The multiple taxes have cascading effect on cost leading to ... Because of the removal of cascading effect, the burden o
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Every reform is a door of opportunity for professionals.
Dear Readers,
They are assuming great responsibilities to stabilize the
If you think like most professionals, you know that GST reforms will
impact of reforms. The professionals are doing it by
open a great gateway for future scope of work in coming days,
disseminating their knowledge and helping stakeholders
you are absolutely right. GST is one of the most awaited taxation
to practice the reform in their area of activity.
reforms by domestic and multinationals industries.
In this eBook, you will be introduced to the fundamental
GST will aim to reduce number of indirect taxes and make
knowledge of GST reforms and its workings. It focuses on
Indirect Taxation geographically uniform all over India. The GST
the introductory knowledge to understand, how GST will
frame-work also allows utilising those tax inputs which in the
open new avenues of work in which a professional can
present regime are blocked and not available for set-off from tax
work and get opportunities.
leviable on the output.
I hope this book will help you to gain basic knowledge
Since 1991, a series of reforms have been brought by
upto a level from where you set to acquire of expert and
Government to create conducive business environment in line
industry specific knowledge.
with international practices. The process of reform seems slow sometimes but it is important for Government to analyse, discuss and streamline the process before bringing out the reforms.
Thank you for downloading this eBook. I truly hope you will please to read it as much as I had pleasure in writing it.
Considering geographical size and involvement of multiple stakeholders, the rise in GDP and economic stability evident that
Thank you for downloading this eBook. I truly hope you
India is moving in right track of development through reforms.
enjoy reading it as much as I enjoyed writing it.
Economic reforms are conceived by economists and legislatures
Best regards,
transform it into a statute, the bureaucrats implement and regulate it and remove difficulties in its implementation. But professionals are the persons who really make it into a successful reality.
Vineet Sahay
Table of Contents 1.
Introduction
2.
Present Indirect Taxation System of India
3.
Reforms and evolution towards GST.
4.
Justification for Introduction of GST
11.
Unified or Dual GST
12.
Indian Model of GST and its Salient feature
13.
Moving from Origin to Destination bases taxation
14.
Inter-state and Intra-state Supply
15.
Avenue for professional under GST framework.
GST is not just a law, it is a reform that will change the way to do Business Business.
PRESENT TAXATION SYSTEM OF INDIA Taxation Powers in India’s federal structure India comprises 29 states, and Seven “Union Territories”. Out of the Seven Union Territories, Delhi & Pondicherry Pondicher have their own elected legislatures whereas the remaining Union Territories are governed directly by appointees of the Union.. All the 29 states have elected legislatures and Chief Ministers in the executive role. The constitutional assignment of certain statutory powers to the stat states is what makes India a federal system. The Constitution of India provides the frame work for taxation system of India. The power of taxation as provided by Constitu Constitution of India is decentralized and has a three-tier tier federal structure (the union government, the state governments and th the urban/rural local bodies).
Union List -Article Article 246(1) of the Constitution of India specifies that
Article 265 of the Constitut itution of India states as “No tax shall be levied or collected d except e by the authority of law”.
Parliament has exclusive power to make laws with respect to any Article 246-Subject-matter ter of laws made by Parliament and matters enumerated in List-II in the Seventh Schedule to the Constitution
by the Legislatures of States
(in this Constitution referred to as the “Union List”).
State List - Article 246(3) of the Constitution of India specifies that State Government has exclusive power to make law with respect to make law with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referre referred to as the “State List”). Concurrent List - In respect to the matters enumerated in List III (termed as Concurrent List), both Parliament and Legislature of any State have power to make law.
The Union Government has enacted laws to levy: •
Income Tax (except tax on agricultural income, which the state governments can levy),
•
Wealth Tax
•
Central Excise Duty
•
Additional Excise Duties
•
Excise Duty-Medicinal and Toiletries Preparation Act
•
Service Tax
•
Additional CVD
•
Special Additional Duty of Customs – 4% (SAD)
•
Surcharges
•
Ceses
The local bodies are levying and collecting taxes on the following:
The State Governments have enacted laws to collect • •
•
VAT / Sales tax
•
Entertainment tax (unless it is levied by the local bodies)
•
Luxury tax
•
Taxes on lottery, betting and gambling
•
State Cesses and Surcharges (supply of goods and services)
•
Entry tax not in lieu of Octroi
•
Stamp duty (duty on transfer of property),
•
State excise (duty on manufacture of alcohol),
•
Land revenue (levy on land used for agricultural/non-agricultural purposes),
•
Duty on entertainment and tax on professions & callings.
