“GOODS AND SERVICE TAX : IMPACT ON INDIAN

ECONOMY”

Dissertation submitted to Gujarat University in partial fulfillment of

the requirement for the Degree of B.Com LL.B (Hons.) Course

Submitted By
GAJJAR SARAL DINESHBHAI
Seat No.:________
Batch : 2018-2023
Academic Year 2022-2023

Under the Guidance of

Dr. HEENA MAKHIJA
(Faculty, Centre Of Excellence)

UNIVERSITY SCHOOL OF LAW

GUJARAT UNIVERSITY
AHMEDABAD 380 009
 DECLARATION

I hereby declare that the dissertation entitled “GOODS AND

SERVICE TAX : IMPACT ON INDIAN ECONOMY ” is
carried out by me. This piece of work has not been submitted
before or published elsewhere.

Date: (GAJJAR SARAL DINESHBHAI)

Place: Ahmedabad Seat No.:________

I
 CERTIFICATE

This is to certify that the dissertation entitled “GOODS AND

SERVICE TAX : IMPACT ON INDIAN ECONOMY”
which is being submitted by GAJJAR SARAL DINESHBHAI
for the award of DEGREE OF B.Com LL.B (Hons.) of
Gujarat University, Ahmedabad under the faculty of Law is a
record of work carried out by him/her under my guidance.

Date: (Dr. HEENA MAKHIJA)

Place: Ahmedabad Guide

Forwarded through

Prof. Dr. K. C. RAVAL

Coordinator

II
 ACKNOWLEDGEMENT

I thank my Respected Guide (Dr. HEENA MAKHIJA) for

providing me the guidance as how to conduct my Dissertation
on the topic “GOODS AND SERVICE TAX : IMPACT ON
INDIAN ECONOMY”.

I am thankful to respected Coordinator Prof. Dr. KAUSHIK

C. RAVAL for supporting me in each year and encouraged my
academic life throughout my journey. I also thank all the
faculties for providing me valuable education during my
academic years of the 5 Years Integrated B.Com LLB (Hons.)
course at Centre of Excellence, Gujarat University.

GAJJAR SARAL DINESHBHAI

III
 INDEX

 Abbreviation VIII
1. CHAPTER – I: INTRODUCTION
1.1 Taxation In India 1-5
1.2 Goods and Service Tax around the World 6-7
1.3 Goods and Service Tax in India 7-8
1.4 Aims and Objectives 8
1.5 Research Questions 9
1.6 Significance Of Research 9-11
1.7 Research Methodology 11
1.8 Literature Review 12-16
1.9 Scheme of Chapters 16-17
2. CHAPTER – II:
2.1 Historical Development 18
2.1.1 Introduction 18
2.1.2 A Brief History Of Taxation In Ancient India 19-20
2.1.3 The Revenue System In Medieval India 20-22
2.1.4 Taxation System In British India 22-23
2.1.5 Modern Tax In India 23-26
2.1.6 Evolution of GST 26-29
2.2 Constitutional Provision 29-35
2.3 Concept of GST 35-36
2.4 Types of GST 36
2.5 salient features of GST 37-39
2.6 Advantages of GST 40
2.6.1 Advantages to the Government 40
2.6.2 Advantages to Trade and Industry 40-41
2.6.3 Advantages to the Consumer 41
2.6.4 Advantages to the State 41-42
2.7 application and functioning of GST 42-44
2.8 Rate of GST 44-45
2.9 Model of GST 45

IV
3. CHAPTER – III IMPACT OF GST
3.1 Impact of goods and service tax on Indian economy 46-48
3.2 Goods and services tax impact on various sector of Indian 48
economy
3.2.1 Fast moving consumer goods sector 48
3.2.2 Traders 48
3.2.3 Manufacturers 49-51
3.2.4 E-commerce 51-53
3.2.5 Real estate 53-54
3.2.6 Banking 54-55
3.2.7 Automobiles 55-56
3.2.8 Agriculture 56-58
3.2.9 Pharmaceuticals 58-60
3.2.10 FMCG & Retail 60-63
3.2.11 Energy 63-65
3.2.12 Telecom 65-66
3.2.13 Transportation industry 67
3.2.14 Textile industry 67
3.3 Positive and negative impact of GST 67
3.3.1 positive impact 67-68
3.3.2 negative impact 68-69
4. CHAPTER – IV: GST IN SEVRAL COUNTRIES AND
GST COUNCIL
4.1 How GST is in India differs with GST In others countries 70
4.1.1 Introduction of GST 70
4.1.2 GST registration in India 70
4.1.3 Why GST is implemented 70
4.1.4 Deviation between Indian GST and other countries 71-74
GST
4.2 Detail explanation of GST in India and GST in other 74
Countries
4.2.1 GST in India VS GST in New Zealand 74
4.2.2 GST in India VS GST in Canada 74
4.2.3 GST in India VS GST in Singapore 75

V
 4.2.4 GST in India VS GST in Indonesia 75
4.2.5 GST in India VS GST in China 75
4.2.6 GST in India VS GST in Australia 75
4.2.7 GST in India VS GST in USA 76
4.2.8 GST in India VS GST in UK 76
4.2.9 GST in India VS GST in Brazil 76
4.2.10 GST in India VS GST in France 76
4.2.11 GST in India VS GST in Ukraine 76-77
4.2.12 GST in India VS GST in Malaysia 77
4.3 Difference between Previous Tax structure 77
4.3.1 Explaining Cascading effect on Taxes 77
4.3.2 difference between previous tax and GST 77-78
4.3.3 Drawback of VAT 78
4.3.4 Reason for introducing GST 78
4.3.5 what are the benefites of GST over VAT 78-79
4.3.6 difference between VAT and GST 79-80
4.3.7 concerning different taxes 80-83
4.3.8 Pre and Post GST in India 83-86
4.4 Deficiencies in earlier Taxation system 86-87
4.5 Fate of Unjust Enrichment principle under GST 87
4.5.1 the key highlight of the graph circular is mentioned 88
below
4.5.2 certification of Document 89
4.5.3 Refund arising out of differencial duty on input and 89
capital goods
4.5.4 Refund arising out of differencial duty on final 90
products
4.5.5 Document to be submitted with refund application 90
4.5.6 the amount of duty/tax paid on capital goods, not to 91
be capitalized
4.6 GST council 91
4.6.1 creation of GST council 91
4.6.2 need for GST council 91-92
4.6.3 features of GST council 92

VI
 4.6.4 structure of GST council 92-93
4.6.5 duties of GST council 93-94
4.6.6 quorum of GST meeting and decision making 94-95
4.6.7 disputes handling by the GST council 95
5. CHAPTER –V CONCLUSION
5.1 GST in simple term 96
5.2 Taxes which are subsumed by the implementation of the 96-97
GST
5.3 GST council 97-98
5.4 Impact of GST on various sectors which are boosts the 98-100
economy
 Bibliography………………………………………………… 101-102
 Webliography………………………….……………………. 103-104

VII
 ABRIVATIONS

BCE BEFORE COMMON ERA

CBEC CENTRAL BOARD OF EXCISE AND CUSTOMS
CENVAT CENTRAL VALUE ADDED TAX
CGST CENTRAL GOODS AND SERVICE TAX
CST CENTRAL SALES TAX
CT CORPORATION TAX
DTH DIRECT TO HOME
EC EMPOWERED COMMITTEE
EPC ENERGY PERFORMANCE CONTRACTING
FDI FOREIGN DIRECT INVESTMENT
FMCG FAST-MOVING CONSUMER GOODS
FRBM FISCAL RESPONSIBILITY AND BUDGET
MANAGEMENT
GDP GROSS DOMESTIC PRODUCT
GST GOODS AND SERVICE TAX
GSTN GOODS AND SERVICE TAX NETWORK
IGST INTEGRATED GOODS AND SERVICE TAX
IT INCOME TAX
ITC INPUT TAX CREDIT
JWG JOINT WORKING GROUP
MODVAT MODIFIED VALUE ADDED TAX
OEM ORIGINAL EQUIPMENT MANUFACTURER
SAD SPECIAL ADDITIONAL DUTY
SGST STATE GOODS AND SERVICE TAX
TCS TAX COLLECTION AT SOURCE
UGST UNION TERRITORY GOODS AND SERVICE TAX
VAT VALUE ADDED TAX
PAN PERMENANT ACCOUNT NUMBER
MSME’S MICRO, SMALL AND MEDIUM ENTERPRISES

VIII
 CHAPTER-1

INTRODUCTION

1.1 TAXATION IN INDIA

In almost every economy taxes are broadly classified as direct taxes and
indirect taxes. In India the Central Government’s main source of revenues
are income tax, excise duty, customs duty and service tax, while State
Governments gets their tax revenue from sales tax/value added tax, excise
etc.
Parliament has sole authority given to it by The Indian Constitution’s
Article 246(1) to make law in relation to any matter included in List I of the
seventh schedule of Constitution. Similarly, under Article 246(3), every
State's legislature has exclusive authority to make laws for the state on any
matter included in List II of the Constitution's seventh schedule. 1
It has been a more difficult task to implement Value Added Tax (VAT)
in a federal country like India, where each state has exclusive power to levy
and collect State taxes under Constitutional provisions. Prior to the
implementation of VAT, there were issues with multiple taxation and the
cascading impact of taxes in the sales tax system, as well as a lack of
consistency in the tax rates on similar produces between the States. There
were multiple rates under sales tax, and every state had different sales tax
rates for the similar goods. In terms of rates under sales tax, there was also
an unnatural rivalry among states.
Attempts have been made to harmonise the VAT design in the states,
taking into account the specific characteristics of each state as well as the
need for federal flexibility, in order to avoid unnatural competition among
the states, which could turn into manufacturing and trade imbalance.
Beginning April 1, 2005, the states began adopting VAT. All States and
Union Territories have adopted VAT after resolving the initial difficulties.
Industry and trade responses have been overwhelmingly positive. The

1
Dr.j.n. pandey, constitutional law of India, chapter-29, pg.-711

1
increase in tax revenue approx. 200% after VAT was started compared to
the average rate of annual growth before VAT was implemented.
There are number of levied upon goods by both Central Government and
State Government under indirect taxes e.g. excise duty is levied on goods
manufactured or produced; customs duty levied on import into India and in
case of export out of India of goods and service, tax will be levied on
services provided and consumed in India. These taxes on goods and services
are levied by the Central government while VAT is imposed by the State
governments on sale of goods. Most of the States also have made provisions
for levy of taxes on purchase made from unregistered dealers.
Economic development became reality only because of economic
liberalisation as well as other reforms adopted in India. Goods have been
taxed in India for a long time; however services were not covered under tax
net until 1994. For the first time in 1994-95, Dr. Manmohan Singh, Finance
Minister of India, imposed a service tax on three utilities services. Later
more than hundred services were taxable under the service tax act. In the
area of indirect tax improvements in India Modified Value Added Tax
(MODVAT) and Central Value Added Tax (CENVAT) was introduced at
Central and Value Added Tax (VAT) was introduced at States level has 3
been taken as major footstep in the area of indirect taxes.
Because of multiplicity of taxes on goods it is very difficult for a
businessman, not only to Indian businessmen but also for multinational
corporations to do trading smoothly. Therefore, a new and composite tax,
named Goods and Services Tax has been implemented by the Central
Government which is applicable not only on goods but also on services and
most of the indirect taxes which were imposed by the centre and State
governments on goods and services has been subsumed either in Centre GST
or State GST, wherever that taxes were relates to.
According to report published in 2015 by the World Bank, more than
160 Nations have adopted some or other form of Value Added Tax (VAT).
The GST has the flavour of Value Added Tax and provisions from other
related statues also. India has planned to implement GST after it has watched
and observed the experience of the countries who have adopted the Goods
and Services Tax or the Value Added Tax as the case may be in their
2
countries like China, Indonesia, European Union, Canada and Australia, but
at the same time it is important to note that Value Added Tax is not adopted
by the United State still today.
The State VAT eliminated many of the difficulties with regards to the
collection of sales taxes at the point of sale. All the states have agreed on
equal rate of VAT, which has put an end to the previously negative tax
competition. It further decreased the impact of cascading of tax on cost of
production. Limitations for the structure of the CENVAT and State VATs
was set by the Constitution, which prevent both the Centre and the States
from levying taxes on goods and services at all level in during entire supply
chain.
The tax cannot be levied after goods have left the plant, and it cannot be
applied on services by the states. The division of power to tax between
Centre and State results in incompetence and complexity.
CENVAT was a tax imposed on products made or processed in India.
This raises the question of what exactly constitutes manufacturing. And
there are valuation considerations to consider when deciding the value on
which the tax would be imposed. Although these ideas have risen as a result
of judicial decisions, it is widely acknowledged that restricting the tax to the
point of manufacture is a significant impediment to a productive economy
and neutral application of tax. Manufacturing is a narrow base in itself.
Furthermore, the entire supply system affects the overall tax to be borne by
consumer, as the taxable value at the stage of production is linked to the
value added beyond that stage. As a result, almost every country has
abandoned this taxation system to adopt a multi-stage taxation scheme that
goes up to retail sales.
Australia is the latest industrialised country who adopted GST that
applies to retail level in place of manufacturing or wholesale tax. Despite
Australia's high level of administrative sophistication, the previous tax was
found to be unworkable. It obviously couldn't handle the wide range of
supply chain arrangements in a satisfactory way.
The states were barred from levying utility taxes. This agreement had
caused problems to tax the goods delivered as portion of a composite works
contract which including the providing of goods as well as services too,
3
further leasing contracts, which include the transfer of the right to use goods
but not their ownership.
The most critical flaw in the present tax scheme is the effect of tax
cascading on products. It increases production costs and puts Indian
producers at non competitive entity in global markets. It creates a preference
in support of imports because they are not subject to the hidden cost of taxes
in their nation. It also reduces tax which is to be imposed on all competitive
products fairly.
Although the rate of tax is same on all goods, the operational rate of tax,
which is total of statutory rate on finial goods plus the implied or hidden tax
on inputs for manufacturing, would vary depending on the extent of the
implicit tax on inputs utilized in their production and distribution. In a
cascading system of taxes, the expected effect of government policy on
industries or households may be negated by indirect taxation.
In spite of latest reforms in taxation system and their governance, the
policy and procedural aspects at Central and State levels both are remain
complicated. The Government has a number of issues that need to be
addressed. They are subject to legal challenges and disputes, and the conflict
settlement process is not only sluggish but also costly. Simultaneously, the
programmes suffer from significant enforcement gaps, with the exclusion of
much managed segments of the economy. There are so many elements
which are responsible for this unsatisfactory condition. Policy which allows
exemptions, having multiple rates and irrational structure for levies are the
main cause uncertainty in the market. The CENVAT and the Service Tax
were the most egregious examples of these flaws.
The State VAT's complexities stem mainly from the grouping of
products into various tax rate schedules. The lower tax rates can
theoretically be extended to basic commodities, which are mostly purchased
by the poor. Under the State VAT, this is not the case. Precious metals and
jewellery, as well as related products, have the lowest levels of 1%, which
is unlikely to be rated highly from a distributional standpoint. The middle
rate of 4% refers to a variety of essential needs, as well as a variety of
manufacturing inputs and information technology goods. In fact, basic
necessities are divided into three categories: tax-free, taxable at 4%, and
4
taxable at the standard rate of 12.5%. It appears that the classification is
arbitrary, with no well-accepted theoretical underpinning. Whatsoever its
political virtues, this policy is not helpful in reducing the cost of compliance.
Majority of retailers find it very hard to choose the rate of tax which is
applicable to a particular product unless he takes advice from a professional
or properly goes through schedules provided in laws, and consumers are
much less aware of the tax rates that apply to different items. This situation
some time results in leakage in revenue as well as raises disputes. Many
administrative processes were still done by hand, so they didn't benefit from
automation's efficiencies. All of this not only raises enforcement costs, but
also jeopardises revenue collection.
Multiple VAT rates create difficulty in tax administration and
enforcement. To resolve the issue of vertical equity and other fiscal tools
such as expenditure programmes which are targeted for lower income
household, Japan, Singapore and New Zealand have adopted implementing
tax at a low and uniform pace.
The primary goal of tax reform will be to fix the existing system's flaws
and deficiencies. It should create a tax system that is both economically
effective and neutral in its operation, as well as distributive appealing and
easy to administer.
The Goods and Services Tax was supposed to be a big step forward in
terms of having a much more open dual VAT system that would mitigate
the drawbacks of the current system, which is fully autonomous and
centralised. Administration and regulation will be simpler with a common
base value and tax rate for goods and services for within and States, while
also making tax collection on inter-State transactions more manageable. For
the purpose of giving fiscal autonomy the need the State is empowered to
tax petroleum and alcohol as well as Centre to tax additional excise duty on
some goods, petroleum products and tobacco. Although these goods will be
subject to the GST, the states has been given the power to levy additional
taxes on them.

5
1.2 Goods and Service Tax around the World
The GST is a single, broad-based tax levied on goods and services
purchased in a given economy. Goods and Service Tax will be charged at
each point of the supply from manufacturer to consumer, with eligible
setoffs for input tax paid purchase made. Simply GST is a tax final
consumption. Further we can say that it’s a tax on goods and services that
will be charged on every stage of transaction or provision for providing
service. Under GST, supplier of goods or services is eligible to take credit
of input tax paid on purchase of goods or service at the time of sale or
provision of service.
Originally in the 18th century The Goods and Services Tax was evolved
by the German economist. Because of being similar in principle this system
of taxation was also recognized as the Value Added Tax. Further this system
of taxation also known as Harmonized Sales Tax. He was the person who
imagined a tax on sales of goods charged to the consumer rather than on the
8 production or distribution. As a result, regardless of how many
transactions takes place before it reached to consumer, the tax was still be a
fixed percentage of the total price collected from consumer. In 1954, France
became the first country to enact the levy. April 10, 1954, is the actual date
from which France had implement VAT. Initially they cover large
corporations, after that it has been expanded to cover all industry sectors.
Personal end-users of goods and services are not eligible to claim VAT
on sales, but companies may claim VAT on materials and services
purchased in order to manufacture additional supplies or services that are
then sold directly or indirectly to end-users. Because of this, tax levied at
each stage in the supply system is a small portion of the value added by a
seller of the products. Further the supplier bears the cost of collecting the
tax instead of government. The VAT was implemented because high rate of
taxes encouraged theft and illegal transactions.
By taxing the only value added portion at each point of development,
value added taxation eliminates the cascade impact of sales tax. Value-
added taxation has been gaining popularity in place of conventional sales
taxes around the world. Value added taxes apply to almost all economic
transactions involving the selling of products and the provision of services.
6
 VAT is measured and obtained on the value added to goods in a business
transaction. Under this taxation scheme government will collect tax on value
added in the product at each stage until it reaches the consumer.

