Gst Chapters (sneha).docx

CHAPTER 03 Topic Related Concepts. The reference of GST was first made in the Indian Budget in 2006-07 by the then Finance Minister Mr. P. Chidambaram as a single centralized Indirect tax. The GST Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 was introduced on December 19, 2014 and passed on May 6, 2015 in the Lok Sabha and yet to be passed in the Rajya Sabha The Bill seeks to amend the Constitution to introduce Goods and Services tax vide proposed new article 246A. This article gives power to legislature of every state and Parliament to make laws with respect to goods and services tax where the supplies of goods or of services take place. Recently, Union Minister Mr. Arun Jaitley said that GST could be implemented on 1st July, 2017. Clause 366(12A) of the Constitution Bill defines GST as “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. Further the clause 366(26A) of the Bill defines “Services” means anything other than Goods. Thus it can be said that GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. The proposed tax will be levied on all transactions involving supply of goods and services, except those which are kept out of its purview. GST is a consumption or destination based tax levied on the basis of the “Destination principle.” It is a comprehensive tax regime covering both goods and services, and be collected on value-added at each stage of the supply chain. Further, GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. Simply put, Goods and Services Tax is a tax levied on goods and services imposed at each point of supply. Such GST is on entire goods and services, except some exempted class of goods or services or a negative list of goods and services on which GST is not levied. GST is a national level tax based on value added principle just like State level VAT which was levied as tax on sale of intra-state goods.

Regulatory Framework of Gst A new set up by Government of India named as ‘GST Council’. GST Council constituted w.e.f. 12.09.2016 The GST Council consists of

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(a) the Union Finance Minister (as Chairman),

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(b) the Union Minister of State in charge of Revenue or Finance, and

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(c) the Minister in charge of Finance or Taxation or any other Minister, nominated by each state government.

All decisions of the GST Council will be made by three fourth majority of the votes cast; the centre shall have one-third of the votes cast, and the states together shall have two-third of the votes cast.

Salient Features of GST : 1. DUAL GOODS AND SERVICE TAX The GST shall have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). Rates for Central GST and State GST would be prescribed appropriately, reflecting revenue considerations and acceptability. This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable.

2. APPLICABILITY OF GST TO ALL TRANSACTIONS The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. The Central GST and State GST should be levied on common and identical tax base. The tax base should comprehensively extend over all goods and services ( with no distinction being made between treatment of goods and services) up to the final consumer point.

3. DESTINATION BASED MULTI POINT LEVY It is recommended that the Centre and States should adopt a consumption based GST with no distinction being made between raw materials and capital goods , in avaliment of Input tax credit. GST is based on destination principle, thus tax base will shift from production to consumption of goods. The taxable event is Consumption of goods or services. As a result, revenue will accrue to the state in which consumption takes place or deemed to take place.

4. COMPUTATION OF GST ON THE BASIS OF INVOICE CREDIT METHOD The liability of CGST and SGST is computed the basis of Invoice Credit method i.e. allow credit for tax paid on all intermediate purchases of goods and services on the basis of invoice issued by the supplier. As a result, all different stages of production and distribution can be interpreted as a mere tax pass-through, and the tax will effectively stick on final consumption within the taxing jurisdiction. This will facilitate elimination of the cascading effect at various stages of production and distribution. In an Invoice based VAT system, the issue of invoices in the proper form is an essential part of the procedure for imposing and enforcing the VAT. Therefore, it should be mandatory for a supplier making a taxable supply to another taxable entity to provide a VAT invoice.

5. PAYMENT OF GST The Central GST and State GST are to be paid to the accounts of the Centre and the States separately. It would have to be ensured that account-heads for all services and goods would have indication whether it relates to Central GST or State GST (with identification of the State to whom the tax is to be credited).

6. UNIFORM PROCEDURE FOR COLLECTION OF GST To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST.

7. THRESHOLD LIMIT

The present threshold limits prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. A uniform State GST threshold across States is desirable and, therefore, it is considered that a threshold of gross annual turnover of Rs.10 lakh both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in NorthEastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States also considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and the threshold for Central GST for services may also be appropriately high. It may be mentioned that even now there is a separate threshold of services (Rs. 10 lakh) and goods (Rs. 1.5 crore) in the Service Tax and CENVAT.

8. COMPOSITION SCHEME UNDER GST The States are also of the view that Composition/ Compounding Scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. The first discussion paper suggests that there would be a compounding cut-off at Rs. 50 lakh of gross annual turnover and a floor rate of 0.5% across the States. The scheme would also allow option for GST registration for dealers with turnover below the compounding cut-off. In reference to Composition scheme, the task force has recommended rate of 1% each on account of CGST and SGST for dealers with the turnover between Rs 10 lacs to Rs 40 lacs.No credit for the same will be available if the dealer opts for the compounding scheme.

