UNIT -1

Meaning and Types of Indirect Taxes

Indirect tax is not directly levied on the taxpayers. This tax is often levied on goods and
services which results in their higher prices. A few examples of indirect taxes in India include
service tax, central excise and customs duty, and value added tax (VAT).

Here are seven commonly imposed indirect taxes in India:

1. Service tax
This tax is levied by entities for rendering services like consulting, legal, and other such
services. This tax is collected from the service recipients and paid to the Central Government.
From 1st June 2016,service tax service tax was 14% with Swacch Bharat Cess (0.5%) and
Krishi Kalyan Cess (0.5%) bringing up the applicable rate to 15%. Small service providers
with an income of less than INR 10 lakh per annum are exempted from paying this tax.

2. Excise duty
This duty is applicable on all goods that are manufactured in India. This indirect tax is
payable by the manufacturers and often passed on to the customers. This indirect tax in India
is levied by the Central Government and works according to the provisions of the Central
Excise Act, 1944.

3. VAT
Value Added Tax (VAT) is imposed on the sale of movable goods in the nation. VAT is
levied at all stages of the production and distribution channel that include an instance of value
addition. This tax is levied by the State Governments under Entry 54 of the State List.

4. Customs duty
It is one of those indirect taxes that are applicable for bringing imported goods into the
country. In certain instance, this duty may also be levied on exported goods. The Customs
Act, 1962 provides regulations on the levy and collection of this duty, import and export
procedures, penalties, prohibitions, and offence.

5. Securities Transaction Tax (STT)

This indirect tax is imposed when stocks are sold or purchased through any Indian stock
exchange. STT was introduced in 2004 and is applicable to shares, mutual funds, and future
and options transactions. STT was imposed to reduce the short-term capital gains tax and
eliminate long-term capital gains tax.
6. Stamp duty
This is an indirect tax charged by state governments on the transfer of immovable property
within their jurisdiction. In addition, stamp duty is mandatory on all types of legal
documents. Its rates vary from one state to another.

7. Entertainment tax
The state governments charge such tax on every transaction related to entertainment. Some
examples are movie tickets, video game arcades, stage shows, exhibitions, amusement parks,
and sports-related activities.

Four benefits of indirect taxes as opposed to direct taxes are:

1. Contribution by the poor

The poor people are exempt from indirect taxes and this is the only way of reaching this
section of the society. This meets the basic principle of making every person pay towards the
growth of the country through the state governments.

2. Convenient
Taxpayers are not burdened with the indirect taxes because these are paid only while making
purchases. Furthermore, it is convenient for the state authorities because the taxes are directly
collected at the factories or the ports, which saves time as well as effort.

3. Easy collection
The collection of all these taxes is automatically performed during the selling and purchasing
goods and services. This helps the authorities collect taxes easily while reducing the
possibility of tax evasion.

4. Equitable
Indirect tax is directly related to the prices of the goods and services. Therefore, rich people
purchasing luxury items pay higher taxes and vice versa.
Three disadvantages of direct taxes are:

1. Regressive
Not all taxes are equitable. Certain taxes, like that imposed on salt, are regressive because the
same amount of tax is levied irrespective of the economic status of the buyer.

2. Uncertain
Only taxes imposed on necessary goods and services have some certainty. Taxes levied on
goods and services having an elastic demand are not predictable and may not earn huge
revenues for the authorities.

3. Not industry-friendly
When tax is imposed on raw materials, it acts as a detriment to manufacturers using the same,
thereby making it unfriendly. Furthermore, it increases the cost of production, which results
in higher prices of the goods.

 Because there are numerous indirect taxes in India, the buyers pay higher
prices for goods and services. The Government is proposing combining
various taxes under a single tax known as Goods and Service Tax (GST).
Merging different taxes is expected to improve governance and reduce the
complexities of complying with multiple rules and regulations.

Central Excise Duty: features, Nature, Scope

Central Excise Duty is an important source of revenue for Govt. of India. Revenue received
from Central Excise about 2 Lac Crores Stands in second rank after Income Tax Meaning of
Excise Duty in India, term “Excise Duty” has not been defined, either in the Constitution of
India or even in the Central Excise Act, 1944. However, the Constitution of India has vested
in the Seventh Schedule, powers to levy various taxes and duties by the Union as well as the
states. Allocation of sources between centre and states under the constitution of India grants
to the Central Government power to impose “Duties of excise on tobacco and other goods
manufactured or produced in India, except alcoholic liquors for human consumption, opium,
narcotics, but including medical and toilet preparations containing alcohol, which is called
“Central Excise”. Nature or Characteristics of Excise duty Central Excise duty is a central
tax imposed by Government of India.

The following features of the excise duty:

1. Imposition
2. Nature
3. Basis of Taxation
4. Payment
5. Scope
 6. Maintenance of Records
7. Excise rate
8. Administration

Importance of Central Excise Duty in Respect of Revenue Excise Duty is the most

important source of income of Indian Govt. The Govt. earns huge revenue through this. This
tax is imposed on the manufacturing of goods. It is an indirect tax and collected from
manufactures. This tax was first imposed on the manufacturing of cotton yarn in 1894. For
the proper implementation of excise duty, Central Excise Duty Act, 1944 and central Excise
Tariff Ac, 1985 are applicable which is also known as CEAT. At present this tax is applicable
on various types of goods covered under 20 sections and 96 chapters there of and
approximately it earns Rs. 2 lac crores per year.

Merits of Excise Duty or Importance of Excise Duty

1. Major source of Government revenue

2. Psychological advantages to tax payer
3. Easier to collect
4. Balanced Industrial Growth
5. Less collection cost
6. Tax evasion difficult
7. Control over wasteful expenditure

Disadvantages or demerits of Excise Duty

1. Increase the Price of goods

2. The incidence is uniform
3. Reduces demand of goods
4. Increases project costs
5. Protect inefficient local industries
6. Modern technology becomes costly
7. Increases smuggling/tax evasion

Types of Excise Duties

1. Central Excise Duty

A. Basic Excise Duty: Basic duty of excise levied under Central Excise Act, Basic excise
duty (also termed as Cenvat as per section 2A of CEA) is levied at the rates specified in first
schedule to central Excise Tariff Act. The general rate of Excise Duty is 12% and 3%
education cess there on So, at present normal excise rate is 12.36%. There is partial
exemption to a few products.
2. Provincial Excise Duty
Although Excise duty is imposed by Central Govt. Indian Constitution has given rights to
state government to impose and collect excise duty on intoxicants like Liquor, Bhang, Ganja,
Opium etc.

3. Duties under other Acts

Some duties and cess are levied on manufactures products under other Acts. The
administrative machinery of central excise is used to collect those taxes. Provisions of Central
Excise Act and Rules have been made applicable for levy and collection of Central duties
cesses. Other duties related to excise duty are as under –

A. Education Cess on excise duty: In case of excise duty, calculation of cess is easy. If
excise duty rate is 12% education cess @3% will be 0.36% i.e. 12.36%)

B. National Calamity Contingent Duty: A ‘National Calamity Contingent Duty’ (NCCD)

has been imposed vide section 136 of Finance Act, 2001. This duty is imposed on pan
masala, chewing tobacco and cigarettes.

C. Additional Excise Duty in pan masala and tobacco products: Additional Duty of

Excise by way of surcharge has been imposed under clause 85 of Finance Bill, 2005 w.e.f. 1-
3-2005. Thus duty is payable @ 10% of aggregate of cigars, manufactured tobacco, tobacco
extract and essences.