1.3 Goods and Services Tax in India

According to the KTF on implementation of the Fiscal Responsibility
and Budget Management (FRBM) Act, 2003, while India's indirect tax
policy has been slowly heading in the direction of the VAT principle since
1986, the current system of taxation of goods and services still has many
flaws. The federal government and the state’s share the tax revenue. The
taxation of services are around half of GDP, is ineffective. In certain cases,
the new tax system has cascading consequences. As a result of these
problems, the tax-to-GDP ratio is poor, and there are various economic
distortions.
The value-added tax (VAT) is a progressive and modern sales tax law.
It introduces a self-evaluation mechanism that promotes accountability and
mutual trust. Dealers charge and recover it based on the amount the
consumer pays. On January 17, 2005, the empowered committee issued a
White Paper on VAT. This was the agreed-upon uniform basis for avoiding
cross-state competition. On January 4, 2005, the value added tax (VAT) took
place of the sales tax. The Government of India established the Empowered
Committee to provide the elementary arrangement for similar VAT laws in
all states, but the states could choose their rules.
For the first time, the initiative to implement the new tax system was
expressed in the Union Budget Speech of 2006-2007. Mr. P. Chidambaram,
Finance Minister, indicated that centre and all the state are in principle ready
to welcome the new tax system i.e. Goods and Services Tax (GST) which
will be divided by both of them. Finance Minister also suggested that GST
be implemented on April 1, 2010. The current service tax and CENVAT
rates, which are the most similar to the global GST rate, as well as the
ongoing efforts to phase out the Central Sales Tax (CST), clearly
demonstrate the Government of India's commitment. Following that, the
Empowered Committee of State Finance Ministers agreed to work with the
federal government to establish a plan for introducing a national GST on
7
 April 1, 2010. In May 2007, the Empowered Committee (EC) of State
Finance Ministers formed a Joint Working Group (JWG) in consultation
with the Central Government to propose the GST model.
The effect of a country's tax policies on both productivity and equity has
a significant impact on the economy. An effective tax system should take
into account income allocation issues and to raise tax revenues to finance
government expenditure on public services and infrastructure. One of the
main developments in taxation systems worldwide has been the framework
of value added tax (VAT), also known as GST in some countries. Currently,
160 countries have successfully adopted the GST/VAT system.
The Indian economy is being increasingly globalized. The
implementation of an integrated Goods and Services Tax (GST) to replace
the existing multiple tax systems of Centre and State taxes is not only
required, but also essential in the evolving economic situation. India would
have a tax structure that is almost equal to the rest of the world once GST is
implemented. It will also boost the global cost effectiveness of native goods
and services. According to the National Council of Applied Economic
Research, the GST would boost economic growth by 0.9 percent to 1.7
percent, with exports increasing by 3.2 percent to 6.3 percent.
There would be revenue benefits for both dealers and government
agencies if all of the difficulties of the Goods and Service Tax are adequately
tackled with accurate rate calculations. If these revenue increases are
substantial, there is a chance that the average incidence of tax rates will be
reduced from current levels while some revenue gains and fairness are
preserved.

1.4 AIMS AND OBJECTIVES

The aim of this study is to compare the effect of GST laws to that of the
VAT system of taxation. To understand the concept of the GST , to study
the key features and issues. And main aim is to study that the does GST
affect the Indian economy or not.

8
1.5 RESEARCH QUESTIONS
1. does implementation of GST affected Indian economy or not?
2. How GST affected the different sectors?
3. Pre GST and post GST tax structure
4. What is GST council?
5. Which taxes are subsumed by the implementation of GST?

1.6 SIGNIFICANCE
GST stands for Goods and Services Tax which is levied on the supply
of goods or services or both in India. GST subsumes a number of existing
indirect taxes which were earlier levied by the Centre and State
Governments including Central Excise duty, Service Tax, VAT, Purchase
Tax, Central Sales Tax, Entry Tax, Local Body Taxes, Octroi, Luxury Tax,
etc.
It brings benefits to all the stakeholders’ viz. industry, government and
the citizens. It is expected to lower the cost of goods and services, boost the
economy and make our products and services globally competitive. GST
will make India a common national market with uniform tax rates and
procedures and removes the economic barriers, thereby paving the way for
an integrated economy at the national level. By subsuming most of the
Central and State indirect taxes into a single tax and by allowing a set-off of
prior-stage taxes for the transactions across the entire value chain, GST
would mitigate the ill effects of cascading and thereby improve
competitiveness of Indian Industry.
GST is a destination based consumption tax. It has been designed in a
manner so that tax is collected at every stage and the credit of tax paid at the
previous stage is available to set off the tax to be paid at the next stage of
transaction thereby eliminating cascading of taxes. This eradicates “tax on
tax” and allows cross utilization of input tax credits which benefit the
industry by making the entire supply chain tax neutral.
GST will give a major boost to the ‘Make in India’ initiative of the
Government by making goods or services produced or provided in India
competitive in the national and international markets. Further, all imported
goods will be charged with integrated tax (IGST) which will be more or less
9
equivalent to Central GST + State GST. This brings parity in taxation on
local and imported products.
Under the GST regime, exports are zero rated in entirety unlike the
earlier system where refund of some taxes was not allowed due to
fragmented nature of indirect taxes between the Centre and the States. All
taxes paid on the goods or services exported or on the inputs or input
services used in the supply of such export goods or services shall be
refunded. The principle of exporting only the cost of goods or services and
not taxes would be followed. This will boost Indian exports thereby
improving the balance of payments position. Exporters are being facilitated
by grant of provisional refund of 90% of their claims within seven days of
issue of acknowledgement of their application, thereby resulting in the
easing of position with respect to cash flows.
GST is expected to bring buoyancy to the Government Revenue by
widening the tax base and improving the taxpayer compliance. GST is likely
to improve India’s ranking in the Ease of Doing Business Index and is
estimated to increase the GDP by 1.5% to 2%.
GST prevents cascading of taxes by providing a comprehensive input
tax credit mechanism across the entire supply chain. Such a seamless
availability of Input Tax Credit across goods or services at every stage of
supply will enable streamlining of business operations.
Uniform GST rates will reduce the incentive for evasion by eliminating
rate arbitrage between neighbouring States and that between intra and inter-
State sales.
Harmonization of laws, procedures and rates of tax makes compliance
easier and simple. There are common definitions, common forms/ formats,
common interface through GST portal resulting in efficiencies and synergies
across the board. This will also remove multiple taxation of same
transactions and inter-State disputes like the ones on entry tax and e-
commerce taxation existing today. All this will also help in reduction in
compliance costs, alleviate the need for multiple record keeping for a variety
of taxes leading to lesser investment of resources and manpower in
maintaining records.

10
 Common procedures for registration of taxpayers, refund of taxes,
uniform formats of tax return, common tax base, common system of
classification of goods or services along Benefits of Goods and Services Tax
(GST) with timelines for every activity will lend greater certainty to taxation
system.
GST is largely technology driven. The interface of the taxpayer with the
tax authorities is through the common portal (GSTN). There are simplified
and automated procedures for various processes such as registration, returns,
refunds, tax payments, etc. All processes, be it of applying for registration,
filing of returns, payment of taxes, filing of refund claims etc. , is done
online through GSTN. The input tax credit will be verified online. Electronic
matching of input tax credit all - across India will make the process more
transparent and accountable. This will encourage a culture of compliance.
This will greatly reduce the human interface between the taxpayer and the
tax administration leading to speedy decisions.
Average tax burden on trade and industry is likely to come down, which
is expected to reduce prices resulting in more consumption, which in turn
means more production and thereby boosting the growth of the industries.
The removal of cascading of taxes and increased transparency will make the
citizens more informed about the taxes they pay while purchasing goods or
services. GST will boost domestic demand, create more opportunities for
domestic business and drive job creation. GST might not be the panacea for
all the ills of indirect tax system but is also not far from that.

1.7 RESEARCH METHODOLOGY

In order to analyse “Goods and Service Tax : impact on Indian economy”
problems and challenges, the current study has predominantly utilised a
doctrinal approach. The research undertaken thoroughly consulted the
literature on disdain towards authority court decisions, as well as book,
statutes, journals, and articles reporters, websites, etc. for conceptual
understanding analysis. several government website, internet database, and
other. The pertinent material has been accessed via reliable e-sources.

11
1.8 LITERATURE REVIEW

Kautilya’s Arthasastra: Kautilya claims that taxes are often seen as a

means of raising revenue for the government. The primary goal of tax
collection in the primitive barter societies of medieval Europe and even
ancient India was to raise funds for the economy. 2

Abhishek A. Rastogi & Aditya Kumar (2009)3 They explain in their

research that GST will be the new system of indirect taxation in India. The
GST law in India is a feature of this research. It also discusses the major
effects on a few Indian industries. They also discussed the provisions in
place in the United Kingdom, the European Union, and Canada, which are
nearly identical to the socio-political scenarios in India. It also discusses the
government's technical and infrastructure readiness requirements.

R. Vasanthgopal (2011)4 in his paper “GST in India: A big leap in the

Indirect Taxation System” mentioned a rational design of the GST and
indicated a positive impact on several industries unbiasedly that can balance
conflicting interest of various stakeholders, political commitment for a
fundamental taxation reform with a constitutional amendment. he also
opined that switching on to flawless GST would be a huge leap in the
taxation system which gives a new incentive to India’s economic change.

Mahesh Dilip Chawla (2017)5 says that Goods and Services Tax (GST) is
a comprehensive tax levy on manufacture, sale and consumption of goods
and services at a national level. One of the biggest taxation reforms in India
the (GST) is all set to integrate State economies and boost overall growth.
Previously, companies and businesses pay lot of indirect taxes such as VAT,
service tax, sales tax, entertainment tax, octroi and luxury tax. After
implementation of GST all these taxes are ceased to exist. There is only one

2
https://www.gktoday.in/topic/kautilyas-system-of-tax-administration/
3
Abhishek A. Rastogi & Aditya Kumar, Goods and Service tax new face of indirect taxes in
India, (2009)
4
R. Vasanthgopal, GST in India: A Big Leap in the Indirect Taxation System, 2 E&F, (2011)
5
Mahesh Dilip Chawla, SWOT Analysis of GST Implementation in India and its Effect, 4,
(2017)

12
 tax, that too at the national level, monitored by the central government. GST
is also different in the way it is levied — at the final point of consumption
and not at the manufacturing stage. Previously, separate tax rates were
applied to goods and services. Under GST, there is only one tax rate for both
goods and services. The goods and services Tax is indeed a further
significant improvement towards a comprehensive indirect tax reforms in
the country. Integration of goods and services taxation would give India a
world class tax system and improve tax collections. It would end distortions
of differential treatments of manufacturing and service sector. GST is
expected to create a business friendly environment, as price levels and hence
inflation rates would come down overtime as a uniform tax rate is applied.
It will also improve government's fiscal health as the tax collection system
would become more transparent, making tax evasion difficult. An attempt
is made in this paper to study the concept of goods and service tax and its
impact on Indian economy. The study also aims to know the advantages and
challenges of GST in Indian scenario.

Dr. G. Sunitha and Dr. P. Sathish Chandra (2017)6 : says that GST is a
broad taxation policy that system that include all indirect taxes of central
and state governments. Taxation is a kind of resource to the government for
the revenue generation. There are different types of taxes prevailing in India
like corporate tax and income tax, custom and excise duty. At present, the
Government of India is going to replace Value Added Tax (VAT) with GST
to minimize the complexity of multiple taxes. This paper highlights the
impact of new taxation system on selected various Industries in India. The
Government of India is not satisfied with the present tax system because it
has some short comings. It is complex in nature, exclusion of services as
well multiples tax burden. The government is going to implement GST from
this financial year. This new tax system will give betterment in the growth
level of Indian economy. In this research article, the concept of GST and
reforms impact on India Economy has been discussed.

6
Dr. G. Sunitha and Dr. P. Sathish Chandra, Goods and Service Tax : as a new path in tax
reforms in Indian economy, volu-7, 2017

13
 Mr. Sacchidananda Mukherjee (2015)7 : This study is purely on structure
of the earlier version of the proposed GST Law in India wherein the
specified petroleum products were outside the Constitution (Amendment)
Bill proposed for GST.

Monika Sehrawat, Upasana Dhanda (2015)8: They have highlighted the

features of Model GST in India in their research. They have discussed major
aspects of GST, such as the threshold cap, imposition and selection, and the
composition of the GST Council, among other things.

Ekta Narula and Priyanshi Rastogi (2016)9 have explained that the main
aim of GST is to streamline the existing indirect tax system with a single tax
on consumption of goods and services manufacture and sales. It is accepted
worldwide and around 140 countries of the world are following the GST
law. It will be applied on goods and services at every stage of worth to be
added to the goods which includes all indirect taxes of central and state
government. Application of GST in )ndia will result in the growth of
economy and boost the overall GDP of the country.

Lourdunathan F and Xavier P (2017)10 : They considered several factors

in their research and came to the conclusion that GST would be a "one
country, one tax." Manufacturers, producers, dealers, and service providers
would benefit from the GST because it would combine various taxes into a
single tax. They also mentioned that there would be no human interference
in dealing with the Department because everything would be done via the
GST Network.

7
Mr. Sacchidananda Mukherjee, Present State of Goods and Services Tax (GST) Reform in
India, (2015).
8
Monika Sehrawat & Upasana Dhanda, GST in India: A Key Tax Reform, (2015).
9
Ekta Narula & Priyanshi Rastogi, GST: A Challenge, 3 (2016).
10
Lourdunathan F & Xavier P, A Study on Implementation of Goods and Service Tax in India
: Prospectus and Challenges, 3 (2017).

14
 Prof. Ranjana Upashi (2017)11 , A long awaited reform has become a
reality in India on 1 st July, 2017. Companies and business organisations
used to pay number of indirect taxes like excise duty, customs duty, central
sales tax, service tax levied by central government and VAT, entry tax and
octroi etc levied by state government. GST is going to consolidate these
multiple taxes into one as ‘One Nation, One Market, One Tax’. Integration
of goods and services tax would definitely lead to ease of doing business
and simplifies tax compliance. As it is going to reduce layers to taxes
definitely leads to boosting tax collection. GST aimed at creating unified
market benefiting both corporate and economy. Several countries have
implemented this tax system; France is the first country to introduce GST.
This paper concentrates on benefits of GST and its effects on different
sectors like automobile, FMCG, banking, insurance, financial services,
Pharmaceutical sector, agriculture, real estate, Consumer durables, oil and
gas, cement, telecom, real estate, airlines and gold. The findings of the paper
revealed mixed effect on different sectors of the Indian economy.

Hemlata Tiwari and Shambhu Nath Singh (2018)12 explain that The
Indian government has taken a major step in the direction of indirect tax
reform. Since 1 July 2017, it implemented goods and service tax (GST) in
place of other indirect taxes. The idea behind GST is to bring uniformity in
goods and services price across the nation. This new system brings a lot of
transparency in indirect tax structure of our country. It will also help in
tracking tax evasion. GST will bring a lot of changes in Indian economy.
This will also help in removing obstacle of doing business in our country.
In this way, it will attract lot of domestic and foreign investors to set up their
business in India. Once foreign companies start their operation in India, they
will hire lot of Indian youth to do work in their business. This will pave the
way to sort out the problem of unemployment in India and enhance our
foreign exchange reserve. Business development will further enhance the

11
Prof. Ranjana Upashi, Study on Effect of Goods and Service Tax on Different Sectors in
India, 8 (2017).
12
Hemlata Tiwari & Shambhu Nath Singh, Goods and Service Tax Economic Revival of India,
22 (2018).

15
 infrastructure growth in our nation. It will direct the path of growth in
government revenue and support government initiatives such as Make in
India, Digital India and so on. In this way, GST will give a spur to Indian
economic growth prospects. The above-mentioned growth path will make
Indian equity market lucrative for domestic and foreign investors. Here, we
can say GST will not only simplify indirect tax system but also give a way
of further economic development of our nation.

G.Aruna kumari and C.Y.naga Jyothi (2017)13 : says that GST is

intended to include all the taxes into one tax with seamless ITC and charged
on both goods and services. Thus the tax is expected to reduce the concept
of ‘tax on tax’, increase the gross domestic product of the economy and
reduce prices. An analysis of what the impact of GST (Goods and Services
Tax) will be on Indian Tax Scenario. Then the need arose for the change in
tax structure from traditional to GST model. The impact of GST in the
present tax scenario in India. Impact of GST comparison with the other
countries. GST impact on different segment and government.

Dr. ranajan sharma (2017)14 : explain about the tax system before the
GST. Also explain about the constitutional amendment for the GST, GST
advantages, taxes which are eliminated by the GST, challenges of
implementing the GST, and the brief idea about the GST.

1.9 SCHEME OF CHAPTERS :

CHAPTER-1:
Chapter-1 gives glimpse about what is taxation overall, concept of GST
world wide and concept of GST in India, also for understanding GST’s
significance , objective, and the topic for which this research is done for.
Also mentioned reviews on article, e-books, etc.

13
G.Aruna Kumari & C.Y.Naga Jyothi, Impact of GST in India and Comparisons with Other
Countries, 4 IJEMS (2017).
14
Dr. ranajan sharma, Goods and Service Tax in India: A Positive Reform for Indirect Tax
System System, 9 (2017).

16
CHAPTER-2:
Chapter-2 gives glimpse about the how taxation developed in India like the
development of Taxation from kautilya to Arun Jaitley ( taxation from
ancient time period - manusmriti, arthashastra, etc, taxation from medieval
time period ( sultanat period, Mughal period, maratha period ) and Modern
Taxation in India ( clearing the concept of direct taxation and indirect
taxation , pre GST and Post GST Taxation structure. The constitutional
provisions ( from which amendments GST introduced, Parliament power
according to GST to amendments .) also clearing the concept of GST, Its
features , advantages , disadvantages, objective, and the functioning and
applicability of the GST in India.

CHAPTER-3
Chapter-3 gives glimpse the impact of GST. How Indian Economy id
affected by the implementation of the GST. Different sector affected by the
GST which are directly affect the Indian Economy ( FMCG sector, Traders,
manufacturers, e-commerce, real estates, banking, automobiles,
agricultural, pharmaceuticals, Retailers ) also mention the impact on
consumers, and positive impact of GST and negative impact of GST.

CHAPTER-4
Chapter-4 gives glimpse about the concept of GST, what is GST in India
and what is GST in other countries, also mentioned the chart on rate of GST
in different countries. Comparison of GST in India and GST in other
countries( UK, China, Canada, New Zealand, Singapore, Indonesia,
Australia, USA, Brazil, France, Ukraine, Malaysia, etc.) Pre GST structure
in India and its deficiencies (Cascading effect, difference of previous GST
tax and GST, Drawbacks of GST ), and unjust enrichment concept on GST.

CHAPTER-5
In Chapter-5 I concluded the research topic according to the research
questions.

17
 CHAPTER-2

2.1 HISTORICAL DEVELOPMENT

2.1.1 INTRODUCTION
Taxes are defined as ‘compulsory charges levied by a government for the
purpose of financing services performed for the common benefit’. Taxation is
“the condition of the existence of governments” as described by Mill. Tax is a
basic foundation of government financial resources to perform necessary action
in interest of the people throughout the ages. Therefore people’s contribution in
the form of taxes is important. This position is of the governments may be traced
back to the evolution of mankind into political organization to modern day
system. The ancient India witnessed to this. The Vedic texts, epics, smritis,
puranas, Arthashatra, other literary texts and epigraphs of the time had given
supreme importance of taxes to governments. There was a regular system of
taxation has started in the Vedic period. The taxes were popular by various name
such as ‘bali’, ‘shulka’,’bhaga’,‘udaja’, and ‘niraja. These taxes are frequently
mentioned in the text of this period. Taxation had evolved in gradual way- from
voluntary to compulsory and regular in nature which were continued further by
Manu, Kautilya, gupta rulers, chol, chera, pandya, Mughal and Maratha rulers
in various form with different rate. Primarily taxes on agricultural produces was
main source of government revenue but its source on which taxation applied,
were increase with respect to time. Now it levied on various commodities and
services even agriculture sector hugely relieved from taxation. At the same time,
functions of government also increases is wide and different. There are many
responsibilities of modern welfare state to its fellow citizens. It becomes most
difficult task to discharge their responsibilities a country like India which have
huge population to provide all of them a sustained living standard with better
human development indicators instead of to maintain law and order, peace and
security. Government needs a required level of revenue to achieve desired level
of economic growth, generation of jobs and their social welfare programme. So
taxes are major source of revenue to increase general welfare standard of
country through financing these policy and programme.

