Unit I

Basic Tax And Duty

Basis of Tax Duty

Difference

Meaning A tax is a financial charge levied on Duty is a tax levied on goods

the income or profits of individuals and services produced within
and businesses by the government. or imported into a country.

Types Direct (income tax, wealth tax) and Customs duty and excise duty
indirect (VAT, GST)

Purpose Primarily to generate revenue for To regulate trade and protect

government expenditure domestic industries

Imposition Imposed on individuals and Imposed on specific goods and

businesses based on income or services produced or imported
consumption

Levied by Can be levied by local, state, or Mainly levied by the central

central government government

Impact Can affect income inequality and Affects prices and competition
economic behavior in the market

Scope Wide-ranging and applicable to all Limited to certain goods and

eligible taxpayers services

Calculation Based on a percentage of income or Typically a fixed amount per

value of goods and services quantity or a percentage of the
value

Change in Subject to change during annual Changes usually in response to

Rate budget reviews trade policies or international
agreements

Enforcement Collection enforced through income Collection enforced through

reporting and auditing customs checks and trade
regulation
 Differences Between Direct And Indirect Taxes

Context Direct Tax Indirect Tax

Meaning Paid directly to the government Paid to the government via intermediary

Levied on Profits and income Goods and services

End-consumers of products, goods and

Taxpayer Individuals, HUFs and businesses
services.

Directly depends on income and

Tax Rate Same for everyone
profits

Rate of tax is flat so tax burden is

Tax Burden Progressive
regressive

Transfer of
Not transferable Can be transferable
liability

Tax Collection Complex Quite convenient

Types Income Tax and STT Goods and Services Tax (GST)

Evasion Possible Not possible

 Taxation Powers of Union and States in India

Indian constitution has divided the taxing powers as well as the spending powers (and
responsibilities) between the Union and the state governments. The subjects on which Union or
State or both can levy taxes are defined in the 7th schedule of the constitution. Further, limited
financial powers have been given to the local governments also as per 73rd and 74th
amendments of the constitution and enshrined in Part IX and IX-A of the constitution.

Since the taxing abilities of the states are not necessarily commensurate with their spending
responsibilities, some of the centre’s revenues need to be assigned to the state governments. On
what basis this assignment should be made and on what guidelines the government should act –
the Constitution provides for the formation of a Finance Commission (FC) by President of India,
every five years, or any such earlier period which the President deems necessary via Article 280.
Based on the report of the Finance Commission, the central taxes are devolved to the state
governments.

Separation of Powers

The Union government is responsible for issues that usually concern the country as a whole, for
example national defence, foreign policy, railways, national highways, shipping, airways, post
and telegraphs, foreign trade and banking. The state governments are responsible for other items
including, law and order, agriculture, fisheries, water supply and irrigation, and public health.

Some items for which responsibility vests in both the Centre and the states include forests,
economic and social planning, education, trade unions and industrial disputes, price control and
electricity. Then, there is devolution of some powers to local governments at the city, town and
village levels.

The taxing powers of the central government encompass taxes on income (except agricultural
income), excise on goods produced (other than alcohol), customs duties, and inter-state sale of
goods. The state governments are vested with the power to tax agricultural income, land and
buildings, sale of goods (other than inter-state), and excise on alcohol. Local authorities such as
Panchayat and Municipality also have power to levy some minor taxes.

The authority to levy a tax is comes from the Constitution which allocates the power to levy
various taxes between the Centre and the State. An important restriction on this power is Article
265 of the Constitution which states that “No tax shall be levied or collected except by the
authority of law.” This means that no tax can be levied if it is not backed by a legislation passed
by either Parliament or the State Legislature.
 Sources of Revenue for Union Government

The sources of Revenue of the Union Government are as follows:

Income (except tax on agricultural income), Corporation Tax & Service Tax

Currency, Coinage, legal tender, Foreign Exchange

Custom duties (except export duties)

Excise on tobacco and other goods.

Estate Duty (except on agricultural goods) (Kindly note that its mentioned in the constitution but
Estate duty was abolished in India in 1985 by Rajiv Gandhi Government)

Fees related to any matter in Union list except Court Fee

Foreign Loans

Lotteries by Union as well as State Governments.

Post Office Savings bank, Posts, Telegraphs, Telephones, Wireless Broadcasting, other forms of
communication

Property of the Union

Public Debt of the Union

Railways

Stamp duty on negotiable instruments such as Bills of Exchange, Cheques, Promissory notes etc.

Reserve Bank of India

Capital gains taxes, Taxes on capital value of assets except farm land

Taxes other than stamp duties on transactions in stock exchanges and future markets

Taxes on the sale and purchase of newspapers and advertisements published therein.

Terminal Taxes on Goods and passengers, carried by Railways and sea or air.
 Sources of revenue for State Governments

The following are sources of revenue for State Governments.

Taxes and duties related to agricultural lands

Capitation Taxes

Excise on liquors, opium etc.

Fees on matters related to state list except court fee

Land Revenue, Land and buildings related taxes

Rates of Stamp duties in respect of documents other than those specified in the Union List

Taxes on mineral rights subject to limitations imposed by the parliament related to mineral
development

Taxes on the consumption or sale of electricity

Sales tax on goods (other than newspapers) for consumption and use within state.

Taxes on advertisements except newspaper ads.

Taxes on goods and passengers carried by road or on inland waterways

Taxes on vehicles, animals and boats, professions, trades, callings, employments, luxuries,
including the taxes on entertainments, amusements, betting and gambling.

Toll Taxes.

Different Types of Indirect Taxes in India

There are different types of indirect taxes in India. Listed below are some popular examples of
indirect taxes, explained in brief:

1. Service Tax

Service tax is applicable on the services provided by a company and paid by the recipient of their
services, collected by and deposited with the central government.
2. Value Added Tax

Value added Tax, popularly known as VAT, is levied on the sale of movable goods or goods sold
directly to the customers. VAT is exacted by the respective state governments on intra-state
sales.

3. Excise Duty

Excise duty is levied on the goods produced or manufactured in India, paid by the manufacturers
of different goods. Excise duty is often recovered from the customers.

4. Custom Duty

Custom duty is applicable on the goods which are imported into India from other countries. In
some cases, it is also levied on the goods being transported out of India.

5. Entertainment Tax

Entertainment tax is levied on all financial transactions related to entertainment such as movie
shows, amusement parks, video games, arcades, and sports activities, and is charged by the
respective state governments.

6. Stamp Duty

Stamp duty is levied on the transfer of immovable property located within the state, and is
charged by the State Government and may vary in rates. It is also applicable on all legal
documents.

7. Securities Transaction Tax

Securities Transaction Tax is levied at the time of trade of securities through Indian Stock
Exchange.
 Unit II

1. What is GST in India?

GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many
indirect taxes in India such as the excise duty, VAT, services tax, etc. The Goods and Service
Tax Act was passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.

In other words,Goods and Service Tax (GST) is levied on the supply of goods and services.
Goods and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that
is levied on every value addition. GST is a single domestic indirect tax law for the entire country.

Before the Goods and Services Tax could be introduced, the structure of indirect tax levy in
India was as follows:

Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales,
Central GST and State GST are charged. All the inter-state sales are chargeable to the Integrated
GST.

Now, let us understand the definition of Goods and Service Tax, as mentioned above, in detail.

Multi-stage

An item goes through multiple change-of-hands along its supply chain: Starting from
manufacture until the final sale to the consumer.

Let us consider the following stages:

Purchase of raw materials

Production or manufacture

Warehousing of finished goods

Selling to wholesalers

Sale of the product to the retailers

Selling to the end consumers

The Goods and Services Tax is levied on each of these stages making it a multi-stage tax.

Value Addition

A manufacturer who makes biscuits buys flour, sugar and other material. The value of the inputs
increases when the sugar and flour are mixed and baked into biscuits.

The manufacturer then sells these biscuits to the warehousing agent who packs large quantities of
biscuits in cartons and labels it. This is another addition of value to the biscuits. After this, the
warehousing agent sells it to the retailer.

The retailer packages the biscuits in smaller quantities and invests in the marketing of the
biscuits, thus increasing its value. GST is levied on these value additions, i.e. the monetary value
added at each stage to achieve the final sale to the end customer.

Destination-Based

Consider goods manufactured in Maharashtra and sold to the final consumer in Karnataka. Since
the Goods and Service Tax is levied at the point of consumption, the entire tax revenue will go to
Karnataka and not Maharashtra.

2. The Journey of GST in India

The GST journey began in the year 2000 when a committee was set up to draft law. It took 17
years from then for the Law to evolve. In 2017, the GST Bill was passed in the Lok Sabha and
Rajya Sabha. On 1st July 2017, the GST Law came into force.

3. Objectives Of GST
To achieve the ideology of ‘One Nation, One Tax’

GST has replaced multiple indirect taxes, which were existing under the previous tax regime.
The advantage of having one single tax means every state follows the same rate for a particular
product or service. Tax administration is easier with the Central Government deciding the rates
and policies. Common laws can be introduced, such as e-way bills for goods transport and e-
invoicing for transaction reporting. Tax compliance is also better as taxpayers are not bogged
down with multiple return forms and deadlines. Overall, it’s a unified system of indirect tax
compliance.

To subsume a majority of the indirect taxes in India

India had several erstwhile indirect taxes such as service tax, Value Added Tax (VAT), Central
Excise, etc., which used to be levied at multiple supply chain stages. Some taxes were governed
by the states and some by the Centre. There was no unified and centralised tax on both goods and
services. Hence, GST was introduced. Under GST, all the major indirect taxes were subsumed
into one. It has greatly reduced the compliance burden on taxpayers and eased tax administration
for the government.

To eliminate the cascading effect of taxes

One of the primary objectives of GST was to remove the cascading effect of taxes. Previously,
due to different indirect tax laws, taxpayers could not set off the tax credits of one tax against the
other. For example, the excise duties paid during manufacture could not be set off against the
VAT payable during the sale. This led to a cascading effect of taxes. Under GST, the tax levy is
only on the net value added at each stage of the supply chain. This has helped eliminate the
cascading effect of taxes and contributed to the seamless flow of input tax credits across both
goods and services.

To curb tax evasion

GST laws in India are far more stringent compared to any of the erstwhile indirect tax laws.
Under GST, taxpayers can claim an input tax credit only on invoices uploaded by their respective
suppliers. This way, the chances of claiming input tax credits on fake invoices are minimal. The
introduction of e-invoicing has further reinforced this objective. Also, due to GST being a
nationwide tax and having a centralised surveillance system, the clampdown on defaulters is
quicker and far more efficient. Hence, GST has curbed tax evasion and minimised tax fraud from
taking place to a large extent.
To increase the taxpayer base

GST has helped in widening the tax base in India. Previously, each of the tax laws had a different
threshold limit for registration based on turnover. As GST is a consolidated tax levied on both
goods and services both, it has increased tax-registered businesses. Besides, the stricter laws
surrounding input tax credits have helped bring certain unorganised sectors under the tax net. For
example, the construction industry in India.

Online procedures for ease of doing business

Previously, taxpayers faced a lot of hardships dealing with different tax authorities under each
tax law. Besides, while return filing was online, most of the assessment and refund procedures
took place offline. Now, GST procedures are carried out almost entirely online. Everything is
done with a click of a button, from registration to return filing to refunds to e-way bill
generation. It has contributed to the overall ease of doing business in India and simplified
taxpayer compliance to a massive extent. The government also plans to introduce a centralised
portal soon for all indirect tax compliance such as e-invoicing, e-way bills and GST return filing.

An improved logistics and distribution system

A single indirect tax system reduces the need for multiple documentation for the supply of
goods. GST minimises transportation cycle times, improves supply chain and turnaround time,
and leads to warehouse consolidation, among other benefits. With the e-way bill system under
GST, the removal of interstate checkpoints is most beneficial to the sector in improving transit
and destination efficiency. Ultimately, it helps in cutting down the high logistics and
warehousing costs.

