Afterstudying this chapter, youshall beable to understand the following: Types of taxes in India 1 Features of Indirect Taxes a Provisionsin Constitutionregard- ing taxation a VAT; Concept and Features = Variants of VAT = Defects in structure of Indirect Taxes prior to GST 1.1 INTRODUCTION India is a Socialist, demoratic and republic country. The federal structure of India comprises central and state level Government. Both the Governments,share the primerespon- sibilities including meeting out the increasing development needs of the country. The primary source of revenue is the levy of taxes only, In fact, in order to stimulate economic growth and to Fulfil socio-economic objectives, the tax is Considered to be the most important source of revenue for the Government. 4 tax is a compulsory contribution from a person to the expenses incurred by the state in common interest of all without reference to specific benefits conferred on any in- dividual, The tax cannot be regarded as voluntary payment or donation. Rather, itis enforced contribution, which is ex- acted through legislative authority, The word tax has been derived from the Latin word "Taxo” which means touch sharply or charge QNNVIWXUL As per Wikipedia, “A tax is a mandatory financial charge or some other iype of levy imposed upon atax payer (an individ- ual or other legal entity) by the Government in order to fund various public expenditure” It may be noted that the tax is a mandatory payment because a failure to pay or evasion of or resistance of taxation, is punishable by law. .2TYPESOFTAXES The taxes are generally classified into direct tax and indirect tax. 1, Direct Tax : A direct tax is paid directly by an indivi- dual or organization to an imposing entity. The direct tax is a type of tax where the incidence and impact of taxation falls on the same entity. It means brunt LtTAXMANN® 12 Para 1.4 INDIRECT TAXES IN INDIA: PRE-GST ERA The significant direct tax of direct tax cannot be shifted by the taxpayer to someone cle x imposed in India is Income Tax. 2, Indirect Tax : The indirect taxes are imposed on goods/se pay indirect taxes lies on the manufacturer/service Prov’ tltimately transferred to the consumers. Since this tax is in xe ee ly s ee ; an intermediary from it is called as indirect tax. Hence, an indirect tax is collected by an SOE the t the bi person who bears the ultimate economic burden of the tax. It may ee aura Of indirect taxis transferred not in the form of taxes but as a part of the P 3 services. ervices. The immediate liability to ‘der/seller, etc. but the burden ig directly borne by the consumer, 1,3 FEATURES OF INDIRECT TAXES ‘The following are the basic features of indirect taxes: . 1, Taxable Event: The indirect taxes are levied on purchase/sale/manufacture of goods and provision of services, Incidence & Impact: In case of indirect taxes, the incidence and impact fall on two different persons. It means the tax burden is shifted by the supplier to the buyer or recipient of goods or services. 3, Regressive Taxation: The indirect taxes do not depend on paying capacity as tax payable on commodity is same whetherit is purchased by a poor man or rich person. Therefore, indirect taxes are regressive in nature. There aré exceptions to this argument as higher taxes may be imposed on luxury goods. Impact of Indirect Tax: The indirect tax on goods and serviees increases its price. This leads to inflationary trend. Promotes Welfare: The harmful or sin products like alcohol, tobacco, etc. may be taxed at higher rate. This practice not only discourages consumption of such goods but also increases the revenue of the State. 2 4. 5, 6. Major Source of Revenue: In India, the contribution of indirect taxes to total tax revenue is more than 50%, Therefore, it is a major source of tax revenue for the Government. a4 FAXATION. POWERS OF UNION & STATE GOVERNMENT In India, the Constitution is Supreme and all laws and actions of : i to it, The Constitution provides that no tax shall be levied or clei ee ‘The Structure of Government in India is federal in nature. As per article 1(1) of Constitution, India shall be union of States, There is a bifurcation of powers between union and states. (ciaeace of India (Central Government) has certain powers in respect of whole country. Each state (and union territory) has certain powers in respect of that particular state (Union territory) ae 1.4.1 In India has a three-tier federal structure, comprising the following: (ay The Uition Goverment ss (6) The State Government (0) The Local Government The power to levy taxes and duties is distributed am i dance with the provisions f Indian Constitution, The Ceneractnes cert Covernment, in accor (Containing 448 articles and 12. Schedules, ‘Snstitution consists of a preamble, 25 parts13 é CONCEPT OF VALUE ADDED Tax Parals | 1.4.2 Provisions of constitution regarding taxation it prohibits arbitrary collection of tax, The term “authority of law" means that tax Proposed to be levied must be within the legislative competence of the Legislature imposing the rer 2. Article 245: This article provides that, “Subject to the provisions of this Constitution, Parlia- ment may make law for the whole or any part of the territory of India, and the legislature of a state may make laws for the whole ‘or any patt of the state”. Further, no law made by the Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. Thus, the power for en: ‘acting the laws is conferred on the Parliament and on the Legislature of a state. (@) List I (Union List): The Central Government has the exclusive Tight to make laws in the items in List lare defense of India, naval, military and air forces, atone energy and ‘mineral resources, central bureau of intelligence and investigation, railways highways, dara cy: RBI post office saving bank, taxes on income other than agricultural income, duties of customs, corporation tax, ete, (2) List Il (State List): It contains the matters in respect of which the State Government has the exclusive right to make laws. These matters include public order, police lecal government, public health and sanitation, hospital, burials and burial grounds, ewemia- tion ground, libraries, water, fisheries, betting and gambling, ete. (¢) List IM (Concurrent List): Tt contains the matters in respect of which both Central & State Governments have powers to make laws. This list includes criminal laws, criminal Procedure, marriage and divorce, contracts including partnership, agency, bankruptcy and insolveney, trust and trustees, trade unions, industrial and labour disputes, ete: c ioe Power to Levy GST (Goods and Services Tax (GST) has been conferred by Article 246A of the Constitution which | wares the Constitution (101 Amendment) Act, 2016. The significant provisions of Constitution (101" Amendment) Act, 2016 have been discussed in detail in Chapter 2: i it TAX (VAT) twoduced in India in 2005. Itis a multi point system of taxation on 2 is provided to grant credit for tax Paid on inputs, Under VAT, tages and transactions involving sale of goods. The input tax (ie. paid on Output tax (ie. tax payable on sales).14 ERA Para 1.6 INDIRECT TAXES ININDIA: PRE-OST) lowing manner Under the VAT system, the net tax payable is calculated in the fol VAT = Tax collected on sales - Tax paid on purchases 1.5.1 What is Cascading Effect Peete levy ct lax ete The cascading effect implies charging tax on tax In other words at the tins O° O20 1G. elo value is considered which is inclusive of all taxes paid up to that Pay keeps on increasing at each always charged on the seling price of the product. the burden of tax Fesps 4 GS 2 Sach Point of sales In this process, the effect of taxation magnifies as at each [eVel 19s S So culate on value; which includes taxes already levied and paid. The charging o cading Bifect of tax’, 1.5.2 VAT has eliminated cascading effect es a VAT has been developed to avoid cascading effect of taxes This has bevomie possible 2s taxis fee tvely charged only on value aition at each stage and not onthe entire sale price. e effect has been prevented through tax credit system, called as Input Tax Credit. 1.5.3 Input Tax Credit Ifany registered dealer is purchasing goods within @ particular state and has paid value added tax and subsequently the goods were sold in the same state, in that case such registered dealer shall be allowed to take credit for input tax, subject to certain conditions. In other words, the tax is im- posed at each stage on the entire Sales value and the tax paid at the earlier stage is allowed as set off. This credit availability is called as “Input Tax Credit”. For example: Mr. Bhuvan is a registered dealer and has purchased inputs worth 5,00,000 (plus VAT @ 4%). The actual sales in the month ‘were % 9,00,000 (plus VAT @ 10%). It means VAT paid on purchases = 20,000 [Calculated as 5,00,000 x 4%] Output VAT payable = € 90,000 (Calculated as € 9,00,000 = 10%] Since, VAT paid on purchases can be adjusted against output VAT payable; the net VAT payable for the month shall be € 90,000 minus € 20,000. It means after adjusting ITC, the net VAT lability is 70,000. TTAXMANN®: 1.5.4 Scope of input tax credit under VAT Jp Pre-GST era, the concept of ITC was prevailing in VAT, Excise and Service Tax. The following important points may be noted about the entitlement of ITC under VAT. 7 (@) Itis allowed to a registered dealer. (6) Itis also allowed in respect at VAT paid on purchase of capital goods. (c) The Central Sales Tax (CST) paid on purchases made from outside state is not allowed as ITC. (2) Itis allowed only if the purchases are made from a registered dealer. (e) The ITC is not available i () ere isnot available in respect of purchases froma dealer who has ‘opted for composition (A It goods have been used to manufacture the exempted g00ds, ITC is not available. 1.6 VARIANTS OF VAT! Je Geen The various possibilities of ere; dit for VAT paid jis * acthires Gananes Biss On Purchase icalled|as variants of VAT. ‘The VAT EVAT bs been fubstinied in GST, The Vavtants of VAT have cen dieciseed it forms part of BC, : om, (Homs) Syllabus.15 VARIANTS OF vat Para 1.6 (a) Gross Product Variant (b) Income Variant (©) Consumption Variant (a) Gross Product Variant: Under this variant, VAT credit is allowed only of VAT paid on raw materials other than capital Goods, The merit of Gross Product variant is the prevention of cascading effect due to allowance of VAT credit on non-capital goods. The VAT paid an purchase of capital goods (like plant and machinery) will not be eligible for credit and will therefore form part of cost of that capital goods. The depreciation portion includes some portion of VAT and also part of cost of final product. When tax is calculated on this Cost, cascading effect still prevails, (& Income Variant: The VAT credit is allowed on all VAT paid on raw material and components. In case of capital goods, VAT credit is allowed only to the extent of depreciation on them. It means, VAT credit an capital goods is apportioned to various years in the ratio at depreciation allowance on such capital assets in those years. (Q Consumption Variant: Under this variant, 100% VAT credit is allowed of VAT paid on all raw materials and components as well as capital goods. Ilustration 1: Consider the following information [Particulars Amount @) (@)_| Purchase of raw material and component (Exclusive of VAT @ 4%) 8,00,000 (6)_| Purchase of machinery (Life 10 years) Exclusive of VAT @ 12.5% 24,00,000 (@_ | Direct and indirect expenses 6,00,000 (@)_| Profit margin 20% on total cost (e)_| VAT on sales 12.5% ‘Compute selling price and VAT payable under the three variants of VAT. Solution: CALCULATION OF NET VAT PAYABLE, Gross Product |__Income _| Consumption Raw Material 8,00,000 8,00,000 8,00,000 Depreciation (WN+1) 2,70,000 240,000 2,40,000 Expenses 6,00,000 6,00,000 600,000 ‘Total Exp. 16,70,000/ 16,40,000| ——_16,40,000 Margin 3,34,000 3,28,000 3,28,000 Selling Price 20,04,000| _19,68,000| _19,68,000 Output VAT 2,50500 246,000 2,46,000 ) ITC (WN-2) (32,000) (62,000) (332,000) ve vAT aad 2,18,500 1,84,000 (86,000) ies Gro Product Variant = 24:00. 