Project on

GST

(Goods and service tax)

Submitted to

Raksha Awasthi

Awasthi and Associates

Submitted by

Bhavana Khatwani

2nd semester

Hidaytullah National Law University

 Index
1. Introduction
2. History
3. What is GST
4. How does it work?
5. Nature of GST
6. Status of GST in india
7. Taxes that will be subsumed under GST
8. Which amendment introduced GST
9. GST council
10.Benefits of GST
11.Drawbacks of GST
12.Registration
13.Is India ready for GST which is to be implemented from july 1 2017
14.Developments and Work Ahead for GST
15.Conclusion
 Introduction
GST which stands for goods and service tax is tax which is to be applied on goods and services
from July 1 2017 in place of value added tax levied by the central and state governments. GST It
was introduced as The Constitution (One Hundred and Twenty Second Amendment) Act 2017.
The GST is governed by GST Council and its Chairman is Union Finance Minister of India -
Arun Jaitley. Under GST, goods and services will be taxed at the following rates, 0%, 5%, 12%,
18%, 28%. there will be 3 kinds of applicable Goods and Services Taxes CGST where the
revenue will be collected by the central government SGST where the revenue will be collected
by the state governments for intra-state sales and IGST where the revenue will be collected by
the central government for inter-state sales. Goods and Services Tax (GST) is an indirect
tax reform which aims to remove tax barriers between states and create a single
market. A 21-members select committee was formed to look into the proposed GST law. State
and Union Territory GST laws were passed by all the states and Union Territories of India except
Jammu & Kashmir, paving the way for smooth rollout of the tax from 1 July 2017.

History

2000- a task force concludes that GST must be implemented to improve tax structure
2006-. A proposal to introduce a National level Goods and Services Tax (GST) by April
1, 2010 was first mooted in the Budget Speech for the financial year 2006-07.
2007- empowered committee of state finance minister forms joint working group
2007- GST to be phased out rates reduced from 4 to 3 %
2008- Ec finalise dual GST structure to have separate levy legislation
2010- Project to computerize commercial taxes launched but GST implementation
posponted
2011- Constitution amendment bill to enable GST law introduced
2012- Parliamentary standing committee starts discussion on GST but stalled it over
clause 279B
2013 - Standing committee tables its report on GST
 2014 - GST bill reintroduced in parliament by Arun Jaitley
2015- GST to be passed in Lok Sabha. Petroleum to be excluded from GST
2015- GST bill doesnt pass in Rajya Sabha
2016- Amended model passed in both the houses
2016- GSTN goes alive

What is GST
o GST is a single tax on the supply of goods and services, right from the
manufacturer to the consumer.
o Credits of input taxes paid at each stage will be available in the subsequent stage
of value addition, which makes GST essentially a tax only on value addition at
each stage.
o The final consumer will thus bear only the GST charged by the last dealer in the
supply chain, with set-off benefits at all the previous stages.

How does it work?

o Explaination - In GST credits of input taxes paid at each stage will be available in the
subsequent stage of value addition, which makes GST essentially a tax only on value
addition at each stage. The final consumer will thus bear only the GST charged by the
last dealer in the supply chain, with set-off benefits at all the previous stages.
o Example-
Case-1 - if GST is not applied what will be the status of tax
If a book manufacturer pays Rs. 200 to buy raw materials. If the rate of taxes is
set at 10%, and there will be no profit or loss involved, then he has to pay Rs. 20
as tax. So, the final cost of the shirt now becomes Rs 220 (200+20=220).

At the next stage the wholesaler buys the book from the manufacturer at Rs. 220,
and adds labels to it. When he is adding labels, he is adding value. Therefore, his
cost increases by say Rs. 40. On top of this, he has to pay a 10% tax, and the final
cost therefore becomes Rs. (220+40=) 260 + 10% tax = Rs. 286
Now, the retailer pays Rs. 286 to buy the book from the wholesaler because the
tax liability had passed on to him. He has to package the shirt, and when he does
that, he is adding value again. This time, lets say his value add is Rs. 30. Now
when he sells the book he adds this value (plus the VAT he has to pay the
government) to the final cost. So, the cost of the book becomes Rs. 214.5 Let us
see a breakup for this:
Cost = Rs. 286 + Value add (Rs. 30) + 10% tax = Rs. 316 + Rs. 31.6= Rs. 347.6
So, the customer pays Rs. 347.6 for a shirt the cost price of which was basically
only Rs. 290 (Rs 220 + Rs. 40 + Rs. 30). Along the way the tax liability was
passed on at every stage of transaction and the final liability comes to rest with
the customer. This is called the Cascading Effect of Taxes where a tax is paid on
tax and the value of the item keeps increasing every time this happens.

