B.Com , FCA, MBA
Email ID: singh.swatantra@gmail.com
New Delhi , 9811322785
1

GST – Where are we and what next ?

To recapitulate – GST Principles
Business
Business
Imports - Taxed
Exports – Relieved of tax
Internal trade – Tax sticks to goods

Central Level GST……
State Level GST……
Centre and State to legislate, levy and administer

Central VAT/Service Tax to GST
Current and Proposed Design Features
 Tax on manufacture of goods & provision of services –
Tax on supply of goods & services
 Multi point tax with input tax credit same
 Standard rate across country – national level same
 Exports – zero rated – almost full input tax credit – same

Imports –subject to CenVAT/Service tax same

Central VAT/Service Tax to GST
Current and Proposed Design Features
 Invoice based credit system same
 Registered dealer concept for maintaining chain – not required
 Value added by trade not captured – will be captured
Origin based Manufacturing Sector Goods VAT
& Service Sector VAT to Central GST

State VAT to State GST
Current and Proposed Design Features

Tax on sale of goods – services not covered – services will be covered
 Multi point tax with input tax credit same
 Exports – zero rated – full input tax credit for state
VAT and partial for service tax same

State VAT to GST
Current and Proposed Design Features
 Imports – tax free – will be taxable
 Invoice based credit system same
 Value added by trade for goods captured – same
Destination based Trade Sector
Goods VAT to S-GST

Two level GST - merits
 Achievable from constitutional perspective
 No adverse impact on Central and State Government revenues/ cash flows
 No need for major shift in staffing requirements
 GST on import of goods – issue of unequal treatment of domestic and imported goods addressed
 Exports can be relieved of taxes – more competitive

Revenue Receipts- Indirect Taxes
(State level)
2004-05
(as a % of the total revenue)
2005-06
(as a % of the total revenue)
2006-07
(as a % of the total revenue)
Sales Tax *
State Excise Duties
Stamp duty & Reg. fee
Other Taxes
Total
61.7
11.6
10.4
16.3
100
61.6
11.6
10.7
16.1
100
62.6
11.4
11.0
15.0
100
* Comprises of General Sales Tax, Central Sales Tax, Sales Tax on motor spirit and Purchase
Tax on sugarcane, etc.
Source: Economic Survey 2006-07 and State Finance report from RBI website

Two level GST - Demerits
 Cost of compliance for businesses- will continue to be high
 Apprehensions/risks continue:
– Variable rates/Exemptions/trade diversion
– Non uniformity of classification
– Double taxation – overlap between states and
Centre and states
– Multiplicity of litigation…….
“Feel Good” Factor ( ? )

International Comparatives?
 Australia ?
 United States of America ?
 Canada ?
 Brazil ?
 EU ?

Major Reform….what is reform ?
A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform.
Full of challenges

Issues and Challenges
Constitutional
Amendment

Constitutional Amendments
 Central List
 State List
 New List ??

Taxes to be subsumed?
 Central Level
 State Level

Comprehensive
 Sin/Demerit goods?
 Services ?

Statute/Rules
 Two
 28 +

Rates
 Same at Centre and State/for goods & services?
 Same for intra state and interstate transactions ?
 Same for special types of transactions like works contracts, leases ?
 How many ? Fixed / Variable – flexibility within range ? Exemptions ?
 Who should determine ?

GST Rates - International comparison
GST Rates - International comparison
35.0
30.0
25.0
20.0
12.5
13.0
15.0
10.0
10.0
5.0
0.0
14.0
15.0
17.0 17.5/15
19.0
19.6
20.0
24.1
* CENVAT: 10.3 % + VAT;12.5 %
Source: KPMG

Classification
 Common across the country?
 Interpretations – how to ensure uniformity?

Valuation
 Tax base for both levels same ?
 Common across the country ?
 Interpretations – how to ensure uniformity?

MRP based and like – should continue ?

Interstate Transactions
 Intra-state and Inter-state Trade – avoid double and no taxation
 Goods
 Services
 Central Sales Tax Act – abolition or modification?

