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VAT/CST provision relevant to proposed GST

Harsh Gadodia 
on 05 March 2015

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GST the biggest tax reform in India in spurring growth in the economy. It is an indirect tax that brings most the taxes which are imposed on the goods and services under single banner. As, GST is highly successful in the European and other countries, it is expected by the industries dealing in this area that it will simplify the tax structure and make it easier. Experts opine that the implementation of GST would push up GDP by 1%-2%.

In the empowered committee meeting in Nov 2014, the GST sub-committee proposed a revenue neutral rate of 26.7%. The committee is yet to decide on proposal. But it is expected to be between 20% to 27%. 

Here first we highlight the salient features of the GST and then we discuss the relevant provision of the CST/VAT with respect to GST.

Salient features of GST -

a. Insertion of new Article 246A conferring simultaneous power to the Union and State legislatures to legislate on GST.

b. Insertion of new Article 279A for the creation of a Goods & Services Tax Council, which will be a joint forum of the Centre and the States. This Council would function under the Chairmanship of the Union Finance Minister.

c. GST would be a destination based tax as against the present concept of origin based tax.

d. Central Taxes like Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty (CVD) and Special Additional Duty of Customs (SAD), etc. will be subsumed in GST.

e. At the State level, Taxes like VAT/ Sales Tax, Central Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase Tax and Luxury Tax, etc. would be subsumed in GST.

f. All Goods and services, except alcoholic liquor for human consumption, will be brought under the purview of 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. The present taxes levied by the States and the Centre on petroleum and petroleum products, i.e., Sales Tax/VAT, CST and Excise duty only, will continue to be levied in the interim period.

g. Both Centre and States will simultaneously levy GST across the value chain. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State.

h. The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. There will be seamless flow of input tax credit from one State to another. Proceeds of IGST will be apportioned between Centre and State. On import of goods, IGST would be levied.

i. It is proposed to levy a non-vatable Additional Tax of not more than 1% on supply of goods in the course of inter-State trade or commerce for a period not exceeding 2 years, or further such period as recommended by the GST Council. This Additional Tax on supply of goods shall be assigned to the States from where such supplies originate.

j. The term "Services" is proposed to be exhaustively defined as "anything other than goods".

Interstate transaction -

a. Suppose, A of West Bengal sold the goods to B of Karnataka of value Rs. 50,000. Assuming the rate is 27%, as it is a interstate sale, IGST would be levied on it which amounts to Rs. 13,500. IGST collected would be apportioned between Centre and State.

b. GST is a destination based tax and not origin based, therefore, since goods is consumed in Karnataka, it would form the revenue of the Karnataka Govt. and not WB Govt.

Intrastate transaction -

Suppose, A of WB sold goods to B of WB of value Rs. 50000. Assuming CGST (13%) and SGST(14%), as it is a intra state sale, CGST and SGST would be levied which amount to Rs. 6500(CGST) and Rs. 7000(SGST).

Treatment of Interstate Sale Pre-GST and during GST showing the availment of credit -

Illustration 1 -

A, manufacturer of WB manufacture the goods and sold to B of WB. B, trader of WB further sold the goods to C, trader of Karnataka which further sold to D, Karnataka.

PRE- GST

Assessee

Output tax

Input tax

Credit available/not available

A, mfg of WB selling goods to B, WB

Excise Duty

WB VAT

Excise Duty

Service Tax

Excise Duty available

Service Tax available

B, trader of WB selling goods to C, Karnataka

CST

Excise Duty

WB VAT

Excise duty not available

WB VAT available

C, trader of Karnataka selling goods to D, Karnataka

K-VAT

CST

CST not available

D, Karnataka (last consumer

            -

K-VAT

K-VAT not available

GST Regime

Assessee

Output tax

Input tax

Credit available/not available

A, mfg of WB selling goods to B, WB

SGST
CGST

SGST
CGST  (Local purchase)

SGST available

CGST available

B, trader of WB selling goods to C, Karnataka

IGST

SGST
CGST

SGST available

CGST available

C, trader of Karnataka selling goods to D, Karnataka

SGST
CGST
IGST

IGST available

D, Karnataka (last consumer

NIL

SGST
CGST

SGST not available

CGST not available

Note:

a. SGST can be set off against SGST.

b. CGST can be set off against CGST.

c. CGST and SGST cannot be set off against each other.

d. SGST and CGST can be set off against IGST and vice-versa.

Treatment of stock transfer -

Illustration 2 -

A, manufacturer of WB manufacture the goods and sold to B of WB. B, trader of WB transfer the goods to his branch located in Karnataka. Karnataka branch sold the goods to D, Karnataka.

PRE- GST

Assessee

Output tax

Input tax

Credit available/not available

A, mfg of WB selling goods to B, WB

Excise Duty

WB VAT (14.5%)

Excise Duty

Service Tax

Excise Duty available

Service Tax available

B, trader of WB stock transfer the goods to branch located in Karnataka

No tax

Excise Duty

WB VAT (14.5%)

2% of WB VAT will not be available as it has to be reversed from input credit.

Excise duty not available

Karnataka branch selling goods to D, Karnataka

K-VAT

       -

    -

D, Karnataka (last consumer

            -

K-VAT

K-VAT not available

GST Regime

Assessee

Output tax

Input tax

Credit available/not available

A, mfg of WB selling goods to B, WB

SGST
CGST

SGST
CGST (Local purchase)

SGST available

CGST available

B, trader of WB stock transfer the goods to branch located in Karnataka

IGST

SGST
CGST 

SGST available

CGST available

Karnataka branch selling goods to D, Karnataka

SGST
CGST

IGST

IGST available

D, Karnataka (last consumer

NIL

SGST
CGST

SGST not available

CGST not available

What will happen in case the goods are transferred to consignment agent?

a. In Pre-GST, VAT is applicable on sale and not on supply. Hence for transferring the goods to the consignment agent no VAT is to be charged. Consignment agent charges its commission for the selling the goods on your behalf which is generally around 2% to 4%. When actual sale takes place then only VAT or CST is charged.

b. However, GST is levied on the supply of goods. Thus on supplying the goods to the consignment agent, it would satisfied the leviablity and GST at the rate of 20% to 27% will be imposed on agent. On earning 2% to 4% commission on sale, first he has to pay GST amount which is ten times of the commission amount. I hope light would be given on these aspect.

- By CA Harsh Gadodia

The above article is written in order to highlight how interstate and intrastate transaction would work under GST regime. It does not cover the aspect in details. 


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