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UNDER THE GUIDENCE OF:-

Mr. NIRUPAM NAUDIYAL


• GST is a tax on goods and services with comprehensive and continuous chain of
setoff benefits from the Producer’s point and Service provider’s point up to the
retailer level.
• GST is expected be levied only at the destination point, and not at various points
(from manufacturing to retail outlets). It is essentially a tax only on value addition
at each stage and a supplier at each stage is permitted to setoff through a tax credit
mechanism which would eliminate the burden of all cascading effects, including the
burden of CENVAT and service tax.

• Under GST structure, all different stages of production and distribution can be
interpreted as a mere tax pass through and the tax essentially sticks on final
consumption within the taxing jurisdiction.

• Currently, a manufacturer needs to pay tax when a finished product moves out from
the factory, and it is again taxed at the retail outlet when sold. The taxes are levied
at the multiple stages such as CENVAT, Central sales tax, State Sales Tax, Octroi,
etc. will be replaced by GST to be introduced at Central and State level.

Continued…….
• All goods and services, barring a few exceptions, will be brought into the GST
base. There will be no distinction between goods and services.

• Under GST, the taxation burden will be divided equitably between


manufacturing and services, through a lower tax rate by increasing the tax
base and minimizing exemptions.

• However, the basic features of law such as chargeability, definition of taxable


event and taxable person, measure of levy including valuation provisions,
basis of classification etc. would be uniform across these statutes as far as
practicable.

• The existing CST will be discontinued. Instead, a new statute known as IGST
will come into place on the inter-state transfer of the Goods and Services.

• By removing the cascading effect of taxes (CST, additional customs duty,


surcharges, luxury Tax, Entertainment Tax, etc. ),CGST & SGST will be
charged on same price .
Tax Structure

Direct Tax Indirect Tax

Income Tax Wealth Tax Central Tax State Tax

Entry Tax, luxury tax,


Excise Service Tax Custome VAT
Lottery Tax, etc.
Tax Structure

Indirect Tax = GST


Direct Tax
(Except customs)

Income Tax Wealth Tax Intra- state Inter State

CGST (Central) SGST (State) IGST (Central)


•Central Excise
•Additional duties of Custom (CVD)
CGST •Service Tax
•Surcharges and all cesses

•VAT/sales tax
•Entertainment Tax
•Luxury Tax
•Lottery Tax
•Entry Tax
•Purchase Tax
SGST •Stamp Duty
•Goods and passenger Tax
•Tax on vehicle
•Electricity, banking, Real state

• CST
IGST
• SGST and CGST for intrastate transaction : In the GST system, both Central and
State taxes will be collected at the point of sale. Both components (the Central and
State GST) will be charged on the manufacturing cost. This will benefit individuals
as prices are likely to come down. Lower prices will lead to more consumption,
thereby helping companies.

• IGST for Interstate transaction: ‘IGST Model’ will be in place for taxation of
inter State transaction of Goods and Services. The scope of IGST Model is that
center would levy IGST which would be CGST plus SGST on all inter State
transactions of taxable goods and services with appropriate provision for
consignment or stock transfer of goods and services.

• The GST paid on the purchase of goods and services, to be paid on the supply of
goods and services.

• There should be no distinction between raw materials and capital goods in allowing
input tax credit. The tax base should comprehensively extend over all goods and
services up to final consumption point on value addition.

• Assessable value for all the taxes will be same.


1.
Manufacturer

5.Government
2. Wholesaler
and Banks
Goods
+
Services

4.Consumer 3.Retailer
• Input Credit of Goods+ services
Manufacturer
• After taking set off of Input credit, pay the Output Liability on value addition

• Input Credit of Goods+ services from manufacturer


Wholesaler
• After taking set off of Input credit, pay the Output Liability on value addition

• Input Credit of Goods+ services from wholesaler


Retailer
• After taking set off of Input credit, pay the Output Liability on value addition

Consumer • Ultimate Output Liability recovered from consumer


• Since the Central GST and State GST are to be treated separately, in
general, taxes paid against the Central GST shall be allowed to be taken as
input tax credit (ITC) for the Central GST and could be utilized only against
the payment of Central GST. The same principle will be applicable for the
State GST.

