A WAY FORWARD TO GST IN INDIA

However, introduction of VAT in the States has been a more challenging exercise in a federal
country like India, where each State, in terms of Constitutional provision, is sovereign in levying and
collecting State taxes because there was also no harmony in the rates of sales tax on different
commodities among the States. Not only the rates of sales tax were numerous but also different
from one another for the same commodity in different States. Beside this, there was also an
unhealthy competition among the States in terms of sales tax rates socalled rate war often
resulting in, revenuewise, a counterproductive situation. It is in this background that attempts were
made by the States to introduce a harmonious VAT in the States in the form of Goods and Service
Tax. The introduction of GST will not only include comprehensively more indirect Central taxes and
integrate goods and service taxes for the purpose of setoff relief, but may also lead to revenue gain
for both the Centre and State through widening of the dealer base by capturing value addition in the
distributive trade and increased compliance. The integrated Goods and Services Tax (GST) would
replace the existing multiple tax structures of Centre and State taxes in the emerging economic
environment. The relevance of introduction of GST can be understood as under:
Why GST needs to be introduced in India
a. The existing Statelevel VAT structure also has certain weaknesses. For instance there are even
now, several taxes which are in the nature of indirect tax on goods and services, such as luxury tax,
entertainment tax, etc., and yet not subsumed in the VAT. After introduction of GST various taxes at
State level like sales tax, entertainment tax, luxury tax etc. as well as at Centre Central Excise Duty,
Service tax will be subsumed in GST which would ultimately help in removing cascading effect of the
taxes.
b. As all the States are taxing same commodity by different rates i.e. there is also no harmony in the
rates of sales tax on different commodities among the States. After introduction of GST, it is
expected that there would be harmony in the rates of sales tax for the same commodity which would
lead to remove unhealthy competition among the States in terms of sales tax rates.
c. As, the Central Excise duty does not include several Central taxes in the overall framework of CENVAT,
such as additional customs duty, surcharges, etc., as a result of the same, keeping the benefits of
comprehensive input tax and service tax set off out of reach for manufacturers/dealers. The
introduction of GST, both the cascading effects of CENVAT and service tax are removed with setoff, and a continuous chain of setoff from the original producers point and service providers
point upto the retailers level is established which reduces the burden of all cascading effects.
d. Indian economy is getting more and more globalized in the recent times, a number of Free Trade
Agreements (FTAs) have been signed, which will allow imports into India duty free or at very low
duties. Hence, there is need to have a nationwide simple and transparent system of taxation to
enable the Indian industry to compete not only internationally, but also in the domestic
market. Integration of various Central and State taxes into a GST system would make it possible to
give full credit for inputs taxes collected. GST being a destinationbased consumption tax based
on VAT principle, would also greatly help in removing economic distortions caused by present
complex tax structure and will help in development of a common national
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e. The introduction of GST along with prudent accounting policies, transparency and supported by a
robust electronic controls will bring down the peak rates of taxation and enhance revenue growth.
As a result of the same, India would be a country competiting at international level.
f. In spite of the improvements made in the current tax design and administration over the past few
years, the systems at both Central and State levels remain complex. Their administration leaves a
lot to be desired. They are subject to disputes and court challenges, and the process for resolution
of disputes is slow and expensive. At the same time, the systems suffer from substantial compliance
gaps, except in the highly organized sectors of the economy. There are several factors contributing
to this unsatisfactory state of affairs. It is expected that introduction of GST would help in removing
complexities of current tax system in terms of administration on the part of the administrator as well
as in terms of compliances on the part of taxpayers.
g. In Current scenario, one of the main litigation is classification of goods and services for the sole reason
that rates of tax depends on how the goods or services are classified. In GST regime, the
expectation is to avoid classification and inturn the associated disputes. Thus, in GST regime, there
should be no artificial classification, even between goods and services, to ensure that current
classification issues do not crop up again. This is another reason to justify the introduction of GST in
India.
h. As we knows that there are multiple exemption has been provided in the current indirect tax regime
which unnecessarily leads to unbridled litigations between the department and the assessees. For
example, The Finance Act, 1994 exempts storage and warehousing of agricultural produce. In this
context, question has arisen as to whether rice is an agricultural produce or not? This issue was
sorted out later vide Notification No. 4/2014ST dated 17 February 2014. This is just one instance of
confusion and there are numerous such issues. Thus, it is expected that in GST regime, there
would be minimum possible exemptions which would in turn help in reduce confusing situations
which leads to litigation.
On the reading of the same, in simple words to say, introduction of the GST at the Central and the
State level has been considered to be a major step, an important breakthrough in the sphere of
indirect tax reforms in India. If the VAT is a major improvement over the sales tax system, then the
Goods and Services Tax (GST) will indeed be a further significant improvement, the next logical
step towards a comprehensive indirect tax reforms in the country which would ultimately increase
India competitiveness globally and the industry.

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