Explaination with a table-

Action Cost 10% Total

Tax

Buys Raw Material @ 200 200 20 220

Manufactures @ 40 260 26 286

Adds value @ 30 316 31.6 347.6

 Total 270 77.6 347.6

In the case of Goods and Services Tax applid- -

there is a way to claim credit for tax paid in acquiring input. What happens in this
case is, the individual who has paid a tax already can claim credit for this tax
when he submits his taxes.
In our example, when the wholesaler buys from the manufacturer, he pays a 10%
tax on his cost price because the liability has been passed on to him. Then he adds
value of Rs. 40 on his cost price of Rs. 200 and this brings up his cost to Rs. 240.
Now he has to pay 10% of this price to the government as tax. But he has already
paid one tax to the manufacturer. So, this time what he does is, instead of paying
Rs (10% of 140=) 24 to the government as tax, he subtracts the amount he has
paid already. So, he deducts the Rs. 20 he paid on his purchase from his new
liability of Rs. 24, and pays only Rs. 4 to the government. So, the Rs. 20 becomes
his input credit.
When he pays Rs. 4 to the government, he can pass on its liability to the retailer.
So, the retailer pays Rs. (240+24=) 264 to him to buy the shirt. At the next stage,
the retailer adds value of Rs. 30 to his cost price and has to pay a 10% tax on it to
the government. When he adds value, his price becomes Rs. 270. Now, if he had
to pay 10% tax on it, he would pass on the liability to the customer. But he
already has input credit because he has paid Rs.24 to the wholesaler as the latters
tax. So, now he reduces Rs. 24 from his tax liability of Rs. (10% of 270=) 27 and
has to pay only Rs. 3 to the government. And therefore, he can now sell the book
for Rs. (240+30+27) 297 to the customer.
In the end, every time an individual was able to claim input tax credit, the sale
price for him reduced and the cost price for the person buying his product reduced
because of a lower tax liability. The final value of the shirt also therefore reduced
from Rs. 347.6 to Rs. 297, thus reducing the tax burden on the final customer.
 So essentially, Goods & Services Tax is going to have a two-pronged benefit.
One, it will reduce the cascading effect of taxes, and second, by allowing input
tax credit, it will reduce the burden of taxes and, hopefully, prices.

Explaination with example-

Action Cost 10% Tax Actual Liability Total

Buys Raw Material 200 10 20 220

Manufactures @ 40 240 24 4 164

Adds Value @ 30 270 27 3 297

Total 270 17 297

Nature of GST

Two types of GST i.e. dual GST will be introduced. First is It would be a dual GST first
the Central GST (CGST) with the Centre and the State GST (SGST) with States. The
GST to be levied by the Centre on intra-State supply of goods and / or services would be
called CGST and that to be levied by the States would be called SGST. Similarly
Integrated GST IGST will be levied and administered by Centre on every inter-state
supply of goods and services.
Central GST CGST - it will replace service tax, excise duty, countervailing duty (CVD),
special additional duty (SAD), Additional duties of excise(ADE), and any other indirect central
levy Supplies within a state input tax credit is against CGST and IGST and tax revenue sharing is
Central government with Exemption Limit Rs. 20 Lakhs annual turnover The dealer may use the
benefit of turnover of Rs 50 Lakh CGST is applicable on free supplies but not applicable till the
turnover exceeds Rs 20 Lakh

State GST- SGST -This will replace VAT, sales tax, luxury tax, entry tax ,entertainment tax,
purchase tax, Octroi, taxes on lottery Supplies within a state. its input tax credit is against SGST
and IGST Exemption Limit Rs. 20 Lakhs annual turnoverComposition SchemeThe dealer may
use the benefit of turnover of Rs 50 Lakh SGST is applicable on free supplies Not applicable till
the turnover exceeds Rs 20 Lakh

