GST and its features

1. UNIT II
GOODS AND SERVICES TAX
II.Passage of GST in India
Goods & Services Tax is prevalent in almost 160 countries around the world and France was the
first country to introduce the same in 1954. The journey to introduction of GST in India has been
long and is a result of larger sections of the society, particularly, trade and industry and the
foreign establishments who have business interests in India.
To address the anomalies in the previous Indirect tax system, the Vajpayee government proposed
comprehensive taxation on goods and services in July 17, 2000. It entrusted the job to a
committee set up and headed by the then West Bengal Finance Minister to design a GST model.
When the Government of India set up the Empowered Committee of State Finance
Ministers with the Hon’ble State Finance Ministers of West Bengal, Karnataka, Madhya
Pradesh, Maharashtra, Punjab, Uttar Pradesh, Gujarat, Delhi and Meghalaya as members, it had
the following objectives:
 to monitor the implementation of uniform floor rates of sales tax by States and
Union Territories;
 to monitor the phasing out of the sales-tax based incentive schemes;
 to decide milestones and methods of States to switch over to VAT; and
 to monitor reforms in the Central Sales Tax system existing in the country.
Subsequently, Hon’ble State Finance Ministers of Assam, Tamil Nadu, Jammu & Kashmir,
Jharkhand and Rajasthan were also notified as the members of the Empowered
Committee.
On August 12, 2004, the Government of India decided to reconstitute the Empowered
Committee with all the Hon’ble State Finance/Taxation Ministers as its members. Later on, it
was decided to register the body as a Society under the Societies Registration Act, 1860. GST
has been in the pipeline for a long time, for its implementation.

2. Here is a brief flash back mentioning the key milestones of the journey of GST in India:
(i)2003: The Kelkar Task Force on Indirect Tax had suggested a comprehensive Goods
and Services Tax based on VAT principle.
(ii)February, 2007: An announcement was made by the then Hon’ble Union
Finance Minister in the Central Budget (2007- 08) to the effect that GST would be
introduced with effect from April 01, 2010.
(iii)September, 2009: The Empowered Committee (EC) decided to constitute a Working
Group consisting of Principal Secretaries / Secretaries (Finance / Taxation) and
Commissioners of Trade Taxes of all States/UTs to give their recommendations on:
the commodities and services that should be kept in the exempted list;
the rules and principles of taxing the transactions of services including the
transactions in interState services; and
finalization of the model suggested for inter-state transaction/movement of goods
including stock transfers in consultation with the State Bank of India and some other
nationalized banks.
(iv)November, 2009: Based on inputs from Government(s) of Centre and States,
Empowered Committee released its First Discussion Paper on GST.
(v)March, 2011: The Constitution (One Hundred and Fifteenth Amendment) Bill, 2011 to
give concurrent taxing powers to the Union and States was introduced in Lok Sabha. The
Bill suggested the creation of Goods and Services Tax Council and a Goods and
Services Tax Dispute Settlement Authority. The Bill was lapsed in 2014 and
was replaced with the Constitution (122nd Amendment) Bill, 2014.
(vi)November, 2012: A “Committee on GST Design”, consisting of the officials of the
Government of India, State Governments and Empowered Committee (EC) was
constituted.
(vii)January, 2013: The Empowered Committee deliberated on the proposed design
including the Constitution (115th) Amendment Bill and submitted the report. Based
on this Report, the EC recommended certain changes in the Constitution Amendment
Bill and decided

