GOODS AND SERVICES TAX 2017 – WRITE UP – 9.11.

2018 

India’s biggest indirect tax reform in the form of Goods and Services Tax (GST) has completed 1 year. A
comprehensive dual GST was introduced in India from 1 July 2017. 

The idea of moving towards the GST was first mooted by the then Union Finance Minister in his Budget
for 2006-07. The talks of ushering in GST took concrete shape with the introduction of Constitution
(122nd Amendment) Bill, 2014. The Bill was passed by the Parliament on 8 August 2016. This was
followed by the ratification of the Bill by more than 15 states. On 12 April 2017, the Central Government
enacted four GST bills: 

Central GST (CGST) Bill 

Integrated GST (IGST) Bill 

Union Territory GST (UTGST) Bill 

The GST (Compensation to States) Bill 

In a short span of time, all the states approved their State GST (SGST) laws. Union territories with
legislatures, i.e., Delhi and Puducherry, have adopted the SGST Act and the other 5 union territories
without legislatures have adopted the UTGST Act. 

The GST Council, a recommendatory body consisting of representatives of Central as well as state
governments, has met on several occasions and taken important decisions relating to tax rate structure,
exemptions, rules, composition scheme etc. Over the period, the Council has recommended a reduction
in the tax rates of various goods and services. It is also considering the various issues faced by trade and
industry and endeavoring to simplify the new tax regime and ease compliance. 

On the compliance front, all registered persons have to file monthly returns in Form GSTR-3B
(containing a summary of outward and inward supplies) by the 20th of the succeeding month.
Additionally, an invoice-wise return of outward supplies needs to be submitted in Form GSTR-1 by the
10th of the succeeding month. Taxpayers with turnover upto INR 1.5 crores can file Form GSTR-1 on
quarterly basis. The Government has suspended the requirement of filing Form GSTR-2 (containing
details of inward supplies) and GSTR-3 (a consolidated statement of inward and outward supplies). 

The GST Council has approved a simplified GST return format wherein the taxpayers will be required to
file only one monthly return. Input tax credit will be available based on invoice details of outward
supplies uploaded by the supplier. Taxpayers having turnover below INR 5 crores will have an option to
file return on quarterly basis. 

Under GST, there is a provision for the person in charge of a conveyance to carry electronic way bill (e-
way bill) if the consignment value exceeds INR50,000. E-way bill can be generated through various
modes such as web (online), Android app, SMS using Bulk Upload Tool and API-based site-to-site
integration. The e-way bill system has become effective for inter-state as well as intra-state movement
of goods. 

GST has been a major transition in the Indian tax framework. It has evolved significantly from the time of
its inception. It is expected that Government’s pro-active measures and industry’s active participation,
will make it a truly “Good and Simple Tax” in the times to come. 

Rate classification for goods 

Exempt  5%  12%  18%  28%  28% +

Cess 

Electrical Apparels Articles of Fork lifts, lifting Air-conditioners  Cars 

energy  valued less apparels and handling Digital cameras  Pan
Newspapers  than exceeding equipment  Transmission masala 
Milk  INR1,000  INR1,000  Electrical apparatus for
Cigars 
Duty credit Fly ash  Bio-diesel  apparatus for radio-
scrips  Fishing net Printing ink  radio and broadcasting 
Food grains  and fishing Specified parts television
hooks  of sewing broadcasting 
Aircraft machine  Chocolates 
engines  Furniture Slabs of marbles
Bio-gas  wholly made and granite 
of bamboo or
cane 

Rate classification for services 

Exempt  5%  12%-18%  28% 

 Education   Goods  Works  Betting 

transport  contract 
 Healthcare   Gambling 
 Rail  Business Class
 Residential  Hotel/
tickets air travel 
accommodatio Lodges
(other
n   Telecom with tariff
than
services  above INR
 Hotel/ Lodges sleeper
7500 
with tariff class)   Financial
below INR services 
 Economy
1000 
class air  Hotel/ Lodges
   tickets  with tariff
between INR
 1000 and
7500 

  

What GST brings with it? 

GST is a destination-based tax that replaces the earlier Central taxes and duties such as Excise Duty,
Service Tax, Counter Vailing Duty (CVD), Special Additional Duty of Customs (SAD), central charges and
cesses and local state taxes, i.e., Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entry Tax,
Purchase Tax, Luxury Tax, Taxes on lottery, betting and gambling, state cesses and surcharges and
Entertainment tax (other than the tax levied by the local bodies). 

