The document provides an overview of the Goods and Services Tax (GST) system that is being implemented in India. It discusses the existing tax system with separate taxes for central and state governments, and describes GST as a comprehensive indirect tax on the supply of goods and services that will replace many existing taxes. GST will be levied concurrently by the central and state governments and will help create a common national market.

1. GOODS AND SERVICES TAX (GST) IN INDIA
Presentation by CA. VINAY BHUSHAN
Associate Director - Taxpert Professionals

2. Present system :
Power to levy taxes
Power to levy taxes
Central
Excise duty On Manufacture
Customs duty
On
importation/exportation
Service Tax On provision of services
Central Sales Tax On interstate sales
State
Value added Tax
On sales of good within
the states
Entry Tax/ Octroi/Local
Body taxes
On movement of
goods/transfer
Introduction
of the GST
would
require
amendment
s in the
Constitution
so as to
concurrentl
y empower
the Centre
and the
States to
levy and
collect the
GST.

3. GST : A boon to economy
- G ST is a comprehensive value added tax
levied on goods and services . In aG ST regime,
goods and services are not differentiated as
they move through the supply chain
- potential to additionally contribute over one
percent to India’s G ross Domestic Product
(G DP)

4. Need for GST
 Imperative in the emerging economic environment.
 Full credit for inputs taxes collected.
 GST, being a destination-based consumption tax
based on VAT principle, would also greatly help in
removing economic distortions
 Will help in development of a common national
market.
About 150
countries have
adopted a GST
or national-level
value-added tax
framework
Bahamas and
Malaysia are
likely to
implement
GST/VAT in
2015
Tax System should be
•Simple
•Conducive
•Fair
•Representative

5. Justification at the center level
i. At present excise duty paid on the raw material
consumed is being allowed as input credit only.
For other taxes and duties paid for post-
manufacturing expenses, there is no mechanism
for input credit under the Central Excise Duty Act.
ii. Credit for service tax paid is being allowed
manufacturer/ service provider to a limited
extent. In order to give the credit of service tax
paid in respect of services consumed, it is
necessary that there should be a comprehensive
system under which both the goods and services
are covered.
iii. At present, the service tax is levied on restricted
items only. Many other large number of services
could not be taxed. It is to reduce the effect of
cascading of taxes, which means levying tax on
taxes.
Justification at the State Level
i. A major defect under the State VAT is that
the State is charging VAT on the excise duty
paid to the Central Government, which goes
against the principle of not levying tax on
taxes.
ii. In the present State level VAT scheme,
Cenvat allowed on the goods remains
included in the value of goods to be taxed
which is a cascading effect on account of
Cenvat element.
iii. Many of the States are still continuing with
various types of indirect taxes, such as
luxury tax, entertainment tax, etc.
iv. As tax is being levied on inter-state transfer
of goods, there is no provision for taking
input credit on CST leading to additional
burden on the dealers.
Rationale for GST

6. Salient features of GST
GST on supply of goods or
services as against
manufacture or on sale of
goods or on provision of
services.
GST would be a destination
based tax as against the
present concept of origin
based tax.
It would be a dual GST with
the Centre and the States
simultaneously levying it on a
common base.
GST would apply to all goods
and services barring a few to
be specified
The GST to be levied by the
Centre would be called
Central GST (CGST) and that
to be levied by the States
would be called State GST
(SGST)
Integrated GST (IGST) would
be levied on inter-State
supply of goods or services.
CGST and SGST would be
levied at rates to be mutually
agreed upon by the Centre
and the States.

7. Mechanism of GST
GST
CGST
To be leived by Central
Government
location of the supplier
and the recipient within
the country is immaterial
for the purpose of CGST
SGST
To be levied by state
government
Chargeable only when
the supplier and the
recipient are both
located within the State
IGST
To be leived by central
government in place of
CST
Unlike CST Credit of IGST
shall be available
IGST = CGST + SGST

