GOODS AND SERVICES TAX (GST) IN INDIA

Report
A Presentation by
CA. Preeti Goyal
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GST is a tax on goods and services with comprehensive and continuous chain
of setoff benefits from the Producer’s point and Service provider’s point up to
the retailer level.
GST is expected be levied only at the destination point, and not at various
points (from manufacturing to retail outlets). It is essentially a tax only on
value addition at each stage and a supplier at each stage is permitted to setoff
through a tax credit mechanism which would eliminate the burden of all
cascading effects, including the burden of CENVAT and service tax.

Under GST structure, all different stages of production and distribution can be
interpreted as a mere tax pass through and the tax essentially sticks on final
consumption within the taxing jurisdiction.

Currently, a manufacturer needs to pay tax when a finished product moves out
from the factory, and it is again taxed at the retail outlet when sold. The taxes
are levied at the multiple stages such as CENVAT, Central sales tax, State
Sales Tax, Octroi, etc. will be replaced by GST to be introduced at Central and
State level.
Continued…….
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
All goods and services, barring a few exceptions, will be brought into the GST
base. There will be no distinction between goods and services.

Under GST, the taxation burden will be divided equitably between manufacturing
and services, through a lower tax rate by increasing the tax base and minimizing
exemptions.

However, the basic features of law such as chargeability, definition of taxable
event and taxable person, measure of levy including valuation provisions, basis of
classification etc. would be uniform across these statutes as far as practicable.

The existing CST will be discontinued. Instead, a new statute known as IGST will
come into place on the inter-state transfer of the Goods and Services.

By removing the cascading effect of taxes (CST, additional customs duty,
surcharges, luxury Tax, Entertainment Tax, etc. ),CGST & SGST will be charged
on same price .
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Tax Structure
Direct Tax
Income Tax
Indirect Tax
Wealth Tax
Excise
Central Tax
Service Tax
State Tax
Custome
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VAT
Entry Tax, luxury
tax, Lottery Tax,
etc.
Tax Structure
Indirect Tax =
GST (Except
customs)
Direct Tax
Income Tax
Wealth Tax
Intra- state
CGST (Central)
SGST (State)
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Inter State
IGST (Central)
•Central Excise
CGST
•Additional duties of Custom (CVD)
•Service Tax
•Surcharges and all cesses
•VAT/sales tax
•Entertainment Tax
•Luxury Tax
•Lottery Tax
SGST
•Entry Tax
•Purchase Tax
•Stamp Duty
•Goods and passenger Tax
•Tax on vehicle
•Electricity, banking, Real state
IGST
• CST
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
SGST and CGST for intrastate transaction : In the GST system, both Central
and State taxes will be collected at the point of sale. Both components (the
Central and State GST) will be charged on the manufacturing cost. This will
benefit individuals as prices are likely to come down. Lower prices will lead to
more consumption, thereby helping companies.

IGST for Interstate transaction: ‘IGST Model’ will be in place for taxation
of inter State transaction of Goods and Services. The scope of IGST Model is
that center would levy IGST which would be CGST plus SGST on all inter
State transactions of taxable goods and services with appropriate provision for
consignment or stock transfer of goods and services.

The GST paid on the purchase of goods and services, to be paid on the supply
of goods and services.

There should be no distinction between raw materials and capital goods in
allowing input tax credit. The tax base should comprehensively extend over all
goods and services up to final consumption point on value addition.