Integrated GST -It includes Combined levy, collected by Central Government it will replace
Central sales tax (CST) Interstate supplies and import. its input tax credit is against CGST,SGST
and IGST Exemption Limit is not defined. Composition Scheme is not available in this regard
IGST is applicable on free supplies Registration is necessarily mandatory if supply is made
outside the states

Need of Dual GST

India is a federal country where both the Centre and the States have been assigned the powers to
levy and collect taxes through appropriate legislation. Both the levels of Government have
distinct responsibilities to perform according to the division of powers prescribed in the
Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping
with the Constitutional requirement of fiscal federalism.

Status of GST in india

The Goods and Services Tax (GST) will be levied at multiple rates ranging from 0 per cent to 28
per cent.
1. Four tier GST structure- GST Council finalised a four-tier GST tax structure of 5%, 12%,
18% and 28%, with lower rates for essential items and the highest for luxury and de-
merits goods that would also attract an additional cess.

2. Service Tax - service tax will go up from 15% to 18%. The services being taxed at lower
rates, owing to the provision of abatement, such as train tickets, will fall in the lower
slabs.
3. Consumer essential items - In order to control inflation, essential items including food,
which presently constitute roughly half of the consumer inflation basket, will be taxed at
zero rate.

4. Common use items - The lowest rate of 5% would be for common use items.

5. Fast moving consumer goods- Consumer staples including milk, fruits and vegetables,
grain and cereals have been exempted. Sugar, tea, coffee and edible oil will be taxed the
lowest rate of 5%. Highest tax slab will be applicable to items which are currently taxed
at 30-31% (excise duty plus VAT).

6. Ulta luxuries goods- Ultra luxuries, demerit and sin goods (like tobacco and aerated
drinks), will attract a cess for a period of five years on top of the 28 per cent GST.The
collection from this cess as well as that of the clean energy cess would create a revenue
pool which would be used for compensating states for any loss of revenue during the first
five years of implementation of GST.

7. Gold- While the Centre proposed to levy a 4% GST on gold but the final decision on this
was put off. During a press conference, finance minister Mr. Jaitley said, GST rate on
gold will be finalised after the fitting to the approved rates structure of all items is
completed and there is some idea of revenue projections.

8. Cesses- The GST will subsume the multitude of cesses currently in place, including
the Swachh Bharat Cess, the Krishi Kalyan Cess and the Education Cess. Only the Clean
Environment Cess is being retained, revenues from which will also fund the
compensations.

Taxes that will be subsumed under GST-

GST is set to replace various taxes as mentioned below:

Taxes currently levied and collected by the Centre:

a) Central Excise duty

b) Duties of Excise -Medicinal and Toilet Preparations
c) Additional Duties of Excise -Goods of Special Importance
d) Additional Duties of Excise -Textiles and Textile Products
e) Additional Duties of Customs (commonly known as CVD)
f) Special Additional Duty of Customs (SAD)
g) Service Tax
h) Central Surcharges and Cesses so far as they relate to supply of goods and services

State taxes that would be subsumed under the GST

a) State VAT
b) Central Sales Tax
c) Luxury Tax
d) Entry Tax
e) Entertainment and Amusement Tax which are not levied by the local bodies
f) Taxes on advertisements
g) Purchase Tax
h) Taxes on lotteries, betting and gambling
i) State Surcharges and Cesses so far as they relate to supply of goods and services

Commodities outside the purview of GST

1. Alcohol for human consumption,
2. Petroleum Products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas
and aviation turbine fuel& Electricity.

Which amendment introduced GST?

101th amendment was introduced as The Constitution (One Hundred And First Amendment)
Act, 2016 on 8th sept 2016 which deals with the rules and effect relating to GST.

Main sections of this act are-

Article 246 A

Both Union and States in India now have concurrent powers to make law with respect to goods
& services The intra-state trade now comes under the jurisdiction of both centre and state; while
inter-state trade and commerce is exclusively under central government jurisdiction.

