TOPIC : GOODS AND SERVICES TAX PROSPECT IN INDIA

CHAPTER 1

GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many indirect
taxes in India such as the excise duty, VAT, services tax, etc. The Goods and Service Tax Act was
passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.
In other words, Goods and Service Tax (GST) is levied on the supply of goods and services. Goods and
Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on
every value addition. GST is a single domestic indirect tax law for the entire country.
Before the Goods and Services Tax could be introduced, the structure of indirect tax levy in India was as
follows:

Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central
GST and State GST are charged. All the inter-state sales are chargeable to the Integrated GST.
Now, let us understand the definition of Goods and Service Tax, as mentioned above, in detail.

Taxes are broadly classified as Direct and Indirect taxes. In the basic scheme of taxation in India, it is
envisaged that Central Government will get tax revenue from income tax, excise, customs and service
tax, while State governments will get tax revenue from sales tax/value added tax, excise etc.
Article 246(1) of Constitution of India States that Parliament has exclusive powers to make laws with
respect to any matter enumerated in List I of the seventh schedule to the Constitution. Likewise Article
246(3), the legislature of any State has exclusive power to make laws for State with respect to any
matter enumerated in List II of seventh schedule to the Constitution

Introduction of VAT in the States has been more challenging exercise in a federal country like India,
where each State, in terms of Constitutional provisions, have exclusive power in
levying and collecting State taxes. Before introduction of VAT, in sales tax regime, apart from the
problem of multiple taxation and burden of adverse cascading effect of taxes, there was also no harmony
in the rates of sales tax on different commodities among the States. Not only were the rates of sales tax
numerous and different from one another for the same commodity in different States, but there was also
an unhealthy competition among the States in terms of sales tax rates-so “rate war” called often resulting
in, revenue-wise, a
counter-productive situation.

In order to avoid any unhealthy competition among the States which may lead to distortions in
manufacturing and trade, attempts have been made from the very beginning to harmonise the VAT
design in the States, keeping also in view the distinctive features of each State and the need for federal
flexibility.

The States started implementing VAT beginning from April 1, 2005. After overcoming the initial
difficulties all the States and Union Territories have now implemented VAT.
Responses of industry and also of trade have been indeed encouraging. The rate of growth of tax
revenue has nearly doubled from the average annual rate of growth in the Pre-VAT after the introduction
of VAT

In India, a number of indirect taxes are imposed upon goods both by the Central government and State
governments e.g. excise duty is levies on goods manufactured or produced in India; customs duty on
import into India and export out of India of goods and service tax on services provided and consumed in
India. These taxes on goods and services are levied by the Central government while VAT is imposed by
the State governments on sale of goods. Most of the States also have made provisions for imposition of
purchase tax when purchase is from unregistered dealers.
Therefore, a new and composite tax, named Goods and Services tax is proposed by the Central
Government not only to be imposed on goods but also on services and most of the indirect taxes which
are at present imposed by the centre and State governments on goods and services shall be subsumed
either in Centre GST or State GST, as the case may be.

History of GST

The reform of India's indirect tax regime was started in 1986 by Vishwanath Pratap Singh, Finance
Minister in Rajiv Gandhi’s government, with the introduction of the Modified Value Added Tax
(MODVAT). Subsequently, Prime Minister P V Narasimha Rao and his Finance
Minister Manmohan Singh, initiated early discussions on a Value Added Tax (VAT) at the state
level. A single common "Goods and Services Tax (GST)" was proposed and given a go-ahead in
1999 during a meeting between the Prime Minister Atal Bihari Vajpayee and his economic advisory
panel, which included three former RBI governors IG Patel, Bimal Jalan and C Rangarajan.
Vajpayee set up a committee headed by the Finance Minister of West Bengal, Asim Dasgupta to
design a GST model.
The Asim Dasgupta committee which was also tasked with putting in place the back-end technology
and logistics (later came to be known as the GST Network, or GSTN, in 2015). It later came out for
rolling out a uniform taxation regime in the country. In 2002, the Vajpayee government formed a
task force under Vijay Kelkar to recommend tax reforms. In 2005, the Kelkar committee
recommended rolling out GST as suggested by the 12th Finance Commission.