To promote competitive pricing and increase consumption

Introducing GST has also led to an increase in consumption and indirect tax revenues. Due to the
cascading effect of taxes under the previous regime, the prices of goods in India were higher than
in global markets. Even between states, the lower VAT rates in certain states led to an imbalance
of purchases in these states. Having uniform GST rates have contributed to overall competitive
pricing across India and on the global front. This has hence increased consumption and led to
higher revenues, which has been another important objective achieved.
 Taxes in the pre-GST era

Just as today, there were two main types of taxes in the pre-GST era as well – Direct Tax and
Indirect Tax. And there is litigation for all types of taxes.

Direct Tax: Direct Tax is a type of tax that is paid directly to the government by an individual or
institution. In other words, the taxpayer cannot shift the direct taxes to another party whatsoever.
Direct taxation consisted of:

Income Tax

Indirect Tax: Indirect Tax is a type of tax which is levied on goods and services. The
manufacturer, service provider, vendor, etc., have a direct obligation to pay indirect tax.
Consumers eventually shoulder the burden. Indirect taxation was further divided into several
taxes which are as follows:

Sales tax

Value-added tax (VAT)

Excise tax

Customs Duty

Service tax

Reasons for Pre-GST Litigation

Disputes, disagreements, frauds and illegal dealings in the pre-GST and even GST regime are
quite common. The number of companies, transactions and people involved in these transactions
are responsible for disputes and disagreements. Since there were multiple tax heads, it was
difficult to keep track of them all. Several litigation cases are a result of tax audits by officials
while some are due to appeals made by the business owners or taxpayers. Tax disputes that get
started by the tax authorities on tenuous legal grounds, engage the taxpayer in a drawn-out legal
battle until the High Court or Supreme Court can grant relief.

What is Pre-GST Litigation?

Pre-GST litigation comes under the indirect tax litigation category. Litigation and cases that are
continuing from the pre-GST regime prior to July 2017 are all grouped under Pre-GST litigation.
Cases related to Excise, Sales tax, VAT etc. are covered under this litigation system.
Why handling pre-GST litigation is difficult?

There are several reasons why handling pre-GST litigation is considered tedious. Listing down a
few reasons below:

1. Manual work/documentation: A lot of the legal data is made and stored manually even today.
It is laborious to handle important documents that were paper based with no digital copies from
the pre-GST era.
2. Misplaced documents: Certain documentation and paperwork from the pre-GST era is not
even available today making it strenuous for taxpayers as well as the authorities.
3. Old data/circulars: Old notifications and circulars from the government are arduous to look for
and use in the current taxation system. Also, tax rules have changed a lot over the years.
4. Authorities change: Several authorities, tax officials, and court judges have retired, transferred
or changed over the course of time. Present-day GST litigation cases are on the rise too thus
handling pre-GST litigation with new officials who may or may not be well-versed with previous
laws can also slow down the process.
5. Current GST and Tax Rules are completely different: After the implementation of GST laws
and one nation one tax rule for businesses, the Indian judicatory laws have also completely
changed. Different taxation has different rules and methodologies that are supposed to be
followed.
Delayed processing because of pending cases: The number of pending taxation cases in India is
in lakhs and it is expected to increase even further while the courts and officials handling the
cases are limited.

Dealing with Pre-GST Litigation

Businesses find it difficult to manage the documentation and processes from the pre-GST regime
due to the long proceedings. Since the regime has changed and GST is an evolving law, the
return filing and processes are all extremely different. In GST there is only one tax however, in
the Pre-GST regime, there were multiple different taxes with different proceedings for each.

Introduction of the GST Amnesty Scheme to Resolve Pre-GST Litigation

In order to put to rest the age-old Pre-GST Litigation, the Maharashtra Government introduced
an Amnesty Scheme. The scheme has been devised to settle all open tax disputes related to the
pre-GST era. It was introduced by passing an ordinance, namely, Maharashtra Settlement of
Arrears of Tax, Interest, Penalty or Late Fee Ordinance, 2019.

The amnesty scheme allows for the settlement of Pre-GST tax disputes by way of waiver of a
certain percentage of Tax demand, Interest and penalty in relation to these tax disputes.

Later, a lot of states introduced the GST Amnesty Scheme and settled the pre-GST Litigation
issues faced by the business community.
Managing the litigation for the pre-GST taxation system can be even more challenging. Taking
care of the due dates, managing documentation, preparing reports etc. in excel can be strenuous.

So, it is the need of the hour that businesses opt for a smart litigation management software to
manage their cases pertaining to Pre-GST litigation and GST litigation in general.

Transitional Provision

Transitional arrangements for input tax Section 140 of the CGST Act 2017 (and SGST
Acts/UTGST Acts) enables the taxpayers to carry forward the Input Tax Credit (ITC) earned
under the existing laws to the GST regime. The section, read with Rule 117 of CGST Rules
2017, prescribes elaborate procedures in this regard. Under transitional arrangements for ITC,
the ITC of various taxes paid under the existing lawssuch as Central Value Added Tax
(CENVAT credit), State Value Added Tax (VAT) etc. are eligible to be carried forward into
GST under the relevant sub-sections of Section 140 of the Act. The claims are to be preferred in
the appropriate tables mentioned below, in two forms –Tran 1 and Tran 2.

Table 6.1: Forms and Tables prescribed for claiming Transitional credit Form Table No
Transitional credit component

Tran 1 5(a) Closing balance of credit from the last legacy returns

Tran 1 6(a) Un-availed credit on capital goods

Tran 1 7(a)A Credit on duty paid stock with invoices

Tran 1 7(a)B Credit on duty paid stock without invoices

Tran 1 7(b) Credit on Inputs/input services in transit

Tran 1 8 Transfer of credit by centrally registered units

Tran 1 11 Credit in respect of tax paid before the appointed day (01 July 2017) and supply made
after the appointed day

Tran 2 4 Credit afforded on stocks claimed without invoices All registered taxpayers, except
those opting for payment of tax under composition scheme (under section 10 of the Act), are
eligible to claim transitional credit by filing

Tran 1 return within 90 days from the appointed day. The time limit for filing

Tran 1 return was extended initially till 27th December 2017. However, considering that many
taxpayers could not file the return within the date due to technical difficulties, sub-rule 1A was
inserted under Rule 117 of CGST Rules, 2017 139 to accommodate such taxpayers. The due date
for filing

Tran 1 was further extended to 31st March 2020140 for those taxpayers who could not file

Tran 1 due to technical difficulties and those cases recommended by the GST Council.

Meaning of GST

The full form of GST is Goods and Services Tax.

Before learning more about Goods and Sevice Tax, let’s try to understand how taxes in India
work. The Government of any country needs money for its functioning and taxes are a major
source of revenue for a Government. Thus, the taxes collected are spent by the Government for
the public.

Introduction Of Gst Concept

It reduced tax evasion and also helped in lowering gaps

One country, one tax, one market

It increases productivity

It eliminates cascading effect of multiple taxes

GST subsume all the indirect tax at the centre and state level

It is the most straightforward tax system

It makes the taxation system more transparent

It increases compliance and due diligence

Significance of GST

Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and
services in India. Here are some of the salient features of GST:

One Nation, One Tax: GST replaced multiple indirect taxes levied by the Central and State
Governments, such as excise duty, service tax, value-added tax (VAT), and others. It brought
uniformity in the tax structure across India, eliminating the cascading effect of taxes.

Dual Structure: GST operates under a dual structure, comprising the Central GST (CGST) levied
by the Central Government and the State GST (SGST) levied by the State Governments. In the
case of Inter-state transactions, Integrated GST (IGST) is applicable, which is collected by the
Central Government and apportioned to the respective State. Import of goods or services would
be treated as inter-state supplies and would be subject to IGST in addition to the applicable
customs duties.

Destination-based Tax: GST is a destination-based tax, levied at each stage of the supply chain,
from the manufacturer to the consumer. It is applied to the value addition at each stage, allowing
for the seamless flow of credits and reducing the tax burden on the end consumer.

Input Tax Credit (ITC): GST allows for the utilization of input tax credit, wherein businesses can
claim credit for the tax paid on inputs used in the production or provision of goods and services.
This helps avoid double taxation and reduces the overall tax liability.

GST would apply on all goods and services except Alcohol for human consumption. GST on five
specified petroleum products (Crude, Petrol, Diesel, ATF & Natural Gas) would by applicable
from a date to be recommended by the GSTC. 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. Exports are zero-rated supplies. Thus, goods or services that are exported would not
suffer input taxes or taxes on finished products.

Threshold Exemption: Small businesses with a turnover below a specified threshold (currently,
the threshold is ₹ 20 lakhs for supplier of services/both goods & services and ₹ 40 lakhs for
supplier of goods (Intra–Sate) in India) are exempt from GST. For some special category states,
the threshold varies between ₹ 10-20 lakhs for suppliers of goods and/or services except for
Jammu & Kashmir, Himachal Pradesh and Assam where the threshold is ₹ 20 lakhs for supplier
of services/both goods & services and ₹ 40 lakhs for supplier of goods (Intra–Sate). This
threshold helps in reducing the compliance burden on small-scale businesses.

Composition Scheme: The composition scheme is available for small taxpayers with a turnover
below a prescribed limit (currently ₹ 1.5 crores and ₹ 75 lakhs for special category state). Under
this scheme, businesses are required to pay a fixed percentage of their turnover as GST and have
simplified compliance requirements.

Online Compliance: GST introduced an online portal, the Goods and Services Tax Network
(GSTN), for registration, filing of returns, payment of taxes, and other compliance-related
activities. It streamlined the process and made it easier for taxpayers to fulfill their obligations.

Anti-Profiteering Measures: To ensure that the benefits of GST are passed on to the consumers,
the government established the National Anti-Profiteering Authority (NAA). The NAA
monitored and ensured that businesses do not engage in unfair pricing practices and profiteering
due to the implementation of GST. All GST anti-profiteering complaints are now dealt by the
Competition Commission of India (CCI) from 1st December, 2022.
Increased Compliance and Transparency: GST aims to enhance tax compliance by bringing more
businesses into the formal economy. The transparent nature of the tax system, with the
digitization of processes and electronic records, helps in curbing tax evasion and increasing
transparency.

Sector-specific Exemptions: Certain sectors, such as healthcare, education, and basic necessities
like food grains, are given either exempted from GST or have reduced tax rates to ensure
affordability and accessibility.

Accounts would be settled periodically between the Centre and the States to ensure that the
credit of SGST used for payment of IGST is transferred by the Exporting State to the Centre.
Similarly, IGST used for payment of SGST would be transferred by the Centre to the Importing
State. Further, the SGST portion of IGST collected on B2C supplies would also be transferred by
the Centre to the destination State. The transfer of funds would be carried out on the basis of
information contained in the returns filed by the taxpayers.

What is Dual GST Model in India?

Dual GST model or dual GST structure is a simple tax with two different taxation components.
Central Goods and Service Tax (CGST) and the State Goods and Service Tax (SGST) are the tax
components that can be levied on a single transaction in India within a state on account of its
federal nature.

Moreover, both governments have been assigned distinct responsibilities, as prescribed under the
division of powers statute of the Constitution. Overall, a dual GST structure is designed to align
with the Constitutional requirements of fiscal federalism.

Features of the Dual GST Model

a) The GST or Goods and Service Tax has two components – one levied by the central
government (referred to as Central GST or CGST), and the other collected by the State
governments (referred to as State GST or SGST)
b) Both CGST and SGST apply to all transactions pertaining to goods and services
c) Both CGST and SGST are paid to the respective accounts of the Central and the States
governments individually
d) CSGT and SGST are treated individually, implying that the taxes paid against the CGST are
allowed to be considered as Input Tax Credit (or ITC)
e) Cross utilization of the Input Tax Credit between CGST and SGST is not permitted, except for
the inter-state supply of goods and services
f) Credit accumulation based on the GST refund is to be avoided by both the Central and State
governments except in the case of exports, input tax at a higher rate than output tax, and
purchase of capital goods, among others
g) There is a uniform procedure for collection of both CGST and SGST, as prescribed in their
respective legislation
h) The composition or compounding scheme for GST has an upper ceiling and a floor tax rate
concerning the gross annual turnover
i) As a taxpayer, you must submit periodic returns, in a standard format, to both the CGST and
SGST authorities
j) Each taxpayer is allotted a 14-15 digit PAN-linked taxpayer identification number

Benefits of Dual GST

The Dual GST structure is a transparent and straightforward tax model with a pre-defined set of
CGST and SGST rates. The benefits of having a dual GST structure include –

a) Reduction in the total number of taxes levied by the Central and State governments
b) A decrease in the effective tax rate for different goods
c) Elimination of the existing cascading effect of taxes
d) Reduction of the taxpayer’s transaction costs through simplified tax compliance
e) Increased tax collections based on a broader tax base and improved compliance

Impact and Implications of Dual GST Model

The dual GST model has been a replacement for the overly complicated tax structure that existed
before. So, the biggest beneficiaries of the new system have been the merchants and businesses
who had to track, record, collect and file multitudes of taxes every month.

