GOODS AND SERVICE TAX : WORKING

This article was written by Somya Jotwani, a student of Faculty of Law, Delhi University.

GST Bill can be termed as a revolutionary bill for the country. On 29^TH March 2017, Lok Sabha house passed the 4 key supplementary GST bill which compromise of CGST Bill, Integrated GST Bill, Compensation GST bill, and Union territory GST Bill 2017.

Introduction of GST means “one indirect tax for whole nation”.

 “One tax regime for one nation”.

With the adoption of GST, there will be introduction of common market where all goods and services will be given same treatment and a common capped rate will be imposed irrespective of its point of origin.

GST Bill introduction in country tax regime follows a uniform tax rate throughout in different states which makes input credit more easier which was not the picture before the passing of bill.GST leads to subsume of array of indirect taxes which was paid by manufacturers, retailers and consumer at different levels of production and consumption to the government at different rates.

Earlier, the tax regime in the country followed very fractured and cumbersome tax policy, where input tax credit on goods was a major concern for manufacturers. but sweeping in of the GST Bill by 122^nd amendment the tables have been turned for taxation, now the  credits of input taxes paid at each stage will be available in the subsequent stage of value addition at each stage. Therefore, the final consumer will only bear the GST charged by the last dealer in the supply chain, with all set off benefits at all the previous stages.

 India will follow the dual model of GST –both Centre and State will simultaneously levy GST across the value chain. The Centre GST and State GST would be levied on every transaction of supply of goods and services except on the exempted goods and services.

Sweeping in of GST will roll out the biggest challenge in front of Centre and State of coordination in implementation of uniform tax rate across the country. The GST council  has approved four tier uniform tax slab of 5,12, 18 and 28 percent on goods and services, plus an additional cess on demerit goods such as aerated drinks, tobacco and luxury cars. Moreover, certain products like food items and petroleum products will be kept at zero slab rate and alcohol drinks needs to be yet notified.

Lok Sabha on 30th March, gave the four key supplementary bills which are as follows:

• CGST Bill 2017 which allows the Centre to levy and collect tax on  intra-state supply of  goods and services ;
• The Integrated GST Bill 2017 which allows to levy and collect tax on inter –state supply of goods and services;
• The Compensatory Bill 2017 which allows the state to recover the compensation due to implementation of GST Bill;
• The Union territory Bill 2017 which allow to collect tax on intra-state supply of goods and services in case of other union territories.

FEATURES:

• GST bill 2014 had subsumed all various central indirect taxes and state value added taxes under GST Bill;
• GST will be levied on all the goods and services except the exempted goods ;
• GST will be levied except alcohol, liquor and petroleum product till the time it’s not notified;
• Levy of integrated goods and service tax on interstate transactions of goods and services;
• The adoption of GST Bill, had introduced the levy of  IGST i.e. integrated goods and service tax which will follows the compensation regime i.e. the part of revenue will be given to the state where the goods and services are consumed;
• There is introduction of GST council who will monitor and recommend issues relating to GST throughout the phase of adopting of uniform tax regime in the country.

The proposal of forming of GST council heading Finance Minister, Arun Jaitely which will look into the smooth functioning of GST implementation across the country. He also remarked of soon implementation of GST tax regime across the nation from the middle of this year (1^st July).

GST had subsumed applicability of 15 indirect taxes and allowed goods and services to be taxed at same rate. Earlier the power to impose indirect taxes was between Centre and State, but by the GST AMENDMENT BILL, it proposes to do away with the multiplicity of taxes.

Taxes that are subsumed into GST:

Talking about Centre level, the following taxes are being subsumed:

• Centre excise tax
• Service tax
• Special additional duty of customs
• Countervailing duty
• Additional excise duty

At the State level, following taxes are subsumed:

• VAT/sales tax
• Entertainment tax
• Octroi and entry tax
• Purchase tax
• Luxury tax
• Taxes paid on lottery , gambling and betting

MAJOR FEATURES OF THE PROPOSED REGISTERATION PROCEDURES UNDER GST:

• Simplified procedural compliances and administration work ;
• To get registered under GST ,single application needs to be filed online for the new dealers;
• Existing dealers paying indirect taxes like VAT/Central excise/Service tax will not have to apply for a fresh registration under GST;
• Registration number will be provided to existing and new dealers that will be PAN based;
• For both Centre and State government, the unified common application can serve the purpose;
• Filing of common returns for both the central and state government;
• All online services will be provided which will yield more better results by reducing paperwork

BENEFITS:

For the CG/SG:

• Simpler administration;
• Reduction in paperwork;
• Revenue collection will be easier;
• More efficiency in taxation network;
• More accountability;
• Plug out all loopholes in taxation regime.
• More revenues for the government;

              For the manufacturers/consumers:

• As GST taxes only the final consumer so it will lessen the multiplicity of taxes;
• Will avoid cascading affects;
• For the manufacturers ,production cost will be less so which leads to higher output and slightly cheaper goods;
• It will make Indian goods more competitive in the international market;
• More employment opportunities for the people;
• Ease of business;
• GST registration will be more standardized and centralized;
• Integration of existing multiplicity of taxes;

DISADVANTAGES:

• Imported goods would be taxed higher;
• Compliance cost will be higher as the GST follows a dual regime- central and state government can levy taxes;
• Small businesses will find difficult to ponder on credit facilities as all will be online connectivity;
• Taxes on services will go up.

EARLIER SENARIO:

• The credit of input VAT is available against Output VAT. Similarly, the credit of input excise/service tax is against output excise/service tax. But the credit of VAT is not available against excise and vice versa.
• VAT was applicable just for goods not for services but GST will be applicable for both.

CONCEPT OF CROSS UTILISATION OF CREDITS:

Under the GST regime, for intra state supply of goods taxes to be paid are the central GST (will go into the account of Central government) and the state GST (SGST, going into the account of state government) and for the interstate supply the taxes to be paid into integrated GST compromising of both CGST and SGST.

HOW THE GST OPERATES?

Cross utilization of credit of CGST and SGST with IGST between goods and services would be allowed. But, the cross utilization of credit between CGST and SGST would not be allowed. The credit of IGST and CGST can be used for the payment of CGST and in the case of liability of SGST the credit of IGST and SGST can be utilized. The credit of IGST would be permitted for payment of IGST, CGST and SGST in the order. BUT no input tax credit will be available on account of CGST shall be utilized towards of payment of SGST and vice versa.

LIKE FOR EXAMPLE:

 Suppose the goods worth of Rs .10, 000 are sold from Kanpur to Lucknow (within the state), so tax will be levied by central and state government both. That comes to be Rs. 800 paid as CGST AND SGST. Later, the goods (15,000) are resold from Lucknow to Delhi that is inter -state sale of goods, where IGST will be levied. The tax on such sale which is inter- state sale is Rs. 2400(15000@16%IGST). Whole of IGST goes to the central government.

The input tax credit: the tax paid at the time of intra- state supply of goods will be deducted from tax paid on inter- state sale. So from above example we can see that the SGST never went to the central government, still the credit is claimed .Which amounts to loss to the central government, so SG will compensate to central government.

This is how GST would work.