STUDY MATERIAL

COURSE : B.Com
SEMESTER : VI
SUBJECT : Goods and Services Tax
SUBJECT CODE : 18BCO65S
UNIT : I
STAFF NAME : Dr.C.R.Karpagam

REFERENCE BOOKS :

1. Indirect Taxation – Dr.S.Varadharaj

2. Goods and Service Tax – Dr. R.Parameshwaran ,Kavin Publications.
3. Goods and Services Tax – R.K.Jha P.K.Singh – Asia Law House.
4. Goods and Services Tax – Ghanashyam Upadhyay – Asia Law House .
Goods and Service Tax (GST) :

“GST is a comprehensive, multi - stage, destination - based tax that is levied

on every value addition”.

Characteristics of goods and Services tax :

1. Comprehensive : Scope of business covering the entire trade related

activities inclusive of all business transactions.
2. Multi - stage : From manufacture to final sale to the consumer.
3. Destination/Consumption Based : Goods and Services tax is levied at the
point of consumption. So, the entire tax revenue will go to consumption
state and not to origin state.
4. Value Addition : The monetary value added at each stage to achieve the
final sale to the end customer.

Vision of GST :

To establish highest standards of co - operative federalism in the

functioning of GST Council.

Mission of GST :

Evolving by a process of wider consultation, a Goods and Service Tax

structure, which is information technology driven and user friendly.

GST and The Cascading effect :

In the pre - GST regime, every purchaser including the final consumer paid
tax on tax. This tax on tax is called Cascading effect of taxes.
Illustration :

Mr.X a biscuit manufacturer along with some members, with the input
Rs.1000 we can see what happens to the cost of goods and the taxes in the pre
GST and GST regimes.

Tax calculations in the pre GST regime :

Action Cost 10% Tax Total

Manufacturer 1000 100 1100
Warehouse adds a label and repacks 1400 140 1540
@ 300
Retailer advertises @500 2040 204 2244
Total 1800 444 2244

This is called the cascading effect of taxes where a tax is paid on tax
and the value of the item keeps increasing every time this happens.

Tax calculations in GST regime :

Action Cost 10% Tax Actual Total

Liability
Manufacturer 1000 100 100 1100
Warehouse adds label 1300 130 30 1430
and repacks @300
Retailer advertises @ 1800 180 50 1980
500
Total 1800 180 1980

An individual is able to claim the input tax credit, thus reducing the
tax burden on the final customer.
Primary objectives of GST :

1. The primary objective of GST is One Nation, One Tax, One Market.
2. To merge several Central and State taxes into a single tax.
3. To facilitate a common national market, it helps to improve
competitiveness of original goods and services in the market which directly
impact on GDP of the country.
4. To reduce the Cascading effect of taxes.
5. To ensure speedy and faster economic growth.

Secondary objectives of GST :

1. To reduce compliance cost

2. Seamless flow of tax credit
3. Minimising wastage of time and effort to comply
4. Transparent and corruption free system
5. Supportive to compete at Domestic and International Market
6. Buoyancy in tax collection both for Central and State / UT
7. Tax impact on inflation should be minimal

Salient features of GST :

