CHAUDHARY CHARAN SINGH UNIVERSITY MEERUT .

GOODS AND SERVICE TAX

NEED FOR GST IN INDIA

SUBMITTED BY: SUBMITTED TO :

SHEKHAR SINGH Mr. Sanjay Singh.

DEPARTMENT OF B.B.A

ROLL NO. 1701001369

Whether it was uniformity of taxation and consequent free interior trade or possession of ‗the
jewel in the crown‘ at the root of prosperity of Britain is debatable, nonetheless the words of
father of modern economics on the benefits of uniformity of system of taxation cannot be taken
too lightly. Before implementation of Goods and Service Tax (GST), Indian taxation system was
a farrago of central, state and local area levies. By subsuming more than a score of taxes under
GST, road to a harmonized system of indirect tax has been paved making India an economic
union.

NEED FOR GST IN INDIA

The introduction of CENVAT removed to a great extent cascading burden by expanding the
coverage of credit for all inputs, including capital goods. CENVAT scheme later also allowed
credit of services and the basket of inputs, capital goods and input services could be used for
payment of both central excise duty and service tax. Similarly, the introduction of VAT in the
States has removed the cascading effect by giving set-off for tax paid on inputs as well as tax
paid on previous purchases and has again been an improvement over the previous sales tax
regime. But both the CENVAT and the State VAT have certain incompleteness. The
incompleteness in CENVAT is that it has yet not been extended to include chain of value
addition in the distributive trade below the stage of production. Similarly, in the State-level
VAT, CENVAT load on the goods has not yet been removed and the cascading effect of that part
of tax burden has remained unrelieved. Moreover, there are several taxes in the States, such as,
Luxury Tax, Entertainment Tax, etc. which have still not been subsumed in the VAT. Further,
there has also not been any integration of VAT on goods with tax on services at the State level
with removal of cascading effect of service tax. CST was another source of distortion in terms of
its cascading nature. It was also against one of the basic principles of consumption taxes that tax
should accrue to the jurisdiction where consumption takes place. Despite remarkable
harmonization in VAT regimes under the auspices of the EC, the national market was
fragmented with too many obstacles in free movement of goods necessitated by procedural
requirement under VAT and CST. In the constitutional scheme, taxation powers on goods was
with Central Government but it was limited up to the stage of manufacture and production while
States have powers to tax sale and purchase of goods. Centre had powers to tax services and
States also had powers to tax certain services specified in clause (29A) of Article 366 of the
Constitution. This sort of division of taxing powers created a grey zone which led to legal
disputes. Determination of what constitutes a goods or service is difficult because in modern
complex system of production, a product is normally a mixture of goods and services. As can be
seen from the previous paragraphs, India moved towards value added taxation both at Central
and State level, and this process was complete by 2005. Integration of Central VAT and State
VAT therefore is nothing but an inevitable consequence of the reform process. The Constitution
of India envisages a federal nature of power bestowed upon both Union and States in the
Constitution itself. As a natural corollary of this, any unification of the taxation system required
a dual GST, levied and collected both by the Union and the States.

THE DESIGN OF INDIAN GST

1. Concurrent dual model of GST: India has adopted dual GST model because of its unique
federal nature. Under this model, tax is levied concurrently by the Centre as well as the States on
a common base, i.e. supply of goods or services or both. GST to be levied by the Centre would
be called Central GST (Central tax / CGST) and that to be levied by the States would be called
State GST (State Tax / SGST). State GST (State Tax / SGST) would be called UTGST (Union
territory tax) in Union Territories without legislature. CGST & SGST / UTGST shall be levied
on all taxable intra-State supplies.