It is a dual levy with State/Union territory GST and Central GST. Moreover, inter–state supplies attract an
Integrated GST, which is the sum total of CGST and SGST/UTGST. 

Petroleum products, i.e., petroleum crude, high speed diesel, motor spirit, aviation turbine fuel, natural
gas will be brought under the ambit of GST from such date as may be notified by the Government on
recommendation of the Council. Alcohol for human consumption has been kept outside the purview of
GST. 

Benefits of GST 

GST has been envisaged as a more efficient tax system, neutral in its application and attractive in
distribution. The advantages of GST are: 

 Wider tax base, necessary for lowering the tax rates and eliminating classification disputes 

 Elimination of multiplicity of taxes and their cascading effects 

 Rationalization of tax structure and simplification of compliance procedures 

 Harmonization of center and State tax administrations, which would reduce duplication and
compliance costs 

 Automation of compliance procedures to reduce errors and increase efficiency 

Destination principle 

The GST structure would follow the destination principle. Accordingly, imports would be subject to GST,
while exports would be zero-rated. In the case of inter-State transactions within India, the State tax
would apply in the State of destination as opposed to that of origin. 

Taxes to be subsumed 

GST would replace most indirect taxes currently in place such as: 

Central Taxes  State Taxes 

 Central Excise Duty [including additional  Value Added Tax 

excise duties, excise duty under the
 Medicinal and Toilet Preparations (Excise  Octroi and Entry Tax 
Duties) Act, 1955] 
 Purchase Tax 
 Service tax 
 Luxury Tax 
 Additional Customs Duty (CVD) 
 Taxes on lottery, betting & gambling 
 Special Additional Duty of Customs
 State cesses and surcharges 
(SAD) 
 Entertainment tax (other than the tax
 Central Sales Tax ( levied by the Centre
levied by the local bodies) 
and collected by the States) 
 Central Sales Tax ( levied by the Centre
 Central surcharges and cesses ( relating
and collected by the States) 
to supply of goods and services) 

A just and viable tax regime is vital for the sustainable economic growth and fiscal consolidation of any
economy in the world. 

This assumes a greater importance in a developing economy like India where although we have a high
demographic dividend, we are yet to convert it to the proportionate human capital, which will in turn
benefit the social and economic growth of the country. 

In order to facilitate this, we need a conducive environment as we push forward towards becoming
a better developed nation. 

In order to become a more economically developed nation, we need a transparent, just, equitable and
fair taxation system that is easy to administer. 

The essential rationale behind this is that the taxation system should be reasonable and non-
discriminatory in respect to both the direct taxes payable by individuals and the indirect taxes payable
by corporations and industries so as to make them more tax-compliant and bring the larger populace in
the taxation net to in turn aid the government in taking development projects. 

Goods and Services Tax (GST) is a reformatory legislation which is a single tax on the supply of goods and
services, right from the manufacturer to the consumer. 

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 consume will thus bear only the GST charged by the last dealer in the supply chain with set-off
benefits at all the previous stages. 

NEED FOR GST LEGISLATION 

The tax-GDP ratio of a country is an important indicator that helps understand how much tax revenue is
being collected by the government as compared to the overall size of the economy and unfortunately,
this ratio is a dismal low for India despite having years of high growth, the lowest in BRICS countries. 
From 2001 to 2015 the Indirect Tax-GDP ratio has increased from 10.28-11.6 only and therefore there is
an urgent need to raise this ratio. 

The burden of regressive taxes is another issue that the GST aims to redress. Direct taxes are progressive
taxes as they are contingent on the ability of the taxpayer to pay. 

In India, more than 60% of the total tax collected is accounted for indirect taxes, implying that the tax
structure is extremely regressive and since the rich and poor are subject to the same tax rate which is
unfair and therefore the indirect taxes need to be hauled. 

Furthermore, the sharing of financial resources and revenue from the tax system between the Centre
and the State is made simpler by the GST tax reform. 

Furthermore the cascading of taxes with both the Centre and State levying taxes as the taxes levied by
the State Government are not available to set off against the taxes being levied by the State
Governments. 

