Currently, the Indirect tax structure in India comprises of several taxes and thus necessitates a number of compliances. We would first analyse in a capsule form the major Central and the State laws under the present tax regime:
Entry 83 of Seventh schedule confers the power to Central Government to levy Custom duty (Basic duty + countervailing duty + Special Additional duty) on “Import of goods” in Indian Territory. Exports are presently exempted from all the duties to promote foreign exchange earnings and to make locally produced goods competitive in the export market.
Under the Constitution, Entry 84 of List I of Seventh schedule authorises the levy of Central Excise duty on “Manufacturing activities”. The activities deemed to be manufacture also attract the Central Excise levy in view of residual Entry 97 of Union List.
The levy of Service tax is imposed in exercise of the power conferred by Entry 97 of Union List of the Seventh schedule of Constitution, which is a residuary power. Sec 66B of Finance Act, 1994 accedes levy of service tax on all services except for those forming part of Negative list or specifically excluded by any exemption notification.
Central Sales Tax (CST) is imposed on sale or purchase of goods (other than newspapers) occurring in the course of inter-state trade or commerce vide powers granted by Entry 92A of List I of Seventh schedule. No credit is available of CST paid on inter-state purchases.
Value added tax (VAT) is imposed on all intra-state sale or purchase of goods. VAT laws are different in different states leading to voluminous compliance and procedural requirements for the taxpayer.
The introduction of GST would mark a clear departure from the scheme of distribution of fiscal powers envisaged in the Constitution.
Goods & Service tax (GST) is the most talked about topic in the field of indirect taxation today in India. It will be a game changing reform for Indian economy by developing a common Indian market and reducing the cascading effect of tax on the cost of goods and services. It will impact the Tax Structure, Tax Incidence, Tax Computation, Tax Payment, Compliance, Credit Utilization and Reporting leading to a complete overhaul of the current indirect tax system.
GST will simplify and harmonise the indirect tax regime in the country. It is expected to reduce cost of production and inflation in the economy, thereby making the Indian trade and industry more competitive, domestically as well as internationally. It is also expected that introduction of GST will foster a common or seamless Indian market and contribute significantly to the growth of the economy.
A MIX OF ORIGIN BASED AND DESTINATION BASED TAXATION
GST is a consumption based tax. This implies that all SGST collected will ordinarily accrue to the State where the consumer of the goods or services sold resides. On the other side, revenue from proposed levy of Additional tax on inter-state supply of goods @ 1% will be assigned to States from where supply originates (exporting state). For this purpose, Point of Origin Rules are also proposed to be framed. Hence, it will make GST law partly origin based and partly destination based.
TYPES OF GST RATE
GST rate can be categorized in the following manner:
1) Central Goods & Service Tax (CGST) and State Goods and Service Tax (SGST)
If goods or services or both are supplied in course of intra-state trade or commerce, on invoice CGST and SGST would be levied. Net proceeds from CGST will go to Centre and will be distributed between Union and States. And, net proceeds from SGST will be retained by States.
2) Integrated Goods and Service Tax (IGST)
If goods or services or both are supplied in course of inter-state trade or commerce, on invoice IGST would be levied. Net proceeds from IGST (after setting off any debit and credit balances between the Centre and States) will be apportioned between Union and States.
3) Additional Tax @1% on Inter-State supply of Goods or services or both for two years (AGST)
To compensate the loss arising to States on account of phasing out of CST, AGST @1% is proposed to be levied on inter-state supply of goods for an initial period of 2 years. Revenue from AGST will go to States from where supply originates. Hence, it is an origination based tax. AGST will not be available as credit for paying output tax. It will form part of Cost.
NO LEVY OF EDUCATION AND SECONDARY HIGHER EDUCATION CESS ON GST RATES
Education Cess and Secondary Higher EC will not be levied on the rates of GST. (Proposed amendment in article 271 of Constitution of India). Therefore, in 2015 there is a change in rate of Excise Duty from 12%+2%EC+1%SHEC to flat 12.50% with EC and SHEC being subsumed therein w.e.f. 01.03.2015. (NN 14/2015 – CE dated 01.03.2015), (NN 15/2015 – CE dated 01.03.2015), (NN 16/2015 – CE dated 01.03.2015) and Service Tax from 12%+2%EC+1%SHEC to flat 14.00% with EC and SHEC being subsumed therein w.e.f. 01.06.2015. (Finance Act 2015 amended Section 66B of Chapter V of Finance Act, 1994) and (NN 14/2015-ST dated 19.05.2015).
CATEGORY OF GST RATES
There will be 4-5 rates of GST:
- Standard Rate – On all Goods and Services other than mentioned elsewhere.
