TAX LAW II

Overview of GST
 It is India’s biggest indirect tax reform and was introduced in India from
1 July 2017.
o Current scenario of the world economy depicts that more than 140
nations worldwide use the GST system. Like Canada, India adopted a
dual GST (CGST and SGST) system.
 It follows a multi-stage collection mechanism.
o It is a single tax on the supply of goods and services, right from the
manufacturer to the consumer.
 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.
Salient Features of GST
 It 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.
 It is based on the principle of destination-based
consumption taxation as against the present principal of origin-
based taxation.
 It is a dual GST with the Centre and the States
simultaneously levying tax on a common base.
o The 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).
o An Integrated GST (IGST) would be levied an inter-state supply
(including stock transfers) of goods or services.
o GST is being levied at four rates viz. 5%, 12%, 16% and 28%.
 The GST would apply to all goods other than alcoholic liquor for
human consumption and five petroleum products, viz. petroleum
crude, motor spirit (petrol), high speed diesel, natural gas and aviation
turbine fuel.

Constitutional Framework of GST

Article 246A: Special Provision for GST

This Article was newly inserted to give power to the Parliament and the
respective State/Union Legislatures to make laws on GST respectively
imposed by each of them. However, the Parliament of India is given the
exclusive power to make laws with respect to inter-state supplies. The IGST
Act deals with inter-state supplies. Thus, the power to make laws under the
IGST Act will rest exclusively with the Parliament. Further, the article
excludes the following products from the scope of GST until a date
recommended by the GST Council:
 Petroleum Crude
 High-Speed Diesel
 Motor Spirit
 Natural Gas
 Aviation Turbine Fuel
Article 269A: Levy and Collection of GST for Inter-State Supply
While Article 246A gives the Parliament the exclusive power to make laws
with respect to inter-state supplies, the manner of distribution of revenue
from such supplies between the Centre and the State is covered in Article
269A. It allows the GST Council to frame rules in this regard. Import of
goods or services will also be called as inter-state supplies. This gives the
Central Government the power to levy IGST on import transactions. Import
of goods was subject to Countervailing Duty (CVD) in the earlier scheme of
taxation. IGST levy helps a taxpayer to avail the credit of IGST paid on
import along the supply chain, which was not possible before.
Article 279A: GST Council
This Article gives power to the President to constitute a joint forum of the
Centre and States called the GST Council. The GST Council is an apex
member committee to modify, reconcile or to procure any law or regulation
based on the context of Goods and Services Tax in India.
Article 286: Restrictions on Tax Imposition
This was an existing article which restricted states from passing any law
that allowed them to collect tax on sale or purchase of goods either outside
the state or in the case of import transactions. It was further amended to
restrict the passing of any laws in case of services too. Further, the term
‘supply’ replaces ‘sale or purchase’.
Article 366: Addition of Important definitions
Article 366 was an existing article amended to include the following
definitions:
 Goods and Services Tax means the tax on supply of goods, services or
both. It is important to note that the supply of alcoholic liquor for
human consumption is excluded from the purview of GST.
 Services refer to anything other than goods.
 State includes Union Territory with legislature.

Amendment of Indian Constitution for GST

The Constitution contains the Union List and the State List within which the
power to levy separate taxes is given to the Centre and States
respectively. GST was to be levied in such a way that both the Centre and
the States received the power to levy and collect it. Further, the legislation
had to remain consistent across the Centre and the various State/Union
Territory Legislatures. To provide for this, an amendment in the
Constitution was necessary.
Constitution (101st Amendment) Act, 2016
In order to suitably implement the GST legislation, this Act resulted in the
insertion, deletion and amendment of certain Articles of the Constitution.
The following matters were dealt with as a result of these changes:
 The delineation of powers to levy and make laws with respect to GST
 The applicability and scope of the GST law
 The manner of apportionment of revenue from GST among Centre and
States
 The constitution, powers and duties of the GST Council
 The discontinuation of existing taxes to give way for GST
 The manner of providing compensation to States for loss of revenue on
account of the introduction of GST

What does the Seventh Schedule State?