000 + 3,00.000 => 70,000"FAXMANN® Ms NDIA: PREGS Para 1.8 INDIRECT TAXES r Working Note 2: Calculation of Input Tax Credit (TTC) under various Variants Gros Product [Income | Consumption. | Input Goods 32,000 32,000 pate Capital Goods Nil] 30,000 3,00, Total 32,000| 62,000] _3.82,000 1.7 METHODS FOR COMPUTATION OF VAT! There are three commonly used methods for computation of VAT. (a) Addition Method (8) Invoice Method (6) Subtraction Method (a) Addition Method: This method i: based upon identification of value added be, aggregate ‘at factor payment and profit. The payments made to all the factors of production are rent, depreciation, hire charges, interest on capital, wages, ete. These are called as factor payments VAT Liability = Tax Rate X Value added (b) Invoice Method or Voucher Method: Under this method, the tax is levied on full sale price But, the credit is given for tax paid on purchases. Thus, effectively, the tax is levied only on valtie added, It may be noted that Invoice Method is the most common and popular method for computing the tax liability under VAT system. {c) Subtraction Method: Under this method, the tax is paid on the difference between sale price and value of purchases. There is no question of tax credit as the tax has not been calculated ‘on total value of goods sold. The subtraction method could be further analysed into Direct ‘Subtraction method and Indirect Subtraction method. [uss Direct subtraction method Indirect subtraction method Value | Aggregate value of sales exclusive of tax | Cum Tax | Tax inclusive value of sales Added | ytinus value! Minus ; added Aggregate Valueof purchasesexclusiveoftax ‘Tax inclusive value of purchases } MAJOR DEFECTS IN THE STRUCTURE OF INDIRECT TAXES PRIOR TO GST ‘The following were the major draw backs in the structure of indirect taxes prior to GST imple: mentation: 1, Multiplicity of Indirect Taxes: The Central Government was empow' i i fered to levy cus! duty, On imports/Exports, excise duty on manufacture, seryice ne on Seven ok nies ete. On the other side the State Government was empowered to levy VAT on sale of goods, all edocs aulhod pete pon has led to a multiplicity of indirect taxes being ied by vardous authorities. That Is considered to be the major defect in the structure of indirect taxes in pre-GST era. s 2, Non-Availability of cross utilization of taxes: The levies of Cen r : ¥ State Government levies were not allowed. That led to lo see ie dealer who has paid CST on inter-State purchases was not allowed to utilize such CST unde! TTC against VAT payable on sales. 7, VAT has been subsumed in GST. The methods for computation of V/ syllabus, lon of VAT have been discussed as it forms part of BCom. (H)"FAXMANN® Ms NDIA: PREGS Para 1.8 INDIRECT TAXES r Working Note 2: Calculation of Input Tax Credit (TTC) under various Variants Gros Product [Income | Consumption. | Input Goods 32,000 32,000 pate Capital Goods Nil] 30,000 3,00, Total 32,000| 62,000] _3.82,000 1.7 METHODS FOR COMPUTATION OF VAT! There are three commonly used methods for computation of VAT. (a) Addition Method (8) Invoice Method (6) Subtraction Method (a) Addition Method: This method i: based upon identification of value added be, aggregate ‘at factor payment and profit. The payments made to all the factors of production are rent, depreciation, hire charges, interest on capital, wages, ete. These are called as factor payments VAT Liability = Tax Rate X Value added (b) Invoice Method or Voucher Method: Under this method, the tax is levied on full sale price But, the credit is given for tax paid on purchases. Thus, effectively, the tax is levied only on valtie added, It may be noted that Invoice Method is the most common and popular method for computing the tax liability under VAT system. {c) Subtraction Method: Under this method, the tax is paid on the difference between sale price and value of purchases. There is no question of tax credit as the tax has not been calculated ‘on total value of goods sold. The subtraction method could be further analysed into Direct ‘Subtraction method and Indirect Subtraction method. [uss Direct subtraction method Indirect subtraction method Value | Aggregate value of sales exclusive of tax | Cum Tax | Tax inclusive value of sales Added | ytinus value! Minus ; added Aggregate Valueof purchasesexclusiveoftax ‘Tax inclusive value of purchases } MAJOR DEFECTS IN THE STRUCTURE OF INDIRECT TAXES PRIOR TO GST ‘The following were the major draw backs in the structure of indirect taxes prior to GST imple: mentation: 1, Multiplicity of Indirect Taxes: The Central Government was empow' i i fered to levy cus! duty, On imports/Exports, excise duty on manufacture, seryice ne on Seven ok nies ete. On the other side the State Government was empowered to levy VAT on sale of goods, all edocs aulhod pete pon has led to a multiplicity of indirect taxes being ied by vardous authorities. That Is considered to be the major defect in the structure of indirect taxes in pre-GST era. s 2, Non-Availability of cross utilization of taxes: The levies of Cen r : ¥ State Government levies were not allowed. That led to lo see ie dealer who has paid CST on inter-State purchases was not allowed to utilize such CST unde! TTC against VAT payable on sales. 