10. INPUT TAX CREDIT (ITC) SET OFF Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. Further, the rules for taking and utilization of credit for the Central GST and the State GST would be aligned.

13. ZERO RATING OF EXPORTS The first discussion paper has suggested that the exports would be zero-rated. Similar benefits may be given to Special Economic Zones (SEZs). However, such benefits will only be allowed to the processing zones of the SEZs. No benefit to the sales from an SEZ to Domestic Tariff Area (DTA) will be allowed.

14. GST ON IMPORTS Imports will be brought under the scope of GST with necessary Constitutional Amendments. They will treated at par with inter-state transactions and Integrated goods and service tax (IGST) will be levied on imports. The incidence of tax will follow the destination principle and the tax revenue will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the IGST paid on import on goods and services.

Introduction of Gst at Indian Level : The implementation of the Goods and Services Tax (GST) in India was a historical move, as it marked a significant indirect tax reform in the country. The amalgamation of a large number of taxes (levied at a central and state level) into a single tax is expected to have big advantages. One of the most important benefit of the move is the mitigation of double taxation or the elimination of the cascading effect of taxation. The initiative is now paving the way for a common national market. Indian goods are also expected to be more competitive in international and domestic markets post GST implementation.

History of GST in India 

2000: In India, the idea of adopting GST was first suggested by the Atal Bihari Vajpayee Government in 2000. The state finance ministers formed an Empowered Committee (EC) to create a structure for GST, based on their experience in designing State VAT. Representatives from the Centre and states were requested to examine various aspects of the GST proposal and create reports on the thresholds, exemptions, taxation of inter-state supplies, and taxation of services. The committee was headed by Asim Dasgupta, the finance minister of West Bengal. Dasgupta chaired the committee till 2011.

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2004: A task force that was headed by Vijay L. Kelkar the advisor to the finance ministry, indicated that the existing tax structure had many issues that would be mitigated by the GST system.

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February 2005: The finance minister, P. Chidambaram, said that the medium-to-long term goal of the government was to implement a uniform GST structure across the country, covering the whole production-distribution chain. This was discussed in the budget session for the financial yea/r 2005-06.

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February 2006: The finance minister set 1 April 2010 as the GST introduction date.

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November 2006: Parthasarthy Shome, the advisor to P. Chidambaram, mentioned that states will have to prepare and make reforms for the upcoming GST regime.

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February 2007: The 1 April 2010 deadline for GST implementation was retained in the union budget for 2007-08.

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February 2008: At the union budget session for 2008-09, the finance minister confirmed that considerable progress was being made in the preparation of the roadmap for GST. The targeted timeline for the implementation was confirmed to be 1 April 2010.

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July 2009: Pranab Mukherjee, the new finance minister of India, announced the basic skeleton of the GST system. The 1 April 2010 deadline was being followed then as well.

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November 2009: The EC that was headed by Asim Dasgupta put forth the First Discussion Paper (FDP) , describing the proposed GST regime. The paper was expected to start a debate that would generate further inputs from stakeholders.

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February 2010: The government introduced the mission-mode project that laid the foundation for GST. This project, with a budgetary outlay of Rs.1,133 crore, computerised commercial taxes in states. Following this, the implementation of GST was pushed by one year.

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March 2011: The government led by the Congress party puts forth the Constitution (115th Amendment) Bill for the introduction of GST. Following protest by the opposition party, the Bill was sent to a standing committee for a detailed examination.

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June 2012: The standing committee starts discussion on the Bill. Opposition parties raise concerns over the 279B clause that offers additional powers to the Centre over the GST dispute authority.

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November 2012: P. Chidambaram and the finance ministers of states hold meetings and set the deadline for resolution of issues as 31 December 2012.

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February 2013: The finance minister, during the budget session, announces that the government will provide Rs.9,000 crore as compensation to states. He also appeals to the state finance ministers to work in association with the government for the implementation of the indirect tax reform.

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August 2013: The report created by the standing committee is submitted to the parliament. The panel approves the regulation with few amendments to the provisions for the tax structure and the mechanism of resolution.

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October 2013: The state of Gujarat opposes the Bill, as it would have to bear a loss of Rs.14,000 crore per annum, owing to the destination-based taxation rule.

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May 2014: The Constitution Amendment Bill lapses. This is the same year that Narendra Modi was voted into power at the Centre.

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December 2014: India’s new finance minister, Arun Jaitley, submits the Constitution (122nd Amendment) Bill, 2014 in the parliament. The opposition demanded that the Bill be sent for discussion to the standing committee.

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February 2015: Jaitley, in his budget speech, indicated that the government is looking to implement the GST system by 1 April 2016.

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May 2015: The Lok Sabha passes the Constitution Amendment Bill. Jaitley also announced that petroleum would be kept out of the ambit of GST for the time being.

