An Insight Into GST in India

1 March 2017

Jul-18
The presentation is based on information available at the point of preparation of the
presentation
Present Indirect Tax Structure

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Proposed Indirect Tax Structure

Intra State Excise and Service

Tax will be known as
Local VAT & other
taxes will be known
Taxable Supply CGST as SGST

Inter State CST will be know as

IGST (Integrated
Approx sum total
Taxable Supply GST)
CGST and SGST

Import from Custom Duty

In place of CVD and
SAD, IGST will be
outside India charged

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Taxes to be Subsumed
CGST: SGST
 Central Excise Duty • VAT / Sales tax
 Additional Excise Duties • Entertainment tax (unless it is
 Excise Duty levied under the levied by the local bodies)
Medicinal and Toiletries • Purchase tax
Preparation Act
• Luxury tax
 Service Tax
• Taxes on lottery, betting and
 Additional Customs Duty - gambling
(CVD)
• Octroi and Entry Tax
 Special Additional Duty of
Customs - 4% (SAD) • State Cesses and Surcharges in so
far as they relate to supply of
 Surcharges and Cesses goods and services

Centre would levy IGST which would be CGST plus SGST on all inter-State
transactions of supply of taxable goods and services

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Features of Proposed GST
 Destination based taxation
 Apply at all stages of value chain
 Apply to all taxable supplies of goods or services (as against manufacture, sale or
provision of service) made for a consideration except
 Exempted goods or services – common list for CGST & SGST
 Goods or services outside the purview of GST
 Transactions below threshold limits

 Dual GST having two concurrent components

 Central GST levied and collected by the centre
 State GST levied and collected by the States

 If a company's vendor is tax non-compliant and blacklisted, the company as a

recipient of goods could also be impacted and denied input tax credit

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Features of Proposed GST
 CGST and SGST on intra-State supplies of goods or services in India
 IGST (Integrated GST) on inter-state supplies of goods or services in India –
levied and collected by the Centre
 IGST applicable to :
 Import of goods and services
 Inter-state stock transfers of goods and services
 Export of goods and services – Zero rate
 All goods or services likely to be covered under GST except :
 Alcohol for human consumption – State Excise plus VAT
 Electricity – Electricity Duty
 Real Estate – Stamp Duty plus Property Tax
 Petroleum Products (to be brought under GST from a date to be recommended by GST Council)

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Present Scenario (Intra State Sale)
Input Manufacturer Output Manufacturer Dealer/Distributor

Tax Invoice Tax Invoice Tax Invoice

INR INR INR
Cost 100 Cost 121
Value 100 Value 110 Value 133.1
Excise Duty (@10%) 10 Excise Duty (@10%) 11
Total 110 Total 121
VAT (@10%) 11 VAT (@10%) 12.1 VAT (@10%) 13.31
Total Value 121 Total Value 133.1 Total Value 146.41 Price to Consumer 146.41

Excise 10 Excise 11 Excise Tax to Centre

Less : Input Tax Credit 0 Less : Input Tax Credit 10
Net Excise Tax 10 Net Excise Tax 1 Net Excise Tax 11

VAT 11 VAT 12.1 VAT 13.31 VAT to State

Less : Input Tax Credit 0 Less : Input Tax Credit 11 Less : Input Tax Credit 12.1
Net VAT 11 Net VAT 1.1 Net VAT 1.21 Net VAT 13.31

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Proposed Scenario (Intra State Sale)
Input Manufacturer Output Manufacturer Dealer/Distributor

Tax Invoice Tax Invoice Tax Invoice

INR INR INR
Cost 100 Cost 110
Value 100 Value 110 Value 121
CGST (@10%) 10 CGST (@10%) 11 CGST (@10%) 12.1
SGST (@10%) 10 SGST (@10%) 11 SGST (@10%) 12.1
Total Value 120 Total Value 132 Total Value 145.2 Price to Consumer 145.2

CGST 10 CGST 11 CGST 12.1 CGST to Centre

Less : Input Tax Credit 0 Less : Input Tax Credit 10 Less : Input Tax Credit 11
Net CGST 10 Net CGST 1 Net CGST 1.1 Net CGST 12.1

SGST 10 SGST 11 SGST 12.1 SGST to State

Less : Input Tax Credit 0 Less : Input Tax Credit 10 Less : Input Tax Credit 11
Net SGST 10 Net SGST 1 Net SGST 1.1 Net SGST 12.1