7, VAT has been subsumed in GST. The methods for computation of V/ syllabus, lon of VAT have been discussed as it forms part of BCom. (H)17 TEST YOUR KNOWLEDGE 3. Obstructed movement of goods: Due to creation of tariff and non-tariff trade and tax barriers such as octroi, entry tax, check posts, ctc. there was hindrance in free flow of trade. Multiple Repetitive Compliances: The various indirect taxes (like excise duty, VAT, service tax, etc.) had their own compliance procedures, which required multipleresistrations, registration numbers, filing procedures, due dates, etc, This led to expending timeas well as money, which could otherwise be saved. Therefore, one of the major drawbacks was high compliance costs in the form of payments, returns, etc. 4. ‘The introduction of GST, at both Central and State levels, has overcome the above problems. The reason being, there is not only the integration at Goods and services taxation but also the state level taxes. TEST YOUR KNOWLEDGE Q.1. In what way, indirect taxes are different from direct taxes ? Q.2. Explain the salient feature of indirect taxes. Q.3. Describe the provisions of “Constitution of India’ regarding taxation. | 0.4. What are the various variants and methods of value added tax, which existed before the introduction of GST wef, Ist July 2017? Q.5. Explain the major drawbacks in Indirect Taxes System in Pre-GST Fra. 0.6. Explain in brief about the constitutional framework of Indirect Taxes before GST. [DU B.Com. (Prog.) Dec. 2018]Para 2.2 GST IN INDIA: AN INTRODUCTION 22 has created hurdles in the path of GST implementation. These developments can be consolidated in chronological order in the following manner: ‘Year 2000 J In the year 2000, the then Prime Minister mooted the concept of GST and set up a committee to design a Goods and Services Tax model for the country. Kelkar Task Foree (2003-2004) In 2003, the Central Government formed a task force on fiscal responsibility and budg: Bansgemieni | 2004, the Kelkar task force floated the idea of an integrated national level goods and services tax and strongly recommended the introduction of GST in India ‘Budget Speech (2006-2007) The then Union Finance Minister, Shri P. Chidambaram, while presenting the Union Budget 2006-07 announced the introduction of GST from April 1, 2010, a Abeyance Period of GST | Many hurdles and problems burgeoned and GST could not be implemented. It kept missing several dead. | lines but finally gained momentum once again in 2014. Constitution Amendment Bill - Revival of GST (2014) ‘On 19th December, 2014, the NDA Government tabled in Lok Sabha the 122nd Amendment Bill, 2014 on GST. | jendment Act 6th May 2015 + Constitution (122 Amendment) Bill, 2014 Passed in Lok Sabha 3rd August, 2016 The Amendment bill was passed in Rajya Sabha 8th September, 2016 Subsequently ratified by many states one after the other. When ratified by more i than 50% of the States, the Constitutional (122** Amendment) Bill, 2014 received the assent of President of India. It became Constitutional (101" Amendment) Act, 2016 which paved the way of GST in India. | 27th March, 2017 Four bills introduced in Lok Sabha, ¢ CGST Bill, 2017 ‘ IGST Bill, 2017 UTGST Bill, 2017 GST (Compensation to States) Bill, 2017 29th March, 2017 The above four Central GST Legislations were passed in Lok Sabha 12th April, 2017 + The above four Central GST legislations received assent of President & Bills turned into following Acts. © CGST Act, 2017 IGST Act, 2017 @ UTGST Act, 2017 # GST (Compensation to States) Act, 2017. i = ep GST Actas aii: arb at The enactment of the Central GST Acts was followed by the enactment of the State GST laws by all State jslative and 2 Union territories (Delhi & Puducherry) having their own lesishay : ble | shows the passing f respective SGST Act by the States (and 2 Union Territories) Ao eee23 GENESIS oF Gsr Para 2.2 [Table Showing Date of Enaciment of State GST Laws! , en Sih Apri 2017 17. [Maharashira 22nd May, 2017 Sas 24th April 2017 | 18. | Tripura 24th May, 2017 26th April, 2017 19. | Sikkim: 25th May, 2017 - oe 27th April, 2017 _ | 20. | Mizoram 26th May, 2017 é sgarh 28th April, 2017 21, | Nagaland 27th May, 2017 6._| Uttarakhand 2nd May, 2017 22. | Himachal Pradesh 27th May, 2017 7._| Madhya Pradesh 3rd May, 2017 | 23, [Delhi(UT) 3ist May, 2017 _| 8._| Haryana 4th May, 2017 24. | Manipur Sth June, 2017 9. [Gujarat 9th May, 2017 25. | Meghalaya 12th June, 2017 10. | Goa 9th May, 2017 26, | Karnataka 16th June, 2017 11. | Odisha 1th May, 2017 _| 27. [Punjab 19th June, 2017 12, [Assam 11th May, 2017 _| 28. | Tamil Nadu 19th June, 2017 43, [Arunachal Pradesh | 12thMay,2017__| 29, | West Bengal 15th June, 2017 14. | Uttar Pradesh 16th May, 2017 30. | Kerala 21st June, 2017 415. | Andhra Pradesh 16th May, 2017 31, | Jammu & Kashmir Sth July, 2017 | 16. | Puducherry (UT) 17th May, 2017 [But at present, it is no longer a state. It has | been divided into 2UT's} GST Roll out from 1st July, 2017 sai GST has been implemented across India wef, Ist July 2017. But the same came into force in] & Kwaeh.