Goods & Services Tax Module - 1 7" Semester — B. Com Bengaluru North University (As per new syllabus of NEP 2020) SDr, OSairam A M. Com. M. Phil. Ph. DMoDULE— 1 GOODS & SERVICES TAX Concept of Tax Tax is a compulsory contribution to be made by every member of the public without expecting any direct return benefit. Classification of Taxes ‘Taxes can be basically classified into two types, namely, ¢ Direct Taxes * Indirect Taxes Direct Taxes refer to those taxes, where the impact and incidence of the tax is on the same person. Example: Income Tax, Municipal Tax Indirect Taxes arc those taxes, where the impact of the tax is on one person and the incidence of the tax is on some other person. Example: GST, Customs Duty, VAT Direct Tax v/s Indirect Tax Incidence v/s Impact of Taxes Generally, the taxes are initially levied on a person and later on the burden of the tax is shifted to some other person. In case of direct taxes, the burden of tax cannot be shifted to some other person, while in case of indirect taxes, the burden of tax is shifted to the ultimate consumer, in the supply chain. According to Smriti Chand, 1. Impact - initial burden of tax Incidence - —_ultimate/final burden of tax 2. Impact - at the point of imposition Incidence - at the point of settlement 3. Impact. - _—_on whom the tax is collected Incidence - on the person who pays it eventually 4. Impact - ~_ may be shifted Incidence - end of the shifting process In case of Direct Taxes, the impact of the tax coincides with the incidence of the tax, whereas in case of Indirect Taxes, the impact and incidence of the tax diverges. WHAT IS GST? * GST (Goods and Services Tax) is an indirect tax + It is paid by one person (Assessee/Dealer), but the same is recovered from another person (Consumer) GFGC & PG Centre, CHINTHAMANI Page 1 of 8 PREPARED BY DR. SAIRAM A.MoDULE— 1 GOODS & SERVICES TAX — * It is levied on supply of goods and services + It is levied on Purchase/Sale/Manufacture of Goods and provision of Services * GST is a single tax on the supply of both goods and services + It is a comprehensive tax levied by integrating both supply of Goods and Services at the national level * GST is a Value Added Tax levied on supply of goods or services or both * GSTis levied on manufacture, sale and consumption of Goods and Services. Only value addition will be taxed and burden of tax is to be borne by the final consumer * GST improves overall economic growth of the nation * GST has removed certain trade barriers (entry tax, multiplicity of taxes, multiple state laws etc) and enhanced the business opportunities. Hence the economic growth would be stimulated. * GST is a comprehensive indirect tax levied on manufacture, sale and consumption of goods as well as services at the national level * GST has subsumed 17 different taxes both at national and state level. Moreover, the erstwhile tax regime had separate taxes for Goods and separate taxes for services. GST has integrated two main things, namely, * Both Goods and Services being integrated + Central and State level taxes into one ambit + GST is a destination-based consumption tax. + Instead of the erstwhile origin-based tax (Excise Duty), GST is destination- based tax, levied at the point of consumption of goods or services or both * GST offers comprehensive and continuous chain of tax credit. + GST offers a continuous chain of credit/set-off right from the producer to the retailer * GST eliminate cascading effect of tax. + Since there is a seamless flow of credit form one stage to other through the Input Tax Credit, the cascading effect of tax is eliminated * GST brings uniform tax structure all over India. * GST brings a common tax base across the country and ensures there is uniform market. Hence there is ‘one nation ~ one tax’ system in the country. Definition of GST According to Article 366 (12A), “GST is a tax on supply of Goods or Services or both except on supply of the Alcoholic Liquor for Human Consumption” Goods and service tax (GST) is a tax on goods and services with value addition at each stage having comprehensive and continuous chain of set of benefits from the producer's / service provider's point up to the retailer level where only the final consumer should bear the tax. GFGC & PG Centre, CHINTHAMANI Page 2 of 8 PREPARED BY DR. SAIRAM A.MoDULE— 1 GOODS & SERVICES TAX SF—:# Definition of Goods According to Sec 2(52) of CGST Act, “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply Definition of Services According to Sec 2(102) of CGST Act, “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. OBJECTIVES /PURPOSE OF GST One nation ~ one tax Consumption based tax instead of manufacturing Uniform GST registration, payment of taxes To eliminate cascading effect of indirect taxes/ double tax/tax on tax Subsume most of the indirect taxes at centre and state level Increase tax base and compliance by reducing tax evasion and corruption Increase productivity by removing various trade barriers Increase Tax to GDP ratio and revenue surplus en oysene SALIENT FEATURES OF GST 1. GST has unified both Goods