1. Supply of goods and services : GST is applicable on ’supply’ of goods or

services as against the present concept on the manufacture of goods or on
sale of goods or on provision of services.
2. Principle of destination : GST is based on the principle of destination –
based consumption taxation as against the present principle of origin –
based taxation
3. A Dual GST Model : It is a dual GST with the Centre and the States
simultaneously levying tax on a common base
4. An Integrated GST ( IGST ) : Integrated GST (IGST) will be levied on inter –
state supply ( including stock transfers ) of goods or service.
5. Import of goods or services covered under IGST : Import of goods or
services will be treated as inter-state supply and would be subject to IGST
in addition to the applicable customs duties
6. Four rates GST Model : CGST, SGST, & IGST would be levied at rates to be
mutually agreed upon by the Centre and the States. In a recent meeting,
the GST Council has decided that GST would be levied at four rates viz. 5%,
12%, 18% and 28%
7. Merger of Existing taxes under GST : GST replaced the following taxes that
are prevailed in practice under the system of previous tax regime. VAT
levied and collected by the Union and State Governments that are
subsumed within the GST
8. Exception from GST : GST would apply on all goods and services except
Alcohol for human consumption. GST on five specified petroleum products (
Crude, Petrol, Diesel, ATF & Natural Gas ) would by applicable from a date
to be recommended by the GSTC. Tobacco and tobacco products would be
subject to GST. In addition , the Centre would have the power to levy
Central Excise duty on these products.
9. Composition scheme : For small taxpayers with an aggregate turnover in a
financial year upto 1.5 crores, a composition scheme is available. Under the
scheme a taxpayer shall pay tax as a percentage of his turnover in a State
during the year without benefit of Input Tax Credit. This scheme will be
optional
10. Input Tax credit (ITC) : Credit of CGST paid on inputs may be used only for
paying CGST on the output and the credit of SGST paid on inputs may be
used only for paying SGST. Input Tax Credit (ITC) of CGST cannot be used for
payment of SGST and vice versa. In other words, the two streams of Input
Tax Credit ( ITC) cannot be cross – utilized, except in specified
circumstances of inter - state supplies for payments of IGST.
 DUAL GST MODEL :

India adopted a dual GST model, meaning that taxation is

administered by both the Union and State Governments. Transactions
made within a single state are levied with

1. Central GST (CGST) by the Central Government

2. State GST (SGST) by the State Government
3. Integrated GST (IGST)is levied by the Central Government for inter – state
transactions and imported goods or services

Dual – GST Model in India

Central GST State GST Integrated GST

CGST SGST IGST

Levy on supply of All Levy on supply of All goods Levy on All Inter – State
goods and/ or services and/ or services within a supplies of goods and/ or
within a particular particular State, by the services, by the Central
State, by the Central respective State Government
Government Government
GST replaced the following taxes levied and collected by the Union Government :

1. Central Excise Duty

2. Duties of Excise ( Medicinal and Toilet Preparations )
3. Additional Duties of Excise ( Goods of Special Importance )
4. Additional Duties of Excise ( Textiles and Textile Products )
5. Additional Duties of Customs ( Commonly known as Counter veiling
Duty)
6. Special Additional Duty of Customs. 3(1) CVD: 3(5) Special. CVD.
7. Service Tax
8. Cesses and surcharge in so far as they relate to supply of goods and
services.

State taxes that are subsumed within the GST :

1. State VAT
2. Central States Tax
3. Purchase Tax
4. Luxury Tax
5. Entry Tax (All forms)
6. Entertainment Tax and Amusement Tax (except those levied by the local
bodies)
7. Taxes on advertisements
8. Taxes on lotteries, betting and gambling
9. State cesses and surcharges in so far as they relate to supply of goods
and services.

Need for GST in India :

1. Cascading effect : The introduction of CENVAT removed to a great extend

cascading burden by expanding the coverage of credit for all inputs,
including capital goods.
2. VAT, CENVAT tax burden : In the State-level VAT, CENVAT load on the
goods has not yet been removed and the cascading effect of that part of tax
burden has remained unrelieved.
3. Plethora of taxes : There were various indirect taxes in India in existence
prior to introduction of GST. There was a three tier system of tax collection
in India:
a) Taxes levied by Central Government i.e. Customs Duties, Central
Excise Duties, Service Tax etc.,
b) State Excise, VAT, CST, Entry tax, Entertainment tax, luxury tax
etc., are levied by the State Government
c) Local Bodies levy taxes like entertainment tax Octroi, Property
tax, local body tax, etc.
4. Poor integration of VAT with tax on services : There has also not been any
integration of VAT on goods with tax on services at the State level with
removal of cascading effect of service tax.
5. Cascading nature of CST(Central Sales Tax) : It was another source of
distortion in terms of its cascading nature. It was also against one of the
basic principles of consumption taxes that tax should accrue to the
jurisdiction where consumption takes place.
6. Obstacles in free movement of goods : The National Market was
fragmented with too many obstacles in free movement of goods
necessitated by procedural requirement under VAT and CST.
7. Multiplicity of compliances : Payment of tax to various authorities,
different due dates, assessment, refund process at various levels made the
taxation system more complex and lead to an increase in compliance cost.
Further, there was inbuilt cascading effect of taxes.
8. Commitment of an inevitable reform process : India moved towards value
added taxation both at Central and State level, and this process was
complete by the year 2005. Integration of Central VAT and State VAT
therefore is nothing but an inevitable consequence of the reform process.
9. Need of unification tax system : The Constitution of India envisages a
federal nature of power bestowed upon both Union and States in the
Constitution itself.
GOODS AND SERVICE TAX COUNCIL

The GST Council is chaired by the Union Finance Minister and other members are
the Union State Minister of Revenue or Finance and Ministers in-charge of
Finance or Taxation of all the States.

