Introduction of Goods and Service tax

The introduction of Goods and Services Tax (GST) is a very significant step in the field of
indirect tax reforms in India. In the pre GST regime, there was multiplicity of indirect taxes. The
central excise duty and service tax was levied by the Central Government, while VAT and Entry
Tax were levied by the State Government. Moreover, there was cascading effect of taxes, i.e. tax
on tax, at various stages as credit of taxes levied by one government was not available against
payment of taxes levied by the other. GST is a huge reform for indirect taxation in India, the
likes of which the country has not seen post-Independence. GST will simplify indirect taxation,
reduce complexities, and remove the cascading effect. It will have a huge impact on businesses
both big and small, and change the way the economy functions. GST is a comprehensive indirect
tax levy subsuming all central and state levies with a single unified value added tax transforming
the nation into one single market. Major Central and State taxes are subsumed into GST which
will reduce the multiplicity of taxes, and thus bring down the compliance cost

CONSTITUTIONAL SCHEME OF INDIRECT TAXATION IN INDIA BEFORE GST :

1. Article 265 of the Constitution of India provides that no tax shall be levied or collected
except by authority of law. As per Article 246 of the Constitution, Parliament has
exclusive powers to make laws in respect of matters given in Union List (List I of the
Seventh Schedule) and State Government has the exclusive jurisdiction to legislate on
the matters containing in State List (List II of the Seventh Schedule). In respect of the
matters contained in Concurrent List (List III of the Seventh Schedule), both the Central
Government and State Governments have concurrent powers to legislate.
2. Before advent of GST, the most important sources of indirect tax revenue for the Union
were customs duty (entry 83 of Union List), central excise duty (entry 84 of Union List),
and service tax (entry 97 of Union List). Although entry 92C was inserted in the Union
List of the Seventh Schedule of the Constitution by the Constitution (Eighty-eighth
Amendment) Act, 2003 for levy of taxes on services, it was not notified. So tax on
services were continued to be levied under the residual entry, i.e. entry 97, of the Union
List till GST came into force. The Union also levied tax called Central Sales Tax (CST)
on inter-State sale and purchase of goods and on inter-State consignments of goods by
virtue of entry 92A and 92B respectively. CST however is assigned to the State of
origin, as per Central Sales Tax Act, 1956 made under Article 269 of the Constitution.
3. On the State side, the most important sources of tax revenue were tax on sale and
purchase (entry 54 of the State List), excise duty on alcoholic liquors, opium and
narcotics (entry 51 of the State List), Taxes on luxuries, entertainments, amusements,
betting and gambling (entry 62 of the State List), octroi or entry tax (entry 52 of the State
 List) and electricity tax ((entry 53 of the state list) CST was also an important source of
revenue though the same was levied by the Union.

History of GST

During 1999:

The idea of Goods and Services Tax (GST) in India started during meeting held in 1999 between
Prime Minister Atal Bihari Vajpayee and his economic advisory panel, which included three
former RBI governors namely IG Patel, Bimal Jalan and C Rangarajan.

During 2000:

On  July 17, 2000, Indian Government under Vajpayee leadership set up the Empowered

Committee (EC) of State Finance Ministers to design a nationwide GST model.
 
This committee was headed by Asim Dasgupta (Finance Minister of West Bengal) and its
members are State Finance Ministers of Karnataka, Madhya Pradesh, Maharashtra, Punjab, Uttar
Pradesh, Gujarat, Delhi and Meghalaya. This committee which had formulated the design of
State VAT (Value Added Tax) was requested to come up with a roadmap and structure for the
GST 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.

During 2003:

The Vajpayee led government formed a task force to recommend tax reforms. This task force
was under Vijay Kelkar on the implementation of Fiscal Responsibility and Budget Management
(FRBM) Act, 2013.

During 2004:

Vijay Kelkar recommends GST to replace the existing tax regime. Vajpayee headed BJP-led
NDA government fell.

During 2006:

On 28 February, 2006, under Congress-led UPA government, new Finance Minister P

Chidambaram continued work on the same. He proposed 1 April, 2010 as deadline for GST
implementation throughout India.

During 2007:
on May 10, 2007, a Joint Working Group on GST was formed, which submitted its report to the
Empowered Committee (EC) on November 19, 2007.

During 2008:

On April 2008, Empowered Committee (EC) finalized its view on GST, submitted a report titled
“A model and roadmap for Goods and Services Tax (GST) in India”.

During 2009:

The Empowered Committee (EC) released its First Discussion Paper (FDP) on GST in
November, 2009, based on discussions within and between it and the Central Government.