• •
Tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the local bodies), Tax on markets and tax/user Charges for utilities like water supply, drainage, etc.
Multiple Indirect Taxes Presently, there is plethora of indirect taxes either levied by the Central Government as federal taxes or by the State Gover Governments on sales, purchases or movements of goods in their respective jurisdictions. Multiple taxes leads the Industry to several comple plex situation where the compliance of the different tax ta law become difficult and other business activities and decisions become less important than taxation. Best brain of industries busy to decode different taxa taxation laws and precedents which are always contradictory from one location to another.
The Indirect taxation structure can best be described by the following chart: Indirect taxes are imposed on goods and services, services it is so called as it is paid indirectly by the final f consumer of goods and services while paying for purc urchase of goods or for availing services. The Immediate liability lity to pay is of the manufacturer, service provider, or trader butt their t burden is transferred to the ultimate consumers of such goods go or services. The burden is transferred not in form of taxes xes, but, as a part of the price of goods or services.
The present indirect tax structu ture in India comprise of multiple taxes at the central and state levels.
GST JOURNEY OF INDIA The bill to introduce goods and services tax (GST), a comprehensive indirect tax on manufacturing, sale and consumption at a national level, is currently running its last lap. The Lok Sabha passed the constitutional amendment bill on 6 May, 2015. Given the passage of the Constitution Amendment Bill for Goods and Services Tax (GST) in the Rajya Sabha on 3 August 2016, the Government of India seems committed to replace all the indirect taxes levied on goods and services by the Centre and States and implement GST by April 2017. 1. In his 2006 budget speech, finance minister P. Chidambaram moots the idea of moving towards a goods and services tax (GST) and sets a deadline of 1 April 2010 for its implementation. He asks the empowered committee of state finance ministers to come up with a framework. 2. The empowered committee, headed by West Bengal finance minister Asim Dasgupta, releases its first discussion paper on GST in November 2009 after consultations with the central government and within the states. 3. The thirteenth finance commission backs a consumption-based taxation approach with no exclusions and a low tax rate. 4. The Congress-led United Progressive Alliance (UPA) government introduces the constitution amendment bill in the Lok Sabha in March 2011. 5. Parliament refers the bill to the standing committee for finance. 6. Sushil Kumar Modi is appointed as the new chairman of the empowered committee of state finance ministers in June 2012 to replace Asim Dasgupta, whose party, the Communist Party of India (Marxist), is voted out of power in West Bengal. 7. Abdul Rahim Rather, finance minister of Jammu and Kashmir, takes over from Modi after the latter’s resignation. 8. The standing committee submits its recommendations in August 2013 after extensive talks with the centre and the states. It recommends that exclusions under GST be kept at a minimum to avoid distortions. 9. The central government and the states continue to hold deliberations but a trust deficit continues over the federal government’s reluctance to pay compensation to states for losses from phasing out of central sales tax. 10. The constitutional amendment bill lapses with the dissolution of the 15th Lok Sabha in May 2014. 11. The new National Democratic Alliance (NDA) government at New Delhi renews efforts to strike a consensus with states and promises to pay central sales tax compensation to states. 12. After extensive talks with states, finance minister Arun Jaitley introduces the revised constitution amendment bill in the Lok Sabha in December 2014. 13. Kerala finance Minister K.M. Mani appointed as chairman of empowered committee, replacing Rather in March 2015. 14. Lok Sabha passes the bill in May 2015.
JUSTIFICATION FOR INTRODUCTION OF GST
The existing VAT structure has fragmented India into 29 different markets which is just like 29 countries in one country. The present indirect taxation created the tax barriers which is constantly resisting efficient flow of tax credit in the supply chain. The multiple taxes have cascading effect on cost leading to competitive disadvan disadvantage tage to Indian industry. Central Sales Tax (CST) on interstate movement of goods is not integrated with Value Added Tax hence CST paid on inter inter-state state procurement is neither eligible as a credit nor be refundable and continues to be an extra cost of doing b business. Manufacturers are unable to avail themselves credit of state taxes and miscellaneous central taxes, such as VAT entry tax, oc octroi, etc against excise duty and vice versa and these become added costs along the supply chain. Despite this successful implementation of VAT, there are still certain shortcomings in the structure of VAT both at the Central and at the State level.
