GST and Custom Laws

Unit-1-Part-1 Introduction

Please Note: These PPTs are prepared for teaching purpose, some provisions/rules
are incomplete/missing and supported with discussion during classes. Therefore,
PPTs can not be used as a complete notes for examination purpose.
 Concept of GST

GST is a single value added tax levied on the supply of goods or services or
both from the manufactures or service provider to the final consumer.
– Single tax in place of multiple taxes-Service tax, State VAT, Central excise duty
etc.

– Value added tax as it offers a comprehensive and continuous chain of tax

credits at each stage of supply chain

– Supply -the incidence of tax

– No difference between goods and services

– Based on the principle of destination based taxation

 Concept of GST

When GST was implemented nation

wide???
 Concept of GST

• GST was implemented with effect from 1st

July, 2017.
– However, It was extended to Jammu & Kashmir
on 8th July, 2017.
 Concept of GST

How GST is ONE TAX-ONE NATION????

 Goods not covered under GST

Is there any Good/Service which is not

taxable under GST?
 What is Not Covered under GST

• GST is applicable on all goods and services except

Alcohol for human consumption.
• It is still subject to State Excise Duty.

• There are five specified products such as Crude oil,

Petrol, Diesel, ATF & Natural Gas, they are presently
not taxed under GST.
• On these products GST would be applicable from a date notified
on the recommendations of the GST council.
 What is Not Covered under GST

• Is there any Good/Service which is taxable

under GST as well as under Pre-GST tax ??
 What is Not Covered under GST

• Tobacco: Tobacco is within the purview of GST, i.e. GST is leviable on tobacco.
However, Union Government has also retained the power to levy excise duties on
tobacco and tobacco products manufactured in India. Resultantly, tobacco is
subject to GST as well as central excise duty.

• Opium, Indian hemp and other narcotic drugs and narcotics: Opium, Indian hemp
and other narcotic drugs and narcotics are within the purview of GST, i.e. GST is
leviable on them. However, State Governments have also retained the power to
levy excise duties on such products manufactured in India. Resultantly, Opium,
Indian hemp and other narcotic drugs and narcotics are subject to GST as well as
State excise duties.
 What is Not Covered under GST

• What about the supply of Electricity?? Is it

covered under GST??
 What is Not Covered under GST

• Supply of electricity by DISCOM is out of GST

• But if electricity charge is collected in composite rent

of commercial property (not of residential) then GST
is applicable on electricity component as well.
 What is Not Covered under GST

• Real estate sector has been kept out of ambit

of GST, i.e. GST will not be levied on
sale/purchase of immovable property.
 Dual GST in India
• India has adopted a Dual GST model in view of the federal structure
– Centre and States simultaneously levy GST on taxable supply
– GST Comprises of 5 Acts:
1) CGST Act, 2017
2) SGST Act, 2017
3) IGST Act, 2017,
4) UTGST Act, 2017 and
5) GST (Compensation to states) Act, 2017
 How Imports are taxed under GST
• As a basic principle, GST law says that all supplies of goods & services made as imports into

India will be treated as an inter-state supply. All inter-state supplies attract IGST.

• Basic custom duty and all applicable customs levy will continue to be charged in addition to

IGST.

– IGST on import of goods will be levied and collected under the Customs Act, 1962.

– IGST on import of services will be covered under the IGST Act.

• Here the importer has to deposit IGST on Reverse Charge Basis (Except in case

of OIDAR (Online Information Data Access and Retrieval) services, the supplier has to seek

registration and pay taxes).

• The IGST paid on imports will be available as input tax credit to the importer. This can be set

off against the GST outgo on supplies made by the importer.

 How Exports are taxed under GST

• The export of goods or services is considered as a zero-rated supply. GST

will not be levied on export of any kind of goods or services.

 Reverse Charge Mechanism

Situation when recipient of Goods/Services is liable to pay GST.