During 2010:

Finance Minister P Chidambaram had announced that GST will be implemented from April,
2011.

During 2011:

In the Lok Sabha, the 115th Constitution Amendment Bill was introduced for the levy of GST
on all goods and services across India.

During 2012:

In 8th November, 2012, a ‘Committee on GST Design’ was constituted, with members as
officials of the Government of India, State Governments and the Empowered Committee was.

During 2013:

In August 2013, Standing Committee submitted its report on GST. In November 2013, EC
rejected Government’s proposal to include petroleum products under GST regime.

During 2014:

Under the leadership of Narendra Modi, the NDA government was re-elected into power. The
new Finance Minister Arun Jaitley introduced the GST Bill (122th Constitution Amendment)
in the Lok Sabha.

During 2015:

In February 2015, Jaitley set another deadline for GST implementation in India as 1 April 2016.

During2016
On August 3, 2016, Rajya Sabha passed the GST. In 12 august 2016, when Assam became the
first state to pass GST.

On September 8, 2016, Hon’ble president of India gave his final assent for constitution 122 nd
amendment bill, 2014 . constitutional 101st amendment act came into force which empowers both
the state and centre to levy this gst.

During 2017:

On 16 January, 2017, Jaitley announces 1 July, 2017 as GST rollout deadline.

 
On 20 March, 2017, Cabinet approved CGST, IGST and UT GST and Compensation bills.
 
During Midnight of 30 June, 2017 -  GST came into force across India except jammu&kashmir.
During Midnight of 7 July, 2017 - Jammu and Kashmir, the only State missed to adopt the
Goods and Services Tax (GST) on July 1, finally joined the GST regime.

INTERNATIONAL PERSPECTIVES ON GST / VAT

VAT and GST are used inter-changeably as the latter denotes comprehensiveness of VAT
by coverage of goods and services. France was the first country to implement VAT, in
1954. Presently, more than 160 countries have implemented GST / VAT in some form or
the other. The most popular form of VAT is where taxes paid on inputs are allowed to be
adjusted in the liability at the output. The VAT or GST regime in practice varies from
one country to another in terms of its technical aspects like definition of supply extent of
coverage of goods and services treatment of exemptions and zero rating’ etc. However, at
a broader level, it has one common principle; it is a destination based consumption tax.
From economic point of view, VAT is considered to be a superior system over sales tax
 of taxing consumption because the former is neutral in allocation of resources as it taxes
value addition. Besides, there are certain distinct advantages of VAT. It is less cascading
making the taxation system transparent and ant inflationary. From revenue point of view,
VAT leads to greater compliance because of creation of transaction trails.

Significance of GST

 Introduction of GST would result in abolition of multiple types of taxes on goods and
services.
 Reduces effective rates of tax to one or two floor rates.
 Reduces compliance cost and increases voluntary compliance
 Removes cascading effect of taxation and removes distortion in the economy.
 Enhances manufacturing and distribution efficiency, reduces cost of production of
goods and services, increases demand and production of goods and services.
 As it is neutral to business processes, business models, organization structure,
geographic location and product substitutes, it will promote economic efficiency and
sustainable long-term economic growth
 Will give competitive edge in international market for goods and services produced in
India, leading to increased exports.
 Reduces litigation, harassment and corruption.
 Will result in widening tax base and increased revenue to the Centre and State.
 Reduces administrative cost for the Government.

What is Goods and Service Tax?

New Article 366(2A) of the Indian Constitution defines Goods and Service Tax (GST) to mean a
tax on supply of goods or services, or both, except taxes on supply of alcoholic liquor for human
consumption. The word supply is used and not sale. Thus in many cases, free supplies will be
subject to GST.

For example, GST will be payable on free supplies made to related persons. No GST will be
payable on free gifts and free samples to unrelated person, but input tax credit in respect of such
goods will have to be reversed.

Inter-state stock transfers and branch transfers will also be subject to GST-that is, IGST will be
payable thereon. For stock transfers and branch transfers within the State, CGST and SGST will
be payable only where the taxable person has more than one GST registration within the State. In
case of single registration within the State, Delivery challan will be sufficient and no payment of
GST is required. Further no GST will be payable if goods are sent for job work outside the
factory. New Article 366(26A) defines service to mean anything other than goods.

GST is a consumption based tax based on vat principle

GST is a consumption based tax will be payable in the State in which goods and services or both
are finally consumed. Exports are not taxable, because the place of consumption is outside India.
Imports are taxable, because the place of consumption is in India. GST is based on VAT system
of allowing input tax credit of tax paid on inputs, input services and capital goods, for payment
of tax on output supply. Thus, the States from which goods are supplied will not get any tax as
goods are consumed in another State.