Central Indirect Taxation System: The shortcoming in CENVAT of the Government of India lies in non non-inclusion of several Central al taxes in the overall framework of CENVAT, such as additional customs duty, surcharges, etc., and thus keeping the ben benefits efits of comprehensive input tax and service tax set-off set out of reach for manufacturers/dealers. Moreover, no step has yet been taken to capture the value-added added chain in the distribution trade below the manufacturing level in the existing scheme of CENVAT. The introduction of GST at the Central level will not only include comprehensively more indirect Central taxes and integrate goods and service taxes for the purpose of set--off relief, but may also lead to revenue gain for the Centre through widening of the dealer base by capturing value addition in the distributive trade and inc increased compliance.
State VAT Structure In the existing State-level level VAT structure there are also certain shortcomings as follows. There are, for instance, even now, several taxes which are in the nature of indirect tax on goods and services, such as luxury tax, entertainment tax, etc., and yet not subsu subsumed in the VAT.
Input Tax as a Cost, Cascading impact: “The burden of value added taxes themselves should not lie on taxable businesses except where explicitly provided for in legislation” In the present State-level VAT scheme, CENVAT load on the goods beyond the point of removal, remains included in the value of goods to be taxed under State VAT, and contributing to that extent a cascading effect on account of CENVAT element. This CENVAT load needed to be part of input tax and be eligible to get set-off against the output VAT. VAT, Excise and Services tax : No Cross Set-off Available A commodity is produced by physical inputs as well as services, and it is necessary to integrate VAT on goods with tax on services at the State level as well, this will enable the system to remove cascading effect of service tax. In the GST, both the cascading effects of CENVAT and service tax are removed with set-off, and a seamless chain of set-off from the original producer’s point and service provider’s point upto the retailer’s level is established which reduces the burden of all cascading effects. Justification for Constitution Amendment This is the essence of GST, and this is why GST is not simply VAT plus service tax but an improvement over the previous system of VAT and disjointed service tax. However, for this GST to be introduced at the State- level, it is essential that the States should be given the power of levy of taxation of all services. This power of levy of service taxes has so long been only with the Centre. A Constitutional Amendment will be made for giving this power also to the States. Moreover, with the introduction of GST, burden of Central Sales Tax (CST) will also be removed. The GST at the State-level is, therefore, justified for (a) additional power of levy of taxation of services for the States, (b) system of comprehensive set-off relief, including set-off for cascading burden of CENVAT and service taxes, (c) subsuming of several taxes in the GST and (d) removal of burden of CST. Because of the removal of cascading effect, the burden of tax under GST on goods will, in general, fall. The GST at the Central and at the State level will thus give more relief to industry, trade, agriculture and consumers through a more comprehensive and wider coverage of input tax set-off and service tax setoff, subsuming of several taxes in the GST and phasing out of CST. With the GST being properly formulated by appropriate calibration of rates and adequate compensation where necessary, there may also be revenue/ resource gain for both the Centre and the States, primarily through widening of tax base and possibility of a significant improvement in tax-compliance. In other words, the GST may usher in the possibility of a collective gain for industry, trade, agriculture and common consumers as well as for the Central Government and the State Governments. The GST may, indeed, lead to the possibility of collectively positive-sum game.
