INDIRECT TAXATION

Module I : Introduction
Introduction:
Indirect tax plays very important role and contributes 50% of central
exchequer and 70% of state exchequer.
GST is a single comprehensive tax on the supply of goods and
services right from the manufacture upto a final consumption of
goods and services.
GST subsumed the following :
Central taxes State taxes
Central excise duty Sate VAT
Additional excise duty Entertainment tax
Service tax Entry tax
Surcharge and cess Luxury tax
Central sales tax Purchase tax
GST was first introduced in France in the year 1954. Within 62 years of its
introduction about 160 countries across the world have adopted GST.
Generally GST is popular for single model but Canada and Brazil also have
dual model of GST. India has adopted a dual GST which will be imposed
concurrently by center and states.
History of GST in India:
2000 The idea of GST first brought during the period of Atal Bihari
Vajpayee Govt.
2004 The idea of GST was emerged in India from the
recommendation of Kelkar Task Force.
2007 Union Finance Minister, Shri P. Chidambaram, while
presenting the central budget (2007-08) announced the
GST for introduction in India.
2014 NDA government tabled the Constitution (122nd
Amendment) Bill
2016 It got assent of the president on 8th September, 2016 and
became Constitution (101st amendment) Act, 2016, which
paved the way for the introduction of GST in India.
2017 (March)Central Goods and Services Tax Bill, 2017, Integrated
Goods and Services Tax Bill, 2017, Union Territory Goods
and Services Tax Bill, 2017 and Goods and Services Tax
(Compensation to States) Bill, 2017 were introduced and
passed in Lok Sabha and on receipt of President assent on
12th April, 2017 became enacted. Subsequently State GST
laws had been enacted by respective State Government.
2017 (July) w.e.f 1st July 2017, GST was implemented across India.
Constitutional Amendment for GST
Goods and Service Tax
• Constitution (122nd Amendment) Bill, 2014
• Constitution (101st Amendment) Act, 2016 was enacted on 8th
September, 2016
Amendments:
(a) Concurrent powers on Parliament and State Legislatures to make
laws governing goods and services. It means there will be dual control
of State and Central authorities for all assesses
(b) As per Article 246A, the power to levy GST has been given to the
Parliament as well as to Legislature of every State.
a. CGST – enacted by Central Government of India.
b. IGST – enacted by Central Government of India.
c. SGST – enacted by respective State Governments
d. UTGST – enacted by Central Government of India

(c) IGST will be apportioned between Centre and the States in the
manner provided by Parliament by Law as per the recommendation of
the GST Council.
(d) GST will be levied on all supply of goods and services except
alcoholic liquor for human consumption.

(e) The explanation to Article 269A of Constitution of India provides

that the import of goods or services will be deemed as supply of goods
or services or both in the course of inter-State trade or commerce. In
case of import of goods IGST will be levied along with the Basic
Customs duty. It means IGST is levied in replacement of CVD + Spl.
CVD. In case of import of services only IGST will be levied.

(f) Principles for determining the place of supply and when a supply
takes place in the course of inter-state trade or commerce shall be
decided by the Parliament.
(g) The power to levy Central Excise duty on goods manufactured or
produced in India is available in respect of the following products:
a. Petroleum crude;
b. High speed diesel;
c. Motor spirit (commonly known as petrol);
d. Natural gas; e. Aviation turbine fuel; and
f. Tobacco and tobacco products.
However, once GST is imposed there will be no duty on manufacture of
these goods.
(h) The power to impose tax on sale of the following products is still
provided to the State Governments:
a. Petroleum crude;
b. High speed diesel;
c. Motor spirit (commonly known as petrol);
d. Natural gas;
e. Aviation turbine fuel; and
f. Alcoholic liquor for human consumption.