3. to constitute three below mentioned Committees of Officers to discuss and Report on
various aspects of GST:
Committee on Place of Supply Rules and Revenue Neutral Rates;
Committee on dual control, threshold and exemptions;
Committee on IGST and GST on imports.
(viii)March, 2013: A not for profit, non-Government, private limited company was
incorporated in the name of Goods and Services Tax Network (GSTN) as special purpose vehicle
setup by the Government primarily to provide IT infrastructure and services to the Central and
State Government(s), tax payers and other stakeholders for implementation of GST.
(ix)August, 2013: The Parliamentary Standing Committee submitted its Report to the Lok
Sabha. The recommendations of the Empowered Committee and the recommendations of the
Parliamentary Standing Committee were examined by the Ministry in consultation with the
Legislative Department. Most of the recommendations made by the Empowered Committee and
the Parliamentary Standing Committee were accepted and the Draft Amendment Bill was
suitably revised.
(x)September, 2013: The final draft Constitutional Amendment Bill incorporating the
above stated changes was sent to the Empowered Committee (EC) for consideration.
(xi)November, 2013: The EC once again made certain recommendations on the Bill after its
meeting in Shillong. Certain recommendations of which were incorporated in the draft
Constitution (115th Amendment) Bill and the revised draft was again sent to EC for its
consideration.
(xii)June, 2014: The draft Constitution Amendment Bill in March, 2014 was sent to the
Empowered Committee after approval of the new Government.
(xiii)December, 2014: The Constitution (One Hundred and Twenty-Second Amendment) Bill,
2014 seeking to amend the Constitution to introduce GST and subsume state Value Added Tax,
Octroi and entry tax, luxury tax, etc. was introduced in the Lok Sabha on December 19, 2014
by the Hon’ble Minister of Finance, Mr. Arun Jaitley.

4. (xiv) May, 2015: Constitution Amendment (122nd) Bill was passed by Lok Sabha on
May 06, 2015.
(xv) May, 2015: In Rajya Sabha, Bill was referred to a 21-member Select Committee of Rajya
Sabha.
(xvi) July, 2015: Select Committee submitted its report to Rajya Sabha on July 22, 2015.
(xvii) June, 2016: On June 14, 2016, the Ministry of Finance released draft model law on GST
in public domain for views and suggestion.
(xviii) August, 2016: On August 03, 2016, the Constitution (122ndAmendment) Bill, 2014
was passed by Rajya Sabha with certain amendments.
(xix) August, 2016: The changes made by Rajya Sabha were unanimously passed by Lok
Sabha, on August 08, 2016.
(xx) September, 2016: The Bill was adopted by majority of State Legislatures wherein
approval of at least 50%of the State Assemblies was required
(xxi) September, 2016: Final assent of Hon’ble President of India was given on 8th
September,2016
(xxii) April, 2017: Parliament passed the following four bills:
 Central Goods and Services Tax (CGST) Bill
 lIntegrated Goods and Services Tax(IGST) Bill
 Union Territory Goods and Services Tax (UTGST) Bill
 Goods and Services Tax (Compensation to States) Bill
(xxiii) April, 2017: President’s assent was given to four key legislations on Goods and Services
tax.
(xxiv) July, 2017: GST became a reality The current status of GST Laws Passed in India is as
under:

5. 2.1. GST in India
GST is one of the biggest taxation reforms of independent India with the objective of
integrating State economies. GST, the most historic indirect tax reform, is implemented with the
aim of enhancing the overall growth of the Nation along with supporting the Make in
India initiative. It aims at creating a single, unified Indian market throughout the Nation.
It is a comprehensive destination based indirect tax levy of goods as well as services at
the national level. Its main objective is to consolidate multiple indirect tax levies into a
single tax thus subsuming an array of tax levies, overcoming the limitations of previous indirect
tax structure, and creating efficiencies in tax administration.
GST is a consumption based tax which is levied on the basis of “Destination principle.” The
concept relates to taxing the supply of goods or services at the point of consumption. It is a
comprehensive tax regime covering both goods and services, and is collected on value-added at
each stage of the supply chain. Further, GST paid on the procurement of goods and services can
be set off against that payable on the supply of goods or services. Simply put, Goods
and Services Tax is a tax levied on goods and services imposed at each point of supply. GST is a
The law Purpose
The Central Goods and Services Tax, 2017
(CGST Act)
To levy, collect CGST on intra-state supplies
and for other matters
The Integrated Goods and Services Tax, 2017
(IGST Act)
To levy, collect IGST on inter-state
supplies and for other matters
The Union Territory Goods and Services Tax,
2017 (UTGST Act)
To levy, collect UTGST on intra-UT supplies
and for other matters
GST (Compensation to States) Tax, 2017 To compensate states for the loss of revenue if
any due to introduction of GST
The States Goods and Services Tax, 2017
(SGST Act)
To levy, collect SGST on intra-state supplies
and for other matters

6. national level tax based on value added principle just like State level VAT which was levied as
tax on sale of inter-state goods.
The essence of GST is in removing the cascading effects i.e., tax on tax of both Central and
State taxes by allowing setting-off of taxes throughout the value chain, right from the
original producer and service provider’s point up to the consumer level. GST is a major
improvement over existing system of VAT and disjointed Service Tax ushering a collective gain
for industry, trade and common consumers as well as for the Central Government and the State
Governments at large. GST, as a well-designed value added tax on all goods and services, is the
most elegant method to eliminate distortions and to tax consumption.

