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Introduction

India has a federal structure of government where the powers are shared between the Central Government and the State Governments. At The taxes are levied by Central Government as well as State Government for different transactions. The present structure of indirect taxation have a lot of shortcomings such as tax cascading effect, inability of States to levy service tax, levy of excise duty by Centre only at manufacturing point, complexity in determining the nature of transaction (sale vs. service), difficulty in determining whether the sale is local sale or inter-state sale, interpretational issues as to whether an activity is sale or service or works contract, non-uniformity in provisions and rates in State VAT laws, complexities in administration, narrow tax base, etc.

It is expected the proposed GST structure model would preserve and protect the fiscal powers of the States & Union and at the same time it will address all the above-mentioned shortcomings of the present structure of indirect taxation by subsuming a plethora of Central and State taxes into a consolidate levy of GST.

PRESENT TAXATION VS. EXPECTED GST

PARTICULARS

PRESENT TAXATION

EXPECTED GST

Structure

Structure

Tax on goods is levied at 2 levels, Centre (CENVAT) and State (VAT), and tax paid under one (input tax credit) is not available as set-off against the other.

Tax on services is levied by Centre under separate legislation. No comprehensive taxation of services at State level except that few services are taxed under separate enactments.

Imports in India are not subjected to VAT or CENVAT.

A dual tax with both Central GST (CGST) and State GST (SGST) would be levied on the same. Thus, all the goods and services, barring a few exceptions, will be brought into the GST base.

There would be no distinction between goods and services for the purpose of GST with a common legislation applicable to both.

GST would allow seamless tax credit at all levels till the goods or services reaches the consumer.

Tax Base

Narrower

Will be comparatively Wider

Place of Taxation

Taxable at the place of sale of goods or provisioning of services

Consumption (Destination) based tax

Duties / Taxes

Excise Duty

Imposed by Centre under separate Act

Taxable Event: Manufacture of Goods

Taxed up to Manufacturing Point

To be subsumed in GST and subjected to CGST & SGST (Local Supply) / IGST (Inter-State Supply)

Taxable Event: Supply of Goods

To be taxed Retail Level

Service Tax

Imposed by Centre under separate Act

Taxable Event: Provision of Service

To be subsumed in GST and subjected to CGST & SGST (Local Supply) / IGST (Inter-State Supply)

Taxable Event: Supply of Services

State VAT

Imposed by States

Taxable Event: Sale of Goods within the State

To be subsumed in GST and subjected to CGST & SGST

Taxable Event: Supply of Goods within the State

Central Sales Tax

Imposed by Centre under separate Act but Collection assigned to States

Taxable Event: Sale of Goods from one State to another State

To be subsumed in GST and subjected to IGST (Centre)

Taxable Event: Supply of Goods from one State to another State

CST may continue initially and it will be phased out gradually with time (Additional Tax up to 1% in form of CST may be there along with IGST)

Basic Customs Duty

Imposed by Centre under separate Act

Taxable Event: Import of Goods

- No Change -

CVD / SAD

Imposed by Centre under separate Act

Taxable Event: Import of Goods

To be subsumed in GST and subjected to IGST (Centre)

Taxable Event: Import of Goods

Power to levy Duties / Taxes

Power to levy tax on Manufacture of Goods

Excise Duty by Centre

No such powers in GST

Power to levy tax on Provision of Services

Inter-State Provision of Services

  • Service Tax by Centre

Local Provision of Services

  • Service Tax by Centre

Inter-State Supply of Services

  • IGST by Centre

Local Supply of Services

  • CGST & SGST by Centre & State

Power to levy tax on Sale of Goods

Inter-State Sale of Goods

  • CST by Centre

Local Sale of Goods

  • VAT by States

Inter-State Supply of Goods

  • IGST by Centre

Local Supply of Goods

  • CGST & SGST by Centre & State

Power to levy tax on Import of Goods or Services in India

Import of Goods

  • Basic Customs Duty by Centre
  • CVD and SAD by Centre

Import of Services

  • Service Tax by Centre

Import of Goods

  • Basic Customs Duty by Centre
  • IGST by Centre

Import of Services

  • IGST by Centre

Tax on Special Transactions

Tax on Export of Goods and Services

Exempt / Zero-rated

- No Change -

Tax on Inter-State Sale of Goods / Provision of Services

Imposed by Centre (CST on Inter-State Sale of Goods and Service Tax on Inter-State Provision of Services)

To be subsumed in GST and subjected to IGST (Centre)

Tax on Inter-State Transfer of Goods to Branch or Agent

Exempt against Form F

To be taxable

Tax on Transfer of Goods to Branch or Agent within the State

Generally Exempt

Might be taxable, unless BIN (Business Identification No.) of transferor and transferee is same

