Faculty of Law

B.A.LLB. (H.)
Tax Law II Assignment
Topic – Pros and Cons of the GST Act, 2017

Submitted by: Submitted to:

Mohammad Arish Dr. Ekramuddin Malik

IV Year (7th Sem.) Faculty of Law

Roll No. – BLW051 Jamia Millia Islamia

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 ACKNOWLEDGEMENT
Firstly, I would like to express my profound sense of gratitude towards the almighty “ALLAH”
for providing me with the authentic circumstances which were mandatory for the completion of
my project.

Secondly, I am highly indebted to Dr. Ekramuddin Malik at Faculty of Law, Jamia Millia
Islamia University, New Delhi for providing me with constant encouragement and guidance
throughout the preparation of this project.

Thirdly, I thank the Law library staff who liaised with us in searching material relating to the
project.
My cardinal thanks are also for my parents, friends and all teachers of law department in our
college who have always been the source of my inspiration and motivation without which I would
have never been able to unabridged my project.

Without the contribution of the above said people I could have never completed this project.

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 CONTENTS

1. Abstract

2. Introduction

3. The Indian Taxation System - Scenario Before GST

4. Objective of GST

5. Advantages of GST

6. Disadvantages of GST

7. Taxes to be subsumed

8. What can be done to minimise the disadvantages of GST

9. Conclusion

10. References

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 ABSTRACT

There exist almost 150 countries where there is the implementation of GST, which relates to the
taxes levied on goods and services, as the name suggests. Under this mechanism of
implementation of taxes, there arises no difference between goods and services for the purpose of
levying taxes. The meaning behind this statement is that there exists a same rate of tax for goods
and services. The GST in India has a multi-tiered tax structure where the ultimate burden of
payment of tax falls on the consumer who avails goods and services. Under the new Goods and
Services tax scheme, whenever an individual pays taxes on the output, be it for the provision of
service or sale of goods that he is consuming, he is entitled to get input tax credit (ITC) on the tax
paid on its inputs.

The Goods and Services Tax (GST), implemented on July 1, 2017, is regarded as a major taxation
reform till date implemented in India since independence in 1947. GST was planned to be
implemented in April 2010, but was postponed due to political issues and conflicting interest of
stakeholders. The primary objective behind development of GST is to subsume all sorts of indirect
taxes in India like Central Excise Tax, VAT/Sales Tax, Service tax, etc. and implement one
taxation system in India. The GST based taxation system brings more transparency in taxation
system and increases GDP rate from 1% to 2% and reduces tax theft and corruption in country.
The paper highlighted the background of the taxation system, the GST concept along with
significant working, comparison of Indian GST taxation system rates with other world economies,
and also presented in-depth coverage regarding advantages to various sectors of the Indian
economy after levying GST and outlined some challenges of GST implementation.

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 INTRODUCTION

The word “tax” is derived from Latin word “taxare” meaning to estimate. A tax is not a voluntary
payment or donation, but enforced contribution, exacted pursuant to legislative authority and is
contribution imposed by the government, whether under the name of toll, tribute, impost, duty,
custom, excise, subsidy, aid, supply, or any other name (Chakraborty & Rao, 2010 ; Garg, 2014).1
Taxation was first imposed in Ancient Egypt around 3000 B.C.- 2800 B.C. during the first dynasty
of the old kingdom. Records indicate from that period that the Pharaoh would conduct a biennial
tour of the kingdom, collecting tax revenues from the people. Other data indications are granary
rec0eipts on limestone flakes and papyrus.

Taxes are the only way for financing the public goods because of their inappropriate pricing in the
market. It can only be levied by the government, via funds collected from taxes. It is highly
important that the taxation system is designed in such an appropriate manner that it doesn't lead to
any sort of market distortions and failures in the economy. The taxation laws should be highly
competitive so that revenue can be raised in a highly efficient and effective manner.