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Present Scenario (Inter State Sales)
Input Manufacturer Output Manufacturer Dealer/Distributor

Tax Invoice Tax Invoice Tax Invoice

INR INR INR
Cost 100.00 Cost 126.42
Value 100.00 Value 110.00 Value 139.06
Excise Duty (@10%) 10.00 Excise Duty (@10%) 11.00
Total 110.00 Total 121.00
VAT (@10%) 11.00 CST (@2%) 2.42 VAT (@10%) 13.91
Total Value 121.00 Total Value 123.42 Total Value 152.97 Price to Consumer 152.97

Excise 10.00 Excise 11.00 Excise Tax to Centre

Less : Input Tax Credit - Less : Input Tax Credit 10.00
Net Excise Tax 10.00 Net Excise Tax 1.00 Net Excise Tax 11.00

VAT (STATE A) 11.00 CST 2.42 VAT (STATE B) 13.91 VAT & Entry tax to States
Less : Input Tax Credit - Less : Input Tax Credit 2.42 Less : Input Tax Credit -
Net VAT 11.00 Net CST - Net VAT 13.91 Net VAT 27.91

Entry Tax 3.00

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Proposed Scenario (Inter State Sale)
Input Manufacturer Output Manufacturer Dealer/Distributor

Tax Invoice Tax Invoice Tax Invoice

INR INR INR
Cost 100 Cost 110
Value 100 Value 110 Value 121
CGST (@10%) 10 IGST (@20%) 22 CGST (@10%) 12.1
SGST (@10%) 10 SGST (@10%) 12.1
Total Value 120 Total Value 132 Total Value 145.2 Price to Consumer 145.2

CGST 10 IGST 22 CGST 12.1 CGST to Centre

Less : Input Tax Credit Less : Input Tax Credit
Less : Input Tax Credit 0 (from CGST & SGST) 20 (from IGST) 12.1
Net CGST 10 Net CGST 2 Net CGST 0 Net CGST 12.1

SGST (STATE A) 10 SGST 0 SGST (STATE B) 12.1 SGST to State (A)

Less : Input Tax Credit 0 Less : Input Tax Credit 0 Less : Input Tax Credit 9.9
Net SGST 10 Net SGST 0 Net SGST 2.2 Net SGST 0

SGST to State (B)

Net SGST 12.1

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Time of Supply

 Time of supply of goods is the earliest of:

 date of removal/ making available goods by the supplier;
 date of issue of invoice;
 date of receipt of payment by the supplier; or
 date on which the recipient shows the receipt of goods in his books of
accounts.

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Time of Supply

 Time of supply of services is the earliest of:

 date of issue of invoice or date of receipt of payment, if invoice is
issued within prescribed period,
 date of completion of service or date of receipt of payment, if invoice
not issued within the prescribed period,
 date on which recipient shows the receipt of services in his books of
accounts, where (i) or (ii) above does not apply.

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Time of Supply

 Time of supply under reverse charge is the earliest of:

 date of receipt of supply;
 date of payment;
 date of receipt of invoice; or
 date of debit in the books of accounts.

 In addition to the above, there are provisions to determine the date of

supply in case of continuous supply of goods/ services.
 There is no provision to levy GST on the basis of maximum retail
price, where the transaction value is below maximum retail price.
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Impact on Pharma Industry

 Supply Chain rationalisation

 Depot rationalisation and moving to warehouses at strategic locations
 Job Work
 Similar to existing treatment
 The Model GST law also provides special provisions for movement of goods for job work
without payment of GST. While this could be beneficial for the Pharmaceutical Industry, it
will require approval of the Jurisdictional Commissioner by way of special order. In case the
permission is not granted, the law states that supply of raw or packing materials for job work
cannot be undertaken without payment of GST
 Model GST Law, receipt of advance is sought to be treated as a taxable event

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Impact on Pharma Industry
 Dealer Incentive Schemes - Currently, dealer incentive schemes are not subject to
VAT, but there are issues on applicability of service tax on dealers, depending on
the terms of each scheme. The Model GST law does not provide as to whether
these incentives or discounts are subject to GST.
 Further, since the original supply would have already suffered GST and the buyer
would have taken the input tax credit, the issue of whether these incentives/
discounts would impact the price and credits, or will these be kept out of GST (in
the VAT chain), needs to be addressed. Further, in case such schemes are
subject to GST, whether the same would be treated as a service or goods is also
another aspect that needs to be clarified.
 Treatment for Tax exempt zones or subsidy zones treatment eg. Baddi,
Uttarakhand, etc.?
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Impact on Pharma Industry
 Stock in the hands of dealer on the transition date possible double taxation
 Stocks where Excise and CST is paid

