Taxation Law Research Papers

CHAPTER: I
INTRODUCTION
Taxation is one of the vital components of development of any country. The revenue
from the taxation is used to finance public goods and services such as infrastructure, sanitation,
transportation and all other amenities which are provided by the government. From the view of
an economist, a tax is a non-penal, yet compulsory transfer of resources from the private to
public sector levied on the basis of predetermined criteria and without reference to specific
benefit received. Each rupee of tax contributed helps government to provide better infrastructure,
rural revival and social well-being. Taxation is also considered as a major tool available to the
government for removing poverty and inequality from the society. On the other hand tax reform
is essential component of any comprehensive strategy for structural adjustment and the
resumption of growth.1
The word tax is derived from the Latin word “taxare” meaning to estimate. It is a
compulsory contribution to the state revenue levied by the government on worker’s income and
business profits or added to the cost of some goods, services and transactions. In general it is a
financial charge or fee imposed by the government and tax is the principle source of revenue for
a country’s government.2 Tax is a fee charged by the government on a product, income or
activity. There are two types of taxes- Direct and Indirect taxes. If a tax is levied directly on the
income or wealth of a person, then it is a direct tax e.g. income tax. If a tax is levied on the price
of goods or services, then it is called an indirect tax e.g. excise duty etc. 3 Goods and Sales Tax
fall under the category of indirect taxes.
The introduction of Goods and Sales tax (GST) in India is promised to be one of the
Service Tax Bill or GST Bill, officially known as The Constitution (One Hundred and Twenty-
Second Amendment) Bill 2014 proposes a national Value Added Tax to be implemented in
India. Goods and Service Tax would be a comprehensive indirect tax on manufacture, sale and
consumption of goods and services throughout India to replace taxes levied by the Central
Government and the State Government. Goods and Services Tax would be collected at each
1
The Institute of Company Secretaries of India, Beginners Guide on Goods and Service Tax 6, The
Institute of Company Secretaries of India, ICSI House, 22, Institutional Area, Lodi Road, New Delhi-110003.
2
REV. Dr. Daniel Ferdandes, SJ, GOODS AND SERVICE TAX (GST): Seminar Compendium 27, Post Graduate
and Research Department, St. Joseph’s College of Commerce (Autonomous), Bangalore-560 025, Karnataka.
3
Institute Of Chartered Accountants of India: Taxation 1, The Publication Department on behalf of The
Institute of Chartered Accountants of India, ICAI Bhawan, Indraprastha Marg, New Delhi-110002, India.
1
stage of sale or purchase of goods or services based on the input tax credit method. This method
allows GST-registered business to claim tax credit to the value of GST they paid on purchase of
goods and services as part of their normal commercial activity. 4Taxable goods and services are
not distinguished from one another and are taxed at a single rate in a supply chain till the goods
or services reach the consumer. Administrative responsibility would generally rest with a single
authority to levy tax on goods and services. Exports would be zero-rated and imports would be
levied the same taxes as domestic goods and services adhering to the destination principle.
The introduction of Goods and Services Tax (GST) would be a significant step in the
reform of indirect taxation in India. Amalgamating several Central and State taxes into single tax
would mitigate cascading or double taxation, facilitating a common national market. The
simplicity of tax should lead to easier administration and enforcement and from the consumer
point of view; the biggest advantage would be in terms of a reduction in the overall tax burden
on goods, which is currently estimated at 25%-30%.5
CHAPTER: II
HISTORY OF GST IN INDIA
The first discussion on GST was done in 2000 by the Vajpayee led Government by
setting an Empowered Committee headed by Asim Dasgupta (Finance Minister, Government of
West Bengal). Later it prolonged its discussions and the proposal of GST was announced by Shri
P. Chidambaram (Finance Minister) in the budget speech of 2006-07, which led to the formation
of Empowered Committee of State Finance Ministers which gave the report and the model of
GST including design, road map for implementation etc. The Empowered Committee released its
first discussion paper on GST in India on 10th November 2009.6
The origin of Goods and Services Tax could be therefore, traced back to July 17, 2000,
when the Government of India set up the Empowered Committee of State Finance Ministers with
4
Preeti Man, GST-All You Need To Know 6, Preeti Man, 1st Edition, 2017.
5
Ibid.,
6
2
Hon’ble State Finance Ministers of West Bengal, Karnataka, Madhya Pradesh, Maharashtra,
Punjab, Uttar Pradesh, Gujarat, Delhi and Meghalaya as members with the following objectives:
To monitor the implementation of uniform floor rates of sales tax by States and Union
Territories; To monitor the phasing out of the sales-tax based incentive schemes; To decide
milestones and methods of States to switch over to VAT; and to monitor reforms in the Central
Sales Tax system existing in the country.
Subsequently, the Hon’ble State Finance Ministers of Assam, Tamil Nadu, Jammu and
Kashmir, Jharkhand and Rajasthan were also notified as the members of the Empowered
Committee.On August 12, 2004, The Government of India decided to reconstitute the
Empowered Committee with all the Hon’ble State Finance/ Taxation Ministers as its members.
Later on, it was decided to register the body as a Society under the Societies Registration Act,
1860. GST was in pipeline for a long time for its passage and implementation. The following are
the brief flashbacks mentioning the key milestones of the journey of GST in India:
2003: The Kelkar Task Force on Indirect Tax had suggested a comprehensive Goods and
Services Tax (GST) based on the VAT principle.