Input Tax as a Cost, Cascading impact: “The burden of value added taxes themselves should not lie on taxable businesses except where explicitly provided for in legislation” In the present State-level VAT scheme, CENVAT load on the goods beyond the point of removal, remains included in the value of goods to be taxed under State VAT, and contributing to that extent a cascading effect on account of CENVAT element. This CENVAT load needed to be part of input tax and be eligible to get set-off against the output VAT. VAT, Excise and Services tax : No Cross Set-off Available A commodity is produced by physical inputs as well as services, and it is necessary to integrate VAT on goods with tax on services at the State level as well, this will enable the system to remove cascading effect of service tax. In the GST, both the cascading effects of CENVAT and service tax are removed with set-off, and a seamless chain of set-off from the original producer’s point and service provider’s point upto the retailer’s level is established which reduces the burden of all cascading effects. Justification for Constitution Amendment This is the essence of GST, and this is why GST is not simply VAT plus service tax but an improvement over the previous system of VAT and disjointed service tax. However, for this GST to be introduced at the State- level, it is essential that the States should be given the power of levy of taxation of all services. This power of levy of service taxes has so long been only with the Centre. A Constitutional Amendment will be made for giving this power also to the States. Moreover, with the introduction of GST, burden of Central Sales Tax (CST) will also be removed. The GST at the State-level is, therefore, justified for (a) additional power of levy of taxation of services for the States, (b) system of comprehensive set-off relief, including set-off for cascading burden of CENVAT and service taxes, (c) subsuming of several taxes in the GST and (d) removal of burden of CST. Because of the removal of cascading effect, the burden of tax under GST on goods will, in general, fall. The GST at the Central and at the State level will thus give more relief to industry, trade, agriculture and consumers through a more comprehensive and wider coverage of input tax set-off and service tax setoff, subsuming of several taxes in the GST and phasing out of CST. With the GST being properly formulated by appropriate calibration of rates and adequate compensation where necessary, there may also be revenue/ resource gain for both the Centre and the States, primarily through widening of tax base and possibility of a significant improvement in tax-compliance. In other words, the GST may usher in the possibility of a collective gain for industry, trade, agriculture and common consumers as well as for the Central Government and the State Governments. The GST may, indeed, lead to the possibility of collectively positive-sum game.
UNIFIED OR DUAL GST The Model of GST laws is generally governs by the politico politico-economic arrangement of the country in subjec ect. Unitary nature of company does not require to adopt a dual nature of GST, where re as a strong federal country need to adopt Dual mod odel of GST. National GST model is generally adopted by those countries where the level of trust between Union and state at it best. Models of GST The world is divided on the adoption of GST model el e every country have their own GST laws and are unique e in nature itself however in broader sense the GST adopted by the different countries can be classified under four broader categories: •
Single National GST
•
Single State GST
•
Non Concurrent Dual GST
•
Concurrent Dual GST
Single National GST National GST is one of the peculiar models of GST wherein two level of Government viz. the Centre and the State, combine their levies in the form of a single National GST alongwith appropriate revenue sharing arrangements among them. In simple words, under this model, taxes are levied by the center with provision for revenue sharing with the provinces/states. Australia is most recent example of a National GST, which is levied and collected by the centre, but the proceeds of which are allocated entirely to the States. In China, the VAT law and administration is centralised, but revenues are shared with the province. The single National GST is an ideal model for promotion and establishment of a common market in a country.
Non-concurrent Dual GST
This model is designed to enable State to levy taxes on all goods oods and Centre is entitled to collect tax on all services. This model odel was suggested by Poddar-Ahmed Poddar Working to avoid constitutional amendment. dment.
This model was also not ado dopted as this model not able to address the existing problem of cascading and dual taxation. t
Concurrent Dual GST As the name suggests, under this model, a concurrent or dual GST is levied by the Centre and State on both goods and services. This model is based on concept of sharing of revenue by State and Center to create good balance between fiscal autonomy of state and the union. Federal Structure of taxation In the present fiscal structure taxing powers under the constitution of India are clearly demarcated and distributed between the Centre and the States. The states have not been ready to surrendering their fiscal sovereignty nor were they ready to dilute their power to tax the good at any degree. States have wanted to keep intact their financial base and also wanted their shares in growing service sector. The consensus was very difficult between all states and centre towards any reform which affect their taxing powers. The various committees since economic reform in 1991 formed for tax reform as without tax reform a complete economic reform was not possible to achieve. The committee examined various models which are successfully adopted by various countries. Model of GST Single or Dual Most of the small countries do not have federal structure, therefore, a single National GST was the most ideal for those countries. Federal countries like China, Australia adopted an Unified National GST wherein Union have all power to collect GST and the Union thereafter distributes the shares of the state. India neither have very strong centre like China nor does not have the trust level between Centre and States. Indian has chosen to implement a dual GST system and such adoption cannot be possible without amending the Constitution of India. Constitutional Amendment In present structure of Constitution does not provide the power to Centre and States to tax both goods and services mutually. Whereas Centre is empowered to tax on services and on goods only upto the production stage, on the other hand the State is empowered to tax sales of goods. The centre cannot tax sale while state cannot tax services and import. Since GST will be a single levy on supply of goods and services, there exists a need for both the Centre and State to exercise power over taxing “Supply” of goods and services and that’s entire purpose of GST. The same can only be implemented upon amending our Constitution accordingly.
Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 The provision of Articles 246A and 269A of the Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 read as unde under: "246A. (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and ser services tax imposed by the Union or by such State. (2) Parliament has exclusive power to make laws with respect to good goods and services tax where the suppl ply of goods, or of services, or both takes place in the course of inter-State State trade or commerce. Explanation.—The The provisions of this article, shall, in respect of goods and services tax ax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.’’ ‘‘269A. (1) Goods and services tax on supplies in the course of inter inter-State trade or commerce shall all be levied and collected by the Government of India and such tax shall be e apportioned between the Union and the States in the mannerr as a may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council. Explanation.—For For the purposes of this clause, supply of goods, or of services, or both in the course of impo port into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter inter-State trade or commerce. (2) Parliament may, by law, formulate the principles for determining the place of supply, and whe when a supp pply of goods, or of services, or both takes place in the course of inter-State State trade or commerce.’’ It is quite clear from the provisions that in respect of Inter Inter-state suppliers of goods and services, the Parliame ment shall not only make law for levy and collect tax but shall also formulate the principles for place of supply, and when the supply of goods and services will b be considered in the course of inter-state trade or commerce.
SALIENT FEATURES OF GST Subsuming of Central Taxes: It is provided that GST shall subsume various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly as Countervailing Duty, Special Additional Duty of Customs, and Central Surcharges and Cesses so far as they relate to the supply of goods and services. Subsuming of State and Other Taxes: It is provided that GST shall also subsume Taxes such as 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, Taxes on lottery, betting and gambling; and State cesses and surcharges in so far as they relate to supply of goods and services. Dispensing with the concept of ‘declared goods of special importance’: Clause 286(3) of the Bill has been omitted in the Bill in order to dispense with such concept. Earlier, this clause empowered the Parliament to restrict and provide such condition with respect to any state laws which sought to levy tax on sale and purchase of such goods declared as of special importance and/or a tax on sale or purchase concerning transactions of works contract, hire-purchase, and transfer of right to use any goods as specified in Article 366(29A) (b), (c), (d). Integrated Goods and Services Tax (IGST): Clause 269A of the Bill provides for levy of Goods and Services Tax on supplies in the course of inter-State trade or commerce. Such Tax shall be levied and collected by Government of India and thereafter 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 Services Tax Council. Import of goods or services would be treated as inter-state supplies and thus it would be subject to IGST in addition to applicable custom duties. Exports would be zero rated.
Distribution of GST:
Clause 270(1A) of the Bill provides that the goods and services tax levied and collected by the Government of India, except tthe tax apportioned with the States under clause 269A (1) shall also be distributed between the Union and the he States in the manner provided in clause 269A(2).
No Surcharge levy on GST: Clause 271 of the Bill which empowers the Parliament to increase any duties or taxes by surcharge for the purpose of Union ha has been amended in the bill by providing an exception on to Goods and Services tax under Clause 246A.
Scope of GST: GST shall cover all goods and services, except alcoholic liquor for human consumption, for the levy off goods g and services tax. In case of petroleum and petroleum products, it has been provided that these goods shall not be subject to the levy le of Goods and Services Tax till a date notified on the recommendation of the Goods and Services Tax Cou Council.
Promulgation of GST Council: Proposed Article 279A of the Bill provides for constitution of Good Goods and Services Tax Council to examine issues iss relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, exemption list and threshold limits. The C Council shall function under the Chairmanship of the Union on Finance Minister and will have the State Union Minister as its members.
Compensation to States: It is provided that the Parliament may, by law, on the recommendation of the Goods and Services Tax Council, provide for comp compensation to the States for loss of revenue arising on accountt o of implementation of the goods and services tax for such uch period which may extend to five years.