D. Duty on Medical and Toilet preparations: A duty of excise is imposed on medical

preparations under Medical and Toilet preparations (Excise Duties) Act, 1955

E. Additional duty on mineral products: Additional duty on mineral imposed (like motor

spirit, kerosene, diesel and furnace oil) is payable under Mineral products (Additional Duties
of excise and customs) Act

Salient features of Central Excise Duty Act

Section 3 of Central Excise Act the ‘charging Section’ states that there shall be levied and
collected duties on all excisable goods (excluding goods produced or manufactured in special
economic zones) which are produced or manufactured in India. This definition of charging
section of central Excise is vital, because it clearly signifies that there are four basic
conditions for levy of Central Excise duty.

1. The excise duty levied on goods;

2. The goods must be excisable;
3. The goods must be manufactured or produced; and
4. The manufactured or production must be in India.
Levy and Liability of Excise duty The words ‘Levy’ means imposition of tax. Once a tax or
duty is imposed, it has to be quantified (assessed) and then ‘collected’. Once a duty is levied,
it has to be collected. It cannot be collected unless the duty is quantified (assessed). Hence,
normally, ‘levy’ should cover ‘imposition’, ‘assessment’ and ‘collection’.

The following point should be kept in view regarding Levy of Excise Duty:

1. Taxable event
2. Person liable to pay excise duty
3. The duty Liability in case of Ware house Goods
4. Duty Liability in case of Job work
5. Duty leviable on captive consumption
6. Duty can be levied on Government undertaking
7. Rate of duty as applicable on date of removal relevant
8. State of goods at the time of removal is relevant
9. Marketability is essential

Procedure for excise registration and

documents needed
Procedure of obtaining registration
The application for registration is to be filed with the Superintendent of Central Excise
having jurisdiction over the premises in respect whereof the registration is to be obtained.
The following documents are to be submitted for obtaining the registration

 Possession letter/allotment letter/rent deed of the premises to be registered;

 Article of Association of the company or Partnership deed of the firm, as the
case may be;
 List of items with their Tariff sub-headings proposed to be manufactured;
list of items with their Tariff sub-headings, if any, obtained, under Chapter
X procedure or dealt within;
 Registration certificate issued under Shop and Establishment Act and PAN
Number;
 Duly filled in application in the form R-I in triplicate;
 Grounds plan of the premises in duplicate including details of plant &
machinery etc.;
 Details of the proprietors/all partners/Directors of the company including

1. Name(s)
2. Address – Official/ residential.

The application for registration in form R-I is either to be signed before the Superintendent of
Central Excise or can be submitted duly attested and notarised by the notary public.
Grant of registration
After receipt of application for registration, the jurisdictional Superintendent is to grant
registration within 30 days of the receipt of the application. Even if the registration is not
granted, it will be deemed to have been granted. The registration is in respect of premises and
not a person.

Stage of filing application for registration.

For the goods that attract Central Excise duty right from the beginning, the registration is to
be applied for before the removal of the goods. These goods are not covered under Small-
Scale Exemption notification. Even where a manufacture of goods eligible for Small-Scale
exemption opts for availment of Modvat credit, the registration is to be applied for before the
removal of the goods.

Manufacturers of Cosmetics and Refrigeration goods are to apply for registration after
crossing the clearances of Rs. 30 lakhs.

Manufacturers of other goods are to apply for registration when the clearances exceed Rs.
50 lakhs.

Validity of registration certificate.

A registration certificate is valid till the relevant unit is engaged in manufacturing of

excisable goods. The registration certificate is not required to be renewed.

Transferability of registration certificate.

Registration certificate is not transferable. When a registered person transfers his business to
another person, the transferee has to obtain a fresh registration.

Requirement of amendment in registration certificate.

When a registered firm or a company or association of persons undergoes a change in

Constitution, the jurisdictional Range Officer is to be intimated within 30 days of such a
change for incorporation of this fact in the registration certificate.

In case a registered person desires to manufacture a new product, he is to get the product
endorsed on his registration certificate.

Requirement of exhibition of registration certificate.

Every registered person is required to exhibit the registration certificate or a certified copy
thereof in a conspicuous part of the registered premises.

Whether 100% export oriented unit or unit in free trade zone is required to be registered.
A 100% Export Oriented Unit or a unit in Free Trade Zone licenced or appointed under the
provisions of Customs Act, 1962, is deemed to be registered under the Central Excise law.

Surrender of registration certificate

When the registered person ceases to carry out the operation for which he is registered, he is
required to surrender his registration certificate immediately to the Range Officer.

How to obtain duplicate registration certificate

In case the original registration certificate is lost or destroyed, the assessee can apply for a
duplicate registration certificate to the jurisdictional Range Superintendent after depositing a
fee of Rs.30/- through a TR-6 challan in any nominated branch of Punjab National Bank.

CENVAT MODVAT provisions

CENVAT
CENVAT credit is a credit in respect of central excise on inputs purchased for the
manufacture or duty paid in relation to the manufacture of the final product. CENVAT credit
is also available in respect of duty paid on capital goods, which include machinery, plant,
spare parts of machinery etc. in other words, instead of paying cash towards central excise on
shipment of goods, the exporter can adjust the excise duty paid on the inputs and machinery.
Virtually, CENVAT CREDIT is like a credit balance in bank account that can be adjusted
towards the excise duty payable.

Let me explain how does CENVAT credit scheme work? . ABC Ltd is the manufacturer and
exporter of toys and it purchases certain components from PQR Ltd for use in manufacture of
toys. PQR Ltd would have paid excise duty on components manufactured by it and it would
have recovered that excise duty in its sale price from ABC Ltd. Now, ABC Ltd has to pay
excise duty on toys manufactured by it as well as bear the excise duty paid by its supplier,
PQR Ltd. This amounts to multiple taxation. ABC Ltd can take credit for excise duty paid by
PQR Ltd so that lower excise duty is payable by ABC Ltd, at the time of export. This is how
CENVAT CREDIT works.

Under CENVAT Credit scheme, the benefit of excise duty on inputs is available,
instantaneously, when the inputs reach the factory. There is no need to establish any linkage
between the inputs and goods manufactured . In case of capital goods, 50% benefit is
available in the current year of purchase and balance in the next year. This balance can be
adjusted against the duty payable but is not refunded. So, it is desirable to utilize this balance,
at the earliest.

In other words under a CENVAT CREDIT scheme, exporter is totally freed from the burden
of excise duty, at all the different stages, on inputs used, duty paid on final products and even
duty paid on capital goods purchased. Under a CENVAT credit scheme, the intention of
Government is to eliminate the burden of excise duty on exports totally, paid directly or
indirectly, to make them globally competitive. 

MODVAT
MODVAT (modified value added tax) was introduced in India in 1986 (MODVAT was re-
named as CENVAT w.e.f. 1-4-2000). The system was termed as MODVAT, as it was
restricted upto manufacturing stage and credit of only excise duty paid on manufacturing
products (and corresponding CVD paid on imported goods) was available.

System of VAT was introduced to service tax w.e.f. 16-8-2002. VAT was not extended to
sales tax, as sales tax is under jurisdiction of State Governments. However, State
Governments have agreed to introduce sales tax VAT and it is likely to be introduced from
April 2005. Haryana Government has introduced sales tax VAT in April 2004 and the
experience is reported to be good.

