Goods and Services Tax (GST)

The innovative goods and services tax (GST), which was launched on 1st July 2017. The one-
nation, the one-tax revolution has seen a few glitches, but it’s settling down and benefits should
start to flow sooner rather than later.
What is GST?

GST Law in India is a multi-stage, comprehensive, destination-based tax that is levied on every
value addition.

In simple terms the Goods and Service Tax is an indirect tax levied on the supply of goods and
services. This law has replaced many indirect tax laws that existed earlier in the country.

GST is one indirect tax for the whole of India.

Current Status of GST

GST is currently levied on every product except petroleum, alcohol, tobacco, and stamp duty
on real estate in four slabs of 5, 12, 18, and 28 percent. Most of the articles that are used daily
have zero GST as per the latest revision of the tax rates last year.

97.5 percent of articles covered by 18 percent or lower GST slab. Under the previous, value-
added tax (VAT) regime, the standard taxation rate was much higher. Only luxury and sin
goods are now taxed at the highest 28 percent GST rate.
Achievements due to its implementation

The number of registered taxpayers: The number of registered taxpayers at the time when the
GST was rolled out was Rs 65 lakh, which today stands at approx.Rs 1.2 crore, a jump of 84
percent over the last two years. This shows a significant widening of the tax base and
formalization of the economy under the GST.

Monthly collection: Monthly GST collections for July 2017, the first month for GST, was Rs
92,200 crore. Subsequently, it dropped to Rs 83,700 crore in November that year. Collections
started rising from the 2nd year onwards with July 2018 collections at Rs 96,500 crore. In 2018-
19, the average monthly collection was Rs 97,100 crore with collections breaching Rs 1 lakh
crore regularly.

Compliances: After a slow start, the number of registered taxpayers who started complying
with GST timelines, grew. For the first month (July 2017), only 38 lakh out of 68 lakh
registered taxpayers had filed GSTR 3B returns by August 25. This amount has now almost
become double to 72.5 lakh by April 2019. E-way bill, an anti-evasion mechanism, came into
existence from April 1, 2018. The number of e-way bills doubled from 2.8 crores in April 2018
to 5.49 crore in March 2019.

Rate rationalization: At the beginning over 200 goods were kept in the 28 percent rate bracket.
The number of goods under 28 percent slab has been cut down to eight. There are other goods
and services whose tax rates have been reduced. For example, GST on restaurant services has
been brought down from 18 percent to 5 percent. GST rates on affordable housing projects
have been reduced from 8 percent to 1 percent and on non-affordable housing projects from 12
percent to 5 percent.
The number of returns: When the GST was rolled out, there was a provision for three monthly
returns – for sales, for purchases, and a composite return – and one annual return. When
businesses complained about a huge compliance burden due to the requirement of 37 returns
being filed in a year, the GST Council did away with the purchase return. Now businesses have
to file two returns – GSTR1 for sales and GSTR 3B, a composite return.

Center-state Relations: It has proved to be a successful template for Centre-State Relations

as most decisions in the GST council have been unanimous. The Centre has taken the states
along in ironing out issues and also Council has proactively addressed issues as they arose.

Refund: The process of refund has been fairly streamlined. Exporters of goods have been
receiving refunds directly from the customs and exporters of service are getting 90% of the
refund immediately. The issue of working capital blockage due to refusal of the GST refund in
the initial period has now been fairly sorted.
Apprehensions and Prospects
The initial period was very stressful but over some time, it has stabilized to a large extent
through many issues remain unresolved.

Return filing: Initially there were issues and problems in filing monthly GST Returns but it has
now stabilized. However, the new return filing system should be introduced in a phased manner
and should not be implemented until the trade, professionals and the departmental authorities
are fully conversant with the same. Change in the process in the middle of the year is
cumbersome for all as accounting systems have to be amended for the same.

E-invoicing: The introduction of e-invoicing is a welcome move. However, its introduction at

this stage seems to be a difficult plan. Also, further clarity is needed for the process of
generation in case of system breakdowns.

Introduction of cess: Introduction of Kerala Calamity Cess has been a cause of concern for all.
Other states may also do the same and introduce a cess for some of their welfare schemes.

Notices for reconciliation: Periodic notices even before the year is complete for differences in
Input Tax credit claimed by the traders and as appearing in the GSTN network are putting a
strain on trade and industry. Business and professionals are further confused as figures
appearing in their GST Return, GSTR 2A appearing on the GSTN network, and figures stated
in the notice sent by the department is different. The authorities also don’t have any break-up
based on which notice has been sent.

The requirement for centralized assessment: Business with multiple locations are finding it
difficult to appear for assessment or inquiries before authorities in various states. The entire
tax and accounting are generally centralized in big organizations. Hence, a longstanding
demand of the industry with locations in various states for assessment/audit in the main state
would be a welcome move.