Credit / Set-off

Cross-Levy set-off

Excise Duty and Service Tax: Cross set-off is allowed

Excise Duty and VAT: Cross set-off is not allowed

Service Tax and VAT: Cross set-off is not allowed

IGST and CGST: Cross set-off is allowed

IGST and SGST: Cross set-off is allowed

CGST and SGST: Cross set-off is not allowed

Cascading Effect

Allows tax credit between Excise Duty and Service Tax, but no credit for VAT

Will have seamless tax credit

Non-Creditable Goods

Exists

Might exist

Credit on Inputs used for Exempted Activities

Not allowed

- No Change -

Procedural Aspects

Excise Duty – Threshold Limit

Rs.1.5 Crores

Rs.10 Lakhs to Rs.20 Lakhs

VAT – Threshold Limit

Rs. 5 Lakhs to Rs.10 Lakhs

Rs.10 Lakhs to Rs.20 Lakhs

Service Tax – Threshold Limit

Rs.10 Lakhs

Rs.10 Lakhs to Rs.20 Lakhs

Classification of Commodities

Excise Duty: HSN

VAT: None

HSN

Registration No.

Excise Duty: PAN Based

Service Tax: PAN Based

VAT: Simple TIN (Some States, it is PAN Based)

PAN based BIN (Business Identification No.)

Procedures for Collection of Tax and Filing of Return

Excise Duty and Service Tax: Uniform

VAT: Varies from State to State

Will be uniform

Administration

Complex due to number of taxes

Will be comparatively Simple

Use of Computer Network

Very minimum

Just started by the States

Extensive

It is necessity for GST implementation

Exemptions, Forms and Other Aspects

Various Exemptions – Excise Free Zone or VAT Exemption

Exists

May go away in a phased manner

Exemption for transit Inter-State Sale and High Sea Sales

Exists

Might be taxable

Transactions against Declaration Forms

Exists under CST Act, 1956

Will be abolished

Taxation on Govt. and Non-Profit Bodies

Partially taxed and Partially exempted

Might not change

Stamp Duty

Presently taxed concurrently by the Centre and the States

Status of the same is not clear

If subsumed under GST, a big relief to real estate sector as to claiming input tax credit

Electricity Duty

Presently taxed by States

Status of the same is not clear

Litigations

Sale vs. Service

Local Sales vs. Inter-State Sales

Classification of Goods

Interpretational Issues

Sale vs. Service vs. Works Contract

Valuation of Composite Transactions, etc.

Will be reduced provided GST Laws are properly drafted

INDIRECT TAXES ON GOODS

PRESENT TAXATION

EXPECTED GST

Intra-State (i.e. Local) Sales of Goods

Manufacturer

  • Excise Duty (Centre) and VAT (State)

Trader

  • Only VAT (State)

Manufacturer as well as Trader

  • CGST (Centre) & SGST (State)

Intra-State Stock-Transfer of Goods

Manufacturer

  • Excise Duty (Centre)

Trader

  • No VAT

Manufacturer as well as Trader

  • CGST (Centre) & SGST (State)

(STATUS NOT YET CLEAR)

Inter-State Sales of Goods

Manufacturer

  • Excise Duty (Centre) and CST (Origin State)

Trader

  • Only CST (Origin State)

Manufacturer as well as Trader

  • IGST (Centre) in addition to 1% Additional Tax / CST (Origin State)

Inter-State Stock-Transfer of Goods

Manufacturer

  • Excise Duty (Centre)

Trader

  • No CST

Manufacturer as well as Trader

  • IGST (Centre) in addition to 1% Additional Tax / CST (Origin State) for Manufacturer as well as Trader

Import of Goods

Importer (i.e. Buyer)

  • Basic Customs Duty (Centre), CVD (Centre) and SAD (Centre)

Importer (i.e. Buyer)

  • Basic Customs Duty (Centre) and IGST (Centre)

Note: Additional Tax up to 1% levied by Origin State would NON-VATTABLE just like CST.

INDIRECT TAXES ON SERVICES

PRESENT TAXATION

EXPECTED GST

Intra-State (i.e. Local) Provision of Services

Service Provider

  • Service Tax (Centre)

Service Provider

  • CGST (Centre) & SGST (State)

Intra-State Provision of Services from HO to BO

Service Provider

  • No Service Tax

Service Provider

  • CGST (Centre) & SGST (State)

(STATUS NOT YET CLEAR)

Inter-State Provision of Services

Service Provider

  • Service Tax (Centre)

Service Provider

  • IGST (Centre)

Inter-State Provision of Services from HO to BO

Service Provider

  • No Service Tax

Service Provider

  • IGST (Centre)

Import of Services

Importer (i.e. Service Recipient)

  • Service Tax (Centre)

Importer (i.e. Service Recipient)

  • IGST (Centre)

Conclusion

Though, most of the goods and services would be subsumed in GST, a few goods such as alcoholic liquor and petroleum products (till it is notified by GST Council) will be kept outside the purview of GST. Clarity is required with respect to taxation of goods like alcoholic liquor, petroleum products and tobacco in different scenarios. Clarity is also required when the goods are stock transferred and when services are provided by HO to BO or vice versa.

YOUR VIEWS AND COMMENTS ARE MOST WELCOME EVEN IF THEY ARE CONTRARY.

Author: Vishal Jain A, B.Com., ACA, ACS
Email: ca_va_jain@yahoo.com

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