Integration of goods and service tax – A task force was formed under Chairmanship of Shri
Vijay Kelkar on Implementation of Fiscal Responsibility and Budget Management Act. The
Kelkar Committee submitted its report in July 2004. The Committee has strongly
recommended ‘Goods and Service Tax’ (GST).

Exemptions to small scale industries

1) Meaning of Small Scale Exemption.

Under the provisions of the Central Excise Act a Small Scale Industry is one whose aggregate
value of Turnover does not exceed Rs. One Hundred and Fifty Lakhs made on or after the
1st day of April in any financial year.

2) Products covered under the SSI Exemption Notification.

The exemption to be given to SSIs are not applicable for all the goods. The benefit of the
said notification is restricted to the products listed in the notification. The notification covers
most of the products to fulfill the intension of the notification.

However tobacco products, pan masala, watches, matches, aluminium pattis/patta, steel
pattis/pattas and some textile products are specifically excluded from SSI exemption.

3) Determining the aggregate value of clearances for home consumption of Rs. 150
Lakh.

For the purpose of determining the first clearances upto an aggregate value not exceeding
Rs.150 Lakh made on or after the 1 st day of April in any financial year, the following
clearances shall not be taken into account:
a) Clearances exempt from the excise duty:

Clearances, which are exempt from the whole of the excise duty leviable thereon (other than
an exemption based on quantity or value of clearance) under any other notification or on
which no excise duty is payable for any other reason.

b) Clearances bearing the brand name or trade name of another person:

Clearances bearing the brand name or trade name of another person, which are ineligible for
the grant of this exemption.

c) Clearances of intermediate goods/ goods captively consumed in case the final

products is eligible for SSI exemption:

Clearances of the specified goods which are used as inputs for the further manufactures of
any specified goods within the factory of production of the specified goods. Here specified
goods are those goods, which are eligible for SSI exemption.

d) Export clearances:

Clearances meant for export.

4) Determining the aggregate value of clearances for home consumption of Rs.400 Lakh.

For the purpose of determining the aggregate value of clearances of all excisable goods for
home consumption, i.e. Rs.400 Lakh, the following clearances shall not be taken into
account:

a) Clearances to FTZ/SEZ/100% EOU/EHTP/STP/UNO/International organization.

1. Clearances of excisable goods without payment of duty-

2. To a unit in a free trade zone (FTZ);or
3. To a unit in a special economic zone (SEZ);or
4. To a hundred percent export-oriented undertaking (100% EOU);or
5. To a unit in an Electronic Hardware Technology Park or Software
Technology Park (EHTP/STP);or
6. Supplied to the United Nations Organization (UNO) or an international
Organization for their official use or supplied to projects funded by them, on
which exemption of duty is available under Notification No. 108/95-C.E.,
dated 28.08.1995.

b) Clearances bearing the brand name or trade name of another person.

Clearances bearing the brand name or trade name of another person, which are ineligible for
the grant of this exemption.
c) Clearances of intermediate goods/ goods captively consumed in case the final product
is eligible for SSI exemption.

Clearances of the specified goods which are used as inputs for further manufacture of any
specified goods within the factory of production of the specified goods. Here, specified goods
are those goods, which are eligible for SSI exemption.

d) Clearances exempt under specific job work notifications.

Clearances which are exempt from the whole of the excise duty leviable thereon under
specific jib work notifications, viz. Notification No. 214/86- C.E., dated 25.03.1986 or No.
83/94- C.E., dated 11.04.1994 .

e) Export clearances.

Clearances meant for exports.

Points which merit consideration.

1. Export to Nepal and Bhutan is not considered as exports. It is taken as

clearance for home consumption. Thus, export turnover of Nepal and
Bhutan shall be included for determining the limit of Rs. 150 Lakh as well
as Rs. 400 Lakh.
2. For computing the turnover of Rs. 150 Lakh, the clearances of goods
exempted under any other notification is to be excluded. It is important to
note here that while computing the limit of Rs. 400 Lakh, turnover of
goods exempted under any other notification ( except clearances to
FTZ, SEZ, 100% EOU, EHTP/STP, UN, etc. and specific job work
notifications) has to be included.

6) Declaration to be filed on reaching specified limit.

a) SSI units whose turnover are more specified limit (at present Rs.90 Lakh) but less than
exemption limit (i.e. Rs.150 Lakh) have to file a declarationin the prescribed form.

b) Such declaration has to be filed only once in the lifetime of the assessee (and not every
year).

7) Registration

SSI units whose turnover is <Rs.150 Lakh are exempted from registration. Once the
exemption limit exceeds, the unit shall compulsory gets registered with the central Excise
authorities.

Flow Chart of SSI

Introduction to custom duties, Types,
Calculation and related issues
Every good has a predefined rate of duty that is determined based on various factors,
including where such good was acquired, where such goods were made, and what these
goods is made of. Also, anything that you bring into India for the first time should be
declared as per the customs rules. For instance, you need to declare the items purchased in a
foreign country and any gifts which you acquire outside India.

Types of custom duties

Customs duties are charged almost universally on every good which are imported into a
country. These are divided into:

      Basic Customs Duty (BCD)

      Countervailing Duty (CVD)
      Additional Customs Duty or Special CVD
      Protective Duty,
      Anti-dumping Duty
      Education Cess on Custom Duty

How is the customs duty computed?

Customs duties are computed on a specific or ad valorem basis. In other words, it is
calculated on the value of goods. Such value is determined as per the rules laid down in the
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. If there are
doubts regarding the truth or accuracy of the value of goods, valuation of such item is done
through the following method:

 Rule 4 & 5: Comparative value method that compares the transaction value

of identical or similar items
 Rule 7: Deductive value method that uses sale price of such good in the
importing country
 Rule 8: Computed value method that employs costs related to materials,
fabrication, and profit in the country of production
 Rule 9: The Fallback method that is based on previous methods with an
element of higher flexibility.

Payment of custom duty

One can pay customs duty online with a few simple steps:

 Login into the e-payment portal of ICEGATE

 Enter the import or export code or simply key in the login credentials
provided by ICEGATE
  Now, click on the e-payment button
 You would be able to check all e-challans which under your name
 You could then choose the challan that you wish to pay and select the
payment method and you would be then redirected to the payment gateway
 Once the payment is done, you would be redirected back to the ICEGATE
portal
 Finally, click on the print button and save your payment copy.

e-Sanchit
In recent years, India witnessed major reforms in the taxation system via digitalization. From
Income Tax to GST, most of the things are now available online. To ensure ease of doing
business, the CBIC (Central Board of Indirect taxes and Customs), has launched e-
SANCHIT, which enables registered persons to file their customs related documents online.
The e-SANCHIT initiative is made mandatory from March 15th this year. Only the
ICEGATE registered users can use the e-SANCHIT application by accessing e-SANCHIT
link.

Under this new scheme, hard copies of the uploaded documents are not required to be
produced to the assessing officers. The objective here is to minimize the physical interface
between the customs agencies and trade and to maximize the pace of clearance.
UNIT -2
VAT: Introduction, Meaning, features, Merits,
Demerits
Value added tax (VAT) is known as the most recent and effective innovation in the taxation
field. It is levied on the value added of the goods and services. Theoretically, the tax is broad
based as it covers the value added to each commodity by a firm during all stages of
production and distribution.
Value added tax (VAT) is considered as one form of sales taxation. VAT is a multiple stage
tax which has grown as a hybrid of turnover tax and retail level sales tax. Value added tax
(VAT), however, differs from turnover tax as the turn over tax is imposed on the total value
at each while VAT is imposed only on value added at that stage. VAT varies from sales tax in
the sense that VAT is imposed at each stage of production and distribution whereas retail
sales tax is imposed only at one stage, the final stage. VAT helps to minimize many problems
related with tax evasion. Therefore, value added tax (VAT) is more productive and less
destructive than retail sales tax.

