Goods and Services Tax Users Manual

Transcription

1 E-Book on Goods and Services Tax Users Manual Written By Anand Singh IRS Retd. Additional Commissioner (Customs) New Delhi, India All Rights Reserved. Copyright 2017 by the Authors

2 ABOUT THE AUTHOR The author Shri Anand Singh is an ex IRS officer who did his BE (HONS) from BITS Pilani and M Tech from IIT Delhi. He also did his law graduation and has authored a large number of books on taxation in various fields of taxation such as Central Excise, Customs, Service Tax, Export and Import laws, FEMA, PMLA, Competition Commission, Anti Dumping, Safeguard Duties, SEZ policy, EOU policy Etc. The tax books written by the author is in a very easy to use style with all relevant reading materials on a particular topic being described in a single place so that an ordinary reader does not have to refer in different places to understand a particular topic. For each topic of tax discussed in a book all the relevant provisions of the Act, Rules, notifications, circulars and directions have been placed under that topic so that a reader does not have to refer in different places. The author s experience in government in implementation of the taxation laws has also come in handy in making the taxation books written by the author more practical in approach. Some of the taxation books written by the author that can be very useful to the reader and can serve as a useful guide are mentioned below: GST Book Series Goods and Services Tax User Manual Input Tax Credit, Accounts & Records, Returns, Assessment and Audit of Records under GST Laws Appeals, Revision and Advance Ruling under GST Laws Levy & Collection of Tax and Valuation under GST Laws Offences & Penalties, Search, Seizure, Arrest, Demand and Recovery under GST Laws IGST and UTGST Laws Other Books Antidumping Duty Laws in India Advance Ruling Laws in India Competition Laws in India Countervailing Duty and Subsidy Laws in India Anti-money Laundering Laws in India Safeguard Duty Laws in India Indian Law on Special Economic Zones (SEZ)

3 Introduction Table of Contents CGST (Central Goods and Services Tax) Chapter 1 - Legislation Framework under GST 1.1 Rules Framed For Administration of CGST and SGST 1.2 Dispute Resolution and Advance Ruling under GST 1.3 Recommendations Made By Various Committees under GST Chapter 2 - Preparation for GST 2.1 What is GST and How Does It Work 2.2 Introduction to GST 2.3 Constitutional Amendments Done for Implementation of GST 2.4 Central and State Taxes to Be Subsumed Under GST 2.5 GST Model for India 2.6 Legislative Steps for CGST and SGST 2.7 Need for a Constitutional Amendment for Implementation of GST 2.8 GST Rate Structure 2.9 Interstate Transaction of Goods And Services 2.10 GST Concept & Status Chapter 3 - Salient Features of GST 3.1 Comparison of Vat And GST 3.2 Concept of Providing Threshold Exemption For GST 3.3 Cross Utilization of Credits Between Goods And Services Allowed Under GST Regime 3.4 Harmonious Structure of GST And The States Autonomy 3.5 Need For Dual GST Required 3.6 Need For Compensation During Implementation of GST 3.7 Rate Structure Under GST 3.8 Salient Features of The Proposed GST Model 3.9 Scope of Composition And Compounding Scheme Under GST 3.10 Special Industrial Area Scheme And GST 3.11 Subsuming of Purchase Tax Into GST 3.12 Taxation of Services Under GST 3.13 The Situations Where The Tax Payer Has Made Excess Payment of Tax Either GST Refund-- By Mistake or By Inadvertence Resulting In More Payment of Tax Than Due To The Government 3.14 Transaction of Goods And Services Be Taxed Simultaneously Under Central GST 3.15 Zero Rating of Exports Under GST 3.16 Taxation of Interstate Transactions Under GST Chapter 4 - Benefits of GST 4.1 GST Benefit To The Exporters 4.2 GST Benefit To The Common Consumers 4.3 GST Benefit To The Small Entrepreneurs And Small Traders 4.4 How Can The Burden of Tax Fall Under GST 4.5 How Will GST Benefit Industry, Trade and Industry 4.6 Justification of GST Chapter - 5 Preliminary Introduction to GST 5.1 Short title, extent and commencement 5.2 Definitions 5.3 General FAQs on Overview of Goods and Services Tax (GST) Chapter - 6 Administration of GST 6.1 Officers under the Central Goods and Services Tax Act 6.2 Appointment of Officers under the Central Goods and Services Tax Act 6.3 Powers of Officers under the Central Goods and Services Tax Act