In India, the taxation system was started in ancient times. The early taxation system’s existence
can be seen in many ancient books like Manu - Smrti and Arthasastra. During the British Empire,
the entire taxation system of India was transformed. It was entirely in favour of the British Empire,
but it also incorporated modern and scientific techniques of taxation systems. Another remarkable
transformation came in the year 1922 in the taxation system when Britishers established an entirely
new administrative and taxation system in India. In this system, the taxation system was
categorized in two main categories: Direct Taxes and Indirect Taxes. In India, the taxation system
is entirely controlled, imposed, and updated by Central and State governments. The authority to
levy tax is derived from the Indian Constitution, which allocates the power to levy taxes between
Central Government System and State Government System.2

1
https://www.collinsdictionary.com/dictionary/english/tax
2
https://www.ey.com/in/en/services/ey-goods-and-services-tax-gst

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In early 1950s, the Central Government’s total tax revenue approximately amounted to₹401
crores. During the 1990s, the tax revenue was around ₹68,500 crores, in 2014-15 it was ₹13.64
lakh crores and recently the figures rocketed up to more than ₹14.6 lakh crores. In these recent
figures, ₹2.8 lakh crores and ₹2.1 lakh crores was generated from excise duty and service tax,
respectively, by the Central Government. In total revenue, the proportion of indirect taxes was
57% in the early 1950s, 84% in 1991, and 46% in 2014-15 and recently it was 34%. There is no
doubt that after new economic reforms the proportion of indirect taxes in total tax revenue is
decreasing. It implies that tax system is moving towards a progressive taxation from regressive
taxation, which is expected in developing countries.3 Therefore, this reform will help in avoiding
multiple layers of taxation that currently exist in India. GST is a comprehensive tax levy on
manufacture, sale and consumption of goods and services at a national level. Through a tax credit
mechanism, this tax is collected on value-addition on goods and services at each stage of sale or
purchase in the supply chain. The system allows the set-off of GST paid on the procurement of
goods and services against the GST which is payable on the supply of goods or services. However,
the end consumer bears this tax as he/she is the last person in the supply chain. Experts say that
GST is likely to improve tax collections and boost India's economic development by breaking tax
barriers between States and integrating India through a uniform tax rate. Under GST, the burden
of tax collection will be divided equitably between manufacturing and services, through a lower
tax rate by increasing the tax base and minimizing exemptions. It is expected to help build a
transparent and corruptionfree tax administration. Final impact of total GST will be only at the
destination point, presently it is at various points (from manufacturing to retail outlets) i.e. a
manufacturer needs to pay tax when a finished product moves out from a factory, and it is again
taxed at the retail outlet when sold. At present excise duty paid on the raw material consumed is
being allowed as input credit only on manufactured goods. For other taxes and duties paid for
post-manufacturing expenses, there is no mechanism for input credit under the Central Excise
Duty Act.4 GST will divide the tax burden equitably between manufacturing and services. It will
be replacement of Excise Duty and other taxes.5

3
Pannu SPS (2015). ‘The Biggest Tax Reforms in India: Since from Independence’ Business Today, Nov, 28, 2015,
New Delhi.
4
Anushuya Pal, NarwalKaram (2014). ‘Indian Indirect Tax Systems: Reforms and Goods and Services Tax’ Advances
in Management 7.7 (Jul 2014): 9-14.
5
Girish Garg, Basic Concepts and Features of Good and Service Tax In India, International Journal of scientific
research and management (IJSRM) Volume 2 Issue 2 Pages 542-54 2014

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The Indian Taxation System - Scenario before GST

Tax policies play a vital role in any country's progress and have a direct impact on any country's
economy in terms of efficiency and equity. A good taxation policy is that which takes care of the
entire income distribution and also generates tax revenues in such a manner for Central and State
Governments, which can lead to overall benefit in the nation's infrastructure, defense, public
amenities, people's security, and a country's exports.6

The entire framework to impose indirect taxes comes under Constitutional provisions of India.
Article 246, Seventh Schedule gives the right to Central and State Governments to levy taxes and
collect indirect taxes on the basis of goods and services transactions. The taxation system varies
from manufacturer to manufacturer on point of sale or level of imports or exports. Indirect taxation
based collection systems are based on origin, and are designed to impose tax and collect the same
at the event of happening of any taxable activity.

Journey of Indirect Taxation Tax & Important Turning Points in India :

1974: Report of LK Jha Committee suggested introduction of VAT system.