After the defeat of the BJP-led NDA government in the 2004 Lok Sabha election and the election of
a Congress-led UPA government, the new Finance Minister P Chidambaram in February 2006
continued work on the same and proposed a GST rollout by 1 April 2010. However, in 2011, with
the Trinamool Congress routing CPI(M) out of power in West Bengal, Asim Dasgupta resigned as
the head of the GST committee. Dasgupta admitted in an interview that 80% of the task had been
done.

The UPA introduced the 115th Constitution Amendment Bill on 22 March 2011 in the Lok Sabha to
bring about the GST. It ran into opposition from the Bharatiya Janata Party and other parties and was
referred to a Standing Committee headed by the BJP's former Finance Minister Yashwant Sinha.
The committee submitted its report in August 2013, but in October 2013 Gujarat Chief
Minister Narendra Modi raised objections that led to the bill's indefinite postponement.[9] The
Minister for Rural Development Jairam Ramesh attributed the GST Bill's failure to the "single
handed opposition of Narendra Modi".

In the 2014 Lok Sabha election, the Bharatiya Janata Party (BJP)-led NDA government was elected

into power. 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
then 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 2017
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 for review to the Select Committee of the Rajya Sabha due to disagreements 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 Constitution amendment Bill and the
President Pranab Mukherjee gave his assent to it.

A 21-member selected committee was formed to look into the proposed GST laws. After GST
Council approved the Central Goods and Services Tax Bill 2017 (The CGST Bill), the Integrated
Goods and Services Tax Bill 2017 (The IGST Bill), the Union Territory Goods and Services Tax
Bill 2017 (The UTGST Bill), the Goods and Services Tax (Compensation to the States) Bill 2017
(The Compensation Bill), these Bills were passed by the Lok Sabha on 29 March 2017. The Rajya
Sabha passed these Bills on 6 April 2017 and were then enacted as Acts on 12 April 2017.
Thereafter, State Legislatures of different States have passed respective State Goods and Services
Tax Bills. After the enactment of various GST laws, Goods and Services Tax was launched all over
India with effect from 1 July 2017. 
The Jammu and Kashmir state legislature passed its GST act on 7 July 2017, thereby ensuring that
the entire nation is brought under a unified indirect taxation system. There was to be no GST on the
sale and purchase of securities. That continues to be governed by Securities Transaction Tax (STT).
MEANING OF GOODS AND SERVICE TAX

The term goods are defined by the New International Websters Dictionary and Deluxe Encyclopedia as;
(i)a merchandise i.e. dry goods, green goods, also property, specially personal property, and (ii)a fabric:
linen goods, dress goods, Goods has a variety of senses. In the legal sense, goods refer to Chattels or
personality in the economic sense, however, it often refers to things that have value, whether tangible or
not.

In the sense “tangible or movable pieces of property”, goods have traditionally appeared only in the
plural form. In recent years, however good has developed the sense a “tangible or movable piece of
property”. The buyer-seller relationship between the shipowner and the supplier of goods, simply does
not give rise to a duty on the shipowner’s part not to act in such a manner as to cause an injured third
party to sue the supplier as a possible defendant liable for the injuries.1

As per Black’s Law Dictionary ‘Goods’ means - (i)Tangible or movable personal property other than
money: esp., article of trade items of merchandise i.e. goods and services, (ii)the thing that have value,
whether tangible or not, and (iii)Goods means all things including manufactured goods which are
movable at the time of identification to the contract for sale other than money in which the price is to be
paid, investment securities, and things in action.

Under Article 366(12) of Constitution of India, “Goods” includes all materials, commodities, and
articles and under Indian Railways Act 1890 “Goods” includes inanimate things of every kind.

By section 2(e) of Imperial Bank of India, 1920 “Goods” includes also bullion, wares and merchandise.

“Service’ means service of any description which is made available to potential users and includes the
provisions of facilities in connection with banking, financing insurance, transport, processing, supply of
electrical or other energy, boarding or lodging or both, housing construction, entertainment, amusement
or the purveying of news or other informations but does not include the rendering of any service free of
charge or under a contract of personal service. By Section 2(r) of Monopolies and Restrictive Trade
Practices Act, 1969 “Service” means service which is made available to potential users and includes the
provisions of facilities in connection with banking, financing, insurance, chit fund, real estate, transport,
processing, supply of electrical or other energy, board or lodging, or both, entertainment, amusement or
the purveying of news or other information, but does not include the rendering of any service free of
charge or under a contract of personal service;

Any dealings in real estate shall be included and shall be deemed always to have been included within
the meaning of “service”. “Service” means service of any description which is made available to
potential users and includes the provision of services in connection with business of any industrial or
commercial nature such as accounting, banking, communication, conveying of news or information,
advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate,
construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging.1
“Service” means service within or outside India.