Central Sales Tax
25000
20000
15000
10000
5000
14284
17371
19345
0
2004-05 2005-06 (RE)
CST collection
Budgetary support of Rs 5495 crore
2006-07 (BE)
Source: State finance report from RBI website; Budget speech 2007-08

Proposed IGST Model
Manufacturer
(Maharashtra)
CGST +
SGST
Buyer
(Maharashtra)
IGST
Buyer
(Delhi)
Sale price
Add: CGST (10 percent)
Add: SGST (10 percent)
Total
100
10
10
120
Sale price
Add: IGST (20 percent)
Total
IGST payable (24-10-10)
120
24
144
4
IGST payable by utilising IGST,
CGST, SGST
27

Impact of taxing Inter-state stock transfers:
Illustration
Raw
Material
Pre – GST
Price Excis e
(10%)
VAT
(12.5%) /
CST
(2%)
55 Product
X (local)
Product Y
(interstate)
Total
400 40
400 40 8.8
800 80 63.8
Raw
Material
Post - GST
Pri ce
CGS
T
(10
%)
SG
ST
(10
%)
400 40 40 -
IGS
T
(20
%)
Product X
(local)
Product Y
(interstate)
Total
400 80
800 40 40 80
Company A manufactures Product P which is stock transferred at INR 1000
28

Input Tax Credit
 Comprehensive for each level
 Central to Central and State to State
 Restrictions and limitations – capital goods, consumables, promotional materials, fuel?
 Deemed sale transactions
 Interpretations – how to ensure uniformity ?

Proposed Credit utilisation under GST
Credit available for utilisation
IGST
Output Liability
IGST, CGST, SGST
CGST, IGST
CGST
SGST SGST, IGST

Basic Exemption
 Common or different?
 For goods and services
 For Central GST and State GST
 Between States
 Should apply on cumulative basis?

Others
 Incentive Schemes
 Records
 Advance Rulings
 Assessments / Audits
 Transition provisions ……
& More……

Other Issues
Taxable event – sale / supply (for inter-state) / raising of invoice
MRP scheme to be abolished
Impact on high seas sales, exemption to in-transit sales?
Job work – whether supply of ‘goods’ or ‘service’?
Job work arrangements - valuation, treatment of credit etc
Transition related matters – closing stock, accumulated credit
33

…formalization of EC...
… a possible solution ?

Road ahead – what businesses ought to do?

What this transition will entail
Changes in effective tax rates for supplies as well as purchases
Transactions/ Supplies which are currently exempt from tax may become liable to GST, and vice-versa
Input taxes which are currently a cost may be eligible as ‘credit’ in future
Special tax computation schemes, valuation provisions may be amended/ withdrawn
Supply chain : Tax cost on sourcing/ distribution/ logistics
Finance : Impact on cash flows, project costs
Marketing : Impact on product price, promotional schemes
IT : Invoicing, returns, MIS reports
36

Compute GST Liability
Import goods
100
Pur goods in
Maharashtra
Interstate
Purchase
60
40
Import - Tech services
50
Interstate Services 40
Domestic Services 10
Manufacturer-Maha
Assumptions
C-GST: 12 %
S-GST: 8 %
I-GST: 20 %
Sale in
Maharashtra
150
Stock transfer to
Gujarat
80
Sale to Rajasthan consumer
100
Sale to Madhya
Pradesh dealer
70

Basic Elements of GST
 GST is an indirect tax on consumption.
 GST (multi-stage) is contemplated to be charged and collected at each stage of the production / processing / trading, on the value addition of goods and services
 A dual GST is being proposed wherein a Central
Goods and Services Tax (CGST) and a State
Goods and Services Tax (SGST) will be levied on the taxable value of a transaction.
 Imports would be subject to GST.