7. The following taxes have been subsumed under GST:

8. The following subject matters kept outside the purview of GST. As such these are taxed
under the existing laws of centre and states as the case may be.
Tobacco and tobacco products would be subject to GST. In addition, the Centre would
have the power to levy Central Excise duty on these products.
2.2. Models of GST
The principles of GST are largely common in almost all the countries. However, there are
significant differences in the implementation of the same depending on continued existence of
exemptions and special arrangements to meet specific policy objectives. The point of difference
also arises from differences of approaches in the defining the jurisdiction of consumption and
hence of the taxation. Moreover, there are a number of variations in the application of
GST alongwith different interpretation of the same or similar concepts; different approaches to
time of

9. supply and its interaction with place of supply; different definitions of services and intangibles
and inconsistent treatment of mixed supplies, around the world.
Different countries follow different model of GST based upon their own legislative and
administrative structure and their requirements. Some of these models are:
•Australian Model wherein, tax is collected by the Centre and distributed to the States
•Canadian Model wherein there are three variants of taxes
•Kelkar-Shah Model based on Canada Model wherein taxes are collected by the Centre however,
two different rates of tax are to be levied by the Centre and the States and
•Bagchi-Poddar Model which envisages a combination of Central Excise, Service Tax and VAT
to make it a common base of GST to be levied both by the Centre and the States
separately.
Mostly all over the world, many countries follow a unified GST regime. However,
considering the federal nature of Indian Constitution, dual model of GST was required, proposed
and levied. In dual model of GST, where the power to levy taxes is subjectively
distributed between Centre and States, GST is levied by both, the Centre as well as the States and
there are separate levies in the form of Central Goods and Services Tax (CGST), State Goods and
Services Tax (SGST) and Integrated Goods and Services Tax (IGST) enabling the tax credit
across these three variants of taxes. Currently, Brazil and Canada also follow dual GST model.
The Indian GST system has its own uniqueness in many ways. Apart from India, Brazil is the
only country in the world which follows a similar dual GST System. In India, GST has been
rolled out as a uniform taxation system all across the Nation by removing entry barriers between
states.
In Canada, though GST scheme closely resembles that of India, it failed to achieve
consensus among states. As a result the GST was made optional not mandatory. States are free to
adopt or reject GST. In India, GST is uniformly applicable all over India including the State of
Jammu and Kashmir.

10. 2.3. BASIC CONCEPTS AND OVERVIEW OF GOODS AND SERVICES TAX
GST is a single, unified tax on every value-add, right from manufacture to sale /
consumption of goods / services. Hence, with the advent of GST, the legacy taxes on
manufacture (Excise), Inter-state sales (CST), Intra-state sales (VAT) and Service Tax have been
subsumed. There has been a paradigm shift in the way the tax is being levied. We have
now moved from source based to destination-based taxation, with GST coming into foray.
Hence GST is also labelled as a destination-based / consumption-based tax.
GST also does away with the cascading effects of taxation, by providing a comprehensive and
continuous chain of tax credits, end to end and taxing only the value-added at every stage. The
final tax is borne by the end consumer, as all the parties in the interim can extinguish their
respective collections against their respective liabilities and the tax already paid by them (Input
Tax Credit).
A numerical example of the same below helps understand the concept better:

