CA Rockey
Introduction: – GST stands for Goods & Service Tax. Now a days the process of implementation of GST is getting momentum like never before. In this write up, I have discussed the concept of GST, Input tax credit of GST, taxes to be subsumed in GST, amendments to be needed in Constitutions of India and many other related issues.
1. Concept of GST:-
a) Need of GST:-In India, indirect taxes is levied by Central Legislatures and State Legislatures. Scope of these legislatures is defined in the Constitution of India. Central Govt. has the power to levy& collect taxes on the Service, Manufacturing, Import-Export & etc. State Govt. has the power to levy & collect tax on sale of goods, Entertainment, Luxury, Lottery, Betting & Gambling, Advertisement & so on.
Both, Central & State tax laws contains the scheme of Input tax credit i.e. tax paid on purchase is eligible for deduction from output tax liability. In central indirect tax law, this scheme is known as CENVAT Credit and in State VAT law, it is known as Input Tax Credit.
Sometimes, one goods/service is subject to levy of both indirect taxes (i.e. central & state tax) like in real estate, buyer has to pay both VAT & Service tax, therefore the problem of cascading effect arises. The problem of cascading affect is also arise in case of inter-state transactions because taxes paid in one state is not eligible for input tsx credit in another state. This problem of cascading effect become root cause of introduction of GST.
b). GST: –GST will be a destination based tax, it will shift the taxes from production stage to consumption stage.GST will remove the barrier of input tax credit and permit the credit of taxes paid on purchase. In GST concept, goods/service purchase by a registered dealer from a registered dealer in any state of India will become eligible for input tax credit and therefore problem of levy tax on tax will be resolved.
c).Dual GST in India: – In India, dual GST is proposed. In this, there shall be two GST laws, CGST (Central GST) & SGST (State GST). CGST shall be framed by Central govt. and SGST shall be framed by respective states. Intra-state transaction of goods/service shall be subject to levy of both CGST & SGST rates. In case of inter-state transaction, IGST come forward. IGST stands for Integrated GST (or inter-state GST) and this is the combination of both i.e. CGST & SGST rates. IGST shall be levied on interstate transactions.
In dual GST, SGST law is to be framed by respective state. State governments may use this power to frame SGST law as per their requirements and hence there might not be similarity amongst SGST law of various states like present VAT laws. This can distort the objective of GST.
2. Taxes to be subsumed in GST:-Followings are the taxes propose to be subsumed into GST regime:-
a) Central Taxes:-
i. Central Excise Duty,
ii. Additional Excise Duty,
iii. Excise Duty Levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955,
iv. Service tax,
v. Additions Custom Duty commonly known as CVD,
vi. Special Additional Duty of Custom,
vii. Central Surcharges & Cesses so far as they relate to supply of Goods & Service.
b) States Taxes:-
i. Value Added Tax/Sales tax,
ii. Entertainment tax (other than the tax levied by local bodies),
iii. Central Sale tax (levied by the central and collected by the states),
iv. Octroi and Entry tax,
v. Purchase Tax,
vi. Luxury tax,
vii. Taxes on lottery,
viii. Betting & Gambling,
ix. State Surcharges & Cesses so far as they relate to supply of Goods & Service.
However, followings are the goods to be kept outside the ambit of GST till the time a recommendation is made by GST Council:-
i. Petroleum Crude
ii. High Speed Diesel
iii. Motor Sprit (commonly known as petrol)
iv. Natural Gas
v. Aviation Turbine fuel
vi. Tobacco & tobacco products
vii. Alcoholic liquor for human consumption (this is excludes from the definition of GST provided under article 366(12A).
3. Input Tax Credit under GST: –Under GST regime, credit is admissible in respect of both components of GST i.e. CGST & SGST. The scheme of credit is as follows:
i. Taxes paid as CGST on purchase shall be allowed to be taken as input tax credit for discharge of CGST output liability.
ii. Taxes paid as SGST on purchase shall be allowed to be taken as input tax credit for discharge of SGST output liability.
iii. Cross utilization of input tax credit between CGST & SGST is not permitted.
iv. To discharge the IGST output liability, one can use input tax credit of IGST, CGST, and SGST.