Dual GST

India has adopted “Concurrent dual GST” model. The need for Dual GST model is based on the
following premise:

 At existing framework, both levels of Government, that is, Centre and State, as per
Constitution holds concurrent powers to levy tax on domestic goods and services.

 The Concurrent Dual GST model would be a dual levy imposed concurrently by the Centre
and the States, but independently;

 Both Centre and State will operate over a common base, that is, the base for levy and
imposition of duty/tax liability would be identical.

Under the Concurrent Dual GST Model taxes shall be levied as per place of supply of goods and
services. In case of supplies within the State or Union Territory –

(a) Central GST (CGST) will be payable to the Central Government

(b) State GST (SGST) or Union Territory GST (UTGST) will be payable to the State
Government or Administrator of Union Territory (as applicable) CGST and SGST will also
apply in Union Territories having legislature, i.e. Delhi and Pondicherry. Area up to 12 nautical
miles inside the sea is part of State or Union Territory which is nearest, so SGST or UTGST will
be payable.

GST is categories of CGST, SGST or IGST

C
Design of Indian GST

E-Way Bill System: The introduction of e-way (electronic way) bill is a monumental shift from
the earlier “Departmental Policing Model” to a “SelfDeclaration Model”. It envisages one e-way
bill for movement of the goods throughout the country, thereby ensuring a hassle free movement
for transporters throughout the country. The e-way bill system has been introduced nation-wide
for all inter-State movement of goods with effect from 1 st April, 2018

Concept of Supply: GST would be applicable on supply of goods or services as against the
present concept of tax on manufacture of goods or on sale of goods or on provision of services. It
includes all sorts of activities like manufacture, sale, barter, exchange, transfer etc.

Threshold Exemption: A common threshold exemption would apply to both CGST and SGST.
Taxpayers with an annual turnover of Rs. 20 lakh (Rs. 10 lakh for special category States (except
J&K) as specified in article 279A of the Constitution) would be exempt from GST.

Composition Scheme: An optional composition scheme (i.e. to pay tax at a flat rate on turnover
without credits) is available to small taxpayers (including to manufacturers other than specified
category of manufacturers and service providers) having an annual turnover of up to Rs. 1 crore
(Rs. 75 lakh for special category States (except J&K and Uttarakhand) enumerated in article
279A of the Constitution). This limit shall be raised to Rs. 1.5 crore after necessary amendments
in the GST Acts.

Zero rated Supplies: Export of goods and services are zero rated. Supplies to SEZs developers
and SEZ units are also zero-rated. The benefit of zero rating can be taken either with payment of
integrated tax, or without payment of integrated tax under bond or Letter of Undertaking.

IGST for Interstate Transactions

In case of Inter-State supply of goods and services, there will be integrated GST (IGST) imposed
by the Government of India. Equivalent IGST will be imposed on imports The IGST rate will be
equal to CGST plus SGST rate. IGST rates will be same all over India and will not vary State to
State Revenue from IGST will be apportioned among Union and States by the Parliament on the
basis of recommendation of Goods and Service Tax council. In area inside the sea between 12
nautical miles to 200 nautical miles, IGST will be payable.

Items not covered under GST

Sr.n Items Remarks

o
1. Alcoholic Liquor for human Article 366(12A) of the Constitution of India
consumption provides that taxes on the supply of alcoholic liquor
 for human consumption are outside the purview of
the Goods and Service Tax Act
2. Petroleum Products viz, GST to be levied from such date as may be notified
petroleum crude, high spirit by the Government on the recommendations of the
diesel, motor spirit(commonly GST Council (Section 9(2) of the CGST Act). Till
known as petrol),natural gas and then Central excise duty will continue on petroleum
aviation turbine fuel products
3. Electricity As per Entry 53 in List II (State list) of the Seventh
Schedule to the Constitution of India, taxes on
consumption and sale of electricity are under the
ambit of the States.

TAXES SUBSUMED UNDER GST

The GST would replace the following taxes currently levied and collected by the Centre:

a) Central Excise duty

b) Duties of Excise (Medicinal and Toilet Preparations)

c) Additional Duties of Excise (Goods of Special Importance)

d) Additional Duties of Excise (Textiles and Textile Products)

e) Additional Duties of Customs (commonly known as CVD)

f) Special Additional Duty of Customs (SAD)

g) Service Tax

h) Central Surcharges and Cesses so far as they relate to supply of goods and services

State taxes that would be subsumed under the GST are:

a) State VAT

b) Central Sales Tax

c) Luxury Tax

d) Entry Tax (all forms)

e) Entertainment and Amusement Tax (except when levied by the local bodies)

f) Taxes on advertisements

g) Purchase Tax

h) Taxes on lotteries, betting and gambling

i) State Surcharges and Cesses so far as they relate to supply of goods and services

The GST Council shall make recommendations to the Union and States on the taxes, cesses and
surcharges levied by the Centre, the States and the local bodies which may be subsumed in the
GST.