18
2.1.2 A BRIEF HISTORY OF TAXATION IN ANCIENT INDIA
Tax is a compulsory payment to state by its citizens to increase general
welfare level of people. Taxation is always an integrated part of every system
of governance in India viz. monarchy, republic and modern democratic system.
Taxation is found in ancient India as it described by Manusmriti and
Arthasastra. Present Indian tax system is based on ancient tax system which was
based on the theory of maximum social welfare. As Kalidas described in
Raghuvamsha eulogizing king Dalip : “It was only for the good of his subjects
that he collected taxes from them, just as the Sun draws moisture from the Earth
to give it back a thousand fold"15
The ancient scholar advised to king that taxes should be related to the
income and expenditure of the subject. They also know the negative effect of
excessive taxation that is why they suggested to a king that there should neither
impose high rate of tax which effects we know today as Laffer Curve, nor
exempt all from tax which is now a moot concern in modern tax system. There
was a very general consensus in ancient India that tax should be in such manner
as nobody feel to hurt. As Mahabharata (XII 88, 7-8) in Shantiparva reported-
“the king should gather the tax from the state in the manner as the bees collects
honey without hurting the flower.”Kautilya's concept of taxation emphasized on
two basic cannon of taxation i.e. equity and justice. The affluent had to pay
higher taxes as compared to the poor. The text also explained that taxes should
be levied at the proper time, place and form, and realized in a pleasing manner
as the calf suckles the udders of the mother.
The arrangement of the collection of taxes should be in such a manner
that the tax payer did not feel pinch, as reported by Manusmriti, is very basic of
current tax administration. A rule was laid down that traders and artisans should
pay 1/5th (20%) of their produce in silver and gold, while the agriculturists were
to pay 1/6th (~16.5%), 1/8th (~12.5%) and 1/10th (10%) of their produce
depending upon their circumstances.16
The great political economist of ancient India- Kautilya has also
described in detail the system of tax administration in the Mauryan period. It is

15
Raghuvamsha 5, 8
16
Manu smriti, 7. 137-138

19
remarkable that the today’s tax system in India is similar in some extent as it
was third century BCE. Arthasastra mentioned that each tax was specific and
there was no scope for arbitrariness. Tax collectors determined the schedule of
each payment, and its time, manner and quantity being all pre-determined like
modern sophisticated tax system. Taxes were fixed as- 1/6th (16.5%) share of
total produce in the form of land revenue. Import and export duties were
determined on ad-valorem basis. The import duties on foreign goods were
roughly 20% of their value. Similarly, tolls, road cess, ferry charges and other
levies were all fixed.
Taxation system was subject friendly- in the difficult situation there
were many relieves given by state in the affairs of general peoples. As Kautilya
mentioned in Arthasastra that during any kind of disaster e.g. war or natural like
famine or floods, etc. the taxation system should be made more stringent and
the king could also raise war loans. The land revenue could be raised from 1/6th
to 1/4th during the emergencies. The people engaged in commerce were to pay
big donations to war efforts.17
Starting with the Vedic period, there existed a regular system of taxation.
The technical fiscal terms like kar, kalpita, bhog, prataya, bali, shulka, bhaga,
udaja, and niraja are frequently mentioned in the literature of this period which
reasonably and legitimately lend support to the view that taxation had evolved
from voluntary to compulsory and regular in nature that were almost common
across ancient India in the era of Maurya, Shak, Satvahan, Kushan, Gupta,
Gurjara-Pratihara, Rashtrakuta, Pal, Pallava, and Chola, etc.

2.1.3 THE REVENUE SYSTEM IN MEDIEVAL INDIA

 SULTANAT PERIOD
The two major institutions were popular during the time of sultanate,
one of them was- the iqta which was a transferable territorial tax-
assignment and military charges. The other was a tax on land was major
source of revenue for state in sultanate period which called kharaj. It was

17
L.N.Rangarajan, kautilya : the arthashastra, 5 TREASURY, SOURCES OF REVENUE,
BUDGET, ACCOUNTS AND AUDIT

20
 levied at the rate of 1/5 th share of total produce during the reign of Ala-
Ud-Din Khilzi which was further increased to ½ of the produce in the
time of Muhammad Tughlak. The sultanate also demanded fawazil,
which was any surplus revenue into royal treasury. Instead of this sultans
had a khalisa- a certain areas which were under direct control of sultans.
One of the different kind of tax known as Zazia was imposed in medieval
India which was paid by Non Muslims. Its rate was varied according to
tax payer’s income.18

 MUGHAL PERIOD
Abu’l Fazl’s Ain-I Akbari is rich in statistical material and main
source to tell us a lot about Indian economy at the time of Mughal. He
justified the imposition of taxes by the state saying that these are the
remuneration of sovereignty, paid in return for protection and justice.
Taxation in Mughal period was systemized, but there was no universal
tax system. Although even at that time the land tax was a central fact of
Indian economy. It was ½ of the total produce. The magnitude of the
taxes varied with the productivity and minimum cost of peasant
subsistence in the different region of the empire. The land tax was
known as mal or kharaj which was set as a portion of crop after harvest.
Ghalla-bakhshi, kankut and jabt system was evolved for land revenue
assessment.19
Ghalla-bakhshi was a system of crop-sharing. In some areas it
was called bhaoli and batai. And Kankut or dambandi was a system
where the grain yield was estimated. In Kankut, at first instances the
field was measured after that revenue demand was fixed accordingly the
productivity of per bigha as estimated. Sher Shah established a standard
crop yield system known as Rai. Rai was levied on per bigh yield for
lands which were under continuous cultivation. This system of Sher
Shah is followed by Akbar reign and termed as Zabti which was the most
important method of assessment of grain production. The tax rate was

18
Habib, Irfan, Medieval History- The story of a civilization, 5th Edn
19
IBID

21
 fixed in money terms as per productivity of each unit of land known as
biha. The schedules tax rate in different areas over the year is called
dasturs.

 MARATHA PERIOD
Shivaji abolished the jagir and zamindari system and established
direct contact to the cultivators. The whole land measured and divided
into different categories. During his rule the taxation was fixed at 40%
of the total produce which could be given in kind or in cash. There was
a system of subsidies and easy installment in the case of adverse
situation. Shivaji introduced two new taxes namely- Chauth and
Sardeshmukhi to enhance revenue. The Chauth was equal to ¼ (25%)
and Sardeshmukhi was equal to 1/10 (10%) of the total produce which
collected from entire area.

2.1.4 TAXATION SYSYTEM IN BRITISH INDIA

Zamindari, Ryotwari, and Mahalwari were major source of revenue collection
existed in India20

 ZAMINDARI SYSTEM
Lord Cornwallis introduced Zamindari System in 1793 through
Permanent Settlement Act that is it is called Permanent Settlement. It
was introduced in provinces of Bengal, Bihar, Orissa and Varanasi.
Zamindars, who were the owner of the lands, were given the rights to
collect the rent from the peasants. The realized amount would be divided
into 11 parts. 1/11 of the share belongs to Zamindars and 10/11 of the
share belongs to East India Company.
 RYOTWARI SYSTEM
This System was introduced by Thomas Munro in 1820 in
Madras presidency, Bombay presidency, and parts of Assam and Coorg
provinces of British India. In Ryotwari System the ownership rights

20
Alex Andrews George, Land Revenue Systems in British India: Zamindari, Ryotwari and
Mahalwari, clearIAS (Apr. 7, 2017), https://www.clearias.com/land-revenue-systems-
zamindari-ryotwari-mahalwari/.

22
 were handed over to the peasants. Taxes to government were given by
peasants, directly. The tax rates were 1/2th where the lands were dry and
3/5th in irrigated land of total produce.
 MAHALWARI SYSTEM
It was introduced in Central Province, North-West Frontier,
Agra, Punjab, Gangetic Valley, etc of British India in 1833 during the
period of William Bentinck. In this system, the land was divided into
Mahals. Each Mahal comprises one or more villages. Ownership rights
were vested with the peasants. The village committee was held
responsible for collection of the taxes.
 SALT TAX
Salt taxation was in practice in India since ancient time but it had
increased tremendously during the British rule in India. In 1835, special
taxes were imposed on Indian salt to facilitate its import. This paid huge
dividends for the traders of the British East India Company. The
stringent salt taxes imposed by the British were vehemently condemned
by the Indian public.21

2.1.5 MODERN TAX IN INDIA

Modern tax system in present time is more sophisticated than was
prevailed in ancient and medieval India. Now it developed on well defined
principle of taxation such as- Canon of Equality, Certainty, Convenience,
Economy, Productivity, Simplicity Diversity, Elasticity, and Flexibility. It is
well organised system, with clear tax rate and tax slab on different products
although advancement is still continued. It has two broad category e.g. direct
tax- without incident another is indirect tax has incident and impact. These are
covers varieties of commodities and services. Now central and integrated
authority and their accountability, transparency and area of jurisdictions are
defined by legislation of the time which empowered tax system of the land from
time to time.

21
Roy Moxham, Salt Starvation in British India: Consequences of High Salt Taxation in
Bengal Presidency, 1765 to 1878, 36 economic and political weekly 2270-2274 (2001).

23
I. THE ESTABLISHMENT OF INCOME TAX IN MODERN INDIA
The first Income Tax Act in India was introduced by James Wilson
which came into force on 24th July 1860 with the approval of The Governor
General. It was a tax selectively imposed on the rich royalty and Britishers. The
act lapsed in 1865 and was reintroduced in 1867. Later, Governor General Lord
Dufferin introduced a comprehensive Income Tax Act in 1886 with the purpose
of collect more revenue to fight AngloRussian war. It was combination of
License Tax and Income Tax. Taxes were collected in the same manner as land
revenue. The most comprehensive Income Tax Law was the Income Tax Act of
1922. 1919 Chelmsford reforms made a distinction between the functions and
resources of the state and the Central Govt. and Income Tax became a primary
source of revenue for the central Government.22
Income Tax Act of 1992 systematized income tax in India which
regulated taxes rate to every year by a special Finance Act at the time of the
Annual Budget. Tax deducted at source (T.D.S.) was made compulsory for
private employers. Reopening of the assessment was permitted.

II. DIRECT TAX SYSTEM IN INDIA

Corporation Tax (CT):
This is biggest source of revenue is levied on the incomes of registered
national and multinational or foreign companies/corporations in the
country
Taxes on Personal Income:
This is a tax on the income of individuals, firms, etc. under the IT Act,
1961 except Companies. Direct taxes also include other Taxes such as
the ‘Securities Transaction Tax’, which is levied on transaction in listed
securities undertaken on stock exchanges and in units of mutual funds. 23
Capital Gains Tax: Profits generated from the sale of a physical and
financial capital asset such as- any kind of property held by an assesses,
paintings, jewellery and ornaments, business stocks, mutual funds, etc.,
are taxable as capital gains, either short-term or long-term. The capital

22
www.incometaxindia.gov.in/Pages/about-us/history-of-direct-taxation.aspx.
23
history of direct taxation, income tax department
https://www.incometaxindia.gov.in/Pages/about-us/history-of-direct-taxation.aspx.

24
 gain or net profit which is taxable is basically the difference between the
price at which the asset is sold and the price at which it was purchased.
The tax is applicable in the year in which the sale of the capital asset
takes place.
Property Tax: As per the Income Tax Act of India, incomes from
properties are regarded as one of the heads of income. Therefore, tax is
levied on the income from property. These usually include buildings,
flats, shops and land etc.

III. New Indirect tax regime in India

Recently on 1st July 2017 a new indirect tax system- GST introduced in
India in line of world’s advanced economy. GST is one indirect tax for the whole
nation, which will make India one unified common market. GST is a single tax
on the supply of products, right from the producers to the final consumer which
avoid cascading effect. Credits of input taxes paid at each stage will be available
in the subsequent stage of value addition, which makes GST essentially a tax
only on value addition at each stage. The final consumer will thus bear only the
GST charged by the last dealer in the supply chain, with set-off benefits at all
the previous stages. It would formalized the economy and government could
realize desired result with the availability of real time data through it.
All indirect taxes of centre viz. central excise duty, additional excise
duty, service tax, additional customs duty (countervailing duty), and special
additional duty of customs; as well as state level taxes- State Value Added
Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies),
Central Sales Tax (levied by the Centre and collected by the States),Octroi and
Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling
are being subsumed in GST.
There are two components of GST – Central GST (CGST) and State
GST (SGST). Both Centre and States would collect GST across the value chain
simultaneously. Centre would levy and collect CGST, and States would levy
and collect the SGST on all transactions within their territory. The input tax
credit of CGST and SGST would be available for discharging the CGST and

25
SGST liability on the output at each stage. No cross utilization of credit would
be permitted.
The GST council is apex body to administer GST and responsible for all
decision related to indirect tax system in country. It consist 29 states and Delhi
and Puduchery along with centre which have 1/3rd voting rights, remaining for
others. Decisions are taken on the basis of majority. Currently under the GST,
goods and services are taxed at the following rates, 0%, 5%, 12% ,18% and
28%.There is a special rate of 0.25% on rough precious and semi-precious
stones and 3% on gold. In addition a cess of 15% or other rates on top of 28%
GST applies on few items like aerated drinks, luxury cars and tobacco products.
There is a Goods and Services Tax Network (GSTN) which provide IT
platform for the smooth functioning of the Goods & Services Tax regimen. It is
a common and shared IT infrastructure and services to the Central and State
Governments, Tax Payers and other stakeholders for implementation of the
Goods & Services Tax (GST).

2.1.6 EVOLUTION OF GST

ONE NATION ONE TAX is the tagline of the GST implementation i.e.
GST is a single, unified and transparent tax system that reduces number of
indirect taxes, and service tax integrated with it. It is simple and easy to
administer for both centre and states based on robust IT platform. It would
reduces the inter- state tax variations. Economic survey 2016-17 vol. 2 has
observed a revived optimism on structural reforms in the Indian economy in the
form of GST. According to survey the key benefits of GST such as furthering
cooperative federalism, reducing corruption and leakages, simplifying complex
tax structure and unifying tax rate across the country, are creating a common
market.24

24
GST - Goods & Services Tax GST (India) - Indirect Tax Law, What is GST? (Sept. 14,
2022), cleartax.in/s/gst-law-goods-and-services-tax.

26
Instead of this there some hidden benefits of GST25, these are as follows-
I. Textile sector inclusion
The textile and clothing sector is now fully part of GST.
Previously, some parts of the value chain, especially fabrics, were
outside the tax net, leading to informalisation and evasion. Some
anomalies favoring imports of fabrics over domestic production will
need to be rectified but overall the tax base has expanded. GST would
streamline the process of claiming input tax credit thus allowing the
textile industry to be more competitive in the export market.
Export promotion capital goods scheme is available for all the
cotton-based textile exporters. Under this scheme, exporters can claim
the exemption for duty paid if they export six times the value of duty
within a period of next six years. It is expected that this scheme would
lose its significance under GST.

II. WORK CONTRACTS

Next hidden benefit of GST is the inclusion of an important part
of real estate sector—“work contracts”, housing that is being built. This,
in turn, would allow for greater transparency and formalization of
cement, steel, and other sales, which tended to be outside the tax. The
formalization will occur because builders will need documentation of
these input purchases to claim tax credit.

III. Effective taxation of imports

Earlier, the countervailing duty to offset the excise tax and the
special additional duty (SAD) to offset the state VAT was not adequate.
"Under the GST, the full taxes on domestic sales levied by the Centre
and the states (the IGST) will be levied when imported goods. The new
tax will remove the earlier inadequacies and will lead to more
transparent and more effective taxation of imports.

25
ClearIAS Team, The benefits of Goods and Service Tax (GST), ClearIAS (Sept. 24, 2022),
https://www.clearias.com/10-benefits-goods-and-service-tax-gst/.

27
IV. Expanding tax base
The survey finds early signs of expansion of tax base, all due to GST.
On top of the over 71 lakh excise, service tax and VAT payers, who have
migrated to the GST regime, there are over 15 lakh entities who have
taken fresh registrations under the new indirect tax regime. The survey
says the number is expected to rise consistently as more people would
find the benefits of GST. GST has unified over 17 different taxes.
V. More data
GST will generate a lot of vital information on direct tax collections.
Earlier, as the excise was imposed at the manufacturing stage, the Centre
had little data on small manufacturers and consumption. The states had
little data on the activities of local firms outside their borders. Under the
GST, there will be seamless flow and availability of a common set of
data to both the Centre and states, making direct tax collections more
effective.

VI. Financial inclusion

Since businesses have to keep detailed records under GST, these can be
beneficial for them in the long run. Small businesses can build up a real-
time track record of tax payments digitally, and this can be used by
lending institutions for credit rating and lending purposes. Currently,
small businesses are credit-constrained because they cannot credibly
demonstrate their financial capability.

VII. Smoother transport

The transport sector stands to benefit from the recently rolled out
GST in several ways. Pre- GST, the complex tax structure and paper
work forced the transport industry to spend a lot of resources on tax
compliance and deposit of interstate sales tax. Monitoring and collection
of sales tax at interstate check posts led to major traffic congestion at
these points, resulting in slower movement of freight and passenger, and
consequently higher costs and pollution. An average Indian truck covers
only about 50,000-60,000 km a year as against 3 lakh km done by a truck
in US.
28
 GST has result in reducing the travel time of long-haul trucks
and other cargo vehicles by at least onefifth. This, coupled with the
proposed E-way bill that requires online registration for movement of
goods worth more than Rs 50,000, brought more transparency in the
whole process. Efficient freight movement boosted the demand for high
tonnage trucks and reduced the cost of transportation of freight.
GST has made transport a lot smoother. The inter-state check-
posts were removed within days of GST coming into force. So far, 24
states have abolished these check-posts while others are in the process
of eliminating them. If this trend continues, the reduction in transport
costs, fuel use, and corruption could be significant. GST will also reduce
logistics costs and boost inter-state trade.

2.2 CONSTITUTIONAL PROVISIONS

Constitution of India is the supreme law of India. it Lays down the
Framework defining fundamental political principles, establishes the structure,
procedures, powers and duties of of government institutions and set out
fundamental rights, directive principles and the the duties of citizens.
constitution of India does Lays down the foundation for arranging the powers,
duties and the Supremacy to legislate all laws of India. authority to Le Re a text
is Hans derived from the constitution of India.
Article 246 of the Indian Constitution26 list down three types of list and
distribute legislative powers including taxation between the Parliament of India
and the state legislatures. It Lays down the subject matter with respect to which
only the Parliament can make rules, where the state legislatures can exclusively
laid down the rules and the concurrent list where by both the Parliament as well
as state legislatures can legislate. Does the constitution of India locate the power
to levy various taxes between the centre and States.
Broadly the previous indirect tax regime consisted of Central and state
laws. For the central government, central excise, custom and service tax what
are the three main components of indirect taxes. While for state government,
VAT and CST were the major tax is along with October, and entertainment etc.

26
Supra n.1

29
Taxation of goods and service was governed under separate legislatures. In
respect of goods, the centre had the power to levy tax on the manufacture of
goods (except alcoholic liquor from human consumption, opium, narcotics, etc.)
wild state had the power to levy tax on the sale of goods. in the case of inter
state sales, the centre had the power to levy a tax ( the central sales tax) but, the
text was collected and detail entirely by the states. as far as services were
concerned, it was the centre alone that was empowered to levy service tax
governed by the finance act.
Introduction of the value added tax (VAT) was considered to be a major
step and an essential breakthrough in the field of indirect taxes. Although
primary VAT was successfully, there was a certain shortcomings in the the
structure of VAT. The reasons for such shortcoming was that there was a mosaic
of taxes be in levied on goods and services, such as luxury tax, entertainment
tax, etc. Which were not subsumed VAT Thereby marginalising the benefits of
comprehensive tax credit mechanism.Padha do this, many other taxes were
levied by both the central government and state government on
production, manufacturing and this distribute trade, where no set off was
available in the form of input tax credit. This tax is added to the cost of goods
and services and lead to tax on tax i.e., cascading of taxes and the
erstwhile indirect tax regime was in effective to remove the cascading effect of
taxes.
These taxes were being levied and collected exclusively under their
respective countries in Union and State list as demarcated article 246.
Goods and service tax resume of indirect taxes brought a single text
which was levied on supply of goods or services or both with concurrent
jurisdiction of centre and States. These lead to bringing about amendments in
the constitution so that they may simultaneously levy and collect goods and
service tax.
India has been amended by the constitution (101st amendment) at 2016
for this purpose.
To bring out the GST laws governing goods and services article
246A has been inserted to enable levy of tax on goods and services
simultaneously both by centre and state/ union territories.

30
CONSTITUTION AMENDMENT ACT 2016
 Article 246A
Article 246A was inserted by constitution (101st) amendment At,
2016, especially for the goods and service tax. article 246A provides
that
(1) Notwithstanding anything contained in article 246 and article
254 Parliament and subject to clause (2), the Legislature
of every state, have power to make laws with respect to goods
and service tax imposed by the union or by such state.
(2) Parliament has exclusive power to make the laws with respect to
goods and service tax where the supply of goods, or of Services,
or both takes place in the course of interstate trade or
commerce.27

Explanation : provisions of article 246A, shall, In respect of goods and

service tax referred to in article 279A(5) will be effective from the date
and recommended by the goods and service tax Council.