February 2007: An announcement was made by the then Hon’ble Union Finance Minister in the
Central Budget (2007-08) to the effect that GST would be introduced with effect from April 01,
2010.
September 2009: The Empowered Committee (EC) decided to constitute a Working Group
consisting of Principal Secretaries/ Secretaries (Finance / Taxation) and Commissioners of Trade
Taxes of all States/ UTs to give their recommendations on:7 The commodities and services that
should be kept in the exempted list; The rules and principles of taxing the transactions of services
including the transactions in inter-state services; and Finalization of the model suggested for
inter-state transaction/ movement of goods including stock transfers in the consultation with the
State Bank of India and some other nationalized banks.
November 2009: Based on the inputs from the Government (s) of Centre and the States,
Empowered Committee released its First Discussion paper on GST.
March 2011: The Constitution (One Hundred And Fifteenth Amendment) Bill, 2011 to give
concurrent taxing powers on the Union and States was introduced in the Lok Sabha. The Bill
suggested the creation of Goods and Services Tax Council and a Goods and Services Tax
7
The Institute of Companies Secretaries Of India, Beginners Guide on Goods and Services Tax 14, The
Institute of Company Secretaries of India, ICSI House, 22 Institutional Area, Lodi Road, New Delhi-110003.
3
Dispute Settlement Authority. The Bill was lapsed in 2014 and was replaced with the
Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014.
November 2012: A “Committee on GST design” consisting of the officials the Government of
India, State Governments and Empowered Committee was constituted.
January 2013: The Empowered Committee deliberated on the proposed design including the
Constitution (115th) Amendment Bill and submitted the report. Based on this Report, the EC
recommended certain changes in the Constitution Amendment Bill and decided to constitute
three below mentioned Committees of Officers to discuss and Report on various aspects of GST:
Committee on Place of Supply Rules and Neutral Rates; Committee on Dual Control, Threshold
and Exemptions; Committee on IGST and GST on Imports.
March 2013: A not for profit, non-Government, private limited company was incorporated in
the name of Goods and Services Tax Network (GSTN) as special purpose vehicle setup by the
Government primarily to provide IT infrastructure and services to the Central and State
Government(s), tax payers and other stakeholders for implementation of GST.8
August 2013: The Parliamentary Standing Committee submitted its Report to the Lok Sabha.
The Recommendations of the Empowered Committee (EC) and the recommendations of the
Parliamentary Standing Committee were examined by the Ministry in consultation with the
Legislative Department. Most of the recommendations made by the Empowered Committee and
the Parliament Standing Committee were accepted.The Draft Amended Bill was suitably revised.
September 2013: The final draft Constitutional Amendment Bill incorporating the above stated
changes was sent to the Empowered Committee for Consideration.
November 2013: The EC once again made certain recommendations on the Bill after its meeting
in Shillong. Certain recommendations of which were incorporated in the draft Constitution (115 th
Amendment) Bill and the revised draft was again sent to EC for consideration.
June 2014: The draft Constitution Amendment Bill in March 2014 was sent to the Empowered
Committee after the approval of the new Government.
December 2014: The Constitution (One Hundred and Twenty-Second Amendment) Bill 2014
seeking to amend the Constitution to introduce the Goods and Services Tax (GST) and subsume
state Value Added Tax, Octroi and entry tax, luxury tax, etc. was introduced in the Lok Sabha on
December 19’ 2014 by the Hon’ble Minister of Finance Mr. Arun Jaitley.
8
Ibid., 15
4
May 2015: Constitution Amendment (122nd) Bill was passed by the Lok Sabha on May 06, 2015.
In Rajya Sabha, Bill was referred to a 21 member Select Committee of Rajya Sabha.
July 2015: Select Committee submitted its report to Rajya Sabha on July 22, 2015.
June 2016: On June 14’ 2016, the Ministry of Finance released a draft model law on GST in
public domain for views and suggestions.
August 2016: On August 03, 2016, the Constitution (122nd) Amendment Bill 2014 was passed
by Rajya Sabha with certain amendments. The changes made by the Rajya Sabha were
unanimously passed by Lok Sabha on August 08’ 2016.
September 2016: The Bill was adopted by majority of State Legislatures wherein the approval
of at least 50% of the State Assemblies was required. The final assent of the Hon’ble President of
India was given on 8th September 2016.
April 2017: Parliament passed the following four Bills: Central Goods and Services Tax (CGST)
Bill; Integrated Goods and Services Tax (IGST) Bill; Union Territory Goods and Services Tax
(UTGST) Bill and Goods and Services (Compensation to the States) Bill
The President assent was given to the above four key legislation on the Goods and Services Tax.
All states have passed separate and dedicated legislation i.e. SGST Bill in their respective
legislatures.9
CHAPTER: III
GOODS AND SALES TAX AND ITS SALIENT FEATURES
To understand whether a transaction qualifies as goods or services, one has to refer to: i.
Definition of Goods and Services as provided under Section 2(52) and 2(102) of the Act
respectively and ii. Schedule II of the CGST Act’ 2017.