4. Amendments in Constitution of India:- In order to bring the GST in India, followings amendments are proposed in Constitution Amendment Bill, 2014:-
i. Insertion of Article 246A:- Through this article Central & State govt. will make law to impose tax on goods & service by the Union or such by such state. However, Central govt. shall have the exclusive power to make law to impose tax on all inter-state transactions of goods & service or both.
ii. Omitting Article 268A:– Power to levy service tax by parliament has been withdraw since service tax has been subsumed in GST.
iii. Insertion of Article 269A:– GST on inter-state transaction of goods or service or both shall be levied and collected by central govt. and shall be apportioned between central and state govt. in the manner of which may be recommended by GST Council.
iv. Insertion of Article 279A:– This article provide the establishment of GST Council consisting of Finance Minister as chairperson, union minister of revenue of state as member and finance minister representing each individual state. GST Council shall make the recommendation on various matter/issues.
v. Amendment in Article 286(1):– State govt. shall not tax inter-state transactions, Import & Export of goods/service/both. Central government shall levy the tax on such truncation.
vi. Amendment in Article 286(2):– Parliament may by law formulate principle for determining when a supply of goods or service or both takes place (i.e. parliament may formulate the Place of Supply rule for whole of India).
vii. Omitting Article 286(3):– Through this concept of declared goods of special importance is omitted.
viii. Insertion of Article 366(12A):– Definition of Goods & Service tax is given as “Goods and Service Tax means any tax on supply of goods, or service or both except taxes on supply of alcoholic liquor for human consumption”.
ix. Insertion of Article 366(26A):– The word Service is defined as “Service mean anything other than goods”.
x. Amendment in Schedule-VII-List-I: Union List-Entry 84:- Petroleum and related products, ATF, Tobacco and tobacco products & natural gas is kept outside the ambit of GST till the time a date is recommended by GST Council.
xi. Amendment in Schedule-VII-List-I: Union List-Entry 92:- Power of central govt. to levy taxes on Newspaper is withdrawn.
xii. Amendment in Schedule-VII-List-II: Union List-Entry 52:- Power of state govt. to levy taxes on the entry of goods into a local area is withdrawn.
xiii. Amendment in Schedule-VII-List-II: Union List-Entry 54:- Through this VAT/Sale tax will continue on the sale of petroleum crude and Petroleum and related products, ATF, Alcoholic liquor for human consumption. However, inter-state sale purchase of these goods shall not be covered in the VAT.
5. Impact of GST on Price:- After introduction of GST impact on the price of goods/service shall be as follows:
Intra-state Sale
| PATICULARS | PRESENT | GST |
| Value of Goods | 10,000 | 10,000 |
| Excise Duty @12.36% | 1236 | 0 |
| Total (a) | 11236 | 10000 |
| VAT @ 12.5%`on (a) | 1405 | 0 |
| Total (b) | 12641 | 10,000 |
| CGST @ 5% | 0 | 500 |
| SGST @7% | 0 | 700 |
| Total (C) | 12641 | 11200 |
| Total Indirect Taxes (d) | 2641 | 1200 |
| Remark | GST will reduces the tax by Rs. 1,441/-. | |
Inter-State Sale
| PARTICULARS |
PRESENT | GST |
| Value of Goods | 10,000 | 10,000 |
| Excise Duty @12.36% | 1236 | 0 |
| Total (a) | 11236 | 10000 |
| CST @ 2%`on (a) | 225 | 0 |
| Total (b) | 11461 | 10,000 |
| CGST @ 12% | 0 | 1200 |
| Total (C) | 11461 | 11200 |
| Total Indirect Taxes (d) | 1461 | 1200 |
| Remark | GST will reduces the tax by Rs. 261/-. | |
Note: GST Rate is taken @12% (7+5) as worked out by Task Force on GST of 13th Finance Commission. However, actual GST rate may be different.
6. Comparison of VAT/GST rates in some countries:-
| S. No. | Country’s Name | Rate of VAT/GST |
| 1 | ARGENTINA | 21% |
| 2 | ARMENIA | 20% |
| 3 | ARUBA | 3% |
| 4 | AUSTRALIA | 10% |
| 5 | AUSTRIA | 20% |
| 6 | BAHRAIN | 0 |
| 7 | BANGLADESH | 15% |
| 8 | BRAZIL | 19% |
| 9 | CANADA | 7% |
| 10 | CHINA | 17% |
| 11 | CYPRUS | 15% |
| 12 | EGYPT | 10% |
| 13 | FIJI | 12.5% |
| 14 | FRENCH POLYNESIA | 3% |
| 15 | FRANCE | 19.6% |
| 16 | GHANA | 12.5% |
| 17 | ICELAND | 24.5% |
| 18 | IRAN | 3% |
| 19 | ISRAEL | 16.5% |
| 20 | JAPAN | 5% |
| 21 | KUWAIT | 0 |
| 22 | MACAU | 0 |
| 23 | NEPAL | 13% |
| 24 | NORWAY | 25% |
| 25 | PANAMA | 5% |
| 26 | QATAR | 0 |
| 27 | SPAIN | 16% |
| 28 | SWITZERLAND | 7.6% |
| 29 | UGANDA | 18% |
| 30 | ZIMBABWE | 15% |
(Author can be contacted at M- 08287392720 or on Email: [email protected])
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Author Bio
The basic customs duty on imports are also subsumed in CGST, I assume. Kindly clarify wrt to foregoing article, I don’t find the presence of basic customs duty
best regards and thanks