IMAPCT OF GOODS AND SERVICES TAX(GST)

Taxes on the Indian version of goods and services or GST is taxed based on the
proposed destination by the government, in which the aim of destroying various
indirect taxes such as VAT, Central Consumption Tax, Sales Tax, Service, etc.
Nation However, unlike GST in other countries, Indian GST is nothing but tax.
It is actually the culmination of the three taxes - Central Freight and Tax
Service (CGST), Integrated / Interstate Freight and Tax Services (IGST) and
State Tax Goods and Services (SGST).

CGST and SGST will be hired on supply of goods and services, whereas IGST
will be applicable to interstate supply of goods and services in India. Since this
is a tax based on the destination, hence the manufacturer will be charged at all
the stages till the end user so that the taxes given in the previous steps available
in the form of start-up can be attributed. In short, the tax will be levied only at
the extra cost and the final burden of tax will be borne by the final consumer.

Both the CGST and SGST are planning to collect the same taxable income.
While CGST is likely to replace all major indirect taxes such as consumption
tax and service tax etc., it is expected that SGST VAT, entertainment tax
(other than local corporation tax), tax luxury, purchase, termination and
surcharge, lottery or Taxes on bets etc. are unnecessary However, some items
such as consumable alcohol, tobacco products, motor fuels, crude oil, natural
gas and jet fuel will continue to be charged for excise duty.

GST will eliminate the widespread impact of taxes In some cases, such as
VAT collected by the State Governments (which is collected by the Central
Government), the double taxation becomes clear, this practice of tax on goods
and services tax taxes Will reduce.

The Goods and Services Tax (G.S.T.) is a landmark step taken by the
Government of India to boost the GDP and introduce a more effective tax
regime.

GST is a win-win situation for the entire country. It brings benefits to all the
stakeholders of the industry, government and the consumer. It will lower the
cost of goods and services to give a boost to the economy and make the
products and services globally competitive. By subsuming most of the central
and state taxes into a single tax and by allowing a set-off of prior-stage taxes for
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the transactions across the entire value chain, it would mitigate the ill effects of
cascading and improve competitiveness and liquidity of the businesses.

GST will be applicable to all dealers whose aggregate turnover in a financial

year exceeds INR 2.00 Million (INR 1.00 Million in case of eleven special
category states). Separate registration will be required in every state from where
a taxable supply of goods or services is made

Reverse Charge:

If the supplier is not registered under GST and is supplying taxable goods or
services to a recipient who is registered, the GST on such taxable supplies shall
be borne by the recipient on reverse charge basis. Meaning registration seems to
be mandatory for every party; else it is quite possible that owing to extra
compliance issues people might be interested in doing business only with those
parties who are registered under the GST legislation. With few days left with
GST coming into force , this registration parameter might create a big time
hassle among small traders as they might lose some business until they get
registered under GST. Thus, in order to counter this issue, a monetary threshold
limit in place will act as a cushion for such small business houses till the time
they come fully under the ambit of GST.

Ratings:

The government will give an online rating on level, timeliness and efficiency of
compliances. Non-compliance will not just lead to penalties but also
blacklisting, which can affect the future creditability, reputation and can harm
the business growth of a business.

This online rating is going to be available on the web portal and one can check
and decide business associations on the basis of these ratings

GST on Stock Transfer:

GST is chargeable on stock transfers to depots and stockists. This will further
increase the working capital requirement as the suppliers have to incur cost on
transfer of goods to own godowns and depots without any actual revenue
getting accrued or realized.

The GST paid in such a case can be claimed as input tax credit on sale of goods
from depots or warehouses.

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Area Based Exemptions:
Under the current tax laws North East, Uttarakhand and Himachal Pradesh have
certain areas exempted from excise duty and other state taxes. Department of
Industrial Policy and Promotion is working on a scheme where companies will
have to pay tax upfront and can claim refund of the same in the areas stated
above. Taxes paid also can be claimed as set off against any liability. The
industry wants clarity on policy and time for adjustment. It is keen on availing
smooth and hassle free refunds.