What is ‘goods’?: Section 2(52) of the CGST Act defines “goods” to mean every kind movable
property other than money and securities but includes actionable claim, growing crops, grass
and things attached to or forming part of the land which are agreed to be served before supply or
under a contract of supply. Thus, every kind of movable property other than money and
securities including actionable claims10 will qualify as goods.
What is a ‘service’?: Section 2(102) of the CGST Act defines “services” to mean anything other
than goods, money and securities but includes activities relating to the use of money or its
9
Ibid., 16
10
As per Schedule III of CGST Act, all actionable claims other than lottery, betting and gambling are neither
good nor services. Thus, effectively, only GST will apply on three actionable claims i.e. lottery, betting and gambling
5
conversion by cash or by any other mode, from one form, currency or denomination to another
form, currency or denomination for which a separate consideration is charged.The term service is
defined in the exclusion of goods and thus anything which is not goods can qualify as services.
Given that the term ‘service’ is defined in a wide manner to cover anything other than goods,
even interest charged by banks on loan may get covered under the ambit of the term ‘service’.
Schedule II classifies eighteen transactions as either goods or services. The prominent of
such activities is sr. no. 3 and 6(a) of Schedule II which are said to be in ‘services’. Sr. no. 3
covers treatment or process applied on another person’s goods whereas sr. no. 6 covers work
contract in respect of immovable property (as defined in section 2(119).11Goods and Sales Tax is
a simple, transparent and efficient system of indirect tax, introduced to over 140 countries across
the globe. It was first introduced at France in 1954. Many countries have a unified GST system,
whereas in our country (India) a dual GST is proposed wherein a Central Goods and Sales Tax
(CGST) system and State Goods and Sales Tax (SGST) is levied in the taxable value of
transaction. The CGST subsumes central excise duty (CenVat), services tax, additional duties of
customs at the Central level and value-added tax, central sales tax, entertainment tax, luxury tax,
octroi, lottery taxes, electricity duty, state surcharges related to supply of goods and services and
purchase tax at the State level.12Goods and Service Tax (GST) is a comprehensive tax levied on
manufacturing, sales and consumption of goods and services at a national level. GST is a tax on
goods and services with value addition at each stage having comprehensive and continuous chain
of set-of benefits from the producer’s/ service provider’s point up to the retailer’s level where
only the final consumer should bear the tax. It replaced all the indirect taxes like Central Excise
Duty, Additional Excise Duty, Service Tax and Customs Duty, State VAT etc., levied on goods
and services by the government both the Centre and state once implemented. It is an indirect
consolidated tax, based on the uniform tax rate fixed for both goods and services (namely
automobile, food products, telecom, insurance etc.) payable at the final point of consumption
through a tax credit mechanism. GST subsumes a series of all indirect taxes under a single
domain. The GST introduced in India gives concurrent powers to both state and Centre to make
laws son the taxation of goods as well as services. 13The Goods and Services (Hundred and
11
Confederation of Indian Industry, GST Feet on the Street 43, Confederation of Indian Society, The
Mantosh Sodhi Centre, 23, Institutional Area, Lodi Road, New Delhi-110003, India.
12
13
Ibid.., pg no. 9
6
Twenty Second) Amendment Bill as well as the Hundred and Fifteenth Constitutional
Amendment Bill also states that the GST will be levied on ‘supply of goods or services or both
except on supply of alcoholic liquor for human consumption’. This makes it very clear that GST
will be taxed on supply of goods and services or both. It has removed the ambiguity on the
definition of goods and used the word ‘supply’. Services have been defined in the Bill as
anything which is not good. So with the Constitutional Amendment Bill, the discrepancy on
definition of goods and service has been removed. This is in line with the definitions for goods
and services implemented across the globe under GST/VAT. 14It is an accepted fact that GST is
not merely a tax change but a business change as it will impact all functions of an organization
such as finance, product pricing, supply chain, information technology, contracts, commercials
etc. In this regard, it is pertinent to note that most of the key aspects of the proposed GST regime
are already in public domain through various Acts such as CGST Act, SGST Act, IGST Act,
UTGST Act and CESS Act 2017. Also seven Rules 15are finalized and available in the public
domain. Even the rates for goods and services are available in the public domain .Thus, based on
this legal knowledge of GST available in the public domain.16
SALIENT FEATURES OF GST
The salient features of GST are given below:
i. GST has two components hence called Dual GST Model. It consists of: Central Goods and
Service Tax (CGST); and State Goods and Service Tax (SGST). CGST and SGST are
applicable to all goods and services except for certain exempted goods and services outside
the purview of GST. CGST and SGST are treated separately, taxes paid against ICGST
shall be taken as Input Tax Credit (ITC) for and utilize only for CGST. The same is
applicable for SGST. Uniform procedure for collection of both CGST and SGST would be
prescribed. Uniform SGST threshold across states is desirable.
ii. Tax payer would need to submit periodical returns in common format as far as possible to
both CGST and SGAT concerned authorities. Each tax payer would be allocated PAN –
14
Bhogavalli Mallikarjuna Gupta, Roll up your sleeves for GST: The Impending Tax Reform in India 56,
Notion Press, Old No. 38, New No.6, McNichols Road, Chetpet, Chennai-600031
15
Composition Rules, Valuation Rules, ITC Rules Invoice, Debit and Credit Notes Rules, Payment Rules,
Refund Rules and Registration Rules.