| © 8th July, 2017, CGST (Extension to J & K) Ordinance, 2017 and IGST (Extension to J & K) Ordinance, 2017| 2 were promulgated making necessary change in CGST Act and IGST Act and declaring that the said Acts Z shall be applicable to the State of J & K also, . Special Mid-night Session For the implementation of GST in India, a special function was organized on mid-night, between 30th June - 1st July 2017, at the Central Hall of parliament of India. The revolutionary step was inaugurated by Shri Narendra Modi, the Hon’ble Prime Minister of India in the presence of Shri Pranav Mukherjee, the then President of India. Jammu and Kashmir Reorganisation Act, 2019 nmir Reorganisation Act, 2019 contains the provisions to reconstitute the eae eel sate of Jammu and Kashmir into the following two Indian-administered Union Territories: (a) The Union Territory ‘of Jammu and Kashmir and Union Territory of Ladakh ae ove Act, the UT of Jammu and Kashmir will have a legislative assembly whereas the A Per tak will be administered by a Lieutenant Governor alone. ion of the J & K Reorganisation Bill was preceded by a Presidential order Indian Constitution that revoked J & K's special status. a 1) The introducti w under Article 370 of theoTAXMANN® Para 2.3 GSTIN INDIA: AN INTRODUCTION 24 i) (2) The following are the landmark dates in this reg: Sth August, 2019: ‘Thebill for the above Act was introduced by the Minister of Home Affairs Mr. Amit Shah in the Rajya Sabha. Sth August, 2019; The said Bill was passed in Rajya Sabha. 6th August, 2019 + ‘The Bill was passed in Lok Sabha and becomes Act 9th August, 2019: The Act received the President's assent, 31st October; 2019: Effective date of applicability of the Act. 2.3 CONSTITUTIONAL PROVISIONS ON GST The power to levy Goods and Services Tax has been conferred by Article 246A of the Constitution which was introduced by the Constitution (10st Amendment) Act, 2016. The following are the significant provisions introduced in Constitution in relation to GST: (a) Article 246A This Article grants power to Centre and State Governments to make laws into respect to GST imposed by centre or such state. The centre has the exclusive power to make laws with respect to GST in case of inter-State supply of goods and/or services. (b) Article 269A {vis related with the levy and collection of GST on inter-State supply. Article 269A. stipulates the following: (1) GST on supplies in the course of inter-State trade or commerce shall be levied and collected by the Govt. of India. (2) Such tax shall be apportioned between the Union and the States in manner as may be provided by Parliament by law as the recommendation of GST Council. (3) Import of goods or services will be deemed as in the course of Inter-State trade or a commerce. _ (4) The Central Government is empowered to levy IGST on import transactions (which ‘were earlier subject to CVD under Customs Tariff Act, 1975) (5) Where an amount collected as IGST has been used for payment of SGST or vice versa such amount shall not form part of the consolidated fund of India. This is to facilitate the transfer of funds between the Centre and the States. (c) Article 366 ‘anicle 366(12A) + Goods and Services Tax means any tax on supply of goods or services or both | except taxes on the supply of the alcoholic liquor for human consumption _| ‘Article 366(26A) _: Services mean anything other than goods. Article 366(26B) = ee I oento mics 64 | Aniele 366(12) (d) Article 2798 This Article of the Constitution empowers the tre and states namely, Goods and Services Tax C in detail in Para 23. 3h it to Constitute a joint forum of the ce" (GST Council). It has been discussedCONCEPT OF GsT ra. Some of the taxes were levied by etc.) whereas many others were levied by imultaneously at both the Central and the State level The following are the salient features of GST: (1) Applicability: GST extends to whole of India 2) Pestnstien) based Taz: The GST isa destination-based tax applicable on all transactions involving supply of goods and services, The tax is payable to the state where the goods and tal Consumed. The aspect of Place of supply has been extensively discussed (3) Dual GST: Since India has the federal structure; the tax is levied by both Centre and states. Thus India has adopted Dual GST Model, Accordingly, the GST is imposed concurrently by the Centre and states on taxable supply of goods or services or both. The charge of GST has been explained in detail in chapter 3. (4) IGST on Inter-State supplies: The inter-State supplies of taxable goods and /or service subject to Integrated Goods and Services Tax (IGST) called as Integrated Tax. Itis levied by the Centre on all inter-State supplies. The rate of IGST is approximately the sum total of CGST and SGST/UTGST. (5) CGST and SGST/UTGST on Intra-State supplies: In case of Inter-State supply of goods and/ ‘or services both CGST as well as SGST are levied. In case of Union territories, which do not have their own legislature, UTGST is levied in place of SGST. (6) Legislations governing GST: For Levy of CGST_ ‘There is single legislation CGST Act, 2017 | | (a) | For Levy of UTGST in those Union Territories | Governed by UTGST Act, 2017 | ‘which do not have their state legislatives ‘These Union Territories are Note: Theerstwhile UTsnamely Dadra Nagar) (1) Andaman and Nicobar Islands. Haveliand Daman & Diuhave been merged & | (31 adweep now they have become single UT. (3) Dadra & Nagar Haveli and Daman & Diu (4) Chandigarh (5) Ladakh ‘Their own GST Act (SGST) ‘These Union Territories are: (1) Delhi (2) Puducherry | - (3) Jammu & Kashmir le 28 States Their own GST legislations (o |sGstin () T For UT having own legislative ‘The names of states are given in 22, except Jammu& Kashmir whichhas been reorganised into 2UTs wef. 31102019 et‘ Para 2.4 GST IN INDIA: AN INTRODUCTION 26 Important to Note (1) The UTGST Act has been passed for Union territories which do not have legislature, For the purpose of