Frequent changes: The trade and professionals are grappling with the frequent changes and
notifications issued in the past two years. Though changes and amendments are required for
clarity, major amendments impact the decision-making capacity of the trade.
Input tax credit: Eligibility of input tax credit has been a bone of contention between trade and
authorities from the pre-GST era. Some of the judgements were very clear about ITC being an
indefeasible right of the assessee, small procedural errors should not hamper them, provisions
cannot be used to extract money from the assessee, etc. The condition for disallowability of
ITC if vendors do not pay GST or file returns is a very harsh provision and needs to be
revisited.
GST has managed to subsume many local, state, and central taxes which should be appreciated.
Glitches were expected, but after three years there has to be a climate of certainty with a smooth
GSTN network and minimum changes in the law. The way GST is progressing it appears that
the journey is still midway for the authorities and businesses and much has still to be achieved.
It cannot be said that there are only negatives, there are substantial positives. The emphasis
should be on expanding the tax base, checking tax evasion, simplification of procedures, and
glitch-free GSTN system.

The Goods and Service Tax Act of 2017 took away the taxation powers of the state
government. Indirect sources of tax such as VAT, service tax etc were subsumed under the
GST and state needed assurances for a continuous source of revenue.

The Goods and Services Tax (compensation to states) Act of 2017 was a legal assurance
given by union government to compensate states for loss of revenue for a period of five
years.

Rationale behind the Act

• Fixed revenue growth

The centre assured a 14% year to year growth on GST revenues for a period of five
years. If such amount was not available, the centre assured to compensate states for
such deficiency.
• Raising new revenue sources
State governments lost their power to raise revenue from alternative indirect sources
after GST. This deficiency was fulfilled by the union government by compensating
them with a fixed amount regardless of the situation.
• Create constitutional liability
The Act created a constitutionally binding agreement between centre and state
regarding GST compensation. It prevented states from being victim to centre’s high
handedness.

Impact of covid-19 on GST compensation and creation of federal tension

• Decrease in GST revenues have impacted the government’s ability to compensate the
state as they simply don’t have the money to fulfil their obligation. The shortfall is
about 1.75 lakh crore.
• Compensating for state’s loss has to be done through raising of alternate sources,
which is difficult in times of the pandemic.
• The state needed the money to fight the pandemic but the centre was reluctant to
perform its obligation. It invoked force majeure to escape from the binding clause.
• The state cited the constitutional safeguard and demanded their legal share, causing a
conflict between federal ideas under the constitution.
• The matter has reached the supreme court, where opposing states have questioned the
centre’s move to break its federal agreement.
Way forward

The centre should give the state government their due by borrowing from the market. The
shortfall can be covered by imposing cess on certain products.

Thus, the covid-19 has created federal economic crisis. To prevent such situation in future,
the centre must allow states to raise money through cess in their respective domain.

Goods and Services Tax (GST) collections for March 2020 stood at ₹97,597 crore, dropping
below the ₹1 lakh-crore mark after four months.

Key Facts

▪ GST Collected
o Of the total collections, central GST stood at ₹19,183 crore, State GST was at
₹25,601 crore and integrated GST atwas ₹44,508 crore.
o The government had settled ₹19,718 crore to CGST and ₹14,915 crore to
SGST from IGST as regular settlement.
o In addition, the Centre also apportioned unsettled balance IGST of ₹6,000
crore on an ad-hoc basis in a 50:50 ratio between the Centre and States.
▪ Partial Impact of COVID-19:
o The March revenue collections are based on the business conducted in
February.
o The collections do not take into account the full impact of COVID-19 and the
consequent shutdown of many business sectors in India.
o It has been warned that the revenues for the month of April 2020 are likely to
dip much further.
▪ In Comparison to March 2019
o According to the Ministry of Finance, Gross GST revenue for March 2020
was 8% lower than that of March 2019.
▪ Fall in Collection from Imports
o Although GST revenue from domestic transactions dropped 4% in comparison
with March 2019, there was a 23% fall in the tax collected on import of goods.
o Global trade was affected by COVID-19 in February itself.
▪ Step Taken
o Small businesses have been allowed a three-month deferment of GST
payments due to the COVID-19 situation.
o There is a wider industry demand for a moratorium on payments and reduction
in rates.

Goods and Services Tax

▪ GST is a comprehensive, multi-stage, destination-based tax that is levied on every

value addition.
▪ GST is a comprehensive Indirect Tax which has replaced many Indirect Taxes in
India.
▪ The Goods and Service Tax Act was passed in the Parliament on 29th March 2017 and
came into effect on 1st July 2017
▪ Under the GST council and 101st constitutional amendment, the tax is levied at every
point of sale.
 ▪ GST is categorized into CGST, SGST or IGST depending on whether the transaction
is Intra-State or Inter-State.

Central Goods and Services Tax and State Goods and Services Tax

▪ CGST is a tax levied on Intra State supplies of both goods and services by the Central
Government and is governed by the CGST Act. SGST is also be levied on the same
Intra State supply but will be governed by the State Government.
▪ This implies that both the Central and the State governments agree on combining their
levies with an appropriate proportion for revenue sharing between them.
▪ However, it is clearly mentioned in Section 8 of the GST Act that the taxes be levied
on all Intra-State supplies of goods and/or services but the rate of tax shall not be
exceeding 14%, each.

Integrated Goods and Services Tax

▪ IGST is a tax levied on all Inter-State supplies of goods and/or services and is
governed by the IGST Act.
▪ IGST is applicable on any supply of goods and/or services in both cases of import into
India and export from India.