This document discusses India's indirect tax system pre-GST. It notes that previously, the central government levied excise duties on manufacturing while states levied VAT on sales. Taxation of inter-state sales was complex. There were multiple taxes like excise duty, VAT, CST, octroi, with different taxable events and authorities. This led to challenges like tax cascading, complex compliance, lack of transparency, and litigation around classifications and exemptions. The goal of GST was to integrate India's indirect tax system and address these pre-existing challenges.

1. Goods and Services Tax (“GST”)
CONCEPT AND DESIGN
BDO India LLP

2. 2
PRE GST INDIAN INDIRECT TAX HORIZON
Before the introduction of GST, the Centre entertained
the power to levy tax called CENVAT, on the act of
‘manufacture’ of goods (except alcoholic liquor,
opium, narcotics etc.), while the States were
empowered to levy tax called VAT on ‘sale’ of goods.
Tax on ‘Service’ was under the exclusive domain of
Central Government, causing differentiated treatment
for goods (manufactured, non-manufactured, etc.) and
Services. In case of inter-State sales, the Centre had
power to levy a tax called Central Sales Tax, but the
tax was administered, collected and retained entirely
by the originating States. The States were also not
empowered to levy any tax on cross-border
transactions namely import and exports and the
Centre levied and collected Customs duty viz. Basic
Customs duty and Additional duty of customs
(commonly known as CVD and SAD) to counter- balance
CENVAT, VAT/CST, etc., on like domestic products. The
principal deficiencies of the system were tax
cascading, lack of transparency, complexity,
inflationary prices, etc

3. 3
Import Goods
Factory
Production of
finished goods
Sales to
customers
Inter State Intra State
R & D Cess
Service
Providers
Service tax on
services
VAT – To be paid on sale of
goods within a state
Excise Duty
Customs Duty
Entry Tax / Octroi
Outside India
India
To be paid on import of goods
To be paid on entry of goods
into State/ Local Area
To be paid on import
of technology
To be paid on manufacture of goods
At time of clearance from factory
Depots
CST - To be paid on
inter-state sale of
goods
Entry Tax / Octroi
PRE GST INDIRECT TAX HORIZON
Manufacturers
Excise on goods
VAT/CST

4. 4
WHY MULTIPLE INDIRECT TAXES PRE-GST?
Type Tax Taxable event Constitutional mandate
Central Excise
Mfr. or Production of excisable
goods Entry 84 of Union List
Service Tax Provision of Service
Entry-97 of Union List
(Residual)
Central Sales Tax
Inter-State Sales/movement of
goods Entry 92A of Union List
Entry Tax Entry of goods into local area Entry 52 of State List
Sales Tax/VAT Sale or purchase of goods Entry-54 of State List
Luxury Tax
Entertainment tax
Luxury
Entertainment
Entry-62 of State List
Constitution bars Union and States from encroaching upon the
legislative domain of each other.

5. 5
PRE GST INDIRECT TAX HORIZON –CHALLENGES
 Multiple taxable events and tax authorities
 Tax Cascading – Tax on Tax
 Existence of Inter-State Sales Tax (CST)
 Sub-national tax collected by originating State (CST/VAT).
 Treatment of composite bundle – WCT, Food & Beverages
 Complex compliances and overlapping jurisdiction

6. 6
PRE GST INDIRECT TAX HORIZON –CHALLENGES
 Numerous exemptions – Principle of VAT diluted
 Complicated valuation rules
 Lack of transparency
 Goods Vs. Service controversies
 Litigious – Tax Event, Classifications, Exemption, Valuation,
etc.