GST, each Union Territory shall be considered as a separate Union territory For instance, the goods have been supplied by @ trader from Chandigarh to Lakshadweep, Now, although both the UT's are governed by the same UTGST Act but it will be treated as Inter-State Supply & is subject to IGST 2) Out of 8 Union Territories, the three Union territories "Delhi “Puducherry” and “Jammu & ‘Kashmir have their own legislature and they have passed thelr own SGST Acts, That is why, Delhi, Puducherry and J&K are not covered by the list of UT for this purpose. (©) Allthe 28 states have passed their own State GST Act in order to impose SGST on supply of Goods & Services within the State, It may be noted that all provisions of State GST Acts are identical with CGST Act IMlustration 2.1 Inrespect ofthe following independent cases, determine the type of GSTleviable on supply of goods or servicss (J) Mr Shiy of Delhi supplied goods to Mr. Vinod of Delhi (2 Raman of Kashmir provided services to Shyam of Pune. (8) Janaki of Goa supplied goods to Mr. Cruz of Goa. (A) Pankaj supplied goods from his place of business in Chandigarh to Surender of Dehradun (Uttarakhand), (8) Ms Kajol sold goods to Rani. They both live in the State of Rajasthan. Solution The type of GST to be levied depends upon the nature of supply. In case of intra-State supplies, CGST and GST are levied whereas in case of inter-state supplies IGST is applicable. ‘Type of GST to be levied CGSsT SGST UTGST 1 IntraState. “ z 2 INTER-STATE a | 3 Intra State ~ 7 4 INTER-STATE Hees v =| 5 Intra-State v vi Illustration 2.2 Consider the following details in respect independent cases of taxable supplies by a registered person ‘Local Intra-State Supply in Delhi 1 2. _| Local Intra-State supply in Punjab 40,000 |” 3._| Supply from Assam to Punjab 60.000 4._ | Supply from Delhi to Goa 25,000 | 5,__| Supply from Delhi to Puducherry 30,000 ._ | Local Supply in Chandigarh 50,000 | 20,000 Le The rates of GST to be followed are CGST @ 9%; SGST/UTGST @ 9% & 1G: a of peste OST in rsspect of above independent cscs f taxable spl See EC Above are exclusive of GST. nal rates. The values &24 RATIONALE FOR GST Para 2.6 Solution Case Particu ale : lars Calculation | CGsT [SGsT [UTES |IcsT Intra-State Supply 40000 @ 9% | 3,600 (UT with state legislative) 409% | - | 3600 2, | Intra-State Supply 60,000 @9% | 5,400 eee | 60,000 @ 9% 5.400 3._ | Inter-State Supply 25,000 @ 18% 4500 4,_| Inter-State Supply 30,000 @ 18% : 5400 5._| Inter-State Supply 50,000 @ 18% = = _ | 9.000 6. | Intra-State Supply 20,000@9% | - - | 1,800 (Union territory without state legislation) 20,00@9% | 1.800 | - 2.5 TAXES SUBSUMED IN GST (GOODS AND SERVICES TAX) As already discussed, India moved into GST wef. Ist July, 2017. There has been a paradigm shift in the structure and functioning of Indirect Taxes in India. The new system of GST has subsumed many of the Central and State level indirect taxes. Although, there are Few levies like Customs Duty, Excise Duty on Alcoholic liquor for human consumption, ete. which are still in force even after introduction of GST. The following table shows the list of various Central and State taxes subsumed in GST. entralleviesSubsumed |_| State Levies Subsumed, 1 | Central Excise Duty 1 | State surcharges and cesses in so far as they relate to supply of goods & services 2 | Additional Excise Duties 2 | Entertainment Tax (except those levied by local bodies) 3 | Service Tax 3) | Tax on lottery, betting and gambling 4 | Excise Duty under Medicinal & Tollet Prepa-||4 | Entry Tax (all Forms) & Purchase Tax ration Act 5, | CVD& Special CVD 5 | VAT/Sales tax 6 | Central Sales Tax 6 | Luxury Tax 7 | Central Surcharges and Cesses insofar as they] 7 | Taxes on advertisements relate to supply of goods & services ‘Taxes not subsumed in GST: ; ' : me .d above, yet there are few similar indirect Although the GST has subsumed many taxes as state taxes ak have not been subsumed under GST. These are as follows Central Taxes: Basic Customs Duty, Research and Development Cess, Export Duty, Anti-Dumping duty, safeguard duty, etc. State Taxes: State Excise duty, Stamp Duty, Professional Tax, Motor Vehicle tax, etc. tax laws have already been discussed in Chapter 1, The rationale forint these issues, But, the ultimate postive effects of GST were manifold fg benefited including industry, Government and even the consume! justify the rationale for introducing GST The deficiencies in earlier ducing GST was to overcon ‘All the stakeholders are being benefited ‘the following are the major benefits which oNNVIXYEat GST ININDIA: AN INTRODUCTION 28 (1) Benefits to the Government: | (@ GST aims to make India a common market with cone twill boost foreign Investment and “Make in India ‘campaign. e due to improvement in investment cult in the country ‘and IGST rates actually reduc to the Government revenue ‘compliance. with common tax rates and procedures ¢ the incentive for tax evasion. by widening the tax base and i taxes for the transactions actoss the entire value mitigation of ill effects of ‘cascading. fn tax rates, the common national market has been developed. been classified as zero rated supply. It will boost the exports. = tively simple tax system. zation of cascading effect, there is a reduction in prices of goods ngs! ‘uniform through the country. ation system is more transparent. of GST may be discussed in following points: ‘on supply of goods and/or services types of taxes in GST: Fax (ie. CGST) levied under CGST Act, 2017 (ie. IGST) levied under IGST Act, 2017 c) State Tax’ .SGST) levied under SGST Act, 2017 (d) Union Territory Tax (Le, UTGST) levied under UTGST Act, 2017 In addition, there is a provision for the levy of GST {ir has been discussed in Para ao I compensation cess on sin and luxe |. There are four Acts relating to GST laws nam, | A There ie have already been dscussed in Be eae SSaRACHUTGST Act and 1687 “5, withetfec from 31st October 2019, there are 28 States in t India and cdingly they have sega Onl vetaet ant eluded ion es) : ‘their own Sta elhi, Puc mn ae leglave Therefor, these thee alan eros oo states as ‘al there are 31 SGST Acts (28 SGST ‘Acts enacted ecture Acts enacted by Union Terri i ‘the same in aaqeil pee ae Delhi, Puduehe!