Indirect taxation GST UNIT 1

Notes prepared by Prof. Sujeet Tambe
Notes prepared by Prof. Sujeet Tambe Page 1
1.1 INDIRECT TAX
As the name suggests, Indirect tax is not directly levied on the taxpayers. This tax is often
levied on goods and services which results in their higher prices. A few examples of indirect
taxes in India include service tax, central excise and customs duty, and value added tax (VAT).
What Are The Benefits Of InDirect Taxes?
This tax is levied by entities for rendering services like consulting, legal, and other such
services. This tax is collected from the service recipients and paid to the Central
Government. From 1st June 2016, service tax was 14% with Swacch Bharat Cess (0.5%)
and Krishi Kalyan Cess (0.5%) bringing up the applicable rate to 15%. Small service
providers with an income of less than INR 10 lakh per annum are exempted from paying
this tax.
What are Common Types Of Indirect Taxes in India?
Here are six commonly imposed indirect taxes in India:
1. Excise duty
This duty is applicable on all goods that are manufactured in India. This indirect tax is
payable by the manufacturers and often passed on to the customers. This indirect tax in
India is levied by the Central Government and works according to the provisions of the
Central Excise Act, 1944.
2. VAT
Value Added Tax (VAT) is imposed on the sale of movable goods in the nation. VAT is
levied at all stages of the production and distribution channel that include an instance of
value addition. This tax is levied by the State Governments under Entry 54 of the State
List.
3. Customs duty
It is one of those indirect taxes that are applicable for bringing imported goods into the
country. In certain instance, this duty may also be levied on exported goods. The
Customs Act, 1962 provides regulations on the levy and collection of this duty, import
and export procedures, penalties, prohibitions, and offence.
4. Securities Transaction Tax (STT)

This indirect tax is imposed when stocks are sold or purchased through any Indian stock
exchange. STT was introduced in 2004 and is applicable to shares, mutual funds, and
future and options transactions. STT was imposed to reduce the short-term capital gains
tax and eliminate long-term capital gains tax.
5. Stamp duty
This is an indirect tax charged by state governments on the transfer of immovable
property within their jurisdiction. In addition, stamp duty is mandatory on all types of
legal documents. Its rates vary from one state to another.
6. Entertainment tax
The state governments charge such tax on every transaction related to entertainment.
Some examples are movie tickets, video game arcades, stage shows, exhibitions,
amusement parks, and sports-related activities.
 Four benefits of indirect taxes as opposed to direct taxes are:
1. Contribution by the poor
The poor people are exempt from indirect taxes and this is the only way of reaching this
section of the society. This meets the basic principle of making every person pay towards
the growth of the country through the state governments.
2. Convenient
Taxpayers are not burdened with the indirect taxes because these are paid only while
making purchases. Furthermore, it is convenient for the state authorities because the taxes
are directly collected at the factories or the ports, which saves time as well as effort.
3. Easy collection
The collection of all these taxes is automatically performed during the selling and
purchasing goods and services. This helps the authorities collect taxes easily while
reducing the possibility of tax evasion.
4. Equitable
Indirect tax is directly related to the prices of the goods and services. Therefore, rich
people purchasing luxury items pay higher taxes and vice versa.

 Three disadvantages of direct taxes are:
1. Regressive
Not all taxes are equitable. Certain taxes, like that imposed on salt, are regressive because
the same amount of tax is levied irrespective of the economic status of the buyer.
2. Uncertain
Only taxes imposed on necessary goods and services have some certainty. Taxes levied
on goods and services having an elastic demand are not predictable and may not earn
huge revenues for the authorities.
3. Not industry-friendly
When tax is imposed on raw materials, it acts as a detriment to manufacturers using the
same, thereby making it unfriendly. Furthermore, it increases the cost of production,
which results in higher prices of the goods.
 Because there are numerous indirect taxes in India, the buyers pay higher prices for
goods and services. The Government is proposing combining various taxes under a single
tax known as Goods and Service Tax (GST). Merging different taxes is expected to
improve governance and reduce the complexities of complying with multiple rules and
regulations.

