Training material on Goods and Service Tax of India is designed keeping the Value Added Tax and General Sales Tax in the background. General tax reforms in major direct and indirect taxes of India are discussed as intruduction. Impact of direct taxation is analyzed with some original concepts and examples. Some of the concepts and most of the examples and computations demonstrated in VAT and GST section are also original of the author.

1. Tax Reform in India
Direct Tax
Indirect Tax
with focus on
Value Added Tax (VAT)
&
Goods & Service Tax (GST)
1
Chidananda Jena
Email: chidananda.jena@gmail.com
Skype/ YM: chidanandajena

2. Tax Policy is not only designed to collect
tax and finance development and
national interest, but also meant to bring
economic and social change, reduce
inequality, form capital of federal and
local governments, corporations, families
and individuals and instill on citizens and
governments a sense of shared
responsibility in each stated objective.
2

3. 3
Outline

4. Direct Tax Reform
 Tax GDP Ratio Worldwide
 Indian Tax Distribution
 International Tax Distribution
 Direct Tax Reforms in India
 New Direct Tax Code
 Effects of Direct Tax
 Cascading effect of Direct Tax on Earnings
 Cascading effect of Direct Tax on Consumer
 Reduction of Income in Direct Tax
 Direct Tax rewards spendthrifts
4

5. Indirect Tax Reform
 Customs
 Excise
 Service Tax
5

6. VAT
 Principles of VAT
 VAT Computation and Levy
 Input Tax Credit (ITC)
 VAT over Sale Tax
 Consignment Transaction for Principal of other state
 Interstate Sale
 Comparison of Consignment and Interstate Sale in VAT
 Zero VAT, ITC Carry forward and Refund
 VAT-Consumption States to benefit
 VAT: Achievements and Deficiencies
6

7. GST
 Why GST
 Taxes to Subsume in GST
 How GST different from VAT
 Cascading Effect of CENVAT
 Different Models of GST
 Models of Interstate Sale
 IGST Vs current VAT-CST
 Challenges before Clearing house
 Shifting of CGST share from producing to consuming State
 Tax Rates and Base in GST: GoI and States Stand
 Challenges for determining place of Sale or Supply
7

8. Constitutional Provisions
 Constitutional Implications
 Centre State Relations
 Legislative, Administrative and Financial
 Inter state Trade
 GST Council & Dispute Settlement Authority
 Taxing Export & Import
 Taxing Petroleum and Edible Alcohol
 Sixth Schedule
 Seventh Schedule: Union and State List
8

9. Progress Updates
 Stand off between Centre and States on
Compensation in lieu of CST loss
 GSTN SPV
 GSTN Portal
 Negative List of Services
9

10. 10
Elaborate

11. Direct Tax Reform
11

12. Tax GDP Ratio Worldwide
12
Tax GDP Ratio 2012 by Heritage Foundation
Canada 32.2
Mexico 29.7
USA 26.9
Australia 30.8
Japan 28.3
New Zealand 34.5
Denmark 49
France 44.6
Germany 40.6
Italy 42.6
Netherland 39.8
UK 39
OECD Un-weighted Average 34.8
Argentina 37.2
China 17
India 17.7
Russia 36.9
Source (wikipedia)

13. Indian Tax Distribution
13
All India Tax Distribution 2012-13 ($/Rs conversion at 12-13 level apx)
figures are approximations in Bn $ ($1=$ 50) % of PAN India Tax
Corporate Tax 70.34 21.53%
Income Tax 38.26 11.71%
GoI Direct Taxes 108.61 33.24%
Customs 32.97 10.09%
Union Excise 34.40 10.53%
Service Tax 26.54 8.12%
GoI Indirect Taxes 93.91 28.75%
Total Govt of India Taxes 207.61 63.55%
State share transferred 58.81 18.00%
Balance tax with National Govt 148.42 45.43%
VAT of State 74.51 22.81%
State Own Tax Revenue (mostly
Indirect) 124.18 38.01%
Total Tax at the disposal of State 182.99 56.01%
PAN India Total Indirect Tax 218.09 66.76%
PAN India Total Tax 326.69 100.00%