4 6.4 Authorisation of Officers of State tax or Union territory Tax as Proper Officer in Certain Circumstances 6.5 General FAQs on Administration of GST Chapter - 7 Levy of, and Exemption from, Tax under GST 7.1 Scope of Supply 7.2 General FAQs on Scope of Supply 7.3 Tax Liability on Composite and Mixed Supplies 7.4 Levy and Collection of Central Goods and Services Tax Act 7.5 Composition Levy of Central Goods and Services Tax Act 7.6 Power to Grant Exemption from Tax 7.7 Rules and Formats Framed for Composition Levy under GST 7.8 General FAQs on Levy and Collection of Tax Chapter - 8 Time and Value of Supply under GST 8.1 Time of Supply of Goods 8.2 Time of Supply of Services 8.3 General FAQs on Time of Supply 8.4 Change in Rate of Tax In Respect of Supply of Goods and Services 8.5 Value of Taxable Supply 8.6 Rules Framed for Determination of Value of Supply under GST 8.7 General FAQs on Valuation in GST Chapter - 9 Input Tax Credit under GST 9.1 Eligibility and Conditions of Taking Input Tax Credit 9.2 Apportionment of Credit and Blocked Credits 9.3 Availability of Credit in Special Circumstances 9.4 Taking Input Tax Credit in Respect of Inputs and Capital Goods Sent for Job Work 9.5 Manner of Distribution of Credit by Input Service Distributor 9.6 General FAQs on Concept of Input Service Distributor in GST 9.7 Manner of Recovery of Credit Distributed In Excess 9.8 Rules and Formats Framed for Input Tax Credit under GST 9.9 General FAQs on Input Tax Credit Chapter - 10 Registration under GST 10.1 Persons Liable for Registration 10.2 Persons Not Liable for Registration 10.3 Compulsory Registration in Certain Cases 10.4 Procedure for Registration 10.5 Deemed Registration 10.6 Special Provisions Relating To Casual Taxable Person and Non-Resident Taxable Person 10.7 Amendment of Registration 10.8 Cancellation of Registration 10.9 Revocation of Cancellation of Registration Important Features of Registration Procedure under GST Rules and Formats Framed for Registration under GST General FAQs on Registration Chapter 11 Tax Invoice, Credit and Debit Notes under GST 11.1 Tax Invoice 11.2 Prohibition of Unauthorised Collection of Tax 11.3 Amount of Tax to Be Indicated In Tax Invoice and Other Documents 11.4 Credit and Debit Notes 11.5 Important Features of Invoicing under GST 11.6 Rules Framed for Tax Invoice, Credit and Debit Notes under GST 11.7 General FAQs on Tax Invoice, Credit and Debit Notes of GST Chapter 12 Accounts and Records To Be Maintained under GST 12.1 Accounts and Other Records

5 12.2 Period of Retention of Accounts 12.3 Rules and Formats Framed for Accounts and Record under GST 12.4 General FAQs on Accounts and Records of GST Chapter 13 Returns Filed under GST 13.1 Furnishing Details of Outward Supplies 13.2 Furnishing Details of Inward Supplies 13.3 Furnishing of Returns 13.4 First Return 13.5 Claim of Input Tax Credit and Provisional Acceptance Thereof 13.6 Matching, Reversal and Reclaim of Input Tax Credit 13.7 Matching, Reversal and Reclaim of Reduction in Output Tax Liability 13.8 Annual Return 13.9 Final Return Notice to Return Defaulters Levy of Late Fee Goods and Services Tax Practitioners Important Facts Regarding Filing of GST Return Rules and GSTP Formats, Mismatch Formats, Return Formats Framed for Return under GST General FAQs on Returns Chapter 14 Payment of Tax under GST 14.1 Payment of Tax, Interest, Penalty and other Amounts 14.2 Interest on Delayed Payment of Tax 14.3 Tax Deduction at Source 14.4 Collection of Tax at Source 14.5 Transfer of Input Tax Credit 14.6 Important Facts Regarding Procedure of Payment of Tax under GST 14.7 Rules and Formats Framed for Payment of Tax under GST 14.8 General FAQs on Payment of Tax Chapter 15 Refunds of Duty Paid under GST 15.1 Refund of Tax 15.2 Refund in Certain Cases 15.3 Interest on Delayed Refunds 15.4 Consumer Welfare Fund 15.5 Utilization of Fund 15.6 Important Facts on Refund of Tax Paid under GST 15.7 Rules and Formats Framed for Refunds under GST 15.8 General FAQs on Refunds Chapter 16 Assessment of Tax under GST 16.1 Self-Assessment 16.2 Provisional Assessment 16.3 Scrutiny of Returns 16.4 Assessment of Non-Filers of Returns 16.5 Assessment of Unregistered Persons 16.6 Summary Assessment in Certain Special Cases 16.7 Rules and Formats Framed for Assessment under GST 16.8 General FAQs on Assessment Chapter 17 Audit of Records under GST 17.1 Audit by Tax Authorities 17.2 Special Audit 17.3 Rules and Formats Framed for Audit under GST 17.4 General FAQs on Audit Chapter 18 Inspection, Search, Seizure and Arrest under GST