RCM

Depending on nature of
supply/supplier (a list is given under Purchase by registered person
Sec 9(3) from unregistered person sec 9(4)

Cashew nuts, Bidi Wrapper

leaves, Tobacco leaves, Silk
Yarn, Raw Cotton among
many other
Reverse Charge Mechanism
 Reverse Charge Mechanism

• In RCM tax has to be paid by cash (via internet banking) to the govt. by
recipient.

• ITC available in account cannot be utilised to pay GST liability under RCM

• Once tax is paid by the recipient on input under RCM, input tax credit is
available to him (as he is otherwise eligible for input tax credit).
 Input Tax Credit

• Backbone of GST regime

• Ensures the seamless flow of ITC across entire
supply chain
• For example, Mr Ram a registered trader paid GST amounting to Rs. 900 on inward supply of
goods priced Rs. X, used as input. He sold these goods with some value addition and charged
GST of Rs. 1,000 on outward supply from customerc when sold for Rs. Y. According to the
concept of ITC, his net liability of GST will be Rs. 100 (i.e. Rs. 1000-Rs. 900) as he can claim the
credit of input tax while meeting his output tax liability. This mechanism is called utilization of
ITC.
Constitutional Framework

Refer to class notes

Structure of GST
Structure of GST
 Structure of GST

• Components of GST
– CGST-Central GST
• CGST is levied by Centre

• Applicable on Intra-state supply of goods or services or both

• Central taxes are subsumed here

– SGST-State GST
• SGST is levied by State

• Applicable on Intra-state supply of goods or services or both

• State taxes are subsumed here

 Structure of GST

– UTGST-Union Territory GST

– UTGST is levied by UT

– Applicable on intra-state supply of goods or services or both in UT

– VAT applicable in UT are subsumed here

– IGST-Integrated GST
– IGST is levied by Centre

– Applicable on Inter-state supply of goods or services or both

– State and central taxes are subsumed here

– IGST is sum of CGST and SGST

 Structure of GST

• Legislative Framework
– For Intra-State supply
• CGST Act, 2017

• SGST Act, 2017 /UTGST Act, 2017

– For Inter-State Supply

• IGST Act, 2017

– In addition to above GST (Compensation to states) Act, 2017

Indirect Tax Prior to GST
 Shortcomings of Pre-GST system
Major Pre-GST tax
Type of tax Taxable Event in Pre-GST Power to levy
Excise Duty(CENVAT) Manufacture of goods within India Centre
Service Tax Provision of Service other than those services Centre
specified in the negative list
Collected and paid by the service provider
Central Sales Tax (CST) Inter-state sale of goods Centre
State VAT(Sales tax prior to Sale of goods within the state State
2005)
Countervailing Duty(CVD) Importation of goods(at the rate equal to excise) Centre
Special CVD Importation of goods (to cover VAT/CST element as if Centre
those goods are bought domestically)
Entertainment Tax On Payment for admission to any entertainment State
Luxury Tax Provision of Luxury State
Octroi/Entry Tax Interstate movement of goods (collected by the state State
in which goods are received)
 Shortcomings of Pre-GST system
• Cascading Effect
– Indirect taxation system prior to GST consist of multiple levies distributed
between centre and states which resulted into cascading effect (i.e . Tax on
tax)

– How cascading ??
• In the State-level VAT, Excise Duty (or CENVAT) load on the goods was not removed.
Though CENVAT and State-Level VAT were essentially value added taxes, set off of one
against the credit of another was not possible as CENVAT was a central levy and State-
Level VAT was a State levy.

• VAT on goods was not integrated with tax on services, at the State level, to remove the
cascading effect of service tax.