Article 269A

This article says that in case of the inter-state trade, the tax will be levied and collected by the
Government of India and shared between the Union and States as per recommendation of the
GST Council. The article also makes it clear that the proceeds such collected will not be credited
to the consolidated fund of India or state but respective share shall be assigned to that state or
centre. The reason for the same is that under GST, where centre collects the tax, it assigns states
share to state, while where state collects tax, it assigns centres share to centre. If that proceed is
deposited in Consolidated Fund of India or state, then, every time there will be a need to pass an
appropriation tax.

Article 279 A

This article provides for constitution of a GST council by president within sixty days from this
act cominginto force. All decisions taken at the GST council will be taken based on voting.
Process of voting is clearly articulated in detail in the constitutional amendment bill.

GST council

What would be the role of GST Council

. A GST Council would be constituted comprising the Union Finance Minister who will be the
Chairman of the Council, the Minister of State (Revenue) and the State Finance/Taxation
Ministers to make recommendations to the Union and the States on

(i) the taxes, cesses and surcharges levied by the Centre, the States and the local bodies
which may be subsumed under GST;
(ii) the goods and services that may be subjected to or exempted from the GST
(iii) the date on which the GST shall be levied on petroleum crude, high speed diesel,
motor sprit (commonly known as petrol), natural gas and aviation turbine fuel
(iv) model GST laws, principles of levy, apportionment of IGST and the principles that
govern the place of supply;
(v) the threshold limit of turnover below which the goods and services may be exempted
from GST;
(vi) the rates including floor rates with bands of GST;
(vii) any special rate or rates for a specified period to raise additional resources during any
natural calamity or disaster;
(viii) special provision with respect to the NorthEast States, J&K, Himachal Pradesh and
Uttarakhand; and
(ix) any other matter relating to the GST, as the Council may decide

What is the guiding principle of GST Council

The mechanism of GST Council would ensure harmonization on different aspects of GST
between the Centre and the States as well as among States. It has been provided in the
Constitution (one hundred and first amendment) Act, 2016 that the GST Council, in its discharge
of various functions, shall be guided by the need for a harmonized structure of GST and for the
development of a harmonized national market for goods and services.

How will decisions be taken by GST Council.

The Constitution (one hundred and first amendment) Act, 2016 provides that every decision of
the GST Council shall be taken at a meeting by a majority of not less than 3/4th of the weighted
votes of the Members present and voting. The vote of the Central Government shall have a
weightage of 1/3rd of the votes cast and the votes of all the State Governments taken together
shall have a weightage of 2/3rd of the total votes cast in that meeting. One half of the total
number of members of the GST Council shall constitute the quorum at its meetings.

Benefits of GST

1. Single Tax -By amalgamating a large number of Central and State taxes into a single tax
and allowing set-off of prior-stage taxes, it would mitigate the ill effects of cascading and
pave the way for a common national market.
2. Reduction in tax- For the consumers, the biggest gain would be in terms of a reduction in
the overall tax burden on goods, which is currently estimated at 25%-30%.
3. Comptetion - Introduction of GST would also make our products competitive in the
domestic and international markets. Studies show that this would instantly spur economic
growth.
4. Revenue gain - There may also be revenue gain for the Centre and the States due to
widening of the tax base, increase in trade volumes and improved tax compliance.
5. Transperancy - The tax because of its transparent character, would be easier to
administer.
6. Better compliance- Ensure better compliance due to aggregate tax rate reduces.

Drawbacks of GST

1. Higher Tax Burden for Manufacturing SMEs - Small businesses in the manufacturing
sector will bear most of the brunt of GST implementation. Under the existing excise laws,
 only manufacturing business with a turnover more than Rs. 1.50 crores have to pay excise
duty. However, under GST the turnover limit has been reduced to Rs. 20 lakh thus
increasing the tax burden for many manufacturing SMEs.

2. Increase in Operating Costs- Most small businesses do not employ professionals and
prefer to pay taxes and file returns on their own to save costs. For GST though, as it is a
completely new tax system, they will require professional assistance. While this will
benefit the professionals, the small businesses will have to bear the additional costs of
hiring experts.