The main features of value added tax (VAT) are stated as follows:

1. VAT is a form of indirect taxation.

2. VAT is a broad-based tax as it covers the value added to each commodity by
a firm during all stages of production and distribution.
3. VAT is based on value added principle. Value added can be obtained either
by adding payments to factors of production (i.e. ,
wages+rent+interest+profit) or deducting cost of inputs from sales revenue.
4. VAT is a substitute for sales tax, hotel tax. contract tax and entertainment
tax.
5. VAT is based on self-assessment system and provides the facility of tax
credit and tax refund,
6. VAT avoids cascading effect existed in sales tax and contains catch-up
effect.

In a nutshell, VAT is an indirect tax that is imposed on different goods and services on the
basis of value added amount in different stages of production and distribution. It is not a
genuinely new form of taxation but merely a sales tax administered in different form.
Although it is borne by the final consumer, VAT is collected at each stage of production and
distribution chain.

Merits of Value Added Tax (VAT)

1. As compared to other taxes, there is a less chance of tax evasion. VAT

minimizes tax evasion due to its catch-up effect.
2. VAT is simple to administer as compared to other indirect tax.
 3. VAT is transparent and has minimum burden to consumers as it is collected
in small fragments at various stages of production and distribution.
4. VAT is based on value added not on total price. So, price does not increases
as a result of VAT.
5. There is mass participation of taxpayers.

Demerits of Value Added Tax (VAT)

1. VAT is costly to implement as it is based on full billing system.

2. VAT is relatively complex to understand. The calculation of value added in
every stage is not an easy task.
3. To implement the VAT successfully, customers, need to be conscious,
otherwise tax evasion will be widespread. 

VAT: Tax Calculation, Difference from Sales

Tax, Value addition
VAT is a tax charged by respective State Government on sales made in intra state
transactions (within the state transactions). Example:

Dealer ‘A’ sold goods to Dealer ‘B’ for 1000; VAT – 10%

Sale Price – 1000

VAT – 1000*10% = 100

Final Price (Paid by Dealer B) – 1100/-

VAT Paid to Government by ‘A’ = 100/-

Dealer ‘B’ further sold same goods to Dealer ‘C’ for 1500 (adding 400 profit margin);
VAT – 10%

Sale Price – 1500

VAT – 1500*10% = 150

Input Credit Available – 100 (VAT Paid on purchase made from Dealer ‘A’)

Final Price (Paid by Dealer ‘C’) – 1500+150 = 1650/-

VAT Paid to Government by ‘B’ = 150–100 = 50/- (because 100 has already been paid by
‘A’)
Conclusion: Cost to Dealer ‘B’ is 1000 not 1100 because ‘B’ will get credit of 100 paid on
purchase. ‘B’, technically, added 500 as profit margin (1500–1000). VAT is 10%.
Hence, 500*10% = 50 (VAT Paid by ‘B’). That is why it is called Value Added Tax.
Because ‘B’ added value of 500.

Comparison Chart

BASIS FOR COMPARISON CENTRAL SALES TAX (CST)

Tax charged on the total value of the commodity, when VAT is a tax charged at ea
Meaning
the sale takes place is known as Sales Tax. chain whenever the value

Nature Single point tax Multi point tax

Tax Evasion Can be possible Cannot be possible

Cascading effect Yes No

Levied on Total Value Value Added

Requires less effort because it is simple and easy to Proper accounts should be
Account maintenance
calculate. complex to calculate.

Tax Burden Falls on the consumer Rationalized.

Input Tax Credit Unavailable Available

Area Applies to the whole country. Applies within the jurisdic

Value Addition
Value Added is the extra value created over and above the original value of something.  It can
apply to products, services, companies, management, and other areas of business.  In other
words, value-added is the enhancement made by a company/individual to a product or service
before offering it to the end customer.

Value can be added to, a product, a service, a process, or an entire business. Value can be
added by way of providing better or extra services in the form of after-sales services and
better customer support. Value can also be added by improving a product in some way, or by
including extras with the product. For example, a retail seller of computers can add value by
including software or computer accessories with the basic product, the computer.

Companies with strong branding can add value to their products or services simply by way of
using the company’s logo to sell the product.
Different forms for VAT, VAT Refund
Types of Value Added Tax (VAT)
The types of VAT are determined on the basis of treatment of capital goods of a firm. Input
tax paid for capital goods is allowed or not is the fundamental question in the study of types
of VAT.

There are three types of VAT, they are:

* Consumption type

* Income type

* Gross National Product (GNP) type

1. Consumption Type VAT

Under consumption type VAT, all capital goods purchased from other firms, in the year of
purchase, are excluded from the tax base while depreciation is not deducted from the tax base
in subsequent years. The base of tax is consumption since investment is relieved from
taxation under this type.

2. Income Type VAT

The income type VAT does not exclude capital goods purchased from other firms from the
tax base in the year of purchase. This type, however, excludes depreciation from the tax base
in subsequent years. The tax falls both on consumption and net investment. The tax base of
this type is the net national income.

3. GNP Type VAT

Under this type, capital goods purchased by a firm from other firms are not deductible from
the tax base in the year of purchase. It also does not allow the deduction of depreciation from
the tax base in subsequent years. Tax is levied both on consumption and gross investment.
The tax base of this type is gross domestic product.

Consumption type VAT is widely used. So, by the term ‘VAT’ we basically mean the
consumption type VAT.

VAT Refund
You are eligible to claim VAT refunds on certain business related expenses if you are
incorporated in any country other than the country from which you wish to claim a VAT
refund.

WHICH EXPENSES ARE ELIGIBLE?

The chart overleaf outlines some of the current expenses that are eligible. This includes
expenses incurred on hotels, meals, professional fees, car rentals, trade fairs, training courses
etc. AVR enables you to reclaim expenses incurred in the past on a retroactive basis.

Current legislation in the E.U. enables an applicant to claim VAT refunds up to six months
after the end of the financial year in which the expenses were incurred. In some cases, it may
be possible to submit retrospective claims for VAT refunds. Thus, potential exists for a
sizeable initial claim.

WHAT DOES AVR DO?

AVR is a global organization dedicated to the task of providing assistance to companies

wishing to reclaim Value Added Tax (VAT) paid on business expenditure. As your
appointed VAT Reclaim Agent, AVR will:

• Determine your firm’s eligibility to reclaim VAT.

Review and organize all original receipts to assess the extent of your potential
•
VAT refund.

• Where possible, obtain replacements of missing or incorrectly styled invoices.

Advise and assist in setting up internal procedures compatible with existing

•
policies, thus enabling your company

• to maximize its future VAT reclamation.

• File all necessary documentation to ensure your company’s continued eligibility for
 VAT refunds.

Recover VAT from all E.U. member states as well as several other countries on
•
behalf of non-resident companies.

Collect your invoices through our retrieval service, simplifying your task and
•
ensuring valuable invoices are not missed.

• Assist you with other international VAT enquiries.

• Process all claims and deal with any questions VAT authorities may raise.

Provide quarterly statements detailing the status of your company’s application and
•
refunds.