• No credit for CST (levied by Centre) against State VAT (levied by State) in case of supply
chain of inter-state and then intra –state nature.
 Shortcomings of Pre-GST system

• Double Taxation-Due to same subject matter being

treated as ‘Goods’ and ‘Service’
– Certain transactions were subject to double taxation and
were taxed as both goods and services, since under the
earlier regime, distinction between goods and services was
often blurred.
• Software was subject to both service tax and VAT
• Restaurant services were subject to both service tax and VAT
 Shortcomings of Pre-GST system

Multiple Point of Taxation

There were multiple point of taxation(incidence of
tax/Event of tax) in Pre-GST system
Example
Excise was levied when goods manufactured were cleared from
the factory premises irrespective of fact that the clearance was
because of sale or otherwise.
Central Sales Tax was levied in case of inter-state trade and
entry tax was levied on entry of goods in a state.
 Shortcomings of Pre-GST system

• Multiple Taxation Authorities

– There were multiple taxation authorities to comply with.
– Created troubles for businessman thereby increasing the compliance cost
and complexities

• Lack of Uniformity in Provisions and Rates

– Lack of uniformity in respect of
• Rates of taxes
• Credit Provisions
• Procedures etc.

– Different VAT laws in different part of India divided India into different
economic hemisphere.
 Shortcomings of Pre-GST system
• Lack of Transparency
– No mechanism for cross verification of the CENVAT credit
– States did not have system to cross verify the credits of VAT

• Exemptions and Concessions

– Area based exemption
– SSI (Small Scale Industry) Exemption
– Exemptions broke the chain of VAT credit and thus distortion was created

• Narrow Base
• Different threshold under different laws
• Various exemption and Concessions
• Leads to narrow base as compared to the other countries
Rational for GST
 Rational for GST

What is GST??

GST is a single value added tax levied on the supply of goods or services or both
from the manufactures or service provider to the final consumer.
– Single tax in place of multiple taxes-Service tax, State VAT, Central excise duty etc.

– Value added tax as it offers a comprehensive and continuous chain of tax credits at each stage
of supply chain

– Supply -the incidence of tax

– No difference between goods and services

– Based on the principle of destination based taxation

 Rational for GST

• To Business and Industry

– Reduction in multiplicity of taxes

– Mitigation of cascading if tax

– Mitigation of double taxation

– Development of common national market

– Simpler tax regime

– Fever rates and exemption

• To Central and State Government

– Higher revenue efficiency

– Broader tax base

– Better control on leakage

– Simple and easy to administer

 Rational for GST

• For Consumer
– Simpler tax system

– Reduction in prices of goods and services due to elimination of cascading effect

– Uniform prices throughout the country

– Transparency in taxation system

• Other
– One tax-One Nation-one market

– Boost to foreign investment and ‘Make in India’ campaign

– Boost to export and economic activity-leading to economic growth

– Uniform SGT and IGST-reduce tax arbitrage and tax evasion

GST Council
 GST Council
• Background
– To implement GST, Constitutional (122nd Amendment) Bill (also
known as CAB) was introduced in the parliament and passed by Rajya
Sabha on 3rd August, 2016 and by Lok Sabha on 8th August, 2016.
– CAB become “The Constitution (101st Amendment)Act, 2016 and
approved by President on 8th September, 2016.
– As per article 279A of the amended Constitution, the GST Council was
constituted by President of India on 15 September, 2016.
 GST Council
• About the GST Council
– An apex constitutional body which bring centre and states at the same page and ensures
consensus of various complex issues on which there were divergent views.

• Composition of GST Council

1) The Union Finance Minister –Chairperson

2) Ministers in charge of Finance/Taxation or any other Minister nominated by each of the

States & UTs with Legislatures –Members

3) Union Minister of State in charge of Revenue or Finance –Member

• Any one from point 2 will be vice-chairperson who will be mutually elected by them.
 GST Council
• Quorum at GST Council meeting
– Alteast 50% of the total members

• Decision Making at GST Council

– Every decision of the GST Council is taken by a majority of not less than three-
fourths of the weighted votes of the members present and voting.

– Vote of the Centre has a weightage of one-third of total votes cast and votes
of all the State Governments taken together has a weightage of two-thirds of
the total votes cast, in that meeting.
 GST Council
• Functions of GST Council
– To make recommendations to the Union and the States on important
issues like tax rates, exemptions, threshold limits etc.

– It recommends the special provisions (threshold limits for registration,

composition, exemptions, etc) with respect to the Special Category States.

