GOODS AND SERVICES TAX

(GST)
 Concept of GST
 GST is a tax on goods and services with comprehensive and continuous chain of
setoff benefits from the Producer’s point and Service provider’s point up to the
retailer level.
 GST is expected be levied only at the destination point, and not at various
points (from manufacturing to retail outlets). It is essentially a tax only on value
addition at each stage and a supplier at each stage is permitted to setoff
through a tax credit mechanism which would eliminate the burden of all
cascading effects, including the burden of CENVAT and service tax.

 Under GST structure, all different stages of production and distribution can be
interpreted as a mere tax pass through and the tax essentially sticks on final
consumption within the taxing jurisdiction.

 Currently, a manufacturer needs to pay tax when a finished product moves out
from the factory, and it is again taxed at the retail outlet when sold. The taxes
are levied at the multiple stages such as CENVAT, Central sales tax, State Sales
Tax, Octroi, etc. will be replaced by GST to be introduced at Central and State
level.
 Concept of GST
 All goods and services, barring a few exceptions, will be brought into the GST base.
There will be no distinction between goods and services.

 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.

 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.

 The existing CST will be discontinued. Instead, a new statute known as IGST will
come into place on the inter-state transfer of the Goods and Services.

 By removing the cascading effect of taxes (CST, additional customs duty, surcharges,
luxury Tax, Entertainment Tax, etc. ),CGST & SGST will be charged on same price .
Existing Tax structure in India
Tax Structure

Direct Tax Indirect Tax

Income Tax Wealth Tax Central Tax State Tax

Entry Tax,
Excise Service Tax Custome VAT luxury tax,
Lottery Tax, etc.
Proposed Tax Structure in India

Tax Structure

Indirect Tax =
Direct Tax GST (Except
customs)

Income Tax
Wealth Tax Intra- state Inter State

CGST IGST
SGST (State)
(Central) (Central)
Subsuming of Existing Taxes
• Central Excise
• Additional duties of Custom (CVD)
CGST •
•
Service Tax
Surcharges and all cesses

• VAT/sales tax
• Entertainment Tax
• Luxury Tax
• Lottery Tax
• Entry Tax

SGST •
•
Purchase Tax
Stamp Duty
• Goods and passenger Tax
• Tax on vehicle
• Electricity, banking, Real state

IGST • CST
 Model of GST
 SGST and CGST for intrastate transaction : In the GST system, both Central and State
taxes will be collected at the point of sale. Both components (the Central and State GST)
will be charged on the manufacturing cost. This will benefit individuals as prices are likely
to come down. Lower prices will lead to more consumption, thereby helping companies.

 IGST for Interstate transaction: ‘IGST Model’ will be in place for taxation of inter State
transaction of Goods and Services. The scope of IGST Model is that center would levy
IGST which would be CGST plus SGST on all inter State transactions of taxable goods and
services with appropriate provision for consignment or stock transfer of goods and
services.

 The GST paid on the purchase of goods and services, to be paid on the supply of goods
and services.

 There should be no distinction between raw materials and capital goods in allowing input
tax credit. The tax base should comprehensively extend over all goods and services up to
final consumption point on value addition.

 Assessable value for all the taxes will be same.

Stakeholder in Business Chain
1.
Manufacturer

5.Government
2. Wholesaler
and Banks
Goods
+
Services

4.Consumer 3.Retailer
 GST Set off Chain
• Input Credit of Goods+ services
Manu
factur
• After taking set off of Input credit, pay the Output Liability on value addition
er

• Input Credit of Goods+ services from manufacturer

Whol • After taking set off of Input credit, pay the Output Liability on value addition
esaler

• Input Credit of Goods+ services from wholesaler

Retail • After taking set off of Input credit, pay the Output Liability on value addition
er

Consu • Ultimate Output Liability recovered from consumer

mer
 Set-off methodology
 Since the Central GST and State GST are to be treated separately, in
general, 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.

 Cross utilization of ITC between the Central GST and the State GST would,
in general, be allowed.

 ADC paid on Import of goods and service would fall under the IGST and this
duty would be allowed for setoff of SGST and CGST.
 Set off Heads
CGST
IGST Input SGST Input
Input
IGST IGST IGST
Output Output Output
CGST CGST CGST
Output Output Output
 Functioning of GST
The illustration shown below indicates, in terms of a hypothetical example with a
manufacturer, one wholesaler and one retailer, how GST will work.

