A brief introduction on Goods and Service Tax (Indirect Taxes) in India

Introduction

The tax structure prior to Goods and Service Tax (GST) was tedious and complex with so many types of indirect taxes that were levied by the Central and State Governments of India on for availing the services such as Entertainment Tax (for watching movies), Value Added Tax (on purchasing goods and services), excise duties, luxury tax et cetra.

The levying of tax is done on both direct taxes and indirect taxes by both State and Central Government. Thus, to forgo the tediousness and to have a unified law by subsuming duties levied on services such as ‘custom duty, excise duty, service tax, sales tax, VAT’ the central government came up with Goods and Service Tax.

Table of Content

Gist on Goods and Service Tax

Background and necessity of the GST

Challenges of previous Act(s)

Amendments made to the Constitution of India

• Special provision with respect to GST
• Amendment of Article(s)

What is CGST, SGST, IGST AND UTGST?

Compensation made to the state for loss of revenue

Conclusion

 Goods and Service Tax (GST)

• GST is an indirect tax throughout India to replace taxes levied by the Central and State Government.
• The very concept of the GST was initially adopted by France and over 160 countries have adopted and implemented GST.
• It was brought in by 101^st amendment to the Constitution of India, following the passage of the Constitution 122^nd Amendment Bill.
• On 1^st July 2017 GST took force, having its head quarters located at Delhi.
• The GST is governed by the GST council and its chairman is Union Finance Minister of India and it is applicable to all over India including the state of Jammu and Kashmir.
• According to GST Act, the goods and services are taxed at the rate of 0%, 5%, 12%, 18% and 28% with cess on luxury goods and 3% special rate on precious metals such as gold.

Background and necessity of the GST 

2003 – The Vajpayee government formed a task force under Vijay Kelkar to recommend tax reform.

2005 – The 12^th Finance commission headed by Kelkar committee recommended rolling out GST.

2009 – The empowered committee decided to constitute a working group consisting of principal secretaries (finance/ taxation) and commissions of trade taxes all over the state/ UTs to give their recommendations on:

a) The commodities and services that should be kept in the exempted list

b) The rules includes interstate services

c) The movement of monetary transactions between interstate shall be done through State Bank of India or other Nationalised bank(s).

2011 – The constitution 101^st Amendment Bill, 2011 to give concurrent taxing power to the Union and States was introduced in Lok Sabha. The Bill suggested the creation of Goods and Service Tax Council and a Goods and Service Tax Dispute Settlement Authority. The Bill was lapsed in 2014 and was replaced with the 122^nd Amendment of Constitution Bill, 2014.

2012 – A committee on GST Design constituted with government officials.

2013

January – A proposal submitted by Empowered Committee on 115^th Amendment Bill and decides to constitute 3 below mentioned committee of officers for–

a) Committee on Place of Supply Rules and Revenue Neutral Rates

b) Committee on dual control, threshold and exemption

c) Committee on IGST and GST on imports

August – the draft of the GST Bill was submitted by the Parliament Standing Committee to Lok Sabha and revision of the same was demanded.

September – the final draft of the Bill was submitted incorporating all the revision made as stated by the Lok Sabha.

2014

June – the draft consisting Constituting Amendment Bill in March, 2014 was sent to the Empowered Committee after approval of the new government.

December – the Constitution’s 122^nd Amendment Bill, 2014 seeks amends to bring in Goods and Service Tax and subsume state VAT, luxury tax, octroi, entry tax and other indirect taxes.

May 2015 – the Lok Sabha passed GST Bill to Act.

2016

June – The Ministry of Finance released the draft model law on GST in public domain to record the suggestions of public.

August – finally, on 3^rd August, 2016 the Constitution (122^nd Amendments) Bill, 2014 was passed by Rajya Sabha.

September – final assent of the Hon’ble President of India was given on 8^th September’ 2016.

12^th April’ 2017 – the Central Government enacted 4 GST Bills

• Central GST (CGST)
• Integrated GST (IGST)
• Union Territory GST (UTGST)
• Goods and Service Tax (Compensation to States) Bill

July 2017 – GST came to force.

Challenges of previous Act(s)

The challenges under the previous indirect tax structure could be attributed to Central Excise wherein there were variable rates under Excise Duty such as 2% without CENVAT 6%, 10%, 18%, 24% and 27%, coupled with multiple valuation system where the collection of CENVAT on domestically produced goods as well as the additional duty of customs on imported goods. While input tax credit of CENVAT or additional duty of custom paid on goods was available to service provided paying service tax, they were unable to neutralize the state VAT or other state paid on their purchase of goods.

Further, under VAT, different states were changing VAT at different rates, which were resulting in imbalance of trade between the states and also lack uniformity in terms of tax payments.

Also, interstate sale of goods was liable to the central sales tax levied by the centre and collected by the states and this couldn’t be set off against VAT in many situations.

State Government also levied and collected a variety of other indirect taxes such as luxury tax, entertainment tax etc for which no set off is available. 

2016 – Amendment made to the Constitution of India

Insertion of Article 246 A

Special Provision with Respect to Goods and Services Tax – Bringing an Amendment to the Article 246, the following is inserted as Article 246 A –

• State(s) of the Nation – The Legislature of the every State, have power to make laws with respect to GST tax imposed by the Union or by such State.
• Inter-State Trade and Commerce – the power is vested only with the parliament to make laws with respect to the GST of Inter-State Trade and Commerce.

Insertion of Article 269 A

• Goods and service tax on supplies in the course of interstate trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between Union and the State.
• Appropriation of the State shall not be a part of consolidated fund in India.
• State Tax collected and used in payment of the State Tax is also not a part of consolidated fund in India.
• State Tax collected by State used in payment of State tax shall not be part of consolidated Fund of State.

Insertion of Article 279 A

The amended Article shall be known as 279A further, this shall be known for GST Council.

Members to the Council –

• Union Finance Minister
• Union Minister of State in charge of Revenue or Finance Member
• The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government Members

The appointed members of the council shall make recommendations to the Union and the States.

Insertion of Article 286 A

The sale or purchase of goods where such sale or purchase takes place the words the supply of goods or of services or both, where such supply takes place shall be substituted and the word goods includes both goods and services.

What is CGST, SGST, IGST AND UTGST?

CGST

• CGST is the component of GST that will be levied by the central government on all items, both goods and services.
• It only appears to intra state.

SGST

• State GST is the component of GST that will be levied by the state government on all items, both goods and services.
• It only applies to intra state trade.

IGST

• Integrated GST is the component of GST that will be levied by the central government in case of interstate trade.
• It’s applicable on all items, both goods and services.

UTGST

Union territory SGT is applicable on all the goods and services availed in the union territory.

Compensation made to the state for loss of revenue

Parliament shall, by law, on the recommendation of the Goods and Service Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and service tax for a period of 5 years.

Conclusion

An Indirect Tax is collected by an intermediary from the person who bears the unlimited economic burden of the tax. The taxpayer has an undeniable duty for paying the tax to support the society and further, the burden of indirect tax can’t be waived off to others. An indirect tax may increase as the price of a goods goes up which states that the consumer are actually paying the tax as and when any services being availed by an individual.

Since 2017 (after implementing Goods and Service Tax), the central government holds control over the GST and further, the council also tracks and governs the movement of goods within the state and interstates and also gives power to the State(s) of the country to amend the structure of law, to collect and consolidate the fund with the central government. By this way every individual of the nation becomes responsible and becomes a part in making the contribution to the welfare of the society.