16
7
linked tax payer’s identification number with total of 13 or 15 digits. This would bring
GST PAN-linked system in line with prevailing PAN system for Income Tax.
iii. Inter-State supplies of goods or services in India called Integrated Goods and Service Tax
(IGST) which are levied and collected by the Centre.17
iv. The basic principle would be that GST would be a consumption based levy. Destination
principle would be applicable in the normal course. Exceptions in service are bound to be
there wherein other criterion such as performance or location maybe set out.
v. GST will subsume all major indirect taxes levied by the Central Government i.e. central
excise, customs and service tax and majority of taxes levied by the State Government i.e.
VAT, luxury tax, entertainment tax etc. in this regard, tax on petroleum products and
alcohol are intended to be kept either outside or tax additionally under GST.18
vi. There would be multiple rates for goods but a single rate for services. HSN would inform
the basis of product classification for both CGST and SGST.
vii. GST would have a 4 rate structure with standard rate, concessional rate, special rate for
bullion and jewelry and exempted/ nil rated. It is not clear whether services and goods will
have the same rate/be subjected to tax at different rates. Further, the Government is yet to
specify the rate of taxes proposed for each of these categories.
viii. GST will be levied on supply of goods and services and the supplier will be allowed credit
for the GST paid on purchases. The credit would be seamless except that the credit of
CGST paid will not be allowed for set-off against SGST payable and vice versa. If there is
any excess credit of un-utilizable SGST or CGST it may not be refundable except in case
of exports and supplies to SEZ.
ix. Local supplies would be subject to Central GST (CGST) and State GST (SGST) at
specified rates, while interstate supplies would be subject to integrated or interstate GST
(IGST). Export of goods and services would be zero rated. Both the Central and State
Government will have the authority and control over their assesse. Accordingly, the assesse
17
18
The Institute of Chartered Accountants of India, Concept Paper- Goods and Services Tax in India and
Role of Chartered Accountants 11, The Publication Department on behalf of the Institute of Chartered Accountants
of India, ICAI Bhawan, Post Box No. 7100, Indraprasha Marg, New Delhi-110002.
8
dealer would be required to pay GST into the specified account of the State/ Centre and file
periodic returns separately with the State/ Central Government.19
x. Included the concept, ‘declared goods of special importance’ as per the Indian Constitution.
xi. Will levy additional tax of 1% on supply of goods in inter-State trade which will be
collected by the Government of India for a period of 2 years and will be allocated to the
states from where supply comes and also an additional tax of 1% on inter-State trade in
goods and services will be imposed and collected by the Centre and provided to the states
for 2 years to compensate the loss (of any) faced by the states for implementing GST.
xii. A Goods and Service tax Council to be created to address the issues relating to GST and to
give recommendations to the Union and the States on areas such as rates, exemption list
and threshold limits. The composition of the GST Council shall be: Union Finance Minister
as Chairman followed by Minister-in charge of Finance/ Taxation or any other Minister
nominated by each State Government. The GST Council will function under the
Chairmanship of the Union Finance Minister and it will be a joint forum of the Centre and
the States.20
CHAPTER: IV
WORKING, APPLICATION AND MECHANISM AND MODEL OF GST
Under GST, every specified transaction (may be referred to as ‘covered transaction’)
would be subjected to tax.
LOCAL SUPPLY
In case the supply of goods and services is done locally i.e. 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. This is illustrated with the
help of the following example:
Basic value charged for supply of goods and services. 10,000

Add. CGST @8 % 800
Add. SGST @ 8 % 800
19
Ibid.. pg. 12
20
Dr. DK Sukhani, How to Handle Goods and Service Tax 17, MeetCoogle
9
Total price charged for the supply of goods and services 11,600
Note: In the above illustration, the rate of CGST and SGST is assumed to be 8% each.
The CGST and SGST charged on the customer for supply of goods or services will be remitted
by the seller into the appropriate account of the State/ Central Government.
INTERSTATE SUPPLY
In case the supply of goods and services is done interstate i.e. the place of consumption
rules provide that the interstate GST ( or integrated GST) needs to be applied for transaction,
then the supplier would charge IGST at specified rates on the supply. This is illustrated with the
help of the following example:
Basic value charged for supply of goods and services 10,000
Add. IGST @ 16% 1,600
Total price charged for interstate supply of goods or services 11,600
Note: In the above illustration, the rate of IGST is assumed to be 16% in all.
The IGST charged on the customer for supply of goods or services will be remitted by the seller
into the appropriate account of the Central Government. The inter-state seller would pay IGST
on value addition after adjusting available credit of IGST, CGST and SGST on his purchases.
The exporting state would transfer to the Centre, the credit of SGST used in payment of IGST.
The importing dealer would claim the credit of IGST while discharging his output tax liability in
his own state. The Centre would transfer to the importing state the credit of IGST that is used in
the payment of SGST.
EXPORTS
In case of supply of goods or services are exported outside India i.e. the place of
consumption rules provide that regard the transaction as ‘exported’ then the transaction would be
zero rate. In other words, the supplier will be allowed to export the goods or services without
charging any tax. This is illustrated with the help of the following example:21
Basic value charged for the supply of goods and services 10,000
Add. GST @0% Nil
Total price changed for export of goods and services 10,000
21
The Institute of Chartered Accountants of India, Concept Paper- Goods and Services Tax in India and
Role of Chartered Accountants 9, The Publication Department on behalf of the Institute of Chartered Accountants
of India, ICAI Bhawan, Post Box No. 7100, Indraprasha Marg, New Delhi-110002.
