Introduction, Genesis & Shortcomings of GST | Goods and Services Tax (GST) - B Com PDF Download

Introduction to GST

Goods and Services Tax (GST) is a comprehensive indirect tax on manufacture, sale, and consumption of goods and services throughout India. GST would replace respective taxes levied by the central and state governments.

GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India adopted a dual GST model, meaning that taxation is administered by both the Union and State Government. Transactions made within a single state are levied with Central GST (CGST) by the Central Government and State GST (SGST) by the State government. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption-based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced.

Genesis of GST

• It is a destination-based taxation system. 
• It has been established by the 101st Constitutional Amendment Act. 
• It is an indirect tax for the whole country on the lines of “One Nation One Tax” to make India a unified market. 
• It is a single tax on supply of Goods and Services in its entire product cycle or life cycle i.e. from manufacturer to the consumer. 
• It is calculated only in the “Value addition” at any stage of a goods or services. 
• The final consumer will pay only his part of the tax and not the entire supply chain which was the case earlier. 
• There is a provision of GST Council to decide upon any matter related to GST whose chairman in the finance minister of India.
• In other words, Goods and Services Tax (GST) is an indirect tax which was introduced in India on 1 July 2017 and was applicable throughout India which replaced multiple cascading taxes levied by the central and state governments. It was introduced as The Constitution (One Hundred and First Amendment) Act 2017, following the passage of Constitution 122nd Amendment Bill. The GST is governed by a GST Council and its Chairman is the Finance Minister of India.
• Under GST, goods and services are taxed at the following rates, 0%, 5%, 12%, 18% and 28%. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. In addition access of 15% or other rates on top of 28% GST applies on few items like aerated drinks, luxury cars and tobacco products. The rate of GST in India is between double to four times that levied in other countries like Singapore.
• In 2014, the NDA government was re-elected into power, this time under the leadership of Narendra Modi. With the consequential dissolution of the 15th Lok Sabha, the GST Bill – approved by the standing committee for reintroduction – lapsed. Seven months after the formation of the Modi government, the new Finance Minister Arun Jaitley introduced the GST Bill in the Lok Sabha, where the BJP had a majority. In February 2015, Jaitley set another deadline of 1 April 2016 to implement GST.
• In May 2016, the Lok Sabha passed the Constitution Amendment Bill, paving way for GST. However, the Opposition, led by the Congress demanded that the GST Bill be again sent back to the Select Committee of the Rajya Sabha due to disagreement on several statements in the Bill relating to taxation. Finally in August 2016, the Amendment Bill was passed. Over the next 15 to 20 days, 18 states ratified the GST Bill and the President Pranab Mukherjee gave his assent to it.
• A 21-members select committee was formed to look into the proposed GST laws. State and Union Territory GST laws were passed by all the states and Union Territories of India (excluding Jammu & Kashmir), paving the way for smooth rollout of the tax from 1 July 2017. There was to be no GST on the sale and purchase of securities. That continues to be governed by Securities Transaction Tax (STT).
• In a short span of time, all the states approved their State GST (SGST) laws. Union territories with legislature, i.e., Delhi & Pondicherry, have adopted SGST Act and the balance 5 Union territories without legislatures have adopted UTGST Act. The government has also notified GST rules, tax rates on goods and services, exemption list and categories of services on which reverse charge is applicable.
• Section 12 of the Act proposed to insert a new Article 279A after Article 279 which deals with Goods and Services Tax Council. Consequently, Article 279A was inserted by the Constitution (101st) Amendment Act, 2016 with effect from September 12, 2016.
• The newly inserted Article 269A provides for levy and collection of goods and services tax in course of inter-state trade or commerce. Article 269A (1) provides that goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
• The explanation to this clause provides that supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-state trade or commerce. Integrated Goods & Services Tax Act, 2017 was passed by Parliament on the basis of Article 269A.

Shortcomings in the current indirect tax laws

• Cascading Effect: The various indirect taxes being levied are not necessarily mutually exclusive. To illustrate, when the goods are manufactured and sold both excise duty and state level VAT are levied. The tax credit of one levy is not available for set-off with another as excise is a central tax and VAT is State level tax. GST will overcome this issue. 
• Complexity in determining the nature of transaction: Goods vs. Service: Double taxation of a particular transaction where both Goods and services are provided to the consumer will be mitigated. For e.g. in case of Restaurant, where food in form of goods and services are provided to customers, both VAT and Service TAX are levied. Under GST both the components will be integrated and charged to GST only once. 
• Exemptions & Concessions: In indirect tax, businesses enjoy many kinds of exemptions & concessions under different levies which break the chain of VAT and thus create distortion. Also these kinds of benefits are not uniform especially when the same commodity is taxed at different rates in different state jurisdictions. 
• Narrow Tax Base: Due to different thresholds under different laws as well as numerous exemptions and concessions, the indirect tax is very narrow and its covers only a small percentage of population. GST will seek to broaden the Tax base and engulf more and more business unit. 
• Multiple Administrations: Under indirect tax system, businessmen are required to visit different tax offices, file returns, and keep records according to the applicable laws to their business. This increases the compliance cost of businesses and creates unnecessary complexity. GST will lower down the cost of compliance for the business units.

Taxes at center and state level incorporated into GST

At the State Level 

• State Value Added Tax/Sales Tax 
• Entertainment Tax (Other than the tax levied by the local bodies) 
• Octroi and Entry Tax 
• Purchase Tax 
• Luxury Tax 
• Taxes on lottery, betting, and gambling

At the Central level 

• Central Excise Duty 
• Additional Excise Duty 
• Service Tax 
• Additional Customs Duty (Countervailing Duty) 
• Special Additional Duty of Customs (SAD)

It will be a dual levy with State/Union territory GST and Central GST. Moreover, inter–state supplies  would  attract  an  Integrated  GST,  which  would  be  the  sum  total  of  CGST  and SGST/UTGST.
Petroleum products, i.e., petroleum crude, high speed diesel, motor spirit, aviation turbine fuel, natural gas will be brought under the ambit of GST from such date as may be notified by the Government on recommendation of the Council. Alcohol for human consumption has been kept outside the purview of GST.