MOVING FROM ORIGIN TO DESTINATION BASES TAXATION Basic GST principles are generally the same across jurisdictions insofar as they are designed to tax final consumption in the jurisdiction where it occurs according to the destination principle. The destination based principle of charging GST or any other value added tax have been adopted by most of the countries worldwide. India is still charging indirect taxes on origin based principle this is because India has federal structure of governance and centre and state both are enjoying fiscal autonomy. Under the current situation origin based taxation are best suitable to India, by negation on implementation of GST the taxation power has been renegotiated and reworked. The result of negotiation Centre agreed to share the power tax on manufacture and services with States while State agreed to share its power to tax on Sales. Origin principle of taxation A policy taxation, according to which goods and services are taxed in the State or Country of production, regardless of the country/state of consumption. Therefore, in case of origin based taxation, the revenue accrues to the jurisdiction where goods and services are produced. Destination principle of taxation A policy of taxation according to which consumption taxes are levied where products are consumed. The rates of VAT and excise applied are those of the state/country of final consumption, and the entire revenue accrues to that states/country’s budget. The two principles are totally opposite under the former, the GST will be imposed on the value added of all taxable products that are produced domestically; under the latter, the GST is imposed on the value added of all taxable products that are consumed domestically. Domestically here means goods produced or consumed as the case may in a State. The two principles are identical in intra-state transactions. In an interstate transactions, the difference between them lies solely in their treatment of imports into and exports from the state. Exports are taxed but imports are not under the origin principle, while just the converse holds under the destination principle. It is important to note that the distinction between the two principles is based on the location of production and consumption.
Report of the thirteenth finance commission on Goods and Services Tax Thirteenth Finance Commission recommended recommend for a consumption type GST and the need for increased international competitiveness, it recommended that – a. the GST should be structured on the de destination principle. As a result, the tax base will shiftt fr from production to consumption whereby imports will be liable to tax and exports will be relieved of the burden of goods and service tax. Consequently, reve revenues willll accrue to the State in which the consumption takes place or is deemed to take place; b. international exports should be zero rated; c. international imports should be subject to both CGST and SGST at the time of importation irrespective of whether or not th the imported goods are produced domestically; d. SGST on B2B imports should be collected ed by the same agency which collects the CGST and should sh be remitted to the state in which the place of destination of the imports is located regardless of wh where the goods enter the country. However, the place of destination may be defined to mean the address of the importer on the import invoice; and e. SGST on B2C imports should be collected by the same agency which collects the CGST and should sh be remitted to the state in which h the place of residence of the person importing the goods is located regardless of where the goods enter the country. Destination principle is one of the key foundation principles alongwith the concept of neutrality upon which wh Goods and Services Tax has been implemented around the world. The he destination principle is designed to ensure that GST on supplies is ultimately levied only in the ta taxing jurisdiction where the final consumption occurs, thereby maintaining neutrality within the GST system as it applies to inter-state state trade or export. export This principle is set out in Guideline.
INTER-STATE SUPPLY UNDER DUAL GST REGIME Under the dual GST frame work, the events of taxation are unified into single event i.e., “Supply”. Inter-state supply, whether in goods or in services, will no longer be taxed in the manner as currently being done under the present indirect taxation system of our country. Under Dual GST framework, the concept of the Inter-state taxation, whether in goods or services, will no longer be taxed in the manner as currently being done under the present indirect taxation system of our country. The destination based consumption regime under GST, will be fundamental shift from the origin taxation under the present system. It is proposed that all Taxable Supply will be chargeable with State and Central GST simultaneously on a Unified event of Supply and a Unified time i.e., Time of Supply. The time of taxation is at the beginning of supply whereas the tax to be paid at a State different from the State of Origin ie, the state of destination or consumption, therefore a broad guideline was required to tax the Inter-State Supply. The Dual GST frame work provided a broad guiding principle to tax the Inter-State Supply which is known as IGST Model or IGST framework. The two key alternate models that are being discussed by the EC in this regard are apparently the banking model and the inter-state GST model (IGST). While Banking Model is considered to be a robust and requires the banks to evolve an IT infrastructure equipped to communicate electronically with all the stakeholders concerned in respect of such inter-state transactions. The key challenges for implementation of Banking Model were the requirement for the banks to gear up to handle very large volumes of transactions as also the significant costs involved in this regard. Based on inputs from Centre and States, The Empowered Committee of State Finance Ministers released its First Discussion Paper on Goods and Services Tax in India, which recommended the adoption of a strong IT IGST in the course of Inter-State Supply of goods and services.