Another area of improvement, which was also a goal of the new GST Model, was the rate of
final goods and services to the consumer. The Dual GST model aims to eliminate the cascading
effect of indirect taxation on the final goods and services. Thus, if the benefits of lower taxes
pass on to the consumers, they should experience lower prices.

Since dual GST means both State and Central Governments can impose and collect taxes, there
is a possibility of dispute. The GST Council is expected to draw the guidelines for resolving such
disputes.

Ultimately, the dual GST model should benefit the taxpayers and consumers the most. It is
simpler to follow and provides easier tax filing methods, which small business owners can easily
manage.
 GST Common portal

Enrollment in GST common portal

Enrolment Activities Post Appointed Date

Enrollment in GST common portal

Enrolment under GST means validating the data of existing taxpayers and filling up the
remaining key fields by the taxpayer in the Enrolment Application at the GST Common Portal.

Is there a fee or charge levied for the enrolment under GST?

No. There is no fee or charge levied for the enrolment of a taxpayer under GST.

When do I need to enrol with the GST Common Portal?

The enrolment process is common for all taxpayers registered under Centre, State or Union
Territory Tax Acts. The State VAT and Central Excise registered taxpayers enrollment has
commenced from October, 2016 on the GST Common Portal. Enrolment is being taken up in a
staggered manner. Click here for Enrolment Schedule for your state

Which information and documents are required to enrol with GST?

Before enrolling with the GST Common Portal, you must ensure to have the following
information:

Provisional ID received from State/ Central Authorities

Password received from the State/ Central Authorities

Valid E-mail Address

Valid Mobile Number

Bank Account Number

Bank IFSC

Enrolment Activities Post Appointed Date

How can I check the status of my Registration Application on the GST Common Portal?

To check the registration status, users can visit the https://services.gst.gov.in/services/check-

registration-status.

Can the Enrolment Application of a taxpayer get rejected?

Yes, the Enrolment Application for enrolment under GST can be rejected in case incorrect
details have been furnished or uploaded fake or incorrect documents have been attached with the
Enrolment Application and the application is electronically signed. However, the applicant
taxpayer will be provided reasonable opportunity of being heard where applicant taxpayer can
present his or her viewpoints.

Can amendments be made after the enrolment application is submitted?

Yes, the Enrolment Application can be amended after the appointed date.

Can the mobile number and e-mail address given at the time of enrolment be changed after
enrolment?

Yes, the mobile number and e-mail address can be changed after the appointed date on following
the amendment process.

When will Provisional Registration Certificate be issued?

The Provisional Registration Certificate will be available for viewing and download at the
Dashboard of the GST Common Portal on the appointed date. The certificate will be available
only if the Registration Application was submitted successfully.

5. When will Final Registration Certificate be issued?

The final Registration Certificate will be issued within 6 months of verification of documents by
authorized Center/ State officials of the concerned Jurisdiction (s) after the appointed date.

Taxes & Duties not subsumed in GST

In India, The Goods and Services Tax (GST) is an indirect tax that has supplanted many taxes
and levies. The GST regime has significantly changed the taxation system, simplifying the
taxation process and reducing the burden of multiple taxes. However, many taxpayers still need
clarification about which taxes have been subsumed under the GST regime. Let's have a closer
look at this.

What are the taxes subsumed in GST?

The taxes subsumed in GST are:

Central Excise Duty

Additional Excise Duty

Service Tax
Additional Custom Duty (Countervailing Duty)

Special Additional Duty of Customs (SAD)

Value Added Tax (VAT)

Central Sales Tax (CST)

Entry Tax

Luxury Tax

Entertainment Tax

Taxes on Lottery, Betting and Gambling

Octroi and Purchase Tax

Conclusion

GST has revolutionised the Indian tax system by subsuming multiple indirect taxes, making it
more straightforward and transparent. Understanding the taxes subsumed in GST is essential for
taxpayers to comply with the law and avoid penalties. The taxes subsumed in GST include
Central Excise Duty, Service Tax, VAT, and several other taxes. However, direct taxes such as
income tax, customs duty on imports and taxes on petroleum products are not subsumed in GST.

Frequently Asked Questions

1. What are the Indirect Taxes that have been subsumed in GST?

In India, the following indirect taxes have been merged into the Goods and Services Tax (GST):

Central Excise Duty

Service Tax

Additional Excise Duty

Additional Custom Duty

Value Added Tax (VAT)

Central Sales Tax

Entertainment Tax

Octroi and Entry Tax

Purchase Tax

Luxury Tax

Any other taxes, levies or duties that the central government or state Governments earlier levied
on the supply of goods and services.

2. Which two taxes are not subsumed in GST?

The two taxes that are not subsumed in the GST in India are:

Basic Customs Duty (BCD): Basic Customs Duty is a tax levied on goods imported into India. It
is outside the purview of GST and continues to be levied as a separate tax.

Petroleum Products: Petroleum products such as petrol, diesel, crude oil, aviation turbine fuel,
and natural gas are not under the GST regime. These products continue to be taxed under the
previous tax system, I.e. excise duty, VAT, and other state taxes. The Indian government is still
considering including petroleum items under the GST regime.

GST Rates and Structures in India

The primary GST slabs for regular taxpayers are currently 0% (nil-rated), 5%, 12%, 18%, and
28%. There are a few GST rates that are less commonly used, such as 3% and 0.25%.

Furthermore, the taxable composition persons are required to pay General Service Tax at lower
or nominal rates such as 1.5%, 5%, or 6% on their turnover. TDS and TCS are also concepts
under GST, with rates of 2% and 1%, respectively.

These are the total IGST rates for interstate supplies or the sum of CGST and SGST for intrastate
supplies. To calculate the GST amounts on a tax invoice, multiply the GST rates by the
assessable value of the supply.

Furthermore, in addition to the above GST rates, the GST law imposes a cess on the sale of
certain items such as cigarettes, tobacco, aerated water, gasoline, and motor vehicles, with rates
ranging from 1% to 204%.

Products Tax Rates

Milk 0%
Eggs 0%

Curd 0%

Lassi 0%

Kajal 0%

Educations Services 0%

Health Services 0%

Children's Drawing & Coloring Books 0%

Unpacked Foodgrains 0%

Unpacked Paneer 0%

Gur 0%

Unbranded Natural Honey 0%

Fresh Vegetables 0%

Salt 0%

Unbranded Atta 0%

Unbranded Maida 0%
Besan 0%

Prasad 0%

Palmyra Jaggery 0%

Phool Bhari Jhadoo 0%

Products Tax Rates

Sugar 5%

Tea 5%

Packed Paneer 5%

Coal 5%

Edible Oils 5%

Raisin 5%

Domestic LPG 5%

Roasted Coffee Beans 5%

PDS Kerosene 5%
Skimmed Milk Powder 5%

Cashew Nuts 5%

Footwear (< Rs.500) 5%

Milk Food for Babies 5%

Apparels (< Rs.1000) 5%

Fabric 5%

Coir Mats, Matting & Floor Covering 5%

Spices 5%

Agarbatti 5%

Coal 5%

Mishti/Mithai (Indian Sweets) 5%

Life-saving drugs 5%

Coffee (except instant) 5%

Products Tax Rates

Butter 12%

Ghee 12%

Computers 12%

Processed food 12%

Almonds 12%

Mobiles 12%

Fruit Juice 12%

Preparations of Vegetables, Nuts Fruits, or other parts 12%

Packed Coconut Water 12%

Umbrella 12%

Products Tax Rates

Hair Oil 18%

Capital goods 18%

Toothpaste 18%
Industrial Intermediaries 18%

Soap 18%

Ice-cream 18%

Pasta 18%

Toiletries 18%

Corn Flakes 18%

Soups 18%

Computers 18%

Printers 18%

Products Tax Rates

Small cars (+1% or 3% cess) 28%

High-end motorcycles (+15% cess) 28%

Consumer durables such as AC and fridge 28%

Beedis are NOT included here 28%

Luxury & sin items like BMWs, cigarettes 28%

and aerated drinks (+15% cess) 28%

Unit III

What is GST Registration?

If the turnover of any business exceeds the threshold limit of Rs.40 lakh, Rs.20 lakh, or Rs.10
lakh, then the business owner must register himself as a normal taxable person under Goods and
Services Tax (GST), which is known as GST registration.

GST registration is mandatory for certain businesses, and it will be considered an offence if an
organisation carries out business without GST registration.

Different Types of GST Registration

Under the GST Act, GST Registration can be of various types. You must be aware of the
different types of GST Registration before selecting the appropriate one. The different types of
GST Registration are:

Normal Taxpayer

Most businesses in India fall under this category. You need not provide any deposit to become a
normal taxpayer. There is also no expiry date for taxpayers who fall under this category.

Casual Taxable Person

Individuals who wish to set up a seasonal shop or stall can opt for this category. You must
deposit an advance amount that is equal to the expected GST liability during the time the stall or
seasonal shop is operational.

The duration of the GST Registration under this category is 3 months and it can be extended or
renewed.

Composition Taxpayer
Apply for this if you wish to obtain the GST Composition Scheme. You will have to deposit a
flat under this category. The Input tax credit cannot be obtained under this category.

Non-Resident Taxable Person

If you live outside India, but supply goods to individuals who stay in India, opt for this type of
GST Registration. Similar to the Casual Taxable Person type, you must pay a deposit equal to the
expected GST liability during the time the GST registration is active.

The duration for this type of GST registration is usually 3 months, but it can be extended or
renewed at the type of expiry.

What is a GST Return?

A GST return is a document containing details of all income/sales and/or expenses/purchases

that a GST-registered taxpayer (every GSTIN) is required to file with the tax administrative
authorities. This is used by tax authorities to calculate net tax liability.

Under GST, a registered dealer has to file GST returns that broadly include:

Purchases

Sales

Output GST (On sales)

Input tax credit (GST paid on purchases)

Who should file GST Returns?

Under the GST regime, regular businesses having more than Rs.5 crore as annual aggregate
turnover (and taxpayers who have not opted for the QRMP scheme) have to file two monthly
returns and one annual return. This amounts to 25 returns each year.

Taxpayers with a turnover of up to Rs.5 crore have the option to file returns under the QRMP
scheme. The number of GSTR filings for QRMP filers is 9 each year, which include 4 GSTR-1
and GSTR-3B returns each and an annual return. Note that QRMP filers have to pay tax on a
monthly basis even though they are filing returns quarterly.

There are also separate statements/returns required to be filed in special cases such
as composition dealers where the number of GSTR filings is 5 each year (4 statement-cum-
challans in CMP-08 and 1 annual return GSTR-4).
How many returns are there under GST?

There are 13 returns under GST. They are the GSTR-1, GSTR-3B, GSTR-4, GSTR-5, GSTR-
5A, GSTR-6, GSTR-7, GSTR-8, GSTR-9, GSTR-10, GSTR-11, CMP-08, and ITC-04.
However, all returns do not apply to all taxpayers. Taxpayers file returns based on the type of
taxpayer/type of registration obtained.

Eligible taxpayers, i.e. with a turnover exceeding Rs.5 crore are also required to also file a self-
certified reconciliation statement in Form GSTR-9C.

Besides the GST returns that are required to be filed, there are statements of input tax credit
available to taxpayers, namely GSTR-2A (dynamic) and GSTR-2B (static). There is also an
Invoice Furnishing Facility (IFF) available to small taxpayers who are registered under the
QRMP scheme to furnish their Business to Business (B2B) sales for the first two months of the
quarter. These small taxpayers will still need to pay taxes on a monthly basis using Form PMT-
06.