Article 246 deals with the subject matter of laws made by Parliament
and by the Legislature of the state and article 254 with the inconsistency
between laws made by the parliament and law was made by the
Legislature of States.

AMENDMENT OF ARTICLE 248

 Article 248 contains the power of legislation. article 248(1) reads as
follows:
 Article 248(1) : subject to article 246A, Parliament has exclusive
power to make any law with respect to any matter not enumerated in the
concurrent list state list.
 Article 248(2) : search power cell include the power of making any law
imposing a tax not mention in either of those lists.28

27
Dr J.N.Pandey, constitutional law of india 711-712 (56th ed. 2019).
28
The institution of the company secretaries of India, Executive programme tax law, module-1
paper-4

31
AMENDMENT TO ARTICLE 249
 Article 249 deals with the power of Parliament to legislate with respect
to a matter in the state list in the national interest. after amendment
article 249(1) read as follow-
 Article 249(1) : notwithstanding anything in the the foregoing
provisions of this chapter, if the Council of state has declared
by resolution supported by not less than two-thirds of the members
present and voting that it is necessary or expedient in the national
interest that Parliament should make the laws with respect to goods and
service tax provided under article 246A for any matter enumerated in
the state list specified in the resolution, it Shall by lawful for Parliament
to make laws for the whole or any part of the territory of India with
respect to that matter while the resolution remain in force. 29

AMENDMENT TO ARTICLE 250

 Article 250 deals with the power of Parliament to legislate with respect
to any matter in the state list if a proclamation of emergency is in
operation. after amendment article 250(1) reads as follows
 Article 250(1) notwithstanding anything in this chapter, Parliament
shell, while the proclamation of emergency is in operation, have power
to make laws for the the whole or any part of the territory of India with
respect to goods and service tax provided under article 246A for any of
the matters enumerated in the state list30

AMENDMENT TO ARTICLE 268

 Article 268 deals with duty levied by the union but collected and
appropriated by the state. amendment proposes deletion of some words.
after amendment article 268 reads as follows-
 Article 268(1) search stamp duties are as are mentioned in the union
list shall be levied by the government of India but shall be collected-

29
Dr J.N.Pandey, constitutional law of india 719 (56th ed. 2019).
30
IBID

32
 In the case where such duties are leviable within any union
territory, by the Government of India, and
In another case, by the states within which such duties are
respectively leviable.
 Article 268(2) the proceeds in any financial year of any such duties
leviable within any state shall not form part of the consolidated fund of
India, but shall be assigned to that state.

OMISSION OF ARTICLE 268A

 Article 268A dealt with service tax levied by union and collected and
appropriated by the Union and State. this has been omitted
being irrelevant.

AMENDMENT TO ARTICLE 269

 Article 269 deals with taxes levied and collected by the union but
assigned to the states.
The amendment article 269(1) reads as follows-
 Article 269(1)- taxes on the sales or purchase of goods and Taxes on
the consignment of goods expect as provided in article 269A shall be
levied and collected by the government of India but shall be assigned
and that be Deemed to have been assigned to the states on or after the
1st day of April, 1996 in the manner provided in clause(2)
 Article 269A
the newly inserted article 269A provides Vallari and collection of goods
and service tax in course of interstate trade or commerce.
 Article 269A(1) provides that goods and service tax on supplies in the
course of interstate trade or commerce shall be levied and collected by
the government of India and search text shall be apportioned between
the Union and the states in the manner as may be provided by Parliament
by law on the recommendations of the Goods and service tax Council.
The explanation to this clause provides that supply of goods,
AWS services, or both in the course of import into the territory of India

33
 shall be deemed to be supply of goods, or of services, or both in the
course of inter-state trade or commerce.
 Article 269A(2) provides that the amount of apportioned under
clause(1) shall not form part of of the consolidated fund of India
 Article 269A(3) provides that where an amount collected as tax levied
under clause(1) has been used for payment of the tax levied by a state
under article 246A, such amount shall not form part of the consolidated
fund of India.
 Article 269A(4) is that where an amount collected as tax levied by a
state under article 246A has been used for payment of the tax levied
under clause(1), such amount shall not form part of the consolidated
fund of the state
 Article 269A(5) provides that the Parliament may, by law, formulate
the principal for determining the place of supply, and when a supply of
goods, or of services, or both Takes places in the course of interstate
trade or commerce.

AMENDMENT TO ARTICLE 270

 Article 270 deals with distribution of revenues between the Union and
State. after amendment Article 270(1) reads as follows-
 Article 270(1) - all taxes and duty is referred to in the union list, accept
the duties and Taxes referred to in article 268, 269 and
269A, respectively, surcharge on taxes and duties referred to in article
271 and any says levied for specific purpose under any law made by
Parliament shall be levied and collected by the government of India and
shall be distributed between the Union and the state in the manner
provided in clause(2),
the newly inserted clauses are-
 Article 270(1A) - the tax is collected by the union under clause(1) of
article 246A shall also be distributed between the union and the states in
the manner provided in clause(2)
 Article 270(1B) - the tax levied and collected by the union under
clause(2) article 246A and article 26A, which Has been used for

34
 payment of the tax levied by the union under clause(1) article 269A,
shall also be distributed between the Union and the states in the manner
provided in clause(2).

AMENDMENT TO ARTICLE 271

 Article 271 deals with Surcharge on certain duties and Taxes for the
purpose of the union, after amendment, article 271 reads as follows -
 Article 271- notwithstanding anything in article 269 and 270,
Parliament may at any time increase any of the duties are taxes referred
to in those articles, except the goods and Service Tax under article
246A, buy a surcharge for the purpose of the Union and the
whole proceeds of any such surcharge shall form part of the
consolidated fund of India.

2.3 WHAT IS GST?

All the taxes mentioned earlier are proposed to be subsumed in a single
tax called the Goods and Services Tax (GST) which will be levied on supply of
goods or services or both at each stage of supply chain starting from
manufacture or import and till the last retail level. So basically any tax that is
presently being levied by the Central or State Government on the supply of
goods or services is going to be converged into GST.
GST is proposed to be a dual levy where the Central Government will
levy and collect Central GST (CGST) and the State will levy and collect State
GST (SGST) on intra-state supply of goods or services. The Centre will also
levy and collect Integrated GST (IGST) on inter-state supply of goods or
services. Thus GST is a unifier that is going to integrate various taxes being
levied by the Centre and the State at present and provide a platform for forging
an economic union of the country.
This tax reform will lead to creation of a single national market, common
tax base and common tax laws for the Centre and States. Another very
significant feature of GST will be that input tax credit will be available at every
stage of supply for the tax paid at the earlier stage of supply. This feature would
mitigate cascading or double taxation in a major way. This tax reform will be

35
supported by extensive use of Information Technology [through Goods and
Services Tax Network (GSTN)], which will lead to greater transparency in tax
burden, accountability of the tax administrations of the Centre and the States
and also improve compliance levels at reduced cost of compliance for taxpayers.
Studies indicate that introduction of GST would instantly spur economic growth
and can potentially lead to additional GDP growth in the range of 1% to 2%.

2.4 TYPES OF GST

 STATE GOODS AND SERVICE TAX (SGST)
The state government charges as GST on interest state goods and
services transactions. subsequently, the revenue is collected by the state
where the transactions in question were carried out.31
 CENTRAL GOODS AND SERVICE TAX (CGST)
Central Government charges cgst on the interested transaction on goods
and service tax the concern body is also responsible for collecting the
revenue generated through this tax.32
 INTEGRATED GOODS AND SERVICE TAX (IGST)
This GST tax is charged on interstate transaction of goods
and services and applied on imports and Exports. Note that both centre
and state share the revenue collected through i GST as per the GST bill.
the state goods and service tax portion of this tax is collected by the
state where goods and service is question were consumed.
 UNION TERRITORY GOODS AND SERVICE TAX (UGST)
UGST is GST tax is levied by union territories and charges on all
transaction carried out in any UT in India. it is similar in terms of
payment rules on the GST platform and distribution. 33

31
https://groww.in/p/tax/sgst
32
https://vakilsearch.com/central-goods-and-service-tax
33
Prakash Matre, CGST, SGST, IGST and UGST Meaning, Apportionment and Method of
Payment, Master India (Sept. 27, 2022), https://www.mastersindia.co/blog/what-is-cgst-sgst-
igst-and-ugst/.

36
2.5 Salient features of GST
The salient features of GST are as under:
 (i) GST is applicable on ‘supply’ of goods or services as against the
present concept on the manufacture of goods or on sale of goods or on
provision of services.
 (ii) GST is based on the principle of destination-based consumption
taxation as against the present principle of origin-based taxation.
 (iii) It is a dual GST with the Centre and the States simultaneously
levying tax on a common base. GST to be levied by the Centre would
be called Central GST(CGST) and that to be levied by the States would
be called State GST (SGST).
 (iv) An Integrated GST (IGST) would be levied an inter-state supply
(including stock transfers) of goods or services. This shall be levied and
collected by the Government of India and such tax shall be apportioned
between the Union and the States in the manner as may be provided by
Parliament by Law on the recommendation of the GST Council.
 (v) Import of goods or services would be treated as inter-state supplies
and would be subject to IGST in addition to the applicable customs
duties.
 (vi) CGST, SGST & IGST would be levied at rates to be mutually agreed
upon by the Centre and the States. The rates would be notified on the
recommendation of the GST Council. In a recent meeting, the GST
Council has decided that GST would be levied at four rates viz. 5%,
12%, 16% and 28%. The schedule or list of items that would fall under
each of these slabs has been worked out. In addition to these rates, a cess
would be imposed on “demerit” goods to raise resources for providing
compensation to States as States may lose revenue owing to the
implementation of GST.
 (vii) GST would replace the following taxes currently levied and
collected by the Centre:-
o a) Central Excise Duty
o b) Duties of Excise (Medicinal and Toilet Preparations)
o c) Additional Duties of Excise (Goods of Special Importance)

37
 o d) Additional Duties of Excise (Textiles and Textile Products)
o e) Additional Duties of Customs (commonly known as CVD)
o f) Special Additional Duty of Customs(SAD)
o g) Service Tax
o h) Cesses and surcharge in so far as they relate to supply of goods
and services.
 (viii) State taxes that would be subsumed within the GST are:-
o a) State VAT
o b) Central Sates Tax
o c) Purchase Tax
o d) Luxury Tax
o e) Entry Tax (All forms)
o f) Entertainment Tax and Amusement Tax (except those levied
by the local bodies)
o g) Taxes on advertisements
o h) Taxes on lotteries, betting and gambling
o i) State cesses and surcharges in so far as they relate to supply of
goods and services.
 (ix) GST would apply on all goods and services except Alcohol for
human consumption.
 (x) GST on five specified petroleum products (Crude, Petrol, Diesel,
ATF & Natural Gas) would by applicable from a date to be
recommended by the GSTC.
 (xi) Tobacco and tobacco products would be subject to GST. In addition,
the Centre would have the power to levy Central Excise duty on these
products.
 (xii) A common threshold exemption would apply to both CGST and
SGST. Tax payers with an annual turnover not exceeding Rs.20 lakh
(Rs.10 Lakh for special category States) would be exempt from GST.
For small taxpayers with an aggregate turnover in a financial year upto
50 lakhs, a composition scheme is available. Under the scheme a
taxpayer shall pay tax as a percentage of his turnover in a State during
the year without benefit of Input Tax Credit. This scheme will be
optional.
38
  (xiii) The list of exempted goods and services would be kept to a
minimum and it would be harmonized for the Centre and the States as
well as across States as far as possible.
 (xiv) Exports would be zero-rated supplies. Thus, goods or services that
are exported would not suffer input taxes or taxes on finished products.
 (xv) Credit of CGST paid on inputs may be used only for paying CGST
on the output and the credit of SGST paid on inputs may be used only
for paying SGST. Input Tax Credit (ITC) of CGST cannot be used for
payment of SGST and vice versa. In other words, the two streams of
Input Tax Credit (ITC) cannot be cross-utilised, except in specified
circumstances of inter-state supplies for payment of IGST. The credit
would be permitted to be utilised in the following manner:-
o a) ITC of CGST allowed for payment of CGST & IGST in that
order;
o b) ITC of SGST allowed for payment of SGST & IGST in that
order;
o c) ITC of IGST allowed for payment of IGST, CGST & SGST
in that order.
 (xvi) Accounts would be settled periodically between the Centre and the
States to ensure that the credit of SGST used for payment of IGST is
transferred by the Exporting State to the Centre. Similarly, IGST used
for payment of SGST would be transferred by the Centre to the
Importing State. Further, the SGST portion of IGST collected on B2C
supplies would also be transferred by the Centre to the destination State.
The transfer of funds would be carried out on the basis of information
contained in the returns filed by the taxpayers.
 (xvii) The laws, regulations and procedures for levy and collection of
CGST and SGST would be harmonized to the extent possible.34

34
Brief History Of GST, Goods and Services Tax Council gstcouncil.gov.in/brief-history-gst.

39
2.6 Advantages of GST
2.6.1 Advantages for the government:
 Will help to create a unified common national market for India, giving
a boost to foreign investment and “Make in India” campaign;
 Will mitigate cascading of taxes as Input Tax Credit will be available
across goods and services at every stage of supply;
 Harmonization of laws, procedures and rates of tax between Centre and
States and across States;
 Improved environment for compliance as all returns are to be filed
online, input credits to be verified online, encouraging more paper trail
of transactions at each level of supply chain;
 Similar uniform SGST and IGST rates will reduce the incentive for
evasion by eliminating rate arbitrage between neighbouring States and
that between intra and inter-state sales;
 Common procedures for registration of taxpayers, refund of taxes,
uniform formats of tax return, common tax base, common system of
classification of goods and services will lend greater certainty to taxation
system;
 Greater use of IT will reduce human interface between the taxpayer and
the tax administration, which will go a long way in reducing corruption;
 It will boost export and manufacturing activity, generate more
employment and thus increase GDP with gainful employment leading to
substantive economic growth;
 Ultimately it will help in poverty eradication by generating more
employment and more financial resources 35
2.6.2 Advantages to Trade and Industry:
 Increased ease of doing business;
 Reduction in multiplicity of taxes that are at present governing our
indirect tax system leading to simplification and uniformity;
 Elimination of double taxation on certain sectors like works contract,
software, hospitality sector;

35
ADVANTAGES OF THE GST, GOODS AND SERVICE TAX COUNCIL
https://gstcouncil.gov.in/about-us.

40
  Will mitigate cascading of taxes as Input Tax Credit will be available
across goods and services at every stage of supply;
 Reduction in compliance costs - No multiple record keeping for a variety
of taxes - so lesser investment of resources and manpower in
maintaining records;
 More efficient neutralization of taxes especially for exports thereby
making our products more competitive in the international market and
give boost to Indian Exports;
 Simplified and automated procedures for various processes such as
registration, returns, refunds, tax payments, etc;
 Average tax burden on supply of goods or services is expected to come
down which would lead to more consumption, which in turn means more
production thereby helping in the growth of the industries manufacturing
in India.36
2.6.3 Advantages to Consumers:
 Final price of goods is expected to be transparent due to seamless flow
of input tax credit between the manufacturer, retailer and service
supplier;
 Reduction in prices of commodities and goods in long run due to
reduction in cascading impact of taxation;
 Relatively large segment of small retailers will be either exempted from
tax or will suffer very low tax rates under a compounding scheme -
purchases from such entities will cost less for the consumers;
 Poverty eradication by generating more employment and more financial
resources.37
2.6.4 Advantages to States:
 Expansion of the tax base as they will be able to tax the entire supply
chain from manufacturing to retail;

36
ADVANTAGES OF THE GST, GOODS AND SERVICE TAX COUNCIL
https://gstcouncil.gov.in/about-us.
37
Major Benefits of GST to Consumer, FINCASH (Sept. 21, 2022),
https://www.fincash.com/l/gst/benefits-of-gst.

41
  Power to tax services, which was hitherto with the Central Government
only, will boost revenue and give States access to the fastest growing
sector of the economy;
 GST being destination based consumption tax will favour consuming
States;
 Improve the overall investment climate in the country which will
naturally benefit the development in the States;
 Largely uniform SGST and IGST rates will reduce the incentive for
evasion by eliminating rate arbitrage between neighbouring States and
that between intra and inter-state sales;
 Improved Compliance levels of the tax payers will contribute greatly in
improving the revenue collection of the States.38

2.7 APPLICATION AND FUNCTIONING OF GST:

In keeping with the federal structure of India, it is proposed that GST be
levied concurrently by the central (CGST) and the states (SGST). Its is expected
that the base and other essential design features would be common between
CGST and SGST, across SGSTs for the individual states. Bothe CGST and
SGST would be levied on the basis of the destination principle.
Thus, exports would be zero-rated, and imports would attract the tax in
the same manner as domestic goods and services. Inter-state supplies within
India would attract an integrated GST (aggregate of CGST and the SGST of the
destination state).
GST is consumption based tax. It is based on the “Destination principle”.
GST is applied on goods and services at the place where final/actual
consumption happens.
GST is collected on value-added goods and services 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 payable on the supply of goods and services.
The manufacturer or wholesaler or retailer will pay the applicable GST rate but
will claim back through tax credit mechanism.

38
ADVANTAGES OF THE GST, GOODS AND SERVICE TAX COUNCIL
https://gstcouncil.gov.in/about-us.

42
 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 att 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 the
GST is that with 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 lot of chances that double taxation takes places at every step
of supply chain. This may set to change with the implementation of the GST
So, how is GST levied? GST will be levied on the place of consumption
of Goods and Services. How does GST operated?
 Case-1 : Sale in one state, resale in the same state. In the example
illustrated below, goods are moving from Mumbai to Pune. Since it is a
sale within a state, CGST and SGST will be levied. The collection goes
to the Central Government and the State Government as pointed out in
the diagram. Then the goods are resold from Pune to Nagpur. This is
again a sale within a state, so CGST and SGST will be levied. Sale price
is increased so tax liability will also increase. In the case of resale, the
credit of input CGST and input SGST (Rs. 8) is claimed as shown; and
the remaining taxes go to the respective governments.

 Case 2: Sale in one state, resale in another state. In this case, goods are
moving from Indore to Bhopal. Since it is a sale within a state, CGST
and SGST will be levied. The collection goes to the Central
Government and the State Government as pointed out in the diagram.
Later the goods are resold from Bhopal to Lucknow (outside the state).
Therefore, IGST will be levied. Whole IGST goes to the central
government. Against IGST, both the input taxes are taken as credit. But
we see that SGST never went to the central government, still the credit
is claimed. This is the crux of GST. Since this amounts to a loss to the

43
 Central Government, the state government compensates the central
government by transferring the credit to the central government.

 Case 3: Sale outside the state, resale in that state. In this case, goods are
moving from Delhi to Jaipur. Since it is an interstate sale, IGST will be
levied. The collection goes to the Central Govemment. Later the goods
are resold from Jaipur to Jodhpur (within the state). Therefore, CGST
and SGST will be levied.
Against CGST and SGST, 50% of the IGST, that is Rs. 8 is taken
as a credit. But we see that IGST never went to the state government,
still the credit is claimed against SGST. Since this amounts to a loss to
the State Government, the Central government compensates the State
government by transferring the credit to the State govemment.

It is proposed that the CGST will subsume central excise duty (Cenvat), service
tax, and 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.

2.8 RATE OF GST:

There would be two-rate structure-a lower rate for necessary items and items of
basic importance and a standard rate for goods in general. There will also be a
special rate for precious metals and a list of exempted items. For goods in
general, government is considering pegging the rate of GST from 20% to 23%
that is well above the global average rate of 16.4% for similar taxes, however
below the revenue neutral rate of 27%.