Receive your refund and forward it to you in the currency of your choice/ net of
•
AVR’s contingent fees.

HOW DOES IT WORK?

All claims for refunds must be supported by original receipts for the business related
expenses. AVR will work with your company to establish a method for receipt retrieval that
is compatible with your company’s existing procedures.
These receipts along with the necessary documentation will be filed by AVR with the
respective authorities. VAT authorities can take up to six months to review a claim. When
your claim has been processed, the original invoices will be returned to you.
AVR will send you a payment net of their fee promptly, after receipt of the refund. Payment
will be made in the currency of your choice.

HOW MUCH DO YOU PAY?

No refund, no charge.

AVR charges a fee contingent on successful refunds only. There is no processing fee for
work done in the preparation of your VAT refund application. If your application is
unsuccessful, your company will not be liable for any fee or expenses.

HOW TO OBTAIN YOUR REFUND?

AVR makes the application process simple for your company. You need to file only two
documents at the outset and one document annually to become eligible for VAT Refund.
AVR takes care of all the other necessary paperwork on your behalf.
INITIAL REQUIREMENT –

 Application Form.
• Letter of Authority (Addressed to each country in which you intend to
reclaim VAT on your Co. letterhead)

ANNUAL REQUIREMENT:

STATUS (TAX) CERTIFICATE or letter issued by the local tax authorities must be filed in
every country from which you wish to claim a refund. This is a simple certificate that states
only the name, address and permanent account number of the company.

DEADLINES FOR FILING CLAIMS:

Current legislation enables an applicant to file a claim within the following periods.
Period                                    Cut Off Date
United Kingdom         from July 1 through June 30                December 31
All other countries     from Jan 1 through December 31         June 30

Importance of CST Act 1956, Various

Provisions
Importance
Extent and commencement of the Central Sales Tax Act 1956:

1. It extends to the whole of India.

2. It is divided into 6 chapters and 26 sections.
3. It makes provision for single point as well as multiple-point tax.
4. Under this Act, the goods have been classified as :

   (i) declared goods or goods  of special importance in inter-State trade or commerce, and

  (ii) other goods.

The rates of tax on goods in the first category are lower as compared to the rates of tax on
goods in the second category.

5. There is no exemption limit for the levy of tax in relation to the turnover of
the dealer. Every dealer, who is having inter-State trade, is liable to pay tax
under the Act irrespective of the quantum of his turnover.
6. Every dealer engaged in inter-State trade has to get himself registered and
the certificate of registration has to be displayed at all places of his business.
7. The tax is levied under this Act by the Central Government but it is
collected by that State Government from where the goods have been sold
outside the State. The tax thus collected is given to the same State
Government which collected the tax. In the case of Union Territories, the
tax collected is deposited in the Consolidated Fund of India.
8. The Act does not provide rules regarding submission of returns, payment of
tax, appeals, etc. For this purpose, the rules followed by a State in respect of
its own sale-tax law shall be followed for the purposes of this Act also.
9. The Central Government and the State Government are empowered to frame
proper rules and regulations for the implementation of various provisions of
this Act

Objects of enacting the Central Sales-Tax Act

The Act has been enacted to formulate the principles regarding the following :

(1) To formulate principles for determining when a sale or purchase of goods takes place:

    (i) In the course of inter-State trade or commerce; or

  (ii) Outside a State; or

(iii) In the course of import into or export from India.

(2) To provide for the levy, collecting and distribution of taxes on sales of goods in the     
course of inter-State trade or commerce.

(3) To declare certain goods to be of special importance in inter-State trade or commerce.

(4) To specify the restrictions and conditions to which state laws imposing taxes on the sale
or purchase of goods of special importance in the course of inter-State trade and commerce
shall be subjected to.

Declared goods are the goods of special importance on which there are certain restrictions
placed under CST Act 1956 on imposition of sales tax or VAT by the states. Article286(3)(a)
of the Constitution of India authorises parliament to declare some goods as of special
importance and to impose restrictions and conditions in regard to power of the states in
regard to levy, rates and other incidence of tax on such goods. Exercising this power the
Parliament vide section 14 of the Central Sales Tax Act 1956 has declared some goods as of
special importance and has placed restrictions u/s 15 of CST Act on the imposition of sales
tax or VAT on such goods by the state Governments.

DEFINITION: Section 2(c) of CST Act defines Declared Goods as those declared u/s 14 of
the CST Act as Goods of special importance in inter state trade or commerce.

Section 14 gives the list of ‘goods of special importance’ called Declared Goods important
among them are numerated as below:

(i) cereals i.e -paddy, rice, wheat,Jowar,bajra, maize, barley etc.

(ia) coal, including coke in all its forms, but excluding charcoal:

(ii) cotton, that is to say, all kinds of cotton (indigenous or imported) in its unmanufactured
state, whether ginned or unginned, baled, pressed or otherwise, but not including cotton
waste;

(iia) cotton fabrics

(iib) cotton yarn, but not including cotton yarn waste;

(iic) crude oil, that is to say, crude petroleum oils and crude oils etc.

(iid) Aviation Turbine Fuel sold to a Turbo-Prop Aircraft ;

(iii) hides and skins, whether in a raw or dressed state;

(iv) iron and steel, that is to say,-

(i) pig iron, sponge iron and cast iron including ingot the moulds, bottom plates, iron scrap,
cast iron scrap, runner scrap and iron skull scrap ;
(ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes) ;
(iii) skelp bars, tin bars, sheet bars, hoe-bars and sleeper bars ;
(iv) steel bars (rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or
twisted, in coil form as well as straight lengths) ;
(v) steel structurals (angles, joists, channels, tees, sheet piling sections, Z sections or any
other rolled sections) ;
(vi) sheets, hoops, strips and skelp both black and galvanised, hot and cold rolled, plain and
corrugated, in all qualities, in straight lengths and in coil form, as rolled and in rivetted
condition ;
(vii) plates both plain and chequered in all qualities ;
(viii) discs, rings, forgings and steel castings ;
(ix) tool, alloy and special steels of any of the above categories ;
(x) steel melting scrap in all forms including steel skull, turnings and borings ;
(xi) steel tubes both welded and seamless, of all diameters and lengths, including tube fittings
;
(xii) tin-plates, both hot dipped and electrolytic and tin free plates ;
(xiii) fish plate bars, bearing plate bars, crossing sleeper bars, fish plates, bearing plates,
crossing sleepers and pressed steel sleepers, rails-heavy and light crane rails ;
(xiv) wheels, tyres, axles and wheels sets ;
(xv) wire rods and wires-rolled, drawn, galvanised, aluminised, tinned or coated such as by
copper ;
(xvi) defective, rejects, cuttings or end pieces of any of the above categories ;

(v) jute, that is to say, the fibre extracted from plants belonging to the species Corchorus
capsularis and Corchorus olitorius and the fibre known as mesta or bimli extracted from
plants of the species Hibiscus cannabinus and Hibscus subdariffa – Var altissima and the
fibre known as Sunn or Sunn-hemp extracted from plants of the species Crotalaria juncea
whether baled or otherwise ;

(va) Liquefied petroleum gas for domestic use;

(vi) oilseeds, that is to say,-

(i)Groundnut or Peanut
(ii) Sesamum or Til
(iii) Cotton seed
(iv) Soyabean
(v) Rapeseed and Mustard-