14. International Tax Distribution
14
Comparison of OECD Countries in % of total Tax (Aproximately)
USA
Canad
a
Mexic
o UK
German
y France
Finlan
d
EU
(unweig
hted)
Austral
ia
Japan
(some taxes
missing)
OECD
(unwei
ghted)
Personal
Income Tax 35.3 34.6NA 28.7 23.9 17.5 31 25 38.5 17.5 24.9
Corporation Tax 8.1 10.4NA 7.8 3.5 5.7 7.7 8.1 16.7 13 9.3
Social Security
Contribution 26.4 17.5 18.7 18.5 40.5 40.2 26.7 29.8 5.6 18.5 27
Direct Tax from
earning 69.8 62.5 18.7 55 67.9 63.4 65.4 62.9 60.8 49 61.2
Property Tax 12.1 10 1.6 11.9 2.4 7.3 2.3 5.4 9.5 10.3 5.6
Goods and
Service Tax 18.2 26.1 52.5 32.7 29.4 25.5 32 30.4 29.7 20.3 32.1
Consumption
Tax (in GST) 8.4 15.1 19.4 19.8 17.9 16.8 19.4 18.9 13.7 9.5 18.9
Source: Tax Reform Trend in OECD Countries; Centre for Tax Policy and Administration, OECD

15. Direct Tax Reform in India
15
 No change in concept or computation in direct tax reform
 Progress in computerization/ strengthening administration,
increasing Tax Base, Lowering Tax Rates
 Reduction in Exemption and Provision
 Scope of revenue leakage is high-Transfer Pricing, income/ profit
transfer internationally, Tax Haven/ different tax rates
internationally, tax treaties etc.
 Corporatization is high in India due to scope for avoiding tax
(Refer share of PIT and CIT in total tax) and parity of CIT and PIT-
Rent Seeking tendency high
 Presumptive Tax-MAT
 Cascading effect is enormous in Direct Tax

16. New Direct Tax Code
16
 Simplified and rationalized
 reduced exemption and incentives, lowering rate & structure, parity
of domestic & foreign firms, Clarity in definition of resident & non-
resident
 One Accounting Year
 EET (PPF, Insurance) Vs previous EEE
 Reduction of provisions that can be abused
 Tax neutral for public and government
 Parity of long term and short term capital gain-indexation benefit
 Tax rate same at 25% for domestic and foreign firms, removal of
deduction, moving towards assets base deduction
 Loss carried forward till adjustment
 Assets classification simplified- depreciation at same rate

17. New Direct Tax Code
17
 MAT moving from income to asset based
 Companies will try to reduce wasteful assets and gestation
period
 Wholly situated modified to partly situated- good for foreign
firms/ NRIs
 Taxing media companies broadcasting Indian program through
satellite to Indian audience, generating revenue from
advertisements of Indian Companies
 Commission given lots of power in permanent establishment,
transfer pricing, associated enterprise, arms length price issue

18. Effect of Direct Tax
18
 People paying income tax again pay tax on spending-
Cascading
 Profit earned by a Corporate/ Person from revenue
earned through sale of goods and service are ultimately
paid by consumer-payable income tax is built in the prices
of goods and services-Cascading
 Tax on earning reduces people’s wealth more than
equivalent consumption tax
 Direct Tax punishes savings

19. Low Income Group Middle Income Group
 Earns $100
 Exemption Limit=$100
 Balance for Consumption=
$100
 Pays VAT@10%= $9
 Consumption= $91
 Tax to Government on total
earning=$9=9%
 Earns $200
 Exemption Limit=$100
 Income Tax @20%=$20
 Balance for Consumption
=$180
 Pays VAT@10%=16
 Consumption=$164
 Tax to Government on total
earning=$36=18%
19
Cascading Effect of Direct Tax on Earning
Note: Scenario is different for high income groups as the spending is much less than total
income, Tax Credit refund for low income group is practiced in developed economy, but no
relief for middle class