The combined GST rate is currently being discussed by the Centre and the EC.
The rate is expected to be in the range of 14-16 %. Once the total GST rate is
determined, the states and the Centre have to agree on the CGST and SGST

44
rates. Today, services are taxed at 10% and the combined incidence of indirect
taxes on most goods is around 20%.39

2.9 MODEL OF GST:

 The GST shall have two components: one levied by the Centre (referred
to as Central GST or CGST), and the other levied by the States (referred
to as State GST or SGST). Rates for Central GST and State GST would
be approved appropriately, reflecting revenue considerations and
acceptability.
 The CGST and the SGST would be applicable to all transactions of
goods and services made for a consideration except the exempted goods
and services.
 Cross utilization of ITC both in case of Inputs and capital goods between
the CGST and the SGST would not be permitted except in the case of
inter-State supply of goods and services (i.e. IGST).
 The Centre and the States would have concurrent jurisdiction for the
entire value chain and for all taxpayers on the basis of thresholds
 For goods and services prescribed for the States and the Centre. 40

The prices of commodities are expected to come down in the long run as dealers
pass on the benefits of reduced tax incidence to consumers by slashing the prices
of goods.

39
Alex Becker, Implementation Of Gst In India1, (Jan. 8, 2020),
www.slideshare.net/sowj8o8/implementation-of-gst-in-india.
40
CA Mohit Singhal, Indian Model of Goods & Service Tax, TaxGuru (July 30, 2015),
https://taxguru.in/goods-and-service-tax/indian-model-goods-service-tax-gst.html.

45
 CHAPTER-3

INDIAN ECONOMY : IMPACT OF GST

3.1 IMPACT OF GOODS AND SERVICE TAX ON INDIAN

ECONOMY
Goods and Services Tax (GST) is extremely useful for the economy of
India for a long term basis. The reason for the benefit of the Good and Services
Tax (GST) is due to the uniformity of taxes. It merges all the indirect taxes
which was prevailing in India during the Value Added Tax (VAT).
Goods and Services Tax (GST) helps the business sector to grow and to
become strong by bringing transparency. When the business sector will flourish
it will help in creating further employment which will ultimately lead to
reducing the burden of the tax.
Goods and Services Tax (GST) have a consistent scheme of the tax for
the goods and services across India, i.e. 0%, 5%, 12%, 18%, and 28%. The tax
rate of some goods or products is different from the rest such a gold, precious
stones and semi-precious stones. Special rates of taxes are levied in such
products. Things such as luxury cars, tobacco, carbonated beverages, etc, are
subjected to 22% of the additional cess.
Goods and Services Tax (GST) in comparison to the previous indirect
laws relating to the taxes provided a broader base for the taxes. The Central
Excise Law exempts the small scale units i.e. SSI having a turnover up to Rs.
1.5 crore from levy the duty. Exemption under the service tax law was given
when the previous financial year has accumulated turnover up to Rs. 10 lakh.
The lower limit for the purpose of levying the Value Added Tax (VAT) varies
from one state to another state i.e. between Rs. 5 lakh to Rs. 20 lakh.
But in the Goods and Services Tax (GST) scheme, the lower limit for
the purpose of levying the Goods and Services Tax (GST) was set or settled at
Rs. 20 lakh. But in some circumstances i.e. for special category States, the lower
limit is fixed at Rs. 10 lakh. Goods and Services Tax (GST) had included within
it all the small suppliers. It was observed that many suppliers had registered

46
themselves intentionally and freely so that they may avail all the benefits
relating to the input tax credit.
Micro, Small and Medium Enterprises (MSME’s) has suffered some
sort of complications with the new tax regime i.e. Goods and Services Tax
(GST). All the Micro, Small, and Medium Enterprises (MSME’s) are suffering
problems to conduct their business as there is a requirement of registration in
every state from where the MSMEs are formulating a supply. Goods and
Services Tax (GST) is helping the Micro, Small and Medium Enterprises
(MSME’s) in developing the ability for the purpose of maintaining the account
book. Maintenance of the account book will ultimately help the enterpriser to
get a loan from any bank or financial institution. This will help them to increase
their business. They will now borrow the money from the formal sector and will
no longer rely on the informal sector for obtaining the loan. The country like
India really demands a strong Micro, Small and Medium Enterprises (MSME’s)
which helps in creating more employment.41
Goods and Services Tax (GST) helps in controlling the tax
evasion. Permanent Account Number (PAN) which is issued by the income tax
department is linked with the Goods and Services Tax (GST) number
i.e. GSTN. This helped in establishing a relationship between indirect taxes and
direct taxes. This ultimately aid or support in reducing the evasion of tax to an
enormous extent. During the regime prior to the Goods and Services Tax (GST),
there were many cases of tax evasion. When the taxpayers disclose their
turnover under the indirect tax law and the direct tax law both differed from
each other, which gives a path to the evasion of tax. 42
After the implementation of the Goods and Services Tax (GST), there is
an expectation of an increase in the tax Gross Domestic Product (GDP) ratio.
The expectation is that the basis points (bps) will increase up to thirty in the
financial year of 2018-2019 each and 2019-2020. This was stated by the table
of medium-term expenditure framework (MTEF) in the lower house i.e. Lok
Sabha. The databases of the indirect tax and the direct tax are linked together, it

41
https://msme.gov.in/faqs/q1-what-definition-msme
42
https://www.exidelife.in/funds/knowledge-centre/blogs-and-articles/what-is-tax-evasion-
tax-avoidance-and-tax-
planning#:~:text=Tax%20Evasion%3A%20Tax%20Evasion%20is,order%20to%20avoid%20t
ax%20burden.

47
helps the data analytical tools to remove all the inconsistency and also helps the
authorities of revenue to take a mandatory action.
Summing up the whole, an increase in the ratio of Gross Domestic
Product (GDP) will overall helps in lowering the rate of tax in India. Goods and
Services Tax (GST) will help the Indian economy on a long term basis.

3.2 GOODS AND SERVICES TAX IMPACT ON VARIOUS

SECTORS OF INDIAN ECONOMY

3.2.1 FAST MOVING CONSUMER GOODS SECTOR:

The Indian FMCG sector is the fastest growing sector in the economy.
FMCG sector is the major contributor in both direct and indirect taxes
in the economy. Implementation of Goods and services tax will majorly
influence Indian economy. The current rate of taxation in FMCG sector
is around 22 to 25% and after GST rate is expected to be much lower
which will result in reduction of prices of consumer goods. 43

3.2.2 TRADERS:
The impact of tax on the wholesaler or retailer would be limited to the
value addition. The tax paid at earlier stages (except SGST of other
states) would be available as set off for payment of GST on 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 GST regime can concentrate on growth into
large entities instead of remaining small and fragmented. 44

43
https://www.bajajfinserv.in/insights/how-gst-affects-the-fmcg-
sector#:~:text=Due%20to%20the%20subsumption%20of,generally%20'fast%2Dselling%20go
ods.
44
https://unacademy.com/content/upsc/study-material/government-schemes/impact-of-gst-on-
traders/#:~:text=If%20the%20business%20has%20a,and%20as%20restaurateur%205%25%20
tax.

48
3.2.3 MANUFACTURERS:
The manufacturing sector in India is not only plagued with
concerns ranging from decline in exports and infrastructure spending but
also with the burden of complying with a complex indirect taxation
system. Multiple indirect tax legislations have led to significant
compliance and administrative costs, classification and valuation
disputes and generally impaired the ease of doing business in this sector.
The implementation of GST will significantly improve the
competitiveness and performance of India's manufacturing sector.
For most industrial products, GST rates have been slated at 18%.
Today a manufacturer pays about 28-30% as taxes, so this means an
average saving of around10%.45

I. GST WILL AFFECT THE MANUFACTURING SECTOR IN

THE FOLLOWING WAYS:
a. STATE INCENTIVES & AREA BASED INCENTIVES:
Presently, companies have set up their manufacturing
units with significant investment outlays based on incentives
offered by states under their respective investment promotion
policies. However, under the GST regime, such flexibility given
to the states is likely to be curtailed to achieve the intended effect
of uniformity.
Further, GST will only be credited to the state where the
supplies are consumed, as opposed to the present situation where
the producer state is credited with central sales tax on inter- state
sales. This would lead to a loss of revenue for the producer states
and therefore such states may not be in a financial position to
continue offering such incentives.
In addition to above, manufacturing units enjoy
exemption of taxes based on their location in specified backward
areas, capital investment etc. There is no clarity under the GST

45
Prof. Ranjana Upashi, Study on Effects of Goods and Service Tax on Different Sectors in
India, 8 EAPJFRM (2017).

49
 on the treatment of such area based exemptions resulting in loss
of unutilized portion of such incentives.

b. INCREASED WORKING CAPITAL

Impact on working capital may be significant for the
manufacturing sector. Currently, stock transfers are not subject
to tax. However, under the GST regime, stock transfers are
deemed to be supplies and are subject to GST. Though GST paid
at this stage would be available as credit, realization of this GST
would only occur when the final supply is concluded. This would
likely result in cash flow blockages and therefore companies
would have to rethink their supply chain management strategies
to minimize this impact on their cashflows.

c. FREE SUPPLIES & DISCOUNTS

Under the present indirect tax regime, free supply of
goods is not subject to VAT. GST law stipulates that specific
transactions without consideration would also be treated as
supplies. Accordingly, free samples may be subject to GST,
leading to increase in overall costs.
Since GST law stipulates that post supply discounts are
to be excluded from the transaction value, provided such
discounts are known at or before the time of supply of goods and
are linked to the invoices for such supply. Thus, companies may
also need to analyse existing post supply discounts/incentive
schemes where the quantum of discount is not known at the
supply stage.

d. SUPPLY CHAIN RESTRUCTURING

Currently, the supply and distribution models are
structured to optimize indirect tax impact arising at various
levels of value addition. Transition to GST will result in such
decisions being taken to optimize business efficiency (as
opposed to indirect tax efficiency). Currently, firms spend a high
50
 5-8% as product distribution and warehousing cost. GST would
lead to lower transportation and distribution costs.
With the advent of GST, it is hoped that such
warehousing and logistics decision would be based on economic
efficiency such as costs and locational advantages vis-a-vis key
customers.
Also with overall reduction of cascading effect of taxes,
especially on the post-manufacture stage of the supply chain,
manufacturing sector stands to benefit significantly and have a
positive effect on the cost of manufactured products in the hands
of consumers. However, concerns remain on specific issues such
as the additional 1% origin tax, increased cash flow issues on
account of GST payable on stock transfers and increased costs
owing to exclusion of petroleum fuels from the ambit of GST.
Yet the lower taxes, simplified tax structure, seamless tax
credit facility and technology driven easy tax compliance system
offered by GST provide an ideal platform to increase
manufacturing‘s share of GDP from the current 17.4% to 25%
by 2025.
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 stages could be refunded. The difference between
large manufactures and small would reduce. The indignity of
harassments and bribe for honest manufacturers would
substantially reduce over a period of time.

3.2.4 E-COMMERCE:
Currently, the federal indirect tax structure with different tax regimes in
various states has led to confusion and uncertainty on the tax treatment
of online marketplaces and aggregators. GST will help remove the
ambiguity that currently exists in this sector and insulate such operators
from ad hoc laws and arbitrary levies imposed by state governments.
51
 However, it may result in higher compliance challenges for the e-
commerce sector46

I. COMPLIANCE COSTS
Under the new regime, every electronic commerce operator
would need to collect tax at source and deposit applicable GST when
payments are to be made to the supplier.
In the current regime, e-commerce players are treated only as
service providers and are therefore required to comply with only one
central service tax legislation. Under GST, with the burden of TCS @
1%, such electronic commerce operators will also be required to
undertake additional compliances in states where the supplier is located.
However, it has been kept at 1%, which is the lowest. Thus, E-
commerce consumers are likely to remain unaffected once GST sets
even as players like Flipkart and Amazon prepare to deduct 1% of the
payment it makes to sellers under the new tax regime. This will not
significantly increase the onus and compliance burden on electronic
commerce operators.

II. STOCK TRANSFERS TO BE TAXED

Under the GST Law, specified transactions without
consideration would also be treated as supplies. Intra-state and inter-
state stock transfers, between branches or warehouses of a single
ecommerce entity, would be deemed to be supplies, subject to GST.
Though the tax paid would be available as credit to the entity, this may
result in cash flow blockages.

III. CREDIT AVAILABLE ONLY WHEN TAX IS PAID

Credit can only be claimed on taxes which have been paid to the
credit of the government.

46
Arpit Kulshrestha, GST Impact on E-commerce Sector in India, SagInfotech (Aug. 16,
2022), https://blog.saginfotech.com/gst-impact-on-e-commerce-sector-india.

52
 However, removal of cascading effect and consolidation of taxes
could bring in significant benefits such as unrestrictive cross utilization
of credits of service tax paid on input services like warehousing,
logistics, commission of marketplace. The GST will therefore facilitate
seamless credit across supply chains, with tax set offs available across
the production value chain, both for goods and services, therefore
bringing down the overall cost of supplies. This cost benefit would be
ultimately passed on to the customers or help in increasing the books of
the companies.

3.2.5 REAL ESTATE

Indian real estate sector is estimated to account for about 5% of
India's gross domestic product and is considered the second-largest
employer in the country.
Real estate sector is already subject to multiple taxation, the
implementation of GST is theoretically expected to help the consumers
and builders.
The GST regime will be a game changer for real estate sector
and the 12% GST on construction projects meant for sale to buyers will
boost the sector.
Ambit of GST under real estate is likely to result in more
transparency, which will significantly reduce tax evasion through more
efficient transaction-tracking methods and improved enforcement and
compliance. Since GST may be levied on a single value, the current issue
of levying tax on tax (VAT on central excise duty) is likely to be
removed.
Transfer of (completed) properties may continue to be outside
the purview of GST and be liable only to applicable stamp duties.
However, on procurement of materials for civil construction, GST will
be applicable.
At present, developers pay various non- creditable taxes on
supplies like excise duty, customs duty, CST, entry tax etc. on the
procurement side, and the buyers pay service tax and VAT on purchase
of residential units when booked prior to their completion. GST will
53
 replace these multiple taxes with a single tax and all the developers will
get the input credit on the material they are using in construction, thus
ensuring a smooth flow of credits through the chain which in turn will
reduce costs for all players.
Also, the present tax laws provides an abatement of 75% on
service tax to be paid for property valuing less than one crore, whereas
properties valuing more than one crore allows only 70% of abatement
resulting in a pay out of service tax at the rate of 4.50%. In addition to
above, applicability of VAT & stamp duty is also there. However,
abatements will be removed and stamp duty will continue under GST,
increasing the overall tax liability.
Affordable housing will continue to be exempted from service
tax under GST.
The heavily taxed real estate sector welcomes a single stable
12% GST rate, inclusive of the value of land and with full input tax
credits. Thus, the actual tax incidence under GST will be lower than the
existing multiple indirect taxes on the sector. Also, the GST rate for
work contracts will also be offset by input credits thereby providing a
seamless and simplified tax policy.
The implementation of GST will broadly benefit real estate
sector by ensuring a uniform tax structure and improve tax compliance
by developers. It looks at bringing in greater transparency for the sector
and may minimize unscrupulous transactions. GST will have a
cascading effect for the home buyers, as developers with more margins
in their hands will be able to restructure the cost of the products in favour
of consumers thereby reducing the property prices. 47

3.2.6 BANKING
Banks have always been a huge pillar of the Indian economy and
taxpayers are literally banking on them for financial needs.

47
Prof. Ranjana Upashi, Study on Effects of Goods and Service Tax on Different Sectors in
India, 8 EAPJFRM (2017).

54
 In India, most of the banking and financial services are exposed
to service tax, at the rate of 15%. Under the new tax regime, GST rate
for financial services transactions, such as banking, mutual funds,
insurance and stock broking has been increased to 18% from 15%
earlier. Thus, financial services transactions to become marginally
costlier.
GST applies to all services wherein there is a supply of services
for consideration. So, in banking transactions such as credit card
payments, fund transfer, ATM transactions, processing fees on loans
etc., where the banks are levying charges, increased tax rates would
apply. This would have a slight inflationary impact.
Also, Interest on loans, trading in securities, foreign currency
and retail services will also fall within the ambit of GST. Thus, it appears
that imposing GST on banking and financial services will make the
financial services costly.
However, interest on fixed deposits, bank account deposits etc.
which do not attract a charge will remain so even under the new regime.
Since GST is a destination-based tax, it might be a challenge to
determine the destination of certain services (at present, services are
taxed at the place of rendering the service). This may lead to a difficulty
in determining state GST, central GST or inter-state GST on B2B and
B2C transactions.48

3.2.7 AUTOMOBILES:
Buyers of passenger vehicles in the premium segment will be
key beneficiaries of GST, which will reduce the effective duty on such
models. Prices of small cars will more or less remain the same as their
will only be a minor hike in the duty under the GST.
Cars will be taxed at the top rate of 28% plus a cess in the range
of 1% to 15%. Small cars will be charged 1% cess on top of 28% tax,

48
Kritika pandey, Impact of GST on Banking Sector, LegalServiceIndia
https://www.legalserviceindia.com/legal/article-7861-impact-of-gst-on-banking-
sector.html#:~:text=Banking%20facilities%20like%20locker%20facilities,than%20the%20ear
ly%20tax%20rates..

55
 mid- sized cars will attract 3% cess and luxury cars 15% cess on top of
the peak rate.
A current levy of Indirect taxes on cars varies from 30% to 45%.
The rates of GST are as per the expectations of the industry and almost
all segments of the industry have benefitted by way of a reduced overall
tax burden in varying degree.
Moreover, elimination of cascading effect and offset of input tax
credit at every stage of value chain will reduce the cost. By and large,
the impact of GST may be positive for car segment of automobile sector.
There will be several key beneficiaries of GST including some really
giant companies.
Industry experts opine that GST will lead to the dropping of on
road price of vehicles by 8%. Lower prices can be construed as indirect
stimulus to boost volumes. Key beneficiaries would be Maruti Suzuki,
M&M and Eicher Motors.
However, demand for commercial vehicles may be hit in the
medium term. GST will subsume local taxes, reduce time at check-posts
and ease logistics hurdles. With fleet productivity increasing, operators
may not feel the need to expand mid-term.
Further, GST will also enable the auto dealers to get input tax
credit for the GST paid by them at the time of acquiring the vehicles
from the OEMs. Similar benefit will accrue to them on the spare
part/service businesses.
A reduced overall tax burden will pave the way for stimulating
demand and strengthening the automotive market in the country.49

3.2.8 AGRICULTURE:
The implementation of GST would boost the economic growth
by the means of wider tax base, compliance in tax payment and by
pushing balance of trade on favourable side.

49
GST Impact on Car Prices & Other Automobiles in India, ClearTax https://cleartax.in/s/gst-
impact-automobile-industry#:~:text=persons%2C%20hospital%20ambulances.-
,Impact%20of%20GST%20on%20the%20Automobile%20Industry,the%20end%20consumer
%20under%20GST..