THE FUNDAMENTALS PRINCIPLES ON WHICH IGSTT MODEL WORKS 1. The goods and services shall be liable to pay both Centre and State duties; 2. The State of Origin shall not be entitled to levy taxes on the goods and services in the course of interstate trade and commerce; 3. The State where goods and services consumed will be entitled to receive such taxes; 4. The goods and services shall be liable to pay IGST i.e., Integrated Goods and Service Tax which is sum total of State and Center duties (SGST+IGST); 5. The Centre Government would collect the IGST in the course of Inter Inter-state supplies; 6. The supplier in the exporting state would charge IGST on inter inter-state state supplies and use the input CGST on payment of IGST, the supply receiver shallll make use of that IGST for the payment of CGST at the point of destination. The seller may use the input of SGST for the payment of IGST on the Inter-state state supply in the origin state and the buyer shall make use of IGST for the payment of output SGST on transaction in the destination state; 7. The utilisation of SGST for the payment of IGST at the origin point and IGST for payment of SGST at the destination point with effective and appropriate control would result in almost no gain or or/and no loss to the State e or to the centre as both would mostly cancel each other over a period of time and over a number of tran transactions. 8. Every registered supplier and receiver require to furnish Retunes GS GSTR-1, GSTR-2 and GSTR-3 3 etc, these returns will contain the details of input put of SGST used for payment of output IGST, input IGST use used d for the payment of output ST and the quantum of difference between them. This difference will decide who has to compensate whom or to cancel each other over a period of time and over a number of transactions. 9. The Central Government would pay, to the importing State, the input IGST used for the payment of the SGST in the importing State on subsequent supplies in that State. 10. The buyer in the importing state can claim the Input Tax Credit of the IGST paid while discharging his tax liability in his State while filing return on the basis of the invoices.. In the IGST model, an uninterrupted input tax credit on the Inter Inter-State supply could be maintained. Further no refund claim will be required in the exp exporting orting as the Input T Credit used up while paying the tax.
11. The IGST will be administered by the authorities administering CGST. The account settlement could be assigned to any nodal agency. 12. The order of set-off off the output liabilities of IGST, first the IGST input will be utilized, and after that CGST input and then SGST input will be utilised. FRAME WORK OF SET-OFF: 1. Central GST, State GST and inter-state state GST are expected to be treated separately; 2. The credit availed of Central GST paid on goods and services received is expected to be utilised only against the payment of Central GST; 3. Cross utilization of input tax credit between the Central GST and the State GST would not be allowed; 4. In the course of inter-state state supply the Centre will charged Integrat Integrated GST commonly termed as IGST, which nothing but sum of State and Central GST. Mechanism to set-off Input Tax Credit The biggest reason for entire Indirect Taxation System is to provide a seamle seamless ss tax credit mechanism through the entire supply chain of goods and services which is not available under existing CST model. Input Tax Credit for cross border supplies among States under the IGST model is a combination of dealer level credit and gove government level reimbursement. In a single chain of transaction, the dealers will be entitled for Input Tax Credit irrespective of whether it was a union levy or state levy. At the government level, reimbursement will be effected by that government, the input tax of which has been settled by using the output tax payable to the other government.
The order of input tax credit set-off off under the proposed IGST model as under: Output IGST will be discharged by utilising first the IGST
Output CGST will be discharged by utilising, first with CGST
credit, then the CGST credit and lastly the SGST credit in the
credit and then IGST Credit:
following manner:
Output SGST will be discharged by utilising, first with SGST credit and then IGST credit:
Advantage of IGST model over present CST Model As per First Discussion Paper on Goods and Services Tax In India by “The Empowered Committee of State Finance Ministers”. a. Maintenance of uninterrupted ITC chain on inter-State transactions. b. No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer. c. No refund claim in exporting State, as ITC is used up while paying the tax. d. Self monitoring model. e. Level of computerisation is limited to inter-State dealers and Central and State Governments should be able to computerise their processes expeditiously. f.
As all inter-State dealers will be e-registered and correspondence with them will be by e-mail, the compliance level will improve substantially.
g. Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into account.
Avenue for professional rofessional under GST framework •
Tracking GST development;
•
Review of draft legislation and impact analysis;
•
Industry preparedness/Communica preparedness/Communication issues related to Industry;
•
Review of final legislation and impact analysis;
•
Implementation assistance;
•
Post implementation support;
•
Tax Planning;
•
Record Keeping; and
•
Departmental Audit