ADVANTAGES / BENEFITS / IMPACT OF GST

Advantages for the Government :

1. Make in India will help to create a unified common national market for
India, giving a boost to foreign investment and “Make in India” campaign;
2. Mitigate Cascading of Taxes will mitigate cascading of taxes as Input Tax
Credit will be available across goods and services at every stages of supply;
3. Harmonized Principle Harmonization of laws, procedures and rates of tax
between Centre and States and across States;
4. Better Compliance Improved environment for compliance as all returns are
to be filed online, input credits to be verified online, encouraging more
paper trail of transactions at each level of supply chain;
5. Uniformity in Levy Similar uniform SGST and CGST rates will reduce the
incentive for evasion by eliminating rate arbitrages between neighbouring
States and that between intra and inter – state sales;
6. Improved Taxation System Common procedures for registration of
taxpayers, refund of taxes, uniform formats of tax return, common tax
base, common system of classification of goods and services will lend
greater certainty to taxation system;
7. Reducing Corruption Greater use of IT will reduce human interface
between the taxpayer and the tax administration, which will reduce
corruption.
8. Economic Growth It will boost export and manufacturing activity, generate
more employment and thus increase GDP with gainful employment leading
to substantive economic growth.
 9. Generating Resources Ultimately it will help in poverty eradication by
generating more employment and more financial resources.

Advantages to Trade and Industry :

1. Simple tax regime with fewer exemptions;

2. Increased ease of doing business;
3. Reduction in multiplicity of taxes
4. Elimination of double taxation on certain sectors like works contract,
software, hospitality sector;
5. Will mitigate cascading of taxes as Input Tax Credit will be available across
goods and services at every stage of supply
6. Reduction in compliance costs – No multiple record keeping for a variety of
taxes – so lesser investment of resources and manpower in maintaining
records;
7. More efficient neutralization of taxes especially for exports thereby making
our products more competitive in the international market and give boost
to Indian Exports;
8. Simplified and automated procedures for various processes such as
registration, returns, refund, tax payments, etc;
9. Average tax burden on supply of goods or service is expected to come
down which will be helping in the growth of industries manufacturing in
India.

Advantages to Consumers :

1. Final price of goods is expected to be transparent

2. Reduction in prices of commodities and goods in long run due to reduction
in cascading impact of taxation;
 3. Relatively large segment of small retailers will be either exempted from tax
or will suffer very low tax rates under a compounding scheme – purchases
from such entities will cost less for the consumers;
4. Poverty eradication by generating more employment and more financial
resources.

Advantages to the States :

1. Supply chain : Expansion of the tax base as they will be able to tax the
entire supply chain from manufacturing to retail;
2. Revenue : Power to tax services, which was Hitherto with the Central
Government only, will boost revenue and give State access to the fastest
growing sector of the economy;
3. Favour to consuming States : GST being destination based consumption tax
will favour consuming States;
4. Overall investment : Improve the overall investment climate in the country
which will naturally benefit the development in the States;
5. Improved Compliance : Improved Compliance levels of the tax payers will
contribute greatly in improving the revenue collection of the States.

IMPACT OF GST ON INDIAN ECONOMY

1. Overall Reduction in Prices

2. Common National Market
3. Benefits to Small Taxpayers
4. Self – Regulating Tax System
5. Non – Intrusive Electronic Tax System
6. Simplified Tax Regime
7. Reduction in Multiplicity of Taxes
8. Consumption Based Tax
9. Abolition of CST
10. Exports to be Zero Rated
11. Protection of Domestic Industry – IGST
12. Decrease in Inflation
13. Ease of Doing Business
14. Decrease in “Black” Transaction
15. More informed consumer
16. States to Gain
17. Make in India
18.Reduction in Cascading of Taxes