the competitiveness of Indian goods
and services in the international market and give boost to Indian exports. The uniformity in
tax rates and procedures across the country will also go a long way in reducing the
compliance cost.
BENEFIT TO COMMON CONSUMERS
With the introduction of GST, certain major Central and State taxes will be phased out.
Other things remaining the same, the burden of tax on goods would, in general, fall under
GST and that would benefit the consumers.

4. GST ELSEWHERE
While countries such as Singapore and New Zealand tax virtually everything at a single rate,
Indonesia has five positive rates, a zero rate and over 30 categories of exemptions. In China,
GST applies only to goods and the provision of repairs, replacement and processing services.
It is only recoverable on goods used in the production process, and GST on fixed assets is
not recoverable.
Country Rate of GST
Australia 10%
France 19.6%
Canada 5%
Germany 19%
Japan 5%
Singapore 7%
Sweden 25%
India -
New Zealand 15%
Pakistan 18%
Malaysia 6%

5. SALIENT FEATURES OF THE PROPOSED GST MODEL
 Consistent with the federal structure of the country, the GST will have two
components: one levied by the Centre (hereinafter referred to as Central GST), and
the other levied by the States (hereinafter referred to as State GST). This dual GST
model would be implemented through multiple statutes (one for CGST and SGST
statute for every State). However, the basic features of law such as chargeability,
definition of taxable event and taxable person, measure of levy including valuation
provisions, basis of classification etc. would be uniform across these statutes as far
as practicable.
 The Central GST and the State GST would be applicable to all transactions of goods
and services except the exempted goods and services, goods which are outside the
purview of GST and the transactions which are below the prescribed threshold limits.
 The Central GST and State GST are to be paid to the accounts of the Centre and the
States separately.
 Since the Central GST and State GST are to be treated separately, in general, taxes
paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for
the Central GST and could be utilized only against the payment of Central GST. The
same principle will be applicable for the State GST.
 Cross utilisation of ITC between the Central GST and the State GST would, in general,
not be allowed.
 To the extent feasible, uniform procedure for collection of both Central GST and
State GST would be prescribed in the respective legislation for Central GST and State
GST.
 The administration of the Central GST would be with the Centre and for State GST
with the States.
 The taxpayer would need to submit periodical returns to both the Central GST
authority and to the concerned State GST authorities.
 Each taxpayer would be allotted a PAN linked taxpayer identification number with a
total of 13/15 digits. This would bring the GST PAN-linked system in line with the
prevailing PAN-based system for Income tax facilitating data exchange and taxpayer

6. compliance. The exact design would be worked out in consultation with the Income-
Tax Department.
 Keeping in mind the need of tax payers convenience, functions such as assessment,
enforcement, scrutiny and audit would be undertaken by the authority which is
collecting the tax, with information sharing between the Centre and the States.
 For Interstate Transactions IGST (CGST+SGST) would be charged which would be
apportioned to the Union and States. 1% of the origin based tax to offset CST loss
would be collected by the Union and retained by the States in the case of Interstate
sales. The credit of this 1% will not be available.
 GST should subsume all major indirect taxes levied by the Central Government i.e.
central excise, customs and service tax and majority of the taxes levied by the State
Government i.e. VAT, luxury tax, entertainment tax, etc.
 Petroleum Products, Alcohol and Entry Tax may be kept out of the ambit of GST
which may further compound cascading of taxes.
GST APPLICABILITY
GST will be applicable on every specified transaction. We can bi-furcate the transactions
basis from where it is supplied and where it is consumed.
1. SUPPLY WITHIN STATE
In case the supply of goods or services is done locally – the place of consumption rules
provide that local GST needs to be applied for the transaction, then the supplier would
charge dual GST i.e. SGST and CGST at specified rates on the supply. For example:
Basic value charged for supply of goods or services 10,000
Add: CGST @ 10%* 1,000
Add: SGST @ 10%* 1,000
Total price charged for local supply of goods or services 12,000
In the above illustration, the rate of CGST and SGST is assumed to be 10% each.

7. The CGST & SGST charged on the customer for supply of goods or services would be
remitted by the seller into the appropriate account of the State/ Central Government.
2. SUPPLY FROM ONE STATE TO ANOTHER
In case the supply of goods or services is done in a difference state – the place of
consumption rules provide that interstate GST (or integrated GST) needs to be applied for
the transaction, then the supplier would charge IGST at specified rates on the supply. For
example:
Basic value charged for supply of goods or services 10,000
Add: IGST @ 20%* 2,000
Total price charged for interstate supply of goods or services 12,000
In the above example, the rate of IGST is assumed to be 20%
The IGST charged on the customer for supply of goods or services would be remitted by the
seller into the appropriate account of the Central Government. The CG would share the
same with the State of destination and itself.
3. EXPORTS
In case the supply of goods or services are exported out of India – the place of consumption
rules regard the transaction as ‘exported’, then the transaction would be zero rate. In other
words, the supplier would be allowed to export the goods or services without charging any
tax. For example:
Basic value charged for supply of goods or services 10,000
Add: GST Nil
Total price charged for export of goods or services 10,000
RATE STRUCTURE

8. It is expected that GST would be levied on the transaction value i.e. actual price paid or
payable for supply of goods and services. The discussion paper and the Constitution
Amendment bill 2014 indicate that the empowered committee has decided to adopt the
following rate structure for taxing goods and services:
 Exempted goods: The short list under the State VAT law-0%
 Special rate: Precious metals- could be 1 %
 Concessional rate: Necessities and goods of basic importance [the concept of
declared goods would no longer be relevant] -could be 10%
 Standard rate: For all other goods- could be 20% [Maybe more is the indication]
 States may be able to fix the SGCT based on a band say 9-11%. [1-2 %]
The recommended uniform State GST threshold of INR 25 Lakhs for both goods and services
and composition scheme for those between Rs. 25 Lakhs to 75 Lakhs is being discussed.
A 1% tax would accrue to the originating States for a period of 2 years unless extended by
the GST council.
GST Council may change any of the above mentioned rates as further discussions and
meetings of union ministers and empowered committee are held.
CREDIT SCHEME
GST would be levied on supply of goods and services and the supplier would be allowed
credit for the GST paid on purchases. The credit would be seamless except that the credit of
CGST paid would not be allowed for set-off against SGST payable and vice versa.
The objective of seamless credit would be met except for those below the threshold limit,
those under special composition schemes and the products which are exempted. Presently
in the central as well as the state tax laws a number of restrictions exist on eligibility of
goods and services used for business. It is hoped that these anomalies would be taken care
off in the draft law which is expected to be in place by June 2015.
Introduction of the Constitution Amendment Bill in the Lok Sabha in December 2014, has
rekindled some hope. Though the government continues to stay non-committal on the date
of introduction of GST, it is encouraging a go live in April, 2016.

9. CONCLUSION
The GST framework could easily be one of the most important tax reforms to be tabled for
discussion in the parliament. It does bring with it some problems, like division of taxation
powers between the central government and states. Not surprisingly, the Finance ministry
has already missed three of its deadlines to come out with an acceptable framework. In fact,
most of the proposals aren't even in the beta stage yet. But, most administrators and more
importantly, producers believe it would make the tax procedures more fair, transparent and
efficient.
SOURCE
Internet:
http://www.empcom.gov.in/
http://en.wikipedia.org/
http://www.quora.com/
http://www.taraspan.com/
http://economictimes.indiatimes.com/
Others:
CA Connect India
GST Draft (White Papers Published by EC)
First Discussion Paper on GST