 Manufacturer : Let us suppose that CGST rate is 10% and SGST rate is 5% , with the
manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of
goods CGST paid @10%) and services used in the manufacturing process. The
manufacturer will then pay net CGST of Rs. 3 after setting-off Rs. 10 as CGST paid on his
inputs (i.e. Input Tax Credit) from gross CGST of Rs. 13 and Rs, 6.5 as SGST.
Gross Value:130 on that CGST 13/- and SGST 6.5/-
Input Credit: CGST 10-/ and SGST NIL/-
Net Liability: Rs. 3 + 6.5 = 9.5/-

 Wholesaler: The manufacturer sells the goods to the wholesaler. When the wholesaler sells
the same goods after making value addition of (say), Rs. 20, he pays net CGST of only Rs. 2,
after setting-off of Input Tax Credit of Rs. 13, from the gross CGST of Rs. 15 and net SGST of
only Rs. 1, after setting-off of Input Tax Credit of Rs. 6.5, from the gross SGST of Rs. 7.5 to
the manufacturer.
Gross Value:150 on that CGST 15/- and SGST 7.5/-
Input Credit: CGST 13-/ and SGST 6.5/-
Net Liability: Rs. 2 + 1 = 3/-
 Functioning of GST
 Retailer: Similarly, when a retailer sells the same goods after a value
addition of (say) Rs. 10, he pays net CGST of only Re.1, after setting-off
Rs.15 from his gross GST of Rs. 16 and net SGST of only Rs. 0.5, after
setting-off of Input Tax Credit of Rs. 7.5, from the gross SGST of Rs. 8/-
paid to wholesaler.
Gross Value:160 on that CGST 16/- and SGST 8/-
Input Credit: CGST 15-/ and SGST 7.5/-
Net Liability: Rs. 1 + 0.5 = 1.5/-

 Total Liability: Thus, the manufacturer, wholesaler and retailer have to

pay only Rs. 6 (= Rs. 3+Rs. 2+Rs. 1) as CGST Rs. 8 (= Rs. 6.5+Rs. 1+Rs. 0.5)
as SGST and on the value addition along the entire value chain from the
producer to the retailer, after setting-off GST paid at the earlier stages.
This is shown in the table in next slide. The same illustration will hold in
the case of final service provider as well.
CGST & SGST Tax Liability working

Value at Net
Purc Which Inpu Net SGST=
Stage hase Supply Rate CGST t Input CGST=C SGST
Value Valu Goods Rate of CGST on Tax Tax GST on on
of e on
Suppl and of SGS Outp Cred Credi output- output
Of Addi Services SGST T Outpu ut it on t on Input -Input
y tion t
Chain Inpu Made to CGS SGST Tax Tax
t Next T Credit Credit
Stage
Manu
factur 100 30 130 10% 5% 13 6.5 10 0 13–10 = 3 6.5-0=
er 6.5
Whol
e 130 20 150 10% 5% 15 7.5 13 6.5 15–13 = 2 7.5-
Seller 6.5=1
8-
Retail 150 10 160 10% 5% 16 8 15 7.5 16–15 = 1 7.5=0.
er 5
 Mechanism of Dual Taxation
After introduction of GST, all the traders including manufacturer will be paying both the types of
taxes i.e. CGST and SGST. The Central GST and the State GST would be levied simultaneously on
every transaction of supply of goods and services except the exempted goods and services,
goods which are outside the purview of GST and the transactions which are below the
prescribed threshold limits. Further, 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, i.e CGST & SGST will be
charged on same price
 Supply of Goods: Suppose 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.
 Supply of Services : Suppose, 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 which is also located within the State of Maharashtra for, Rs. 100, then
the ad company would charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the
service.In both the cases, he would be required to deposit the CGST component into a Central
Government account and the SGST portion into concerned State Government account. He
need not actually pay duty in cash, as he would be entitled to set-off this liability against the
CGST or SGST paid on his purchases
 GST on Import of Goods and
services
 With Constitutional Amendments, both CGST and SGST will be levied on import of goods
and services into the country.
 The incidence of tax will follow the destination principle(Place of supply rules).
 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
services.
 Thus, import of goods will attract BCD and IGST. It may be noted that import of services, as
against service tax at present, in GST regime, will attract IGST.
 Basic Custom Duty will continue to there under GST system. However, the additional
custom duty in lieu of CVD /Excise and the Special Additional Duty (SAD) in lieu of sales
tax/VAT will be subsumed in the import GST.
 The import of services will be subject to Central GST and State GST on a reverse charge
mechanism. In other words, the GST will be payable by the Importer on a self declaration
basis.
 Taxable Person
It will cover all types of person carrying on business
activities, i.e. manufacturer, job-worker, trader, importer,
exporter, all types of service providers, etc.
If a company is having four branches in four different
states, all the four branches will be considered as TP
(Taxable person) under each jurisdiction of SGs.
A dealer must get registered under CGST as it will make
him entitle to claim ITC of CGST thereby attracting buyers
under B2B (Business to Business) transactions.
Importers have to register under both CGST and SGST as
well.
 GST on Export of Goods and Services
 GST on export would be zero rated.
 Similar benefits may be given to Special Economic Zones (in
processing zones only).
 No benefit to the sales from an SEZ to Domestic Tariff Area (DTA).
GST paid by Exporter on the procurement of goods and
services will be refunded.
 Registration under GST
Each taxpayer would be allotted a PAN linked taxpayer
identification number with a total of 13/15 digits.

This would bring the GST PAN-linked system in line with the
prevailing PAN-based system for Income tax facilitating data
exchange and taxpayer compliance.