1986: Introduction of restricted VAT called “MODVAT”.

1991: Chelliah Committee report recommended “VAT/GST” and recommendations accepted by

the Government.

1994: Service Tax introduction.

1999: Empowered Committee formation on State VAT.

6
Girish Garg, Basic Concepts and Features of Good and Service Tax In India, International Journal of scientific
research and management (IJSRM) Volume 2 Issue 2 Pages 542-54 2014

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2000: Introduction of Uniform Floor State Tax Rates and abolition of tax-related incentives
granted by State Governments.

2003: Implementation of VAT system in Haryana.

2004: Strong progress towards introduction of CENVAT.

2005-06: Implementation of VAT based taxation system in 26+ states in India.

2007: First GST Stuffy released by Mr. P. Shome in January; Finance Minister speech carries the
introduction of GST in Budget; CST phase out starts in April 2007; joint working group created
and reports submitted.

2008: EC rolls out the GST Structure of Taxation System in April 2008.

2009: Date proposed for Implementation as April 1, 2010.

2010: Department of Revenue commented on GST discussion paper and finance minister
suggested probable GST rate.

2011: Team was created to lay down the road map for GST and 115th Constitutional Amendment
Bill for GST was laid down by the Parliament.

2012: Negative list regime for service tax was implemented.

2013: Parliamentary Standing committee submitted its report on the Bill.

2014: 115th Amendment Bill lapsed and was reintroduced in 122nd Constitutional Amendment
Bill.

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(2) Limitations and Issues pertaining to the Existing Indian Taxation System: Various taxes
are imposed on the Indian population by Central and State Governments like Central Excise,
Service Tax, VAT, etc. Before the introduction of VAT in Sales Tax and CENVAT in Central
Excise and Service Tax, the Indian Taxation System was very complex and this had cascading
effects. The tax imposed on one destination was also taxed on another destination. However, in
recent times, the taxation system has seen remarkable revolutions.7

Many changes in taxation were implemented, that is, VAT, and implementation of Service Tax by
Central Government. In Central Excise taxation system, the government introduced CEVAT by
setting off taxes on inputs, while producing output products. With introduction of VAT based
taxation system in India, the foundation stone of GST implementation was laid.8

The following points highlight the primary and severe issues pertaining in Indian indirect tax
structure system:

(i) The CENVAT (excise duty) was imposed on the products manufactured in India. But
issues originated regarding product valuations. The issue regarding implementation of CENVAT
only at the manufacturing level acted as a critical barrier to efficient and neutral flow of tax credit.
This led to the replacement of VAT to GST in many countries.

(ii) The Indian Constitution has distributed the taxation system between Central and State
Governments. The State government has right to impose any sort of tax on any matter or item
under the state. In Service Tax, the Central government enjoys the power to impose tax but in
Work Contracts, the State government has the dominance. This sort of system creates distortions
in revenue generation and distribution for the government.9

7
Pinki, Supriya Kamna, Richa Verma(2014), “Good and Service Tax – Panacea For Indirect Tax System In India”,
“Tactful Management Research Journal”,Vol2, Issue 10, July2014
8
Girish Garg, (2014),“Basic Concepts and Features of Good and Service Tax in India”
9
Agogo Mawuli (2014): “Goods and Service Tax- An Appraisal”Paper presented at the the PNG Taxation Research
and Review Symposium, Holiday Inn, Port Moresby,29-30

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(iii) Various things like copyrights, patents, software are not considered for taxation system by
the government. So, complexity again arose for classifying these goods under the taxation policies.

(iv) With the booming of the service sector, the Central government has monopolistic right to
impose tax. The State Governments, on the other hand, are losing their revenue by not imposing
any tax on the service sector.10

(v) Considering CST on interstate sales of goods, no set off was allowed, which increased the
cascading effect.

(vi) For better monitoring and administration of taxes, major transformations in technology are
required, which is costly and time consuming and has to be redressed.

(vii) Lack of cross verification of returns filed under Central and State taxation systems led to
lot of discrepancies.

(viii) Under the Indirect taxation system, there were more than 15 different taxes which had to
be filled under different norms. So, it required immediate and one system regulation of filling and
calculating taxes.