• Cross utilization of ITC between the Central GST and the State GST would,
in general, be allowed.

• ADC paid on Import of goods and service would fall under the IGST and
this duty would be allowed for setoff of SGST and CGST.
Set off Heads

IGST Input CGST Input SGST Input

IGST IGST IGST


Output Output Output

CGST CGST CGST


Output Output Output
The illustration shown below indicates, in terms of a hypothetical example with a
manufacturer, one wholesaler and one retailer, how GST will work.

• Manufacturer : Let us suppose that CGST rate is 10% and SGST rate is 5% , with the
manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input
of goods CGST paid @10%) and services used in the manufacturing process. The
manufacturer will then pay net CGST of Rs. 3 after setting-off Rs. 10 as CGST paid on
his inputs (i.e. Input Tax Credit) from gross CGST of Rs. 13 and Rs, 6.5 as SGST.
Gross Value:130 on that CGST 13/- and SGST 6.5/-
Input Credit: CGST 10-/ and SGST NIL/-
Net Liability: Rs. 3 + 6.5 = 9.5/-

• Wholesaler: The manufacturer sells the goods to the wholesaler. When the
wholesaler sells the same goods after making value addition of (say), Rs. 20, he pays
net CGST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13, from the gross
CGST of Rs. 15 and net SGST of only Rs. 1, after setting-off of Input Tax Credit of Rs.
6.5, from the gross SGST of Rs. 7.5 to the manufacturer.
Gross Value:150 on that CGST 15/- and SGST 7.5/-
Input Credit: CGST 13-/ and SGST 6.5/-
Net Liability: Rs. 2 + 1 = 3/-
Continued…….
• Retailer: Similarly, when a retailer sells the same goods after a
value addition of (say) Rs. 10, he pays net CGST of only Re.1, after
setting-off Rs.15 from his gross GST of Rs. 16 and net SGST of only
Rs. 0.5, after setting-off of Input Tax Credit of Rs. 7.5, from the gross
SGST of Rs. 8/- paid to wholesaler.
Gross Value:160 on that CGST 16/- and SGST 8/-
Input Credit: CGST 15-/ and SGST 7.5/-
Net Liability: Rs. 1 + 0.5 = 1.5/-

• Total Liability: Thus, the manufacturer, wholesaler and retailer have


to pay only Rs. 6 (= Rs. 3+Rs. 2+Rs. 1) as CGST Rs. 8 (= Rs. 6.5+Rs.
1+Rs. 0.5) as SGST and on the value addition along the entire value
chain from the producer to the retailer, after setting-off GST paid at
the earlier stages. This is shown in the table in next slide. The same
illustration will hold in the case of final service provider as well.
Continued…….
Value at
Net
Which
Net SGST=S
Purch Supply CGST Input Input
Stage Rate CGST=CGS GST on
ase Value Goods Rate CGST on Tax Tax
of of T on output-
Value Additi and of on Outpu Credit Credit
Supply SGST output- Input
Of on Services SGST Output t on on
Chain Input Tax Tax
Input Made to CGST SGST
Credit Credit
Next
Stage
Manuf
6.5-0=
acture 100 30 130 10% 5% 13 6.5 10 0 13–10 = 3
6.5
r
Whole 7.5-
130 20 150 10% 5% 15 7.5 13 6.5 15–13 = 2
Seller 6.5=1
Retaile 8-
150 10 160 10% 5% 16 8 15 7.5 16–15 = 1
r 7.5=0.5
After introduction of GST, all the traders including manufacturer will be paying both the types of taxes i.e.
CGST and SGST. The Central GST and the State GST would be levied simultaneously on every transaction
of supply of goods and services except the exempted goods and services, goods which are outside the
purview of GST and the transactions which are below the prescribed threshold limits. Further, both would
be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of
CENVAT, i.e CGST & SGST will be charged on same price
• Supply of Goods: Suppose the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer
of steel in Uttar Pradesh supplies steel bars and rods to a construction company, which is also located
within the same State for , say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in
addition to the basic price of the goods.
• Supply of Services : Suppose, that the rate of CGST is 10% and that of SGST is 10%. When an
advertising company located in Mumbai supplies advertising services, to a company manufacturing
soap which is also located within the State of Maharashtra for, Rs. 100, then the ad company would
charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the service.