11. Note:
a)There is no tax incidence on any interim party, i.e., neither on the wholeseller nor the retailer
b)The reason is simple, the tax that each of them have paid, can be set off against their
respective output tax liabilities (Input Tax Credit)
c)The final incidence is only on the end consumer, clearly reiterating the manner in which the
cascading effects of the legacy taxation methodologies have been done away with.
2.4. OBJECTIVES OF GST
Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and
consumption of goods and service at a national level under which no distinction is
made between goods and services for levying of tax. It will mostly substitute all indirect taxes
levied on goods and services by the Central and State governments in India. The objectives of
GST are as follows:
TO ELIMINATE THE CASCADING EFFECT OF INDIRECT TAXES ON SINGLE
TRANSACTION
The basic objective of GST is to remove cascading effect of the taxes. Cascading effect of taxes
mean levy of tax on tax. GST would be levied only towards the net value added portion and not
towards the entire portion of value as the tax payer would enjoy input tax credit.
TO SUBSUME ALL THE INDIRECT TAXES AT THE CENTRE AND STATE LEVEL
Barring few indirect taxes, all the major indirect taxes levied by central and state
governments have been subsumed into GST. Thus, the taxpayer and supplier need not
bother about paying multiple indirect taxes under different laws.
TO REDUCE THE TAX EVASION AND CORRUPTION
GST would help in curbing of tax evasion and reduce corruption in tax department. In the system
of GST, there would be less chance to claim false input tax credit as it requires matching of
invoices between recipient and the suppliers. Input tax credit can be claimed only if the tax

12. has been deposited by the registered supplier to the Government. Each invoice wise matching
and verification would be made to ensure that taxes are properly paid to the government.
TO INCREASE THE PRODUCTIVITY
GST would help in increasing the enterprise productivity and efficiency. Under the
previous tax regime, there were many constraints relating to logistics and impractical procedures
regarding claim of input tax credit. There was also levy of entry tax in few States on entry of
goods into states. In GST regime, entry tax has been subsumed. Number of checks on
State borders would also reduce due to removal of check posts. These factors would help in
increase of productivity.
TO INCREASE TAX COMPLIANCE
Tax compliance under GST is expected to be more compared to the previous tax regime. As the
number of tax laws have been subsumed, the tax payer would have to comply mainly with GST
law with returns and registration needed. There is no need to file different returns and
obtain different registration for compliance.
TO INCREASE THE TAX TO GDP RATIO AND THE REVENUE SURPLUS
GST would increase the tax to GDP ratio and it is expected to be about 11.9% by 2019-
20. The more tax to GDP ratio, the more would be the tax collections and it indicates the status
of better economic system of the country. More tax compliances and wider tax base would result
in higher tax revenue to the government and the objective of GST is to have a revenue surplus to
the government.
TO BRING MORE PEOPLE UNDER THE TAX NET
GST helps in widening of the tax base and bring large number of people into tax net. In earlier
regime, there were many exemptions and rules for registration for different types of taxes. Now
there is a single limit for turnover below which registration would not be required. More tax
payers would be covered under the tax net which ultimately could result in increasing the tax
base and tax revenue for the government.

13. TO ACHIEVE THE POLICY OF ONE NATION ONE TAX
GST replaces multiple indirect taxes which were existing in the previous regime. There is a
single and neutral tax in most cases so there would not be any differences in the tax
rates between one state to another state. In this way, GST law has achieved the policy of one
nation one tax.
TO PROVIDE A SEAMLESS CREDIT OF INPUT TAXES
Cross-sectional credit of input was not allowed earlier. Also, there were many restrictions and
conditions in previous tax regime. In GST, much simpler rules have been laid to utilize the cross-
sectional credit of input taxes. For example, a trader who was earlier not allowed to take credit of
service tax paid on services is allowed to take credit on goods as well as services. The seamless
system of credit would ensure that the taxes on supplies are paid to the extent of value additions
and net liability and double taxations are avoided.
2.5. Salient Features
1.Levy of Tax:
The State GST (SGST) and Central GST (CGST) shall be levied on all the transactions of goods
and services, concurrently.
2.Utilization of Levy:
Levies from State GST (SGST) & Central GST (CGST) shall form part of State and the Centre
respectively and no cross-utilization shall be allowed.
3.Availability of Tax Credit:
In respect of taxes paid on any supply of goods or services or both used or intended to be used in
the course business.
4.Destination based Tax:
The GST is a destination based tax on consumption of Goods and Services. Hence the credit of
SGST shall be transferred to the Destination State in the form of Integrated GST (IGST).
IGST will be imposed on all Inter-State Transactions.