6 18.1 Power of Inspection, Search and Seizure 18.2 Inspection of Goods in Movement 18.3 Power to Arrest 18.4 Power to Summon Persons to Give Evidence and Produce Documents 18.5 Access to Business Premises 18.6 Officers to Assist Proper Officers 18.7 Rules and Formats Framed for Inspection, Search and Seizure under GST 18.8 General FAQs on Inspection, Search, Seizure and Arrest Chapter 19 Demands and Recovery under GST 19.1 Determination of Tax Not Paid or Short Paid or Erroneously Refunded or Input Tax Credit Wrongly Availed or Utilised for Any Reason Other than Fraud or Any Wilful-Misstatement or Suppression of Facts 19.2 Determination of Tax Not Paid or Short Paid or Erroneously Refunded or Input Tax Credit Wrongly Availed or Utilised by Reason of Fraud or Any Wilful-Misstatement or Suppression of Facts 19.3 General Provisions Relating to Determination of Tax 19.4 Tax Collected But Not Paid to Government 19.5 Tax Wrongfully Collected and Paid to Central Government or State Government 19.6 Initiation of Recovery Proceedings 19.7 Recovery of Tax 19.8 Payment of Tax and Other Amount in Instalments 19.9 Transfer of Property to be Void in Certain Cases Tax to be First Charge on Property Provisional Attachment to Protect Revenue in Certain Cases Continuation and Validation of Certain Recovery Proceedings Rules and Formats Framed for Demands and Recovery under GST General FAQs on Demands and Recovery Chapter 20 Liability to Pay in Certain Cases under GST 20.1 Liability in Case of Transfer of Business 20.2 Liability of Agent and Principal 20.3 Liability in Case of Amalgamation or Merger of Companies 20.4 Liability in Case of Company in Liquidation 20.5 Liability of Directors of Private Company 20.6 Liability of Partners of Firm to Pay Tax 20.7 Liability of Guardians, Trustees Etc Liability of Court of Wards, etc 20.9 Special Provisions Regarding Liability to Pay Tax, Interest or Penalty in Certain Cases Liability in Other Cases General FAQs on Liability To Pay In Certain Cases of GST Chapter 21 Advance Ruling under GST 21.1 Definitions 21.2 Authority for Advance Ruling 21.3 Application for Advance Ruling 21.4 Procedure on Receipt of Application 21.5 Appellate Authority for Advance Ruling 21.6 Appeal to Appellate Authority 21.7 Orders of Appellate Authority 21.8 Rectification of Advance Ruling 21.9 Applicability of Advance Ruling Advance Ruling to be Void in Certain Circumstances Powers of Authority and Appellate Authority Procedure of Authority and Appellate Authority Rules and Formats Framed for Advance Ruling under GST General FAQs on Advance Ruling