10
INPUT CREDIT
The supplier of goods and services will be allowed credit of GST paid on the purchases
for set-off against GST payable on sales. Accordingly, the GST paid by the supplier would be net
of eligible input credit. 22
APPLICATION OF GST
GST is a consumption based levy/ tax. It is based on the “Destination Principle”. GST is
applied on goods and services where final/actual consumption happens.
GST is collected on value-added goods and services at each stage of sale or purchase in
the supply chain. GST paid on the procurement of goods and services can be set off against that
the payable on the supply of goods or services. The manufacturer or wholesaler or retailer will
pay the applicable GST rate but will claim back through tax credit mechanism.
But being the last person in the supply chain, the end consumer has to bear this tax and
so, in many respects, GST is like a last-point retail tax. GST is going to be collected at the point
of sale. The GST is an indirect tax which means that the tax is passed on till the last stage
wherein it is the customer of the goods and services who bears the tax. This is the case even
today for all indirect taxes but the difference under GST is that with the streamlining of the
multiple taxes the final cost to the customer will come out to be lower on the elimination of
double charging in the system.
The current tax structure does not allow a business person to take tax credits. There are
lots of chances that double taxation takes place at every step of supply chain but this may set to
change with the implementation of GST.23
MECHANISM OF GST
The idea behind the implementation of GST was to subsume all the existing taxes of the
states and Centre under one value added tax, which would be levied on all goods and services.
No good or service would be exempt and also there would not be any differentiation between
goods or services. This rule would apply to both input and finished products. The tax paid on the
input tax would be deducted from the tax and on the output produced and it continues from
manufacturing stage to the distribution stage. Tax would be collected only at the place of
consumption. This system of tax addresses the issue of cascading of taxes.
22
Ibid., 10
23
Dr. DK Sukhani, How to Handle Goods and Service Tax 13, MeetCoogle
11
Below given table explains the modus operandi of GST. It tries to compare the taxation
under the previous system and the GST implemented system.
Particulars Old system GST
Cost of raw material 100 100
Tax on raw material 10 10
Value added by manufacturer 10 10
Tax payable by manufacturer 1 (CENVAT: 10% of 10) 1 (GST: 10% of 10)
Retailer’s cost 121 121
Retailer’s margin 10 10
Tax payable 13.1 (sales tax 10% of 131) 1 (GST: 10% of 10)
Final price paid including 144.1 132
taxes
Of which taxes 24.1 12
Comparison of tax under the previous and current GST system.24
In the above example, the cost of raw materials is 100. The manufacturer and retailer ass
Rs. 10 value each. The tax rate is assumed to be 10% for all taxes.
i. Old tax regime: both the Excise and Sales Tax were VAT system, but the set off for
taxes paid were not applicable across those taxes. Therefore, State tax was applicable to
the Excise duty (CENVAT) paid. Thus, the tax paid was 11 (excise) plus 13.1 (sales tax).
Here, we can see the ‘tax on tax’ effect where the final selling price not only has two
taxes, but also a tax-on-tax.
ii. GST Regime: Here, there is a single tax with input credit. This means that each person
pays tax only on the value added by him. Consequently, the total tax is less, resulting in a
lower price of the good.
This comparison makes it clear that with the implementation of GST, the ultimate consumer will
get the goods and services at a lower price.25
GST MODEL: AS PROPOSED FOR INDIA
1. DUAL GST MODEL: India is a federal country where both the Centre and States have
been assigned the powers to levy and collect taxes through appropriate legislation. Both
the levels of Government have distinct responsibilities to perform according to the
24
25
Ibid.. pg. 23
12
division of powers prescribed in the Constitution for which they need to raise resources.
A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal
federalism.26 The proposed Goods and Services Tax will be a destination based tax
measure, with tax set offs available across the production value-chain. Consistent with
the Federal structure of the country GST structure is expected to have two components:
CGST and SGST. Both components would be applicable on all taxable transactions of
goods and services. The states and the Centre have concurrent jurisdiction for the entire
value chain for all tax payers on the basis of thresholds for goods and services prescribed
for the States and the Centre.27
2. TAXES TO BE SUBSUMED: The current indirect system in India imposes
multiple levies on sale and purchase of Goods and Services within its jurisdiction. With an
attempt to simplify this tax structure for the benefit of both trade and consumers. Following
are the taxes proposed to be subsumed under the dual component structure of GST.
CGST will subsume:

i. Central Excise Duty
ii. Additional Excise Duties (Goods of Special Importance)
iii. The Excise Duty Levied Under The Medicinal And Toiletries Preparation Act
iv. Service Tax
v. Additional Customs Duty Commonly Known As Countervailing Duty (CVD)
vi. Special Additional Duty Of Customs – 4% (SAD)
vii. Surcharge And Cesses so far as they relate to supply of goods and services
SGST will subsume:
i. VAT/ Sales Tax
ii. Entertainment Tax (unless it is levied by the local bodies) andLuxury Tax
iii. Taxes on lottery, betting and gambling
iv. State Cesses and Surcharges in so far as they relate to supply of goods and services
v. Entry tax not in lieu of Octroi
vi. Central sales tax
26
Y.M. Shah, GST Reference Manual 2017: Guide to GST Law, Rules and Practices 4, Y.M. Shah and Co.,
Chartered Accountants, 345, Tower A, K10-Atlantis, Sarabhai Main Road, Vadodara
27
Pg. 5 gst: operational impacts and concerns.