We have explained the various GST returns, along with applicability and due dates in the section
below.

What are the different types of GST returns and the due dates to file them?

Here is a list of all the returns to be filed as prescribed under the GST Law along with the due
dates.

Return Form Description Frequency Due Date

Monthly 11th of the next month.

Details of outward supplies of
GSTR-1 taxable goods and/or services Quarterly (If opted
affected. 13th of the month
under the QRMP
succeeding the quarter.
scheme)

IFF (Optional
Details of B2B supplies of Monthly (for the
by taxpayers
taxable goods and/or services first two months of 13th of the next month.
under the
affected. the quarter)
QRMP scheme)

GSTR-3B Summary return of outward Monthly 20th of the next month.

Return Form Description Frequency Due Date

supplies and input tax credit Quarterly (For 22nd or 24th of the
claimed, along with payment of taxpayers under the month succeeding the
tax by the taxpayer. QRMP scheme) quarter***

Statement-cum-challan to make
a tax payment by a taxpayer
18th of the month
CMP-08 registered under the Quarterly
succeeding the quarter.
composition scheme under
Section 10 of the CGST Act.

Return for a taxpayer registered

30th of the month
under the composition scheme
GSTR-4 Annually succeeding a financial
under Section 10 of the CGST
year.
Act.

20th of the next month.

Return to be filed by a non- (Amended to 13th by
GSTR-5 Monthly
resident taxable person. Budget 2022; yet to be
notified by CBIC.)

Return to be filed by non-

GSTR-5A resident OIDAR service Monthly 20th of the next month.
providers.

Return for an input service

distributor to distribute the
GSTR-6 Monthly 13th of the next month.
eligible input tax credit to its
branches.

Return to be filed by registered

GSTR-7 persons deducting tax at source Monthly 10th of the next month.
(TDS).
Return Form Description Frequency Due Date

Return to be filed by e-
commerce operators containing
GSTR-8 details of supplies effected and Monthly 10th of the next month.
the amount of tax collected at
source by them.

Annual return by a regular 31st December of the

GSTR-9 Annually
taxpayer. next financial year.

Self-certified reconciliation 31st December of the

GSTR-9C Annually
statement. next financial year.

Within three months of

Once, when the
Final return to be filed by a the date of cancellation
GST registration is
GSTR-10 taxpayer whose GST or date of cancellation
cancelled or
registration is cancelled. order, whichever is
surrendered.
later.

Details of inward supplies to be 28th of the month

GSTR-11 furnished by a person having Monthly following the month for
UIN and claiming a refund which statement is filed.

25th April where

AATO is up to Rs.5
Annually crore.
(for AATO up to
Statement to be filed by a Rs.5 crore)
principal/job-worker about
ITC-04
details of goods sent to/received 25th October and 25th
from a job-worker Half-yearly April where AATO
(for AATO > Rs.5 exceeds Rs.5 crore.
crore)
(AATO = Annual
aggregate turnover)
GSTN

GSTN stands for Goods and Service Tax Network, is a non-profit non-government company.

It provides shared IT infrastructure and service to both central and state governments including
taxpayers and other stakeholders. The registration Front end services, Returns, and payments to
all taxpayers will be provided by GSTN. In a nutshell, it will act as the interface between the
government and the taxpayers.

Structure of GSTN

The GST System Project is one of a kind and complex IT initiative. What makes it unique is the
way it seeks, for the first time to establish a uniform interface for the taxpayer and a common
and shared IT infrastructure between the Centre and States.

Talking about the structure of it, private players have a 51% share in the GSTN, and the
remaining is owned by the government. The authorized capital of the GSTN is Rs. 10 crores
(US$1.6 million), out of which the percentage divided equally between the Central and State
governments is 49%, and the remaining is with private banks.

Furthermore, the GSTN has also been approved for a non-recurring grant of Rs. 315 crores. This
vast and complex technological backend development was taken by Infosys in September 2015.

The GSTN is headed by Dr. Ajay Bhushan Pandey (Chairman), an Indian Administrative Service
servant (1984 batch IAS), along with the CEO of GSTN, Shri Prakash Kumar.

Services of the GSTN

Below listed are the prominent features of GSTN that can assist to understand what is gst
network-

National Information Utility

The GST Network has been considered to be a trusted National Information Utility(NIU). What
this means primarily is that the network is in charge of providing reliable, strong as well as,
seamless IT infrastructure and information passing.

GSTN Ownership

It is partially owned by the Central Government (49%) and the rest by private players (51%)
which includes Banks and Financial Institutions

Robust Infrastructure and Complex Operations

The basic function of GSTN is to help taxpayers to register themselves, make tax payments, and
claim GST returns to generate business analytics among others. Furthermore, the network is also
responsible for calculating and settling the Integrated GST (IGST) along with the Input Tax
Credit (ITC). The GSTN thus focuses to provide holistic solutions to difficult and exhaustive
taxation solutions

Information Security

A major share of the GST network is owned by the central government as compared to any other
individual player. Hence the major chunk of the responsibility for confidentiality as well as the
security of the information provided by the taxpayers.

The central government will handle the composition of the board, special resolutions mechanism,
shareholder’s agreement, and the agreements made between the network and other state
governments.

Payment

The GSTN has provided the taxpayers with the options of payment through both online and
offline methods-

- Online: Online payment can be availed through internet banking. The RBI has allocated certain
banks (Agency Banks ) for the same purpose with authority to collect payments made in favor of
GST. The taxpayer will have to make the payment by selecting from a list of the agency banks
authorized by RBI to collect the tax.

Once selected, the taxpayer needs to login to the respective bank’s online portal and make the
payment and download the challan generated for the said payment of GST.

- Offline: Taxpayers can also make payments through offline methods. The government has also
made the provision of payment of GST offline via “over the counter” payments. You can directly
visit the respective bank to make the payment for GST. Bank will further notify the RBI as well
as the GST portal to update all the relevant details.

Expenses

The user charges will be paid solely by the Central Government and the State Governments in
equal proportion (i.e. 50:50) on behalf of all users. The state share will be then divided into
individual states according to the number of taxpayers in the state.

Functions of GSTN

The GST Network is basically the front end of the IT ecosystem for taxpayers and thus forms a
channel of communication for the government and the business taxpayers online.
The total number of invoices processed by GSTN per month sums up to more than 2 billion and
moreover, it also processes the returns for over 65 lakh taxpayers and counting. Here are some of
the major key responsibilities that the GSTN is in charge of the following-

Registration

As mentioned earlier, the GST network is an online portal that forms the interface between the
taxpayer looking to register GST under the new taxation laws and the government.

GSTN issues the GST Identification Number to the respective taxpayer and files the information
with the respective Tax authorities once the registration has been verified.

Invoice Matching

Delving deeper, the Goods and Services Tax Network basically tallies the purchase invoices with
the sale invoices to check for mismatches and fixes them so that the taxpayers can avail of the
benefits of Input Tax Credit.

Return Filing

The services of GSTN includes processing and forwarding the returns to both the central and
state tax authorities.

The best and the unique thing about GSTN is, there is a unified common return filing for all
types of GST i.e. SGST (State GST), CGST (Central GST), IGST (Integrated GST). This, in
turn, has eliminated the need for filing multiple returns.

Taxpayer Profile Analysis

When a taxpayer wants to register for GST, all the particular details of the taxpayer are verified,
and then it is put forth to the Central as well as the state government tax authorities for approval.

What is an eWay Bill?

EWay Bill is an Electronic Way bill for movement of goods to be generated on the eWay Bill
Portal. A GST registered person cannot transport goods in a vehicle whose value exceeds Rs.
50,000 (Single Invoice/bill/delivery challan) without an e-way bill that is generated
on ewaybillgst.gov.in.
Alternatively, Eway bill can also be generated or cancelled through SMS, Android App and by
site-to-site integration through API entering the correct GSTIN of parties. Validate the GSTIN
with the help of the GST search tool before using it.
When an eway bill is generated, a unique Eway Bill Number (EBN) is allocated and is available
to the supplier, recipient, and the transporter.
E-Way Compliance

The statutory requirement of an e-way bill falls under the ambit of Section 68 of the CGST Act
& Rule 138 of the CGST Rules, 2017.

According to these rules, every registered individual under GST involved in the movement of
goods whose value exceeds ₹ 50,000 is required to furnish the details of the goods in an e-way
bill pro-forma before the goods are transported. However, there are certain circumstances, as
mentioned below, when an e-way bill needs to be compulsorily generated even when the
consignment value does not exceed ₹50,000.

During the interstate transfer of goods sent by the principal to a job worker located in other
states. The e-way bill, in this case, is generated by the principal or registered job worker.

During the interstate transfer of handicraft goods by an unregistered dealer under the GST. In
case of a supply of goods initiated by an unregistered individual to a registered individual, the
consignee would have to ensure all the compliances are met as if they were the seller.

Doctrine of Unjust Enrichment and Exceptions under GST

In case of refunds under GST, the burden to prove that the refund is a result of unjust enrichment
is on the claimant.

Unjust enrichment simply implies that no one must benefit inequitably at the expense of another.
Unjust enrichment occurs when a person retains money or financial interest belonging to another
in justice, equity and good conscience. Both, judicial as well as quasi-judicial authorities take
this into consideration before passing the final order.

GST being an indirect tax, whose incidence is to be borne by the ultimate consumer, a
presumption is always drawn that the business will shift the incidence of taxation to the final
consumer.

Section 54 of CGST Act, 2017 however, waives this burden of proof in certain cases which are

1. Refund of Tax paid on export of goods or service or both or on input services used in making
such supply.

2. Unutilsed ITC in case of zero-rated supplies made without payment of tax and accumulated
ITC on account of inverted duty structure.
3. Refund of tax paid on a supply which is not provided, either wholly or partially, and for
which invoice has not been issued, or where a refund voucher has been issued.

4. Refund of tax in pursuance of section 77 (Tax wrongly collected and paid to department)

5. The tax and interest, if any, or any other amount paid by the applicant, if he had not passed on
the incidence of such tax and interest to any other person.

6. The tax or interest borne by such other class of applicants as the Government may, on the
recommendations of the Council, by notification, specify.

What is profiteering?

In terms of Section 171 of the CGST Act, 2017, the suppliers of goods and services should pass
on the benefit of any reduction in the rate of tax or the benefit of input tax credit to the recipients
by way of commensurate reduction in prices. The wilful action of not passing on the above
benefits to the recipients in the manner prescribed is known as “profiteering”.

Important of Anti-Profiteering Measures under GST

The anti-profiteering provisions under the Goods and Services Tax (GST) were introduced to
ensure that businesses pass on the benefits of reduced tax rates and input tax credits to the
consumers. The primary objective of anti-profiteering measures is to protect the interests of the
consumers and to prevent businesses from taking undue advantage of the GST system. By
mandating businesses to pass on the benefits of reduced tax rates and input tax credits to the
consumers, the anti-profiteering provisions aim to ensure that the prices of goods and services
are reduced, and consumers are able to enjoy the benefits of GST. Another objective of anti-
profiteering measures is to promote a level playing field among businesses. The GST system is
designed to eliminate the cascading effect of taxes and create a uniform tax structure across the
country. Anti-profiteering measures ensure that businesses do not indulge in unfair trade
practices and that they compete on the basis of quality, service and efficiency rather than on the
basis of price. This promotes a healthy business environment and encourages businesses to focus
on long-term growth and sustainability. In summary, the anti-profiteering provisions under GST
are aimed at protecting the interests of consumers, promoting fair competition among businesses,
and ensuring that the GST system is implemented in the right spirit. Anti-P
 Unit IV

Problems of Implementation of GST

The successful implementation of the Goods and Services Tax also faces significant problems of
implementation of the GST, primarily revolving around the documentation requirements for
Input Tax Credits and the stage at which these credits accumulate. The fundamental objective of
any value-added tax system, such as GST, is to prevent double taxation by providing credits at
each stage of the production chain, taxing only the added value.