(ix) The Indian taxation system was cumbersome and full of burdens and different taxes on
same products in different states led to high inflation, which had to be redressed.

Despite of the existence of multiple taxes in the Indian Economy like Excise Tax, Custom Duty,
Service Tax etc., still the GDP of India is much less as compared to the GDP of other countries
like USA - 13.84%, China - 6.99%, Japan - 4.3%, and France - 2.05%. So, the GDP data of various
countries demonstrates that there is utmost need of tax reform, that is, implementation of Goods
and Services Tax (GST) in India.11

10
A Primer on Goods and Services Tax in India, Centre for Budget and Governance Accountability, new delhi,2011
11
Nitya Tax Associates ,Basics of GST, Taxmann , 1 st Edition August 2016 [4] G

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 OBJECTIVE OF GST

One Nation, One Tax and One Market can be termed as the basic objective of the GST, in a
layman’s understanding. Central and State taxes are merged into a single tax which in return would
lessen the burden of double taxation, facilitating a common national market. The end consumer of
a good or service is the one who will be paying the GST, thus this will improve competitiveness
of original goods and services in the market which directly impact on GDP extension of the
country.GST is a target based consumption tax which goes hand in hand with the VAT rule12.

ADVANTAGES OF GST

The upcoming GST will bring about the following advantages to the country:

1. The GST will help to removing economic differences and bring about common national market.
The dream of one country, one act and one tax rate can be fulfilled.13

2. It will help to make transparent and corruption free tax administration in two ways. First relates to
the self policing incentives inherent to value added tax. To claim input tax credit, each dealer has
an incentive to request documentation from the dealer behind him in the value-added/tax chain.
Provided the chain is not broken through wide ranging exemptions, especially on intermediate
goods, this self-policing feature can work very powerfully in the GST. The second relates to the
dual monitoring structure of the GST- one by the States and another by the Centre.14

3. If GST Act might have well designed and tax rate is more than ‘Revenue Neutral Rate’ (RNR is
the rate which neutralize revenue effect of state and central government due to change in tax
system, means ,the rate of GST which will give at least the same level of revenue that is currently
earned by state and central governments from indirect taxes is known as RNR) and tax base

12
Girish Garg, (2014),“Basic Concepts and Features of Good and Service Tax in India”.
13
. GST India Economy and Policy
14
AartiSaxena,Overview of Proposed Goods and Services Tax (GST) Regime in India, Deputy

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 becomes more buoyant, then, resources available for the governments will be increase which can
be used for poverty alleviation and development activities in the country and states.

4. As production cost will decrease which can support would support to increase export from our
country.’

5. This tax will facilitate ‘Make in India’ by making one India. The current structure unmakes India,
by fragmenting Indian markets along state lines. These distortions are caused by three features of
the current system: The Central Sales Tax on inter- State sales of goods; numerous intra- State
taxes; and the extensive nature of countervailing duty exemptions that favours imports over
domestic production.

6. In a single action; the GST would rectify all these distortions: the GST would be eliminated; most
of the other taxes would be subsumed into the GST; and because the GST would be applied in
imports, the negative protection favouring imports and disfavouring domestic manufacturing
would be eliminated.

7. As taxable sale limit is brought down i.e. only ₹10 lakhs, it is expected that tax base will be
comprehensive in the country. (It was 1.5 crore for excise duty). It will also diversify tax system
and put equal burden on goods and services. These are the main advantages of upcoming GST.

8. While a new business is starting in India, businesses currently have to get VAT registration from
the State’s Sales Tax Department at first. Since, each State has different procedures, forms and
fees for VAT registration, it is very tough for businesses which are operating in multiple States to
obtain and maintain compliance with VAT regulations. With the accomplishment of GST in India,
the procedure for GST registration would be centralized and uniformed similar to service tax
registration. Under GST rule, business would no longer have to attain multiple VAT registration

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 – as a single GST registration would be valid across India. The procedure for GST registration
would also be uniformed, thereby civilizing the easiness of starting a new business in India.15