(1) Toria
(2) Rai
(3) Jamba-Taramira (Eruca Satiya);
(4) Sarson, yellow and brown (Brassica campestris var sarson);
(5) Banarsi Rai or True Mustard (Brassica nigra);

(vi) Linseed (Linum usitatissimum);

(vii) Castor (Ricinus communis);
(viii) Coconut (i.e., Copra excluding tender coconuts) (cocosnucifera);
(ix) Sunflower (Helianthus annus);
(x) Nigar seed (Guizotia abyssinica);
(xi) Neem, vepa (Azadirachta indica);
(xii) Mahua, Illupai, Ippe (Madhuca indica M. Latifolia, Bassia, Latifolia and Madhuca
longifolia syn. M. Longifolia) ;
(xiii) Karanja, Pongam, Honga (Pongamia pinnata syn. P. Glabra);
(xiv) Kusum (Schleichera oleosa, syn. S. Trijuga) ;
(xv) Punna, Undi (Calophyllum inophyllum) ;
(xvi) Kokum (Carcinia indica);
(xvii) Sal (Shorea robusta);
(xviii) Tung (Aleurites fordii and A. montana);
(xix) Red palm (Elaeis guinensis);
(xx) Safflower (Carthanus tinctorius);
(via) pulses, that is to say,-

(i) gram or gulab gram (Cicerarietinum L.) ;

(ii) tur or arhar (Cajanus cajan) ;
(iii) moong or green gram (Phaseolus aureus) ;
(iv) masur or lentil (Lens esculenta Moench, Lens culinaris Medic) ;
(v) urad or black gram (Phaseolus mungo) ;
(vi) moth (Phaseolus aconitifolius Jacq) ;
(vii) lakh or khesari (Lathyrus sativus L.) ;

(vii) man made fabrics

(viii) sugar and Khandsari Sugar.

(ix) un-manufactured tobacco and tobacco refuse, cigars and cheroots of tobacco, cigarettes
and cigarillos of tobacco, other manufactured tobacco covered

(x) woven fabrics of wool

There have been many cases where certain items have been held as declared goods. Some of
the goods which have been held as declared goods by the Supreme court and various High
Courts are provided below:

CAST IRON CASTING: cast iron castings have been held as declared goods by the
honurable Supreme court in Vasantham Foundry v. UOI- AIR 1995 SC 2400. In this case it
was decided that cast iron castings in its basic rough form is cast iron and hence is declared
goods.

GI PIPES, PIPES AND PIPE FITTINGS ARE DECLARED GOODS: GI pipes have been
held as declared goods by sureme court in Gujarat Steel Tubes Ltd. v. State of kerala (1989)
74STC 176(SC) and also in Mahesh Enterprises v. State of AP (2000) 119 ATC 578 (AP HC
DB).

Pipes and pipe fittings have been held as Declared Goods (1987) 65 STC 465 (All).

COAL ASH/COAL SLURRY- In Arif Transport v. CTO(1999) 116 STC 207(Karn HC) coal
ash was held to be including Coal as well as In Chandrama coal products v. State of Bihar
(1999) 115 STC 639(Pat HC DB) where the coal slurry and sludge is held to be a form of
coal and held as declared goods.

Item (ia) states: Coal, including coke in all its form but excluding Charcoal. Thus all types of
coke are covered under this category. Petroleum coke has also been held as declared goods in
India Carbon Ltd. v. Supt of Taxes(1971)28 STC 603(SC).

RIM OF WHEEL IS DECLARED GOODS: Rim of Cycle wheel has been held as declared
goods in Dewan Enterprises v. CST AIR 1996 SC 2029.
SCREW DIVERS, SAWS AND PICKAXES ARE DECLARED GOODS as they are tools as
held in CST v. National Lock Stores (1996)101 STC 83 (MP HC DB)

SEWING THREAD IS DECLARED GOODS as it was held that sewing thread and cotton
yarn are same thing in State of Tamilnadu v. R V Krishniah (1994) 92 STC 262 ( MAD HC
DB)

STAINLESS STEEL TUBES AND WIRES ARE DECLARED GOODS held in Hindustan
Wires Ltd. v. State of Tamilnadu(1992) 86 STC 1(MAD HC DB)

CST Calculations
Formulation of Principles for determining when a Sale or Purchase of goods takes place
in the course of inter-State trade or commerce or outside a State or in the course of
Import or Export

Section 3,4 and 5 of the CST Act formulate the principles for determining when a sale or
purchase of goods takes place in the course of inter-state trade or commerce or outside a state
or in the course of import or export from India respectively. After studying this chapter we
will be able to understand:

– When is a sale or purchase of goods said to take place in the course of inter-State trade or
commerce.

A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or
commerce if the sale or purchase-

(a) occasions the movement of goods from one State to another; or

(b) is effected by a transfer of documents of title to the goods during their movement from
one State to another.

Explanation 1
Where goods are delivered to a carrier or other bailee for transmission, the movement of the
goods shall, for the purposes of clause (a) be deemed to commence at the time of such
delivery and terminate at the time when delivery is taken from such carrier or bailee. In the
following cases, though goods are moving from one state to another, it is not a sale or
purchase in the course of inter-state trade or commerce:

(1) When the goods are transported from a place of business in a State of dealer to another
place of business in another State.
(2) When goods are sent on consignment from one State to another State.

(3) When goods are sent from factory(in one State) to a godown or branch or sales office   
situated in another State.

Explanation 2
Where the movement of goods commences and terminates in the same State it shall not be
deemed to be a movement of goods from one State to another by reason merely of the fact
that in the course of such movement the goods pass through the territory of any other State.

When is a sale or purchase of goods said to take place outside a State

(1) Subject to the provisions contained in Section 3, when a sale or purchase of goods is
determined in accordance with sub-section (2) to take place inside a State, such sale or
purchase shall be deemed to have taken place outside all other States.

(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are
within the State-

(a) in the case of specific or ascertained goods, at the time the contract of sale is made, and

(b) in the case of unascertained or future goods, at the time of their  appropriation to the
contract of sale by the seller or by the buyer, whether assent of the other party is prior or
subsequent to such appropriation.

Explanation  
Where there is a single contract of sale or purchase of goods situated at more places than one,
the provisions of this sub-section shall apply as if there were separate contracts in respect of
the goods at each of such places.

 When is a sale or purchase of goods said to take place in the course of import or export

(1) A sale or purchase of goods shall be deemed to take place in the course of the export of
the goods out of the territory of India only if the sale or purchase either occasions such export
or is effected by a transfer of documents of title to the goods after the goods have crossed the
customs frontiers of India.

(2) A sale or purchase of goods shall be deemed to take place in the course of the import of
the goods into the territory of India only if the sale or purchase either occasions such import
or is effected by a transfer of documents of title to the goods before the goods have crossed
the customs frontiers of India.

(3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any
goods preceding the sale or purchase occasioning the export of those goods out of the
territory of India shall also be deemed to be in the course of such export, if such last sale or
purchase took place after, and was for the purpose of complying with, the agreement or order
for or in relation to such export.

(4) The provisions of sub-section (3) shall not apply to any sale or purchase of goods unless
the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a
declaration duly filled and signed by the exporter to whom the goods are sold in a prescribed
form obtained from the prescribed authority.

(5) Notwithstanding anything contained in sub-section (1), if any designated Indian carrier
purchases Aviation Turbine Fuel for the purposes of its international flight, such purchase
shall be deemed to take place in the course of the export of goods out of the territory of India.