One of the major problems of implementation of GST pertains to the burdensome documentation
requirements, potentially leading to inadvertent consequences. According to Section 16 (11) of
the Model GST Law, an entity can only receive input tax credit when certain conditions are met,
including the receipt of a tax invoice from the supplier, receipt of goods/services, payment of
taxes by the supplier, and the filing of GST returns. However, this places the administrative
burden on the buyer rather than the supplier, posing challenges for businesses.

In such cases, the buyer may be required to pay not only their share of the tax but also the
supplier’s share. Additionally, discrepancies in the supplier’s documentation may emerge later,
leading the buyer to repay the tax reimbursement to the government with interest. Although
market forces may address non-compliance, the government has introduced a publicly accessible
compliance rating system to help consumers identify defaulters.

One of the more immediate problems of implementation of GST is the cash flow issues resulting
from Section 16 (11). Businesses typically aim for efficient working capital to invest in
expansion or interest-bearing savings accounts. As input tax credit is released only after the
supplier submits appropriate documentation, businesses must account for potential delays,
reducing available cash for growth and investment.

Moreover, any interstate inventory relocation is considered a taxable event under GST. Taxes are
charged at the time of transfer, and compensating input tax credit is available only at the point of
sale, putting additional strain on businesses’ cash requirements. Small businesses, in particular,
may face cash flow strains, possibly resorting to borrowing money for daily activities or, worse,
ceasing operations. These problems of implementation of GST highlight the need for careful
consideration and potential reforms to ensure the smooth functioning of the GST system in India.

Problems of Implementation of GST: GSTN Functionality

An essential aspect contributing to the problems of implementation of GST revolves around the
functionality of the Goods and Services Tax Network, the suggested technology backbone of the
GST system. The effectiveness of this IT infrastructure is crucial for tracking and implementing
the evolving tax system. One significant concern is the registration process for users on the
GSTN website, as any delays in registration can lead to serious issues affecting the overall
viability of GST.

In addition to the registration challenge, the GSTN faces difficulties in auditing processes.
Verifying and ensuring the accuracy of data within the GSTN poses substantial challenges,
especially considering the expected 70 million users. Without a reliable mechanism for proper
data audit, establishing the efficient functionality of the GST system becomes a formidable task.
Addressing these issues in the GSTN’s technology backbone is imperative for the successful
implementation and sustained operation of the GST system in India.

Problems of Implementation of GST: Anti-Profiteering Clause

Also included in the problems of implementation of GST in the implementation of Goods and
Services Tax is the hyped expectations regarding the system’s anticipated benefits, particularly
the reduction of prices for various goods and services across the economy. The premise is that
businesses, benefiting from a reduction in the impact of double taxation, should pass on these
advantages to the end user. To prevent unwarranted profiteering from changes in the tax system,
an anti-profiteering clause has been incorporated into the GST framework. This clause mandates
that businesses pass on any benefits resulting from tax system changes to the end consumer.
However, the clause lacks a clear mechanism for monitoring anti-profiteering activities.

The uncertainty surrounding the anti-profiteering clause raises concerns for both businesses and
consumers. The private sector apprehensively views the ambiguity in this clause as potentially
leading to numerous problems. Tax authorities are granted considerable discretion to make
subjective judgments about whether businesses are engaging in profiteering, with no explicit
laws or regulations supporting their rulings. This lack of clarity in the anti-profiteering clause
may introduce uncertainty and challenges in the effective enforcement of this aspect of the GST
system.

Impact on Small Businesses due to GST Exemptions

The challenges arising from documentation matching extend to complications arising from
purchases made from vendors exempt from Goods and Services Tax registration. Despite a
significant reduction in the threshold rate for GST registration and payment, businesses with an
annual turnover below Rs. 10 lakhs for certain North-Eastern and Hill states and below Rs. 20
lakhs for other states remain exempt from GST. While this exemption carries both advantages
and disadvantages for small businesses, its consequences are notable.
An advantageous aspect of GST exemption for small businesses is the elimination of taxes on
goods and services they provide. This not only allows for a higher profit margin but also enables
them to offer competitive prices, levelling the playing field with larger competitors.
Additionally, small businesses benefit from avoiding the working capital issues faced by GST-
registered businesses.

However, these advantages can be offset by the substantial administrative burden placed on
businesses purchasing from GST-exempt suppliers. The responsibility falls on the purchaser to
file all related documentation on behalf of the exempt supplier to claim the input tax credit. This
administrative hurdle introduces complexities that may negate the benefits of GST exemption for
small businesses, creating a potential disparity in the competitive landscape. Finding a balance
between these advantages and administrative problems of implementation of GST is crucial to
ensure the smooth functioning of the GST system for small businesses in India.

Final Thoughts

There are many problems of implementation of GST. Issues such as intricate documentation
requirements for Input Tax Credits, administrative burdens on buyers dealing with GST-exempt
suppliers, and uncertainties surrounding the anti-profiteering clause contribute to the complexity.
The functionality of the Goods and Services Tax Network poses a critical challenge, impacting
user registration and data accuracy verification. Furthermore, the ambitious goal of lowering
prices through GST benefits is hindered by the lack of a robust mechanism to monitor anti-
profiteering activities. Addressing these challenges is pivotal for the smooth and effective
execution of the GST system, ensuring its intended advantages for businesses and consumers
alike.

Principle of supply

Meaning

In the GST system, a taxable event is called a Supply. For an event to be considered as a supply
by the government, it should have the following characteristics.

Supply should be of goods or services.

Supply should be taxable.

Supply should be made by a taxable person.

Supply should be made within a taxable territory.

Supply should be made in exchange for cash or reward (consideration).

Supply should be made in the course of business or in the interest of growing a business.

Classification of supply under GST

Under the GST, supply of goods and/or services can be classified into two major categories -
Taxable supplies and Non-taxable supplies. These are further classified into different types based
on the nature of supply made.

Taxable Supplies - These refer to supply of goods and/or services that are taxable under GST.
Registered taxpayers can claim refunds on tax paid during purchases (in other words, they are
eligible for ITC).

Regular taxable supplies - Whenever you supply an item or service which attract a GST rate
greater than 0% within India, it becomes a regular taxable supply.

Nil-rated supplies - Whenever you supply goods which attract 0% GST by default, such supplies
are known as nil rated supplies.

Zero-rated supplies - Whenever you make exports, supplies to a SEZ unit or deemed exports, the
GST associated with the items or services involved becomes 0 even though the same would
attract a GST rate greater than 0% when sold within India. Such supplies are deemed as zero
rated supplies

Non Taxable Supplies

Exempt Supplies - The supply of exempt goods or services do not attract GST even though they
are within the purview of GST. That said, the registered taxpayer cannot claim ITC on inputs
used for making such supplies

Non-GST supplies - This refers to supply of items which are outside the purview of the GST law.

Supply of goods or services

When a transaction takes place, if there is a transfer of title of goods, then it is considered as
supply of goods. For example, when you buy a pen from a retailer, the ownership of the pen is
transferred from the retailer to you, the customer.

When there is a transfer of right in goods without transfer of title, it is considered as supply of
service. For example, if you are availing transportation services, then the right of using the
service is transferred to you, while the ownership still stays with the transportation company.

Supply should be taxable

Supply of goods or services can either be taxable or tax-exempt. Taxable supplies are goods and
services that attract GST. Tax-exempt supplies include supply of goods or services that belong to
a specific category mentioned in the GST Act.

Supply should be made by a taxable person

A taxable person is defined as a person who is registered under the GST, or is a liable to register,
or a person who has voluntarily registered.

Supply between two non-taxable people will not be considered as supply under GST.

If a person supplies goods or services in different states or has multiple business verticals, then
they are required to register separately for each state or vertical. Each of these registered entities
will be considered as a taxable person.

Supply should be made within a taxable territory

Taxable territory means any place in India except the State of Jammu and Kashmir.

Supply should be made in exchange for consideration

Consideration can be defined as a barter of goods or services, or payment made for a supply in
money, or in kind. A prepayment or deposit toward a supply is also as accepted as a
consideration by the government.

According to CGST Act, the following activities that will be treated as supply even if it is made
without consideration.

When a business permanently transfers or disposes its assets for which input tax credits have
been availed.

Supply made between two related or separate persons for business purposes.

Supply of goods by an agent on behalf of the supplier or supply received by an agent on behalf
of a customer.
When a taxable person imports services from a related person, or from his or her own business
outside of India for business purposes.

Supply should be made in the course of business or in the interest of growing a business

GST is applicable only on business transactions. Hence, for a transaction to be a considered as

supply under GST, it has to be made for business purposes.

If supplies are made for personal purposes, it will not be considered as a supply under GST.

What are the three components of supply under GST?

A supply under GST has three attributes that are used to calculate the tax owed for that
transaction: place, value, and time.

Place of Supply - This component determines whether a transaction is an intra-state supply, an

inter-state supply, or an external trade, which determines the type of GST that will be associated
with it.

Value of Supply - This component decides the taxable value of supply made, and thus the
amount of tax that needs to be paid for it.

Time of Supply - This component determines when the associated taxes and GST returns are
due.

Time of supply of goods

• Date of issue of invoice by the supplier. If invoice is not issued, then the last date on which
supplier is legally bound to issue the invoice with respect to the supply.

• Date on which supplier receives the payment. Section 148 of the CGST Act, 2017, confers
powers on the government (on the recommendation of the GST Council) to notify certain classes
of registered persons and the special procedures to be followed by such persons including those
with regard to registration, furnishing of return, payment of tax and administration of such
persons.

In exercise of powers conferred by this section, the government on the recommendations of the
GST Council has notified the registered persons (who have not opted for composition levy) as
the class of persons who shall pay GST on outward supply of goods 37 at the time of supply
specified in clause (a) of sub-section (2) of Section 12. Thus, in respect of supply of goods by
normal registered persons (other than composition dealers), the time of supply will be the issue
of invoice (or the last date by which invoice has to be issued in terms of Section 31) Therefore,
all taxpayers (except composition taxpayers) are exempted from paying GST at the time of
receipt of advance in relation to supply of goods. The entire GST shall be payable only when the
invoice is issued for such supply of goods.

The special procedure will be applicable to this class of persons (registered persons making
supplies of goods other than composition dealers) even in situations governed by Section 14 of
the Act (change in rate). Notification no. 66/2017-Central Tax dated 15.11.2017 may be referred
to.

Time of supply of services

• If the invoice is issued within the legally prescribed period under section 31(2) of the CGST
Act, 2017 read with Rule 47 of CGST Rules, 2017 (which is thirty days from the date of the
supply of service), then the date of issue of invoice by the supplier or date of receipt of payment,
which ever is earlier.

• If the invoice is not issued within the legally prescribed period under section 31(2) of the CGST
Act, 2017 then the date of provision of service or date of receipt of payment, whichever is
earlier. Time of Supply in GST 38 GST FLYERS

• Date on which recipient shows the receipt of service in his books of account, in a case aforesaid
two provisions do not apply. The supply of services shall deemed to have been made to the
extent it is covered by the invoice or by the payment, as the case may be. For example, Firm ‘A’
receives an advance of Rs. 2500/- on 29.07.2017 for provision ofservices worth Rs. 10000/- to be
supplied in the month of September, then it is deemed that firm ‘A’ has made a supply of Rs.
2500/- on 29.07.2017 and tax liability on Rs. 2500/- is to be discharged by 20.08.2017. Although
tax is payable on any advance received for a supply of services, however for the convenience of
trade it is provided that if a supplier of taxable services receives an amount up to Rs. 1000/- in
excess of the amount indicated on the tax invoice, then the supplier has an option to take the date
of issue of invoice in respect of such supply as time of supply. For example, if a supplier has
received an amount of Rs. 1500/- against an invoice of Rs.1100/- on 25.07.2017 and date of
invoice of next supply to the said recipient is 14.08.2017, then he has option to treat the time of
supply w.r.t Rs. 400/- either as 25.07.2017 or 14.08.2017.

Value of supply

Value of taxable supply as per section 15

Provisions relating to value of taxable supply are as under-

As per this section value of taxable supply is transaction value which is the price actually paid or
payable for the supply of goods or services and the price is the sole consideration. Also, where
the supplier and the recipient are not related or unrelated parties.
So we can say that if the supplier and recipient are not related and the price is the sole
consideration then the value of taxable supply is the Transaction Value.