9. Currently, VAT registration and VAT payment is compulsory in India once a business crosses a
yearly earnings of ₹5 lakhs in some States and ₹10 lakhs in a few other States. The multiple VAT
legislation enacted by each State creates bewilderment and complexities.16 Once GST is imposed
in India, businesses with revenue of less than ₹10 lakhs per annum would not have to index for
GST nor collect GST again. Further, businesses whose annual sales turnover of ₹10 lakhs to ₹50
lakhs may have to pay GST only at a lesser rate. Therefore, once GST is rolled out, thousands of
start-ups and small businesses currently having annual sales earnings of ₹5 lakhs – ₹10 lakhs
would be absent of the tax and they should be relief from collection and filing of GST returns.
Currently, businesses like restaurant or computer services which sell goods and provide services
as a package basis have to execute both VAT and service tax regulations. This creates more
intricacy and difficulty for the businesses. They estimate tax on different rates for different items.
With the accomplishment of GST this dissimilarity between goods and services will be conquer.17
Further rising of invoices will be easier for businesses as one rate would be adopted for all goods
and services.

DISADVANTAGES OF GST

Presently, more than 160 countries of the world have implemented GST. However, each country
where GST was implemented experienced inflation for next 3 to 5 years. Some possible
disadvantages of GST are as following:

1. Critics say that GST would affect negatively on the real estate market. It would add up to 8 percent
to the cost of new homes and reduce demand by about 12 percent.

15
Dasgupta S. The historic GST has become a reality, Article from Economic Times, 2017.
16
P. chaurasia, S. Singh, P. Kumar Sen (2016), “ Role of Goods and Service Tax in the growth of Indian economy”,
“ International journal of science technology and management”, vol.5, issue 2, February 2016.
17
Sunitha, G. & Sathischandra, P. 2017. Goods and Services Tax (GST): As a new path in Tax reforms in Indian
economy. International Journal of Research in Finance and Marketing.7(3): 55- 66.

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2. Some Economist says that CGST, SGST and IGST are nothing but new names for Central
Excise/Service Tax, VAT and CST and hence GST brings nothing new for which we should
cheer.18

3. As GST brought small traders in the tax net, it will difficult to small traders to compete with strong
/ big traders Their survival can become something difficult.

4. There is need of various expositions (Monthly, annually, total 37 expositions are required as per
present situation) are complicated would difficult to the traders and at the same time I. T.
infrastructural support with safety and reliability is required.19

5. As GST is on purchasing/consumption, its revenue will go to state in which article sold or service
is rendered instead of produced. Means, state from which resources are used to produce goods will
not receive tax revenue. For instance, Andhra Pradesh and Telangana are producing cement that
is sold in other states of the country, they will get revenue.20

6. As octroi or Local Body Tax is abolished, its monetary compensation for Urban Local Bodies
should be done properly from the concern State Government. But, experience in our country is not
satisfactory because even after 73rd and 74th constitutional amendments States are supposed to
appoint State Finance Commissions. Nevertheless, all states have not appointed State Finance
Commissions regularly. Therefore, Corporations like Brihanmumbai will loss the strong source of
revenue.21

7. Drawback in GST regime for businessmen is filling of Tax return. Under current Vat laws, in case
of most of the states, quarterly returns are to be submitted, in addition, a yearly return is required,
while service tax laws ask for submission of two half yearly returns and a yearly return. In GST

18
M. Sehrawat, U. Dhanda (2015), “GST in India: A key tax reform”, “International journal of research
granthaalayah”, vol.3, issue 12, December 2015.
19
Dr. R. Vasanthagopal (2011). “GST in India: A Big Leap in the Indirect Taxation System”, International Journal of
Trade, Economics and Finance, Vol. 2, No. 2, April 2011.
20
GovindaRao, Goods and Services Tax in India: Challenges and prospects, Topics: Macroeconomic Policy, 25th
Aug, 2014
21
Kumar, N. 2014. Goods and Service Tax in India-A Way Forward. Global Journal of Multidisciplinary Studies.
3(6).

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law, one would require to file not less than 37 returns for a fiscal year. This includes several files
such as monthly outward supplies return, monthly inward supplies return, monthly summary
returns and one annual return etc.