™29 GST COUNCIL = Para 2.8 2.8GST COUNCIL The Goods and Services T: ax Ci jira ela cael (GST Council) isa joint forum of the Centre andStatesto make | Tape !2 GST. GST councilis the apex constitute ingare the important points a gardsGSTCounci_| dia makes provision for Constitution of GST Council | (4) Theprovisions relating toGST Cou i ncilcameinto force on 12th September, 2016. The Presiden Sonstituted the GST council on 15th September, 2016 a ion *| (¢) The function of the council is to make recommendations to the union and the ‘Mnportant issues like tax rates, exemptions, threshold limits, dispute resolution, e 2.8.1 Members in GST Council The following are the members of GST Council (a) The Union Finance Minister (Chairperson) (4) The Union Minister of State in Charge of Revenue or Finance (Member) (©) The Minister in charge of Finance or taxation or any other Minister nominated by each State Government (Member) The members of the GST Council referred to clause (©) above shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide Present status of number of members in GST Council After reorganisation of erstwhile State of Jammu & Kashmirinto two UTs, wef 31st October 2019, India| = ishaving 28 States, 3 Union Territories with legislature and 6 Union Territories without separate legislature | 2 Accordingly, the GST Council has 33 members in total, in the following manner. | Representation No. of Members. Central Government 2 28 States 28 3 UTs with legislature a 6 UTs without separate legislature Nil [Total members A ES i Council 2.8.2 Recommendations of GST The Goods and Services Tax Council, ie. GST Council, shall make recommendations to the Union \¢ Goods an x a and the States on the following matter: thi sses and surcharges levied by the Union, the States and the local bodies which (a) the taxes, ces 'ed in the goods and services tax; oS S Ses that may be subjected to, or exempted from the goods and services (B) the goods an 5 tax; (o) model Goods and cole i supplies in the i Tea retneiples tat govern the place of suppl = ee over below which goods and services may be exempted from go« (@) the threshold limit of turn | a ee floor rates with bands of goods and services tax; (e) the rates as principles of levy, apportionment of Goods and Services Boies Ornate cia te cea cere eae le 2698 anareas GST IN INDIA: AN INTRODUCTION 210 (f) any special rate or rates for a specified period, toraise additional resources during any natural calamity or disaster; (2) special provision with respect tothe States of Arunachal Pradesh, Assam, Jamin and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttara khand; and (hy any other matter relating to the goods and services tax, as the Council may decide Date of Levy on Petroleum Products : The GST Council shall also recommended the date on which GST be levied on petroleum crude, High speed diesel motor spirit, natural gas and aviation turbine fuel GST Couneil proceedings are valid even if there is specified irregularity No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reasonf (a) any vacancy in, or any defect in, the constitution of the Council; or (b) any defect in the appointment of a person as a Member of the Council or (0) any procedural irregularity of the Council not affecting the merits of the case Mechanism to adjudicate any dispute The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute: (a) between the Government of India and one or more States; or (& between the Government of India and any State or States on one side and one or more othe States on the other side; or (0 between two or more States, arising out of the recommendations of the Councilor implemen tation thereof. ‘TAXMANN®: 2.8.3 Decision-making Process at GST Council {As a part of decision making process, the member's views are taken on a given subject matter or resolutia afer deliberations & discussionsin he council. In ordertotakeadecision, two parameters are required namely (a) Valid Meeting (b) Valid Decision 2.8.4 Valid Meeting (Quorum of meeting) In order to take a valid decision, there should be participation of substantial members it the meeting. The minimum number ‘of members to be present in order to take official and legal acto? is called as quorum. The Article 279A provides that one-half of the total number of members of tht GST council shall constitute a quorum. for the meeting. Total number of members in GST Council (including chairperson)= 33 Quorum = 50% of 33 = 17 Members. Thus, the presence of 17 members constitutes a valid meeting of the council. 