» There are 11 Special Category States:

Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya,

Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
 GST Council
• Functions of GST Council
– GST Council will recommend the date on which GST be levied on five
petroleum products- petroleum crude, high speed diesel, motor spirit,
natural gas and aviation turbine fuel.
– To establish a mechanism to adjudicate any dispute-
» Between the Centre and one or more state
» Between the Centre and any state or states on one side or one or
more than one states on the other side
» Between two or more states
 GST Council
• Members of GST Council
Representation of No. of Members

Central Government (The Union Finance Minister – 2

Chairperson & Union Minister of State in charge of
Revenue or Finance –Member)
28 states 28

3 UTs with legislature ( National Capital Territory of Delhi, 3

Puducherry, Jammu and Kashmir
6 UTs without separate legislature (Andaman and Nicobar Nil
Islands, Chandigarh, Dadra and Nagar Haveli, Daman
and Diu, Lakshadweep, Ladakh)
Total 33
GST Network
 GST Administration-GSTN

• Common GST Electronic Portal –[Link]

• Managed by GST network –GSTN
– GSTN is a company incorporated under Section 8 of Companies
Act.
– It creates a uniform interface for the tax payer and authorities
– A shared IT infrastructure between the Centre and the States
– No need to comply with multiple authorities
 GST Administration-GSTN

• Functions of GSTN
– facilitating registration;
– forwarding the returns to central and state authorities;
– computing and settlement of IGST;
– matching of tax payment details with the banking network;
– providing various MIS reports to the Central and State
Governments etc.
 GST Administration-GSTN
• Other points
– The Common GST Electronic Portal for furnishing electronic way bill is
[Link] [managed by the National Informatics Centre,
Ministry of Electronics & Information Technology, Government of India].
• E-way bill is an electronic document generated on the GST portal evidencing movement
of goods

– Further, Invoice Registration Portal (IRP) is the website for

uploading/reporting of e-invoices by the notified persons [managed by the
National Informatics Centre, Ministry of Electronics & Information Technology,
Government of India]
 GST Administration-GSTN

• Shared Expanses: The user charges will be paid entirely by

the central and the state governments in equal proportion
(50:50) on behalf of all users. The state share will be then
apportioned to individual states, in proportion to the
number of taxpayers in the state.
State Compensation
Mechanism
 GST Compensation Cess
• Background

– Since GST is a destination based tax, the revenue from these taxes
would occur to the state where the goods are ultimately consumed(as
explained in example in class).

– Prior to GST, the levy of VAT and CST was an origin based tax in which
the revenue would be going to the originating state.

– Hence after introduction of GST, there would be some losses to few

manufacturing states like Gujarat and Maharashtra, on the other hand
consuming states like Bihar and UP will be in Benefit.
 GST Compensation Cess
• Background
– So, to compensate states from this kind of probable loss, in the Constitution
(101st Amendment) Act, 2016, section 18 has been introduced which read as “
Parliament shall, by law, on the recommendation of GST Council, provide for
compensation to the states for the loss of revenue arising because of
implementation of the GST for a period of five years”.

• GST (Compensation to states) Act, 2017 empowers the government to

collect an additional tax and collection from it is distributed among the
states.
 GST Compensation Cess
• Levy and Collection of Cess

– Additional tax levied on the value of intra-state supply (as in Sec 9 of

the CGST Act) and inter-state supply (as in Sec5 of IGST Act) of the
following goods (or/and services)
• Pan masala
• Aerated waters
• Tobacco and Tobacco products
• Coal, briquettes and similar solid made from coal or lignite
• Motor cars and other motor vehicles(specified)
• Any other supplies as modified from time to time
 GST Compensation Cess
• Levy and Collection of Cess (other points)
– GST Cess is calculated on Value of Supply Computed under section 15 of CGST Act.
Unlike cess levied in direct tax(HEC @ 4%), GST Cess is levied on Value of Supply.

– ITC credit in respect of Cess on inward supply shall be utilized only towards payment of
said cess on outward supply