2. The IGST Model: Inter-State supply of goods or services shall be subjected to integrated GST
(Integrated tax / IGST). The IGST model is a unique contribution of India in the field of VAT.
The IGST Model envisages that Centre would levy IGST (Integrated Goods and Service Tax)
which would be CGST plus SGST on all inter-State supply of goods or services or both. The
inter-State supplier will pay IGST on value addition after adjusting available credit of IGST,
CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of
SGST used in payment of IGST. The person based in the destination State 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, verify the
claims and inform the respective governments to transfer the funds. The major advantages of
IGST Model are:
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 supplier or
recipient.

c) No refund claim in exporting State, as ITC is used up while paying the tax.

d) Self-monitoring model.

e) Model takes ‗Business to Business‘ as well as ‗Business to Consumer transactions into

3. Tax Rates: Owing to unique Indian socio-economic milieu, four rates namely 5%, 12%, 18%
and 28% have been adopted. Besides, some goods and services are exempt also. Rate for
precious metals and affordable housing are an exception to ‗four-tax slab-rule‘ and the same has
been fixed at 3% and 1% respectively. In addition, unworked diamonds, precious stones, etc.
attracts a rate of 0.25%. A cess over the peak rate of 28% on certain specified luxury and demerit
goods, like tobacco and tobacco products, pan masala, aerated water, motor vehicles is imposed
to compensate States for any revenue loss on account of implementation of GST. The list of
goods and services in case of which reverse charge would be applicable has also been notified.

4. Compensation to States: The Goods and Services Tax (Compensation to States) Act, 2017
provides for compensation to the States for the loss of revenue arising on account of
implementation of the goods and services tax Compensation will be provided to a State for a
period of five years from the date on which the State brings its SGST Act into force. For the
purpose of calculating the compensation amount in any financial year, year 2015-16 will be
assumed to be the base year, for calculating the revenue to be protected. The growth rate of
revenue for a State during the five-year period is assumed be 14% per annum. The base year tax
revenue consists of the states‘ tax revenues from:

(i) State Value Added Tax (VAT)

(ii) central sales tax

(iii) entry tax, octroi, local body tax

(iv)taxes on luxuries
(v) taxes on advertisements.

However, any revenue among these taxes arising related to supply of alcohol for human
consumption, and five specified petroleum products, will not be accounted as part of the base
year revenue. A GST Compensation Cess is levied on the supply of certain goods and services,
as recommended by the GST Council to finance the compensation.

GST LEGISLATIONS

1. Four Laws namely CGST Act, UTGST Act, IGST Act and GST (Compensation to States) Act
were passed by the Parliament and since been notified on 12.04.2017. All the other States
(except J&K) and Union territories with legislature have passed their respective SGST Acts. The
economic integration of India was completed on 08.07.2017 when the State of J&K also passed
the SGST Act and the Central Government also subsequently extended the CGST Act to J&K.

2. In its 28th meeting held in New Delhi on 21.07.2018, the GST Council recommended certain
amendments in the CGST Act, IGST Act, UTGST Act and the GST (Compensation to States)
Act. These amendments have been passed by Parliament and have been enacted w.e.f.
01.02.2019, as the Central Goods and Services Tax (Amendment) Act, 2018, the Integrated
Goods and Services Tax (Amendment) Act, 2018, the Union Territory Goods and Services Tax
(Amendment) Act, 2018 and the Goods and Services Tax (Compensation to States) Amendment
Act, 2018, respectively.

3. On 22.06.2017, the first notification was issued for GST and notified certain sections under
CGST. Since then, 189 notifications under CGST Act have been issued notifying sections,
notifying rules, amendment to rules and for waiver of penalty, etc. 19, 34 and 2 notifications
have also been issued under IGST Act, UTGST Act and GST (Compensation to States) Act
respectively. Further, 90, 94, 90 and 10 rate related notifications each have been issued under the
CGST Act, IGST Act, UTGST Act and GST (Compensation to States) Act respectively. Similar
notifications have been issued by all the States under the respective SGST Act. Apart from the
notifications, 114 circulars, 18 orders and 14 Removal of Difficulty Orders have also been issued
by CBIC on various subjects like proper officers, ease of exports, and extension of last dates for
filling up various forms.
GOODS & SERVICES TAX NETWORK