However, once GST Council is recommend the date from which GST is
imposed on these products (except alcoholic liquor for human
consumption), and no sales tax will be imposed on these products.
The Central Government notified 1st July, 2017 as the date from which
the much awaited indirect tax reform in India, i.e., Goods and Services
Tax (GST) will be implemented. Accordingly, Goods and Services Tax
(GST) has been implemented in India w.e.f. 1st July, 2017.
What is GST ?
● Goods and services tax means a tax on supply of goods or services, or
both, except taxes on supply of alcoholic liquor for human consumption
(Article 366 (12A) of Constitution of India).
● GST is a value added tax levy on sale or service or both.
● GST is a destination based consumption tax.
● GST offers comprehensive and continuous chain of tax credit.
● GST where burden borne by final consumer.
● GST eliminate cascading effect of tax.
● GST brings uniform tax structure all over India.
Structure of GST
1. GST is levied on supply of goods and services across India (including Jammu
and Kashmir). It is a single tax on the supply of goods and services, right from
the manufacturer to the consumer. Under GST credit of taxes paid at previous
stages is available as set-off from the output tax.
2. GST is destination based consumption tax. Benefit of tax (STCG/ UTGST) will
accrue to the consuming state.
3. Centre and states will impose tax on goods and services simultaneously. Centre
now can impose tax on sale of goods within State and States can impose tax on
services.
(a) Intra-State supply of goods and services
CGST-Payable to Central Government
SGST/ UTGST-Payable to State Government/ Union
Territory (as applicable) where they are consumed
(b) Inter-States Supply of goods and services
IGST - Payable to Central Government
4. Centre will levy and administer CGST and IGST while respective
States/ UTs will levy and administer SGST/UTGST.
5. Import will be treated as inter-States supply and IGST will be
chargeable along with basic Customs duty.
6. However, in GST Export will be treated as Zero rated supplies and no
IGST is payable.
7. The rates of GST are 0.5%, 3%, 5%, 12%, 18% and 28%. In addition
, compensation cess will be payable on pan masala, coal, aerated water
and motor cars (Sin cess). There is no education cess or Swach Bharat
cess or Krishi Kalyan cess on GST.
Advantages of GST
(a) One Nation One Tax.
(b) Removal of bundled indirect taxes such as VAT, CST, Service tax,
SAD, and Excise.
(c) Removal of cascading effect of taxes i.e. removes tax on tax.
(d) Increased ease of doing business;
(e) Lower cost of production, increases demand will lead to increase
supply. Hence, this will ultimately lead to rise in the production of
goods. Resultantly boost to make in India initiative.
(f) It will boost export and manufacturing activity, generate more
employment and thus increase GDP with gainful employment leading to
substantive economic growth;
Need For GST in India
1. Non-integration of VAT and Service Tax causes double taxation.
In the VAT and Service tax regime, restaurant services provider is liable to pay VAT on sale of food
and service tax on supply of services. There is no set-off. It means VAT is not allowed as input tax
credit against service tax and vice versa.
Example : Service Tax and VAT on Restaurant Bill:
Particulars Amount
Total Food Bill 1000
Service charges @ 10% 100
TOTAL 1100
VAT @ 14.5% on 1,100 159.50
Total Bill (before Service Tax) 1259.50
Service Tax @ 14% on ` 440 (i.e., 1,100 × 40%) 61.60
Add: Swachh Bharat Cess 0.5% on ` 440 2.20
Add: Krishi Kalyan Cess 0.5% on ` 440 2.20
TOTAL BILL PAYABLE BY CUSTOMER 1325.50
2. No CENVAT Credit after manufacturing stage to a dealer
In the present regime, a manufacturer of dutiable goods charge excise duty and
value added tax on intra-state sale of goods or CST on inter-state sale of goods. VAT
or CST is levied inclusive of excise duty.
Example 2: Invoice of a manufacturer cum seller:
Value of Goods 1,00,000
Add: Excise duty 12.5% 12,500
Taxable Turnover 1,12,500
Add: VAT 14.5% 16,313
Invoice Price 1,28,813
3. Cascading of taxes on account of levy of CST Inter-state purchases:
Example 3: Mr. C of Calicut being a dealer purchased goods from Mr. H of
Hyderabad by paying central sales tax of ` 2,000. Since, CST is not allowed as Input
Tax Credit against VAT payable on local sales, VAT is calculated inclusive of CST
causing cascading of tax.
4. The existing Indirect Tax frame work in India suffer from various
duties and taxes at Central as well as at State level:
Central Indirect Taxes State Indirect Taxes
Central Excise duty State Value Added Tax
Service Tax Entertainment tax
CVD on imports Central sales tax
Spl. CVD on imports Entry tax
Central surcharges and Cess Purchase tax
Luxury tax
Betting and Gambling tax
State surcharges and Cess
Dual GST Model:
India adopted a dual GST where tax imposed concurrently by the Central and States.
Dual GST model:
SGST ● State GST
● Collected by the State Government
CGST ● Central GST
● Collected by the Central Government
IGST ● Integrated GST
● Collected by the Central Government on inter-state supply of
Goods and Services
Central Goods and Services Tax Act, 2017 (CGST): CGST levied and collected by
Central Government. It is a revenue source to the Central Government of India, on intra-
state supplies of taxable goods or services or both.
State Goods and Services Tax Act, 2017 (SGST): SGST levied and collected by State
Governments/Union Territories with State Legislatures (namely Delhi and Pondicherry) on
intra-state supplies of taxable goods or services or both. It is a revenue source of the
respective State Government.
Examples of CGST and SGST :
Ex. 1: Suppose Rajesh is a dealer in Karnataka who sold goods to Anand in Karnataka worth Rs.
10000. The GST rate is 18 % comprising of CGST rate of 9% and SGST rate of 9%.
Sollution: In such case, the dealer collects Rs. 1800 of which Rs. 900 will go to central govt and Rs.
900 will go to state govt.
Example 2: Mr. C of Chennai supplied goods/services for ` 20,000 to Mr. M of Madurai. SGST and
CGST rate on supply of goods and services is 9% each. IGST rate is 18%. Find the following: (a)
Total price charged by Mr. C. (b) Who is liable to pay GST?
Sollution: Supply of goods/services 20,000
Add: CGST 9% 1,800
Add: SGST 9% 1,800
Total Invoice bill 23,600
(a) Total price charged by Mr. C from Mr. M for local supply of goods or services.
(b) Mr. C is liable to pay GST.
Ex.3 ‘A’ supplies raw material to manufacturer ‘B’. The manufactured goods are sold to wholesaler
‘C’ followed by Retailer ‘D’. Retailer sells the finished goods to final consumer. In this case both the
central and state govt would charge GST at 10 %( CGST 5% and SGST 5%).
Sollution:
Supplier A Manufacturer B Wholesaler C Retailer D Consumer