1.2 GOODS AND SERVICE TAX
An Introduction on History of GST
GST or Goods and Services Tax came into use from July 1, 2017 replacing number of other
taxes that was applied till June 30, 2018. The discussions of GST Bill has been in process
process for more than two decades and the bill was passed to implement GST from July 1, 2017
by the Prime Minister of India and his Finance Minister Arun Jaitley. GST was launched on the
midnight of July 1, 2017. The single GST replaced several taxes and levies which included:
central excise duty, services tax, additional customs duty, surcharges, state-level value added
tax and Octroi. We follow the dual GST system i.e. GST for State and Central named SGST and
CGST, respectively. Let us have an overview on the history of GST from the content below as
an eye-opener.
Overview on History of GST
 2006 - First announcement of GST was made by the Union Minister during the 2006-
2007 budget, that it would be introduced on April 1, 2010.
 2009 - Empowered Committee released the first Discussion Paper.
 2011 - 115th Amendment Bill was introduced and subsequently lapsed
 2014 - 122nd Amendment Bill was introduced in Lok Sabha
 August 2016 - One Hundred and First Amendment Act was enacted
 September 2016 - The first GST Council Meeting was conducted
 March 2017 - CGST, SGST, IGST, UTGST and Compensation Cess Act was
recommended by GST Council.
 April 2017 - CGST, SGST, IGST, UTGST and Compensation Cess Act were passed
 1 July 2017 - GST laws, Goods and Services Tax was launched all over India.
 7 July 2017 - Jammu and Kashmir state legislature passed its GST
What were the Taxes available Before the Implementation of GST?
State Value Added Tax (VAT), Central Excise Tax, Services Tax, Central Sales Tax, etc are all
replaced by the single entity called GST (Goods and Services Tax). Value Added Tax was

mainly for the taxes at State level across all states in India. Now on introduction of GST, VAT
is replaced by State GST or SGST and the State VAT department will be simply converted to
SGST Departments. More details on SGST are given below. Similarly, Central Excise Tax that
is the central tax for the goods and services are now replaced with Central GST or CGST. More
details given under respective heading below.
What was the GST Rates as on July 1, 2017?
As said in the Introduction, GST was implemented in the year 2017 on July 1st. When Gst was
first introduced, the charges were broadly divided for State and Central GST. When compared
to the earlier taxing system, newly introduced GST rates were higher. When GST was first
introduced it had five tax slabs and the goods and services were spread across these tax slabs.
This GST rates were followed till an amendment to lower the GST rates on selected goods and
services were made on 18th January 2018 at 25th GST Council Meet. After which amendments
were made on 29 Goods and 53 Services which came to effect from 25 January 2018. GST rates
major goods till January 25, 2018 are listed below.
0%
GST
Rate
fresh meat, fish chicken, Eggs, Milk, butter milk, Curd, natural honey, fresh fruits and
vegetables, flour, besan, bread, prasad, Salt, Bindi Sindoor, Stamps, judicial papers,
printed books, Newspapers, Bangles, handloom etc.
5%
GST
Rate
Fish fillet, Cream, skimmed milk powder, branded paneer, frozen vegetables, Coffee,
Tea, Spices, pizza bread, Rusk, Sabudana, Kerosene, Coal, Medicines, Stent, lifeboats
12%
GST
Rate
Frozen meat products, Butter, Cheese, Ghee, dry fruits in packaged form, animal fat,
Sausage, fruit juices, Bhutia, Namkeen, Ayurvedic medicines, tooth powder, Agarbatti,
colouring books, picture books, Umbrella, sewing machine, and cellphones
18%
GST
Rate
Flavoured refined sugar, Pasta, Cornflakes, pastries and cakes, preserved vegetables,
jams, sauces, Soups, ice cream, instant food mixes, mineral water, Tissues, Envelopes,
Tampons, notebooks, steel products, printed circuits, Camera, speakers and monitors.
28%
GST
Rate
Chewing gum, Molasses, chocolate not containing cocoa, waffles and wafers coated
with chocolate, pan masala, aerated water, Paint, Deodorants, shaving creams, after
shave, hair shampoo, Dye, Sunscreen, Wallpaper, ceramic tiles, water heater,
Dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum
cleaner, Shavers, hair clippers, Automobiles, Motorcycles, aircraft for personal use,
and yachts
What are the Revised GST Rates that was Effective From January 25, 2018?
With the introduction of GST in July 2017, the tax rates on most on the basic commodities also
remained high. But on the 25th GST Council Meet it was proposed to reduce the GST rates on
selected goods and services. Based on this, GST Rates were revised on January 18, 2018 and