Inclusions in the Value of supply

There are certain elements which is required to be included in the value of taxable supply. We
will understand all the elements step by step as under-

Taxes, duties,cesses,fees and Charges

Amount incurred by recipient on behalf of supplier

Incidental expenses and amount charged for activities done before delivery

Delayed payment charges

Subsidies

Taxes, Duties, Cesses, Fees and Charges

Value of supply includes all the taxes, duties, cesses, fees and charges except the CGST, SGST,
UTGST and GST cess if charged separately by the supplier. Thus we can say that GST and GST
cess are not part of Taxable value but other taxes & duties, cesses, fees and charges are part of
the taxable value.

Amount incurred by recipient on behalf of supplier

Any amount paid by the recipient in relation to supply which is liable to be paid by the supplier
then such amount will become part of the taxable value. A supplier may need to incur some
expenses in relation to supply however if these expenses are directly paid by the recipient then
such expenses also needs to be included in the value of taxable supply.

Incidental expenses and amount charged for activities done before delivery
It means any amount charged by supplier for anything done by him for the supply of goods or
services or both. Incidental expenses includes:-

Commission:- Any commission paid to an agent by the supplier and recovered from the recipient
for supply of goods or services or both will be the part of the value of taxable supply

Inspection or certificate charges:- This is another element that may be added to the value , if
billed to the recipient of supply

Packing :- If the packing charges are charged by the supplier to the recipient then it is to be
included in the value of supply

Freight and other charges:- Where the supplier agrees to deliver the goods to the recipient and
facilitate the transportation then the charges of freight will be the part of value of supply.

Delayed payment charges

Interest or late fee or any penalty for delayed payment of any consideration for supply of goods
or services is required to be included in the value of supply.

Subsidies

Any subsidy which is direct link to the supply will be the part of value of supply except subsidies
provided by the central government and state government.

integrated goods and service mechanism

The full form of IGST is Integrated Goods and Services Tax. Under GST, IGST is a tax levied
on all interstate supplies of goods and/or services or across two or more states/Union Territories

Features of integrated goods and service mechanism

1. The introduction of Goods and Services Tax (GST) is a significant reform in the field of
indirect taxes in our country. Multiple taxes levied and collected by the Centre and the States
will be replaced by one tax called the Goods and Services Tax (GST). GST is a multistage value
added tax levied on the consumption of goods or services or both.
2. A “Dual GST” model has been adopted in view of the federal structure of our country. Centre
and States will simultaneously levy GST on every supply of goods or services or both which,
takes place within a State or Union Territory. Thus, there shall be two components of GST: (i)
Central tax (CGST) (Levied & collected under the authority of CGST Act, 2017 passed by the
Parliament) (ii) State tax (SGST) (Levied & collected under the authority of WBGST Act, 2017
passed by West Bengal)

3. Why a third tax in the name of IGST? Before discussing the IGST Model and its features, it is
important to understand how interState trade or commerce is being regulated in the present
indirect tax system. It is significant to note that presently the Central Sales Tax Act, 1956
regulates the inter-State trade or commerce (hereinafter referred to as “CST”), the authority for
which is constitutionally derived from Article 269 of the Constitution. Further, as per article 286
of the Constitution of India, no State can levy sales tax on any sales or purchase of goods that
takes place outside the State or in the course of the import of the goods into, or export of the
goods out of the territory of India. Only the Parliament can levy tax on such a transaction. The
Central Sales Tax Act was enacted in 1956 to formulate principles for determining when a sale
or purchase of goods takes place in the course of inter-State trade or commerce. The Act also
provides for the levy and collection of taxes on sales of goods in the course of inter-State trade.

4. The CST suffers from the following shortcomings (i) CST is collected and retained by the
origin State, which is an aberration. Any indirect tax, by definition, is a consumption tax, the
incidence of which, is borne by the consumer. Logically, the tax must accrue to the destination
State having jurisdiction over the consumer. (ii) Input Tax Credit (hereinafter referred to as ITC)
of CST is not allowed to the buyer which, results in cascading of tax (tax on tax) in the supply
chain. (iii) Various accounting forms are required to be filed in CST viz., C Form, E1, E2, F, I, J
Forms etc. which add to the compliance cost of the business and impedes the free flow of trade.
(iv) Another negative feature of CST is the opportunity for “arbitrage” because of the huge
difference between tax rates under VAT and CST being levied on intra-State sales and inter-
State sales respectively.

5. The IGST model would remove all these deficiencies. IGST is a mechanism to monitor the
inter-State trade of goods and services and ensure that the SGST(WBGST) component accrues to
the consumer State. It would maintain the integrity of ITC chain in inter-State supplies. The
IGST rate would broadly be equal to CGST rate plus SGST rate. IGST would be levied by the
Central Government on all inter-State transactions of taxable goods or services. Integrated Goods
and Services Tax (IGST) Directorate of Commercial Taxes, West Bengal Note: Reference to
WBGST Act, 2017 includes reference to CGST Act, 2017 also. Disclaimer: Answer is only for
educational and guidance purposes and do not hold any legal validity. For complete details (law,
rules, notifications and other information) please refer to the relevant section of this website.
IGST rate= CGST rate + SGST rate (more or less) GST Sale Within Same State Inter-State Sale
CGST & SGST IGST
6. Cross-utilisation of credit It requires the transfer of funds between respective accounts. The
utilisation of credit of CGST & SGST for payment of IGST by “B” would require the transfer of
funds to IGST accounts. Similarly, the utilisation of IGST credit for payment of CGST & SGST
by “C” would necessitate the transfer of funds from IGST account. As a result, CGST account
and SGST (of, say, Rajasthan) would have Rs. 1300/- each, whereas, there will not be any
amount left in IGST and SGST (of, say, Maharashtra) after the transfer of ITC.

7. Prescribed order of utilisation of IGST/CGST/SGST credit The IGST payment can be done by
utilising the ITC. The amount of ITC on account of IGST is allowed to be utilised towards the
payment of IGST, CGST and SGST, in that order.

Interstate VS intrastate

Parameters Interstate Supplies Intrastate Supplies

Supply of goods and services

Applicable Supply of goods and services within the same state
between different states and
on or union territory.
Union Territories.

CGST by the Central Government and

Levied by Central Government SGST/UTGST by the state/Union Territory
government

IGST rate is applicable at the CGST and SGST rates are applied equally and
Tax rate rates in force based on the separately at the applicable rate in force based on the
good or service good or service

Destination Receives a share of the IGST

Receives the full amount of SGST collected
state collected

Place of Different state than the

Same state as the location of the supplier
supply location of the supplier
 The input tax credit of IGST Once IGST credit has been exhausted fully, CGST
can be used to set off IGST credit and SGST credit can be utilised to set off
Input Tax
liability and, thereafter, CGST liabilities and SGST liabilities, respectively,
Credit
CGST/SGST liabilities in any and for setting off IGST liabilities. Inter-utilisation
order between CGST and SGST is not allowed.

'Input Tax Credit'

'Input Tax Credit' or 'ITC' means the Goods and Services Tax (GST) paid by a taxable person on
any purchase of goods and/or services that are used or will be used for business. Input ITC can
be reduced from the GST payable on the sales by the taxable person only after fulfilling some
conditions.

Eligibility of “Input Tax Credit” Input Tax Credit (ITC) of the taxes paid on the inward supplies
of inputs, capital goods and services which are used in the course or furtherance of the business,
subject to certain restrictions, can be taken by a registered person effecting taxable supplies. A
person who is not registered under GST cannot take the benefit of ITC. A person registered
under GST but has opted for composition scheme also cannot take the benefit of ITC.

List of Eligible ITC under GST: Inputs:

1. raw material,

2. packing material,

3. engineering spares,

4. consumables,

5. printing and stationery etc.

Capital goods:

1. plant and machinery,

2. support structure to plant and machinery,

3. motor vehicle used for transportation of goods e.g. truck, forklift etc.,
4. repairs to motor vehicle used for transportation of goods.

5. computers / laptop,

6. printers,

7. air conditioner,

8. furniture and fittings etc.

Services:

1. factory rent,

2. godown rent,

3. housekeeping charges,

4. manpower supply,

5. loading unloading,

6. professional fees for audit, tax assessments,

7. clearing and forwarding,

8. internet service,

9. mobile used for office purpose,

10. bank charges,

11. postage and courier,

12. repair and maintenance,

13. freight inward and outward,

14. advocate fees,

15. advertisement,

16. research and development expense,

17. conference expense etc.

18. works contract services when supplied for construction of a plant and machinery.
Conditions for taking ITC:

1. A registered taxpayer must have a tax invoice on hand at the time of taking credit.

2. The goods must have been received or service must have been taken.

3. A buyer must have paid the value of invoice along with the tax to the supplier of goods or
services or both within a period of 180 days from the date of invoice.

4. The supplier must have paid the tax so collected through tax invoice into the Govt. account.

5. The supplier must also have uploaded the tax invoice details in the GST return.

6. In case of import of goods the bill of entry is a document based on which credit can be taken.
An IGST paid challan on the import should also be attached to the bill of entry.

7. In case of import of service the invoice and the payment of IGST via table 3.1 of GSTR-3B is
the basis for taking credit.

8. A credit note is a document based on which the supplier can reduce his tax liability. The
supplier must give a copy of credit note to the customer so that the buyer can do the reversal of
already taken ITC.

9. A debit note (or supplementary invoice) is a document based on which the customer can take
ITC.

10. A tax invoice based on which credit has been taken must be addressed to the location where
goods / services are supplied.

What is Reverse Charge Mechanism?

Typically, the supplier of goods or services pays the tax on supply. Under the reverse charge
mechanism, the recipient of goods or services becomes liable to pay the tax, i.e., the
chargeability gets reversed.

The objective of shifting the burden of GST payments to the recipient is to widen the scope of
levy of tax on various unorganized sectors, to exempt specific classes of suppliers, and to tax the
import of services (since the supplier is based outside India).

Only certain types of business entities are subject to the reverse charge mechanism. Find out the
business constitution of any GST number using the GST search tool.
When is Reverse Charge Applicable?

Section 9(3), 9(4) and 9(5) of Central GST and State GST Acts govern the reverse charge
scenarios for intrastate transactions. Also, sections 5(3), 5(4) and 5(5) of the Integrated GST Act
govern the reverse charge scenarios for inter-state transactions. Let’s have a detailed discussion
regarding these scenarios:

A. Supply of certain goods and services specified by the CBIC

As per the powers conferred in section 9(3) of CGST Acts, the CBIC has issued a list of goods
and services on which reverse charge is applicable.

B. Supply from an unregistered dealer to a registered dealer

Section 9(4) of the CGST Act states that if a vendor is not registered under GST supplies goods
to a person registered under GST, then reverse charge would apply. This means that the GST will
have to be paid directly by the receiver instead of the supplier. The registered buyer who has to
pay GST under reverse charge has to do self-invoicing for the purchases made.

In intra-state purchases, CGST and SGST have to be paid under reverse charge mechanism
(RCM) by the purchaser. Also, in the case of inter-state purchases, the buyer has to pay the
IGST. The government notifies the list of goods or services on which this provision gets attracted
from time to time.

In the real estate sector, the government notified that the promoter should buy inward supplies to
the extent of 80% from registered suppliers only. Suppose the purchases from registered dealers
shortfall 80%, then the promoter should GST at 18% on the reverse charge to the extent short of
80% of inward supplies. However, if the promoter purchases cement from an unregistered
supplier, he must pay tax at 28%. This calculation is to be done irrespective of the 80%
calculation.

The promoter is liable to pay GST on reverse charge basis on TDR or floor space index (FSI)
supplied on or after 1st April 2019. Even if a landowner is not engaged in a regular business of
land-related activities, transfer of development rights by such an individual to the promoter is
liable to GST as it is considered as supply of service under section 7 of CGST Act. Also, in case
of outward supply of TDR by one developer to another, GST is applicable at 18% on reverse
charge.