Basic Elements of GST
 Exports would be zero-rated.
 GST must contemplate set-off of tax paid on inputs / capital goods and services.
 GST will require maintenance of accounts of tax paid on purchases and sales of goods and services.
 In a GST regime the tax component in any transaction is identifiable
/computable

VAT vs GST - Preamble
VAT / CST GST
 Governed under entry no. 54 of List II and entry no. 92A of the List
I to the Seventh
Schedule
 GST will be governed under List I of the
Seventh Schedule
 GST will be governed under List II of the
Seventh Schedule
Or
 Possible that both
CGST and SGST will be governed under List III of the Seventh
Schedule

VAT vs GST – Preamble
VAT / CST
 Article 286 lays down the principles for formulating the transactions relating to export / import / sale effected outside the
State
GST
 It appears that Article
286 may continue even under GST regime with certain modifications to include interstate movement of goods and principles relating to services


GST Preamble
Taxes most likely to be subsumed by GST
 Central Excise
 Service tax
 Additional duty of customs
 VAT
 Entry tax not in lieu of Octroi
 Luxury tax, Entertainment tax, Electricity taxes. Most of the Local laws, except stamp duty.
 State surcharges related to supply of goods and services
Customs duty will remain outside GST

VAT vs GST – Preamble

VAT / CST
Currently there are 29 State
VAT laws
GST
 It appears that even under GST regime there will be 29 SGST laws and one CGST law.
 CST law – applicable in case of inter-State transaction and subject to tax at the rate of 2%
(against C Form) or local rate (without C Form) as the case may be
 IGST law will be favoured in respect of inter-State movement of
Goods. The taxes charged under IGST could be available for set-off.

VAT vs GST - Preamble
VAT / CST


VAT is not adopted
 in its pure form

No set-off is allowed on central
 sales tax paid and other State levies such as luxury tax, entry tax etc
GST
Same will be the case even under GST regime
No set-off will be allowed under other State levies
It appears there will be certain restrictions in respect of allowing set-off of Central
GST against State GST or vice versa. Further Customs duty paid may not be allowed as set-off under State GST.

VAT vs GST - Preamble
VAT / Service Tax / Excise
 Under VAT law – Goods are listed for the purpose of levy of taxes
 Under Service Tax –
Taxable services are defined
 Under Excise Law –
Excisable Goods are listed for the purpose of levy of taxes
GST
 Under CGST / SGST –
- Goods will be listed for the purpose of levy of taxes.
This will be based on the
HSN classification
- Services will be defined as
– those which are not goods . The law will only list down the exempted services.

VAT vs GST - Registration
VAT/CST
 Registration mandatory if the total turnover is in excess of Rs. 2 lakhs (Rs. 1 lakh in certain cases).
 One registration number (TIN) applicable for VAT /
CST / KTEG / PT.

GST
Registration is mandatory under
- SGST –threshold limits will be in the range of Rs. 10 lakhs.
- CGST – threshold limits will be in the range of Rs. 10 lakhs
 Two registration numbers may be applicable – one for CGST based on PAN number and other for
SGST State wise which may include KTEG / PT

VAT vs GST - Transitional Provision
VAT / CST
 Transitional provisions – allowed to avail set-off only in respect of those purchases which are:

GST
Transitional provisions – Set-off may be allowed in the following manner:
- Excise duty / service tax (CENVAT credit) will be allowed only against Central GST;
- VAT will be allowed to be set-off only against State GST;
- effected within the
State;
- CST paid would not be entitled for set-off;
- effected within one year; and
Credits relatable to immediately preceding
6 months or 1 year and are lying in the stock / WIP in respect of goods. Services is an issue.
- Lying in the closing stock

VAT vs GST – Output tax / Output service
VAT


Applicable on sale of goods

 It is an origin based levy
The rate of tax followed by different

States are:
- 1%, 4%, 7.5%,8%,
12.5%, 20%, 2%, 5%,
15% etc
GST
Applicable on both goods and services
In respect of goods, the SGST levy will be origin based whereas in respect of service tax the levy will be consumption based.
The rate of tax that may be followed by different States are:
- Central GST - 8% to 10%, 0%, 1%,
4%, 20% and exempt
- State GST - 8% to 10%, 0%, 1%, 4%,
20% and exempt.

VAT vs GST – Output tax / Output service
VAT / CST
 Few commodities are subject to tax under the
KST law even after VAT is introduced.
GST
 It appears that KST /
VAT / CST law will continue parallelly even under the GST regime and may not be repealed till such time litigation concludes and time for revision exists.
 In respect of inter-State movement of goods
IGST will be introduced.