8. Set off/Credits/Refunds
Present system of Credits
Types of Taxes
Whether
credit/Refund is
allowed
levied
by
Basic Custom duty NO, It’s a cost Centre
Counter vailing custom
duty Yes Centre
Special Addition Duty Yes Centre
Excise duty Yes Centre
Service tax Yes Centre
Central Sales tax NO, It’s a cost Centre
Value added tax Yes State
Octroi/Entry Tax/Local
Body Tax NO, It’s a cost State
Type of Taxes
Whether
credit/refund is
allowed Against
CGST Yes
CGST
only
SGST Yes
SGST
Only
IGST Yes All
Credits under GST

9. Taxable Event
TAXABLE EVENT IN CASE OF GST : SUPPLY OF GOODS
Type of Tax Taxable Event
Custom Duty Import/Export
Excise Duty Manufacture
Service Tax on Provision of Service
VAT Sale within the state
CST Sale outside the state

10. Taxable person/Rate of Tax
•cover all types of person carrying on business activities, i.e. manufacturer, job-worker, trader,
importer, exporter, all types of service providers, etc.
•If a company is having four branches in four different states, all the four branches will be
considered as TP under each jurisdiction of SGs.
•All the dealers/ business entities will have to pay both the types of taxes on all the transactions.
•A dealer must get registered under CGST as it will make him entitle to claim ITC of CGST thereby
attracting buyers under B2B transactions.
•Importers have to register under both CGST and SGST as well.
Taxable person
•Two-rate structure –a lower rate for necessary items and items of basic importance and a
standard rate for goods in general.
•For CGST relating to goods, the States considered that the Government of India might also have a
two-rate structure, with conformity in the levels of rate with the SGST. For taxation of services,
there may be a single rate for both CGST and SGST.
•It will be total of the rate as applicable under CGST & SGST.
Rate of Tax

11. VAT/GST
Position
before VAT
VAT
Position after
VAT : GST
There was cascading effect of Tax
I,e. Tax on Tax
VAT is the tax on Value
addition only thereby
removing the cascading effect
However, the cascading effect is
not removed completely. GST is
an improvement over VAT
VAT was introduced in the
Indian taxation system from
April 1, 2005
in an effort to address the
problems associated with
the earlier Sales
Tax1.
India is one of the 123
countries across the world
that are
following the VAT mode,
which is an improvement in
several respects.
essence of GST is to correct
certain
shortcomings of VAT like
bringing services under a cogent
tax net,
which is not possible under the
VAT system. Hence, GST has
been
modeled as an extension of the
current VAT that would make the
tax
system more comprehensive
and smoother in its functioning.

12. Understanding VAT
Producer/manuf
acturer Cost of input Value of output Tax Rate
Selling price
including tax rate Tax Burden
Manufacturer A 0 100 10% 110(100+10%*100) 10
Manufacturer B 110 150 10% 165(150+10%*150) 15
Manufacturer C 165 200 10% 220(200+10%*200) 20
Producer/manuf
acturer Cost of input Value of output Value addition Tax Rate
Selling price
including tax rate Tax Burden
Manufacturer A 0 100 0 10% 110(100+10%*100) 10
Manufacturer B 110 150 50(150-100) 10% 165(150+10%*150) 15
Manufacturer C 165 200 50(200-150) 10% 220(200+10%*200) 20
Position before VAT
Position after VAT
Problems with VAT
- Central Value Added Tax or CENVAT on certain commodities remains included in the value of goods to be taxed under State
VAT.
- In the VAT system, taxing service sector is practically difficult. in the existing VAT system where the aspect of taxing services is
not very clear-cut

13. Subsuming of Existing Taxes
The sub-sumation should result in free flow of tax credit in intra and inter-State levels so
that unrelated taxes, levies and fees are not be subsumed under GST.
Sl.
N
o.
Subsumed under CGST Subsumed under SGST
1 Central Excise Duty VAT / Sales tax
2 Additional Excise Duties Entertainment tax (unless it is levied by
the local bodies).
3 Excise Duty-Medicinal and Toiletries
Preparation Act
Luxury tax
4 Service Tax Taxes on lottery, betting and gambling.
5 Additional CVD State Cesses and Surcharges (supply of
goods and services)
6 Special Additional Duty of Customs - 4%
(SAD)
Entry tax not in lieu of Octroi
7 Surcharges
8 Ceses
Following are considered as
outside the GST
 Levies on petroleum
products
 Levies on alcoholic
products
 Taxes on lottery and
betting
 Basic customs duty and
safeguard duties on
import of goods into
India
 Entry taxes levied by
municipalities or
panchayats
 Entertainment and
Luxury taxes
 Electricity duties/ taxes
 Stamp duties on
immovable properties
 Taxes on vehicles