“Service” means any service connected with recording of allotment of securities or transfer of ownership
of securities in the record of a depository. As per Section 2(zb) of Foreign Exchange Management Act,
“Service” means service of any description which is made available to potential users and includes the
provision of facilities in connection with banking, financing, insurance, medical assistance, legal
assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or
lodging or both, entertainment, amusement or the purveying of news or other information, but does not
include the rendering of any service free of charge or under a contract of personal service.
“Service” means service of any description which is made available to potential uses and includes the
provision of services in connection with business of any industrial or commercial matters such as
banking, communication, education, financing, insurance, chit funds, real estate, transport, storage,
material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment,
amusement, construction, repair, conveying of news or information and advertising.

The action of serving, helping or benefiting; conduct tending to the welfare or advantage of another; a
branch of public employment, the action or an act of serving upon a person regularly scheduled transport
trip over a public transportation route a good turn, benefit to another

Characteristics and Features of Goods and Services Tax

Goods and Service Tax is a tax on goods and services, which is leviable at each point of sale or
provision of service, in which at the time of sale of goods or providing the services the seller or service
provider can claim the input credit of tax which he has paid while purchasing the goods or procuring the
service. It is Indirect Tax by nature. This is simply very similar to VAT which is at present applicable in
most of the states and can be termed_as National level VAT on Goods and Services with only one
difference that in this system not only goods but also services are involved and the rate of tax on goods
and services are generally the same.

Generally, the dealers registered under GST charge GST on the price of goods and services from their
customers and claim credits for the GST included in the price of their own purchaser of goods and
services used by them. While GST is paid at each step in the supply chain of goods and services, the
paying dealers don’t actually bear the burden of the tax because GST is an indirect tax and ultimate
burden of the GST has to be taken by the last customer but less.

This is because in the price of the goods and services they sell and can claim credits for the most GST
included in the price of goods and services they buy. The cost of GST is borneby the final consumer,
who can’t claim GST credits, i.e. input credit of the tax paid.

To understand the working of GST it can be divided as:

Charging Tax: The dealers registered under GST are required to charge GST at the specified rate of tax
on goods and services they supply to customers. The GST payable is included in the price paid by the
recipient of the goods and services. The supplier must deposit this amount of GST with the Government.

Getting Credit of GST: If the recipient of goods or services is a registered dealer, he will normally be
able to claim a credit for the amount of GST he has paid, provided he holds a proper tax invoice. This
“input tax credit” is set off against any GST which the dealer charges on goods and services, which he
supplies, to his customers.

Ultimate Burden of Tax on Last Customer: The net effect is that dealers charge GST but do not keep
it and pay GST but get a credit for it. This means that they act essentially as collecting agents for the
Government. The ultimate burden of the tax falls on the last and final consumer of the goods and
services, as this person gets no credit for the GST paid by him to his sellers or service providers.
Registration: Dealers will have to register for GST. These dealers will include the suppliers,
manufacturers, service providers, wholesalers and retailers. If a dealer is not registered, he normally
cannot charge GST and cannot claim credit for the GST he pays and further cannot issue a tax invoice.

Tax Period: The tax period will have to be decided by the respective law and normally it is monthly
and/or quarterly. On a particular tax period, which is applicable to the dealer concerned, the dealer has to
deposit the tax if his output credit is more than the input credit after considering the opening balance, if
any of the input credit.

Refunds: If for a tax period the input credit of a dealer is more than the output credit then he is eligible
for refund subject to the provisions of law applicable in this respect. The excess may be carried forward
to next period or may be refunded immediately depending upon the provision of law.

Exempted Goods and Services: Certain goods and services may be declared as exempted goods and
services and in that case the input credit cannot be claimed on the GST paid for purchasing the raw
material in this respect or GST paid on services used for providing such goods and services.

