Overview of Goods and Services Tax (GST).
1.What is Goods and Service Tax (GST)?
Ans. It is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as the setoff. In a nutshell, only value addition will be taxed and burden of
tax is to be borne by the final consumer.
2.What exactly is the concept of the destination-based tax on consumption?
Ans. The tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as the place of supply.
3.Which of the existing taxes are proposed to be subsumed under GST?
Ans. The GST would replace the following taxes:
(i) 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
(ii) State taxes that would be subsumed under the GST are:
a. State VAT
b. Central Sales Tax
c. Luxury Tax
d. Entry Tax (all forms)
e. Entertainment and Amusement Tax (except when
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.
The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the GST.
Q 4. What principles were adopted for subsuming the above taxes under GST?
Ans. The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:
(i) Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.
(ii) Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.
(iii) The subsumation should result in free-flow of the tax credit in intra-and inter-State levels. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.
(v) Revenue fairness for both the Union and the States individually would need to be attempted.
Q 5.Which are the commodities proposed to be kept outside the purview of GST?
Ans. Alcohol for human consumption, Petroleum Products viz. petroleum crude, motor spirit (petrol), high-speed diesel, natural gas and aviation turbine fuel& Electricity.
Q 6. What will be the status in respect of taxation of above commodities after the introduction of GST?
Ans. The existing taxation system (VAT & Central Excise) will continue in respect of the above commodities.
A. What will be status of Tobacco and Tobacco products under the GST regime?
Ans. Tobacco and tobacco products would be subject to GST. In addition, the Centre would have the power to levy Central Excise duty on these products.
Q 7. What type of GST is proposed to be implemented?
Ans. It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra-State supply of goods and/or services would be called the Central GST (CGST) and that to be levied by the States would be called the State
GST (SGST). Similarly, Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services.
Q 8. Why is Dual GST required?
Ans. 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.
Q 9. Which authority will levy and administer GST?
Ans. Centre will levy and administer CGST & IGST while respective states will levy and administer SGST.
Q 10. Why was the Constitution of India amended recently in the context of GST?
Currently, the fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. The Centre has the powers to levy a tax on the manufacture of goods (except alcoholic liquor for human consumption,
opium, narcotics etc.) while the States have the powers to levy a tax on the sale of goods. In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the States. As for services, it is the Centre alone that
is empowered to levy service tax.
Introduction of the GST required amendments in the Constitution so as to simultaneously empower the Centre and the States to levy and collect this tax. The Constitution of India has been amended by the Constitution (one hundred and first amendment) Act, 2016 recently for this purpose.
Article 246A of the Constitution empowers the Centre and the States to levy and collect the GST.
Q 11. How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?
Ans. The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except for the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further,
8 both would be levied on the same price or value, unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier
and the recipient are both located within the State.
Illustration I Suppose hypothetically that the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same State for, say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods. He would be required to deposit the CGST component into a Central Government account while the SGST portion of the account of the concerned State Government. Of course, he need not actually pay Rs. 20 (Rs. 10 + Rs. 10 ) in cash as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say, inputs). But for paying CGST he would be allowed to
use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.
Illustration II: Suppose, again hypothetically, that the rate of CGST is 10% and that of SGST is 10%. When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of Maharashtra for, let us say Rs. 100, the ad company would charge CGST of 9 Rs. 10 as well as SGST of Rs. 10 to the basic value of
the service. He would be required to deposit the CGST component into a Central Government account while the SGST portion of the account of the concerned State Government. Of course, he need not again actually pay Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist etc). But for paying
CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilise the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.
Q 12. What are the benefits which the Country will accrue from GST?
Ans. Introduction of GST would be a very significant step in the field of indirect tax reforms in India. 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. 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%. Introduction of GST would also make our products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth. 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 10 tax compliance. Last but not the least, this tax, because of its transparent character, would be easier to administer.
Q 13. What is IGST?
Ans. Under the GST regime, an Integrated GST (IGST) would be levied and collected by the Centre on the inter-State supply of goods and services. Under Article 269A of the Constitution, the GST on supplies in the course of inter-
State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be
provided by Parliament by law on the recommendations of
the Goods and Services Tax Council.
Q 14. Who will decide rates for levy of GST?
Ans. The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The rates would be notified of the recommendations of the GST Council.
Q 15. What would be the role of GST Council?
Ans. 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 the 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 North- East States, J&K, Himachal Pradesh and Uttarakhand; and
(ix) any other matter relating to the GST, as the Council may de
15.How will imports be taxed under GST?
Ans. Imports of Goods and Services will be treated as inter-state supplies and IGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and
16.How will Exports be treated under GST?
Ans. Exports will be treated as zero-rated supplies. No tax will be payable on exports of goods or services, however, the credit of input tax credit will be available and same will be available for the refund to the exporters.