20. Cascading Effect of Direct Tax on Consumer
20
 Corporation C sells cold drinks @ $1 per bottle
 Consumer pays VAT/GST @ 10%=10 cents per bottle
 Corpn C sells 1 Bn bottles and gross revenue is $10Bn
 Corpn C collects from consumer and pays VAT/GST of $1Bn
 Operating Expenses etc. $1 Bn
 Raw materials cost $ 5Bn
 Depreciation, interest etc $ 2 Bn
 Profit after depreciation and interest=$ 2 Bn
 Income Tax due at this stage @ 20%= $40 Mn
 Consumers utlimately pays this $ 40 Mn hidden in the cost of cold drinks
sold by Corpn C
 VAT/GST @ 10% on $ 40 Mn is $ 4 Mn
 Consumers pay VAT of $ 1 Bn in which there is $4 Mn cascading effect of
direct tax + direct tax of $ 40 Mn= $ 1.4 Bn

21. Income Tax Consumption Tax
 A earns $100
 Pays Tax @ 20%=$20
 Balance=$80
 Consumption in Yr 1
 $40
 Investment 4m Yr 1-10
 $40
 Earnings $40
 Tax@20%=$8
 Net=$72
 No Income Tax
 B earns $100
 Consumption in Yr 1
 $50 inclusive of tax
 Tax@20%=$10
 Actual Consumption=$40
 Investment 4m Yr 1-10
 $50
 Earnings $50
 Total =$100
21
Reduction of Income in Direct Tax

22. Income Tax Consumption Tax
 Consumption in Yr 10
 $72
 Total Effect
 Total Earning $140
 Tax=$28
 Actual Consumption=$112
 Tax effect=@20%
 Consumption in Yr 10
 $100 inclusive of Tax
 Tax @20%=$20
 Actual consumption=$80
 Total Effect
 Total Earning $ 150
 Tax=$30
 Actual consumption=$120
 Tax Effect=@20%
22
Reduction of Income in Direct Tax (Cont)
Note: Assuming rate of earning on savings
more than inflation, there is a net loss
to the public under income tax regime

23. Spendthrift Economical
 A earns $100
 Pays Tax @ 20%=$20
 Balance=$80
 Consumption in Yr 1
 $80
 B earns $100
 Pays Tax @ 20%=$20
 Balance=$80
 Consumption in Yr 1
 nil
 Investment 4m Yr 1-10
 $80
 Earnings $80
 Tax@20%=$16
 Net=$144
23
Direct Tax rewards Spendthrift

24. Spendthrift Economical
 B’s Consumption in
comparison to no tax
scenario=$80/100=80%
 Consumption in Yr 10
 $144
 Consumption in comparison
to no tax
scenario=$144/200= 72%
24
Direct Tax rewards Spendthrift (Cont)
Source: Progressive Consumption Taxation; The choice of Tax Design by Alan
Viard, American Enterprise Institute, NYU, School of Law

25. Indirect Tax Reform
25

26. Customs
26
 Peak customs duty 10 %, committed to bring to 5%
 Multiple tax rates persists for closely related items
 Exemptions persist
 Standard Commodity Classification followed
 Transaction Value instead of deemed value
 Fast Track Clearance Scheme limited-Delay persists
 Should encourage self declaration as much as possible
 Provision for Advance Ruling implemented, but lingering
 MODVAT with negative list

27. Excise
27
 Structure and rates of duty lowered: peak rate 16% and
two rates
 CENVAT ( Credit/offset) diluted
 Cascading still persists
 Populist exemptions persist
 Physical restriction by tax administration reduced largely
with self declaration of tax payer
 Adoption of standard commodity classification list

28. Services
28
 Tax Base increase by leading to double tax by centre and
state
 Interpretation of Services as Goods by states leading to
double taxation
 ITC not interchangeable

29. VAT
29

30. Principles of VAT
 Uniform Tax Rate PAN India to eliminate Tax War
 No Double Taxation and Cascading effect
 ITC (Input Tax Credit)-differential to be paid to Govt.
 Tax is not a part of sale price
 Entire tax collected at different stages inside a state to be
refunded/ adjusted in case of interstate sale/Export
 Parity of CST sale & Commission sale
 CST sale would have been tax free within few years
30