56
 One of the most radical decisions taken at the GST council meet
was to fix the applicable GST rate at zero per cent for most of the
primary farm produce.
The central government currently taxes neither production/sale
of farm produce nor agricultural incomes. Under GST also, there will be
no VAT and the cesses too are supposed to be subsumed within the zero
per cent GST. Thus, there will be no impact of GST on the farming
community.
However, the rates on fruit and vegetable juices, jam, sauces,
purees, mixes, concentrates and a host of processed foods have been set
at 12 to18%.
Taking into consideration food consumed by the poor, food grain
and milk have been exempted from taxes. Cereals will be taxed at 5%.
Under the new GST law, dairy farming, poultry farming and stock
breeding are kept out of the definition of agriculture. Therefore, these
will be taxable under GST.
The main impact of GST in agriculture would bring is the
inflation with currently 4% VAT being increased to 8% on many food
items including cereals and grains as the exemption under VAT is
limited to unprocessed food. The most affected from the inflation would
be the consumers living below poverty line.
Also, the incidence of taxation on agro processing industry
would also help in reducing the cost of heavy machinery required for
producing agricultural commodities.
Implementation of GST is essential to improve the transparency,
reliability, timeline of supply chain mechanism. Since most of the
agricultural commodities are perishable in nature. An improved supply
chain mechanism due to GST would reduce the time taken for inter-state
transportation and would ensure reduction in wastage and cost for the
farmers/ retailers.
GST system seeks to replace multiple taxes and tariffs and has
set free the decisions on warehousing and distribution from tax
considerations. Under GST, the logistics and transportation will be more

57
 cost and time efficient, thereby curtailing the wastage of precious food
as well.
Moreover, with the ease of availing tax credit under GST regime,
it is expected to boost interstate trade leading to achieving the objectives
of National Agricultural Market. Both CGST and SGST will be levied
on import of goods and services into the country. Exports, however, will
be zero-rated, meaning exporters of goods and services need not pay
GST on their exports.
About its implications on agricultural sector, it could be
concluded that though the overall tax burden on consumers will be less
in new tax regime, but certainly it would have inflationary pressure on
the food articles especially processed one which may lead to restoring
the consumption towards fresh farm products.
The implementation of GST is going to benefit a lot, the farmers/
distributors in the long run as there will be a single unified national
agriculture market which will help them to sell their produce for the best
available prices.50

3.2.9 PHARMACEUTICALS:
The Indian pharmaceutical industry is the principal supplier of
generic drugs all over the world, with 80% of all AIDS drugs produced
in India. The UN has provided licenses to six Indian pharmaceutical labs
to make generic anti-AIDS medicine for all the developing nations.
Indian pharmaceutical companies manufacture 20% of all generic drugs
used around the world.51
GST in India is likely to have a far-reaching impact on several
aspects of business including pricing of products and services, supply
chain, IT systems, accounting, tax compliance framework & re-skilling
of talent.
The pharmaceutical industry was hoping the GST rate on life-
saving drugs would be zero, even as it has been capped at 5% and that

50
https://abhipedia.abhimanu.com/Article/IAS/NTE3MzAEEQQVV/Impact-of-GST-on-
agriculture-sector--Economic-Affairs-IAS
51
https://khatabook.com/blog/gst-on-pharma-and-medicines/

58
of all other formulations at 12%. The rates in the GST regime are slightly
higher than what prevail now.
In the GST regime, essential drugs that treat malaria, HIV-AIDS,
tuberculosis, and diabetes fall in the 5% bracket. Almost all other drugs
are in the 12% net.
Nicotine polacrilex gum is the only pharmaceutical product to be
charged at the rate of 18%. Cipla, the brand which produces nicotine
gums, will probably be impacted from the rate fixed at 18%. More than
the tax rate, the bigger worry for the companies is the disruption the new
tax regime will bring.
Medicines to be get costlier as active pharmaceutical ingredient,
or raw materials, will be taxed at 18%.
Distributors and stockiest are upset at the loss they might have
to incur with the increase in the effective tax rate. The effective tax rate
on formulations, now 9%, has been increased to 12% and trader margins
have been built into the tax rate.
Under the current tax laws on pharmaceutical products, in many
states VAT is on maximum retail price, which is on a single point. Due
to this, the distribution channel does not pay VAT. Thus, for them
paying tax under GST coupled with three returns a month is a
humongous task.
Earlier, ayurvedic drugs or medicines were charged an average
VAT of 4% and excise of 1.5% due to the excise free manufacturing
zone benefit. Under GST, ayurvedic medicines could get costlier as they
would be taxed at the rate of 12%.
No clarification has been provided by the government on the
issue of manufacturers operating in excise-free manufacturing zones
paying more tax under GST. Most of these manufacturers are
competitive in the pharmaceutical industry is due to the excise benefit
as they are situated in remote places.
The Pharma industry also GST specifically provides for refund
of accumulated credit resulting out of increased rate for inputs vis-a- vis
reduced rate of output. This is positive news for the Pharma industry,
which has been struggling with a high amount of blocked credit in the
59
 current regime. Also, special provisions for duty-free movement of
goods under job work model, which is prevalent in the pharmaceutical
industry and fundamental to its operations, have been provided in the
new regime.52
GST law also provides seamless transition of entire credit
balance as on the cut over date under the present indirect tax laws.
Also, continuity of the area-based indirect tax benefits under the
GST regime is critical as this may also indirectly impact the cost of
medicines and ultimate price to be paid by the patients.
Since GST on inter-state sale of goods would be creditable, there
is an opportunity to remodel current supply chain structure to ensure
lower logistics cost and bring in significant operational efficiency which
should have a positive impact on the profitability of the companies.
The sector is hopeful of making refund process fast and simple,
this coupled with savings in warehousing and logistics cost may
anticipate a positive impact.
A lot of the times, medicines are provided without bills in India.
GST would curb such practices as providing medicine without the bill
would not be beneficial for anyone in the distribution chain.
The government needs to still provide clarification on the
inclusion of the current benefit for the manufacturers under excise for
operating from the excise free manufacturing zones. The pharmaceutical
industry is also asking for more information on the implementation of
GST on the MRP of pharmaceutical products.53

3.2.10 FMCG & RETAIL

GST would have significant impact on the way businesses
operate and one of the sectors which would be significantly impacted by
GST is the retail sector. Its impact on FMCG firms will depend on their
product mix, given that the tax rates have gone up for some products and
have fallen for others.

52
https://khatabook.com/blog/gst-on-pharma-and-medicines/
53
https://khatabook.com/blog/gst-on-pharma-and-medicines/

60
 The tax fitments announced by the GST council has evoked a
mixed response from the FMCG sector, with some viewing it as positive,
while many others have expressed disappointment. 54
Beverage companies, for instance, said the effective tax rate of
40% on sweetened aerated water and flavoured water under GST was
against the stated policy of maintaining parity with the existing weighted
average tax, which is significantly below 40%. Aerated beverages have
been placed in the highest tax slab of 28% and in addition will attract a
cess of 12%.
Apart from driving supply chain efficiencies, bringing untaxed
players into the tax net, a large section of the industry still operates in
the unorganized segment, thus GST will level the playing field for the
larger, established players in the industry.
However, the GST rate structure shows that not all FMCG
companies stand to benefit from the new regime.
The rates for various FMCG segments have mostly been along
expected lines. Items of mass consumption like toothpaste, soaps, hair
oil etc. have been put under the 18% tax slab, significantly lower than
the 22-24% tax rate they have been paying. This is in accordance with
the government‘s stance of keeping tax rates low for mass consumption
products. In fact, the GST rate schedule indicates that nearly 81% of all
items are in the 18% tax bracket or below. The remaining 19% fall in
the 28% tax slab.
The FMCG companies, whose tax incidence has come down
under the GST regime, are likely to pass it on to the consumers in the
form of lower prices. Lower prices could potentially support volume
growth for certain products, particularly in the rural segment. It is
believed that it could result in a faster consumption shift from unbranded
to branded products, spurring volume growth for FMCG companies.
Simultaneously, it will also bring operational efficiency with
rationalization of supply chain by removing bottlenecks. Analysts also

54
https://www.bajajfinserv.in/insights/how-gst-affects-the-fmcg-
sector#:~:text=Due%20to%20the%20subsumption%20of,generally%20'fast%2Dselling%20go
ods.

61
 point out that tax exemption provided to several critical products
required for food processing like jaggery, cereals and milk would benefit
this industry.
However, surprisingly some of the widely consumed products
have been placed under the highest tax slab of 28% which is slightly
higher than the rate levied earlier. Higher tax rate in paints, baby food,
detergents and shampoo is a real dampener since these are daily-use,
mass consumption items. Manufacturers will have to pass on the higher
tax incidence to consumers in the form of higher prices of these goods.
Most of the items belonging to the premium category have been
put under the highest tax slab of 28%. These include health supplements,
skin care, aerated drinks, and liquid soap, among other goods. But this
is not going to have a particularly negative impact on manufacturers as
they had been paying similar taxes earlier.
For most other FMCG majors, the GST rate structure is likely to
be neutral or marginally positive, as their broad portfolios would see a
mixed impact. In case of HUL, for instance, tax incidence has reduced
for soap, toothpaste and tea, but increased for detergent, shampoo and
skin care. For Godrej consumer products, lower tax incidence on soaps
and insecticides is a positive, but higher tax rate for hair dye is a
negative.
In addition to the above, following are to be considered:
I. Increased availability of input tax credit
However, the GST charged on the aforementioned
transactions would be creditable. This would eliminate the cascading
effect of taxes and could lead to reduction in effective tax cost for
various products.
But, a higher rate of GST on certain products could offset the
benefit of increased credit availability mentioned above and lead to
higher tax cost.
II. Promotion schemes
Retailers currently offer various marketing schemes such as
Buy one get one free‖, free samples, etc. to customers. At present,
the products given free of cost are not liable to sales tax. However,
62
 in the GST regime, supply of goods by one person to another without
consideration could also be liable for taxation. This would lead to
increased cost of promotion and also pose a challenge as regards the
valuation to be adopted for calculating GST on such goods.
Further, FMCG companies could generate substantial
savings in logistics and distribution costs as the need for multiple
sales depots will be eliminated. Currently, FMCG companies pay
nearly 24-25% including excise duty, VAT and entry tax and a lower
rate of 18% will yield significant reduction in taxes. Also, warehouse
rationalization and reduction of overall tax rates is expected to
generate saving.
Thus, several of the rapidly moving consumer goods
companies such as HUL, ITC, P&G will benefit immensely by this
tax structure of a GST rate equalling to 18%. Also, much relies on
the exemptions which are being retained along with the excise
benefits. Benefits aren‘t expected to be huge and will happen slowly
as per several of the analysts.
At present, the CVD on import of goods, excise duty on
goods manufactured in India, CST on inter-state procurement of
goods and service tax on input services, are a cost to the retailers.

3.2.11 ENERGY
The energy sector is a key driver for economic growth but
remains plagued by policy and regulatory bottlenecks. Lack of pass
through of indirect taxes contributes to the inefficiencies that have crept
into this sector. Unfortunately, this legacy issue is set to continue under
the new GST regime, with generation and sale of electricity being kept
outside the purview of GST but capital goods and services used in the
energy sector being brought within the GST net.
New GST rate slabs for coal and capital goods are expected to
bring cheer to the power sector. Coal, the key raw material for about
60% of the power produced in the country, has been placed under the
5% slab, while capital goods and intermediate industries will be under
the 18% slab.
63
 Thus, the 5% rate for coal, down from 11.7% in the current tax
regime is a major breather as it would help reduce the final tariff which
would be passed on to the consumers.
At the same time, capital goods falling in the 18% tax slab would
also help the power project developers to reduce their cost and hence the
capacity charge will reduce.
Currently, tax concessions and exemptions, both at the central
and state level are available on specified goods and services which are
used in the energy sector. However, with the GST regime generally set
to trim such exemptions and concessions, the effect on the energy sector
may be significant.

I. Increased cost of energy projects

While goods and services required for setting up energy
projects will be subject to GST, they will not be creditable for the
generating entity leading to a cascading of indirect taxes. Also, there
is no clarity on whether the various concessions/ exemptions
available for setting up energy projects will continue under the GST
regime.
Moreover, removal of concessional rate for inter-state
procurement for EPC contracts would not allow the project owners
to structure their procurements as inter-state sales to reduce tax costs.
In the absence of such tax exemptions and concessions, there
is a possibility of a significant increase in project costs.

II. Impact on renewable energy

With a view to encourage clean energy, multiple tax
concessions and exemptions have been extended to the renewable
energy sector. As a result, green energy is generally available at
reduced tariff rates. However, there is no clarity on whether such
benefits would be extended under the GST regime. It is necessary
that the government continues to offer tax breaks to the renewable
energy sector, for it to remain a competitive option to conventional
fuel based energy.
64
 Therefore, a lower tax rate of 5% on renewable energy equipment
would not result in any increase in the renewable energy costs and the
cost of energy projects in India. This would remove GST incidence at
the terminal stage, and also enable suppliers to obtain tax refunds of
their own input costs.

Further, energy is a core sector in any economy since power is

a key requirement for every commercial activity. Any tax distortion
faced by this sector on account of electricity being outside the ambit of
GST, will have a cascading effect on the rest of the economy, negating
some of the very benefits sought to be brought about by the
introduction of GST. Accordingly, it is felt that the Government has
missed an opportunity by not integrating generation and distribution of
electricity with other supplies which interact with it, under the umbrella
of GST.
Therefore, the viability of the energy sector, under the current
GST regime, would depend upon the exemptions and concessionary
tax which may be put in place to counter the impact of different tax
regimes on the input and output side. Exemptions in renewable will
need to be grandfathered for this sub-sector to remain viable. 55
3.2.12 TELECOM:
From the conventional belief of being a communication service
provider to providing multiple streams of value added services, the
telecommunication (telecom) sector has become one of India‘s core
economic drivers.
Presently, the telecom industry faces several shortcomings such
as cascading effect of taxes, issues with the classification of services,
etc. that hamper the growth of this sector.
One of the major concerns for telecom service providers is the
denial of CENVAT credit on telecom towers. However, under the GST

55
Trileagal., GST Impact: Energy Sector, mondaq (Sept. 28, 2016), https://www.mondaq.com
india renewables gst-impact-energy-sector.

65
 regime, telecom would be allowed to avail such input tax credit for
utilization against output GST liability.
In order to achieve the desired goal of expanding the telecom
business and accomplishing socioeconomic development, it is essential
that the cost of the telecom service provider goes down, which will result
in lower tariff rates and broader consumer base. Considering an overall
objective, the proposed GST framework seems to have addressed the
concerns of the telecom sector.56
The seamless flow of credit under the GST regime will help
reduce the overall cost and eventually the benefit can be passed on to the
end-user by lowering tariff rates. There would be pertinent increase in
free cash flow which can be used in business development opportunities.
All service related sectors are expected to be negatively-effected
as the service tax rate is 15% currently and GST rate on telecom has
been fixed at 18%. Even a moderate rise in tax could hit demand and
profits. Given the data volumes are slowing and with the launch of
Reliance Jio, the times ahead for telecom companies are going to be
tough and this will be reflected in their stock prices as well.
Also, most telecoms have obtained centralized service tax
registration certificate and undertake centralized compliances. However,
under the GST Law, separate registration would be required in each state
from where the services are rendered leading to increased compliance
requirements as compared to the current regime. Telecoms would still
need to advocate with the Government for unresolved issues under GST
such as double taxation on account of free supplies to service provider,
absence of provision for transition of input tax credit, lack of clarity on
telecom‘s eligibility to claim credit relating to passive infrastructure etc.
The telecom sector is vibrant, price-sensitive and has a high
growth potential. Strong policy support from the government under GST
is crucial for overall development.

56
Cbic-gov. GST on Telecom service https://cbic-gst.gov.in/pdf/press-release/GST-telecom-
services.pdf

66
3.2.13 TRANSPORTATION INDUSTRY:
GST on transport sector will result in more efficient cross state
transportation. It will bring down the logistics cost, reduced times for
transportation. Currently all the 29 states of India collect taxes at
different rates on goods that move across the state borders that’s why the
tax on transportation is collected multiple times. This will make long
delays at different interstate checkpoints for reviewing by state
authorities who checks for the application of relevant taxes and other
levies. This causes the delays for an average of 6 to 7 hours. GST would
replace around 15 state and federal taxes and tariffs for a single tax at
the point of sale of goods.57

3.2.14 TEXTILES INDUSTRY:

It is expected that the tax rate in GST would be higher in textile
industry as per the current tax rate. Cotton and wool fibre which are
currently exempted from tax would come under tax in GST but the
textile industry may be beneficial from GST as manufacturing costs
,may be reduced due to subsume of various taxes like octroi, entry tax,
luxury tax etc. There will be few drawbacks also but GST will support
the industry in long run.58

3.3 POSITIVE AND NEGATIVE IMPACT OF GST

3.3.1 POSITIVE IMPACT :
As there will be no inter - state tax , transport of goods
will be much easier. There will be no burden of check posts for
states. And this will benefit the transport industry and suppliers
of goods as well . This leads to improved business efficiency,
which in turn helps to improve the economy.

57
Legal Rasta, impact of GST on Transport Sector, https://www.legalraasta.com/gst/impact-
gst-transport-sector/
58
Atul Mittal, GST Impact on Textile Industry in India, saginfotech (Sept. 28, 2022),
https://blog.saginfotech.com/gst-impact-on-textile-industry-
india#:~:text=The%20rate%20structure%20for%20the,exempted%20from%20the%20GST%2
0purview..

67
 With the elimination inter - state tax , more goods will be
imported and exported among states. This leads to improved
business and hence improved economy.
Input tax credit allows people to claim the tax paid by
their suppliers. Then, no one will buy goods from those who do
not pay taxes . This leads to a reduction in tax evasions and hence
more money from taxes to the Indian government.
With the tax benefits GST provides, it will reduce the
prices of goods in the long run . This will increase consumerism
and hence improves the economy.
GST is a global standard tax. And hence with the
implementation of GST, India will gain the trust of foreign
investors . More investments will help the economy.
GST will also help to build a transparent and corruption
- free tax administration.
Presently, a tax is levied on when a finished product
moves out from a factory, which is paid by the manufacturer, and
it is again levied at the retail outlet when sold.
GST is backed by the GSTN, which is a fully integrated
tax platform to deal with all aspects of GST.
GST also has an optional scheme of lower taxes for small
businesses with turnover between INR 20 to 50 lakhs. It is called
the composition scheme. It has now been proposed to be
increased to 75 lakhs . This will bring respite from tax burdens
to many small businesses.
Removing the cascading tax effect, the simpler online
procedure under GST, defined treatment for E - commerce and
regulating the unorganized sector.

3.3.2 NEGATIVE IMPACT :

Smuggled goods may travel freely throughout the
country once they cross the border because of no separate
checking at states. If this happens, it will be it will be impact
Indian economy negatively.
68
 Prices of goods that are bought by upper middle classes
and upper classes are increased. This may deter them from
buying such kind of products. This will lead to decreased
demand - decreased production - impacts economy negatively.
With the increased competition from the goods from
other states , local people may feel discriminated. This may lead
to a decrease in the quality of products to cope up with the
competition.
Some Economist says that GST in India would impact
negatively on the real estate market. It would add up to 8 percent
to the cost of new homes and reduce demand by about 12
percent.
Some Experts says that CGST( Central GST ), SGST(
State GST ) are nothing but new names for Central
Excise/Service Tax, VAT, and CST. Hence, there is no major
reduction in the number of tax layers.
Some retail products currently have only four percent tax
on them. After GST, garments and clothes could become more
expensive. 59

59
Civil service india, what are the positive and negative impact of the GST,
https://www.civilserviceindia.com/subject/Essay/what-are-the-positive-and-negative-impacts-
of-GST.html

69
 CHAPTER-4
4.1 HOW GST IS IN INDIA DIFFERS WITH GST IN
OTHER COUNTRIES.

4.1.1 INTRODUCTION OF GST

The GST is a kind of sales tax levied on the consumption of
goods or services. It has replaces around 16 tax levies- 7 central taxes
like excise duty and service tax and 9 states tax like value-added tax and
entertainment tax binding India as one market with one tax rate.
GST was a Game changer in the market and if we compare the
efficiency gains under VAT with the GST then it has given the higher
tax buoyancy and an improvement in government finance over the
medium term.
GST was first introduced in 1985, by Vishwanath Pratap Singh
and it was rolled out in 1999, 2002, 2005, 2011 and in 2017 it was finally
introduced. On 7 July 2017, the entire nation got the news of the
implemented taxation system called the GST i.e. Goods and Service
Tax. The GST council has set the tax rates for goods and services under
5 brackets of 0%, 5%, 12%, 18% and 28%.

4.1.2 WHAT IS GST REGISTRATION IN INDIA?

GST registration is applicable if the supply turnover of all Indian
service providers, including all sorts of freelancers as well as traders and
manufacturers crosses Rs.20 lakh, since 1st April 2017.

4.1.3 WHY GST IS IMPLEMENTED?

I. to find the mode of efficient tax collection.
II. Ease in inter-state and intra-state movement of goods and
services.
III. Reduction in corruption.
IV. To reduce the tax evasion

70
 4.1.4 DEVIATION BETWEEN INDIAN GST AND OTHER
COUNTRIES GST
One of the major differences between GST in India and GST in
other countries is that in India GST is charged under two Government
authorities as because India is a federal country with both the Centre and
the State wherein both has the authority to charge and collect taxes in
accordance with the appropriate legislation. Both the Central and State
Government has different responsibilities to perform according to their
own power as has been prescribed in the Constitution. The three taxes
applicable under the GST are:
I. CGST – Tax collected by Central Government on intra-state sale.
II. SGST– Tax collected by State Government on intra-state sale.
III. IGST – Tax collected by State Government on inter-state sale.

