GST - AR

Introduction to GST ?

The Constitution (One Hundred First) Amendment Act, 2016’ (Annexure-1), amended the Constitution of India to facilitate the introduction of Good and Service Tax (GST) in the Country. The amendments under Article 246 A in the Constitution confers powers both to the Parliaments and the State legislatures to make laws for levying GST on the supply of goods and services on the same transaction.

Rationale Behind Moving Towards GST

Presently, the Constitution empowers the Central Government to levy exercise duty on manufacturing and service tax on the supply of service. Further, it empowers the State Government to levy sales tax or value added tax (VAT) on the sale of goods. This exclusive division of fiscal powers has led to a multiplicity of indirect in the country. In addition, Central Sales Tax (CST) is levied on inter-State sale of goods by Central Government, but collected and retained by exporting States. Further many States levy an entry tax on the entry of goods in local areas.

This multiplicity of taxes at the States and Central levels has resulted in complex indirect tax structure in the country that is ridden with hidden costs for the trade and industry. Firstly, there is no uniformity of tax rates and structure across States. Secondly, there is no cascading of taxes due to ‘tax on tax’ No credit of excise duty and service tax paid at the stage of manufacturing is available to the traders while paying the State Level Sales Tax or VAT, and vice-versa. Further, no credit of State taxes paid in one State can be availed in other States. Hence, the prices of goods and services get artificially inflated to the extent of this ‘tax on tax’.

The introduction of GST would mark a clear departure from the scheme of distribution of fiscal powers envisaged in the Constitution. The proposed dual GST envisages taxation of the same taxable event, i.e. , supply of goods and services, simultaneously by both the Centre and States. Therefore, both Centre and States have been empowered to levy GST across the value chain from the stage of manufacture to consumption. The credit of GST paid on inputs at every stage of value addition would be available for the discharge of GST liability on the output, thereby ensuring GST is charged only on the component of value addition at each stage. This would ensure that there is no ‘tax on tax’ in the country.

GST will simplify and harmonize the indirect tax regime in the country. It is expected to reduce cost of production and inflation in the economy, thereby making the Indian trade and industry more competitive, domestically as well as internationally. It is also expected that introduction of GST will foster a common or seamless Indian Market and contribute significantly to the growth of economy.

Further, GST will broaden the tax base, and result in the better tax compliance due to robust IT infrastructure, Due to seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.

Salient Features of Proposed GST

Dual GST

Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on \every supply of goods and services. Centre would levy and collect Central Goods and Services TAX (CGST), and States would levy and collect the States Goods and Services TAX (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output of each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.

Inter-State Transactions and the IGST Mechanism:
Destination-Based Consumption Tax:

GST will be destination-based tax. This implies that SGST collected will ordinarily accrue to the State where the consumer of the goods or services sold resides.

i) Central Taxes to be subsumed :

Central Excise Duty.
Additional Excise Duty.
The Excise Duty levied under the Mechanical and Toiletries Preparations Act.
Service Tax.
Additional Customs Duty, commonly known as Countervailing Duty (CVD).
Special Additional Duty of Customs-4% (SAD).
Cesses and surcharges in so far as they relate to supply of goods and services.

ii) State Taxes to be subsumed:

VAT/Sales Tax.
Central Sales Tax (levied by the Centre and collected by the States).
Entertainment tax.
Octroi and Entry Tax (all forms).
Purchase Tax.
Luxury Tax.
Taxes on lottery, betting and gambling.
State cesses and surcharges in so far as they relate to supply of goods and services.

All goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST.

Petroleum and petroleum products have been constitutionally included as ‘goods’ under GST. However, it has been also provided that petroleum and petroleum products shall not be subject to the levy of GST till notified at 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.

Taxes on tobacco and tobacco products imposed by the Centre shall continue to be levied over and above GST.

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.

Introduction to GST ?

Rationale Behind Moving Towards GST

Salient Features of Proposed GST

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