Free of Cost Supply as Sample/Gifts/Promotional Schemes:

Free samples and gifts offered with purchases as well as popular buy-one-get-
one-free deals may attract GST.

GST will be entirely based on the concept of a supply, which now includes
even goods and/ or services supplied without consideration by a taxable person
in the course of or furtherance of business. This will impact the sales and
marketing cost of companies which follow such schemes. Buyers will have to
pay GST on articles they receive free.

Presently, for a free sample of goods, excise duty is payable but VAT/ CST is
not payable. However, proportionate input tax credit under VAT is reversible in
some states. The net impact for businesses will therefore be the difference
between the existing excise and VAT cost, and the GST which will become
payable.

Now again, the question that arises is about the goods replaced under a warranty
as these goods are again free of cost. But, generally the vendor is charged the
warranty cost at the time of supply, which is hidden in the final price of the
product.

GST on Allocation of Common Expenses:

Intra-company transactions are proposed to be taxed under GST. Any

secondment of employees, sharing of common expenses between related
companies would be taxed. Though, the receiving entity would be entitled to
avail credit of tax charged by the supplying company, this would result in the
requirement of additional working capital for all such companies.

Branch Office (BO) and Head Office (HO) Transactions:

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BO and HO are separate persons for the purposes of GST levy. It becomes
important to determine the place of supply of the transaction in order to
determine GST implications. Should the place of supply be in India, then as per
Section 10 of the Integrated Goods and Service Tax (IGST), the transaction
shall be subject to IGST under reverse charge.

GST will be applicable where overseas BO is supplying to Indian HO, Indian

BO supplying to Indian HO and vice versa.

GST on Advance Payment:

From some peculiar provision under the GST Act, GST on advance payment is
one. In the present situation except service tax no other law requires to pay tax
on advances. Now the taxpayer will have to pay GST on the advancement of
goods and services in GST. After giving advance to the supplier the buyer will
not get the credit of GST. Whenever the supplier supplies goods or services and
gives the tax invoice to the receiver then only the buyer will get the credit of
GST. If the rates cant be ascertained at the time of taking advance, then GST
will be charged @ 18%. The money will be blocked for during this time until
the supply is completed. Similarly, the supplier will charge GST on the
remaining amount by deducting the advance from the total amount. Every small
or large business will have to pay attention towards accounting and must be
compliant with the law. Accounting softwares need to be upgraded to charge
tax based on receipt invoice.

While GST is yet to come into effect, it will evolve post implementation.
Further, though clarity on various critical issues affecting the industry are still
unanswered, the benefit to the economy cannot surely be undermined.

CONSTITUTIONAL ASPECTS OF GST

There are several articles in the constitution of India which define the financial
relations between Union and States. Since GST bills involve a huge interest of
the state governments, such a historical tax reform cannot take place without
making suitable changes into the constitution. For this purpose, 101st
amendment of the constitution was passed. This act received the assent of the
President of India on 8th September, 2016. The important changes made in
constitution (new articles / amended articles) via this law are as follows:

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 Article 246 (A)
This is a new article inserted in the constitution. It says that
(1) Notwithstanding anything contained in articles 246 and 254, Parliament,
and, subject to clause (2), the Legislature of every State, have power to make
laws with respect to goods and services tax imposed by the Union or by such
State. (2) Parliament has exclusive power to make laws with respect to goods
and services tax where the supply of goods, or of services, or both takes place
in the course of inter-State trade or commerce
Notable Points from Article 246A
For your examinations, you must the below points clearly from this article:
Both Union and States in India now have concurrent powers to make
law with respect to goods & services
The intra-state trade now comes under the jurisdiction of both centre and
state; while inter-state trade and commerce is exclusively under central
government jurisdiction