13
vii. Purchase tax and Entry tax (all forms)
viii. Taxes on advertisements 28
PRINCIPLES ADOPTED FOR SUBSUMING THE ABOVE TAXES UNDER GST
The various Central, State and Local levied were examined to identify their possibility of
being subsumed under GST. While identifying, the following principles were kept in mind:
Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the
supply of goods or on the supply of services. Taxes or levies to be subsumed should be part of
transaction chain which commences with the import/manufacture/production of goods or
provision of services at one end and the consumption of goods and services at the other. The
subsumation should result in free flow of tax credit in intra and inter-state levels. The taxes,
levies and fees that are not specifically related to the supply of goods and services should not be
subsumed under GST.
Revenue fairness for both the Union and the States individually would need to be attempted.29
CHAPTER: V
UNDERSTANDING THE IMPACT OF GST
GST may provide opportunities but at the same time it could bring threats. Given this, an
organization may consider carrying out an exercise to identify how its operations will get
impacted because of GST. For GST impact analysis exercise, the respective department heads
such as finance, supply chain, product pricing, human resource etc. should be involved to ensure
that they provide their inputs and suggestions.30 The introduction of GST would be very
significant in the field of indirect tax reforms in India. By amalgamating a large number of
Central and State taxes into a single tax and allowing set-off prior-stage taxes, it would mitigate
the ill effects of cascading and pave the way for a common national market.31
IMPACTS OF GST ON VARIOUS SECTORS
28
29
Ibid.,3
30
31
14
CONSUMERS: Generally the purchase price would reduce as tax content of most of the
products would come down. However, if a product has evaded tax completely then it may find
increase. Further, those items which are now taxable where tax rate earlier was zero may be more
expensive as exemption and zero rated list may come down in the GST regime.
The tax paid would be transparent in the invoice given to the customers. No hidden taxes
would have to be paid. The difficult choice of paying more if the bill demanded and less without
Bill would over a period of time disappear as GST is a self-policing system.
The free flow of trade over a period of time between states and throughout the country
would provide more choice to the consumer.
TRADERS: The impact of tax on the wholesaler or the retailer would be limited to the
value addition. The tax paid at the earlier stages (except SGST of the other states) would be
available as set off for payment of GST in supplies. Therefore, traders would prefer to
buy/receive supplies with invoice. The tax payable as a percentage of the supply value would be
small whereby the compliance would be more cost effective than evasion. Cost of products and
services would reduce due to the cascading effect of tax being reduced. Traders in the GST
regime can concentrate on growth into large entries instead of remaining small and fragmented.
MANUFACTURERS: There would be a saving in taxes absorbed at various stages of
manufactures thereby reducing the cost of goods sold. This would make them more competitive
both in domestic and international markets. The exports would be cheaper as taxes paid at earlier
stage could be refunded. The difference between large manufacturers and small would reduce.
The indignity of harassments and bribe for honest manufacturers would substantially reduce over
a period of time.32
SERVICE PROVIDERS: The present rate of tax on services is 14 % which came into
effect from 01.06.2015 which would be doubled in GST. This may seriously impact all the
service providers especially who have a long period of realization. Those working on low
margins may become unviable. The net tax payment maybe substantial as in the most advisory
services, the manpower costs its maximum. Hardly any set off would be available. The goods
used in providing the services would be eligible for credit. Hopefully the service exporters would
see refunds coming promptly without a direct transaction cost. Present destination based to
32
15
consumption based levy. Under GST the service tax would be levied at the place of
consumption.
SERVICE TAX-SGST BY STATES: Under GST law, the service tax would be levied
not just by the Centre but also by the States who would be empowered to levy SGST by
amendment to the Constitution of India. Taxes received by consuming state, if services are
rendered from one state to another, then tax would ultimately go to the consuming state.
GOVERNMENT-CENTRE: The collection of income tax would increase disclosure.
The country would as a whole reduce corruption and move up ethical chain gradually. The
compensation of loss to the states on account of implementation of GST would be an outgo.
GOVERNMENT-STATE: The trading sector, manufacturing and services sector in the
parallel economy would also get into the mainstream and pay taxes. This would lead to buoyant
revenues over a period of time. The tax administration would be easier and cost of collection
would be reduced
CHAPTER: VI
GST: REGISTRATION, COUNCIL AND ITS FUNCTIONS
In any tax system, registration is the most fundamental requirement for identification of
tax payers ensuring tax compliance in the economy. Registration of any business entity under
GST law implies obtaining a unique number from the concerned tax authorities for the purpose
of collecting tax on behalf of the government and to avail Input Tax Credit for the taxes on his
inward supplies. Without registration, a person can neither collect tax from his customers nor
claim any input Tax Credit of tax paid by him.