Integrated GST (IGST)

- The dealer is required to pay IGST.
- IGST will be administered by the Central
Government.
- The buyer will be entitled to avail IGST as credit and can claim set-off against only CGST or IGST

VAT vs GST – Output tax / Output service
VAT / CST
 The concept of
HSN classification is not followed in totality.

GST
It is widely expected that HSN system of classification will be implemented only in respect of
Goods but not in respect of services. Both Centre and State will list down the services which would be exempt.
 Tax will be levied on sale price
The same concept will be implemented wherein the taxes will be levied on sale price. However, in respect of services, valuation rules might be considered.

VAT vs GST – Output tax / Output service
VAT / CST
 Declared goods under the CST law is subject to tax at the rate of 4%

GST
The concept of declared goods may be continued even under the GST regime specifically under State GST
 Each State has the power to exempt few commodities
 Same may be continued even under the GST regime
 C Form / Form F / Form
H / Form I
 Similar statutory forms will be continued in order to have control over the movement of goods from one State to another State

VAT vs GST – Output tax / Output service
VAT / CST


Works contract is a complex issue and subject to tax only in of works contract. However, each
State may have its own method of respect of goods different chapter itself in respect levying taxes on works contract. sold.
GST
Possible that there will be a
A set-off valuation rules might be introduced in this regard.

 Same may not be continued under
Composition scheme is applicable
SGST law may have composition scheme for small dealers, subject for works contract the GST regime. However, each to threshold.

VAT vs GST – Input tax / CENVAT credit

VAT / CST
No set-off against
 inter-State purchases
GST
Set-off may be permissible in respect of inter-State purchase
– since the IGST payable in the buying State will be subject to e-clearing home mechanism.
 No set-off against duty paid under both

Central Excise and
Service Tax
Set-off may not be allowed in respect of customs duty under
SGST.
 No set-off against
Customs duty paid

VAT vs GST – Input tax / CENVAT credit
VAT / CST GST
 Partial rebating is allowed in respect of goods used for both taxable and exempted
 Partial rebating concept may be introduced even under the
GST regime. There will be different formulae one needs to adopt for CGST and SGST
 Stock transfer to a place outside the
State - not liable to tax but subject to input tax restriction
 Major issue under the GST law more specifically concerned with stock transfer of services.
It appears that there will not be any stock transfer concept under GST regime in respect of services.

VAT vs GST – Input tax / CENVAT credit

VAT / CST
Input tax credit in respect of specified capital goods is allowed immediately in few States.
GST
 IGST – set off may be allowed over a period of time;
SGST – May vary between the States
 Movement of capital goods from one State to another – input tax credit is allowed partially
 SGST – May be allowed partially and be subject to restrictions

VAT vs GST – General Exemption
VAT / CST
 Sale to SEZ unit /
International
Organization
 Based on white paper – around 50 commodities were identified for the purpose of exemption
GST
 Same will continue even under the GST regime
 Similarly, States may be empowered to exempt certain commodities. In other words, goods which are exempt from
State GST need not be exempted from IGST.

VAT vs GST - Administration
VAT / CST
 VAT / CST law – administered by one authority
 Clarification /
Notification issued by the authorities /
Government is applicable only in the
State
GST
 State GST will be administered by the
State and Central GST will be by the Union.
 Clarification /
Notification issued by the Union in respect of
Central GST may not hold good in the appropriate State and vice versa

VAT vs GST - Administration

VAT / CST
Assessee / Dealer is subject to various assessments, appeals etc.
 Few States have abolished Advancing
Ruling Authority

GST
Even under the GST regime, the dealer / assessee will have to undergo various assessments, appeals etc.
 Advance Ruling provision may be enacted subject to certain conditions. It appears that two authorities will be constituted.

VAT vs GST - Administration
VAT / CST
 In respect of inter-State transaction – CST law monitors the movement of goods and also the applicability of taxes

GST
There will be clearing housing mechanism which will be adopted in the GST regime for inter-
State transactions.
 Checkpost is established for monitoring the movement of goods within the State
 The concept of checkpost will be continued even under
GST regime

Presented By
61
CA Swatantra Singh, B.Com , FCA, MBA
Email ID: singh.swatantra@gmail.com
New Delhi , 9811322785, www.caindelhiindia.com, www.carajput.com