 The exact design would be worked out in consultation with

the Income-Tax Department.
 Returns under GST
The taxpayer would need to submit periodical returns to
both the Central GST authority and to the concerned State
GST authorities.
ITC credit can also be verified on the basis of the returns
filed and revenues reconciled against Challan data from
banks.
Common standardized return for all taxes (with different
account heads for CGST, SGST, IGST) can come into picture.
Common standardized Challan for all taxes (with different
account heads for CGST, SGST, IGST) can come into picture.
 Taxable Event

Existing Practice GST

Taxable event is “Supply “ of Goods & service

Excise Duty-Manufacturing,

The location of the supplier and the recipient

within the country is immaterial for the
Sales Tax/VAT- Sale of Goods purpose of CGST.

SGST would be chargeable only when the

Service Tax- Realization of Service supplier and the recipient are both located
within the State.

Inter state Supply of goods and services will

attract IGST.
 GST Invoice
The Task Force on GST said the computation of CGST and SGST
liability should be based on the Invoice credit method. i.e.,
allow credit for tax paid on all intermediate goods and services
on the basis of invoices issued by the supplier.
Invoice level detail is necessary for the reconciliation of tax
deposits, and the end-to-end reconciliation of ITC. An effective
IGST implementation may also require invoice-level details.
A number of states are capturing invoice details even in the
existing VAT systems. It is proposed to follow a two-pronged
approach with Dealer level granularity of returns in the first
phase followed by invoice level in the next phase.
 Rate of Tax
The combined GST rate is being discussed by government. The
rate is expected around 16 per cent. After the total GST rate is
arrived at, the States and the Centre will decide on the CGST
and SGST rates. Currently, services are taxed at 12 per cent
and the combined charge indirect taxes on most goods are
around 20 per cent.

Today the Rate of GST in some countries are Australia10%,

France19.60%, Canada5%, Germany19%, Japan5%,
Singapore7%, Sweden25%, New Zealand15% & Pakistan17%
Exemption of Goods and Services
Alcohol, tobacco, petroleum products are likely to be out of the GST regime.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of GST.
Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the existing practice.
In case it has been made VA table by some States, there is no objection to that. Excise Duty,
which is presently levied by the States may not also be affected.

Tax on Petroleum Products: Petroleum and petroleum products have also been constitutionally
brought under the GST. However, it has also been provided that petroleum and petroleum
products shall not be subject to the levy of GST till notified at a future date on the
recommendation of the GST Council.

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may be
allowed to levy excise duty on tobacco products over and above GST with ITC.

Taxation of Services: As indicated earlier, both the Centre and the States will have concurrent
power to levy tax on goods and services. In the case of States, the principle for taxation of intra-
State and inter46 State has already been formulated by the Working Group of Principal
Secretaries /Secretaries of Finance / Taxation and Commissioners of Trade Taxes with senior
representatives of Department of Revenue, Government of India. For inter-State transactions an
innovative model of Integrated GST will be adopted by appropriately aligning and integrating
 Composition scheme
A Composition/Compounding Scheme will be an important feature of GST, to
protect the interests of small traders and small scale industries. The
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.
In particular there will be a compounding cut-off at Rs. 50 lakhs of the gross
annual turnover and the floor rate of 0.5% across the States. The scheme would
allow option for GST registration for dealers with turnover below the
compounding cut-off.
 GST and Information
Technology (IT) Interface
 Based on the legal provisions and procedure for GST, the content of
work-flow software such as ACES (Automated Central Excise &
Service Tax) would require review.
 On the IT front, there has been consensus that there will be a
common portal providing three core services (registration, returns
and payments).
Information Flow and Associated Entities
Send Challan

File Returns Upload Challan

Taxpayer Banks and RBI
Details

CBEC State 1Portal

(Central
Portal) CGST and SGST and State 2 Portal
IGST Returns Common GST
Portal IGST Return
(Reconciliation
system) State N Portal

MCA CBDT

NSDL
Increased Assessee Base
 Under the CGST model proposed, with threshold of annual turnover of
Rs.10 lakhs, the present Assessee base of Excise and Service Tax of about
10 lakhs will increase to about 50 lakhs as every manufacturer and Trader
above the specified threshold will be liable to CGST.
 Tax reconciliation between Central and
State Govt.
 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 in his own State,
 The Centre will transfer to the importing State the credit of IGST used in
payment of SGST,
 The relevant information will also be submitted to the Central Agency
which will act as a clearing house mechanism.
 Flaws of GST Model
 Major flaw of this model is ,Local Dealers have to pay CGST in addition to
SGST.
 In Addition to this, CGST mainly represents the Excise/service tax and SGST
mainly represents the VAT portion but, because of ‘No differentiation
between Goods and Services’ service supply within the state would attract
SGST as GST is levied at each stage in the supply chain and Assessee have
to Pay CGST as well SGST.
 The issue which still needs to be resolved are, the revenue sharing
between States and Centre, and a framework for exemption, thresholds
and composition.
 THANK YOU
BY-
DIKSHANT TANWAR
BBA(B&I)
01021201818