3. Change in Business Software-Most businesses use accounting software or ERPs for filing
tax returns which have excise, VAT, and service tax already incorporated in them. The
change to GST will require them to change their ERPs, too, leading to increased costs of
purchasing new software and training employees.

4. GST Will be Implemented During the Middle of the Year- The tentative GST
implementation date is 1st July 2017. So, for the fiscal year, 2017-18 business will follow
the old tax structure for the first 3 months, and GST for the rest of the time. It is
impossible to cross over from one tax structure to the other in just a day, and hence
businesses will end up running both tax systems in parallel, resulting in more confusion
and compliance issues.

5. Increase in Taxes will Increase Prices- Currently, some sectors like the textile industry
are exempted from taxes or pay low tax. GST has only 4 proposed tax rates of
5%,12%,18%, 28%. Thus, for many sectors the tax burden will increase which in turn
will increase the price of the final goods.

6. Petroleum Products Are Not Part of GST -Petroleum products are being kept outside the
scope of GST as of now. States will levy their own taxes on this sector. Tax credit for
inputs will therefore not be available to related industries like the plastic industry which
are heavily dependent on petroleum products. Petrol and diesel are required to run factory
machinery and unavailability of input tax credit on petroleum products will most
probably push up the final price of all manufactured goods.

7. Registration in Multiple States- GST requires businesses to register in all the states they
are operating in. This will increase the burden of compliances.

8. Problems Faced by E-commerce - Nowadays, many SMEs operate through their own
online shopping websites or through third party websites to sell to different parts of India.
Under GST, they will be required to register for all the states. Not only that, they will not
be eligible for composition scheme and will be required to pay taxes like any large
organisation. E-commerce facilitators are now required to collect TCS under GST which
will lead to increased complications and compliances.
 9. Composition Scheme is Not Available for Many Businesses - Composition scheme is
available for only businesses selling goods. It is not available to service providers or for
online sellers. This sets SMEs at par with large organizations in an unfair move.

10. No Anti-Inflationary Measures- While there have been similar discussions in the GST
council, India still does not have concrete anti-inflationary measures to curb the inflation
that is an inevitable outcome of GST.

Registration

Need of taking registration in GST

Legally recognized as supplier of goods or services.

Proper accounting of taxes paid on the input goods or services which can be utilized for
payment of GST due on supply of goods or services or both by the business.

Legally authorized to collect tax from his purchasers and pass on the credit of the taxes paid on
the goods or services supplied to purchasers or recipients.

No claim for ITC and collect tax

A person without GST registration can neither collect GST from his customers nor claim any
input tax credit of GST paid by him.

The effective date of registration

. Where the application for registration has been submitted within thirty days from the date on
which the person becomes liable to registration, the effective date of registration shall be date of
his liability for registration. Where an application for registration has been submitted by the
applicant after thirty days from the date of his becoming liable to registration, the effective date
of registration shall be the date of grant of registration. In case of suo moto registration, i.e.
taking registration voluntarily while being within the threshold exemption limit for paying tax,
the effective date of registration shall be the date of order of registration.
The persons liable to take a Registration under the Model GST Law

Any supplier who carries on any business at any place in India and whose aggregate turnover
exceeds threshold limit as prescribed in a year is liable to get himself registered. However,
certain categories of persons mentioned in Schedule III of MGL are liable to be registered
irrespective of this threshold. An agriculturist shall not be considered as a taxable person and
shall not be liable to take registration.

The cases in which registration is compulsory

the following categories of persons shall be required to be registered compulsorily irrespective of

the threshold limit:

a) persons making any inter-State taxable supply; b) casual taxable persons; c) persons who are
required to pay tax under reverse charge; d) non-resident taxable persons; e) persons who are
required to deduct tax under section 37; f) persons who supply goods and/or services on behalf of
other registered taxable persons whether as an agent or otherwise; g) input service distributor; h)
persons who supply goods and/or services, other than branded services, through electronic
commerce operator; i) every electronic commerce operator j) an aggregator who supplies
services under his brand name or his trade name; and k) such other person or class of persons as
may be notified by the Central Government or a State Government on the recommendations of
the Council.