The Seventh Schedule to Article 246 contains three lists, which contain the
matters under which the Union and the State Governments have the
authority to make laws.
List – I: Union List
It contains the matters with respect to which the Parliament (Central
Government) have the exclusive right to make laws.
List – II: State List
It contains the matters in respect of which the state government has the
exclusive right to make laws.
List – III: Concurrent List
It contains the mattes in respect of which both the Central and State
Governments have the power to make laws. The relevant entries in this list
were adjusted in such a way as to provide for the following:
 To continue the levy of excise duty by the Centre on
manufacture/production of five petroleum products namely:
petroleum crude, high-speed diesel, motor spirit, natural gas, and
aviation turbine fuel. In addition to the above, excise duty is also
levied on tobacco and tobacco products. As a result, tobacco and
tobacco products are subject to both excise duty and GST.
 The power to levy taxes on the five petroleum products was given to
the states too.
 Entertainment tax was abolished except where it is levied by local
bodies.
Indirect Taxes
Levied based on the production, sale or purchase of goods or provision of
services in various forms such as import and export duty, excise, sales tax,
value-added tax, service tax, entertainment tax, electricity duty, tax on
passenger fares and freights etc.
Defects in structure of Indirect Taxes before GST
Over the period of almost six decades the prevailing indirect tax regime
created complexities and showed several shortcomings forcing Government
to overhaul the existing system. These short comings are summarised
below:
1. Cascading Effect: Both central and state Government levy tax on the
same goods. Former
levy tax on manufacture of goods and the later levy VAT on sale of very same
goods. State
Government does not permit credit of excise duty paid by the manufacture
to the dealer on
sale of goods. Thus VAT is also payable on excise duty component of the
price resulting in
cascading effect. Similarly service tax is payable on rendering of service. No
credit of service
tax paid on input service used in selling of goods is provided by the state
government. So tax
is levied on tax. It boosted inflation.
2. Multiplicity of Tax/Cess: Multiple taxes were levied in pre GST regime
like Excise duty, VAT, Entry tax, luxury tax, Entertainment tax, Service tax,
Octroi etc. These taxes were in additions
to various cesses imposed by State and Central Government like Krishi
Kalyan Cess, clean
energy cess etc. All this made the tax structure very cumbersome.
3. Overlapping of Jurisdiction: Over the years, distinction between goods
and services has become hazy, due to which there is overlapping of state
VAT and Central Service tax on transactions like works contract, food
related services of restaurants, caterers, computer software, SIM cards,
renting of movable property etc. In these cases it was difficult to judge
whether the transaction was sale of goods or rendering of service. Therefore
both the central and state Government would impose tax.
4. Rivalry amongst states: Pre-GST regime of indirect tax was not
destination based tax but
origin based tax. In that regime taxes are collected and utilized by the state
administration
where goods/services are transacted/manufactured or supplied. This would
encourage state
to provide sales tax/VAT relief to attract industries and at the same time
discourage supply
of goods from other state by imposing entry tax, octroi, luxury tax etc. on
goods coming from
other states.
5. Hindrance to Integrated market system: India despite being one nation
could not develop
into a national market due to invisible barriers of Central State tax, VAT,
entry tax etc. as
mentioned in last point. These invisible barriers were visible in the form of
check posts on
the boundaries of states.
6. Loss of Man and Truck hours: Due to check posts mounted by states on
entry point million
of man hours and Truck hours were lost Besides that huge corruption was
involved which
made logistics management a costly affairs.
7. Difficulty in Compliance for Taxpayers: As mentioned already pre GST
regime had multiplicity of Tax and consequently tax laws. Moreover each tax
had a different taxable event like manufacture for Excise, VAT for sales etc.
Also there were multiple of Tax authorities.
Compliance required voluminous efforts on the part taxpayers. It also
promoted Inspector
raj.
8. Difficulty in Cross Verification of Credit availed by Assessee: Earlier
it was difficult for the tax department to get the verification report from
supplier of goods to know whether the
supplier has issued particular invoice on the basis of which input tax credit
has been taken by
the purchaser. Due to lack of online data the verification was done off line.
Often the report
of supplier was not received or received after considerable lapse of time.
Many scrupulous
dealer exploited this and availed fraudulent credit.
9. Tax Evasion: Burden of compliance, multiplicity of tax laws increased
the propensity to evade taxes. Fudging of records, concealment of
transaction, bribing the tax officials were the tools adopted to remain out of
tax net.
10. Huge Amount of litigation: With multiple tax laws each having
different taxable events result was lot of disputes regarding availment of
credit, determining manufacture of goods, value of goods, classification of
goods etc. Dispute settlement mechanism is almost choked with such
disputes resulting in pendency of tax demands.
GST STRUCTURE IN INDIA (SGST, CGST, UTGST &IGST);

