TAX RATE

A four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates
for essential items and the highest for luxury and de-merits goods that
would also attract an additional cess, was decided by the all- powerful
GST Council. With a view to keeping inflation under check, essential
items including food, which presently constitute roughly half of the
consumer inflation basket, will be taxed at zero rate.

The lowest rate of 5% would be for common use items while there would
be two standard rates of 12% and 18% under the Goods and Services Tax
(GST) regime targetted to be rolled out.

The decisions arrived at the first day of the two-day GST Council
meeting. The highest tax slab will be applicable to items which are
currently taxed at 30-31% (excise duty plus VAT). Luxury cars, tobacco
and aerated drinks would also be levied with an additional cess on top of
the highest tax rate.

The collection from this cess as well as that of the clean energy cess
would create a revenue pool, which would be used for compensating
states for any loss of revenue during the first five years of implementation
of GST. The cess would be lapsable after five years.

According to reports about Rs 50,000 crore would be needed to
compensate states for loss of revenue from rollout of GST, which is to
subsume a host of central and state taxes like excise duty, service tax and
VAT, in the first year. The four-tier tax structure agreed to has slight
modification to the 6%, 12%, 18% and 26% slab that were under
discussion at the GST Council last month.

IGST

A new model is developed under proposed GST to monitor the interstate
trade of Goods and Services and this is called IGST. It will not replace
the existing CST and there will be long awaited goodbye to Central Sales
Tax in the GST regime.

The IGST will not be a Tax in addition to the SGST and CGST so it
should not be presumed that IGST is a third tax but it is only a
mechanism to monitor the interstate trade of Goods and services and
further to ensure that the ultimate SGST is gone to the consumer state
since the GST is a destination based tax.

The IGST mechanism step by step:-

1. Dealer of the selling state will collect IGST from the purchaser on
Interstate Transaction and the rate of IGST will be the combined
rate of SGST and CGST, if the rate of SGST is 12% and CGST is
14% then the rate of IGST will be 26%.
2. While depositing the IGST the seller will take credit of SGST and
CGST paid by him on purchase of such Goods or services within
the state.
3. The selling state will transfer the amount of input credit of SGST
taken by the selling dealer against the IGST to the centre. This will
ensure that selling state will not get any revenue out of this
transaction.
4. The interstate buyer shall take credit of IGST against his liability of
SGST / CGST or IGST. For this purpose the total amount of IGST
will be bifurcated in two parts SGST and CGST.
5. Now come to the mechanism of transferring the SGST to the
consumer state in which the central agency will transfer the amount
of input credit of IGST used by selling dealer of consumer state
while paying his liability of SGST.

This whole mechanism will be known as a system of monitoring the
interstate trade of Goods and services and will be called IGST. It is
interstate Goods and service tax and also mentioned as integrated Goods
and service tax in the discussion paper issued by the Empowered
committee of the state Finance Ministers.

INPUT TAX CREDIT

Input Tax Credit (ITC) is Goods & Services Tax (GST) paid or payable
by a registered person on the purchases or expenses incurred for the
business activities. Even though you have not paid any amount to your
supplier, you can still claim the credit & get refund from the Customs
Department.It is said that in GST, the cascading effect of VAT, CENVAT
and service tax would be removed, 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. This would be achieved through the
mechanism of Input Tax Credit (ITC).

Section 2(57) of the Model GST Law (MGL) defines input tax to mean
the (IGST and CGST) / (IGST and SGST) charged on any supply of
goods and/or services to a registered taxable person which are used or
intended to be used in the course or furtherance of his business and
includes the tax payable under reverse charge mechanism as per Section
7(3) of the MGL. As per Section 2(58) of the MGL, ITC means credit of
input tax as defined in Section 2(57) [inadvertently mentioned as 2(56) in
the MGL].

Section 16(1) of the MGL provides that every registered taxable person is
entitled to take credit of input tax admissible to him and such amount will
be credited to his electronic credit ledger. Further, Section 16(11), inter
alia, provides that in order to avail the ITC, the registered taxable person
should have furnished return under Section 27 of the MGL. As per
Section 28, a registered taxable person is entitled to take ITC in his return
on self-assessment basis and the same will be credited on a provisional
basis to his electronic credit ledger to be maintained at the common
portal. Further, Section 2 (41) of the MGL defines electronic credit ledger
as the input tax credit leger in electronic form maintained at the common
portal for each registered taxable person in the manner as may be
prescribed in this behalf.

A combined reading of the above provisions of the MGL points to the
position that once the eligible credit is availed on self-assessment basis in
his return by the registered taxable person, the same would stand credited
to his electronic credit ledger which would be maintained at the common
portal registration wise for every registered taxable person.

GST is a destination based consumption tax and the credit thereof is
available in the State where the supply has been consumed. To determine
the place of consumption, the MGL provides for the rules to find out the
place of supply for goods as also services. As far as domestic supplies are
concerned, where the location of the supplier and the place of supply are
within the same State, CGST and SGST are to be paid and where the
location of the supplier and the place of supply are in two different States,
IGST is to be paid. The credit of such input tax(es) is available to the
registered taxable person in his electronic credit ledger maintained at the
common portal.

In a situation where the place of supply is within the State of the supplier
but the recipient of supply is not located in the supplier’s State, availment
of ITC by the recipient, of the SGST and CGST paid on such intra-State
supply would be an issue. This is for the reason that the ITC is to be
credited to the electronic credit ledger of the recipient and the recipient is
not having any registration in the supplier’s State.