Explanation
For the purposes of this sub-section, “designated Indian carrier” means any carrier which the
Central Government may, by notification in the Official Gazette, specify in this behalf.

Inter-State Sales Tax Liability to tax on inter-State sales

(1) Subject to the other provisions contained in this Act, every dealer shall, with effect from
such date as the Central Government may, by notification in the Official Gazette, appoint, not
being earlier than thirty days from the date of such notification, be liable to pay tax under this
Act on all sales of goods other than electrical energy effected by him in the course of inter-
State trade or commerce during any year on and from the date so notified,

Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which,
in accordance with the provisions of sub-section (3) of section5, is a sale in the course of
export of those goods out of the territory of India.

(1A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him
in the course of inter-State trade or commerce notwithstanding that no tax would have been
leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate
State if that sale had taken place inside that State.

(2) Notwithstanding anything contained in sub-section (1) or sub-section (1A), where a sale
of any goods in the course of inter-State trade or commerce has either occasioned the
movement of such goods from one State to another or has been effected by a transfer of
documents of title to such goods during their movement from one State to another, any
subsequent sale during such movement effected by a transfer of documents of title to such
goods,-

(a) to the Government, or

(b) to a registered dealer other than the Government,

 if the goods are of the description referred to in sub-section (3) of section 8,
shall be exempt from tax under this Act.

Provided that no such subsequent sale shall be exempt from tax under this sub-section unless
the dealer effecting the sale furnishes to the prescribed authority in the prescribed manner and
within the prescribed time or within such further time as that authority may, for sufficient
cause, permit, –

(a) a certificate duly filled and signed by the registered dealer from whom the goods were
purchased containing the prescribed particulars in a prescribed form obtained from the
prescribed authority; and

(b) if the subsequent sale is made—

(i) to a registered dealer, a declaration referred to in clause (a) of sub-section (4) of section 8,
or

(ii) to the Government, not being a registered dealer, a certificate referred to in clause (b) of
sub-section (4) of Section 8,

Provided  further that it shall not be necessary to furnish the declaration or the certificate
referred to in clause (b) of the preceding proviso in respect of a subsequent sale of goods if, –

(a) the sale or purchase of such goods is, under the sales tax law of the appropriate State,
exempt from tax generally or is subject to tax generally at a rate which is lower than four per
cent (whether called a tax or fee or by any other name), and

(b) the dealer effecting such subsequent sale proves to the satisfaction of the authority
referred to in the preceding proviso that such sale is of the nature referred to in clause (a) or
clause (b) of this sub-section.

(3) Notwithstanding anything contained in this Act, no tax under this Act shall be payable by
any dealer in respect of sale of any goods made by such dealer, in the course of inter-State
trade or commerce, to any official, personnel, consular or diplomatic agent of –

(i) any foreign diplomatic mission or consulate in India; or

(ii) the United Nations or any other similar international body, entitled to privileges under
any convention or agreement to which India is a party or under any law for the time being in
force, if such official, personnel, consular or diplomatic agent, as the case may be, has
purchased such goods for himself or for the purposes of such mission, consulate, United
Nations or other body.

(4) The provisions of sub-section (3) shall not apply to the sale of goods made in the course
of inter-State trade or commerce unless the dealer selling such goods furnishes to the
prescribed authority a certificate in the prescribed manner on the prescribed form duly filled
and signed by the official, personnel, consular or diplomatic agent, as the case may be.
Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale

(1) Where any dealer claims that he is not liable to pay tax under this Act, in respect of any
goods, on the ground that the movement of such goods from one State to another was
occasioned by reason of transfer of such goods by him to any other place of his business or to
his agent or principal, as the case may be, and not by reason of sale, the burden of proving
that the movement of those goods was so occasioned shall be on that dealer and for this
purpose he may furnish to the assessing authority, within the prescribed time or within such
further time as that authority may, for sufficient cause, permit, a declaration, duly filled and
signed by the principal officer of the other place of business, or his agent or principal, as the
case may be, containing the prescribed particulars in the prescribed form obtained from the
prescribed authority, along with the evidence of despatch of such goods and if the dealer fails
to furnish such declaration, then, the movement of such goods shall be deemed for all
purposes of this Act to have been occasioned as a result of sale..

(2) If the assessing authority is satisfied after making such inquiry as he may deem necessary
that the particulars contained in the declaration furnished by a dealer under sub-section (1)
are true, he may, at the time of, or at any time before, the assessment of the tax payable by the
dealer under this Act, make an order to that effect and thereupon the movement of goods to
which the declaration relates shall be deemed for the purposes of this Act to have been
occasioned otherwise than as a result of sale.

Explanation

 In this section, “assessing authority”, in relation to a dealer, means the authority for the time
being competent to assess the tax payable by the dealer under this Act.

Period Rate of Interest

01.07.1994 to 15.07.2001 1.50% per month or part there of

16.07.2001 to 15.08.2002 24% per annum

16.08.2002 to 09.09.2004 15% per annum

10.09.2004 to 31.03.2011 13% per annum Notification No. 26/2004-ST dated 10.09.2004

18% per annum : Notification No. 14/2011- ST, dated 01/03/2011

01.04.2011 to 30.09.2014
15% per annum (For assessees having turnover upto Rs 60 lakhs)
 Notification No. 12/2014 dated 11.07.2014

1. 18% p.a.- Delay for first 6 months

01.10.2014 to 13.05.2016 *
2. 24% p.a. – Delay from 7th month to 12 month

3. 30% p.a. –  Delay for the period beyond 1 year

NOTIFICATION NO.13/2016-ST, DATED 01.03.2016

14.05.2016 onwards * 24% per annum : Service Tax collected but not paid before due date

15% per annum : Service tax not collected and not paid

Rates of Service Tax and its calculation

We know that after implementation of GST w.e.f 01.07.2017, service tax no longer exist.
However audit and assessment of service tax cases continues even after 01.07.2017 and in
case of any demand applicable interest has to be paid.

Interest calculator for delay in payment of service tax is attached which can calculate interest
in one shot for different period.

Interest is levied on the assessee when he delays the payment of service tax which is due and
payable. The rate of interest u/s 75 of Finance Act 1994 has undergone a lot of changes since
01.07.1994.The summary of rate of interest is as below:

* In the case of a service provider, whose value of taxable services provided in a financial
year does not exceed sixty lakh rupees during any of the financial years covered by the
notice or during the last preceding financial year, as the case may be, such rate of interest,
shall be reduced by three per cent. per annum.] [ Refer Section 75 of Finance Act, 1994]

The summary of rate of service tax applicable for different period is also given below:

Period Rate

01.07.1994 to 13.05.2003 5.00%

14.05.2003 to 09.09.2004 8.00%

10.09.2004 to 17.04.2006 10.20% (ST+EC)

18.04.2006 to 10.05.2007 10.24% (ST+EC)

11.05.2007 to 23.02.2009 12.36% (ST+EC+SHEC)

24.02.2009 to 31.03.2012 10.30% (ST+EC+SHEC)

01.04.2012 to 31.05.2015 12.36% (ST+EC+SHEC)

01.06.2015 to 14.11.2015 14% (ST)

15.11.2015 to 31.05.2016 14.50% (ST+SBC)

01.06.2016 onwards 15.00% (ST+SBC+KKC)

Period Rate of Interest No of days Amou

01.04.2011 to 30.09.2014 18% per annum 877 43,24

01.10.2014 to 13.05.2016 *

– 1st 6 months 0 –

1st 6 months = 18% P.A,

– 7th month to 12 month 7th month to 12 month = 24% P.A, 0 –
Beyond 1 year = 30% P.A

– period beyond 1 year 591 48,57

14.05.2016 onwards * 24% per annum 697 45,83

 2165 137,6

Example 1) Mr X (turnover above Rs 60 lacs) has paid the service tax of Rs 1,00,000 due for
the month April 2012 (due on 06.05.2012) on 10.04.2018. In such a case he need to pay
interest of Rs 1,37,655 for delay of 2165 days. (Service tax collected but not paid)

Unit -3
Goods and service tax

Constitutional Amendment, Features of GST

The Constitution (115th Amendment) Bill, 2011 proposed to give powers to both, the center
and the states to make laws with respect to GST. The Bill was a necessity because, presently,
the Union cannot impose excise duty beyond the manufacturing stage and states cannot levy a
tax on services. It sought to decide on tax rates, exemptions and threshold limits. It will also
make recommendations on taxes, cesses and surcharges by the center, states and local bodies,
which may be subsumed in GST.