14. HOW does GST work
Stage of supply
chain
Purchase
value of
input
Value addition value of which
supply of goods
and services is
made at the
next stage
Rate of
GST
GST on output Input tax
credit
Net GST=
GST on
output -
Input tax
credit
Manufacturer 100 30 130 10% 13 10 13-10=3
Wholsesaler 130 20 150 10% 15 13 15-13=2
Retailer 150 10 160 10% 16 15 16-15=1
Position after GST
 Rate of GST: 10% (assumed)
 Cost of purchase by manufacturer: Rs. 150
 Sale value by manufacturer to wholeseller: Rs. 200 (value addition of Rs. 50)
 Sale value by wholeseller to retailer: Rs. 230 (value addition of Rs. 30)
 Sale value by retailer to final consumer: Rs. 250 (value addition of Rs. 20)

15. GST Impact
• The GST offers a unique opportunity to rationalize and re-engineer logistics
networks in India, given the inherent inefficiencies with taxes based on the
crossing of administrative boundaries. It will free up decisions on
warehousing and distribution from tax considerations so that operational
and logistics efficiency determines the location and movement of goods, it
added.
• Will reduce the tax burden as taxes only on value addition
• Reduction in overall product costing
• Challenges of new system in terms of infrastructure etc.
Manufacturing in
India accounts for
around 16 percent of
GDP, a level that has
remained largely
unchanged in the last
two decades and is
relatively low when
compared to the 20-
percent plus share in
countries like Brazil,
China, Indonesia,
Korea and Malaysia,
even after controlling
for differences in per
capita incomes. .

16. Impact on sectors
Manufacturing sector
Will reduce the tax burden as
taxes only on value addition
Reduction in overall product
costing
Challenges of new system in
terms of infrastructure etc
Pharmaceutical
Lower transaction and
compliance cost for industry
Location based incentives will
continue
Currently drugs and medicines
fall under the 4-5% excise duty
category. This is expected to
continue in GST
Automobile sector
Inter state stock Movement
For the automobile industry
80% of stock is sold outside
the manufacturing state
through distributors and stock
transfers
Logistics sector
Relocation by manufacturers
will benefit logistics company

17. India
Plant
RawMaterial
Inter-State
RawMaterial
Inter-State
CGST +SGST
BCD+(CGST +SGST) or IGST
BCD+CVD+SAD
CGST +SGST or IGST
(net of input taxes
credit)
Post GST
Pre GST
Outside India
Excise Duty
(credit of Excise duty
/CVD+SAD+S.Tax)
Warehouse/Depot
Raw Material
BCD+CVD+SAD
BCD+(CGST +SGST) or IGST
Finished Goods
Input Services
CST (VAT
Credit)
IGST net of input
taxes credit
Distributor
(inter-state)
CGST +SGST net of
input taxes credit
Excise duty +CST
IGST
Excise duty +VAT
Service Tax
CGST +SGST or IGST
Distributor
(inter-state)
VAT (Vat
Credit)

18. Recent Development
The
Constitution
(one hundred
and twenty
second
amendment)
Bill, 2014
Article 246A is introduced in Part XI Chapter 1 titled “Legislative Relations”. This article
empowers the legislature of every state to make laws with respect to goods and services
tax imposed by the Union or by the State.
Part XII Chapter 1 titled “Finance” will be a place for the new article 269A which will
address the issue of distribution of revenue between the Union and the States.
The levy of additional tax on supply of goods in the course of inter-state trade not
exceeding one percent to be levied and collected by the Government of India for a period
not exceeding two years or such other period as the GST Council may recommend.
Article 279A - new authority called the “GST Council” will be constituted.
The concept of sale being replaced with supply will bring to tax free supplies in the nature
of samples, compliments, testing etc. unless otherwise specifically exempted in the GST
law.
Article 366 “services means anything other than goods”

19. Good and Simplified Act
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