C. Supply of services through an e-commerce operator

All types of businesses can use e-commerce operators as an aggregator to sell products or
provide services. Section 9(5) of the CGST Act states that if a service provider uses an e-
commerce operator to provide specified services, the reverse charge will apply to the e-
commerce operator and he will be liable to pay GST. This section covers the services such as:

Transportation services to passengers by a radio-taxi, motor cab, maxi cab and motorcycle. For
example – Ola, Uber.

Providing accommodation services in hotels, inns, guest houses, clubs, campsites or other
commercial places meant for residential or lodging purposes, except where the person supplying
such service through electronic commerce operator is liable for registration due to turnover
exceeding the threshold limit. For example – Oyo and MakeMyTrip.

Housekeeping services, such as plumbing and carpentering, except where the person supplying
such services through electronic commerce operators are liable for registration due to turnover
beyond the threshold limit. For example, Urban Company provides the services of plumbers,
electricians, teachers, beauticians etc. In this case, Urban Company is liable to pay GST and
collect it from the customers instead of the registered service providers.

Also, suppose the e-commerce operator does not have a physical presence in the taxable
territory. In that case, a person representing such an electronic commerce operator will be liable
to pay tax for any purpose. If there is no representative, the operator will appoint a representative
who will be held liable to pay GST.

Unit V

Principles Of Valuation In Customs Duty

Section 2(41) of the Customs Act, 1962 defines ‘Value’ in relation to any goods to mean the
value thereof determined in accordance with the provisions of sub-section (1) of Section 14
thereof.

Sub-section (1) of Section 14, in turn, states that when a duty of customs is chargeable on any
goods by reference to their value, the value of such goods shall be deemed to be:-

"The price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the
time and place of importation or exportation, as the case may be, in the course of international
trade, where the seller and the buyer have no interest in the business of each other and the price
is the sole consideration for the sale or offer for sale".

The provisions of sub-section (1) of Section 14 apply for the valuation of both imported goods
and export goods. However, a common valuation law at international level applies only to
imported goods and its basic principles are laid down in Article VII of General Agreement on
Tariffs and Trade (GATT), 1948, currently known as GATT 1994 (administered by the World
Trade organization, WTO). The Indian valuation law under Section 14(1) of the Indian Customs
Act is based on the principles of Article VII of the GATT. This is, however, a deemed value
allowing uplifting (loading) of declared value in a given case even when it represents the actual
price of transaction. The Agreement on Customs Valuation (ACV), which came into force on 1st
January 1981, lays down well defined methods of valuation to be strictly followed so as to
ensure uniformity and certainty in valuation approach and to avoid arbitrariness.

Sub-section 1 A of the Indian Customs Act 1962 requires that the value of imported goods shall
be determined under the Rule made in this behalf. The Customs Valuation (Determination of
Price of Imported Goods) Rules, 1988 lays down the methods of valuation based on the ACV.
Transaction value, which is the price paid or payable for the imported goods, is the primary basis
for valuation. If the transaction value method is not applicable in a specific case, the other
methods of valuation prescribed in the Rules (based on ACV) have to be followed in a
hierarchical order, subject to certain exceptions

Under the Customs Act, 1962, the Central Government has also been empowered to fix Tariff
Values (sub-section (2) of Section 14) for any product. If Tariff Value is fixed for any goods,
then ad-valorem duties are to be calculated with reference to such Tariff Value. The tariff values
may be fixed for any class of imported or export goods having regard to the trend of value of
such or like goods and the same has to be notified in the official gazette. This measure is resorted
to only in rare cases where the price fluctuations in the market are rampant having significant
economic impact. Currently tariff values have been fixed in respect of imported Crude Palm Oil,
RBD Palm Oil, Crude Palmolein, RBD Palmolein, Crude Soyabean Oil and Brass Scrap.

As far as export goods are concerned, provisions of sub-section (1) of Section 14 provide a
complete code of valuation by itself and there are no separate valuation rules for that purpose.

Methods of Valuation

The Customs Valuation Rules, 1988, lays down six methods for the valuation of imported goods.
The primary basis for valuation is the "Transaction Value". However, it is subject to adjustment
by certain Valuation Factors (see Rule 9). There are also certain conditions for the transaction
value method to be applicable (see sub-rule 2 of Rule 4). In certain situations, the Customs
authorities could reject the declared value (transaction value method), if the truth or accuracy of
the declaration is reasonably suspected (see Rule 10 A). In all such cases where the transaction
value method is not applied, goods shall be valued by applying the subsequent methods in a
strictly hierarchical order (see Rule 3).

In order to enable the Customs to determine the value by application of the most appropriate
method, the importer is required to truthfully declare the full particulars concerning the goods
under import. These include full description and specifications of the goods, basis of valuation
applied, relationship with the supplier, conditions and restrictions if any attached with the sale,
elements of cost not included in the invoice price, royalty and license fee payable in relation to
the imported goods, etc. These details are to be declared in a special Valuation Declaration
Format designed for the purpose. This is in addition to the entry declaration (Bill of Entry). In
respect of EDI processing, the valuation declaration is integrated as a part of the Electronic
Declaration. The importer should also provide copies of invoice, purchase contract and other
supporting documents.

Transaction Value method:

Rule 3(i) of the Customs Valuation Rules, 1988 states that the value of imported goods shall be
the transaction value. Rule 4(i) thereof defines “transaction value” as the price actually paid or
payable for the goods when sold for export to India, adjusted in accordance with the provisions
of Rule 9.

The price actually paid or payable should be adjusted to include all the costs and services
(dutiable valuation factors) specified in sub-Rule 9 (1) (see below) if not already included in the
invoice value. In short, the transaction value should be determined by suitably adjusting the
declared value so as to include all payments made as a condition of sale of the imported goods by
the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller. Since
the assessment is on CIF basis, the invoice value should be suitably adjusted to include the
freight, insurance and handling charges as applicable under sub-Rule 9 (2).

Valuation factors:

Valuation Factors (see Rule 9) are the various elements (dutiable factors), which should be added
while determining the Customs value. The factors should be added to the extent they are not
already included in the price actually paid or payable (invoice value). These dutiable factors are:

Commissions and brokerage, except buying commissions;

The cost of containers which are treated as being one for Customs purposes with the goods in
question;

The cost of packing whether for labor or materials;

The value, apportioned as appropriate, of the following goods and services where supplied
directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the
production and sale for export of the imported goods, to the extent that such value has not been
included in the price actually paid or payable:-

material, components, parts and similar items incorporated in the imported goods;

tools, dies, moulds and similar items used in the production of the imported goods;

materials consumed in the imported goods;

engineering, developing, artwork, design work, and plans and sketches undertaken elsewhere
than in the importing country and necessary for the production of imported goods;

Royalties and license fees related to goods being valued that the buyer must pay either directly or
indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and
fees are not included in the price actually paid or payable;

The value of any part of the proceeds of any subsequent resale, disposal or use of the goods that
accrues directly or indirectly to the seller;

Advance payments;

Freight charges up to the place of importation;

Loading, unloading and handling charges associated with transporting the goods;

Insurance.

Non-dutiable Factors:

The following charges are not to be added for the purposes of determining the Customs value
provided they are clearly distinguishable and separately declared in the commercial invoice:-

Buying commission:

Interest charges for deferred payment;

Post-importation charges (e.g. inland transportation charges, installation or erection charges,

etc.);

Duties and taxes payable in India.

Transaction value method not applicable to certain cases

The Transaction value method cannot be applied in cases where the transactions do not comply
with the definition under Rule 4 (1). Thus, if there is no sale for export to India in respect of any
importation, such as gifts and consignment imports for subsequent sale, there is no transaction
value and hence the method is not applicable.

The conditions referred to under Sub-Rule 4(2) are also required to be satisfied for applying the
transaction value method. These are:

The sale is in the ordinary course of trade under fully competitive conditions;

The sale does not involve any abnormal discount or reduction from the ordinary competitive
price;

The sale does not involve special discounts limited to exclusive agents;

Objective and quantifiable data exist with regard to the adjustments to be made under Rule 9;

There are no restrictions concerning the disposition or use of the goods by the buyer (subject to
certain exceptions);

The sale or price is not subject to some condition or consideration;

No part of the proceeds of the goods (by resale, disposal or use) after importation accrues to the
seller;

Buyer and seller are not related, and if related, the relationship should not have influenced the
price.

Transaction value method also does not apply to situations where valuation fraud (under
valuation, wrong description, misdeclaration of quantity, grade, specifications, etc) are shown to
have taken place. These are cases where Customs do have adequate evidence to establish the
fraud. In cases of suspected fraud, Rule 10 A could be applied to reject the declared value and
the transaction value method (see below).

Related Party transactions

The transaction value method cannot be applied in cases where the buyer and seller are related
and the relationship has influenced the price. The scope of relationship is defined in Sub-Rule 2
(2) of the Customs Valuation Rules. In such cases the burden of proof shifts to the importer, who
should satisfy the Customs that the declared price closely approximates to the test values
prescribed in sub-Rule 4(4). If the importer fails to discharge this responsibility, the declared
value could be rejected and valuation done under any of the subsequent methods applied in
hierarchical order.

Other valuation methods:

Transaction value method cannot be applied for determination of Customs value in several
situations. These include cases where there is no sale for export, restrictions under Sub-Rule 4
(2) apply, relationship between buyer and seller has influenced, cases where valuation fraud has
taken place and cases of suspected valuation fraud (see rule 10 A). In all such cases, the
valuation should be under the subsequent methods. These methods are to be applied in sequential
order, unless otherwise permitted under the valuation Rules. There are five such valuation
methods:

Transaction Value of Identical goods (Rule 5). This is based on the previously determined
transaction value of identical goods, as defined in the Valuation Rules (see Sub-Rule 2.1),
imported at or about the same time;

Transaction Value of Similar goods (Rule 6). This is again based on the transaction value of
similar goods (defined in Su-Rule 2.1) imported at or about the same time;

Deductive Value Method (Rule 7). This is calculated based on the selling price of imported
goods or identical/similar goods in India after deducting selling expenses, margin of profit,
duties and taxes;

Computed Value Method (Rule 7 A). The computed value is arrived at from the cost of materials
used in production of imported goods, cost of fabrication or other processing charges at the
country of production, profit and general expenses, and other dutiable factors as may be
applicable under Rule 9;

Fallback Method (Rule 8). These include a flexible application of previous valuation methods in
a manner consistent with the provisions of Section 14(1) of the Customs Act.

Procedures of assessment

Self-assessment could be done via online or manual modes. The steps to file the self-assessment
have been listed below:

Manual Assessment:

There will be a green colored band at the margin of a bill of entry to differentiate it from other
normal bills of entry.

After jotting of self-assessment bill of entry, the clerk in customs department assigns a serial
number and attaches the date stamp with signature.

The rate of duty with an amount of duty to be paid will be stated in the bill of entry.
The importer or his customs house broker pays the duty in the customs treasury on his
declaration of duty under imported goods, if applicable.

Once the payment of duty under imported goods under self-assessment is made, the concerned
customs officials detaches the original copy of the bill of entry and rest of the copies with other
paperwork is produced to the appraiser in charges of examination who finishes the assessment
and procedures built on the last evaluated bill of entry under the same type of goods imported.

If found contented with the declaration by the importer with the said last document, the
concerned officer of customs department which allows ‘pass out’ procedures as normal import
clearance procedures.

Online Assessment

To make the tax payments online, we must log on to http://www.tin-nsdl.com > Services > e-
payment: Pay Taxes Online Click on the tab “e-pay taxes” provided on the above-stated link.

Select the concerned challan for eg; ITNS 280, ITNS 281, ITNS 282, ITNS 283, ITNS 284 or
Form 26 appropriately.

Input PAN / TAN (whichever applies) and other compulsory challan details such as accounting
head under which payment is made, the address of the taxpayer and the bank through which
payment is to be made etc.

On verification of data entered, an authenticating screen would be displayed. If PAN / TAN is

valid as per the ITD PAN / TAN master, then the full name of the taxpayer would be shown on
the confirmation screen.

On confirmation of the data so mentioned, it would direct the taxpayer to the net-banking site of
the bank.