Article 269A
This is a new article which reads as follows:
269A. (1) Goods and services tax on supplies in the course of inter-State
trade or commerce shall be levied and collected by the Government of
India and such tax shall be apportioned between the Union and the States
in the manner as may be provided by Parliament by law on the
recommendations of the Goods and Services Tax Council.
Explanation.For the purposes of this clause, supply of goods, or of services,
or both in the course of import into the territory of India shall be deemed to be
supply of goods, or of services, or both in the course of inter-State trade or
commerce.
(2) The amount apportioned to a State under clause (1) shall not form part of the
Consolidated Fund of India.
(3) Where an amount collected as tax levied under clause (1) has been used for
payment of the tax levied by a State under article 246A, such amount shall not
form part of the Consolidated Fund of India.
(4) Where an amount collected as tax levied by a State under article 246A has
been used for payment of the tax levied under clause (1), such amount shall not
form part of the Consolidated Fund of the State.
(5) Parliament may, by law, formulate the principles for determining the place
of
supply, and when a supply of goods, or of services, or both takes place in the
course of inter-State trade or commerce.
Notable Points from Article 269A

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 This article says that in case of the inter-state trade, the tax will be levied
and collected by the Government of India and shared between the Union
and States as per recommendation of the GST Council.
The article also makes it clear that the proceeds such collected will not be
credited to the consolidated fund of India or state but respective share shall
be assigned to that state or centre. The reason for the same is that under
GST, where centre collects the tax, it assigns states share to state, while
where state collects tax, it assigns centres share to centre. If that proceed
is deposited in Consolidated Fund of India or state, then, every time there
will be a need to pass an appropriation tax. Thus, under GST, the
apportionment of the tax revenue will take place outside the Consolidated
Funds.
Article 279-A:
This article provides for constitution of a GST council by president within sixty
days from this act coming into force. The GST council will constitute the
following members:
Union Finance Minister as chairman of the council
Union Minister of State in charge of Revenue or Finance
One nominated member from each state who is in charge of finance or
taxation
The GST council will be empowered to take decisions on the following:
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;
The goods and services that may be subjected to, or exempted from, the
goods and services tax;
Model Goods and Services Tax Laws, principles of levy, apportionment of
Integrated Goods and Services Tax and the principles that govern the place
of supply;
The threshold limit of turnover below which goods and services may be
exempted from goods and services tax;
The rates including floor rates with bands of goods and services tax;
Any special rate or rates for a specified period, to raise additional resources
during any natural calamity or disaster;
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
Any other matter relating to the goods and services tax, as the Council may
decide.

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 All decisions taken at the GST council will be taken based on voting. Process
of voting is clearly articulated in detail in the constitutional amendment bill.

Changes in the 7th Schedule

This amendment has made following changes in 7th schedule of the constitution:
Union List:
The entry 84 of Union List earlier comprised the duties on tobacco, alcoholic
liquors, opium, Indian hemp, narcotic drugs and narcotics, medical and
toilet preparations. After this amendment, it will comprise of Petroleum
crude, high speed diesel, motor spirit (petrol), natural gas, and aviation
turbine fuel, tobacco and tobacco products. Thus, these are now out of ambit
of GST and subject to Union jurisdiction.
Entry 92 (newspapers and on advertisements published therein) has been
deleted thus, they are now under GST.
Entry 92-C (Service Tax) has been now deleted from union list.
State List
Under State list, entry 52 (entry tax for sale in state) has been deleted.
In Entry 54, Taxes on the sale or purchase of goods other than newspapers,
subject to the provisions of Entry 92-A of List I.; has been now replaced by
Taxes on the sale of petroleum crude, high speed diesel, motor spirit
(commonly known as petrol), natural gas, aviation turbine fuel and
alcoholic liquor for human consumption, but not including sale in the
course of inter-State trade or commerce or sale in the course of international
trade or commerce of such goods.
Entry 55 (advertisement taxes) have been deleted.
Entry 62 (Taxes on luxuries, including taxes on entertainments,
amusements, betting and gambling) has been replaced by these taxes only to
be levied by local governments (panchayats, municipality, regional council
or district council.
Other Important amendments in existing articles
The residuary power of legislation of Parliament under article 248 is now
subject to article 246A.
Article 249 has been changed so that if 2/3rd majority resolution is passed by
Rajya Sabha, the Parliament will have powers to make necessary laws with
respect to GST in national interest.
Article 250 has been amended so that parliament will have powers to make
laws related to GST during emergency period.