the revised GST rates for both Central and State Came into effect on January 25, 2018. The rate
were revised on 29 Goods and 53 Services. GST Rates were revised from 28% to 18%, 28% to
12%, 18% to 12%, 18% to 5% and few were charged NIL GST and for very few products there
was raise in GST Rates.
Goods taxed
at 0%
Vibhuti, De-oiled rice bran and parts used to manufacture hearing aids
Reduced from
28% to 18%
Old and used motor vehicles [medium and large cars and SUVs] with a
condition that No ITC is availed, Public transport Buses that run on Biofuel
Reduced from
28% to 12%
For Old and used motor vehicles [other than medium and large cars and SUVs]
with a condition that No ITC is availed
Reduced from
18% to 12%
Sugar boiled Confectionery, Drinking water, packed in 20 litres bottles,
Biodiesel, Drip irrigation system including laterals, sprinklers, Mechanical
Sprayer, Certain listed Bio-pesticides (12 in nos), Fertilizer grade Phosphoric
acid, Bamboo wood building joinery
Reduced from
18% to 5%
LPG supplied to Household Domestic Consumers, Raw materials and
Consumables needed for Launch vehicles, Satellites and Payloads (Both CGST
and IGST Rates), Tamarind Kernel Powder, Mehendi paste in cones
Reduced from
12% to 5%
Articles of straw, of esparto or of other plaiting materials, Velvet fabric [with a
condition that no refund is claimed on ITC]
Reduced from
3% to 0.25%
Diamonds and precious stones
Rate Increased
- 0% to 5%
Rice bran (other than de-oiled rice bran)
Rate Increased
- 12% to 18%
Cigarette filter rods
History of GST Based on Country
 France - The first country to implement GST in 1954 and many other European countries
introduced GST in 1970-80s.
 China - Introduced VAT in 2016 to replace the Business Tax System that was already
existing. GST is applied on selected goods.
 Japan - It introduced GST in the name of Consumption Tax in the year 1989.
 Malaysia - Introduced GST in 2015

 Australia - GST was introduced in 2000 with the rate of 10% and with the plans to
increase it to 15%.
 Singapore - Introduced GST in the year 1994.
 Canada - GST was introduced in 1991 and has a dual model like India i.e. State GST and
Central GST.
What are the Benefits of Introduction of GST?
With the introduction of GST, there are various benefits globally. The main motive is to
maintain a uniform tax and develop the country’s products and introduce it globally. Some of
the benefits of GST are listed below.
 GST creates common market nationally.
 Attracts foreign investment.
 Helps to have uniform taxation.
 Helps improve production and encourage to enter international market.
 Small retailers have nil tax or low tax.
 Consumers are benefited by purchasing from the small retailers.
What are the Features of GST?
GST implementation has brought a major change in the economy of India. It has widen up the
markets of the goods and services due to uniformity of taxation throughout the country. Some
of the features of GST are listed below.
 GST is applied on the supply of the goods unlike the earlier form of earlier taxation.
 GST is destination based structure of taxing.
 It is charged as CGST, SGST and IGST.

1.3 GST COUNCIL
GST council is a governing body to regulate and direct each and every step for the
implementation of goods and service tax in the nation with decisions over tax rates and further
implementation measures. GST council assimilates suggestions and regulation into one form
and improvise the changes formally through notifications and circulars with its departments and
finance ministry.
Cabinet Ministry has given approval for the establishment of GST Council while the
notification regarding the establishment of Council was issued on Saturday the 10th day
September 2016 and the provisions came into force on Monday the 12th day of September
2016. Also, the Article 279A having provisions regarding establishment of GST Council was
inserted after Article 279 of THE CONSTITUTION (ONE HUNDRED AND FIRST
AMENDMENT) ACT, 2016. The Union Finance Minister Mr Arun Jaitley who is the head of
GST Council while the First Meeting of the council was held on 22nd and 23rd September 2016
in New Delhi.
GST Council Constitution
According to the Article 279A, it is on the part of Prime Minister to give the order to constitute
the council of GST within the 60 days from the 12th September 2016 which is already notified
by the Government.
Following are the designated personnel, who will form the GST Council together:-
 The Union Finance Minister who will be the CHAIRMAN of the council;
 The Union Minister of State in charge of Revenue or Finance who will be the MEMBER
of council;
 ONE MEMBER from each state who is Minister in charge of Finance or Taxation or any
other Minister and anyone of them will be VICE CHAIRMAN of the GST Council who
will be mutually elected by them.
Note
 The Secretary of Revenue Department will work as EX-Officio Secretary to the GST
Council,
 The Chairperson of Central Board of Excise and Customs will be the permanent invitee
in all the proceedings of the GST Council who will not have the voting rights.
Scope and Functions of the GST Council
The GST council will be supposed to make the recommendation to the Union and State on the
following matters:-
 On subsuming of various taxes, cess, and surcharge in GST.