I. GST RATES IN DIFFERENT COUNTRIES:

Countries Applicable GST Rates.
Australia 10
Brazil 10
Canada 5
China 17
France 20
Germany 19
India 18
Indonesia 10
Japan 8
Jersey 5
Korea 10
Malaysia 6
Mexico 16
Netherlands 21
New Zealand 15
Pakistan 17
Russia 18

71
 Singapore 7
Switzerland 8
Thailand 7
United Kingdom 20
SOURCE FROM “OECD”60
 There are two main segments of GST in India i.e. CGST and IGST.
Other countries have an integrated GST system.
 Not likely other countries, India has not the same rate of GST.

II. Chart of GST comparison between India, Canada, U.K, Singapore,

Malaysia
particular India Canada U.K Singapore Malaysia
(proposed)
Name of Goods and Federal Value Added Goods and Goods and
the GST Service tax Goods and Tax Service Tax Service Tax
Service Tax %
Harmonized
Sales Tax
Standard 0% (for food GST 5% and 20% reduced 7% Reduced 6%
Rate staples), HST varies rates- 5%, Rates – Zero
5%,12%, from 0% to exempt , zero- rated, exempt
18% and 15% rated
28%+ cess
for luxury
items
Threshold 20 lakhs and Canadian $ Approximately Singapore is Approximately
Exemption 10 lakhs for 30,000 which Rs 61.32 lakhs approximately 75lakhs
Limit North Region is Rs 4.8 crores
Area approximately
15.6 lakhs in
INR

60
www.oecd-ilibrary.org/sites/1ca62ced-en/index.html.

72
Liability Accrual Accrual Basis Accrual Basis: Accrual Accrual Basis-
arises on Basis: Issue – the date of Invoice or Basis: Issue of Delivery of
of Invoice or issue of payment or Invoice or goods or use of
Receipt of invoice or the supply – receipt of invoice or
Payment- date of the earliest Cash payment or receipt of
earlier receipt of Basis- supply on a payment
payment – Payment Cash Basis
earlier.
Returns Monthly and Monthly, Usually Usually Large
and one annual quarterly or quarterly, quarterly organisation-
Payment return annually small business Business Monthly
based on the option- annual Option-
turnover Monthly
returns.
Reverse Apply on Reverse Applicable Reverse Reverse
Charge goods and charge applies Charge charge applies
Mechanism services to importation applies to the to imported
of services supply of services
and intangible services
properties
Exempt Manufacturer Real estate, Medical, Real Estate, Basic Food,
Services of exempted Finacial Education, Financial transportation,
goods or Services, Finance, Postal Services or health,
Provision of Rent, Services, Residential Residential
exempted charities, Insurance Rental Property,
services Health, Agricultural
Education Land

 India taxation system is loaded with rules and regulations for the
implementation of GST. Whereas, GST structures of other countries like
Canada, New Zealand is quite simple and easy to understand.

73
  Procedure for filing the tax and paying amount is complex than the rest
of the countries.
 “Sin Tax” is implemented in rare situations.
 GST is a uniform structure but with little complication and confusion
than any other countries.

4.2 DETAIL EXPLANATION OF GST IN INDIA AND GST IN

OTHER COUNTRIES:

4.2.1 GST IN INDIA VS GST IN NEW ZEALAND

GST in New Zealand was the first to come into light in 1986 at a rate of
10%. However, the rates are changed twice in the year 1989 with 12.5% and
15% in 2010 to generate higher revenue while removing distortions in the tax
structure.
Moreover, this change led to the adoption of GST at a single rate
including food in the GST base at the full rate. Hence, such broad-based the tax
net and also reduced both compliance and administrative costs. Presently, the
country is getting the highest tax productive nations among the OECD countries.

4.2.2 GST IN INDIA VS GST IN CANADA

Talking about the Canada GST system, it was a multi-level VAT in 1991
on the supplies of goods and services purchased in the country. The GST
includes almost all the products in it excluding certain essentials like groceries,
residential rent, and medical service.
Furthermore, the bill once gets implemented then it will be led to new
processing operations and techniques to verify the accuracy of the return
submitted by small entrepreneurs. However, Canada imposes its own sales tax
besides GST.
The GST rate in Canada is 5% on the supplies of goods and services and
in some province, there is a harmonized sales tax at 15%.

74
4.2.3 GST IN INDIA VS GST IN SINGAPORE
The country introduced the GST bill in April 1994 at a tax rate of 3%.
The intention was to make the public acceptance to the public and to minimize
inflation. The government swore to the public not to raise the tax for the next 5
years that came in as an important decision in reviving consumer spending. With
Effect from 2007, the GST rates have been increased to 7% that still very less
compared to GST rates of India. 61

4.2.4 GST IN INDIA VS GST IN INDONESIA

Now, in Indonesia imports are usually subject to VAT and GST, but
most of the exports are exempted from the list of it. The tax rate in Indonesia is
10% if the services are supplied outside the parameters of Indonesia, in some
cases, the certain item is taxed at 20% with a cap of 35%.
Moving forward to the luxury items the tax rate is applicable to the
import around 10% to 50%. Most of the items like gold, mining products, arts
and entertainment, education, insurance, parking or public transport, labor,
medical health, food, and beverage served in hotels are not subject to pay any
VAT.

4.2.5 GST IN INDIA VS GST IN CHINA

While we talk about GST in China, then maybe we can make a guess,
why China is a good player in the market. GST in China is charging tax rates at
0%, 5% and 19%.

4.2.6 GST IN INDIA VS GST IN AUSTRALIA

In Australia, the GST is a federal tax collected by the supreme authority
and then divided further among the states without any battle of words at the time
of a process. The GST was introduced in 2000 with the tax rate of Rs 10% which
is still constant at today date.

61
Kandarp Vanita, How GST in India Differs with GST in Other Countries, corpbiz (Dec. 7,
2018), https://corpbiz.io/learning/gst-india-differs-gst-countries/.

75
4.2.7 GST IN INDIA VS GST IN USA
We all know the US is a federal republic country where taxes are
collected at a separate level from the federal, state or local government. In the
US, the federal tax rates are between 10% and 39.6% of taxable income. The
state or local government is charging tax from 0% to 13.30% of the total taxable
income.62

4.2.8 GST IN INDIA VS GST IN UK

There are three tax rates i.e. 0%, 5% and 20% applicable to goods and
services. Most of the goods are covered under 20% tax rates. The VAT on the
stamps postage, financial property transactions, food and children’s clothes are
exempted items.

4.2.9 GST IN INDIA VS GST IN BRAZIL

The most independent and carefree GST system as compared to other is
GST in Brazil. It has divided rules of taxes between the states and the center.
Brazil has 6 tax slabs which are as follows- 0%, 1.65%, 2%.7%, 12% and 17%.

4.2.10 GST IN INDIA VS GST IN FRANCE

The country who introduced the GST is France. The GST has been
firstly implemented in France in 1954 with 4 tax rate slabs. The rates in this
county are chargeable in the slab rates of 2.1%, 5.5%, 10%, and 20%. Among
the Tax rates, 20% is the standard rate applicable to most of the goods in France.

4.2.11 GST IN INDIA VS GST IN UKRAINE

GST in Ukraine, a standard rate of tax is applied at 20% and the VAT
value is added to the cost of goods and services price. There are some of the
supplies that are also subject to the lower rates under 0% and 7%.

62
Kandarp Vanita, How GST in India Differs with GST in Other Countries, corpbiz (Dec. 7,
2018), https://corpbiz.io/learning/gst-india-differs-gst-countries/.

76
 Usually, GST at 7% rate is applicable to pharmaceuticals products,
medicines, and medical equipment whereas % VAT is on the export of goods
and services.

4.2.12 GST IN INDIA VS GST IN MALAYSIA

GST was implemented in Malaysia with effect from 1 April 2015 with
the consistent rate of 6%. Here, Sales tax and service tax are categorized by
different tax rates which are 10% and 6% respectively. Some of the items like
piped water, the first 200 units of electricity per month, transportation services,
and highway toll and health service are exempted from taxation. 63

4.3 DIFFRENCE BETWEEN GST AND PREVIOUS TAX

STRUCTURE
In 2017, the Goods and Services Tax (GST) replaced several State and
Central indirect taxes. Some of those taxes before GST were:
 VAT
 Service tax
 Sales tax
 Entry tax
 Excise duty tax, etc.

4.3.1 EXPLAINING CASCADING EFFECT OF TAXES:

Cascading tax effect simply means "tax on tax". This happens when a product
is taxed at every stage of its production before it is sold to the final customer.
At every stage, a new tax is imposed on the already taxed product so its value
keeps increasing. So, the final customer has to pay a higher price because of all
the taxes involved.

4.3.2 DIFFERENCE BETWEEN PREVIOUS TAX AND GST

In 2005, Value Added Tax (VAT) was introduced into the Indian taxation
system. It is an indirect tax.

63
Kandarp Vanita, How GST in India Differs with GST in Other Countries, corpbiz (Dec. 7,
2018), https://corpbiz.io/learning/gst-india-differs-gst-countries/.

77
  Introduced to make India a single integrated market.
 VAT replaced sales tax.
 It's a consumption tax levied on a product anytime it adds value to the
supply chain.
 Calculated using the product's price minus any prior taxable expenses of
items utilized in the product.
 In 2014, VAT was introduced in all states and union territories except
Andaman and Nicobar Islands and Lakshadweep Islands.

4.3.3 DRAWBACKS OF VAT

 Under the VAT system, it was not viable to claim Input Tax Credit (ITC)
on services.
 Cascading Effect of taxes.
 Various states have different VAT rates.
 CST input cannot be subtracted from VAT and vice versa.
 Every state has its VAT legislation.
 Multiplicity of taxes.64

4.3.4 WHY WAS GST INTRODUCED?

I. Former Prime Minister Late Shri Atal Bihari Vajpayee formed a
committee to write the GST law in 2000. This committee proposed the
concept of "one nation, one tax".
II. A task force known as the “Kelkar Task Force” was formed in 2004 to
strengthen the taxation system by implementing GST.
III. However, the implementation of GST was first postponed in 2008 and
later failed in 2010 as the government took no concrete steps.

4.3.5 WHAT ARE THE BENEFITS OF GST OVER VAT?

 he primary goal of implementing the GST system was to simplify India's
tax structure. Doing this would eliminate the tax system's
complexity before GST, which suffered from various multi-dimensional
issues.

64
https://cleartax.in/s/differences-between-gst-and-vat

78
  The complexity of taxation and its cascading impact was an important
reason for changing the old taxing system on goods and services.
 The former tax structure featured many taxes, including excise duty on
manufactured goods, Wealth Tax, Sales Tax, VAT, Central Sales Tax,
Import and Export Taxes, Service Tax, Luxury Tax, and plenty of others,
all of which produced a lot of complications and inadvertent tax
distribution.65

Implementation of the GST removed various geographical hardships for trading

and business, and the entire nation came under a single taxing system. This can
be understood from the table below :
Taxes included from earlier tax Taxes excluded from the earlier tax
regime into the current GST regime:
framework:
Service Tax Electricity Duty
VAT/Sales Tax Toll Tax
Central Sales Tax Alcohol consumption
Entertainment Tax Property Tax
Luxury Tax Countervailing Duty
Lottery Tax
Entry Tax
Tax on Lottery

4.3.6 WHAT ARE THE DIFFERENCE BETWEEN VAT AND GST

Parameter GST VAT

What does it Both goods and services On the sale of Products (separate tax for
tax? services)
When is the On the supply of goods and At the time when goods are sold
tax services
applicable?

65
https://quickbooks.intuit.com/in/resources/gst-center/advantages-of-gst/

79
 Tax rate and Uniform tax rates across India Each state has different rates and laws
laws
Who has After collection, tax is equally After collection, the tax is confined to the
authority shared by the state and central state in which the sale takes place
over taxes government
Tax return Returns should be filed on returns are filed either on the 10th, 15th,
filed every 20th day of the next and 20th of the next month for the
month for the previous month previous month
Payment Online and offline payment Only offline payment
Methods choices available (Online
payment is compulsory if the
GST payable is more than Rs.
10,000)

Input tax Input tax credit benefit is No input tax credit benefit exists on
credit available which means a customs duty paid
taxpayer can claim the credit on
the supplies received
Compliances A similar set of compliances for Compliances for the movement of goods
for goods the movement of goods between states differ from one state to
moved between different states another.
Who collects State where the consumer The state where the seller resides
the tax? resides

4.3.7 CONCERNING DIFFERENT TAXES, THESE ARE

FOLLOWING DIFFERENCES BETWEEN VAT AND GST
Parameter VAT GST
Service Tax Under the Finance Act, the Depending on the regulations governing
centre imposes service tax on Place of Supply, the State GST absorbs
a list of services on a service tax.
provision/payment basis.
State VAT Except for certain products, all State GST absorbs this tax under itself
others are taxed under VAT.

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Excise Duty Excise duty will be charged Under GST, the excise duty is replaced by
until the product is Central GST, and tax will be levied upto
manufactured under VAT. the retail level.
Basic Under VAT, the government Same tax levied as before GST.
Customs levies a separate tax on
Duty imports.
Special The central government levies Under GST, this duty is absorbed by State
Additional a separate tax on imports GST.
Duty under VAT.
Entry Tax Certain governments apply an Entry tax will not be collected under the
entry tax on inter-state GST, but an extra 1 percent will be
transfers that are considered as collected as a tax on the inter-state supply
imports in the local region of specific commodities.
under the VAT.
Central Sales When it comes to inter-state This tax will be imposed under GST,
Tax transfers including C-Forms, however, dealers will be eligible for full
CST is charged at a reduced credit.
rate of 2 percent under VAT.
Otherwise, the full rate
applies, which varies from 5 to
14.5 percent.
Tax on Under VAT, this tax is not No change.
Export of required.
Commodities
and Services
Tax on Inter- Under VAT, this tax is not This tax will be imposed under GST;
State required against Form F. however, dealers will be eligible for full
Transfer of credit.
Commodities
to Agent or
Branch

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Cross Set- Set-off of service tax and Set-offs between State GST (SGST) and
Off of Levy excise charge is allowed under Central GST(CGST) are not permitted
VAT. under GST.
Tax on This tax is normally excluded Under GST, this tax may be imposed
Transfer of under VAT; however, its unless TIN of the transferor and transferee
Commodities applicability depends on state is the same.
to Agent or processes.
Branch
Disallowance There are a few non-creditable There would be no such disallowance
of credit on items and services that are under GST unless the GST Council
certain items subject to VAT and CENVAT permits it.
requirements.
Disallowance Not permitted under VAT Unless the GST Council selects a list of
of inputs or things that come under the Negative List,
input there would be no such disallowance
services under GST.
utilized in
exempted
commodities
or services
Cascading There is a credit available Credit is granted under GST on the entire
Effect between service tax and excise amount of taxes paid up to the merchant.
duty under VAT, but no set-
off against VAT on excise
duty.
Threshold The national excise barrier is According to the GST Council's
limits for Rs.1.5 crore, while the VAT proposals, the State GST will vary from
levy of tax barrier varies from Rs.5 lakh Rs.10 lakh to Rs.20 lakh.
to Rs. 20 lakh depending on
the state. The service tax
threshold is Rs.10 lakh.
Levy of tax Certain government entities, No changes under GST.
on NGOs non-profit organizations, and

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 and public sector undertakings
government will be subject to VAT.
bodies
Exemptions Certain regions, such as the There would be no such exemptions under
North-East, will be eligible for GST, and the GST Council may establish
VAT exemptions. an Investment Refund Scheme for specific
zones.

4.3.8 PRE AND POST GST INDIA

I. IN THE PRE GST ERA

a) CENVAT
 CENVAT (excise duty) is imposed on products made in India, but only
at the manufacturing level.
 It was a critical obstacle to an efficient and neutral flow of tax credits.
 This resulted in the replacement of VAT for the GST in many countries.

b) DIVISION OF CENTRAL AND STATE TAX:

 The Constitution divides the tax system between central and state
governments.
 The state government had the right to impose any tax on affairs or
objects of the state.
 In the case of services tax, the central government can collect taxes. Yet,
the state government dominates in employment contracts.
 This structure created obstacles for the central government's income
generation and distribution.66

c) NOT ACCOUNTING FOR VARIABLES:

 The tax system does not consider various things like copyrights, patents,
software.

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 As a result, there were complications in classifying these goods under
tax policy.

d) CENTRAL MONOPOLY
 With the boom in the service sector, the central government has
monopoly in collecting taxes.
 The state governments lost their income by not imposing taxes on the
service sector.

e) OFFSETTING
 Offsetting was not allowed under the CST for interstate sales of
products.
 This increased the cascading impact.

f) NEED FOR TECHNOLOGY

 Better tax control and administration requires considerable technology
upgrades.
 The implementation is both costly and time-consuming.

g) IRREGULARITIES IN THE FILES

 The tax returns filed under federal and state tax systems had flaws due
to no cross-checking.

h) MULTIPLE CATEGORIES
 The indirect tax system includes 15 different taxes payable based on
different standards.
 This required immediate and systematic regulation of the filling and
calculation of taxes.

i) COMPLEX SYSTEMS
 The taxation system in India before GST was complex and needed
fixing.

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  Different taxes on the same products in different countries resulted in
high inflation.67

II. IN THE POST GST ERA

In a bid to solve the issues under the previous tax structure, GST
benefited India in the following ways:
a) INCREASE IN REVENUE
i. According to experts, GST strengthens the economy and will raise
India’s GDP in future.
ii. GST has succeeded in expanding the taxable base by standardizing
the obligation level.
iii. In the long run, tax compliance will be easier.
iv. An online tax system means more efficiency and accountability.
v. This leads to fewer opportunities to get away with tax fraud.

b) SIMPLIFYING TAX FILING FOR BUSINESSES

i. Business owners realized that the shift to the new GST system takes
time, money, and management.
ii. The procedure of submitting GST returns will become simpler in the
long run.
iii. All major indirect taxes are now unified.
iv. Thus, separate departments dedicated to maintaining vast tax
documents are no longer required.
v. As a start-up, one will no longer need to register for certain taxes
such as VAT and Service Tax. 68

c) MAKING CERTAIN ITEMS MORE AFFORDABLE

i. As a private taxpayer, one will notice that the price of certain items
has decreased.
ii. This includes the reduction in the tax on private cars by around 5-6
percent.

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 iii. With a 5 percent levy, air transport and economy class travel became
somewhat cheaper.
iv. The cost of eating out has remained stable. It depends on the type of
establishment though. Whether the place has air conditioning, sells
alcohol, and if it has a revenue of less than Rs.50 lakh per year are
important factors.
v. Unprocessed grains such as rice and wheat, unprocessed milk,
vegetables, fish, meat, and unbranded flours are exempted from
GST.