Under the GST law, the central government will collect CGST, SGST or IGST
depending upon whether the transaction is intrastate or interstate.
Unlike earlier when there were multiple taxes such as Central Excise,
Service Tax, State VAT, etc., the GST introduces just one tax with three
components- CGST, SGST and IGST.
When the supply of goods or services happens within a state called intra-
state transactions, then both the CGST and SGST will be collected. Whereas
if the supply of goods or services happens between the states called inter-
state transactions, then only IGST will be collected.
The use of correct GSTIN becomes important to identify the applicability of
taxes. Hence, validate with the help of the GST search tool before using the
GST number in the sales invoice.
It is to be noted that the GST is a destination-based tax, which is received
by a State in which the goods are consumed but not by a state in which
such goods are manufactured.

IGST
The full form of IGST is Integrated Goods and Services Tax. Under GST,
IGST is a tax levied on all interstate supplies of goods and/or services or
across two or more states/Union Territories. Further, IGST levy and
collection will be governed by the IGST Act, 2017, as amended from time to
time.
IGST will be applicable on any supply of goods and/or services in both cases
of import into India and export from India.
Under IGST,
 Exports would be zero-rated.
 Tax will be shared between the Central and State governments.

Example: Consider that a businessman M/s Rajesh Ltd from Chandigarh in

India had sold goods to Anand Ltd from Dadra & Nagar Haveli & Daman &
Diu in India worth Rs. 1,00,000. The GST rate is 18% referring particularly
to the 18% IGST. In such a case, the dealer has to charge Rs. 18,000 as
IGST. This IGST will go to the Centre, later split between the Centre and
Dadra & Nagar Haveli & Daman & Diu (if this is ultimate consuming state).
CGST
The full form of CGST is Central Goods and Services Tax. Under GST, CGST
is a tax levied on intrastate supplies of both goods and services by the
Central Government and collected by it for its coffers. Accordingly, the levy
and collection of CGST are governed by the provisions of the CGST Act,
2017 as amended from time to time.
Together with CGST, an equal value of SGST will also be levied on the same
intrastate supply but will be governed by the particular state government.
In other words, if a seller sells a product to a buyer within the same state,
say Telangana, then CGST and SGST will apply.
This implies that both the Central and state governments will agree on
combining their levies with an appropriate proportion for revenue sharing
between them.
It is clearly mentioned in Section 8 of the CGST Act that the taxes be levied
on all intrastate supplies of goods and/or services but the rate of tax shall
not be exceeding 14%, each.
Note: Any tax liability obtained under CGST can be set off against CGST or
IGST input tax credit only and not any SGST.

SGST
SGST means State Goods and Services Tax. Under GST, an equivalent
amount of SGST is a tax levied on intrastate supplies of both goods and
services by the particular state government where the product sold is
consumed.
Therefore, levy and collection of SGST are governed by the respective state’s
SGST Act, 2017 as amended from time to time. After the introduction of the
SGST, all the state taxes such as the value-added tax, entertainment tax,
luxury tax, entry tax, etc. were merged under SGST.
As explained above, CGST will also be levied on the same intrastate supply
but will be governed by the Central Government.
Note: Any tax liability obtained under SGST can be set off against SGST or
IGST input tax credit only and not CGST.

Example
Let’s suppose M/s Rajesh Ltd is a dealer in Chattisgarh who sold goods to
Vijay Ltd in Chattisgarh worth Rs. 10,000. The GST rate is 18% comprising
of a CGST rate of 9% and an SGST rate of 9%.
In such a case, the dealer collects a total of Rs. 1,800 and deposits over the
GST portal, out of which Rs. 900 will be apportioned to the Central
Government and Rs. 900 will go to the
Chattisgarh Government.
India is a federal country where both the Centre and states have been
assigned the powers to levy and collect taxes by our Constitution. Both
governments have distinct responsibilities to perform for which they need to
raise tax revenue, in the form of GST.
The Centre and states are simultaneously levying GST. The three-type tax
structure is implemented to help taxpayers take the credit against each
other, thus ensuring “One Nation, One Tax”.