Sells goods CP 500 CP 500 CP 650 CP 750

at Rs. 500
CGST 5% 25 (+)VALUE (+)VALUE (+)VALUE
SGST 5% 25 ADDITION 150 ADDITION 100 ADDITION 100

SP 550 TOTAL COST 650 TOTAL COST 750 TOTAL COST 850
AMOUNT PAID BY B
TO A
CGST 5% 32.5 CGST 5% 37.5 CGST 5% 42.5
SGST 5% 32.5 SGST 5% 37.5 SGST 5% 42.5

SP 715 SP 825 SP 935

AMOUNT PAID BY C TO B AMOUNT PAID BY D TO C AMOUNT PAID BY
CONSUMER TO D

TAX PAYABLE = OUTPUT TAX PAYABLE=75-60=10 TAX PAYABLE=85-75=10

TAX- INPUT TAX 65-50=15
ACTUAL TAX BY C IS 15.HE ACTUAL TAX BY D IS 10.HE FINAL TAX BEARED BY
GETS CREDIT OF 50 RS GETS CREDIT OF 60 RS CONSUMER IS RS.
WHICH IS ITC WHICH IS ITC 85(50+15+10+10)
IGST
IGST is a mechanism to monitor the inter-state trade of goods and
services and ensure that the SGST component accrues to the Consumer
State. It would maintain the integrity of ITC chain in inter-state
supplies.
The IGST rate would broadly be equal to CGST rate plus SGST rate.
IGST would be levied and collected by the Central Government on all
inter-State transactions of taxable goods or services. The revenue of
inter-state sales will not accrue to the exporting state and the exporting
state will be required to transfer to the Centre the credit of
SGST/UTGST used in payment of IGST.
Example : Mr. A registered person under GST located in Tamil Nadu,
sold goods worth ` 10,000 after manufacture to Mr. C of Chennai.
Subsequently, Mr. C sold these goods to Mr. H of Hyderabad for `
17,500. Mr. H being a trader finally sold these goods to customer Mr. S
of Secunderabad for ` 30,000. Applicable rates of CGST= 9%,
SGST=9% and IGST=18%. Find the net tax liability of each supplier of
goods and revenue to the government.
Answer: Since, Mr. A supplied goods to Mr. C in Tamil Nadu itself, it is
an intra-state sale and both CGST @ 9% and SGST @ 9% will apply.
Mr. C of Chennai supplied goods to Mr. H of Hyderabad. Since, it is an
interstate sale, IGST@18% will apply. Mr. H of Hyderabad (Telangana)
supplied goods to Mr. S of Secunderabad (Telangana). Once again it is
an intrastate sale and both CGST @ 9% and SGST @ 9% will apply.
UTGST
GST – in Union Territories without Legislature: Supplies within such
Union territory, Central GST will apply to whole of India and hence, it
would be applicable to all Union Territories, with or without
Legislature. Hence, law same as similar to State GST can be formulated
for Union Territory without Legislature, by the Parliament. The
following are Union Territories without Legislature:
1. Chandigarh
2. Lakshadweep
3. Daman and Diu CGST+UTGST will be levied for
these union territories without
4. Dadra and Nagar Haveli legislature