Rates of GST

The rates of GST (CGST+SGST/UTGST) - Nil, 5%, 12%, 18% and 28%. These rates will apply
to IGST also. CGST and SGST rate is expected to be same. IGST is expected to be equal to
double the CGST rate. Thus if CGST and SGST is same, the IGST rate will be equal to the rate
of SGST plus CGST.

For Example:- Rajesh, a dealer in Maharashtra sold goods to Anand in Maharashtra worth `.
10,000. The GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%, in such case
the dealer collects ` 1800 and ` 900 will go to the central government and ` 900 will go to the
Maharashtra government.
 Again if Rajesh sells goods to dealer in Delhi worth `. 10,000. This being inter- state, the dealer
will charge IGST at the rate of 18% and the amount collected ` 1800 will go the central
government and will later be apportioned between the union and the states on the
recommendation of the GST council.

There is a special rate of 0.25% for rough diamonds and 3% for Gold, silver and jewellery,
platinum, imitation jewellery, pearl, diamond, and synthetic stone.

In addition, there will be GST Compensation cess on Aerated waters, cigarettes, tobacco and
tobacco products, coal, peat, lignite and motor vehicles.

Advantages of GST

 Makes in India
(i) Will help to create a unified common national market for India, giving a boost to
foreign investment and Make in India campaign
(ii) Will prevent cascading of taxes as Input Tax Credit will be available across goods
and services at every stage of supply
(iii) Harmonization of laws, procedures and rates of tax.
(iv) Uniform SGST and IGST rates will reduce the incentive for evasion by eliminating
rate arbitrage between neighboring States and that between intra and inter-State sales
(v) Ultimately it will help in poverty eradication by generating more employment and
more financial resources.
 Ease of doing business
(i) Simpler tax regime with fewer exemptions;
(ii) Reductions in the multiplicity of taxes that are at present governing our indirect
tax system leading to simplification and uniformity;
(iii) Reduction in compliance costs - No multiple record keeping for a variety of
taxes- so lesser investment of resources and manpower in maintaining records
(iv) Simplified and automated procedures for various processes such as registration,
returns, refunds, tax payments, etc;
(v) All interaction to be through the common GSTN portal- so less public interface
between the taxpayer and the tax administration
 To The Government
(i) Broadening Tax base
(ii) Improved compliance and revenue collections
(iii) Efficient use of Resources
(iv) Investments out of savings by consumers:-mitigation in the cascading effects of
taxes will contribute to increase in availability of funds out of savings of
consumer which may be used for financing development activities.
 To Trade
(i) Reduction in multiplicity of taxes
(ii) Mitigation of cascading/ double taxation
(iii) More efficient neutralization of taxes especially for exports
(iv) Development of Common National Market or Common Economic market
(v) Simpler tax regime with fewer rates and exemptions
  To Consumer
(i) Reduction in cost of goods and services due to elimination of cascading effect of
taxes
(ii) Increase in purchasing power and real income
(iii) Increase in savings due to decrease in cost
(iv) Increase in investments due to increase in savings

Disadvantages of GST

 GST is not good news for all sectors, though. In the current system, many products are
exempted from taxation. The GST proposes to have minimal exemption list. Currently,
higher taxes are levied on fewer items, but with GST, lower taxes will be levied on
almost all items

 GST is not applicable on liquor for human consumption. So alcohol rates will not get
any advantage of GST.

 Stamp duty will not fall under the GST regime and will continue to be imposed by
states

Conclusion

At last the conclusion in the light of implementation date being rescheduled twice, and the
another date from which GST is expected to be implemented being 2011 April, the
government has good amount of time to make its basics straight and to
draft a suitable constitutional amendments. Meanwhile, government can also float a
paper on constitutional bill and can ask for comments from experts on constitutional law.

There is a need to ensure two fold requirements in any constitutional amendments. The
First one is to meet the objective proposed by introduction of GST – a robust indirect tax
Regime in India which minimizes unwarranted cascading effects, and smoothens
the
Supply chain till the level of consumers, and the other objective that any amendments
Should meet is not to abrogate federal autonomy that states enjoy in framing
fiscal legislations.