2.8.5 Valid Decision (Required majority) . decision of the GST council ; ‘As per Article 279A(9), every 4 uncil shall be taken at a meeting, by a majon!)” As pet eh ree fourhs ofthe weighted votes ofthe members present and vung 9 a0" wth the following principles. ~2AL GST COUNCIL Para28, (a) eas of the Central Government shall have a weightage of one third of the total votes (B) The votes of all the State Governments taken together shall have a weightage of two - thirds of the total votes cast, in that meeting. age of Votes Casi | Central 1/3 (ie. 33.33%) Minimum 75% Votes should be in favour to pass Resolution State 2/3 {ie. 66.67%) Illustration There are 2 members from Central Government (CG) & 31 members from State Governments (SG) in the GST council. All the members have attended the meeting. Consider the following detail: inst No. of members Total No. abstained of members é cG SG 0 a 0 33 5 0 Z 3 5 0 ul 33 2 4 0 15 0 2 3 Determine the weighted votes in favour of resolution in each of the above independent case & also comment whether the resolution can be said to have been passed? ‘Table showing the welghtage of votes ‘Remarks about Resolu- tion. Passed Unanimously 100% Passed by Majority (86.11%) “100% Passed by Majority (83.33%) 100% ‘Not Passed as majority of the states are not in Favour of Resolution 34aam ioe oNNVIXVEae GST IN INDIA: AN INTRODUCTION 212 ‘Tutorial Note: (1) The weights of votes in favour (State Government) have been determined using the following formula: = i Votes in Favour (State Govt) Total Weight (ie. 66.67%) X— ores Cast Giate Govt) Where, Votes Cast = Votes in favour + Votes in against (2) Article 279A provides to determine weightage on the basis of total votes case. It means the aan ce rk Remained abstained will not be considered in such calculation Status of Voting at GST Council in Actual Practice “The 38th meeting of GST council was held on 18th December, 2019. Up te first 37 meetings, all decisions aatie OST Coun were taken through consensus, The former Finance Mins\t Late Shri Arun Jaitley Hoan or Gaid that. “The GST Counell was an excellent federal institution in which thousands of issues were decided through consensus” In 38th meeting, when the issue of imposition of uniform tax rate of 2% for both state-run and state- pithorised for lottery was placed for discussion and decision, the tradition of taking decision through aareneus was challenged by Kerala's Finance Minister ‘Thomas Isaac’ The Union Finance Minister ‘Ninmals Sitharamant,whoheads the council, made every attempt to keep the tel adition of unanimous dusizion alive, but when the council was reminded that the rules allow and that tradition was not part Gf the Rule book’, the voting was held at 531 PM (18-12-2019) on the request of one member The following was the result of voting: 7 ea ft a Tee “Thus, 833% of members voted in favour of a uniform rate of lottery effective from M if i larch 1, 2020 and Tt ition was passed. It was 2 partial defeat for Kerala Finance Minister Thomas Isaac's proposal 00 whose insistence voting was conducted. prop ‘the Goods and Services Tax Network (or GSTN) isa section 25 co : panies Act, 2013] ie. a non-government percent oreteteation: 1c bes ene pie wk purpose of providing the TT backbone to Government, pertaining to Goods and Services Tax Law.!' manages the entire IT system ‘of the GST portal, which is the mother database for ev: erything GST This portal will be used by the government to track every financial transaction, and will at jide taxpayers with all services - from registration to filing taxes and maintaining all tax details. GST helps India fulfil its dream of paperless transactions where the compliances related to GST can be213 GOODS & SERVICES TAX NETWORK Para 2.9 performed digitally in is re gia avi maximum provision of automation. It will establish a uniform interface for y create a common and shared IT infrastructure between the Centre and S The following are the main features of GSTN: include Banks and Financial Institution: s. The 49% holdi jed equally between the Hocluie Bonk end Hoard jolding is divided equally between th 1. Ownership: It is partly owned by Central Government (49%) and partly by Private players (51%) which 2. Grant: ‘The GSTN has also been approved for a non-recurring grant of € 315 crores. 4, Management: ‘The team at GSTNis led by Mr. Navin Kumar as its Chairman and Mr. Prakash Kumar as 1 CEO. Mr Navin Kumar, an Indian Administrative Service servant (1975 batch), has served in many senior positions with the Govt. of Bihar, and the Central Govt. 5. Technology Partner: ‘The contract for developing this vast technological backend was awarded to Infosys in September 2015. Infosys, as technology service provider, hhas continuously strives to keep it updated and robust. 6. Trusted National Information Utility: The GSTN is a trusted National Information Utility (NIU) providing reliable, efficient and ro- bust IT backbone for ‘the smooth functioning ‘of GST in India. It is capable of handle a large number of confidential data on behalf of the Indian taxpayers. So the information is kept confidential and secure. | 7. Government Control: “The government has complete control over GSTNincluding, on the composition of the Board, rn por jsmsof Special Resolution and Sharcholders ‘Agreement,andagreementsbetween the GaStN and other State Governments. Since the Central Government holding is much larger than any individual private holding, it ensures 2 complete control by the Government over the governing body of the institution. 8, Handles Complex Transactions: soning of GSTN requires a strong IT infrastructure which can capture, pro- a Ce Sa at formation, Considering the volume of transactions all over India, the sai arEST (for inter State trade) atthe governmmen level Centre & various States) | aS omaplex. The GSTN has made possible @ rapid settlement mechanism amongst the States and the Centre. 9, Sharing of Expenses: ; ill be paid entirely by the Central Government an the State Governments Peat ee earien (ie. so) on behalf ofall users. The state share will be then apportioned in vidal or tes, in proportion to the number of taxpayers inthe sates 3. Authorised Capital: The authorized capital of the GSTN is € 10 crore (USS1.6 million),