7 Chapter 22 Appeals and Revision under GST 22.1 Appeals to Appellate Authority 22.2 Powers of Revisional Authority 22.3 Constitution of Appellate Tribunal and Benches thereof 22.4 President and Members of Appellate Tribunal, Their Qualification, Appointment, Conditions of Service, Etc Procedure Before Appellate Tribunal 22.6 Appeals to Appellate Tribunal 22.7 Orders of Appellate Tribunal 22.8 Financial and Administrative Powers of President 22.9 Interest on Refund of Amount Paid for Admission of Appeal Appearance by Authorised Representative Appeals to High Court Appeals to Supreme Court Sums Due to be Paid Not withstanding Appeal, Etc Appeal Not to be Filed in Certain Cases Non Appealable Decision and Orders Rules and Formats Framed for Appeals and Revision under GST General FAQs on Appeals and Revision Chapter 23 Offences and Penalties under GST 23.1 Penalty for Certain Offences 23.2 Penalty for Failure to Furnish Information Return 23.3 Fine for Failure to Furnish Statistics 23.4 General Penalty 23.5 General Disciplines Related to Penalty 23.6 Power to Impose Penalty in Certain Cases 23.7 Power to Waive Penalty or Fee or Both 23.8 Detention, Seizure and Release of Goods and Conveyances in Transit 23.9 Confiscation of Goods or Conveyances and Levy of Penalty Confiscation or Penalty Not to Interfere with Other Punishments Punishment for Certain Offences Liability of Officers and Certain Other Persons Cognizance of Offences Presumption of Culpable Mental State Relevancy of Statements under Certain Circumstances Offences by Companies Compounding of Offences Rules and Formats Framed for Offences and Penalties under GST General FAQs on Offences and Penalties Chapter 24 Transitional Provisions under GST 24.1 Migration of Existing Tax Payers 24.2 Transitional Arrangements for Input Tax Credit 24.3 Transitional Provisions Relating to Job Work 24.4 Miscellaneous Transitional Provisions 24.5 Rules and Formats Framed for Transitional Provisions under GST 24.6 General FAQs on Transitional Provisions Chapter 25 Miscellaneous Provisions under GST 25.1 Job Work Procedure 25.2 General FAQs on Job Work 25.3 Presumption as to Documents in Certain Cases 25.4 Admissibility of Micro Films, Facsimile Copies of Documents and Computer Printouts As Documents and As Evidence 25.5 Common Portal

8 25.6 Deemed Exports 25.7 Special Procedure for Certain Processes 25.8 Goods and Services Tax Compliance Rating 25.9 Obligation to Furnish Information Return Power to Collect Statistics Bar on Disclosure of Information Taking Assistance from an Expert Power to Take Samples Burden of Proof Persons Deemed To Be Public Servants Protection of Action Taken under This Act Disclosure of Information by a Public Servant Publication of Information in Respect of Persons in Certain Cases Assessment Proceedings, Etc., Not To Be Invalid on Certain Grounds Rectification of Errors Apparent on the Face of Record Bar on Jurisdiction of Civil Courts Levy of Fee Power of Government to Make Rules Power to Make Regulations Laying of Rules, Regulations and Notifications Delegation of Powers Power to Issue Instructions or Directions Service of Notice in Certain Circumstances Rounding Off of Tax, Etc Anti-Profiteering Measure Removal of Difficulties Amendment of Act 32 of Repeal and Saving General FAQs on Miscellaneous Provisions under GST Chapter 26 Imports under GST 26.1 GST on Imports 26.2 Taxation of Imports under GST Chapter 27 GST on Specific Products 27.1 GST on Petroleum Products 27.2 GST on Tobacco Products 27.3 GST on Items Containing Alcohol Chapter 28 - Frontend Business Process on GST Portal 28.1 General FAQs on Frontend Business Process on GST Portal Chapter 29 - Organisational Structure for Implementation of GST 29.1 Terms of Reference GST 29.2 Reviewing the Mandate of DGST Chapter 30 - GST Rate Schedule for Goods 30.1 GST Rate Schedule for Goods 30.2 IGST Exemptions/Concessions under GST 30.3 GST Compensation Cess Rates for Different Supplies Chapter 31 - GST Rate Schedule for Services 31.1 GST Rate Schedule for Services 31.2 List of Services under Reverse Charge Chapter 32 - Anti-Profiteering Rules under GST 32.1 Anti-Profiteering Rules under GST Chapter 33 - E-Way Rules under GST 33.1 E-Way Rules under GST Chapter 34 Departmental Clarification on GST 34.1 Departmental Clarification on GST