Assessable value for all the taxes will be same.
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1.
Manufacturer
5.Government
and Banks
2. Wholesaler
Goods
+
Services
4.Consumer
3.Retailer
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•Input Credit of Goods+ services
Manufacturer
•After taking set off of Input credit, pay the Output Liability on value addition
•Input Credit of Goods+ services from manufacturer
Wholesaler
•After taking set off of Input credit, pay the Output Liability on value addition
•Input Credit of Goods+ services from wholesaler
Retailer
Consumer
•After taking set off of Input credit, pay the Output Liability on value addition
• Ultimate Output Liability recovered from consumer
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Since the Central GST and State GST are to be treated
separately, in general, taxes paid against the Central GST
shall be allowed to be taken as input tax credit (ITC) for the
Central GST and could be utilized only against the payment of
Central GST. The same principle will be applicable for the
State GST.
Cross utilization of ITC between the Central GST and the State
GST would, in general, be allowed.
ADC paid on Import of goods and service would fall under the
IGST and this duty would be allowed for setoff of SGST and
CGST.
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IGST Input
CGST Input
SGST Input
IGST
Output
IGST
Output
IGST
Output
CGST
Output
CGST
Output
CGST
Output
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The illustration shown below indicates, in terms of a hypothetical example
with a manufacturer, one wholesaler and one retailer, how GST will work.
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Manufacturer : Let us suppose that CGST rate is 10% and SGST rate is 5% ,
with the manufacturer making value addition of Rs.30 on his purchases
worth Rs.100 of input of goods CGST paid @10%) and services used in the
manufacturing process. The manufacturer will then pay net CGST of Rs. 3
after setting-off Rs. 10 as CGST paid on his inputs (i.e. Input Tax Credit)
from gross CGST of Rs. 13 and Rs, 6.5 as SGST.
Gross Value:130 on that CGST 13/- and SGST 6.5/Input Credit:
CGST 10-/ and SGST NIL/Net Liability:
Rs. 3 + 6.5 = 9.5/Wholesaler: The manufacturer sells the goods to the wholesaler. When the
wholesaler sells the same goods after making value addition of (say), Rs.
20, he pays net CGST of only Rs. 2, after setting-off of Input Tax Credit of
Rs. 13, from the gross CGST of Rs. 15 and net SGST of only Rs. 1, after
setting-off of Input Tax Credit of Rs. 6.5, from the gross SGST of Rs. 7.5 to
the manufacturer.
Gross Value:150 on that CGST 15/- and SGST 7.5/Input Credit:
CGST 13-/ and SGST 6.5/Net Liability:
Rs. 2 + 1 = 3/Continued…….
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