and Services into a common tax base 2. GST shall be levied on supply of Goods or Services or both 3. India has adopted ‘Dual GST Model’, wherein both Centre and State shall levy the tax simultaneously on a common tax base 4. GST levied in case of Intra-State Sale by, a. Centre - CGST b. State-SGST c. Union Territory without the Legislature - UTGST 5. GST levied in case of Inter-State Sale - IGST 6. GST shall be applicable on all goods except alcoholic liquor for human consumption and petroleum products. GST is applicable on almost all services, except those, exempt specifically 7. The list of exempted goods and services are common for both the Centre and the States 8. Threshold limit exemption - Aggregate turnover in a financial year upto, a. Special Category States - €20,00,000 w.e.f. 01-04-2019 (Assam, Arunachal Pradesh, Mizoram, Manipur, Meghalaya, Nagaland, Sikkim, Tripura, Himachal Pradesh, Uttarakhand) b. Other States - % 40,00,000 w.e.f. 01-04-2019 9. Exemption to small tax payers - Composition Levy Scheme - under this scheme, small tax payers shall get the benefit of paying tax as a fixed percentage of his turnover in the financial year, However, the tax payer is not eligible for Input Tax Credit under this scheme. GFGC & PG Centre, CHINTHAMANI Page 3 of 8 PREPARED BY DR. SAIRAM A.MopuLE— 1 Goops & SERVICES TAX ee This scheme is available in the aggregate turnover in the financial year is upto a. Special Category States - & 75,00,000 (% 75 Lakhs) b. Other States — F 1,50,00,000 (& 1.5 Crore) 10. Any supply made to Special Economic Zones (SEZ) shall be considered as zero- rated supply under GST 11. Input Tax Credit is available at every stage of supply chain where the tax payer can claim the credit of tax paid at the previous stage Subsuming of Taxes / Pre- Existing Taxes that are subsumed under GST GST has replaced the following taxes that existed in the Pre-GST era Ce Rela State Government *Central Excise Duty State VAT ‘Duties of Excise on Medicinal and Toilet *Central Sales Tax (CST) Preparations ‘Luxury Tax “Additional Duties of Excise (Goods of ‘Entry Tax Special Importance) +Entertainment and Amusement Tax ‘Additional Duties of Excise (Textiles and {except those levied by local bodies) Textiles Product) ‘Taxes on Advertisements “Additional Customs Duty or Purchase Tax Counterveiling Duty (CVD) Taxes on lotteries, betting and gambling ae eS DY ‘State surcharges and cesses relating to ee supply og goods and services «Surcharges and Cesses levied by Central Govt relating to supply of goods and services Principles that were followed while subsuming the aforesaid taxes, 1. The taxes that were subsumed were primarily indirect taxes 2. The taxes were levied either on the supply of goods or services 3. Taxes were a part of the transaction chain from, manufacture/produetion or os over cnrn goods and POSTE ar Paice? 4. The subsuming of taxes may result in seamless transaction wherein there isa free flow of tax credit from one stage to other. 5. Both the Union and State Government would ger their fair share of the Revenue. —+ GFGC & PG Centre, CHINTHAMANI Page 4 of 8 PREPARED BY DR. SAIRAM A.MoDULE— 1 GOODS & SERVICES TAX SF—:# ADVANTAGES/BENEFITS OF IMPLEMENTION OF GST IN INDIA Advantages of GST to Citizens ‘Simpler tax system Reduction in prices of goods and services due to elimination of cascading effect of taxes Uniform prices throughout the country ‘Transparency in taxation system Increase in employment opportunities Advantages of GST to Trade/Industry Reduction in multiplicity of taxes Mitigation of cascading/double taxation More efficient neutralization of taxes especially for exports Development of common national market Simpler tax regime-fewer rates and exemptions Advantages of GST to Central/State Governments * Aunified common national market to boost Foreign Investment and “Make in India” campaign * Boost to export/manufacturing activity, generation of more employment, leading to reduced poverty and increased GDP growth * Improving the overall investment climate in the country which will benefit the development of states Uniform SGST and IGST rates to reduce the incentive for tax evasion Reduction in compliance costs as no requirement of multiple record keeping Simpler tax system Broadening of tax base Improved revenue collections Efficient use of resources Constitutional Amendments * The Constitution (122°? Amendment) Bill, 2014 was introduced in the Lok Sabha on December 19, 2014, which subsequently was enacted in the Parliament - Constitution (101t Amendment) Act Article 246A _| Power to make laws with respect to GST ] Article 248 | Residuary powers of legislation amended | Article 268 | Duties levied by the Centre but collected and appropriated by the States — Duties of excise on medicinal and toilet preparations have been subsumed into GST Axticle 268A _| Empowering Union to levy Service Tax omitted Article 269A _| Levy and collection of GST on inter-state supply Axticle 270 __| Distribution of GST between the Centre and the States Asticle 366 | Definition of * Goods and Service Tax * Goods * Services ° State Asticle 279A _| GST Council + — GFGC & PG Centre, CHINTHAMANI Page 5 of 8 PREPARED BY DR. SAIRAM A.MobuL! GOODS & SERVICES TAX SF—:# GST MODELS ‘There are basically three models of GST, namely, 1. Central GST Model 2. State GST Model 3. Dual GST Model DUAL GST ‘+ Many countries in the world have a single unified GST system i.e. a single tax applicable throughout the country. However, in federal countries like Brazil and Canada, a dual GST system * In India, a dual GST is proposed whereby a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of every transaction of supply of goods and services. BENEFITS OF DUAL GST Reduction in the number of taxes at the Central and State level Decrease in effective tax rate for many goods Removal of the current cascading effect of taxes Reduction of transaction costs of the taxpayers through simplified tax compliance Increased tax collections due to wider tax base and better compliance Better for business Good balance between centre and states Better for business Least changes, most benefits CENTRAL GOODS AND SERVICES TAX (CGST) CGST is levied and collected by the Central Government Central GST will be levied on both goods and services to replace the pre-existing taxes like Excise Duty, Service Tax, CVD (Countervailing Duty), SAD (Special Additional Duty) ete * Itis applicable to intra-state supply of goods and services or both * It is governed by CGST Act, 2017 + —+ GFGC & PG Centre, CHINTHAMANI Page 6 of 8 PREPARED BY DR. SAIRAM A.MoDULE— 1 GOODS & SERVICES TAX eer STATE GST/UNION TERRITORY GST (SGST/UTGST) * SGST is levied and collected by the State Government * State GST will be levied on both goods and services to replace the pre-existing taxes like sales tax, luxury tax, entry tax, etc. * It applies to intra-state supply of goods or services or both * It is governed by respective States’ SGST Act, 2017 INTEGRATED GOODS AND SERVICES TAX * CGST is a combined levy collected by the Central Government + IGST will be levied on both goods or services or both to replace the pre-existing tax - CST (Central Sales Tax) * Itis applicable to inter-state supply of goods and services or both * It is governed by IGST Act, 2017 GST COUNCIL * The GST Council, the key decision-making body that will take all important decisions regarding the GST * It will have representation from the central government as well as all the state governments. * The Goods & Services Tax Council {GST Council} has been created in September 2016 under Article 279-A of the Constitution of India. * The main objective of GST is to develop a harmonized national market of goods and services. * Ithas its Secretariat office in New Delhi Structure of GST Council The GST Council shall consist of the following members, 1. The Union Finance Minister as the Chairperson 2. The Union Minister of State in charge of Revenue or Finance as the Member 3. The State Finance Ministers or any other Minister nominated by every State Government as the members Powers and Functions of GST Council 1. The Goods and Services Tax Council shall make recommendations to the Union and the States on— a. the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax; b. the goods and services that may be subjected to, or exempted from the goods and services tax; c. model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply; d. the threshold limit of turnover below which goods and services may be exempted from goods and services tax; e. the rates including floor rates with bands of goods and services tax; GFGC & PG Centre, CHINTHAMANI Page 7 of 8 PREPARED BY DR. SAIRAM A.MopuLE— 1 Goops & SERVICES TAX ee f. any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; g. special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, ‘Tripura, Himachal Pradesh and Uttarakhand; and h. any other matter relating to the goods and services tax, as the Council may decide. 2. The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel (ATF) 3. Ensure harmonized structure of goods and services tax and for the development of a harmonized national market for goods and services. 4. The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute — a. between the Government of India and one or more States; or b. between the Government of India and any State or States on one side and one or more other States on the other side; or between two or more States, arising out of the recommendations of the Council or implementation thereof. QUORUM AND DECISION-MAKING For a valid meeting of the members of GST Council, at least 50% of the total number of the member should be present at the meeting. Every Decision made during the meeting should be supported by at least 75 percent majority votes of the members who are present and voting at the meeting. vote cast between Central Government and State Government - © The vote of Central Government shall have the weighted of one-third of the total votes © The votes of State Government shall have the weighted of two third of the total votes, cast in the meeting — GFGC & PG Centre, CHINTHAMANI Page 8 of 8 PREPARED BY DR. SAIRAM A.