GST

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INDIRECT TAXES (BEFORE GST)

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Direct tax V/s Indirect tax

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Share of Direct and Indirect Taxes in
Total Tax Revenue

Source: www.indiabudget.nic.in

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 Share of Direct and Indirect Taxes in
Total Tax Revenue (Centre & States)

Source: www.Indiabudget.nic.in

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May 2004 to Nov 2008

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Jan 2009 to June 2012

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Jan 2012 to April 2014

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May 2014 to May 2019

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Now May 2019 to -----

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 Understanding terminology
 Input Tax- Tax paid to suppliers of raw
materials, intermediaries, assets, services
 Output Tax- Tax charged to customers on
supply of goods and services
 Tax payable to Government every month-

Output Tax ( - ) Input Tax

Note- In a particular month, if Input tax >
Output tax, then surplus is carried forward
to the next month/months
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Why GST was needed?

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 Learn, relearn, unlearn
1. VAT- Sale of goods within the State
2. CST- Inter state sale of goods

3. Service Tax- On rendering of services

4. Excise duty- On clearance of

manufactured goods
5. Octroi- On entry of goods in a city

One nation, multiple taxes

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 Why GST?

1.CST paid on Inter-state

purchases was not allowed
to be deducted/set off
against VAT\CST collected
on sale of goods

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Why GST?
2. In case of service
providers (such as
Infosys, TCS) VAT paid
on purchase of furniture
and office equipments
(Air conditioners,
laptops) was not
allowed to be set off
against Service tax
charged to clients

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 Why GST?
3. In case of traders
(imported goods) CVD
paid was not allowed to
be set off against
VAT\CST collected on
sale of goods

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Why GST?
4. In case of traders
(indigenous
manufactured goods),
excise duty paid was
not allowed to be set off
against CST\VAT
collected on sale of
goods

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 Why GST?
5. Cascading effect of
taxes due to separate
tax on goods and
services and also the
distinction on account of
Central taxes and State
taxes

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Why GST?
6. CST an orphan- no
authority (such as
CBDT, CBEC) to resolve
the difficulties faced by
the dealers

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 Why GST?
7. Burden of various
forms- C, F, I, E1, E2-
delay in procuring the
forms from VAT
Department

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 8. Millions of man-
hours and truck-hours
lost at checkpoints,
besides huge
corruption (Octroi)

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 Why GST?
9. Distinction
between goods and
services- hazy in
respect of certain
items- such as works
contracts, restaurant
service, software-
resulting in
overlapping of State
and Central levies
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Why GST?
10. Make in India-
MNCs shall be willing to
invest in India if tax
compliances are
simplified

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Hence what was needed?

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 Salient Features of GST
1) GST is a tax on both goods and services

2) GST paid on the purchase of goods and services is available for set-
off on the GST collected on the supply of goods and services

At the end of each month, GST Paid on Inputs is deducted from GST
charged on outward supply and the balance is paid to the
Government. In a particular month, if GST on Inputs > GST on Output,
the surplus is carried forward and set off in the next month. Except
certain cases, the surplus is not refunded to the businessman

3) It is essentially a tax only on value addition at each stage of supply

chain
 After GST Introduction
What did not change
1. Chargeability
2. Taxability
3. Exemptions
4. Valuation

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 After GST Introduction
What has changed
a) Tax rates
b) Point of taxation
c) Administration
d) Compliance procedures
e) Classification

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Classification issues- 1

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 Medicament or toothpowder
 1. Common parlance test- it must be used
for medicinal purposes by the users
 2. Ingredients test- it must have medical
content
CCE V/s Shree Baidyanath Ayurved Bhawan
Ltd. (Supreme court) 2009

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Classification issues -2

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 Puzzle\quiz or game
a) Outcome – predetermined and fixed
b) Clues- no clues in ‘Scrabble, while in ‘crossword’ words
are written as per clues
c) Chance and skill – In ‘Scrabble’ there is an element of
chance and skill, which is not present in a puzzle
Common parlance test- place of storage in departmental
store- games section

Educational toy- toy is an object to play with. It is a

model, replica or miniature of something, say a horse,
bus, aeroplane. Chance and skill are absent in a toy
Pleasantime Products V/s CCE- Supreme Court 2009

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 Mosquito Repellent-
Medicament or Pesticide?
 Does any doctor prescribe?
 Is it available only in Chemist’s shop?

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Kulfi- Ice Cream or Milk Product

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Hair oil or edible oil?

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Tamilnadu Finance Minister’s
criticism

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Roti v/s Parotha

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 With all the other challenges
the country is facing, it makes
you wonder if we should be
worrying about an existential
crisis for the ‘Parota.’

 In any case, given Indian

jugaad skills, I’m pretty sure
there will be a new breed of
‘Parotis’ that will challenge
any categorisation!