Goods and Services Tax Network (GSTN) has been set up by the Government as a private
company under erstwhile Section 25 of the Companies Act, 1956. GSTN would provide three
front end services to the taxpayers namely registration, payment and return. Besides providing
these services to the taxpayers, GSTN would be developing back-end IT modules for 27 States
who have opted for the same. Infosys has been appointed as Managed Service Provider (MSP).
GSTN has selected 73 IT, ITeS and financial technology companies and 1 Commissioner of
Commercial Taxes (CCT, Karnataka), to be called GST Suvidha Providers (GSPs). GSPs would
develop applications to be used by taxpayers for interacting with the GSTNCentral Government
holds 24.5 percent stake in GSTN while the state government holds 24.5 percent. The remaining
51 per cent are held by non-Government financial institutions, HDFC and HDFC Bank hold
20%, ICICI Bank holds 10%, NSE Strategic Investment holds 10% and LIC Housing Finance
holds 10%. The GST Council in its 27th meeting held on 04.05.2018 has approved the change in
shareholding pattern of GSTN. Considering the nature of ‗state‘ function‘ performed by GSTN,
the GST Council felt that GSTN be converted into a fully owned Government company.
Accordingly, the Council approved acquisition of entire 51 per cent of equity held by non-
Governmental institutions in GSTN amounting to Rs. 5.1 crore, equally by the Centre and the
State Governments. The design of GST systems is based on role based access. The taxpayer can
access his own data through identified applications like registration, return, view ledger etc. The
tax official having jurisdiction, as per GST law, can access the data. Data can be accessed by
audit authorities as per law. No other entity can have any access to data available with GSTN

CHALLENGES & FUTURE AHEAD

Any new change is accompanied by difficulties and problems at the outset. A change as
comprehensive as GST is bound to pose certain challenges not only for the government but also
for business community, tax administration and even common citizens of the country. Some of
these challenges relate to the unfamiliarity with the new regime and IT systems, legal challenges,
return filing and reconciliations, passing on transition credit. Lack of robust IT infrastructure and
system delays makes compliance difficult for the taxpayers. Many of the processes in the GST
are new for small and medium enterprises in particular, who were not used to regular and online
filing of returns and other formalities.

Based on the feedback received from businesses, consumers and taxpayers from across the
country, attempt has been made to incorporate suggestions and reduce problems through short-
term as well as long-term solutions. After rectifying system glitches, E-way bill for inter-State
movement of goods has been successfully implemented from 01.04.2018. As regards intra-State
supplies, option was given to States to choose any date on or before 03.06.2018. All States have
notified e-way bill rules for intra-State supplies last being NCT of Delhi where it was introduced
w.e.f. 16.06.2018. A total of 37.12 crore e-way bills for inter-State movement and 3.17 crore for
intra-State movement have been generated till 31.05.2019.NAA has initiated investigation into
various complaints of anti-profiteering and has passed orders in some cases to protect consumer
interest.

To expedite sanction of refund, electronic filing of refunds, along with all supporting
documents/invoices, has been enabled on the common portal. Clarificatory Circulars and
notifications have been issued to guide field formations of CBIC and States in this regard. The
government has put in place an IT grievance redressal mechanism to address the difficulties
faced by taxpayers owing to technical glitches on the GST portal. The introduction of GST is
truly a game changer for Indian economy as it has replaced multi-layered, complex indirect tax
structure with a simple, transparent and technology–driven tax regime. It will integrate India into
a single, common market by breaking barriers to inter-State trade and commerce. By eliminating
cascading of taxes and reducing transaction costs, it will enhance ease of doing business in the
country and provide an impetus to ―Make in India‖ campaign. GST will result in ―ONE
NATION, ONE TAX, ONE MARKET