- Merit Rate – Reduced Rate
- Nil Rate – For negative list services (such as medical services, agriculture related services, services provided by Government, educational services, public transport etc), export of goods and services, SEZ related.
- Special rate – For precious metals
- Higher Rate – For demerit goods like tobacco, Luxury Goods etc.
- Floor Rate with Band – For SGST only.
SUBSUMES MULTI-LAYERED TAXES
GST has been proposed to bring the taxation of goods and services under one umbrella. It integrates the federal excise duties, additional customs duties, service tax and state VAT etc. into a single point levy i.e. GST.
It is recommended that the following Central Taxes as well as the State taxes should be subsumed under the Goods and Services Tax, to begin with:
|Central Taxes||State Taxes|
|(i) Central Excise Duty(ii) Additional Excise Duties
(iii) The Excise Duty levied under the Medicinal and Toiletries Preparation Act
(iv) Service Tax
(v) Additional Customs Duty, commonly known as Countervailing Duty (CVD)
(vi) Special Additional Duty of Customs – 4% (SAD)
(vii) Surcharges and
|(i) VAT / Sales tax(ii) Entertainment tax (unless it is levied by the local bodies)
(iii) Luxury tax
(iv) Taxes on lottery, betting and gambling
(v) State Cesses and Surcharges in so far as they relate to supply of goods and services
(vi) Entry tax not in lieu of Octroi
CREDIT MECHANISM UNDER GST
CGST and SGST
Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.
Integrated Goods and Service tax
The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.
122ND CONSTITUTIONAL AMENDMENT BILL
After tremendous negotiations and parlaying between the Centre and States on various consensus issues, the Amendment Bill came on the floor. The key structural features of the proposals contained in this Bill can be summarised below:
1) Insertion of new Article 246A conferring simultaneous power to the Union and the State legislatures to legislate on GST.
2) Article 279A will be inserted for creation of a Goods and Service tax council within sixty days from the date of commencement of Constitution under the chairmanship of Union Finance Minister for deciding on the following matters:
a. The threshold limit of turnover below which goods and services may be exempted from goods and service tax
b. The rates including floor rates with bands of goods and services tax
c. The Goods and Service tax council shall recommend the date on which the goods and service tax to be levied on:
- Petroleum crude,
- High speed diesel
- Motor spirit
- Natural gas
- Aviation turbine fuel
Changes proposed in Power of Centre and State to levy tax under GST regime
|CERTAIN TAXATION ENTRIES IN UNION LIST|
|LIST I : UNION LIST||LIST I : PROPOSED UNION LIST|
|Entry Number||Item||Entry Number||Item|
|84||Duties of excise on Tobacco and other goods produced or manufactured in IndiaExcept –
a) Alcoholic Liquor for human consumption
b) Opium, Indian hemp and other narcotics drugs
a) Medicinal and toilet preparations containing alcohol, Indian hemp or other narcotics drugs
|84||Duty of Excise on following goods manufactured or produced in India, namely :-
a) Petroleum Crude
b) High Speed Diesel
c) Motor Spirit ( commonly known as Petrol)
d) Natural Gas
e) Aviation turbine fuel; and
f) Tobacco and tobacco products
|92||Taxes on the sale or purchase of newspapers and on advertisements published therein.(Advertisement in newspapers)||92||Omitted|
|92C15-01-2004||Tax on services(This entry will be made effective from the date to be notified later on)
(Till date this entry has not been notified)
|CERTAIN TAXATION ENTRIES IN STATE LIST|
|LIST II : STATE LIST||LIST II : PROPOSED STATE LIST|
|Entry Number||Item||Entry Number||Item|
|Duty on entry of goods into Local Area for consumption, use or sale therein (usually called Octroi orEntry Tax)||52||Omitted|
|54||Taxes on the sale or purchase of Goods (other than newspaper), subject to provisions of entry 92A of List I (i.e. except tax on inter-state sale or Purchase) (VAT)||54||Taxes on sale ofa) Petroleum Crude
b) High Speed Diesel
c) Motor Spirit ( commonly known as Petrol)
d) Natural Gas
e) Aviation turbine fuel; and
f) Alcoholic Liquor for human consumption
But not including
– Sale in the inter-state trade or commerce or
– Sale in the course of international trade or commerce of such goods.
|55||Tax on advertisementsother than
a) advertisements in newspapers and
b) Advertisements broadcasted by Radio or Television.
|62||Taxes on Luxuries, including taxes on entertainments, amusements, betting and gambling.||62||Taxes on entertainment and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council.|
- GSTN would be incorporated as a limited company with strategic control remaining with the Government and it would have a self-sustaining revenue model by collecting nominal user charges for services.