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 Error in classification
Any mistake in classification by any member
in supply chain-
 1. Lower rate charged

 2. Higher rate charged

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 GST Model

Central Level GST……

State\Union Territory Level GST……

Centre and State\UT to legislate, levy and administer

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 Why dual GST model?
1. Federal form of Government-both the
Centre and the States have the powers to
levy and collect taxes through
appropriate legislation
2. 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
 GST Rates - International comparison

35.0
26.56
30.0

25.0
19.0 19.6 20.0
17.0 17.5
20.0
14.0 15.0
12.5 13.0
15.0
10.0
10.0

5.0

0.0
Australia

Germany
Mexico
Zealand

Canada

Africa

France
South

China

India
Italy
New

UK
* Excise: 12.5 % + VAT 12.5 % = 26.56%
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Tax rates under GST
GST rate structure
0% rate RATE STRUCTURE
Essential goods and
Special rates-0.25% and 3%
Merit rate-5%
Lower standard rate -12%
Standard rate (RNR)- 18%
Demerit rate-28% (May also
bear a cess which shall enable
the compensation to be paid by
Centre to the revenue losing
States)
UNDER
GST fruits, milk
service-Vegetables,
0.25% for cut and semi polished stones, 3% for Gold
Essential goods and services-Edible oil, sugar, spices,
tea, coffee (except instant)
Coal , Mishti/Mithai (Indian Sweets), restaurant
service
Life-saving drugs , Goods transport agency
For goods and services-Computers, Processed food
For goods and services in general-Hair oil, toothpaste
and soaps (FMCG items)
Capital goods and industrial intermediaries (big boost
to local industries)
For luxury goods-Small cars (+1% or 3% cess)
Consumer durables such as AC and fridge
Luxury & sin items like BMWs, cigarettes and aerated
drinks (+15% cess)
High-end motorcycles (+15% cess)
 GST Components

GST –
SGST,UTGST,
CENTRAL TAXES ------ CGST, ------ STATE TAXES
IGST, Cess

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 Excise Duty State VAT

Service Tax Purchase

Tax

GST
Octroi/LBT
CVD & SAD
on Imports

Central Luxury/
Entertainment
Sales Tax Tax

CENTRAL TAXES SUBSUMED STATE TAXES SUBSUMED

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 Property Tax & Professional Tax Electricity duty
Stamp duty

Taxes & Duties to continue

Excise on alcohol, Basic Customs Excise duty on

tobacco and tobacco duty Petroleum
products products

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Taxable Event under GST

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 Point of taxation
1.Excise duty was leviable on all excisable
goods manufactured or produced in India
Duty– when payable ?

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Duty– when payable ?

Removal of goods
1) from factory gate
2) from warehouse/depot

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 Point of taxation- contd
 Sales Tax or VAT- Payable on sale of
movable goods
 Sale is complete- When the
property\ownership in the goods passes
from seller to buyer

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 Point of taxation- contd
- Service Tax - a tax on
services- anything
other than goods is a
service
- ‘Service Tax’ was
payable on rendering
of service or receipt
of consideration
whichever earlier

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 All supplies of Goods or Services
GST-Chargeability
- Applicability of “SGST/CGST”
Framework
or ‘’IGST” to be determined as
per IGST Act

@rate specified in the schedule

Payable by every taxable person

- Taxable person defined

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 Supply- includes
 T
In the course
All forms of For a of or
supply of consideration furtherance of
Goods/Services business

A deposit, whether refundable or not, given in respect of

supply shall not be considered as payment made for the
supply unless the supplier applies the deposit as consideration
for the supply.
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 Point of taxation- GST
On supply of goods and/or services
SUPPLY includes
(a) All forms of supply of goods and\or services such as
sale, transfer, barter, exchange, license, rental, lease or
disposal made or agreed to be made for a
consideration by a person in the course or for
furtherance of business,
(b) a supply specified in Schedule 1, made or agreed
to be made without consideration (deemed
supplies)

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 Deemed supplies
1. Permanent transfer\disposal of business assets on which Input Tax
Credit was taken
2. Supply of goods and/or services by a taxable person to another
taxable/non taxable person in the course of furtherance of
business- except job worker and gifts from employer to
employee not more than Rs. 50,000 in value in a financial year
3. Supply of goods—
 (a) by a principal to his agent where the agent undertakes to supply
such goods on behalf of the principal; or
 (b) by an agent to his principal where the agent undertakes to
receive such goods on behalf of the principal.

4. Importation of service by a taxable person from related party or any

of its own establishment abroad, whether or not for a consideration
in the course or furtherance of business 58
 Goods
Goods means every kind of
movable property
(excluding any intangible
property) other than
money and securities but
includes
a) Actionable claims
b) Growing crops, Grass
and things attached to
or forming part of the
land which are agreed to
be severed before supply
or under the contract of
supply

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 Services
Services means anything other than goods.
Deemed to be supply of services-
i) Transfer of goods for use without transfer of
title
ii) Renting of immovable property
iii) Works contract

iv) Food and beverages supplied in a restaurant

v) Permitting use of any intellectual property right

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 Goods or services?
1. Printing contracts
2. Bakery
3. Restaurant
4. Ice Cream Parlour
5. Sale of Software
6. Sale of flat under construction
7. Sale of residential flat after obtaining OC
8. Car servicing with supply of spare parts
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