31. VAT Computation
 VAT =(Output tax + Purchase tax) - Input tax
 VAT- on the sale and purchase
 A dealer collects tax on his sales, retains the
tax paid on purchases and pays the balance
in every tax period
 TOT- Nominal rate on TTO of Sale
31

32. VAT Levy on Sale & Purchase
 Tax on sale turnover of taxable goods.
 Purchase tax is on transactions, unlike purchase tax 3B
goods of Sales Tax Act.
 Purchase tax is levied when taxable goods are purchased
under circumstances where no tax on sale is leviable.
 When purchased from unregd. dealers.
 Where the goods consumed or used otherwise than
through intra-state/ inter-state/ export
/SEZ/STP/EHTP/EOU sale.
32

33. Input Tax Credit (ITC)
 ITC can be claimed only by Regd. VAT Dealers.
 ITC on goods purchased within the state from Regd. VAT
Dealers .
 ITC allowed on
 Intra State Sale
 Inter state sale/STP/SEZ/EOU/EHTP/Export out of the country.
 Consignment/ Commission Transaction from one state to another
 On stocks held on appointed day.
 ITC Readjustment for goods returned.
 Tax Invoice fundamental for claim of ITC.
33

34. ITC on Capital goods
 ITC to be allowed on capital goods spread over
2/3 years followed by refund
 ITC on consumables except negative list goods.
34

35. No Input Tax Credit- ITC
 Against CST, VAT paid in another state
 In respect of sales exempted from VAT
 On material purchased from a regd. VAT Dealer, but given
away as gift
 For TOT dealers
 In respect of stock of goods remaining unsold at the time
of closure of business
 On old capital goods/ vehicles for conveyance or
transport
35

36. No Input Tax Credit-ITC
 To liable unregistered dealer
 Purchase and Sale of Suspended Dealer
 Raw materials when the finished product is
exempt.
 Proportionately if part of finished goods is exempt
36

37. Sales Tax VAT
 OMC (ore) sells $1000/
collects & Pays Tax@4% $40/
 Shree Metallics (sponge
iron manufacturer)
purchases $1040/
margin $60/
sells $1100/
collects and Pays Tax@4%$44/
total $1144/
 OMC sells $1000/
Collects & PaysVAT @4% $40/
 Shree Metallics
purchases $1000/
margin $60/
sells at $1060/
Collects VAT@4% $42.4/
Pays Tax $ 2.4/
37
Sales Tax vs VAT

38. Sales Tax VAT
 Saurav Alloys (manufacturer
of ingot)
purchases $1144/
margin $56/
sells $1200/
collects and pays Tax $48/
 Rerolling Mill manufacturer
purchases $1248/
margin $ 52/
sells $ 1300/
collects & pays Tax $52
 Saurav Alloys
purchases $1060/
margin $56/
sells $1116/
collects VAT $44.64/
pays tax $2.24/
 Rerolling Mill
purchases $ 1116/
margin $ 52/
sells $ 1168/
collects VAT $46.72/
pays tax $2.08/
38
Sales Tax vs VAT

39. Sales Tax VAT
 Trader purchases at
$1352/ including tax of
$184/
 Companies keep margin
of $168/
 No further Tax
 Trader purchases at $ 1168/
and total VAT $46.72/
total $ 1214.72/
 All Companies keep margin of
$168/
 Trader sells to consumer adding
margin of few dollars and adding tax of
few cents
39
Sales Tax vs VAT

40. Sales Tax VAT
 TIISCO, Odisha sells at
$1200/
It does not get ITC $ 40
tax on input of $ 1000/
 Collects no tax
 Trader sells with 10%
margin =$1320/
 Jhar. Sales Tax $52.8/
Odisha Sale Tax $40/
 TIISCO sells at $1200/
It gets ITC in access of $ 40 on
input of $ 1000/=no ITC here
 Collects no tax
 Trader sells with 10% margin =$
1320 /
 VAT(J) $ 52.8 /
VAT(O) $ 40 /
40
Consignment Transaction by agent in another State
Tax Benefit under VAT if tax rate is
higher than CST rate. Excess tax shall
be given ITC