9 Chapter 35 Notifications on GST 35.1 Central Tax 35.2 Central Tax (Rate) 35.3 Intigrated Tax 35.4 Intigrated Tax (Rate) 35.5 Union Territory Tax 35.6 Union Territory Tax (Rate) 35.7 Compensation Cess 35.8 Compensation Cess (Rate) Chapter 36 Sectoral FAQs on GST 36.1 Drugs and Pharmaceuticals 36.2 E-Commerce 36.3 Exports 36.4 Food Processing 36.5 Handicrafts 36.6 Mining 36.7 MSME 36.8 Textiles SCHEDULES Schedule I - Activities To Be Treated As Supply Even If Made Without Consideration Schedule II - Activities To Be Treated As Supply of Goods or Supply of Services Schedule III - Activities or Transactions Which Shall Be Treated Neither As A Supply of Goods Nor A Supply of Services IGST (Integrated Goods and Service Tax) Chapter 1 - Preliminary 1.1 Short Title, Extent and Commencement 1.2 Definitions Chapter 2 - Administration of GST 2.1 Appointment of Officers 2.2 Authorisation of Officers of State Tax or Union Territory Tax as Proper Officer in Certain Circumstances Chapter 3 - Levy and Collection of Tax 3.1 Levy and Collection of Integrated Goods and Services Tax 3.2 Power to Grant Exemption from Tax Chapter 4 - Determination of Nature of Supply 4.1 Inter-State Supply 4.2 Intra-State Supply 4.3 Supplies in Territorial Waters Chapter 5 - Place of Supply of Goods or Services or Both 5.1 Place of Supply of Goods Other than Supply of Goods Imported into, or Exported from India 5.2 Place of Supply of Goods Imported into, or Exported from India 5.3 Place of Supply of Services Where Location of Supplier and Recipient is in India 5.4 Place of Supply of Services Where Location of Supplier or Location of Recipient is Outside India 5.5 General FAQs on Place of Supply of Goods and Service 5.6 Special Provision for Payment of Tax by a Supplier of Online Information and Database Access or Retrieval Services Chapter 6 - Refund of Integrated Tax to International Tourist 6.1 Refund of Integrated Tax Paid on Supply of Goods to Tourist Leaving India Chapter 7 Zero Rated Supply 7.1 Zero Rated Supply

10 Chapter 8 - Apportionment of Tax and Settlement of Funds 8.1 Apportionment of Tax and Settlement of Funds 8.2 Transfer of Input Tax Credit 8.3 Tax Wrongfully Collected and Paid to Central Government or State Government Chapter 9 Miscellaneous 9.1 Application of provisions of Central Goods and Services Tax Act 9.2 Import of Services Made on or After the Appointed Day 9.3 Power to Make Rules 9.4 Power to Make Regulations 9.5 Laying of Rules, Regulations and Notifications 9.6 Removal of Difficulties 9.7 General FAQ on Overview of the IGST Act UTGST (Union Territories Goods and Services Tax) Chapter 1 Preliminary 1.1 Short Title, Extent and Commencement 1.2 Definitions Chapter 2 - Administration 2.1 Officers under This Act 2.2 Authorisation of Officers 2.3 Powers of Officers 2.4 Authorisation of Officers of Central Tax as Proper Officer in Certain Circumstances Chapter 3 Levy and Collection of Tax 3.1 Levy and Collection 3.2 Power to Grant Exemption from Tax Chapter 4 Payment of Tax 4.1 Payment of Tax 4.2 Transfer of Input Tax Credit Chapter 5 - Inspection, Search, Seizure and Arrest 5.1 Officers Required to Assist Proper Officers Chapter 6 Demands and Recovery 6.1 Tax Wrongfully Collected and Paid to Central Government or Union territory Government 6.2 Recovery of Tax Chapter 7 Advance Ruling 7.1 Definitions 7.2 Constitution of Authority for Advance Ruling 7.3 Constitution of Appellate Authority for Advance Ruling Chapter 8 Transitional Provisions 8.1 Migration of Existing Tax Payers 8.2 Transitional Arrangements for Input Tax Credit 8.3 Transitional Provisions Relating to Job Work 8.4 Miscellaneous Transitional Provisions Chapter 9 - Miscellaneous 9.1 Application of Provisions of Central Goods and Services Tax Act 9.2 Power to Make Rules 9.3 General Power to Make Regulations 9.4 Laying of Rules, Regulations and Notifications 9.5 Power to Issue Instructions or Directions 9.6 Removal of Difficulties The Goods and Services Tax (Compensation to States) Act, 2017 Chapter 1 - The Goods and Services Tax (Compensation to States) Act, Short Title, Extent and Commencement