Under Sec 22 of the Central Goods and Services Act’ 2017, the persons liable to
registration and under Sec 24 of the Central Goods and Services Act, 2017 lists categories of
persons who are required specifically to take registration even if they are not covered under
Section 22 of the Act. Following is the summarized list:
i. Supplier: Supplier of taxable goods or services or both exceeding the specified threshold
limit of Rs.10 lakhs (for special category States) and Rs.20 lakhs for other States and
Union Territories.
16
ii. Licensee: Every person who is a registered licensee or holds a license under an existing
law, on the day immediately preceding the appointed day i.e. 1st July 2017.
iii. Transferee: Where a business, which is carried by a taxable person is transferred as a
going concern shall be liable to be registered with effect from the date of such transfer.
iv. Transferee under a scheme: Transfer pursuant to sanction of a scheme or an
arrangement for amalgamation or, as the case may be, demerger of two or more
companies pursuant to an order of a High Court, Tribunal or otherwise, the transferee
shall be liable to be registered, with effect from the date on which the Registrar of
Companies issues a certificate of incorporation giving effect to such order to the High
Court or Tribunal.
v. Interstate supplier: An interstate supplier is compulsory required to get registered under
GST.
vi. Casual taxable Persons: A person who occasionally undertakes transactions involving
supply of goods or services or both in the course or furtherance of business, whether as
Principal, agent or in any other capacity, in a State or a Union Territory where he has no
fixed place of business is termed as a casual taxable person. Such persons if making
taxable supply of goods or services or both comes under the ambit of taxable person.
vii. Payer of Revenue Charge: Persons who are required to pay tax under reverse charge
shall get registered under GST.
viii. Persons under Section 9(5) of the CGST Act, 2017: As stated in the section 9(5) of the
CGST Act 2017, the Government may, on the recommendations of the Council, by
notification, specify categories of services, the tax on intra-state supplies of which shall
be paid by the electronic commerce operator if such services are supplied through it, and
all the provisions of this Act shall apply to such electronic commerce operator as if he is
the supplier liable for paying the tax in relation to the supply of such services.
ix. Non Resident: A non-resident taxable person making taxable supply.
x. Deduction of tax at source: Persons who are required to deduct tax under Section 51,
whether or not separately registered under this Act.
17
xi. Supplier on behalf of other person: Persons who make taxable supply of goods or
services or both on behalf of other person whether as agent or otherwise.
xii. Input Service Distributor: Whether or not separately registered under this Act.
xiii. Supplier through Electronic Commerce Operator: Persons who supply goods or
services or both (other than supplies specified under sub-section (5) of section 9), through
such electronic commerce operator who is required to collect tax at source under section
32.
xiv. Electronic Commerce Operator: Every Electronic Commerce Operator.
xv. Supplier of online information: Every person supplying online information and
database access or services from a place outside India to a person in India, other than a
registered person.
xvi. Any other person as notified by the Government on Council’s recommendations.33
PERSONS NOT LIABLE FOR REGISTRATION
The following persons have been specifically kept out of the purview of registration
under GST:
i. Persons supplying exempted goods or services or both which are not liable for tax under
GST.
ii. An agriculturist, to the extent of supply of produce out of the cultivated land.
iii. The Government may, on the recommendations of the Council, by notification, specify
the category of persons who may be exempted from obtaining registration under the
CGST Act’2017.34
ADVANTAGES OF REGISTRATION
Registration under Goods and Service Tax (GST) regime will confer the following
advantages to the business:
i. Legally recognized as supplier of goods or services.
ii. Proper accounting of taxes paid on the input goods or services which can be utilized for
payment of GST due on supply of goods or services or both by the business.
33
34
Ibid., pg 26
18
iii. Legally authorized to collect tax from his purchasers and pass on the credit of the taxes
paid on the goods or services supplied to purchasers or recipients.
iv. Getting eligible to avail various other benefits and privileges rendered under GST laws.35
GST: COUNCIL AND ITS FUNCTIONS
GST Council is the main decision making body that has been formed to finalize the
design of GST. This governing body of GST comprises of Union Finance Minister as the
Chairman of the Council, the Minister of the State (Revenue) and State Finance/Taxation
Ministers. The duty of the Council is to make recommendations to the Union and the States. It
has been provided in the Constitution (One Hundred and First Amendment) Act 2016 that the
GST Council, in its discharge of various functions shall be guided by the need of harmonized
structure of GST and for the development of harmonized national market for goods and services.
In the GST Council, a decision is taken by the three-fourth majority with the Centre having one-
third vote and the states the remaining two-third.
FUNCTIONS OF THE GST COUNCIL
Functions of the GST Council seek to include making recommendations on:
i)Taxes, cesses and surcharges levied by the Centre, States and local bodies which may be
subsumed in the GST and Goods and services which may be subjected to or exempted from
GST. ii) The model GST laws, Principles of levy, apportionment of IGST and principles that
governs the place of supply. iii) The threshold limit of turnover below which goods and services
may be exempted from GST. iv) The rates including floor rates with bands of GST and Special
rates to raise additional resources during any natural calamity. Special provision with respect to
Arunachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim,
Tripura, Himachal Pradesh and Uttarakhand and Any other matters. 36and v) The date on which
the GST is to be levied on petroleum, crude, high speed diesel, motor spirit (petrol), natural gas
and aviation turbine fuel.37
Guiding principle of GST is that the mechanism of GST Council would ensure
harmonization on different aspects of GST between the Centre and the States as well as among
35
Pg. 24 GST reference manual.