41. Sales Tax VAT
 JMC - Iron Ore
sells $ 1000/
Tax 4% $ 40/
 TIISCO manufactures Coils
purchases $ 1040/
margin $ 160/
sells $1200/
CST 4% $ 48/
total $1248/
 JMC - Iron Ore
sells $ 1000/
VAT 4% $ 40/
 TIISCO - CR Coils
purchases $ 1000/
margin $ 160/
sells $1160/
CST 4% $ 46.4/
ITC- $ 40/ refunded
total $ 1206.4/
41
Interstate Sale

42. Stock Transfer CST
 JMC- Iron Ore
sell $1000/
VAT (J) @ 4% $ 40/
 TIISCO- Jharkhand
purchase $ 1040/
no ITC for VAT of $ 40 /
margin@10%= $104/
sell Value $1144/
No CST
 Jharkhand tax $40/
 Benefit of $4 to TIISCO
 JMC- Iron Ore
sell $1000/
VAT(J) @ 4% $ 40/
 TIISCO, Jharkhand purchase $
1000/ margin @10%= $ 100/
sell $1100/
CST (J) @4%=$44/
VAT(j)-$40/ refunded
Total Value=$1144/
 Jharkhand Tax $ 44/
42
Consignment Transfer Vs Interstate Sale in VAT

43. Zero VAT
ITC for Zero rated sales.
Zero rating on
Goods exported out of the state
Goods exported out of the country
Goods sold to SEZ, STP, EHTP, EOU
43

44. Adjustment of ITC
 ITC to be adjusted against outstanding tax, penalty
under the VAT Act or against tax due under CST Act
 Excess of ITC after adjustment to be carried over as
an input tax credit to subsequent tax periods up to 2
years.
 Refund of ITC will be given after 2 years / the dealer
may opt for further carry forward.
 Refund of ITC on goods exported out of the country
on application in every tax period.
44

45. Refund
 Refund arising out of an order to be allowed,
without application, within a period of 60 days
 Refund to be adjusted against arrears
 Refund for export to be allowed on application
within 90 days after audit
 Audit to be completed within 30 days
 Refund can be granted provisionally against bank
guarantee
 8% interest on refund after due date
45

46. Consumption Tax beneficial to poor States
 Net consuming state to benefit the reduction of CST and
refund of ITC in producing state
 Consumers bear the State Sales Tax & CST of other states
in addition to the own state ST of Orissa for goods
brought in- VAT will reduce tax burden.
 Integration of Industry will stop. Industries will migrate to
less developed state- raw material, Coal, Land & Labour is
cheap and plenty. Doubling & Cascading effect of tax is no
more a worry.
 Ancillary Industries will grow-generation of huge
employment & new business avenues.
 Main cause of industries in mineral rich states now-VAT
46

47. Achievement of VAT
47
 Abolition of First Point (under pricing) or Last Point
(intractable) Sale Tax- Appropriate Revenue Collection at
appropriate level
 Reduction of Cascading effect of Tax at manufacturing
stages as ITC on raw materials and Capital goods allowed
 Reduction of Cascading effect for Refund of VAT for Inter-
state sale and Export
 Reduction of CST leading to further reduction of cascading
 Rationalization of Tax Structure and Uniform Floor Rate
amongst States
 Consuming state collects VAT from Consumers

48. Deficiency in VAT
48
 Tax War not fully contained
 Still many rates persist
 Exemptions continue or crept in
 Narrow Base
 CST not abolished as Revenue Neutrality not achieved
 Check Post System could not be abolished
 No Coordination between Central Excise and States on cross
verification of transactions
 Many Taxes on Goods & Services both by Centre and States
 Conflict between state and centre whether service/goods
 Cascading effect not eliminated fully
 Commodity classification not standardized

49. GST
49

50. Why GST
50
 Conflict between Union Govt (Central Excise) and State
VAT on taxing new products as Goods/ Services
 Mobile Recharge Vouchers (Goods)/ Easy Recharge (Not Goods)
 Software sold online/ Software sold in a DVD
 Beverages Served in Luxury Hotels attract VAT and
Service Taxes in addition to Central Excise and State
Excise
 Assembling/Packaging - Whether Manufacturing/
Service and thus taxable as Excise/ Services
 States taxing selective services under Luxury Taxes, Hire
Purchases/Right to Use/Lease
 Works Contract a Service/ Goods/ Manufacturing?