Retailer: Similarly, when a retailer sells the same goods after a
value addition of (say) Rs. 10, he pays net CGST of only Re.1,
after setting-off Rs.15 from his gross GST of Rs. 16 and net
SGST of only Rs. 0.5, after setting-off of Input Tax Credit of Rs.
7.5, from the gross SGST of Rs. 8/- paid to wholesaler.
Gross Value:160 on that CGST 16/- and SGST 8/Input Credit:
CGST 15-/ and SGST 7.5/Net Liability:
Rs. 1 + 0.5 = 1.5/-
Total Liability: Thus, the manufacturer, wholesaler and retailer
have to pay only Rs. 6 (= Rs. 3+Rs. 2+Rs. 1) as CGST Rs. 8 (= Rs.
6.5+Rs. 1+Rs. 0.5) as SGST and on the value addition along the
entire value chain from the producer to the retailer, after
setting-off GST paid at the earlier stages. This is shown in the
table in next slide. The same illustration will hold in the case of
final service provider as well.
Continued…….
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Purc
Stage
hase
of
Valu
Suppl
e
y
Of
Chai
Inpu
n
t
Value
at
Which
Rate
CGS
Valu Supply
CGST
Rate of
T on
e
Goods
on
of
SGS
Outp
Addi and
Outpu
SGST T
ut
tion Service
t
s Made
to Next
Stage
Man
ufact 100 30
urer
Whol
e
130 20
Selle
r
Retai
150 10
ler
130
150
160
10%
5% 13
10% 5%
10% 5%
15
16
6.5
7.5
8
Net
Inpu
Net
SGST
t
CGST= =SGS
Input
Tax
CGST T on
Tax
Cre
on
outpu
Credi
dit
output- tt on
on
Input
Input
SGST
CGS
Tax
Tax
T
Credit Credit
10
13
15
0
13–10
=3
6.50=
6.5
6.5
15–13
=2
7.56.5=
1
7.5
16–15
=1
87.5=
0.5
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After introduction of GST, all the traders including manufacturer will be paying both the types of taxes
i.e. CGST and SGST. The Central GST and the State GST would be levied simultaneously on every
transaction of supply of goods and services except the exempted goods and services, goods which are
outside the purview of GST and the transactions which are below the prescribed threshold limits.
Further, both would be levied on the same price or value unlike State VAT which is levied on the value
of the goods inclusive of CENVAT, i.e CGST & SGST will be charged on same price
 Supply of Goods: Suppose the rate of CGST is 10% and that of SGST is 10%. When a wholesale
dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company, which is also
located within the same State for , say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of
Rs. 10 in addition to the basic price of the goods.
 Supply of Services : Suppose, that the rate of CGST is 10% and that of SGST is 10%. When an
advertising company located in Mumbai supplies advertising services, to a company manufacturing
soap which is also located within the State of Maharashtra for, Rs. 100, then the ad company would
charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the service.
In both the cases, he would be required to deposit the CGST component into a Central Government
account and the SGST portion into concerned State Government account. He need not actually pay duty
in cash, as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases
(say, inputs). But for paying CGST he would be allowed to use only the credit of CGST & SGST paid on
his purchases respectively. In other words, CGST credit cannot, in general, be used for payment of SGST.
Nor
can
SGST
credit
be
used
for
payment
of
CGST.
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With Constitutional Amendments, both CGST and SGST will be levied on
import of goods and services into the country.
The incidence of tax will follow the destination principle(Place of supply
rules).
Tax revenue in case of SGST will accrue to the State where the imported
goods and services are consumed.
Full and complete set-off will be available on the GST paid on import on
goods and services.
Thus, import of goods will attract BCD and IGST. It may be noted that
import of services, as against service tax at present, in GST regime, will
attract IGST.
Basic Custom Duty will continue to there under GST system. However, the
additional custom duty in lieu of CVD /Excise and the Special Additional
Duty (SAD) in lieu of sales tax/VAT will be subsumed in the import GST.
The import of services will be subject to Central GST and State GST on a
reverse charge mechanism. In other words, the GST will be payable by the
Importer on a self declaration basis.
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It will cover all types of person carrying on business
activities, i.e. manufacturer, job-worker, trader, importer,
exporter, all types of service providers, etc.
If a company is having four branches in four different states,
all the four branches will be considered as TP (Taxable
person) under each jurisdiction of SGs.
A dealer must get registered under CGST as it will make
him entitle to claim ITC of CGST thereby attracting buyers
under B2B (Business to Business) transactions.
Importers have to register under both CGST and SGST as
well.
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GST on export would be zero rated.
Similar benefits may be given to Special Economic Zones
(in processing zones only).
No benefit to the sales from an SEZ to Domestic Tariff
Area (DTA).
GST paid by Exporter on the procurement of goods
and services will be refunded.
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
Each taxpayer would be allotted a PAN linked taxpayer
identification number with a total of 13/15 digits.

This would bring the GST PAN-linked system in line with the
prevailing PAN-based system for Income tax facilitating data
exchange and taxpayer compliance.

The exact design would be worked out in consultation with
the Income-Tax Department.
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The taxpayer would need to submit periodical returns to
both the Central GST authority and to the concerned State
GST authorities.
ITC credit can also be verified on the basis of the returns
filed and revenues reconciled against Challan data from
banks.
Common standardized return for all taxes (with different
account heads for CGST, SGST, IGST) can come into
picture.
Common standardized Challan for all taxes (with different
account heads for CGST, SGST, IGST) can come into
picture.
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Existing Practice
GST
Excise Duty-Manufacturing,
Taxable event is “Supply “ of Goods &
service
Sales Tax/VAT- Sale of Goods
The location of the supplier and the
recipient within the country is immaterial
for the purpose of CGST.
Service Tax- Realization of Service
SGST would be chargeable only when the
supplier and the recipient are both
located within the State.
Inter state Supply of goods and services
will attract IGST.
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The Task Force on GST said the computation of CGST and
SGST liability should be based on the Invoice credit
method. i.e., allow credit for tax paid on all intermediate
goods and services on the basis of invoices issued by the
supplier.
Invoice level detail is necessary for the reconciliation of tax
deposits, and the end-to-end reconciliation of ITC. An
effective IGST implementation may also require invoicelevel details.
A number of states are capturing invoice details even in the
existing VAT systems. It is proposed to follow a twopronged approach with Dealer level granularity of returns in
the first phase followed by invoice level in the next phase.
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
The combined GST rate is being discussed by government.
The rate is expected around 16 per cent. After the total GST
rate is arrived at, the States and the Centre will decide on
the CGST and SGST rates. Currently, services are taxed at
12 per cent and the combined charge indirect taxes on most
goods are around 20 per cent.