36
37
19
the States. It has been provided in the Constitution (101 st Amendment) Act’ 2016 that the GST
Council, in its discharge of various functions, shall be guided by the need for a harmonized
structure of GST and for the development of a harmonized national market for goods and
services.
CHAPTER: VII
BENEFITS OF GST
GST will bring numerous benefits to all stakeholders viz industries, government and
citizens. Some of these benefits are listed below:
The newly implemented GST has the following BENEFITS/ ADVANTAGES:
i. GST is a transparent tax and also reduces numbers of indirect taxes.
ii. GST can also help in diversification of income sources for Government other than the
petroleum tax and income tax.
iii. Biggest benefit will be that multiple taxes like octroi, central sales tax, states sales tax,
entry tax, license fees, turnover tax etc. will no longer be present and all that will be
brought under the GST. Doing business now will be easier and more comfortable as the
various hidden taxation will not be present.
iv. The tax collection would become more balanced as most hitherto “tax evaders” would be
forced to enter the mainstream.38 Tax collection by both the Centre and States on the
whole would increase over period of 2 years.
v. It benefits people as prices will come down which in turn will help companies as
consumption will increase. It would promote exports. Raise employment and boost
growth. Under Goods and Services Tax, the tax burden will be divided equally between
Manufacturing and Services.39
vi. GST would enable a smoother input credit system, which would shift the balance towards
the organized sector.
vii. There would be a common base for the levy of GST.
38
39
Ibid. pg. 56
20
viii. There would be reduced cascading effect due to better tax mechanism which will
significantly improve the competitiveness of original goods and services in market and
will lead to beneficial impact to the GDP growth of the country.40
ix. Non-credential CST will be done away with, thereby reducing costs. The same will be
replaced by IGST which would be creditable to the buyer.
x. GST is expected to enable ease of administration.
xi. There would be an increase in collection due to wider base and better compliance.41
xii. Revenue gain: revenue will increase under GST regime because of widening of the dealer
base by capturing value addition in the distributive trade and increased compliance.
xiii. Zero rated exports: unlike the previous system, where refund of some taxes were not
allowed due to the fragmented nature of indirect taxes between the Centre and the States,
under GST exports will be zero rated.
xiv. GST will improve Indian exports whereby exporters will be facilitated by grant of
provisional refund of 90% of their claims within 7 days of issue of acknowledgement of
their application, thereby resulting in the easing of position with relation to cash flows.
xv. Uniform GST rates for both Centre and States which will result in harmonization of laws,
procedures and rates of tax, common definitions, common forms/ formats, common
interface through GST portal resulting in the efficiencies and synergies across the board.
xvi. Increased certainty to the taxation system.
xvii. Increased digitalization: GST is a largely technology driven. The interface of the taxpayer
with the tax authorities will be through the common portal (GSTN). There will be simple
automated procedure for various processes such as registration, returns, refunds, tax
payments etc., which will be done and verified online through GSTN reducing the human
interface between the tax payer and the tax administration leading to speedy decision.42
40
41
Pg. 5 apparel export promotion council, GST FAQs
42
21
CONCLUSION
22
BIBLIOGRAPHY
1. Bhogavalli Mallikarjuna Gupta, Roll up your sleeves for GST: The Impending Tax
Reform in India , Notion Press, Old No. 38, New No.6, McNichols Road, Chetpet,
Chennai-600031.
2. Confederation of Indian Industry, GST Feet on the Street , Confederation of Indian
Society, The Mantosh Sodhi Centre , Institutional Area, Lodi Road, New Delhi-110003,
India.
3. Dr. DK Sukhani, How to Handle Goods and Service Tax , MeetCoogle.
4. Institute Of Chartered Accountants of India, Taxation, The Publication Department on
behalf of The Institute of Chartered Accountants of India, ICAI Bhawan, Indraprastha
Marg, New Delhi-110002, India.
5. Preeti Man, GST-All You Need To Know, Preeti Man, 1st Edition, 2017.
6. REV. Dr. Daniel Ferdandes, SJ, GOODS AND SERVICE TAX (GST): Seminar
Compendium , Post Graduate and Research Department, St. Joseph’s College of
Commerce (Autonomous), Bangalore-560 025, Karnataka.
7. The Institute of Companies Secretaries Of India, Beginners Guide on Goods and Services
Tax, The Institute of Company Secretaries of India, ICSI House, 22 Institutional Area,
Lodi Road, New Delhi-110003.
8. The Institute of Chartered Accountants of India, Concept Paper- Goods and Services Tax
in India and Role of Chartered Accountants , The Publication Department on behalf of
the Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100,
Indraprasha Marg, New Delhi-110002.
9. Y.M. Shah, GST Reference Manual 2017: Guide to GST Law, Rules and Practices , Y.M.
Shah and Co., Chartered Accountants, 345, Tower A, K10-Atlantis, Sarabhai Main Road,
Vadodara .
23

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CHAPTER: I

Basic value charged for supply of goods and services. 10,000

Comparison of tax under the previous and current GST system.24

CGST will subsume:

IMPACTS OF GST ON VARIOUS SECTORS

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