In both the cases, he would be required to deposit the CGST component into a Central Government account
and the SGST portion into concerned State Government account. He need not actually pay duty in cash, as
he would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say, inputs).
But for paying CGST he would be allowed to use only the credit of CGST & SGST paid on his purchases
respectively. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST
credit be used for payment of CGST.
• With Constitutional Amendments, both CGST and SGST will be levied on import of goods and
services into the country.
• The incidence of tax will follow the destination principle(Place of supply rules).
• Tax revenue in case of SGST will accrue to the State where the imported goods and services are
consumed.
• Full and complete set-off will be available on the GST paid on import on goods and services.
• Thus, import of goods will attract BCD and IGST. It may be noted that import of services, as against
service tax at present, in GST regime, will attract IGST.
• Basic Custom Duty will continue to there under GST system. However, the additional custom duty
in lieu of CVD /Excise and the Special Additional Duty (SAD) in lieu of sales tax/VAT will be
subsumed in the import GST.
• The import of services will be subject to Central GST and State GST on a reverse charge
mechanism. In other words, the GST will be payable by the Importer on a self declaration basis.
• It will 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
(Taxable person) under each jurisdiction of SGs.
• A dealer must get registered under CGST as it will
make him entitle to claim ITC of CGST thereby
attracting buyers under B2B (Business to Business)
transactions.
• Importers have to register under both CGST and SGST
as well.
• GST on export would be zero rated.
• Similar benefits may be given to Special Economic Zones (in processing
zones only).
• No benefit to the sales from an SEZ to Domestic Tariff Area (DTA).
• GST paid by Exporter on the procurement of goods and services will
be refunded.
• Each taxpayer would be allotted a PAN linked taxpayer
identification number with a total of 13/15 digits.

• This would bring the GST PAN-linked system in line with the
prevailing PAN-based system for Income tax facilitating data
exchange and taxpayer compliance.

• The exact design would be worked out in consultation with


the Income-Tax Department.
• The taxpayer would need to submit periodical returns to
both the Central GST authority and to the concerned State
GST authorities.
• ITC credit can also be verified on the basis of the returns
filed and revenues reconciled against Challan data from
banks.
• Common standardized return for all taxes (with different
account heads for CGST, SGST, IGST) can come into
picture.
• Common standardized Challan for all taxes (with different
account heads for CGST, SGST, IGST) can come into
picture.
Taxable Event
Existing Practice GST

Taxable event is “Supply “ of Goods & service


Excise Duty-Manufacturing,

The location of the supplier and the recipient


within the country is immaterial for the purpose
Sales Tax/VAT- Sale of Goods of CGST.

SGST would be chargeable only when the


Service Tax- Realization of Service supplier and the recipient are both located
within the State.

Inter state Supply of goods and services will


attract IGST.
GST Invoice
• The Task Force on GST said the computation of CGST and
SGST liability should be based on the Invoice credit
method. i.e., allow credit for tax paid on all intermediate
goods and services on the basis of invoices issued by the
supplier.
• Invoice level detail is necessary for the reconciliation of tax
deposits, and the end-to-end reconciliation of ITC. An
effective IGST implementation may also require invoice-
level details.
• A number of states are capturing invoice details even in the
existing VAT systems. It is proposed to follow a two-
pronged approach with Dealer level granularity of returns in
the first phase followed by invoice level in the next phase.
Rate of Tax
• The combined GST rate is being discussed by
government. The rate is expected around 16 per cent.
After the total GST rate is arrived at, the States and the
Centre will decide on the CGST and SGST rates.
Currently, services are taxed at 12 per cent and the
combined charge indirect taxes on most goods are
around 20 per cent.

