A Presentation by

CA. Preeti Goyal

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 GST is a tax on goods and services with comprehensive and continuous chain
of setoff benefits from the Producers point and Service providers 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.

Continued.
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 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 .

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 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.

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 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.

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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/-
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 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.
Continued.

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 Value Net
at Inpu Net SGST
Purc
Stag Which t CGST= =SGS
hase Rat CGS Input
e of Valu Supply Rate CGST Tax CGST T on
Valu e of T on Tax
Supp e Goods of on Cre on outpu
e SGS Outp Credi
ly Addi and SGS Outpu dit output- t-
Of T ut t on
Chai tion Service T t on Input Input
Inpu SGST
n s Made CGS Tax Tax
t
to Next T Credit Credit
Stage
Man 6.5-
1310
ufact 100 30 130 10% 5% 13 6.5 10 0 0=
=3
urer 6.5
Whol
7.5-
e 1513
130 20 150 10% 5% 15 7.5 13 6.5 6.5=
Selle =2
1
r
8-
Retai 1615
150 10 160 10% 5% 16 8 15 7.5 7.5=
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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 (say, inputs).
But for paying CGST he would be allowed to use only the credit of CGST & SGST paid on his purchases
respectively. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST
credit be used for payment of CGST.

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 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.
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 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.

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 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.

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 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.

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 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.

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 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.

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 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%

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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 CGST and IGST.

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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.

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 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).

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 Send Challan

File Returns Upload Challan

Details

CGST and SGST and

IGST Returns IGST
Return

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 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.

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 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.

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 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 .

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