11 1.2 Definitions 1.3 Projected Growth Rate 1.4 Base Year 1.5 Base Year Revenue 1.6 Projected Revenue for Any Year 1.7 Calculation and Release of Compensation 1.8 Levy and Collection of Cess 1.9 Returns, Payments and Refunds 1.10 Crediting Proceeds of Cess to Fund 1.11 Other Provisions Relating to Cess 1.12 Power to Make Rules 1.13 Laying of Rules Before Parliament 1.14 Power to Remove Difficulties THE SCHEDULE

12 INTRODUCTION There was a burden of "tax on tax" in the pre-existing Central excise duty of the Government of India and sales tax system of the State Governments. The introduction of Central VAT (CENVAT) has removed the cascading burden of "tax on tax" to a good extent by providing a mechanism of "set off" for tax paid on inputs and services upto the stage of production, and has been an improvement over the pre-existing Central excise duty. Similarly, the introduction of VAT in the States has removed the cascading effect by giving set-off for tax paid on inputs as well as tax paid on previous purchases and has again been an improvement over the previous sales tax regime. But both the CENVAT and the State VAT have certain incompleteness. The incompleteness in CENVAT is that it has yet not been extended to include chain of value addition in the distributive 30 trade below the stage of production. It has also not included several Central taxes, such as Additional Excise Duties, Additional Customs Duty, Surcharges etc. in the overall framework of CENVAT, and thus kept the benefits of comprehensive input tax and service tax set-off out of the reach of manufacturers/ dealers. The introduction of GST will not only include comprehensively more indirect Central taxes and integrate goods and services taxes for set-off relief, but also capture certain value addition in the distributive trade. Similarly, in the present State-level VAT scheme, CENVAT load on the goods has not yet been removed and the cascading effect of that part of tax burden has remained unrelieved. Moreover, there are several taxes in the States, such as, Luxury Tax, Entertainment Tax, etc. which have still not been subsumed in the VAT. Further, 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. In addition, although the burden of Central Sales Tax (CST) on inter-state movement of goods has been lessened with reduction of CST rate from 4% to 2%, this burden has also not been fully phased out. With the introduction of GST at the State level, the additional burden of CENVAT and services tax would be comprehensively removed, 31 and a continuous chain of set-off from the original producer's point and service provider's point upto the retailer's level would be established which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax. This is the essence of GST. Also, major Central and State taxes will get subsumed into GST which will reduce the multiplicity of taxes, and thus bring down the compliance cost. With GST, the burden of CST will also be phased out. Thus GST is not simply VAT plus service tax, but a major improvement over the previous system of VAT and disjointed services tax a justified step forward. GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the producer's point and service provider's point upto the retailer's level. It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the supply of goods 32 and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. The illustration shown below indicates, in terms of a hypothetical example with a manufacturer, one wholesaler and one retailer, how GST will work. Let us suppose that GST rate is 10%, with the manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs. 3 after setting-off Rs. 10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. 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 GST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13 from the gross GST of Rs. 15 to the manufacturer. Similarly, when a retailer sells the same goods after a value addition of (say) Rs. 10, he pays net GST of only Re.1, after setting-off Rs.15 from his gross GST of Rs. 16 paid to wholesaler. Thus, the manufacturer, wholesaler and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. The overall burden of GST