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August 2015: The Bill is not passed in the Rajya Sabha. Jaitley mentions that the disruption had no specific cause.

March 2016: Jaitley says that he is in agreement with the Congress’s demand for the GST rate

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not to be set above 18%. But he is not inclined to fix the rate at 18%. In the future if the Government, in an unforeseen emergency, is required to raise the tax rate, it would have to take the permission of the parliament. So, a fixed rate of tax is ruled out. 

June 2016: The Ministry of Finance releases the draft model law on GST to the public, expecting suggestions and views. August 2016: The Congress-led opposition finally agrees to the Government’s proposal on the

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four broad amendments to the Bill. The Bill was passed in the Rajya Sabha. 

September 2016: The Honourable President of India gives his consent for the Constitution Amendment Bill to become an Act.

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2017: Four Bills related to GST become Act, following approval in the parliament and the President’s assent: 

Central GST Bill

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Integrated GST Bill

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Union Territory GST Bill

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GST (Compensation to States) Bill

The GST Council also finalised on the GST rates and GST rules. The Government declares that the GST Bill will be applicable from 1 July 2017, following a short delay that is attributed to legal issues.

INTRODUCTION OF GST AT INTERNATIONAL LEVEL : The Goods and Services Tax (GST) also known as the National VAT (Value Added Tax) has been introduced in more than 150 countries. Most of the countries have a unified GST system. Brazil and Canada follow a dual system where GST is levied by both the Union and the State governments. France was the first country to introduce GST system in 1954. There are different models of GST currently in force, each with its own peculiarities. While country such as Singapore

virtually taxes everything at a single rate, some countries have more than one rate (a zero rate, certain exemptions and higher and lower rates).The standard GST rate in most countries ranges between 15-20% Most of the sectors are taxed except for few exemptions. The United States of America does not have a national level VAT.

AUSTRALIA The GST (Goods and Services Tax) is a value added tax on the supply of goods and services in Australia, including items that are imported. In most cases, GST does not apply to exports of goods or services, or other items consumed outside Australia. It was introduced by the Howard Government on 1st July 2000, replacing the previous Federal wholesale sales tax system and designed to phase out a number of various State and Territory Government taxes, duties and levies such as banking taxes and stamp duty. The basic premise of the new tax was to broaden the tax base, which was heavily biased toward the provision of services. Prior to the GST, Australia operated a Wholesale Sales Tax (WST) which imposed a tax on wholesales of goods. The WST was implemented in the 30's when Australia had an economy dominated by goods. Over the years however, Australia's economy evolved to be more services based, and the GST served to strip the unfair tax advantage that service providing businesses had over suppliers of goods. The GST is levied at a flat rate of 10% on most goods and services, apart from GST exempt items, and input taxed goods and services. GST is administered by the Tax Office on behalf of the Australian Government, and is appropriated to the States and territories.

CANADA The Canadian Goods and Services Tax (GST) is a multi-level value-added tax introduced in Canada on January 1, 1991, by Prime Minister Brian Mulroney and finance minister Michael Wilson. The GST replaced a hidden 13.5% Manufacturers' Sales Tax (MST). Harmonised Sales Tax: In Canada, the Harmonized Sales Tax combines the Goods and Services Tax (GST) and Provincial Sales Tax (PST) into a single sales tax.

In 1997, the provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador and the Government of Canada merged their respective sales taxes into the Harmonized Sales Tax (HST). In those provinces, the current HST rate is 13%. HST is administered by the federal government, with revenues divided among participating governments according to a formula. All other provinces continue to impose a separate sales tax at the retail level only, with the exception of Alberta, which does not have a provincial sales tax. Ontario proposed in its 2009 Budget to harmonize its 8% retail sales tax with the GST effective July 1, 2010. In July, 2009, the province of British Columbia announced plans to also merge the PST and GST effective July 1, 2010.

SINGAPORE Goods and Services Tax was introduced in Singapore on April 1, 1994, at 3%, but later increased to 4% on 1 January 2003, and 5% on 1 January 2004. It was raised again to 7% on 1 July 2007. Singapore’s GST is a broad-based consumption tax levied on import of goods, as well as nearly all supplies of goods and services. The only exemptions are fo r the sales and leases of residential properties and most financial services. Export of goods and international services are zero-rated. With an ageing population, Singapore’s income tax base is expected to decline. With a broadbased GST, the taxation burden will be more evenly spread among the population. Thus, the GST was introduced as part of a larger exercise to put in place a tax structure to see the country into the future. In Singapore, the tax is broad based which include all essential goods like water, electricity, rice, etc. Hence, a low income worker who would not pay income taxes would have to pay GST on his daily living expenses. This can be a burden especially during times of high inflation when the 7% tax is paid on the increasing price of daily essentials. GST is a self-assessed tax.