51. Why GST (Cont)
51
 To reduce cost of Administration
 To reduce Cost of Compliance
 Registration & routine works handled by State
 Return for CGST/ SGST/ IGST will be simultaneous
 Payment of all GSTs simultaneous
 Reduce Tax burden on Public, Trade and Manufacturing
 Coordination between all Indirect Taxing Authorities
 Information sharing through robust GST Network
 One standard commodity classification by all states and
Indian Tax administrations

52. Why GST (Cont)
52
 Next Stage in Tax Reform
 Both Central Excise and State CT Dept wants to
increase tax base by including goods and
services day by day
 Followed by more than 100 nations
 Better mechanism to transfer ITC from one State
to another rather than refunding to Tax Payers in
selling state

53. Union Taxes State Taxes
 Central Excise Duty
 Additional Excise Duty
 The Excise Duty levied under
Medicinal and toiletries
preparation Act
 Service Tax
 Additional Custom Duty (CVD)
 Special Additional Duty
 Surcharge/ Education Cess
Note: One major taxes administered by
Central Govt. is left out, i.e
Customs/Import
 VAT
 Entertainment Taxes
 Luxury Taxes
 Entry Taxes
 Tax on lottery
 State Cess and Surcharge on
supply of goods and services
Note: CST (shall be abolished)
Most of the Taxes administered by Com Tax
Dept included
53
Taxes likely to Subsume in GST

54. How GST different from VAT
54
 Same concept of ITC as VAT
 ITC for service and goods combined
 ITC on Centre GST and state GST not interchangeable
 National excise and state VAT shall integrate
 No CST Law
 No tax incentive/disincentive for different types on
interstate Transaction
 Further reduction of cascading due to abolition of CST,
integration of central excise, service and state VAT

55. CENVAT @10% CGST @10%
 Mnfr A sells $100+CENVAT $10
 Trader B purchases $110
 With mark up @10%, Trdr B
sells at $ 121 to Trdr C
 With mark up@ 10%, Trdr C
sells at $ 133.10 to Mnfr D
 With mark up @ 100%,Mnfr D
sell at $266.20+CENVAT $26.62
 Cost to Consumer $ 292.82
 CENVAT = $10+$26.62 =$36.62
 No ITC for break in Mnfcr Chain
 Mnfr A sells $ 100+CGST $ 10
 With mark up @10%, Trdr B sells $
110+CGST $ 11 to Trdr C
 With mark up@ 10%, Trdr C sells
$121+CGST $12.10 to Mnfr D
 With mark up @ 100%, Mnfr D
sells $242+CGST $24.20
 Cost to Consumer $ 266.20
 Total CGST $24.20
55
CENVAT-Cascading
CENVAT leads to cascading in cases where chain of traders involved in purchases from
manufacturing unit and sells to manufacturing Unit-Break Manufacturing ITC Chain
Saving by consumer= $26.62 (Tax
$12.42+ Effect of Mark up on tax
included in cost $14.20)

56. Model 1: GST on Devolution
56
 State GST:
 State levy & collect GST
 Centre withdraws from tax on Trade and Service
 Centre have excise tax with state and centre sharing model
 Central GST:
 Centre levy and collect Tax
 State VAT merged with CENVAT & Service Tax
 Centre share more tax with respective States
 Dual GST
 State & Centre both collect Tax @ same Rate
 Commodity Base Synchronised

57. Union State
 Gross Turnover of
Services upto $ 1.5 Crore
 GTO above $ 1.5 Crore
for Goods and Services
Note: Cannot predict if GTO
will exceed the threshold
 Gross Turnover of Goods
upto $ 1.5 Crore
 GTO above $ 1.5 Crore
for Goods and Services
Note: Cannot predict if GTO
will exceed the threshold
57
Model 2:GST on the basis of threshold