Zero Rated Goods and Services: Generally, export of goods and services are zero-rated and in that
case the rate of GST is very low and the GST paid by the exporters of these goods and services is
refunded. This is the basic difference between Zero rated goods and services and exempted goods and
services.

Tax Invoice: Tax invoice is the basic and important document in the GST and a dealer registered under
GST can issue a tax invoice and on the basis of this invoice the Input tax credit can be claimed.
Normally a tax invoice must bear the name of supplying dealer, his tax identification number address
and tax invoice number coupled with the name and address of the purchasing dealer, his tax
identification number address and description of goods sold or service provided. It shows that GST is
more or less VAT but with some difference. In VAT only goods are subject matter of taxation no service
was included but in GST whether CGST or SGST the services are also included along with goods.

Types of GST

There are Four GST types namely Integrated Goods and Services Tax (IGST), State Goods and Services
Tax (SGST), Central Goods and Services Tax (CGST), and Union Territory Goods and Services Tax
(UTGST). The taxation rate under each of them is different.
The new indirect tax regime under the Goods and Services Tax (GST) which was rolled out on 1 July
2017, had witnessed a considerable amount of confusion over how the new taxation system will affect
businesses and the payment of taxes. The Goods and Services Tax (GST) has subsumed several local
taxes that were levied on goods and/or services.
1. Integrated Goods and Services Tax or IGST

The Integrated Goods and Services Tax or IGST is a tax under the GST regime that is applied on the
interstate (between 2 states) supply of goods and/or services as well as on imports and exports. The
IGST is governed by the IGST Act. Under IGST, the body responsible for collecting the taxes is the
Central Government. After the collection of taxes, it is further divided among the respective states by the
Central Government. For instance, if a trader from West Bengal has sold goods to a customer in
Karnataka worth Rs.5,000, then IGST will be applicable as the transaction is an interstate transaction. If
the rate of GST charged on the goods is 18%, the trader will charge Rs.5,900 for the goods. The IGST
collected is Rs.900, which will be going to the Central Government.

2. State Goods and Services Tax or SGST

The State Goods and Services Tax or SGST is a tax under the GST regime that is applicable on
intrastate (within the same state) transactions. In the case of an intrastate supply of goods and/or
services, both State GST and Central GST are levied. However, the State GST or SGST is levied by the
state on the goods and/or services that are purchased or sold within the state. It is governed by the SGST
Act. The revenue earned through SGST is solely claimed by the respective state government. For
instance, if a trader from West Bengal has sold goods to a customer in West Bengal worth Rs.5,000,
then the GST applicable on the transaction will be partly CGST and partly SGST. If the rate of GST
charged is 18%, it will be divided equally in the form of 9% CGST and 9% SGST. The total amount to
be charged by the trader, in this case, will be Rs.5,900. Out of the revenue earned from GST under the
head of SGST, i.e. Rs.450, will go to the West Bengal state government in the form of SGST.

3. Central Goods and Services Tax or CGST

Just like State GST, the Central Goods and Services Tax of CGST is a tax under the GST regime that is
applicable on intrastate (within the same state) transactions. The CGST is governed by the CGST Act.
The revenue earned from CGST is collected by the Central Government. As mentioned in the above
instance, if a trader from West Bengal has sold goods to a customer in West Bengal worth Rs.5,000,
then the GST applicable on the transaction will be partly CGST and partly SGST. If the rate of GST
charged is 18%, it will be divided equally in the form of 9% CGST and 9% SGST. The total amount to
be charged by the trader, in this case, will be Rs.5,900. Out of the revenue earned from GST under the
head of CGST, i.e. Rs.450, will go to the Central Government in the form of CGST.

4. Union Territory Goods and Services Tax or UTGST

The Union Territory Goods and Services Tax or UTGST is the counterpart of State Goods and Services
Tax (SGST) which is levied on the supply of goods and/or services in the Union Territories (UTs) of
India. The UTGST is applicable on the supply of goods and/or services in Andaman and Nicobar
Islands, Chandigarh, Daman Diu, Dadra, and Nagar Haveli, and Lakshadweep. The UTGST is governed
by the UTGST Act. The revenue earned from UTGST is collected by the Union Territory government.
The UTGST is a replacement for the SGST in Union Territories. Thus, the UTGST will be levied in
addition to the CGST in Union Territories.