The time limit for taking a Registration under Model GST Law

Any person should take a Registration, within thirty days from the date on which he becomes
liable to registration, in such manner and subject to such conditions as may be prescribed

Is India ready for GST which is to be implemented from july 1 2017

GST in India is going to be implemented from July 1 2017 but still the perfect preparations has
not been done to make businessman and others to be sure about its implementation. However
government is claiming to be prepared for GST but the taxpayers companies and individuals
will still need to purchase proper Enterprise resource planning (ERP) and other business process
management softwares or hire third-party software providers. While GST has been welcomed by
majority of the respondents, a meagre 19 per cent believe that their organisation's current
readiness level can be marked above 50 per cent. In fact, 45 per cent respondents indicate that
once the GST law(s) are notified, their organisation would need more than six months to prepare
for it. This means that despite eagerly waiting for the new tax system for so long, industry is
simply not prepared for it. Not surprisingly, more than 59 per cent respondents say they are yet
to evaluate the likely impact of GST on prices of offerings of their organisation.

Business and Industry dont seem to be ready for this historic indirect tax reform.

Action for Business for GST

Revisit supply chain and procurement process

Amendment in vendor and customer contracts
Circulate vendor and customer communication
Revisit pricing of services/goods supplied
Negotiation with suppliers for reduction in prices

Action for tax for GST

Finalisation of tax positions, tax rates and classification

GST migration and obtaining fresh registration.
Preparation of compliance manual as per GST compliance requirements
Input tax credit availability credit tracking and eligibility
Make changes in accounting and invoicing processes
Revisit valuation of goods and services

Action for technology for GST

Raising state wise invoices containing prescribed particulars:

Additional fields to be added for recording of transaction
 Tax codes and GL codes
Product/ service-wise GST rate database and procurements
Organisational structure

Developments and Work Ahead for GST

(a) Model GST Law - The Model GST Law, jointly drafted by the tax officials of the Centre and
States, has been placed on the website of the Ministry of Finance for suggestions/comments. The
model CGST/SGST legislation contains 162 sections spread over 25 Chapters and 4 Schedules.
The draft sets out the provisions of taxable event, taxable person, time of supply, valuation of
supply and input tax credit.

(b) GST Rules and Regulations- Preparation of GST Rules and Regulations is another major
area of work which needs to be completed well in advance before the implementation of 15
GST.This is to be jointly drafted by the officials of the Central Government and State
Governments. The CBEC has set up a Working Group for this purpose.

(c) IT preparedness - Putting in place a robust IT network is an absolute must for

implementation of GST. A Special Purpose Vehicle called the GSTN has been set up to cater to
the needs of GST.The GSTN shall provide a shared IT infrastructure and services to Central and
State Governments, tax payers and other stakeholders for implementation of GST.

(d) Training and Workshops - A detailed calendar has since been drawn up for training the
Central and State Government officers and staff on GST law, regulations and procedure. Some
10 officers from the Central Government and 15 officers from the State Governments have been
identified as Source Trainers who would be training a pool of some 300 Master Trainers of the
Central Government/State Governments who, in turn, would be training some 1600 Trainers
drawn from the Central Government and State Governments. The Trainers would then train some
70,000 Central/State Government tax officials at the field level. Presentations and training
materials are being prepared for this purpose. Training courses would be held at the various
locations of the country.
Conclusion-

GST one of the biggest taxation reforms in India is the most logical steps towards the
comprehensive indirect tax reform in our country since independence. GST is leviable on all
supply of goods and provision of services as well combination thereof. All sectors of economy
whether the industry, business including Govt. departments and service sector shall have to bear
impact of GST. All sections of economy viz., big, medium, small scale units, intermediaries,
importers, exporters, traders, professionals and consumers shall be directly affected by GST. the
Goods and Service Tax (GST) is all set to integrate State economies and boost overall growth.
GST will create a single, unified Indian market to make the economy stronger. Experts say that
GST is likely to improve tax collections and Boost Indias economic development by breaking
tax barriers between States and integrating India through a uniform tax rate. Under GST, the
taxation burden will be divided equitably between manufacturing and services, through a lower
tax rate by increasing the tax base and minimizing exemptions