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 Article 268 has been amended so that excise duty on medicinal and toilet
preparation will be omitted from the state list and will be subsumed in GST.
Article 268A has been repealed so now service tax is subsumed in GST.
Article 269 would empower the parliament to make GST related laws for
inter-state trade / commerce.
Further, the amendment also provided that Parliament shall, by law, on the
recommendation of the Goods and Services Tax Council, provide for
compensation to the States for loss of revenue arising on account of
implementation of the goods and services tax for a period of five years. This
resulted into the Compensation Cess Bill.

BENEFIT OF GST TO INDIAN ECONOMY

Removal of bundled indirect taxes such as VAT, CST, Service tax,
CAD, SAD, and Excise.
Less tax compliance and a simplified tax policy compared to current
tax structure.
Removal of cascading effect of taxes i.e. removes tax on tax.
Reduction of manufacturing costs due to lower burden of taxes on
the manufacturing sector. Hence prices of consumer goods will be
likely to come down.
Lower the burden on the common man i.e. public will have to shed
less money to buy the same products that were costly earlier.
Increased demand and consumption of goods.
Increased demand will lead to increase supply. Hence, this will
ultimately lead to rise in the production of goods.
Control of black money circulation as the system normally followed
by traders and shopkeepers will be put to a mandatory check.
Boost to the Indian economy in the long run.
HOW WILL GST IMPACT ON INDIAN ECONOMY
Reduces tax burden on producers and fosters growth through more
production. The current taxation structure, pumped with myriad tax
clauses, prevents manufacturers from producing to their optimum
capacity and retards growth. GST will take care of this problem by
providing tax credit to the manufacturers.
Different tax barriers, such as check posts and toll plazas, lead to
wastage of unpreserved items being transported. This penalty
transforms into major costs due to higher needs of buffer stock and
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 warehousing costs. A single taxation system will eliminate this
roadblock.
There will be more transparency in the system as the customers will
know exactly how much taxes they are being charged and on what
base.
GST will add to the government revenues by extending the tax base.
GST will provide credit for the taxes paid by producers in the goods
or services chain. This is expected to encourage producers to buy raw
material from different registered dealers and is hoped to bring in
more vendors and suppliers under the purview of taxation.
GST will remove the custom duties applicable on exports. The
nations competitiveness in foreign markets will increase on account
of lower costs of transaction

INDIAN BRIGHT ECONOMY

The introduction of the Goods and Services Tax will be a very noteworthy step
in the field of indirect tax reforms in India. By merging a large number of
Central and State taxes into a single tax, GST is expected to significantly
ease double taxation and make taxation overall easy for the industries. For
the end customer, the most beneficial will be in terms of reduction in the
overall tax burden on goods and services. Introduction of GST will also make
Indian products competitive in the domestic and international markets. Last
but not least, the GST, because of its transparent character, will be easier to
administer. Once implemented, the proposed taxation system holds great
promise in terms of sustaining growth for the Indian economy.

DRAWBACK OF GST

India has adopted dual GST instead of national GST. It has made the entire
structure of GST fairly complicated in India. The centre will have to coordinate
with 29 states and 7 union territories to implement such tax regime. Such
regime is likely to create economic as well as political issues. The states are
likely to lose the say in determining rates once GST is implemented. The
sharing of revenues between the states and the centre is still a matter of
contention with no consensus arrived regarding revenue neutral rate.