To determine whether Central Goods & Services Tax (CGST), State Goods &
Services Tax (SGST) or Integrated Goods & Services Tax (IGST) applies in a
taxable transaction, find if the transaction is intrastate or an interstate
supply.
 Intrastate supply of goods or services is when the location of the
supplier and the place of supply i.e., the location of the buyer are in
the same state. In Intrastate transactions, a seller has to collect both
CGST and SGST from the buyer. The CGST gets deposited with the
Central Government and SGST gets deposited with the State
Government.
 Interstate supply of goods or services is when the location of the
supplier and the place of supply are in different states. Also, in cases
of export or import of goods or services or when the supply of goods or
services is made to or by an SEZ unit, the transaction is assumed to
be interstate. In an interstate transaction, a seller has to
collect IGST from the buyer.

GST COUNCIL
GST council is a governing body to regulate and directs each and every step
for the implementation of goods and service tax in the nation with decisions
over tax rates and further implementation measures. GST council
assimilates suggestions and regulation into one form and improvise the
changes formally through notifications and circulars with its departments
and finance ministry.
The birth of the GST Council is attributed to the 101st Amendment Act of
2016, which ushered in a new tax regime, the goods and services tax (GST),
in India. The efficient implementation of this tax needed a harmonious
relationship and coordination between the centre and the states.
To facilitate this interaction, the amendment proposed the formation of a
GST Council. Subsequently, a new Article 279-A was added to the
Constitution of India, giving the President the power to establish a GST
Council by an order.
Following this, the President constituted the Council in 2016. The Council's
Secretariat is located in New Delhi, and the Union Revenue Secretary serves
as the ex-officio Secretary to the Council.
The Council aims to set the highest standards of cooperative federation in
its functioning, being the first constitutional federal body with the power to
make all major decisions related to GST.
The Council strives to evolve a GST structure that is driven by information
technology and user-friendly through extensive consultation.

GST Council Constitution

According to Article 279A, it is on the part of the president to give the order
to constitute the council of GST within 60 days from the 12th of September
2016 which is already notified by the Government.
Following are the designated personnel, who will form the GST Council
together:-
o The Union Finance Minister, who serves as the Chairperson
o The Union Minister of State in-charge of Revenue or Finance
o The Minister in-charge of Finance or Taxation or any other Minister
nominated by each state government
The state members of the Council elect one among themselves to be the
Vice-Chairperson of the Council and also decide his term. The Union
Cabinet has also included the Chairperson of the Central Board of Excise
and Customs (CBEC) as a permanent invitee (non-voting) to all proceedings
of the Council.
How the GST Council Operates
The Council makes decisions at its meetings, with a quorum of half of the
total members required to conduct a meeting. Every decision requires a
majority of not less than three-fourths of the weighted votes of the members
present and voting.
The voting principles are as follows:
(i) The central government's vote carries a weightage of one-third of the total
votes cast.
(ii) The combined votes of all the state governments carry a weightage of two-
thirds of the total votes cast.
The Council's actions or proceedings will not be invalidated on the grounds
of any vacancy or deficit in the Council's constitution, any defect in a
person's appointment as a Council member, or any procedural irregularity
not affecting the case's merits.
Functions of the GST Council
The GST Council has the following key roles and responsibilities:
o It decides which goods and services will be subject to GST and which
will be exempted. This is a critical aspect of ensuring fair taxation
across different sectors.
o The council is responsible for proposing Model GST Laws, which serve
as the framework for implementing GST across the country.
o It formulates principles that dictate the place of supply, which is
essential to determine where goods and services are taxed.
o The council also establishes threshold limits for GST. This is
important in determining which businesses are required to register for
GST.
o It sets GST rates, including floor rates with bands. This is crucial in
ensuring that the tax burden is equitably distributed.
o The council can propose special rates to raise additional resources
during times of natural calamities or disasters. This is an important
measure to ensure the government has the necessary funds to
respond effectively in such situations.
o Lastly, the GST Council can make special provisions for certain
States. This allows for flexibility in tax implementation to
accommodate unique state need.