At the central level GST will subsume Central Excise Duty, Additional Excise Duty, Service Tax, Additional
Customs Duty (Countervailing Duty), and Special Additional, Duty of Customs. At the State level,
Subsuming of State Value Added Tax/ Sales Tax, Entertainment Tax, Central Sales of Tax, Octroi and
Entry Tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling. 

Also, the variety of VAT tax laws in the country with disparate tax rates and dissimilar tax practices
divides the country into separate economic spheres thereby creating tariff and non tariff barriers
thereby hindering the free flow of trade in the country. 

This in turn also constitutes high compliance cost for the taxpayers disadvantageous to economic
growth of a country. 

GSTN, the Goods and Services Tax Network: 

Along with GST, there are a number of reforms that the Government is bringing in to strengthen the
manufacturing bone of India. 

GSTN, the Goods and Services Tax Network is being setup with the objective to provide the requisite IT
infrastructure and services for the proper roll-out and implementation of GST. 

It is a company under Section 25 which implies that its is a non government, private limited company
which will not work for profit. 

The division of powers is such that the Central Government holds 24.5% equity in GSTN while the states
inclusive of NCT of Delhi and the union territory of Puducherry and the Empowered Committee of the
State Finance Ministers collectively hold another 24.5%, the remaining 51% vests with other
Government financial institutions. 

This company will work towards providing a proficient GST Eco-System. It will encourage and collaborate
with GST Suvidha Providers to roll out GST applications for providing simplified services to the
stakeholders. 

It is also entrusted to carry out research in order to conclude better and best practices and to indulge in
staff training and also consultancy to the Tax Authorities and other stakeholders. 
Another very important feature of the GSTN is to develop Tax Payer Profiling Utility which is a very
important aspect in ensuring efficient administration and achieve the GST goals. 

GST Council 

This is the most important aspect of the Goods and Services Tax, in ways bigger than the GST bill too, as
the entire structure of GST is contingent on this foundation. 

It is an apex body headed by the Union Finance Minister Mr. Arun Jaitley with the State-nominated
ministers and the Union Minister of State for Finance( In charge of Revenue) as members. 

It is imperative to note that the decisions of the GST Council will shape whether this ambitious tax
reform will achieve its due desired effect or not. 

IMPACT OF GST: 

Major Benefits to the Economy  As  A Whole: 

• The present scenario of differing tax rates in different states obstructs cooperative federalism. 

GST will bring uniformity and also deplete the cascading consequence of these taxes by giving input tax
credit, having a comprehensive tax inclusion with minimum exceptions which will in turn help the
Industry to benefit from the proposed common procedures and claim credit for the tax paid. 

• GST is expected to increase the mobilization of resources available for property alleviation and
development of the country as pointed out by the Prime Minister, Narendra Modi. 

This will take place in two ways: (a) directly the resources available to the poorer states will increase
substantially; (b) indirectly as the tax base becomes more buoyant. 

• The common base and common rates across goods and services and very similar rates across Centre
and States will result in effective administration and increase compliance while also ensuring the better
management of taxes collected in the State. 

Also, there is a provision to maintain the requisite fiscal autonomy to the States with the power to levy
additional excise taxes on certain “sin” goods like, tobacco, alcohol, etc. 

• The complicated tax-levy system categorized by distortions between States and Cente which divides
the country into separate economic zones with the help of GST will become one common national
market. 

This impedes the Make in India process which will get a boost through GST as it is making tax
compliance easier and removing ambiguity and at the same time as GST will be applied on imports,
domestic manufacturing would be encouraged. 

• Tax Governance will get a positive boost through this regime, mainly, through the feature of input tax
credit. 

To claim input tax credit, each dealer has an incentive to request documentation from the dealer behind
him in the tax chain which will ensure tax compliance. Also this would further require producers to buy
materials from registered dealers and therefore will bring in more and more vendors in the taxation
net. 

Furthermore, the dual monitoring structure of the GST by both Centre and State will make tax evasion
more prone to detection. 

• There will be reduction in prices of goods as taxes would now be exempted from the production cost
and at the same time it will put better goods and services within the reach of a larger number of the
populace and as such increase the living standards of the country. 

• The successful implementation of GST would give a strong signal to the foreign investors about India’s
increased creditworthiness, lesser compliance and procedural costs in the taxation sphere and remove
the complexities faced by the foreign investors who were reluctant to invest in consonance with the
existence of virtual economic zones throughout the country.