The Empowered Committee of State Finance Ministers, finally issued a long awaited First Discussion Paper on Goods and Services Tax in India. Though it was expected that this Discussion paper will put an end to much awaited queries on implementing GST in India, however after analyzing the Paper, it appears as if this has been drafted in a hush-hush manner to meet the revised deadline of implementing GST in India.

Reproducing some lines from a leading newspaper Times of India dated November 11, 2009 under article “Differences set to delay GST rollout” it was clear that while releasing the First Discussion paper on Goods and Services Tax in India, FM Pranab Mukherjee was non-committal on meeting the deadline and said “So far as dates are concerned, we are working on it.”

Since now the First Discussion Paper on Goods and Services Tax in India has been presented by the Empowered Committee of State Finance Ministers for discussion we will hereby discuss some major issues & Key Features of this Discussion Paper. Some sections of the Discussion papers are reproduced in this analysis.

KEY FEATURES

v     Dual GST Structure with State GST & Central GST.

v     Most of Indirect Taxes Subsumed under GST except a few ones.

v     Proposed threshold limit same for excise i.e. 1.50 crore, however service tax & VAT limits combined to Rs. 10 Lakh.

v     Set-off of Central Input Taxes on goods purchased post production, made available.

v     Intra head adjustment of SGST against CSGT & vice a versa, not allowed.

v     PAN based GST number.

v     Account-heads for payment of SGST & CGST.

v     To the extent possible, uniform procedure for administration of CGST & SGST.

v     Industrial Incentives to be refunded once cash is available under GST system.

v     Special Industrial Area Schemes to continue up to legitimate expiry, however no new schemes approved.

ISSUES WHICH DISAPPOINTED THE READERS

v     Rates of GST is nowhere even discussed, than how could industry analyze the paper & provide suggestions.

v     Much has been talked about Goods, however there were very few sections for Services, which is major source of revenue to central govt. it seems paper are issued only to make states more comfortable for adopting GST.

v     State governments will still tax certain items, & some taxes still levied by state governments, so basic idea of uniform GST across India is diluted.

v     No transitional provisions were discussed in this white papers. Many questions, like how stock as on date of transition would be treated? What will happen to VAT/CENVAT credit lying as on date of transition? How state & central departments would merge? What will be the fate of employees of State & central offices of related departments? etc remained untouched.

v     Key sectors such as real estate, power, insurance etc. were not discussed at all. Though composition schemes have been discussed, however no reference been made to works contract, stamp duty. Etc., which is directly related with real estate sector.

v     Service which were earlier taxed under central act only seems to be taxed at dual rate now, Also it will now be governed by multiples statutes, though dealers will get credit of tax on input however it will make services costlier for the consumers.

There are many more such issues, however it seems wiser to wait for detailed discussion papers by Finance Minister, & keep our fingers crossed in a hope that this time our FM will not disappoint us with such a brief Discussion Papers.

GOODS & SERVICES TAX (GST)

TRANSACTIONS WITHIN STATE

INTER-STATE TRANSACTIONS

State GST (SGST)

Central GST (CGST)

Integrated GST (IGST)

Levied by State

Levied by Centre

Levied by Centre

Implemented through multiple statutes of respective states

Implemented through single statutes

Implemented through single statutes

Paid to account of State Government

Paid to account of Central Government

Paid to account of Central Government

IGST = SGST + CGST

Separate Provision for Consignment Transactions

Separate Provision for Stock Transfers

DETAILED TEXT ON KEY FEATURES

Dual GST Structure.

The GST shall have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable.

Within State Transaction
Goods Sold within state

100

Services Rendered within state

50

150

SGST@10%

15

CGST@10%

15

Assuming rate of tax @10%

180

Inter State Transaction
Goods Sold inter state

100

Services Rendered inter state

50

150

IGST for SGST@10%

15

IGST for CGST@10%

15

Assuming rate of tax @10%

180

Taxes Subsumed under GST

Following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax:

Central Excise Duty

Additional Excise Duties

The Excise Duty levied under the Medicinal and Toiletries Preparation Act

Service Tax

Additional Customs Duty, commonly known as Countervailing Duty (CVD)

Special Additional Duty of Customs – 4% (SAD)

Surcharges, and

Cesses.

Following State taxes and levies would be, to begin with, subsumed under GST:

VAT / Sales tax

Entertainment tax (unless it is levied by the local bodies).

Luxury tax

Taxes on lottery, betting and gambling.

State Cesses and Surcharges in so far as they relate to supply of goods and services.

Entry tax not in lieu of Octroi.

Special Items covered

Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST without ITC.

Taxes left out of GST

Tax on items containing Alcohol:Alcoholic beverages would be kept out of the purview of GST. Sales Tax / VAT can be continued to be levied on alcoholic beverages as per the existing practice. In case it has been made Vatable by some States, there is no objection to that. Excise Duty, which is presently being levied by the States may not be also affected. Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST without ITC.

Tax on Petroleum Products: As far as petroleum products are concerned, it was decided that the basket of petroleum products, i.e. crude, motor spirit (including ATF) and HSD would be kept outside GST as is the prevailing practice in India. Sales Tax could continue to be levied by the States on these products with prevailing floor rate. Similarly, Centre could also continue its levies.

Octroi: Octroi & other similar levies at state level.

