Goods and Services Tax (GST)

On August 3, 2016, a new chapter was added to the tax regime in India. the Rajya Sabha successfully passed the Constitutional Amendment Bill for GST (GST Bill). This paved the way for the introduction of the Goods and Services Tax (GST) in India. In this article, we will discuss the important aspects of GST.

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Goods and Services Tax (GST)

The Goods and Services Tax is a consumption-based tax where the basic principle is to tax the value addition at each stage of the business.

Further, any tax paid on purchases is allowed as a set-off or credit against the liability on the output or income. It is levied on all transactions of goods and services.

Therefore, in principle, the Goods and Services Tax does not differentiate between ‘goods’ and ‘services’.

France was the first country to introduce GST, which is now present in more than 150 countries. Depending on the socio-economic formation, the countries have either introduced a National GST or Dual GST. The Goods and Services Tax is different from the traditional tax structure in many ways. Traditionally,

• Goods attracted excise at the manufacturing level and Value Added Tax (VAT) at the time of sale
• Services attracted only the Service Tax on the provision of taxable services.

However, GST treats them the same and levies a single tax.

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Chronology of events of the Goods and Services Tax (GST) regime in India

1. 1974 – Report of L K Jha committee suggested moving to Value Added Tax (VAT) regime
2. 1986 – Introduction of Modified Value Added Tax (MODVAT)
3. 1991 – Chelliah Committee recommends VAT/Goods and Service Tax (GST)
4. 1 July 1994 – Service tax introduced in India
5. 1999 – ‘Empowered Committee’ comprising of representatives of 29 States is formed for the purpose of the introduction of State VAT

2000-05

1. 2000 – Implementation of uniform State sales tax rates (1%, 4%, 8%, 12%)
2. 2002 – Introduction of input credit against services of the same category
3. 1 April 2003 – Haryana was the first State to introduce VAT. Subsequently, other States introduced VAT (20 States in 2005, 5 States in 2006, Tamil Nadu in 2007 and lastly, Uttar Pradesh in 2008)
4. 1 September 2004 – Introduction of CENVAT to integrate Central-level taxes
5. January 2005 – The ‘Empowered Committee’ released a policy document indicating basic policies of ‘State VAT’ – White Paper
6. 1 April 2005 – Value Added Tax introduced in 20 States

2006-10

1. February 2006 – Finance Minister comments in the Budget Speech that there is a large consensus that the country must move towards a national level GST that must be shared between the Center and States. He proposes 1 April 2010 as the date for introducing GST.
2. 1 April 2006 – VAT implemented in 5 more States
3. 1 January 2007 – VAT implemented in Tamil Nadu
4. April 2007 Central Sales Tax phase-out initiated (4% -2%)
5. May 2007 – Empowered Committee (EC) of State Finance Ministers in consultation with Central Government, constituted a Joint Working Group (JWG), consisting of officers of Central and State Governments to examine various models and options for GST and to give their assessment of the same to the EC.
6. November 2007 Joint Working Group (JWG) presented its report on the GST to the EC. The EC accepted the report on GST submitted by the JWG
7. 1 January 2008 – VAT implemented in Uttar Pradesh
8. April 2008 – Empowered Committee finalizes the overall strategy for GST introduction in India
9. November 2009 – ‘First Discussion Paper’ on GST released by EC
10. December 2009 – Task Force submits its report on GST to 13th Finance Commission
11. January 2009 – Department of Revenue releases its comments on ‘First Discussion Paper’ on GST

2011-15

1. February 2011 – IT strategy (by Mr. Nandan Nilekani) for GST released
2. March 2011 – 115th Constitution Amendment Bill (CAB) introduced in Parliament. However, this 115th CAB was lapsed (in May 2014) with the change of Government at Center.
3. 1 April 2011 – Point of Taxation Rules, 2011 introduced
4. 1 July 2012 – Negative List of Services Regime introduced- Place of Provision of Services Rules, 2012 introduced
5. July 2014 – Union Finance Minister states in the Budget Speech 2014 that “I do hope we are able to find a solution in the course of this year and approve the legislative scheme which enables the introduction of GST”
6. 19 December 2014 – The 122nd Constitutional Amendment Bill was introduced in Lok Sabha
7. 6 May 2015 – The 122nd CAB passed in Lok Sabha
8. 6 May 2015 – 122nd CAB introduced in Rajya Sabha. 122nd CAB was referred to Select Committee of Rajya Sabha
9. 22 July 2015 – Rajya Sabha Select Committee tabled its report
10. October 2015 – Government placed in the public domain four reports on key business processes i.e. registration, payment, refunds and returns in GST regime.