14. 5. Assessment:
Registered person will be allowed himself to assess the taxes payable under the GST
Laws and furnish a return for each Tax Period.
6. Threshold Limit:
There shall be a taxable limit (presently, `. 10 Lakhs in North Eastern States & `. 20
Lakhs in rest of the county)
7. Composition Scheme
The GST Laws will provide a composition scheme for small dealers (presently, turnover of `. 75
Lakhs).
8. GSTIN or GST Identification Number
Every registrants or dealers ( including Exporters and Importers) shall be given a PAN based TIN
number which shall be a common to the both the State GST and Central GST.
9. Compensation to States
The GST Laws provides for payment of compensation to the States for loss of revenue, if any,
arising out of implementing of the Goods and Services Tax for a period of 5 years.
10.The GST Council
The Council is a quasi – judicial body of States and the Centre, represented by the State Finance
Ministers or Taxation Ministers and the Finance Minister of India. The key role of this
Council is to make recommendations on various provisions of GST Laws to the State and the
Centre.
11.Anti-Profiteering Measures –
It is expected the GST Laws will bring down the prices of goods and services once
implemented. To ensure the pass of such benefits to end users or the customers, the
government has put anti-profiteering measures.

15. 12. Transition
Elaborate ‘Transitions Provisions” for smooth transition of existing tax payers to new
Indirect Tax Regime provided.
It is expected that the GST Laws or new indirect tax regime, brings benefits to all the
stakeholders viz. industry, government and the citizens. Further, lower the cost of goods
and services, boost the economy and make our products and services globally competitive.
2.6. Types of GST
There are Four GST types namely Integrated Goods and Services Tax (IGST), State
Goods and Services Tax (SGST), Central Goods and Services Tax (CGST), and Union Territory
Goods and Services Tax (UTGST). The taxation rate under each of them is different.
The new indirect tax regime under the Goods and Services Tax (GST) which was rolled out on 1
July 2017, had witnessed a considerable amount of confusion over how the new taxation system
will affect businesses and the payment of taxes. The Goods and Services Tax (GST) has
subsumed a number of local taxes that were levied on goods and/or services.
Types of GST and Explanation
As per the newly implemented tax system, there are 4 different types of GST: Integrated Goods
and Services Tax (IGST)
State Goods and Services Tax (SGST) Central Goods and Services Tax (CGST)
Union Territory Goods and Services Tax (UTGST)
Additionally, the government has fixed different taxation rates under each, which will be
applicable to the payment of tax for goods and/or services rendered.
1. Integrated Goods and Services Tax or IGST
The Integrated Goods and Services Tax or IGST is a tax under the GST regime that is applied on
the interstate (between 2 states) supply of goods and/or services as well as on imports

16. and exports. The IGST is governed by the IGST Act. Under IGST, the body responsible
for collecting the taxes is the Central Government. After the collection of taxes, it is further
divided among the respective states by the Central Government. For instance, if a trader
from West Bengal has sold goods to a customer in Karnataka worth Rs.5,000, then IGST will be
applicable as the transaction is an interstate transaction. If the rate of GST charged on the goods
is 18%, the trader will charge Rs.5,900 for the goods. The IGST collected is Rs.900, which will
be going to the Central Government.
2.State Goods and Services Tax or SGST
The State Goods and Services Tax or SGST is a tax under the GST regime which is
applicable on intrastate (within the same state) transactions. In case of intrastate supply of goods
and/or services, both State GST and Central GST are levied. However, the State GST or SGST is
levied by the state on the goods and/or services that are purchased or sold within the state. It is
governed by the SGST Act. The revenue earned through SGST is solely claimed by the
respective state government. For instance, if a trader from West Bengal has sold goods
to a customer in West Bengal worth Rs.5,000, then the GST applicable on the transaction
will be partly CGST and partly SGST. If the rate of GST charged is 18%, it will be divided
equally in the form of 9% CGST and 9% SGST. The total amount to be charged by the trader, in
this case, will be Rs.5,900. Out of the revenue earned from GST under the head of SGST, i.e.
Rs.450, will go to the West Bengal state government in the form of SGST.
3.Central Goods and Services Tax or CGST
Just like State GST, the Central Goods and Services Tax of CGST is a tax under the GST regime
which is applicable on intrastate (within the same state) transactions. The CGST is
governed by the CGST Act. The revenue earned from CGST is collected by the Central
Government. As mentioned in the above instance, if a trader from West Bengal has sold goods to
a customer in West Bengal worth Rs.5,000, then the GST applicable on the transaction will be
partly CGST and partly SGST. If the rate of GST charged is 18%, it will be divided equally in
the form of 9% CGST and 9% SGST. The total amount to be charged by the trader, in this case,
will be Rs.5,900. Out of the revenue earned from GST under the head of CGST, i.e. Rs.450, will
go to the Central Government in the form of CGST.