 Inverted tax structure

 Pharma companies pay more input tax than the output tax that is collected
 Treatment of credit balance in input tax credit account

 Free of cost supply of goods to Physician, Govt., etc

 Today only Excise is charged. Will GST comprising of CGST & SGST be charged resulting

in higher cost?
 Credit for Damages/Shortages, etc
 Input tax credits for all business purchase expenses viz. Sales promotion items, gifts, etc which
was not available earlier
 Tax credits on purchase of hardware and software
 Tax credit on tax paid in Hotels
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Input Tax Credit Utilization
 "In case a company has opted for
separate registrations of its business
verticals in the same state, then a
SGST set-off even within that state is
restricted only to that business
vertical.
 Further, if a company has business
operations in different states, SGST
cannot be set off pan-India.
 As regards, CGST set-off, there is no
express clarity. One hopes that offset
of excess CGST paid in one state
against the CGST payable in the
other state is provided for

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Key Enablers

 E-Registration
 GSTIN – GST Identification number
 Single registration for CGST, SGST and IGST
 Individual registration to be obtained in each state of business establishment
 PAN based registration number – Up to 15 characters in length
 Common e-Return for CGST, SGST & IGST
 Common periodicity of returns for a class of dealers
 Uniform cut-off date for filing of returns
 System based validations/consistency checks on the ITC availed, tax refunds
 Suppliers upload data in GSTN Portal which can be downloaded and validated
 Credit based on data uploaded by Supplier

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Role of Dealers/Distributors

 Every dealer has to submit one single GST return consisting

information about all his purchases/sales at Invoice level along
with line item
 Accordingly necessary records, registers are to be maintained
and consolidation for return will require automation and
standard procedures

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Impact Areas for Business
 Pricing, Costing and Margins
 Identify the tax cost (with respect to taxes that are supposed to merged into GST) in the profit and loss account and start
capturing the same so as to enable the business to understand the impact of GST
 Supply Chain Management
 Identify the existing contracts/PO’s wherein contracts will have to be renegotiated on account of availability of the input tax credit
to the vendor as well as the Company and include clauses for facilitation of renegotiating on implementation of GST
 Change in IT Systems
 Treatment of tax incentives
 Treatment of excluded sectors
 Transaction Issues
 Tax compliance
 Review the current operations/distribution models and evaluate the need for any changes in the operation/distribution
models on account of
 Availability of full credit under GST system; and Impact of additional tax payable on the supply of goods in course of inter state
trade

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Integrated Goods and Services Tax – Basis
Fundamentals
 GST in India envisaged on destination / consumption principle
 Place of supply to determine the place where the supply of
goods/services will take place and to determine whether supplies are
inter state or intra state
 In sub-national taxation, determining the place of supply is important
as tax revenue accrues to the state where the supply occur or
deemed to occur
 IGST model envisage levy of IGST by the Centre on all transactions
during inter state taxable supplies
 Tax revenues accrues to the destination/importing state based on
place of supply rules
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Integrated Goods and Services Tax – Basis
Fundamentals
 IGST model permits cross utilization of credit of IGST, CGST & SGST
for paying IGST unlike intra-state supply where the CGST/SGST
credit can be utilized only for paying CGST/SGST respectively
 IGST credit can be utilized for payment of IGST, CGST and SGST in
sequence by importing dealer for supplies made by him
 IGST Model envisages that the Centre will levy tax at a rate
approximately equal to CGST + SGST rate on inter-state supply of
goods and services
 It would basically meet the objective of providing seamless credit
chain to taxpayer located across states
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Integrated Goods and Services Tax – Basis
Fundamentals
 IGST model obviates the need for refunds to exporting dealers as well
as the need for every state to settle account with every other state
 The exporting state will transfer to the centre the credit of SGST used
for payment of IGST
 The centre will transfer to the importing state the credit of IGST used for
payment of SGST
 Thus Central Government will act as a clearing house and transfer the
funds across the states

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GST Leading to Business Transformation

• Advocacy
• Indirect Tax Impact Assessment
• Supply Chain
• Accounting and Reporting
• Technology Refresh
• Compliance
• Program Management
• Change Management and Training

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Thank You