Chief Economic Advisor Arvind Subramanian on 4 December 2015 suggested

GST rates of 12% for concessional goods, 17-18% for standard goods and
40% for luxury goods which is much higher than the present maximum service
tax rate of 14%. Such initiative is likely to push inflation.

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 The proposed GST structure is likely to succeed only if the country has a
strong IT network. It is a well-known fact that India is still in the budding state
as far as internet connectivity is concerned. Moreover, the proposed regime
seems to ignore the emerging sector of e-commerce. E-commerce does not
leave signs of the transaction outside the internet and has anonymity associated
with it. As a result, it becomes almost impossible to track the business
transaction taking place through internet which can be business to business,
business to customer or customer to customer. Again, there appears to be no
clarity as to whether a product should be considered a service or a product
under the concept of E-commerce. New techniques can be developed to track
such transactions but until such technologies become readily accessible,
generation of tax revenue from this sector would continue to be uncertain and
much below the expectation. Again E-commerce has been insulated against
taxation under custom duty moratorium on electronic transmissions by the
WTO Bali Ministerial Conference held in 2014 [4].

Communication is considered to be necessity and one cannot do without

communication. In modern times, communication has assumed the dimension
of telecommunication.

The proposed GST regime appears to be unfavorable for telecommunication

sector as well

One of the major drawbacks of the GST regime could be the direct spike in
the service tax rate from 14% to 20-22% (GST: Impact on the
Telecommunications Sector in India). The proposed GST appears to be silent
on whether telecommunication can be considered under the category of goods
or services. The entire issue of telecommunication sector assumes a serious
proportion when Indias rural teledensity is not even 50% [5].

The proposed GST regime intends to keep petroleum products, electricity,

real estate and liquor for human consumption out of the purview of GST

It is a well-known fact that petroleum products have been a major contributor

to inflation in India. Inflation in India depends on how the government intends
to include petroleum products under GST in future.

Electricity is essential for the growth and development of India. If electricity is

included under standard or luxury goods in future then it would badly affect
the development of India. It is said that GST would impact negatively on the
real estate market. It would add up to 8% to the cost of new homes and reduce
demand by about 12%.

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 The proposed GST regime would be capable of being levied on sale of
newspapers and advertisements therein

This would give the governments the access to substantial incremental

revenues since this industry has historically been tax free in its entirety [6]. It
sounds ridiculous but the provision of GST is likely to make the supervision of
operations by its Board/senior managers across the companys offices in
different parts of the country a taxable service by allowing each state to raise a
GST demand on the company.

Again there appears to be lack of consensus over fixing the revenue rate as
well as threshold limit. One thing is for sure, services in India are going to be
steeply costly if GST is fixed above the present service tax rate of 14% which
in turn will spiral up inflation in India. Asian countries which implemented
GST all had witnessed retail inflation in the year of implementationve
implemented GST. The government of India should study the GST regime set
up by various countries and also their fallouts before implementing it. At the
same time, the government should make an attempt to insulate the vast poor
population of India against the likely inflation due to implementation of GST.
No doubt, GST will simplify existing indirect tax system and will help to
remove inefficiencies created by the existing current heterogeneous taxation
system only if there is a clear consensus over issues of threshold limit, revenue
rate, and inclusion of petroleum products, electricity, liquor and real estate.
Until the consensus is reached, the government should resist from
implementing such regime.

Conclusion

The proposed GST regime is a half-hearted attempt to rationalize indirect tax

structure. More than 150 countries have implemented GST. The government of
India should study the GST regime set up by various countries and also their
fallouts before implementing it. At the same time, the government should make
an attempt to insulate the vast poor population of India against the likely
inflation due to implementation of GST. No doubt, GST will simplify existing
indirect tax system and will help to remove inefficiencies created by the existing
current heterogeneous taxation system only if there is a clear consensus over
issues of threshold limit, revenue rate, and inclusion of petroleum products,

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electricity, liquor and real estate. Until the consensus is reached, the government
should resist from implementing such regime.

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