13 33 on the goods is thus much less. This is shown in the table below. The same illustration will hold in the case of final service provider as well. Purchase Stage of Value Supply Chain Of Input Value at Which Supply Goods Value and Services Addition Made to Next Stage Rate of GST GST on Output Input Tax Credit Net GST=GST on output- Input Tax Credit Manufacturer % = 3 Whole Seller % = 2 Retailer % = 1 The present forms of CENVAT and State VAT have remained incomplete in removing fully the cascading burden of taxes already paid at earlier stages. Besides, there are several other taxes, which both the Central Government and the State Government levy on production, manufacture and distributive trade, where no set-off is available in the form of input tax credit. These taxes add to the cost of goods and services through "tax on tax" 34 which the final consumer has to bear. Since, with the introduction of GST, all the cascading effects of CENVAT and service tax would be removed with a continuous chain of set-off from the producer's point to the retailer's point, other major Central and State taxes would be subsumed in GST and CST will also be phased out, the final net burden of tax on goods, under GST would, in general, fall. Since there would be a transparent and complete chain of set-offs, this will help widening the coverage of tax base and improve tax compliance. This may lead to higher generation of revenues which may in turn lead to the possibility of lowering of average tax burden. GST will give more relief to industry, trade and agriculture through a more comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming of several Central and State taxes in the GST and phasing out of CST. The transparent and complete chain of set-offs which will result in widening of tax base and better tax compliance may also lead to lowering of tax burden on an average dealer in industry, trade and agriculture. The subsuming of major Central and State taxes in GST, complete and comprehensive setoff of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost. The present threshold prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. The existing threshold of goods under State VAT is Rs. 5 lakhs for a majority of bigger States and a lower threshold for North Eastern States and Special Category States. A uniform State GST threshold across States is desirable and, therefore, the Empowered Committee has recommended that a threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and the threshold for services should also be appropriately high. This raising of threshold will protect the interest of small traders. A Composition scheme for small traders and businesses has also been envisaged under GST as will be detailed in Answer to Question 14. Both these features of GST will adequately protect the interests of small traders and small scale industries. With the introduction of GST, all the cascading effects of CENVAT and service tax will be more comprehensively removed with a continuous chain of set-off from the producer s point to the retailer s point than what was possible under the prevailing CENVAT and VAT regime. Certain major Central and State taxes will also be subsumed in GST and CST will be phased out. Other things

14 remaining the same, the burden of tax on goods would, in general, fall under GST and that would benefit the consumers. The salient features of the proposed GST model are as follows: Consistent with the federal structure of the country, the GST will have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). 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 Central GST and the State GST would be applicable to all transactions 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. The Central GST and State GST are to be paid to the accounts of the Centre and the States separately. 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 utilisation of ITC between the Central GST and the State GST would, in general, not be allowed. To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST. The administration of the Central GST would be with the Centre and for State GST with the States. The taxpayer would need to submit periodical returns to both the Central GST authority and to the concerned State GST authorities. 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 PANbased system for Income tax facilitating data exchange and taxpayer compliance. The exact design would be worked out in consultation with the Income-Tax Department. Keeping in mind the need of tax payers convenience, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States. India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism. 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. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State. Illustration I: Suppose hypothetically that 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. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not actually pay Rs. 20 (Rs Rs. 10 ) in cash as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say, inputs).

15 But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST. Illustration II: Suppose, again hypothetically, 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 also located within the State of Maharashtra for, let us say Rs. 100, the ad company would charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the service. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not again actually pay Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist etc). But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilise the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST. The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind: Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services. Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other. The subsumption should result in free flow of tax credit in intra and inter-state levels. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST. Revenue fairness for both the Union and the States individually would need to be attempted. On application of the above principles, the Empowered Committee has recommended that the following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax: i. Central Excise Duty ii. Additional Excise Duties iii. The Excise Duty levied under the Medicinal and Toiletries Preparation Act iv. Service Tax v. Additional Customs Duty, commonly known as Countervailing Duty (CVD) vi. Special Additional Duty of Customs - 4% (SAD) vii. Surcharges, and viii. Cesses. The following State taxes and levies would be, to begin with, subsumed under GST: i. VAT / Sales tax ii. Entertainment tax (unless it is levied by the local bodies). iii. Luxury tax iv. Taxes on lottery, betting and gambling. v. State Cesses and Surcharges in so far as they relate to supply of goods and services. vi. Entry tax not in lieu of Octroi. Purchase tax: Some of the States felt that they are getting substantial revenue from Purchase Tax and, therefore, it should not be subsumed under GST while majority of the States were of the view that no such exemptions should be given. The difficulties of the food grain producing States was appreciated as substantial revenue is being earned by them from Purchase Tax and it was, therefore, felt that in case Purchase Tax has to be subsumed then adequate and continuing compensation has to be provided to such States. This issue is being discussed in consultation with the Government of India. 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 Vatable by some States, there is no objection to that. Excise Duty, which is presently levied by the States may not also be affected.