4.4 DEFICIENCIES IN EARLIER TAXATION SYSTEM

I. In the earlier indirect tax regime, a manufacturer of excisable goods
charged excise duty and value added tax (VAT) on intra-State sale of
goods. However, the VAT dealer on his subsequent intra-State sale
of goods charged VAT (as per prevalent VAT rate as applicable in
the respective State) on value comprising of (basic value + excise
duty charged by manufacturer + profit by dealer). Further, in respect
of tax on services, service tax was payable on all ‘services’ other than
the Negative list of services or otherwise exempted.
II. The earlier indirect tax framework in India suffered from various
shortcomings. Under the earlier indirect tax structure, the various
indirect taxes being levied were not necessarily mutually exclusive.
To illustrate, when the goods were manufactured and sold,
both central excise duty (CENVAT) and State-Level VAT were
levied. Though CENVAT and State-Level VAT were essentially
value added taxes, set off of one against the credit of another was not
possible as CENVAT was a central levy and State-Level VAT was a
State levy.
III. Moreover, CENVAT was applicable only at manufacturing level and
not at distribution levels. The erstwhile sales tax regime in India was
a combination of origin based (Central Sales Tax) and destination
based multipoint system of taxation (State-Level VAT). Service tax
was also a value added tax and credit across the service tax and the
central excise duty was integrated at the central level.
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 IV. Despite the introduction of the principle of taxation of value added
in India – at the Central level in the form of CENVAT and at the
State level in the form of State VAT – its application remained
piecemeal and fragmented on account of the following reasons:
a. Non-inclusion of several local levies in State VAT such as
luxury tax, entertainment tax, etc.
b. Non-integration of VAT & service tax.
c. Cascading of taxes on account of (i) levy of Non-VAT
able CST and (ii) inclusion of CENVAT in the value for.
d. Double taxation of a transaction both as goods & services.
e. No CENVAT after manufacturing stage.69

4.5 FATE OF “UNJUST ENRICHMENT” PRINCIPLE UNDER GST

As we all know getting refund from Government is always a
tedious task, and the most difficult task is to pass the unjust enrichment
test i.e. to satisfy the Departmental officer that incidence of tax / duty
has not been passed on to another person . The same test of unjust
enrichment has to be passed under GST also , while claiming the refund
under section 38 of the Draft CGST / SGST Act. The application which
is filed for claiming refund under section 38 , will be accompanied by
prescribed documents or evidences, to prove that the amount of tax and
interest, in relation to which refund is claimed, the incidence of such tax
and interest has not been passed on by the applicant to any other person.
In this regard , the CBEC has also put a draft circular on public
domain for getting feedback and comments , although the draft circular
is relating to refund claim under present indirect taxation , but since it
relates to unjust enrichment , which is relevant in GST regime also . So
the clarifications which are given in the said Draft circular and which
will be finalised after getting comments from public , may be inserted in
the final GST law . Therefore , we should analyse it properly and give
our suggestion before it becomes a final law .

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4.5.1 The key highlights of the draft circular is mentioned below:

I. Principle of unjust enrichment will not apply in certain cases:

It has been clarified that the principle of unjust enrichment will not apply
in the following cases
a. Duty paid on exports ;
b. Duty paid on inputs / input services used in the manufacture of
exported goods/for provision of exported services
c. Unspent balance in PLA

In all other cases it will be assumed that the incidence of tax and interest
has been passed on to another person

II. Accounting should be done in proper manner

Balance sheet of the applicant should indicate the following information
:
a. The amount which is claimed as refund , has been paid or credit note
has been issued
b. The refund amount should be shown as " Duty Receivable " under
the heading " Current assets "
c. The consolidated journal entry , which is passed at the end of the
financial year , must reflect the invoices in respect of which
differential amount of duty / taxes , is being transferred to " Duty
Receivable " Account .
d. In the Balance sheet " Duty Receivable " under the heading current
assets , should be reflected , till the financial year , preceding the
financial year , in which refund is sanctioned . For example , if the
refund is sanctioned in the financial year 2016-17 , the refund
amount as " Duty receivable " should be shown upto the Balance
sheet of financial year 2015-16 only.

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4.5.2 CERTIFICATION OF DOCUMENT, FOR SHOWING
COMPLIANCE OF THE CONDITION OF UNJUST
ENRICHMENT PRINCIPLE.
AS PER DRAFT CIRCULAR AS PER DRAFT CGST/SGST ACT
Self certification of the certificates, Self declaration may be field, instead
could be done by the applicant, if the of filing the documents or other
refund amount is Rs. 25 lakhs or less. evidences, where the refund amount
is less Rs. 5 lakhs.
In other cases, certificates would In other cases, certificate from
required to be certificates by the chartered accountants is required.
chartered accountant or cost
accountants.

4.5.3 REFUND ARISING OUT OF DIFFERENTIAL DUTY ON

INPUTS AND CAPITAL GOODS
The priniciple of unjust enrichment is required to be satisfied even in case of
refund of duty / tax paid on input or input services , which are used in the taxable
activities . The manufacturer or service provider may not be able claim the
refund , if he has already recovered the duty / tax form the recipient , in that case
recipient can claim the refund of duty / tax paid by him to the manufacturer or
service provider.But the recipient has to satisfy the following conditions :
a. The amount of duty / tax , in relation to which refund is claimed , has
not been included in the cost
b. The CENVAT Credit has not been claimed in relation to duty / tax amount
claimed as refund ;
c. If has already availed CENVAT Credit , then he will reverse the input tax credit
account , by an amount equal to the refund amount and the same would be
credited to "Duty receivable" account ;
d. If the duty/tax amount is included in the purchases , in that case the purchase
account may be credited at the year end and debit the same in the " Duty
Receivable " account .
e. If the recipient reverses the CENVAT Credit in the financial year in which he
claims the duty/tax amount as refund , it is sufficient to satisfy the test of
principle of unjust enrichment .

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4.5.4 REFUND ARISING OUT OF DIFFERENTIAL DUTY ON FINAL
PRODUCTS
I. Discounts : The actual discount is quantified at the year end and the
accounts are settled accordingly , in the given case normally transaction
is settled through credit / debit note, where supplier credits the account
of buyer with the amount of discount / incentives and the buyer shall
debit the account of supplier in his books of account with the amount of
discount / incentives received .
II. Finalisation of provisional assessment : The assessee may be eligible for
refund on finalisation of provisional assessment . The provisions relating
to provisional assessment also provided in GST in Section 44A of the
Draft CGST / SGST Act , hence the given procedure will be helpful in
GST also .
III. Favourable order by appellate authority : Where the tax liability is
determined higher by the Department than the self assessed liability and
appeal is filed against such higher determination in that case refund may
arise if the assessee receives the favourable order from Appelate
authority .

4.5.5 DOCUMENTS TO BE SUBMITTED WITH REFUND

APPLICATION
I. Documents evidencing payment of duty by manufacturer or service
provider ;
II. The applicant's certification that CENVAT credit is not availed or if
availed earlier has been reversed and the duty paid is not included in the
cost ;
III. The supplier's certification that he has not filed the refund application or
refund application filed by him has been rejected on the ground of unjust
enrichment , etc.

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4.5.6 THE AMOUNT OF DUTY / TAX PAID ON CAPITAL GOODS ,
NOT TO BE CAPITALISED
The amount of duty / tax on capital goods has not been availed
as CENVAT Credit and also duty / tax paid on capital goods is not
claimed as depreciation under the provisions of Income Tax Act , 1961
in other words the amount of duty / tax should not be capitalised .
I. The principle of unjust enrichment does not apply in case of refund
of pre - deposit
The pre - deposit requirement at the time filing appeal before
First Appellate Authority or Appellate Tribunal , is also retained under
GST also . As per the Draft Circular , the principle of unjust enrichment
is not applicable in case of refund of pre - deposit .
We hope the government will take care of above points and
would clarify about the applicability of unjust enrichment under GST ,
while finalising the law .

4.6 GST COUNCILE:

4.6.1 CREATION OF GST COUNCILE
Creation of the GST Council was facilitated by the Constitution (One Hundred
and Twenty Second Amendment) Bill 2016 was approved by the President of
India on 8th September 2016. The objective of the Bill was to introduced GST
in India. Thereafter, the notification for enforcing Article 279A was issued on
10th September 2016 and the Article came into effect from 12th September
2016. On this date, in a Union Cabinet meeting, the establishment of the GST
Council was approved along with the establishment of the GST Council’s
Secretariat. The Finance Minister at the time, Mr. Arun Jaitley, also convened
the first meeting of the GST Council on 26th and 27th September 2016.

4.6.2 NEED FOR GST COUNCILE

As stated earlier, GST Council is the governing body for the implementation of
GST rules in India. It is tasked with the duties to make important decisions and
changes in GST. The GST Council is authorised to determine the rate of tax
applicable under the GST model, tax exemption rules, the due date of submitting

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GST forms, tax related laws and deadlines and special exemptions for some
States of India. The GST Council is tasked to ensure that one uniform rate of
GST is applied on goods and services all across India.

4.6.3 FEATURES OF GST COUNCILE

GST Council has the following features –
I. The office of the council is located in New Delhi
II. The Ex-officio Secretary to the GST Council is the Revenue
Secretary of India
III. The Central Board of Excise and Customs (CBEC) is a
chairperson and a permanent, non-voting invitee for all the
meetings of the GST Council
IV. A post for Additional Secretary to the GST Council would be
created. This post would be equivalent to the level of the
Additional Secretary to the Indian Government.
V. At the level of Joint Secretary of the GST Council, four posts of
commissioner would be created in the GST Council Secretariat
VI. The GST Council Secretariat would consist of officers on a
deputation basis appointed from the Central as well as the State
Governments

4.6.4 STUCTURE OF THE GST COUNCILE

The structure of the GST Council is determined by Article 279 (1) of the
amended Constitution of India. This Article states that the GST Council should
be constituted by the President of India within a period of 60 days of the
inception of Article 279A. The Article states that GST Council should be joint
forum of the Central Government as well as the State Governments. It would
consist of the following members –
 The Chairperson of the council would be the Union Finance Minister of
the country. Presently, Mr. Arun Jaitley is the Union Finance Minister
of India and as such he is also the Chairperson of the GST Council
 The Union Minister of State would be a member of the GST Council.
He/she would be in charge of Revenue of Finance

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  The members of the GST Council would be the minister who is in charge
of finance or taxation or any other minister as nominated by the
respective State Governments. Each State Government would nominate
one minister to act as a member of the GST Council.

4.6.5 DUTIES OF THE GST COUNCILE

Besides governing GST implementation in the country, the GST Council
has two major duties to dispose of. These include making recommendations and
holding GST Council meetings. Let’s understand these duties in details –
I. GST COUNCILE RECOMMENDATION
According to the provisions laid down under Article 279A (4),
the GST Council has the duty to make recommendations about GST to
the Union Government as well as the State Governments. The council
would decide which goods and services would be charged to GST and
which would be exempted from it. Thereafter, the GST Council has the
duty of creating laws and principles about the place of supply, threshold
limits, special rates of GST for certain States of India, the applicable
GST rates on various goods and services and special rates of GST during
a natural calamity or a disaster so that additional resources can be raised
for meeting the financial losses suffered, etc.

II. GST COUNCILE MEETINGS

Another important duty of GST Council is to meet and discuss
about the GST rules and Laws which would be beneficial for dealers.
Ever since the GST Council has been formed, various meetings have
taken place. In the last GST Council meeting, the council decided that
GST should be implemented on e-way bill which require goods valuing
more than INR 50,000 being registered before they are moved. The GST
Council also extended the deadline of filing the GSTR – 1. Anti-
profiteering screening committees were also set up in the latest meeting
of the GST Council. The aim of setting up these committees was to
strengthen the National Anti-Profiteering Authority under the laws of
GST. Besides formulating laws on GST, the GST Council also took
decisions on the following aspects –
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  For Indian States, except the special category States, the threshold limit
for exemption of GST would be set at INR 40 lakhs
 In case of special category States, the threshold limit for exemption of
GST is set at INR 10 lakhs
 In case of composition schemes, the threshold limit for GST exemption
is set at INR 1.5 cr for Indian States. However, for North Eastern States
and for Himachal Pradesh, the threshold limit of GST exemption is set
at INR 50 lakhs
 Goods like tobacco, pan masala, ice cream and other types of edible ice
manufacturers would not be eligible to avail composition levy.
However, in case of restaurant services, the composition levy would be
allowed on these goods and manufacturing activities.

Similarly, in the 34th GST Council meeting, some of the decisions taken by
the council included the following –
 The GST rate on non-affordable houses was lowered 5%. For affordable
houses, the GST rate was lowered to 1%. This lowered GST rate would
be applicable on under-construction properties
 Realty estate developers can choose older GST rate of 12% on non-
affordable houses. In case of affordable houses, the GST rate of 8% can
be chosen till May 10, 2019
 If the old GST rate is chosen by any builder, the builder would not be
able to claim input tax credit.
Besides these two duties, the GST Council also makes rules regarding
GST registration, valuation, payment of GST, input tax credit, GST return,
composition, transitional provisions, invoice and claiming refund, etc.

4.6.6 QUARAM OF GST MEETINGS AND DECISION MAKING

Whenever a GST Council meeting is held, the following rules must
be complied with –
 At least 50% of the total number of GST members must be present at
every GST Council meeting so that the meeting can be called a valid
meeting

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  Every decision that is taken in GST Council meetings should be backed
by a minimum of 75% majority of the weighted votes cast by the
members of the council. The members should be present in the meeting
and should also vote. For understanding the weighted votes cast by the
Central Government and State Government members, Article 279A lays
down the following rules –
 The vote of the Central Government would have the weightage of 1/3rd
of the total votes cast
 The votes of the members of the State Government would have the
weightage of 2/3rd of the total votes cast
 Any type of act, decision taken or proceedings of the GST Council
meeting would not be considered invalid if there have been the following
deficiencies when the GST Council was established –
 A vacancy remained in the council
 There was a defect in the constitution of the council
 There was a defect in appointing an individual as the member of the
council
 In case of non-compliance of a procedure.

4.6.7 DISPUTES HANDLING BY THE GST COUNCILE

The GST Council is also charged with the duty to create a mechanism
with which the following disputes would be settled –
 Disputes between the Central Government and the State Government of
a State
 The disputes between the Central Government and one or more States
on one side and one or more States on the other side
 Disputes between two or more States which occurred due to any
recommendation of the GST Council or due to the implementation of
the recommendation of the council.

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 CHAPTER-5

CONCLUSTION AND SUGGESIONS

5.1 GST IN SIMPLE TERM:

GST, or Goods and Services Tax, is a tax that customers have to bear when they
buy any goods or services, such as food, clothes, electronics, items of daily
needs, transportation, travel, etc. The concept of GST is that it is an “Indirect
Tax”, ie, this tax is not directly paid by customers to the government, but is
rather levied on the manufacturer or seller goods and the providers of services.
The sellers usually add the tax expense into their costs, and the price the
customers pay is inclusive of GST. Thus, in most cases, you end up paying a tax
even if you are not an income taxpayer.
Prime Minister Narendra Modi launched GST into operation on the midnight of
1 July 2017. But GST was almost two decades in the making since the concept
was first proposed under the Atal Bihari Vajpayee government. The
development of GST took many consultations, negotiations and revisions before
it was launched in its final form in 2017. The launch of GST was also made
difficult by the fact that it required a Constitutional Amendment, and hence, a
two-thirds majority approval in the Parliament, and a nod of more than at least
half of the states.

5.2 TAXES WHICH ARE SUBSUMED BY THE

IMPLEMENTATION OF THE GOODS AND SERVICE TAX.
I. CENTRAL TAXES TO BE SUBSUMED:
a. Central Excise Duty
b. Additional Excise Duty
c. The Excise Duty levied under the Medicinal and Toiletries
Preparation Act
d. Service Tax
e. Additional Customs Duty, commonly known as Countervailing
Duty (CVD)
f. Special Additional Duty of Customs-4% (SAD)

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 g. Cesses and surcharges in so far as they relate to supply of goods
and services.
II. STATE TAXES TO BE SUBSUMED:
a. VAT/Sales Tax
b. Central Sales Tax (levied by the Centre and collected by the States)
c. Entertainment Tax
d. Octroi and Entry Tax (all forms)
e. Purchase Tax
f. Luxury Tax
g. Taxes on lottery, betting and gambling
h. State cesses and surcharges in so far as they relate to supply of
goods and services.
III. All goods and services, except alcoholic liquor for human consumption,
will be brought under the purview of GST.
a. i. Petroleum and petroleum products have been constitutionally
included as ‘goods’ under GST. However, it has also been provided
that petroleum and petroleum products shall not be subject to the
levy of GST till notified at a future date on the recommendation of
the GST Council. The present taxes levied by the States and the
Centre on petroleum and petroleum products, viz. Sales Tax/VAT
and CST by the States, and excise duty the Centre, will continue to
be levied in the interim period.
b. ii. Taxes on tobacco and tobacco products imposed by the Centre
shall continue to be levied over and above GST.
c. iii. In case of alcoholic liquor for human consumption, States
would continue to levy the taxes presently being levied, i.e., State
Excise Duty and Sales Tax/VAT.

5.3 GST Council:

In the GST regime, a Goods and Services Tax Council is being created
under the Constitution. The GST Council will be a joint forum of the Centre and
the States. This Council would function under the Chairmanship of the Union
Finance Minister and will have Minister in charge of Finance/Taxation or
Minister nominated by each of the States & UTs with Legislatures, as members.
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The Council will make recommendations to the Union and the States on
important issues like tax rates, exemption list, threshold limits, etc. The
recommendations made by this Council will act as benchmark or guidance to
Union as well as State Governments. One-half of the total number of Members
of the Council will constitute the quorum of GST council. Every decision of the
Council shall be taken by a majority of not less than three-fourths of the
weighted votes of the members present and voting in accordance with the
following principles:-
a. i. The vote of the Central Government shall have a weightage of
one-third of the total votes cast, and
b. ii. The votes of all the State Governments taken together shall have
a weightage of two-thirds of the total votes cast in that meeting..
This is to protect the interests of each State and the Centre when the Council
takes a decision and is in the spirit of co-operative federalism.

5.4 IMPACT OF GST ON VARIOUS SECTORS WHICH ARE

BOOSTS THE ECONOMY
The GST is said to have a positive impact on the economy as a whole.
But when it comes to sectoral-wise classification, the GST have both
positive as well as negative impact on each of the sectors. Here are some
sectors given and its GST is given below.
a. Technology (Information technology and IT’S):
The GST system of indirect taxation has made the duty on the
manufacturing goods from 14% to 18-20%. As a result, the prices of the
software products will be at high which will give either a neutral or
slightly negative impact on the Technology Sector as a whole. But they
will be benefited through the reduction of tax and benefits of other
industries and can somewhat mitigate it.
b. Telecommunications: The telecommunications sector is presently
paying the tax at the rate of 14% which is expected to be increased
during the GST regime. And, it is assumed to be around 18% which will
be expected to be passed over to the customers and this gives a picture
that GST will adversely affect this sector.

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c. Pharmaceuticals: Presently, the Pharma companies are paying taxes
around 15-20%. Since, there is no clear picture of tax treatment for
Pharma if it is less than 15% it would be a positive impact on the Sector
but if it is above 15% then it will cause some slight negative impact.
d. Automobiles: The Automobile industry is currently paying a tax rate of
a range between 30-45%. And it is expected that after GST the rate will
be around 18% which will be a huge positive for the automobile industry
and which will be profitable to both the Manufacturers/dealers and the
ultimate consumers. The standard and the social status of the consumers
get uplifted. There will be a huge boom in the Automobile Industry as a
result of implementation of Goods and Services Tax.
e. Financial Services: The Financial services such as banking, Stock
Trading firms are currently paying 14.5% as VAT which is likely to be
increased to 18 to 22% in the near future under the GST regime. And the
services are likely to be costlier.
f. Textiles: Currently, the Textile industry is paying the tax at the rate of
nearly 12.5% plus surcharges and which varies upon the MRP of the
products. Since there is no clear idea about the tax rate of this industry
under the regime of GST it is expected at the rates of 15% which will be
having a moderate impact on the industry.
This moderate impact may either be neutral or slightly negative
when compared to the other present system of taxation. But they will be
benefited through the reduction of cost in transportation, savings etc.
g. Media and Entertainment: The tax rate for the Media is around 22% as
of now and since the authority for the levy of taxes remains to be the
right of the local bodies, it is expected that the cinema fares are expected
to come down after the GST regime and the cost of DTH and cable
television services are likely to become costlier. There is somewhat
either neutral or slightly negative impact of GST on the Media and
Entertainment Industry.
h. Consumer durables: The current of tax rate of this industry is around the
range between 23-25%. And under the GST regime it is considered to
be lower around 15-18% which will be positive impact to this industry.

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i. Cement: The cement industry currently pays the tax at the rate of 25%
currently. And, after the GST regime, it is expected to be fixed at the
rate of 18 to 20%. This will be a major relief for the companies of that
industry. And the logistics tax also is to be reduced; it would be a double
benefit for all the industries involved in manufacturing.
j. Real estate: Real estate contributes about nearly 7.3% of India’s GDP
and it is the largest generator of employment immediately after IT. Real
estate is said to get a positive impact under the GST regime immediately
after its implementation. It is expected that since there is a single system
of Taxation under GST, all other forms of indirect taxation will be
removed which results on reduction of property prices and the cost of
construction. Thus, we can have a positive impact of GST on the Real
estate sector.

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