Today the Rate of GST in some countries are Australia10%,
France19.60%, Canada5%, Germany19%, Japan5%,
Singapore7%, Sweden25%, New Zealand15% &
Pakistan17%
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Alcohol, tobacco, petroleum products are likely to be out of the GST regime.
Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of
GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the existing
practice. In case it has been made VA table by some States, there is no objection to that. Excise
Duty, which is presently levied by the States may not also be affected.
Tax on Petroleum Products:
Petroleum and petroleum products have also been
constitutionally brought under the 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.
Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre
may be allowed to levy excise duty on tobacco products over and above GST with ITC.
Taxation of Services: As indicated earlier, both the Centre and the States will have concurrent
power to levy tax on goods and services. In the case of States, the principle for taxation of
intra-State and inter46 State has already been formulated by the Working Group of Principal
Secretaries /Secretaries of Finance / Taxation and Commissioners of Trade Taxes with senior
representatives of Department of Revenue, Government of India. For inter-State transactions an
innovative model of Integrated GST will be adopted by appropriately aligning and integrating
CGST and IGST.
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A Composition/Compounding Scheme will be an important feature
of GST, to protect the interests of small traders and small scale
industries. The Composition/Compounding scheme for the
purpose of GST should have an upper ceiling on gross annual
turnover and a floor tax rate with respect to gross annual
turnover.
In particular there will be a compounding cut-off at Rs. 50 lakhs
of the gross annual turnover and the floor rate of 0.5% across the
States. The scheme would allow option for GST registration for
dealers with turnover below the compounding cut-off.
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Based on the legal provisions and procedure
for GST, the content of work-flow software
such as ACES (Automated Central Excise &
Service Tax) would require review.
On the IT front, there has been consensus
that there will be a common portal providing
three core services (registration, returns and
payments).
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Send Challan
Taxpayer
Banks and RBI
File Returns
Upload Challan
Details
CBEC
State 1Portal
(Central
Portal)
CGST and
IGST Returns
Common GST
Portal
(Reconciliation
system)
State 2 Portal
SGST and
IGST Return
CBDT
MCA
NSDL
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State N Portal

Under the CGST model proposed, with
threshold of annual turnover of Rs.10 lakhs,
the present Assessee base of Excise and
Service Tax of about 10 lakhs will increase to
about 50 lakhs as every manufacturer and
Trader above the specified threshold will be
liable to CGST.
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The Exporting State will transfer to the Centre
the credit of SGST used in payment of IGST.
The Importing dealer will claim credit of IGST
while discharging his output tax liability in
his own State,
The Centre will transfer to the importing State
the credit of IGST used in payment of SGST,
The relevant information will also be
submitted to the Central Agency which will
act as a clearing house mechanism.
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Major flaw of this model is ,Local Dealers have to pay
CGST in addition to SGST.
In Addition to this, CGST mainly represents the
Excise/service tax and SGST mainly represents the VAT
portion but, because of ‘No differentiation between
Goods and Services’ service supply within the state
would attract SGST as GST is levied at each stage in the
supply chain and Assessee have to Pay CGST as well
SGST.
The issue which still needs to be resolved are, the revenue
sharing between States and Centre, and a framework for
exemption, thresholds and composition.
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