- The GST common portal to be set up before the GST roll out would function as a pass through portal for GST dealers and for submitting registration applications, filing returns, making payments, etc.
- GSTN chairman Navin Kumar announced that Infosys, India’s second largest IT service exporter has been selected to build Technology Infrastructure for GSTN.
DRAFT REPORTS JOINT COMMITTEE
Key excerpts from Draft Reports of Joint Committee on Business Processes for GST are mentioned below:
1) There will be a threshold of Gross Annual Turnover including exports and exempted supplies below which any person engaged in supply of Goods or Services or both will not be required to take registration under GST.
2) Data will be collected from the registrant as number of fields in GST registration Form would be 120 which is greater in number in comparision to the existing fields. Available data with the states and CBEC does not comply with Metadata and Data standards of Government of India. Instead of migrating incorrect and incomplete data, fresh data will have to be collected from the existing tax payers.
3) Each taxpayer will be allotted a 15 digit PAN based Goods and service tax identification number (GSTIN).
|State code||PAN||Entity Code||Blank||Check digit|
State code as stipulated in Indian census 2011 will be adopted.
13th digit would be alpha numeric (1-9 and then A-Z). It would be assigned depending upon the number of registrations which an entity holds in one state.
14th digit would be kept blank for future use.
4) Normal /Regular taxpayers would be required to file following periodic return:
|S. No.||Return||Purpose of Return||Cut-off Date|
|1.||GSTR 1||Outward supplies made by Taxpayer||10th of the next month|
|2.||GSTR 2||Inward supplies made by taxpayer||15th of the next month|
|3.||GSTR 3||Monthly Return||20th of the next month|
|4.||GSTR 8||Annual Return||By 31st Dec of next FY|
5) It is envisaged that for each mode of payment, the Challan will be generated electronically at the GSTN and no manual Challan will be used under any mode of payment. Other means of payment, such as payment by book adjustment as is presently being allowed by Government of India to some departments / State Government would not be allowed.
6) Refund of GST will be allowed in a number of cases :
(i) If tax payer has made excess payment by mistake or by inadvertence, which was actually not required to be paid.
(ii) If the GST Law does not debar suo-motto payments during investigation / audit process and ultimately no / less demand arises, then amount already paid can be claimed as refund.
(iii) Refund on account of year end or volume based incentives provided by the supplier through credit notes would be granted on submission of application along with a CA certificate certifying the fact of non-passing of the GST burden by the taxpayer.
LEGISLATIVE COMPETENCE OF MUNICIPALITY OR PANCHAYATS TO COLLECT TAX ON ENTERTAINMENT AND AMUSEMENTS
The local bodies in India are broadly classified into two categories. The local bodies constituted for local planning, development and administration in the rural areas are referred as Rural Local Bodies (Panchayats) and the local bodies, which are constituted for local planning, development and administration in the urban areas are referred as Urban Local Bodies (Municipalities) and the Constitution of India gives protection to them through various articles:
- Article 243G, 243H and 243I for Panchayat
- Article 243W, 243X and 243Y for Municipality
As per proposed GST model recommended by GST Council, it is recommended that while drafting the SGST laws due consideration to the third tier of the Government as has been guaranteed by the Constitution be given and provisions of devolution of taxes to the local bodies be made.
Further, a Constitutional commitment has also been given to the States that their losses caused due to introduction of GST would be compensated for five years.
GST WELCOMED IN LOK SABHA
Government’s flagship reform measure, Goods and Services Tax (GST) Bill was passed in Lok Sabha on 6th May’ 2015 with 352 votes in favour and stuck in Rajya Sabha due to stiff opposition by the Congress party. In Lok Sabha session, Principal opposition Congress did not oppose the Bill but merely walked out of the assembly which enabled the Ruling government along with the support of allied parties to pass the bill. This ignited the hope among ruling party that GST Bill will muster sufficient support in the Upper House but this dream has not been realised yet.
FATE OF GST
The proposed goods and service tax (GST), India’s biggest revenue shake-up since independence in 1947, seeks to replace a slew of federal and state levels, transforming the nation of 1.2 billion people into a customs union. After Parliamentary Affairs Minister Venkaiah Naidu said the government had agreed to accept the opposition party’s demand, Senior Congress leader Kapil Sibal told reporters that “The government is using optics of meetings and is not serious about GST”.
Congress wants the government to cap the GST rate at less than 20 percent, scrap a proposed state levy and create an independent mechanism to resolve disputes on revenue sharing between states. The political slugfest between the two sides has ensured that Finance minister Arun Jaitely’s self-imposed deadline of April 1 for the GST’s launch will be missed.
While Jaitely has yet to set a new date for the rollout, aides say passage of the constitutional amendment bill in February’s budget session of parliament would allow them to implement it by October.