TAXES TO BE SUBSUMED

CENTRAL TAXES TO BE SUBSUMED

The following Central Taxes will be subsumed under the Goods and Services Tax law;
 Central Excise Duty (CENVAT)
 Additional Excise Duties and the Excise Duty levied under the Medicinal and Toiletries
Preparations Act, 1955
 Service Tax
 Additional Customs Duty, also known as the countervailing duty (CVD)
 Special Additional Duty of Customs (SAD) – 4%
 Surcharges and Cesses levied by the Centre might also get subsumed including cess on tea,
coffee, rubber, etc.
 Central Sales Tax to be eliminated.

STATE TAXES TO BE SUBSUMED IN GST

Following State taxes and levies will be subsumed under GST;
 VAT or sales tax
 Octroi and Entry Tax
 Purchase Tax
 Luxury tax
 Taxes on lottery, gambling and betting
 Entertainment tax (unless it is levied by the local bodies)
 Surcharges & State Cesses (related to the supply of goods and services)

TAXES NOT TO BE SUBSUMED

The following taxes may not be subsumed under GST;
 Property Tax

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  Stamp Duty
 Electricity Duty
 Basic Customs Duty (duties levied at the time of Import of goods into India).
 Exports Duty
 Road & Passenger Tax & Toll Tax (in the nature of fees and not in the nature of taxes on
goods and services).

WHAT CAN BE DONE TO MINIMISE THE DISADVANTAGES OF THE GST ACT,

2017.

Even though, GST is one of the revolutionary reforms about indirect taxes in the country after
independence there are some possibilities that can effect on the public interest and the common
predetermined objectives of the Governments.22 We should take care of following things:

1. GST should not increase the vertical imbalances of resources and responsibilities among
governments, particularly for Urban Local Bodies. Hope, finance commissions will take sufficient
care of it.23

2. If GST led to regional imbalance of development, there should be legal provision to correct the
same.

3. Reliable I. T. infrastructure, trained man power and tax payers’ attitude should be changed.

4. The definition of goods and services should be clear otherwise it would lead to conflicts.

22
Secretary (State Taxes), Department of Revenue, Ministry of Finance, Government of India
23
Rathod, M. (2017). An Overview of Goods and Service Tax (Gst) In India. Journal of Commerce and Management,
1-6

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 CONCLUSION

It is encouraging that when GST was introduced in New Zealand in 1987, it resulted in 45% higher
revenue than expected, mainly due to improved compliance. The same can be expected from this
reform in India.

GST is the most logical steps towards the comprehensive indirect tax reform in the country since
independence. All sectors of economy whether the industry, business including Govt. departments
and service sector shall have to bear impact of GST. All sections of economy viz., big, medium,
small scale units, intermediaries, importers, exporters, traders, professionals and consumers shall
be directly affected by GST. GST will create a single, unified Indian market to make the economy
stronger. Experts say that GST is likely to improve tax collections and Boost India’s economic
development by breaking tax barriers between States and integrating India through a uniform tax
rate. Under GST, the taxation burden will be divided equitably between manufacturing and
services, through a lower tax rate by increasing the tax base and minimizing exemptions.

However, there seem to be some crucial drawbacks in this ‘reform’ as discussed above in this
paper. Will this reform be a bane or a boon for this country’s economic system? The GST was
implemented in country in April 2017 and in my opinion, it is too soon to answer this question.

REFERENCE

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 Books
 GST Manual with GST Law Guide & GST Practice Referencer (Set of 2 Volumes) (9th Edition,
September 2018), Taxmann
 GST Laws Manual: Acts, Rules and Forms Paperback – May 2017, Rakesh
Garg (Author), Sandeep Garg (Author)
 Bare Act on Goods and Services Tax Acts and Rules (GST), Universal Law Publishing Co.

Websites
 https://indiankanoon.org/search/?formInput=gst&pagenum=5
 http://gstcouncil.gov.in/sites/default/files/CGST.pdf
 https://www.scribd.com/doc/34573677/What-is-GST
 https://cleartax.in/s/pros-and-cons-gst
 https://www.profitbooks.net/advantages-disadvantages-gst/
 https://www.deskera.in/what-are-the-gst-positives-and-negatives/

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