58. Models in Interstate Sale
58
 VAT-CST Model: Zero Rated; ITC Adjusted/Carried Forward &
Refunded/ Transferred for Seller; Purchaser pays full VAT in
consuming state
 Reverse Charge Mechanism: Seller pay SGST to Exporting State;
Purchaser pays again SGST in Consuming State; Purchaser gets
certificate from Consuming State and gives to Seller; Seller claims
refund-Taxing Tax Payers
 Clearing House Mechanism: Seller pay SGST in exporting state,
provide details to clearing house; clearing house will collect SGST
from exporting state to Consuming State; Issue Certificate to
Seller and Purchaser; Seller can claim refund and Purchaser can
claim ITC- Challenging
 IGST Model: Seller pay differential tax to Centre; Exporting State
transfer credit used in IGST to Centre; Purchaser claim ITC;
Centre transfer ITC claimed by Purchaser to Consuming State;
Clearing House-More Challenging

59. VAT @10% + CST @2% SGST/IGST @10%
 Trdr A (State 1) purchases $
100+VAT $ 10
 With Mark Up@10%, Trdr A makes
interstate sale to Trdr B (State 2) at $
110 + CST $ 2.20=$ 112.20
 Trdr A claims refund from State1 =$
10-$2.20 =$ 7.80
 With marks up @10%, Trdr B sells $
123.42+VAT $ 12.34
 Consumer pays $ 135.76
 State 2 CTD gets VAT 12.34
 State 1 gets CST of $2.20
 Total Tax=14.54
 Trdr A (State 1) purchases $ 100 +
SGST $ 10
 With Mark Up@10%. Trdr A makes
interstate sells to Trdr B (State2) $ 110
+ IGST $ 11
 With marks up @10%, Trdr B sells
$121 + SGST $ 12.10
 Consumer pays = $ 133.10
 Trdr B gives State 2 SGST=$ 12.10 -
$11=$ 1.10
 Trdr A gives Centre IGST= $11-$10=$ 1
 Clearing House collects $ 10 from
State 1+ $ 1 from Centre IGST & pay $
11 to State 2
59
IGST Vs VAT-CST Model

60. Challenges for Clearing House
60
 State 1 accepting an interstate sell by Trader A to trader B
in State 2.
 Verifying ITC on purchases of Trader A by State 1 before
transferring ITC to Clearing House is a challenge
 Correlating invoice to invoice of purchase to sale not
possible
 Presently refund is not easily given and hence ITC is
carried forward for a long time
 Trader B availing ITC while State 2 would not receive the
ITC transfer will be a huge strain on consuming state
 Without clarity, verification mechanism, Enforcement
mandate of clearing house, State 1 will gain at the cost of
State 2

61. CENVAT @10% CGST @10%
 Mnfr A (State1)sells at
$100+CENVAT $10
 Trader B (State2) purchases
$ 110
 With mark up @10%, Trdr
B sells at $121
 Total CENVAT $ 10
 If Centre and State Sharing
is 50:50, State 1 gets $ 5
 Mnfr A (State1)sells at
$100+CGST $10 to Trdr B (State2)
 With marks up @10%,Trdr B sells
at $110+CGST $11
 Total CGST $ 11
 CGST chain is not broken, CGST
credit will be reflected in Central
Excise Commissionerate of state2
 If Centre and State Sharing is
50:50, State2 gets $ 5.50
61
Share of CGST to Consuming State
Consuming State does not get share of CENVAT Centre: State Tax Sharing Arrangement as ITC on
CENVAT stops at manufacturing-if manufacturing happens in one state and consumption in another

62. Rate & Base in Dual GST-State Stand
62
 Standard Rate= 8/ 9% CGST+8/ 9% SGST
 Essentials life support= 4% CGST+4% SGST
 Gold Silver Bullion Diamond=1% CGST+1%
SGST
 Common Exempt List with limited regional
exceptions
 SIN (Alcohol+Tobacco) Products+Petroleum
Products out of GST = Taxed as present