2016 onwards

1. 14th June 2016 – Draft GST law made available
2. 3 August 2016 – Rajya Sabha cleared the Constitutional Amendment Bill
3. 8 August 2016 – Lok Sabha cleared the Constitutional Amendment Bill
4. September/October 2016 – More than half of the State Assemblies need to ratify the Constitutional Amendment Bill – Presidential Assent received- GST Council formed
5. November 2016 – Formation of GST Council and recommendation on GST Law by GST Council
6. January 2017 – GST Council consensus for GST to be rolled out from 1st July 2017 instead of 1st April 2017 – Notification of GST Rules
7. February/March 2017 – Draft Laws approved by GST Council – Cabinet approves for GST Supplementary Bill – Lok Sabha passes the Four Bills
8. April 2017 – Rajya Sabha passes the Four Bills – President gives assent to Four GST Bills

Structure of GST in India

India proposes to implement Dual GST. According to the proposed plan, all transactions of goods or services will attract two levies – Central GST or CGST and State GST or SGST.

Which taxes will the GST subsume?

GST will replace the following indirect taxes:

At the Center-level:

• Central Excise Duty (including Additional Duties of Excise)
• Service Tax
• Additional Customs Duty or Countervailing Duty (CVD) (levied on imports in lieu of the Excise duty)
• Special Additional Duty of Customs (SAD) (levied on imports in lieu of the VAT)
• Surcharges, and Cesses.

At the State-level:

• VAT/Sales tax
• Entertainment tax (unless the local bodies levy it)
• Luxury Tax
• Taxes on a lottery, betting, and gambling
• Entry tax not in lieu of Octroi
• State Cesses and Surcharges in so far as they relate to the supply of goods and services.

Further, it is important to note that some goods and services are outside the purview of GST.

Why was GST needed?

The pre-existing Central Excise duty of the GoI and the Sales tax system of the State Governments had a burden of tax-on-tax. When the Government introduced CENVAT or Central VAT, it removed the cascading burden of tax-on-tax to a great extent.

The CENVAT offered a mechanism to set-off for the taxes already paid on inputs and services up to the stage of production.

Similarly, State VAT helped the government to remove the cascading effect by offering a set-off mechanism for taxes paid on inputs as well as on previous purchases. However, both CENVAT and State VAT had certain problems.

In CENVAT, the chain of value addition was not included in the distributive trade below the stage of production. Further, it did not include many Central taxes like Additional Excise duties, Additional Customs duty, surcharges, etc.

Therefore, it kept the benefits of a comprehensive input tax and service tax set-off out of the reach of manufacturers or dealers. Similarly, the State VAT did not include several taxes in the states like the luxury tax, entertainment tax, etc. Further, the VAT on goods and services were not integrated too.

With the introduction of GST at the State-level, the additional burden of CENVAT and Service Tax is removed. Further, a continuous chain of set-off from the original producer’s or service provider’s point up to the retailer’s level is established. Hence, this ensures the removal of the burden of all cascading effects. This is the essence of GST.

Further, the GST subsumes many Central and State taxes, reducing the multiplicity of taxes. The end-consumer bears the GST charged by the last dealer in the supply-chain. This is after the set-off benefits at all the previous stages.

Solved Question

Q1. The GST replaces which indirect taxes?

Answer:

The GST replaces the following indirect taxes:

Central Taxes

1. Central Excise Duty (which includes Additional Duties of Excise)
2. Service Tax
3. Additional Customs Duty or Countervailing Duty (CVD)
4. Special Additional Duty of Customs (SAD)
5. Surcharges, and Cesses.

State Taxes

1. VAT/Sales tax
2. Entertainment tax (unless the local bodies levy it)
3. Luxury Tax
4. Taxes on a lottery, betting, and gambling
5. Entry tax not in lieu of Octroi
6. State Cesses and Surcharges in so far as they relate to the supply of goods and services