CA Saurabh Chokhra

Q-1 What is GST? Why GST is a need for India?

♠ GST stands for Goods & Service Tax. GST is a destination based consumption tax levied at multiple stage of production & distribution of goods & services in which taxes paid on inputs are allowed as set-off against taxes payable on output. Thus, GST will be a single comprehensive integrated indirect tax on pure value addition at each stage.

♠ The present tax structure of India has number of indirect taxes collected both by state and central govt as per power vested to them under Constitution of India. Due to such multiple taxes, there has been cascading effect of taxes (tax on tax) and double taxation (a value being subject to tax twice or subject to two or more than two taxes).

♠ GST will subsume all these indirect taxes and will thus, facilitate seamless flow of credit resolving the problem of double taxation and cascading effect of taxes. This will check the cost of goods along with making compliances easy and bringing stability in govt’s tax revenues.

Q-2 What are the salient features of GST?

1. Dual Model based:

GST in India will be dual model based – i.e. state and central govt will both levy GST termed as SGST and CGST respectively. However, chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform in both CGST and SGST.

♠ The Central GST and State GST are to be paid to the accounts of the Centre and the States separately.

So on a single transaction SGST will be levied and collected by state govt. whereas CGST will be collected by central govt.

♠ India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism

2. Single Integrated Comprehensive indirect tax:

♠ Major indirect taxes would get subsume in GST. Following are the taxes to be subsumed in GST.

a) Central taxes to be subsumed: Central Excise duty, Countervailing duties (CVD) , Special Additional duties of customs., various cesses and surcharges levied by central govt on these taxes.

b) State taxes to be subsumed: VAT, Entertainment tax, luxury tax , entry tax , tax on lottery, betting and gambling.

  • With the introduction of GST only SGST and CGST would be levied in their place.

3. Destination based consumption tax:

♠ The place where the goods or services being consumed will be entitled to revenue from the transaction.

For example: If a dealer of Gujarat sale goods to dealer of Rajasthan then tax will go the credit of Rajasthan govt. (along with Central Govt.)

Q3 -Why does introduction of GST require a Constitutional Amendment?

  • The Indian constitution has divided the power to levy taxes between centre and states. While the Centre is empowered to tax services and goods upto the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on supply of services while the Centre does not have power to levy tax on the sale of goods.
  • Therefore, it is essential to have Constitutional Amendments for empowering the Centre to levy tax on sale of goods and States for levy of service tax and tax on imports and other consequential issues.   

Q-4  How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST) in case of Intra  State transaction ?

  • In a transaction of sale of goods or supply of service within the state or any other supply then SGST and CGST would be levied on such transactions , SGST would be collected by state govt and CGST by central govt.
  • Credit of CGST to be utilized to pay CGST only and Credit of SGST to be utilized to pay SGST only. Cross adjustment of tax credit between CGST and SGST will not be allowed.

Practical Example:

(Manufacturer and dealers located in the same state, rate of SGST & CGST assumed at 9% each)

ParticularsMfg to wholesalerWholesaler to retailerRetailer to consumer
Manufacturing cost/ Cost1,00011151230
Profit margin @15 %115115115
Assessable value for GST1,1151,2301,345
CGST @ 9%100.35110.70121.05
SGST @ 9%100.35110.70121.05
Sale value                     1,315.70                             1,451.40                          1,587.10
Tax liability
i) To Central Govt.
Payable100.35110.70121.05
Less: Credit of CGST100.35110.70
Tax payable in cash 100.3510.3510.35
ii) To State  Govt.
Payable100.35110.70121.05
Less: Credit of CGST100.35110.70
Tax payable in cash 100.3510.3510.35
Central govt.State govt.
Total tax collection                        121.05                                 121.05

Q-5 How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST) in case of Inter State transaction ?

  • In the case of inter state sale of goods & services central govt will levy Integrated Goods and Service Tax (IGST) on such transactions. IGST will be nothing but a sum total of CGST and SGST.
  • Seller selling goods to buyer of other state to pay IGST . This IGST payable can be paid after adjusting the available credit of IGST, CGST and SGST (sequentially) paid on purchases.
  • Selling state will transfer to Centre the credit of SGST used in payment of IGST.
  • Buyer of the other state will claim credit of IGST while discharging his SGST liability.
  • Centre will transfer to the buyer’s state credit of IGST used in payment of SGST.

In short , in case of inter state sale of goods & services tax will be collected by central govt and after collecting will transfer 50% of the tax collected to state govt whose buyer has purchased goods & services as GST is destination based consumption tax. This 50% will be transferred at the point when the buyer of the importing state sell goods and discharge his SGST liability.  

Practical Example:

Sale of goods – Manufacturer of Delhi to Wholesale  Dealer of Delhi (Rate of CGST and SGST assumed at 9% each and 18% of IGST)
Particulars Amount
Manufacturing cost1,000
Profit margin @15 %150
Assessable value for GST1,150
CGST @ 9%104
SGST @ 9%104
Sale value1,358
Tax paid in cash ( SGST and CGST Rs. 104 each)208
Sale of goods – Wholesaler of Delhi to Wholesale of Jaipur
ParticularsAmount
Cost1,150
Profit margin @15 %173
Assessable value for GST1,323
IGST @ 18%

 

238
Sale value1,561
Tax paid in cash
IGST  payable238
Less: credit of CGST & SGST# ( 104 +104)207
Net IGST paid to central govt in cash31
# Delhi Govt will transfer the credit of SGST  Rs. 104/- utilized in payment of IGST to the central govt.
Sale of goods – Wholesaler of Jaipur to local dealer of Rajasthan
ParticularsAmount
Cost to dealer1,323
Profit margin @15 %198
Assessable value for GST *1,521
CGST @ 9%137
SGST @ 9%137
1,795
Tax paid in cash: to Central govt
CGST payable to central govt.137
Less: credit of IGST paid on inter state purchase ( Rs. 238 credit of IGST utilized to the extent of CGST liability)137
Net CGST to be paid to Central Govt.NIL
Tax paid in cash: to Rajasthan Govt.
SGST payable to state govt.137
Less: remaining credit of IGST **(238-137)101
Net SGST to be paid to Rajasthan  Govt. in cash36
** such credit of IGST utilized to pay SGST will be transferred by the central govt to the Rajasthan Govt.

With this we finish our first discussion on GST over here. For any queries, suggestions etc. please feel free to reach me at saurabhchokhra92@gmail.com

Thanks a lot for your reading!!

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Category : GST (2079)
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  • Raghunath Gadre

    It was informative and with clarity

  • Jamuna Prasad Yadav

    What will the treatment for Branch transfer? F form will be applicable or not. further Export sale related forms will be available or not. It seems Form C will not be functional anymore.

  • Kurra prabhakar rao

    A very useful information to understand GST and the terminology and the process to start with.
    Very much appreciated.

  • Saurabh Chokhra

    GST is a tax on supply , so even branch transfers will be subject to GST .

  • Harshit Bhopale

    Why IGST credit is taken 238, not 31?