• Today the Rate of GST in some countries are


Australia10%, France19.60%, Canada5%,
Germany19%, Japan5%, Singapore7%, Sweden25%,
New Zealand15% & Pakistan17%
Exemption of Goods and Services
Alcohol, tobacco, petroleum products are likely to be out of the GST regime.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview
of GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the
existing practice. In case it has been made VA table by some States, there is no objection
to that. Excise Duty, which is presently levied by the States may not also be affected.
Tax on Petroleum Products: Petroleum and petroleum products have also been
constitutionally brought under the GST. However, it has also been provided that
petroleum and petroleum products shall not be subject to the levy of GST till notified at a
future date on the recommendation of the GST Council.

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC.
Centre may be allowed to levy excise duty on tobacco products over and above GST with
ITC.

Taxation of Services: As indicated earlier, both the Centre and the States will have
concurrent power to levy tax on goods and services. In the case of States, the principle for
taxation of intra-State and inter46 State has already been formulated by the Working
Group of Principal Secretaries /Secretaries of Finance / Taxation and Commissioners of
Trade Taxes with senior representatives of Department of Revenue, Government of India.
For inter-State transactions an innovative model of Integrated GST will be adopted by
appropriately aligning and integrating CGST and IGST.
Composition scheme
A Composition/Compounding Scheme will be an important feature of GST, to protect
the interests of small traders and small scale industries. The
Composition/Compounding scheme for the purpose of GST should have an upper
ceiling on gross annual turnover and a floor tax rate with respect to gross annual
turnover.
In particular there will be a compounding cut-off at Rs. 50 lakhs of the gross annual
turnover and the floor rate of 0.5% across the States. The scheme would allow option
for GST registration for dealers with turnover below the compounding cut-off.
GST and Information
Technology (IT) Interface
• Based on the legal provisions and procedure
for GST, the content of work-flow software
such as ACES (Automated Central Excise &
Service Tax) would require review.
• On the IT front, there has been consensus that
there will be a common portal providing three
core services (registration, returns and
payments).
Information Flow and Associated
Entities
Send Challan
Taxpayer Banks and RBI

File Returns Upload Challan


Details

CBEC
State 1Portal
(Central
Portal)
Common GST State 2 Portal
CGST and IGST Portal
(Reconciliation SGST and IGST
Returns Return
system) State N Portal

MCA CBDT
NSDL
Increased Assessee Base
• Under the CGST model proposed, with
threshold of annual turnover of Rs.10 lakhs,
the present Assessee base of Excise and
Service Tax of about 10 lakhs will increase to
about 50 lakhs as every manufacturer and
Trader above the specified threshold will be
liable to CGST.
Tax reconciliation between
Central and State Govt.
• The Exporting State will transfer to the Centre the
credit of SGST used in payment of IGST.
• The Importing dealer will claim credit of IGST
while discharging his output tax liability in his
own State,
• The Centre will transfer to the importing State
the credit of IGST used in payment of SGST,
• The relevant information will also be submitted
to the Central Agency which will act as a clearing
house mechanism.
Flaws of GST Model
• Major flaw of this model is ,Local Dealers have to pay
CGST in addition to SGST.
• In Addition to this, CGST mainly represents the
Excise/service tax and SGST mainly represents the VAT
portion but, because of ‘No differentiation between
Goods and Services’ service supply within the state would
attract SGST as GST is levied at each stage in the supply
chain and Assessee have to Pay CGST as well SGST.
• The issue which still needs to be resolved are, the revenue
sharing between States and Centre, and a framework for
exemption, thresholds and composition.
Hope for new project should be given for our betterment