5. Andaman and Nicobar Islands

Union Territories with Legislature i.e Delhi and Puducherry will be
treated as states so CGST+SGST is levied in Delhi and Puducherry.
IGST will be applicable for any inter UT or Inter state (between state
and UT)supply of goods and services.
Who is liable to pay GST?
Person whose supplies of goods or services or both are more than Rs.
Twenty Lakhs per annum is required to pay GST.
In case of North eastern states, Jammu and Kashmir, Himachal Pradesh
and Uttarakhand , this limit is Rs. Ten Lakhs.
GSTN( Goods and Service Tax Network )
Goods and Services Tax Network (GSTN) is a (i.e. not for profit
companies)], non-Government, private limited company.
Technology backbone for GST in India.
GST being a destination based tax, the inter- state trade of goods and
services (IGST) would need a robust settlement mechanism amongst the
States and the Centre. This is possible only when there is a strong IT
Infrastructure and Service back bone which enables capture, processing
and exchange of information amongst the stakeholders (including tax
payers, States and Central Governments, Accounting Offices, Banks and
RBI).
As a result Goods and Services Tax Network (GSTN) has been set up
GSTN is non profit , non govt company which will provide shared IT
infrastructure and service to both center and state govt including tax payers
and other stake holders.
It will be interface between govt and taxpayers. It will manage entire IT
system of GST portal , which is mother database for everything. This will be
used by govt to track every transactions.
Functions of the GSTN (i.e. Role assigned to GSTN):
• filing of registration application,
• filing of return,
• creation of challan for tax payment,
• settlement of IGST payment (like a clearing house),
• generation of business intelligence and analytics etc.
All statutory functions to be performed by tax officials under GST like
approval of registration, assessment, audit, appeal, enforcement etc. will
remain with the respective tax departments.
It will handle :
Invoices
Various returns
Registrations
Payments and refunds
Govt has strategic control over the GSTN. 49% share is held by Govt
and remaining 51% held by some of the private banks like HDFC,
ICICI
GSTN provides GSTIN(Goods and Service Tax Identification
Number)to every registered dealer.
GST Council
As per Article 279A of the Constitution of India, the President of India is
empowered to constitute Goods and Services Tax Council.
The President of India constituted the GST Council on 15th September, 2016.
The GST Council shall consist of Union Finance Minster as a Chairperson, Union
Minister of State in charge of Finance as a member, the State Finance Minister or
State Revenue Minister or any other Minister nominated by each State as a member
of the Council.
The GST Council shall select one of them as Vice Chairperson of Council.
Guiding principle of the GST Council: The mechanism of GST Council would
ensure harmonization on different aspects of GST between the Centre and the States
as well as among States. It has been provided in the Constitution (101st
Amendment) Act, 2016 that the GST Council, in its discharge of various functions,
shall be guided by the need for a harmonized structure of GST and for the
development of a harmonized national market for goods and services.
Functions of the GST Council: GST Council is to make
recommendations to the Central Government and the State
Governments on
• tax rates,
• exemptions,
• threshold limits,
• dispute resolution,
• GST legislations including rules and notifications etc.
Thank You