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GST ( Goods and Service Tax) in India

Before GST, India had a maze of indirect taxes. 

The Central Government collected a factory gate tax called the Central Excise Duty which was levied on  manufacturing of goods. Service Tax was levied by the Central Government on the provision of services. Central  sales tax (CST) was charged on the Inter-State sale of goods. 

In the same manner, State Governments levied tax on sale of goods by way of VAT, entry of goods in the  State by way of Entry Tax, Luxury Tax and Purchase Tax, etc. The freedom of the States to decide the quantum  of VAT also meant different rates for the same product even in the neighbouring territories. 

The Constitution (101st Amendment) Act, 2016, besides making other amendments, inserted Article 246A  and Article 269A to enable the Central Government and the State Governments to introduce one Goods and  Service Tax Law for the country as a whole in lieu of multiple indirect taxes levied by them.

(1) Basis of Charge of GST

GST is applicable on supply of goods or supply of services or both. Concept of supply has been discussed in the earlier chapter. Different taxes under GST are as follows –

(A) Inter-State supply (i.e. supply from one State/ Union Territory to another State/Union Territory)

Example :

- Supply from Punjab to Maharashtra
- Supply from Punjab to Andaman
- Supply from Lakshadweep to Karnataka
- Supply from Lakshadweep to Chandigarh

How to show GST in tax invoice if value of taxable supply in examples given :

Taxable value of supply Rs. 1,00,000
Add: GST -
- IGST (@ 12% of Rs. 1,00,000)
Rs. 12,000
Total amount charged Rs. 1,12,000

 

(B) Intra-State supply (i.e., supply within a State)

Example :

- Supply from Odisha to Odisha (i.e., supply from a supplier in Odisha to another person in Odisha)

How to show GST in tax invoice if value of taxable supply in examples given:

Taxable value of supply Rs. 1,00,000
Add: GST -
- CGST (@6% of Rs. 1,00,000)
- SGST (Odisha) (@6% of Rs. 1,00,000)

Rs. 6,000

Rs. 6,000

Total amount charged Rs. 1,12,000

(C) Intra-State supply (i.e. supply within a Union Territory)

Example :

- Supply from handigarh to Chandigarh (i.e., supply from a supplier in Chandigarh to another person In Chandigarh)

How to show GST in tax invoice if value of taxable supply in examples given:

Taxable value of supply Rs. 1,00,000
Add: GST -
Add: GST -
- CGST (@6% of Rs. 1,00,000)
- UTGST (@6% of Rs. 1,00,000

Rs. 6,000

Rs. 6,000

Total amount charged Rs. 1,12,000

(2) Need for GST  in India

Before GST, India had a maze of indirect taxes. 


The Central Government collected a factory gate tax called the Central Excise Duty which was levied on  manufacturing of goods. Service Tax was levied by the Central Government on the provision of services. Further,  central sales tax (CST) was charged on the Inter-State sale of goods. 

In the same manner, State Governments levied tax on sale of goods by way of VAT, entry of goods in the  State by way of Entry Tax, Luxury Tax and Purchase Tax, etc. 
Consequently, multiple taxes were being levied on the same supply chain. 
Further, tax system on goods and services was facing the following difficulties: 

  • Taxes levied by Central Government were not available as set off against the taxes levied by State  Governments.

  • Certain taxes levied by the State Governments were not allowed as set off for payment of other taxes  levied by State Governments.

  • Different VAT laws in force in different parts of the country had divided the nation into separate  economic spheres. 

  • Tariff and non-tariff barriers such as octroi, entry tax, check posts, etc., hindered the free flow of trade  throughout the country.

(3) Taxes in India Subsumed in GST

(A) Central Taxes subsumed in GST

  1. Central Excise Duty;

  2. Additional Excise Duties (Goods of Special Importance);

  3. Additional Excise  Duties (Textiles and Textile Products);

  4. The Excise Duty levied under the Medicinal and Toiletries  Preparations (Excise Duties) Act, 1955;

  5. Service Tax;

  6. Additional Customs Duty, commonly known  as Countervailing Duty (CVD);

  7. Special Additional Duty of customs-4% [SAD]

  8. Surcharges and  Cesses levied by Centre whether they are in the nature of taxes on goods or services. This may include  Cess on Rubber, Tea, coffee, National Calamity

(B) State Taxes in India Subsumed in GST 

  1. State VAT;

  2. Central Sales Tax;

  3. Entertainment and Amusement Tax (unless it is levied by the local  bodies);

  4. Luxury Tax;

  5. Taxes on advertisements;

  6. Taxes on lottery, betting and gambling;

  7. Octroi  and Entry Tax;

  8. Purchase Tax;

  9. State Cesses and Surcharges in so far as they relate to supply of goods  and services.

Thus, GST is one indirect tax for the whole nation, which has made India one unified common market. It is a  single tax on the supply of goods and services, right from the manufacturer to the consumer. 