17. 4. Union Territory Goods and Services Tax or UTGST
The Union Territory Goods and Services Tax or UTGST is the counterpart of State
Goods and Services Tax (SGST) which is levied on the supply of goods and/or services in the
Union Territories (UTs) of India. The UTGST is applicable on the supply of goods
and/or services in Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra and
Nagar Haveli, and Lakshadweep. The UTGST is governed by the UTGST Act. The
revenue earned from UTGST is collected by the Union Territory government. The UTGST is a
replacement for the SGST in Union Territories. Thus, the UTGST will be levied in addition to
the CGST in Union Territories.
2.7. Advantages of GST in India
GST has brought together a number of indirect taxes under one umbrella, simplifying taxation
for service and commodity businesses.
Experts believe that costs of products and services will be reduced in the long run with the
introduction of GST. This is because the cascading effect of a series of VATs and taxes has now
been erased.
Service provider companies with a turnover lower than Rs.20 lakh are exempt from paying
GST. In case of North Eastern states, the threshold is at Rs.10 lakh. This will help the small
businesses avoid lengthy taxation procedures.
Companies with a turnover up to Rs.75 lakh under the GST taxation process can benefit from
composition schemes and pay only 1% tax on their turnover. This will help them follow
a simplified taxation process.
GST is aimed at reducing corruption and sales without receipts.
GST reduces the need for small companies to comply with excise, service tax and VAT.
GST brings accountability and regulation to unorganised sectors such as the textile industry.
With GST replacing multiple state and central taxes, the tax collected is likely to be distributed
across the country, providing funds for development to the developing or underdeveloped
pockets in India.
GST has reduced taxes on certain goods by 2% and others by 7.5%, such as smartphones and
cars.

18.  GST brings uniformity in the taxation process and allows centralised registration. This gives a
chance to small businesses to file their tax returns every quarter via an easy online mechanism.
This reduces the multiplicity of taxes as they do not have the resources to hire tax experts.
 GST reduces logistics cost by eliminating border taxes and resolving check-post discrepancies.
A 20% price drop in logistics cost for non-bulk goods is clearly an expected outcome.
 GST points toward a positive impact on India’s GDP. It is expected to increase by at least 80%
within the next couple of years.
 The possibility of tax evasion is minimised completely with GST coming into action.
2.8. Disadvantages of GST in India
 Increased costs of software purchase that can assist in GST filing process leads to
higher operational costs for many businesses.
 GST has given rise to complexity for many business owners across the nation. SMEs with a
total income of Rs.75 lakh could avail the composition scheme, pay a mere 1% tax on
turnover and abide by less compliances; however, the trade-off is that they cannot claim credit
for input tax.
 GST has received criticism for being called a ‘Disability Tax’ as it now taxes articles such as
braille paper, wheelchairs, hearing aid etc.
 The complexities in taxation for products have seen manufacturers suspend their
reward programs, which are sure to affect consumers.
 The GST transaction fees within the financial sector have become more expensive increasing
from 15% to 18%.
 With GST, insurance premiums have become more expensive.
 The impact of GST on the real estate market caused an 8% increase on real estate
price leading to 12% fall in demand closely after it was brought into action in June,
2017. This
however, may be a short-term trend.
 Petrol is not under GST, which goes against the ideals of unification of commodities.
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