 Details of services and goods that will be subjected to GST or which will be exempted
from GST.
 On Threshold limit below which, services and goods will be exempted from GST.
 On GST rates including floor rate with bands of GST and any special rate for time being
to arrange resources to face any natural calamity.
 Making special provisions for the following states: Arunachal Pradesh, Assam, Jammu
and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal
Pradesh and Uttarakhand.
 On model law on GST, Principal of levy of GST and the principals which will govern the
place of Supply.
Quorum and Decision-Making
 For a valid meeting of the members of GST Council, at least 50 percent of the total
number of the member should be present at the meeting.
 Every Decision made during the meeting should be supported by at least 75 percent
majority of the weighted votes of the members who are present and voting at the
meeting. In “article 279A” a principle is there which divides the total weighted vote cast
between Central Government and State Government:-
o The vote of Central Government shall have the weighted of one-third of the total
votes
o The votes of State Government shall have the weighted of two third of the total
votes, cast in the meeting
 Any act, decision or proceedings shall not be declared as invalid on the basis of any
remaining deficiency at the time of establishment of GST Council i.e.
o if there is any vacancy remained in the Council
o if there is any defect in the constitution of Council
o if there is any defect in the appointment of a person as a member of the Council
o if there is any procedural non-compliance.
 20 percent cash back on online B2C transactions via BHIM, RuPay and UPI
 A ministerial panel consisting of 6 members for MSME issues

1.4 TAXES UNDER GST
CENTRAL TAXES TO BE SUBSUMED IN GST
Following Central Taxes should be, to begin with, subsumed under the Goods and Services
Tax:
 Central Excise Duty (CENVAT)
 Additional Excise Duties
 The Excise Duty levied under the Medicinal and Toiletries Preparations (Excise Duties) Act
1955
 Service Tax
 Additional Customs Duty, commonly known as Countervailing Duty (CVD)
STATE TAXES TO BE SUBSUMED IN GST
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
 Octroi and Entry Tax

 Purchase Tax
TREATMENT OF SPECIFIC GOODS
The Central Government tabled the 122nd Constitution Amendment Bill, 2014 (‘Bill’) on the
introduction of Goods and Services Tax (‘GST’) before the lower house of Parliament on
December 19, 2014. On analysis of the Bill, the Bill contains the following treatment for the
specific goods:
TAX ON SUPPLY OF THE ALCOHOLIC LIQUOR FOR HUMAN CONSUMPTION
As per the proposed amendment to Constitution by the Constitution (122nd Amendment) Bill,
2014, the supply of the alcoholic liquor for human consumption has been excluded from the
definition of goods and service tax. New clause 12A has been inserted in Article 366 which
defines goods and service tax as follows:
“Goods and services tax” means any tax on supply of goods or services or both except taxes on
the supply of the alcoholic liquor for human consumption.
Hence, the supply of the alcoholic liquor for human consumption will be out of the GST.
Alcohol products for human consumption would continue to be exclusively taxed by the States.
Since the Bill specifically excludes alcohol products from the ambit of GST, bringing it within
GST at a future date would require another constitutional amendment. CST on inter-state sales
of alcohol would also continue. It, therefore, appears that the empowerment of States to tax
alcohol products is intended to remain unaltered in the near future.
TAX ON TOBACCO PRODUCTS
Tobacco and tobacco products would be subjected to GST. However, it can be subjected to a
separate excise duty by the Centre.
TAX ON PETROLEUM CRUDE/ HIGH SPEED DIESEL/ MOTOR SPIRIT/ NATURAL
GAS/ AVIATION TURBINE FUEL
The States would continue as per the current laws to impose Value Added Tax (VAT) on
Petroleum Crude/ High-Speed Diesel/ Motor Spirit/ Natural Gas/ Aviation Turbine Fuel on
intra-state sales while inter-state sales would continue to attract Central Sales Tax (CST). These
products would be transitioned into the GST regime from a future date to be notified by the
GST Council.
It is currently unclear from the schematics of the Bill whether States would fully discontinue
collecting VAT/ CST on these products from this notified date, or whether the transition would
be gradual. The Bill however also states that these products can be subjected to an excise duty
imposed by the Centre; this levy would be imposed now and even after GST comes into force.
Such duty can be in addition to the applicable VAT or GST imposed.
TAX ON NEWSPAPERS AND ADVERTISEMENT THEREIN
GST would be capable of being levied on the 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.

TAXES WHICH ARE NOT SUBSUMED
GST may not subsume the following taxes within its ambit:
 Basic Customs Duty: These are protective duties levied at the time of Import of goods into
India.
 Exports Duty: This duty is imposed at the time of export of certain goods which are not
available in India in abundance.
 Road & Passenger Tax: These are in the nature of fees and not in the nature of taxes on goods
and services.
 Toll Tax: These are in the nature of user fees and not in the nature of taxes on goods and
services.
 Property Tax
 Stamp Duty
 Electricity Duty

Indirect taxation GST UNIT 1

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