The taxpayer has to login to the net-banking site with the user id/password provided by the bank
for net-banking purpose and the payment details must be input at the bank site.

On successful payment, a challan counterfoil will be shown which contains the CIN, payment
details and bank name through which e-payment was made. This counterfoil the proof for which
the payment has been made.

Verification of Assessment

In the process of verification, the Customs officer may ask for further documents or information
or get the goods examined or send the sample of imported / export for testing by an approved
agency. The requirement of information for the purpose of verification will be documented by
the proper officer. After verification, based on the merits of the case, the proper officer may
either accept the Self-Assessment or initiate the process of reassessment. On the basis of
verification or for any other reason, if the proper officer of Customs is of the opinion that the
Self-Assessment of duty done by the importer/exporter is not correct in any respect –
misclassification, overvaluation, etc. – the proper officer of Customs may re-assess the duty.

If the re-assessment is not accepted by the exporter in writing, the proper officer may issue a
speaking order within 15 days of the assessment order. In the event of no reassessment is done or
a speaking order is not passed the assessment of duty of the imported / export goods may be
audited at the premises of the importer/exporter.

Payment of custom duty

One can pay customs duty online with a few simple steps:

Login into the e-payment portal of ICEGATE

Enter the import or export code or simply key in the login credentials provided by ICEGATE

Now, click on the e-payment button

You would be able to check all e-challans which under your name

You could then choose the challan that you wish to pay and select the payment method and you
would be then redirected to the payment gateway

Once the payment is done, you would be redirected back to the ICEGATE portal

Finally, click on the print button and save your payment copy.

What are the Types of Custom Duty in India?

Basic Customs Duty (BCD)

This is the most common type of customs duty prevailing in India. It is levied on all the imported
goods as a percentage of the assessable value. The assessable value is calculated by adding up
the cost of goods, freight for transporting the goods, and insurance charges. There is no specific
rate of BCD, and it can vary on the basis of the country of origin and the types of goods being
imported. Products like lifesaving drugs are exempt from BCD.

Additional Customs Duty (ACD)

Additional customs duty is levied on the import of certain goods to India. It is also known as
countervailing duty and is charged at the same rate at which excise duty is levied on similar
goods produced in India. The purpose of this duty is to prevent people from evading excise duty
on goods produced locally by imposing an equivalent tariff rate on imported goods.
Education Cess and Secondary and Higher Education Cess
This is the additional charge or an additional tax that is calculated over and above the total
customs duty payable. The education cess is charged at 2%, and the secondary and higher
education cess is charged at 1% of the total customs duty calculated. This amount is used for the
development of the education sector of India.

Anti-Dumping Duty
Anti-dumping duty is the duty that is levied on those products that receive subsidies or
exemptions in their country of manufacture. In other words, anti-dumping duty is levied on the
goods valued at a price below their market price. The purpose of this duty is to protect the
domestic produce from unfair competition. Anti-dumping duty is levied as a percentage of the
imported goods value that has the potential to impact the domestic producers negatively.

What is Warehousing?

Warehousing is the process of storing physical goods before they are sold further or distributed.
Warehouses safely and securely store products in an organized way to track where items are
located, when they arrived, how long they have been there, and the quantity on hand.[1] It is
important in order to help business’s import, export, transportation and manufacture of goods. It
enables business to store, ship and distribute goods from one location.[2] The legal provisions
relating to Warehousing are contained under Sections 57 to 73 of Customs Act, 1962 & Rule
2(18).Thereafter by The Manufacture and other operations in Warehouse Regulations, 1966 &
The Warehoused Goods (Renewal) Regulations, 1963.[3] The law also lays down the time
period up to which the goods may remain in a warehouse without incurring any interest liability
and with interest liability.

The warehouses are to be appointed/licensed at particular places only which have been so
declared by Central Board of Excise and Customs. The Board has delegated its power for
declaring places to be Warehousing Stations to the Chief Commissioners of Customs. In respect
of 100% EOUs, the powers to declare places to be Warehousing Stations have been delegated to
the Commissioners of Customs

.Relevant Provisions for Warehousing under Indian Customs Law

Appointment of Public Warehouses (Section 57):

The section prescribes that the Principal Commissioner of Customs or the Commissioner of
Customs may subject to certain conditions prescribe; appoint a public warehouse wherein
dutiable goods may be deposited. These warehouses are managed by the warehousing
corporations. The goods can be deposited by any person and there can be no cancellation of
license. In this respect, other than the Central Warehousing Corporation and the State
Warehousing Corporations private operators can also be appointed as custodians and for this
purpose all applications of custodianship are to be carefully scrutinized and due consideration
given to factors such as feasibility and financial viability of warehouse operator, his credibility,
his financial status, his past record to comply with Customs & Excise laws, expertise in
warehousing field, etc. The applicant should accept to pay cost-recovery charges on payments of
Merchant Overtime/Supervision Charges for obtaining services of Customs officers.

Licensing of Private Warehouses (Section 58):

This section provides that a license may be provided to any private warehouse under fulfillment
of certain conditions by the Principal Commissioner of Customs or the Commissioner of
Customs wherein dutiable goods may be imported on behalf of the licensee. The goods of the
owners can only be deposited and the license can be cancelled for violation of the warehousing
provisions. In case of application, the goods are categorized into two categories: Storage of
sensitive goods such as liquor, cigarettes, foodstuffs, consumables, etc. Non-sensitive goods In
case of sensitive the following guidelines in case of storage of sensitive goods have been
provided:

1. Applicants should produce a Solvency Certificate from a Scheduled Bank of repute for a
value not less than Rs. 50 lakhs;

2. Such warehouses may not be located in residential areas; The premises should be secure,
possess fire-fighting provisions and easily accessible to the Customs Officers;

3. Goods deposited should be fully insured for a value at least equal to the customs duty;

4. The proprietor/partner/director must not be involved in any Customs or Excise offence. In case
of any involvement in such offences, the license may be terminated after following the
prescribed procedure;

5. In the case of individual consignments to be warehoused, a double duty-bond as prescribed

under section 59 should be given by the licensee. In case of sensitive goods, a cash deposit/ bank
guarantee equal to 25% of the duty liability (effective duty foregone) will be taken for each
consignment. At the same time, a revolving bond with a single bank guarantee for a higher
amount can be accepted if so requested for a number of consignments. In the case of non-
sensitive goods, applicants for Private Bonded Warehouses have to abide by all provisions as
pertaining to sensitive goods discussed above, except that the requirement of furnishing a
Solvency Certificate has been waived. The applicant, however, should be solvent for Rs. 10
lakhs and should possess a good record. A double duty bond with surety would suffice for
storage of non-sensitive bonded goods. In case the Customs are not satisfied about the
transactions of a particular bonder, the applicant may be asked to furnish a bank guarantee.

Warehousing Bond (Section 59):

The importer or his representative is required to present to the Customs a Bill of Entry for
warehousing under Section 46 and assessed under Section 17 or Section 18 of the Customs Act
shall execute a bond for sum equal to thrice the amount of the duty assessed for such goods and
to pay all duties and interest payable under sub-section (2) of Section 61 and to pay all fines and
penalties incurred for the contravention of any provisions under this Act. The Assistant
Commissioner of Customs or Deputy Commissioner of Customs may permit an importer to
execute a general bond for such amount as approved by them within a specified period.
Additionally, a security has to be furnished by the importer and the bond executed by the
importer in respect of any goods shall continue to remain in force even in the case of transfer of
goods to another warehouse. The transferee shall execute a bond in the manner specified in sub-
section (1) or sub-section (2) and furnish security as specified under sub-section (3) on transfer
of goods wholly or partly.

Permission of deposit of goods in a Warehouse (Section 60)

: This is applicable when the provisions of Section 59 have been complied with respect of any
goods whereby the proper officer may make an order permitting the deposit of the goods in a
warehouse. Period for which goods may remain warehoused (Section 61)[12]: The goods
deposited in a bonded warehouse may be stored for a period of one year. However, in case of
capital goods intended for any 100% export-oriented undertaking, then such goods can be stored
for a period of 5 years. The period of warehousing can be extended by the Commissioner of
Customs for a period of 6 months and by the Chief Commissioner of Customs for such further
period. In case of granting an extension the following categories of cases are considered if the
interests of revenue are not jeopardized:

1. Goods supplied as ship stores/aircraft stores.

2. Goods supplied to diplomats.

3. Goods used in the units operating under manufacture-in-bond scheme.

4. Goods imported by 100% EOUs.

5. Goods warehoused and sold through duty free shops.

6. Machinery, equipment and raw material imported for building and fitment to ships. These
extensions however are not meant to be granted regularly but only under circumstances where
the goods have to be kept in the warehouse beyond the control of the importer. In case the
warehoused goods are likely to deteriorate, the Commissioner of Customs may reduce the one
year’s period of warehousing to such shorter period as he may deem fit.

Control over warehoused goods (Section 62):

The goods deposited in the warehouse shall be subject to control of the proper officer. No person
can enter the warehouse without the permission of the proper officer or remove any goods there
from. The proper officer may cause the warehouse to be locked with the lock of the Customs
Department and no person shall remove or break such lock and the officer shall have access to
every part of the warehouse and have the power to examine the goods.

Payment of rent and warehouse charges (Section 63):

The rent has to be paid by the owner of the warehoused goods to the warehouse-keeper at the
rates fixed under any law for the time being in force or where no rates are so fixed, at such rates
as may be fixed by the Commissioner of Customs. If the rent is unpaid within ten days from the
date the warehouse-keeper may after notice to the owner of the warehoused goods and with
permission of the proper officer sell a sufficient portion of the goods as the warehouse-keeper
may select.

Owner’s right to deal with warehoused goods (Section 64):

The owner of goods may with the sanction of the proper officer and after the payment of
prescribed fees inspect the goods, separate damaged or deteriorated goods from the rest, sort the
goods and change their containers for the purpose of preservation, sale, export or disposal of
goods, deal with goods and their containers in such a manner as may be necessary to prevent loss
or deterioration or damage to the goods, show the goods for sale, or take samples of goods
without entry for home consumption, and if the proper officer so permits, without payment of
duty on such samples.

Duty Drawback Under Customs Act, 1962

Duty Drawback scheme was introduced by the Ministry of Finance as a rebate for duty
chargeable on any imported materials or excisable materials used in manufacture or processing
of goods, manufactured in India and exported. The exported products are revenue natural.

The Central Government is empowered to grant Duty Drawback under section 74 and 75 of the
Customs Act, 1962. Under section 74 of the Customs Act, 1962 duty drawback to the extent of
98 percent of the duty paid on imported goods can be claimed for re-export, provided the goods
are re-exported within two years of payment of import duty. Section 75 of the Act, empowers
duty drawback on export of manufactured articles.

Categories of Duty Drawback

Drawback allowable on Re-export of duty paid goods (Section 74):

According to section 74 of Customs Act 1962, when duty paid imported goods are re-exported in
used or unused condition within two years, the importer may claim refund of import duty up to
maximum 98% of the customs duty paid at the time of importation as duty drawback.

The following conditions to be satisfied in this regard:

a. The goods are identified to the satisfaction of the Assistant Commissioner of Customs or
Deputy Commissioner of Customs as the goods which were imported and

b. The goods are entered for export within two years from the date of payment of duty on the
importation thereof.

However, in any particular case, the aforesaid period of two years may, on sufficient cause being
shown, be extended by the Board by such further period, as it may deem fit.

Time limit for Section 74 Drawback: Under sub-clause (b) of section 74(1), it has been provided
that such imported goods should be entered for export within 2 years from the date of payment of
duty on the importation. It may be noted that the time period is related to the date of payment of
duty and not date of importation.

List of goods which are not entitled to drawback at all under the Notification No. 19/65 Cus
dated 6-2-1965: As per this notification, no drawback of import duty will be allowed in respect
of the following goods, if they have been used after their importation in India:

i. Wearing Apparel;

ii. Tea Chests;

iii. Exposed cinematograph films passes by Board of Film Censors in India

iv. Unexposed photographic films, paper and plates, and X-ray

It implies that if these goods are not used after their importation into India and subsequently re-
exported in the condition they were imported, then they would be entitled to drawback.