63. Rate & Base in Dual GST- GoI Stand
63
 Petroleum Products out of GST = Taxed as present
 Special Central Excise on Tobacco even as it will be in GST
 For rest start with different Rate: Graduate to One Rate
1st Year
 Standard Rate= 10% CGST+ 10% SGST
 Services = 8% CGST+8% SGST
 Essentials life support= 6% CGST+6% SGST
2nd Year
 Standard Rate= 9% CGST+ 9% SGST
 Services = 8% CGST+8% SGST
 Essentials life support= 6% CGST+6% SGST
3rd Year
 One Rate = 8% CGST+8% SGST

64. Challenges in Place of Consumption
64
 Place of sale of Goods & supply of Service /
Consumption – conflict among states
 Online Sale of Commodities by one dealer located in
Delhi to States all over India
 Consultancy Services provided by one Corporate in all
states against a work order received centrally from
another agencies in Delhi
 Mobile Phone Services provided to a corporate house
centralized at Delhi, but services utilized in different
states

65. Constitutional
Implication
65

66. Central Government State Government
 Does not have power to Tax
goods during Trading
 Does not have power to tax
Interstate trade (in the
scenario of taxing (IGST)
 Does not have power to
Tax Services
 Does not have power to
tax import
66
Constitutional Implication
Note: need for amendment of constitution: 115th Amendment
Way Out: Centre levy tax and fix rate on services, states collect and
appropriate; consensus required on modalities, rate and services
devolved to states-No more discussed

67. Constitution Amendment
67
 Art 246 to Art 279:Amendment of relation of Centre
and State
 Legislative, Administrative and Finance
 269A: Inter State Trade
 279A: GST Council
Centre to have Veto & 2/3rd majority of States/ Consensus/
Act of Parliament & Recommendatory; Like EC but as a
Constitutional Body
 279B: Dispute Settlement Authority
States’ apprehend this will dilute federalism

68. Constitution Amendment (Cont)
68
 Art 286:Restricting States to tax Export and Import
 Art 366 12A :Definition of Goods and Services Tax
excludes Petroleum and Human Consumption Alcohol
 Sixth Schedule: Dist Council of Autonomous Dist gets
power to tax Entertainment & Amusement

69. Constitution Amendment (Cont)
69
 Seventh Schedule: Union and State List
 Union List No 84: Union Excise duty list included Petroleum
products (Earlier tobacco), excluded alcohol & narcotic drugs
 Union List No 92:Service omitted
 State List 52: Entry Tax power taken away from State and given to
local bodies
 State List 54:Taxes on Sale or Purchase of Goods replaced by Taxes
on Sale; excludes Petroleum and Human Consumption Alcohol
 State List 62: Local Bodies/Regional/Dist Council to tax
Entertainment & Amusement

70. Progress
Updates
70

71. Stand off
71
 Draft Bill in its current form
 issue of integrated GST for inter-state movement of
goods and VAT on imports
 Revenue neutral rate on GST - one that is not too high
for the traders and not too low for states
 mechanism so that tax payers have to coordinate only
with one agency - centre or state
 Arrear compensation not given since 2010-11 (Rs. 6,394
crore budgeted in 2013-14 for 2010-11)

72. GSTN-SPV
72
 AOA, MoA, Shareholders Agreement
 Equity Sharing (51 Pvt+24.5 Centre+24.5 States, Uts
and EC)
 Board of Directors
 6 from Govt+Govt nominated Chairman
 CEO from Private Sector ( EC has recommended change)+7
from Pvt
 Instantaneous Information and timely settlement of
States Shares
 GSTN IT Infrastructure owner EC

73. GSTN Portal
73
 Single window for e-filing of CGST, IGST and SGST in the
shared portal
 E-Services shall be done through this portal-
disseminated at back end to respective states and
Excise Dept.
 Full Service Model: Some States can utilize
 Limited Service Model: Regn, Return, Payment
 Application Programming Interface (API): Adhere to
common RRP formats, can have additional fields in
their own system
 Provide local language support

74. Negative List on Services
74
 Included
 Transport
 Advertizement
 Entertainment
 Sale of Goods
 Not Included
 Personal Services
 Land & Building
 Cable Operator & DTH Services
 Note: Financial Services are not part of GST

75. 75