GST is a consumption or destination based tax levied on supply and consumption of goods and services on  the basis of "Destination Principle" (i.e. GST will be payable where goods and services are consumed). It is a  single tax on the supply of goods and services, right from the manufacturer to the consumer. Credit of input tax  paid at each stage is available in the subsequent stage of value addition, which makes GST essentially a tax only  on value addition at each stage of the supply chain. The final consumer thus bear only the GST charged by the last  dealer in the supply chain, with set of benefit at all the previous stages.

(4) Taxes in India not subsumed into GST 

(A) Central Taxes 

  1. Basic customs duty 

  2. Research & development cess 

  3. Export duty 

  4. Anti-dumping duty 

  5. Safeguard duty 

(B) State Taxes 

  1. State excise duty 

  2. Stamp duty 

  3. Profession tax 

  4. Motor vehicle tax 

  5. Electricity duty - Doubtful because of inclusion of electricity in the definition of term goods. 

So, any taxes except mentioned above that were levied by the Central Government or the State Governments  on the supply of goods or services has been converged in GST.

The tax has been levied on the following kinds of  supply:

(1) Intra-State supply 

(2) Inter-State supply 

Supply in the above case can be of goods or services or both.

(5) Benefits of GST in India

(A) For business and industry

(B) For Central and State  Governments

(C) For the consumer

  1. Reduction in multiplicity of  taxes 
  2. Removal of cascading of  taxes 
  3. Improved competitiveness 
  4. Easy compliance 
  5. Gain to manufacturers and  exporters

 

  1. Simple and easy to administer 
  2. Better controls on leakage 
  3. Higher revenue efficient 
  4. Boost to Foreign Investment  and "make in India" campaign
  1. Simpler tax system 
  2. Reduction in prices of goods  and services due to elimination of  cascading 
  3. Relief in overall tax burden 
  4. Uniform prices throughout the  country

(6) Features of Dual Model of GST in India 

  • The GST has two components – CGST and SGST/UTGST. 

  • CGST is to be administered by the Central Government and SGST/UTGST is to be administered by State  Governments or Administrator appointed by the Central Government for the Union Territory. 

  • CGST has replaced existing Central Excise, Service Tax, Additional Excise Duty, Special Additional  Duty of Customs, etc. whereas SGST has replaced State VAT, CST, Luxury Tax, Octroi and Entry Tax,  Purchase Tax, etc.

  • Taxable Event under GST shall be supply of goods or services or both. It is an event the occurrence of  which attracts the liability to tax. Under earlier system of indirect taxes there were different taxable event  in each of the indirect taxes. “Manufacture” was a taxable event under Central Excise, “Transfer of  property in goods” under VAT/CST, and services “Provided or agreed to be provided” in Service Tax. 

  • GST is based on destination based consumption tax principle. 

  • Under former indirect taxes, two separate legal entities were required to complete the transaction.  Whereas in GST in specified situations self-supply is also subject to tax. Transfer of goods from one  branch of a person in a State to a branch in other State is also subject to tax under GST. 

  • Supplies of goods or services or both as specified in Schedule-I is to be treated as Supply of goods or  services or both and subject to tax under GST even if such supplies are made without consideration.

  • Keeping in view that GST is a destination based consumption tax, it has been provided that every supplier  has to seek registration in all those states from where they are supplying goods or services or both.  However, if all the places of supplies are in the same State, single registration is required to be obtained. 

  • Exports is zero rated. 

  • GST has a list of exempted goods.   Some of the commodities have been kept outside of purview of GST 

  • Taxes collected by Local Bodies have not been subsumed.

  • States is to collect the State GST from all the registered dealers.

  • Procedures for collection of Central and State GSTs/Union Territory GST is uniform.

  • There is one common tax return for both taxes, with one copy given to the Central authority and the other  to the relevant State authority electronically.

  • GST returns are required to be filed online.

(7) Features of IGST in India

  • The Central Government would administer and levy taxes on IGST. 

  • Seller/service provider in the origin State is to charge IGST on Inter-state supply of goods and/or services.  IGST = CGST + SGST/UTGST

  • Inter-State Seller/service provider shall use his input CGST and input SGST for payment of IGST, i.e., he  shall pay net IGST. 

  • Inter-State Buyer/service recipient shall avail input tax credit on the basis of tax invoice for payment of  his own IGST, CGST or SGST. 

  • Both, the seller/service provider and the buyer/service recipient shall report these transactions in the  respective e-returns. 

  • The exporting state will transfer the SGST portion to Central Government and Central Government will  transfer that SGST to importing State. 

  • Stock transfer to branch/depot in other State will also attract IGST. Where the stock transfer is from  branch in one city to a branch in another city but within the same State, it does not attract any IGST or  CGST and SGST unless the each branch is separately registered and it has separate verticals. 

  • IGST will be levied on Import of Goods and/or Services. Therefore, Import will be attract Basic Custom  Duty plus IGST.

  GST - Ready Reckoner in India Activities to be treated as Supply of Goods or Supply of Services as referred to in Schedule II [Section  7(1)(d)]
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