TAXES NOT FINALIZED

 Purchase tax: Some of the States felt that they are getting substantial revenue from Purchase Tax and, therefore, it should not be subsumed under GST while majority of the States were of the view that no such exemptions should be given, therefore, in case Purchase Tax has to be subsumed then adequate and  continuing compensation has to be provided to such States. This issue is being discussed in consultation with the Government of India.

Natural Gas: A final view whether Natural Gas should be kept outside the GST will be taken after further deliberations.

EXEMPTED GOODS, EXEMPTED TRANSACTION

The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration except :

  • The exempted goods and services
  • Goods which are outside the purview of GST
  • The transactions, which are below the prescribed threshold limits.

 THRESHOLD LIMIT

 State GST Threshold Limit:

Gross Annual Turnover of Rupees 10 Lakh including Goods & Services for all States & Union Territories.

Central GST Threshold Limit:

Gross Annual Turnover of  Rupees 10 Lakh  for Services

Gross Annual Turnover of Rupees 1.50 Crore for Goods

SET-OFF/ADJUSTMENTS OF GST

Rules Regarding Set-off of GST
Output Input Set-off Allowed

IGST

SGST

Yes

IGST

CGST

Yes

IGST

IGST

Yes

SGST

SGST

Yes

CGST

CGST

Yes

CGST

SGST

No

CGST

IGST

No

SGST

CGST

No

SGST

IGST

No

Composition Scheme

The States are also of the view that Composition/ Compounding Scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. In particular, there would be a compounding cut-off at Rs. 50 lakh of gross annual turn over and a floor rate of 0.5% across the States. The scheme would also allow option for GST registration for dealers with turnover below the compounding cut-off.

Returns of GST

The taxpayer would need to submit periodical returns, in common format as far as possible, to both the Central GST authority and to the concerned State GST authorities.

 PAN Based GST number.

 Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax, facilitating data exchange and taxpayer compliance.

 GST on Imports & Exports.

 Exports

Exports would be zero-rated. Similar benefits may be given to Special Economic Zones (SEZs). However, such benefits will only be allowed to the processing zones of the SEZs. No benefit to the sales from an SEZ to Domestic Tariff Area (DTA) will be allowed.

 Imports

The GST will be levied on imports with necessary Constitutional Amendments. Both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.

Industrial incentives & Special Industrial Area Scheme

After the introduction of GST, the tax exemptions, remissions etc. related to industrial incentives should be converted, if at all needed, into cash refund schemes after collection of tax, so that the GST scheme on the basis of a continuous chain of set-offs is not disturbed.

Regarding Special Industrial Area Schemes, it is clarified that such exemptions, remissions etc. would continue up to legitimate expiry time both for the Centre and the States. Any new exemption, remission etc. or continuation of earlier exemption, remission etc. would not be allowed.

Payment of GST

  • Pay CGST in account of Central Government
  • Pay IGST in account of Central Government
  • Pay SGST in account of State Government
  • Type Payments would be represented by account-heads in similar manner as used in depositing service tax. Account-heads will indicate whether the payment is SGST/CSGT/IGST & from which state.

Inter State Transactions

Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. Central agency will act as clearing house mechanism.

Illustration: assuming rates of CGST & SGST to be 10%
Dealer ‘A’ of Delhi Sent goods worth Rs. 100/- to dealer ‘B’ of Mumbai
Dealer ‘A’  adjusts Rs. 2/- SGST input credit while Paying IGST
Dealer ‘A’  adjusts Rs. 1/- IGST input credit while Paying IGST
Dealer ‘B’ of Mumabi Sells goods worth Rs. 200/- to dealer ‘C’ of Mumbai
Dealer ‘B’ adjust Rs. 15/- of IGST input Credit.
In the avove case
— Dealer A will Charge Rs. 20/- IGST  (10/- SGST + Rs. 10/-CGST)
— Dealer A will Deposit Rs. 17/- IGST after input Credit
— Delhi Govt will Pay Rs. 2/- to Central Govt i.e amount of SGST input claimed by Delhi Dealers for
Paying IGST to Central Government
— Dealer A will Charge Rs. 20/- SGST + Rs. 20/-CGST
— Dealer A will Deposit Rs. 5/- SGST after input Credit of Rs. 15/-  IGST first adjusting Rs. 10/-
Against  CGST & remaining Rs. 5/- against SGST
— Central Government will Pay Rs. 5/- To Mumbai Government i.e. amount of IGST Credit used by
Maharashtra Dealers for paying SGST to Maharashtra Government.

IN THIS MANNER CENTRAL GOVERNMENT WILL RECEIVE CGST+IGST

GST Rate Structure.

The Empowered Committee has decided to adopt a two-rate structure –

  • A lower rate for necessary items and goods of basic importance
  • A standard rate for goods in general.
  • A special rate for precious metals
  • A list of exempted items.

Under Consideration

  • Whether the exempted list under VAT regime including Goods of Local Importance may be retained in the exempted list under State GST in the initial years.
  • Whether the Government of India may adopt, to begin with, a similar approach towards exempted list under the CGST.

Suggested rate structure  for Goods

  • SGST May have 2 rate structure.
  • CGST recommended to have 2 rate structure.

Suggested rate structure for Services

  • Same rate to be adopted for SGST & CGST.

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