Constitution (122nd Amendment) Bill, 2014

The Union Government in third week of December, 2014 (19 December, 2014) introduced
Constitution (122nd Amendment) Bill, 2014 in Parliament which when passed shall pave the
way for introduction of proposed Goods and Service Tax (GST) in India. This is an
improvised version of lapsed 115th Amendment Bill of 2011.

Contrary to the general perception amongst many quarters that this Bill itself is a GST Bill,
let it be very clearly understood that this is not a GST Bill. In fact, GST Bill is not in sight at
all at this point in time. What has been introduced is only the Constitutional Amendment Bill
enabling or empowering the union Government to levy a tax to be called GST which it cannot
levy under the present Constitution. The Bill on passage would enable the Central
Government and the State Governments to levy GST. This tax (GST) shall be levied
concurrently by various states as well as Union Government. Once this is passed by two-third
majority in the Parliament, at least 50 per cent of the states will have to pass it. Once this
amendment is through, the road will be clear for GST Bill (and then Act), given the political
will. Eventually, we will then have the following taxes –

 National level GST [Central GST (CGST) and Inter-state GST (IGST)]
 State Level GST (SGST)

Salient Features of Constitution (One Hundred And Twenty-Second

Amendment) Bill, 2014
The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 was introduced
in the Lok Sabha on December 19, 2014. The following is the gist of
amendments proposed by this Bill:

1. The Bill seeks to amend the Constitution to introduce the goods and services
tax (GST).  Consequently, the GST subsumes various central indirect taxes
including the Central Excise Duty, Additional Excise Duties, Service Tax,
Additional Customs Duty (CVD) and Special Additional Duty of Customs
(SAD), etc.  It also subsumes state Value Added Tax (VAT)/Sales Tax,
Central Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase Tax
and Luxury Tax, etc.
2. Concurrent powers for GST: The Bill inserts a new Article 246A in the
Constitution to give the central and state governments the concurrent power
to make laws on the taxation of goods and services
3. Integrated GST (IGST): However, only the centre may levy and collect
GST on supplies in the course of inter-state trade or commerce.  The tax
collected would be divided between the centre and the states in a manner to
be provided by Parliament, by law, on the recommendations of the GST
Council.
4. GST Council: The President must constitute a Goods and Services Tax
Council within sixty days of this Act coming into force.  The GST Council
aim to develop a harmonized national market of goods and services.
5. GST council examines issues relating to goods, services tax and make
recommendations to the Union, and the States on parameters like rates,
exemption list and threshold limits. The Council shall function under the
Chairmanship of the Union Finance Minister and will have the Union
Minister of State in charge of Revenue or Finance as member, along with
the Minister in-charge of Finance or Taxation or any other Minister
nominated by each State Government.
6. Composition of the GST Council: The GST Council is to comprise of the
following three members / class of members:
7. the Union Finance Minister (as Chairman),
8. the Union Minister of State in charge of Revenue or Finance, and
9. the Minister in charge of Finance or Taxation or any other, nominated by
each state government.
10.Functions of the GST Council: These include making recommendations
on:
 Taxes, cess and surcharges levied by the centre, states and local bodies
which may be subsumed in the GST;
 Goods and services which may be subjected to or exempted from GST;
 model GST laws, principles of levy, apportionment of IGST and
principles that govern the place of supply;
 the threshold limit of turnover below which goods and services may be
exempted from GST;
 rates including floor rates with bands of GST;
 special rates to raise additional resources during any natural calamity;
 special provision with respect to Arunachal Pradesh, Jammu and
Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,
Himachal Pradesh and Uttarakhand; and
 Any other matters relating to the goods and services tax, as the Council
may decide.
11.The Goods and Service Tax Council shall recommend the date from which
the goods and service tax be levied on petroleum crude, high speed diesel,
motor spirit (commonly known as petrol), natural gas and aviation turbine
fuel.
12.Resolution of disputes: The GST Council may decide upon the modalities
for the resolution of disputes arising out of its recommendations.

 Restrictions on imposition of tax: The Constitution imposes certain

restrictions on states on the imposition of tax on the sale or purchase of
goods.  The Bill amends this provision to restrict the imposition of tax on
the supply of goods and services and not on its sale.
 Additional Tax on supply of goods: An additional tax (not to exceed 1%)
on the supply of goods in the course of inter-state trade or commerce would
be levied and collected by the centre.  Such additional tax shall be assigned
to the states for two years, or as recommended by the GST Council.
 The net proceeds of additional tax on supply of goods in any financial year,
except the proceeds attributable to the Union territories, shall not form part
of the Consolidated Fund of India and be deemed to have been assigned to
the States from where the supply originates.
 Compensation to states: Parliament may by law provide for compensation
to states for revenue losses arising out of the implementation of the GST, on
the GST Council’s recommendations.  This would be up to a five-year
period.
 The Government of India may where it considers necessary in the public
interest, exempt such goods from the levy of tax.
 Both Centre and States will simultaneously levy GST across the value chain.
Centre would levy and collect Central Goods and Services Tax (CGST), and
 States would levy and collect the State Goods and Services Tax (SGST) on
all transactions within a State.
 The Centre would levy and collect the Integrated Goods and Services Tax
(IGST) on all inter-State supply of goods and services. There will be
seamless flow of input tax credit from one State to another. Proceeds of
IGST will be apportioned among the States.
 GST will be a destination-based tax. All SGST on the final product will
ordinarily accrue to the consuming State.

Importance and Benefits of GST

Introduction of GST is considered to be a significant step in the reform of indirect taxation in
India. Amalgamating several Central and State taxes into a single tax would help mitigate the
double taxation, leading to a common national market. From the consumer’s point of view,
the advantage is in terms of a reduction in the overall tax burden on goods, which was
estimated at 25%-30%. (Source: Wikipedia)

The other importance include:

 Reduction in prices: Manufacturers or traders would not have to include

taxes as a part of their cost of production, which would lead to reduction in
prices.
 Lower compliance and procedural cost: There would be reduction in the
load to maintain compliance. Also keeping record of CGST, SGST and
IGST separately would not be required.
 Move towards a Unified GST: Although India is adopting dual GST, it is
still a good move towards a Unified GST which is regarded as the best
method of Indirect Taxes.
 GST rollout can help boost India’s GDP growth by 100-200 bps or (1 to
2%) as this will help faster and cheaper movement of goods across the
country with a uniform taxation structure.
 GST’s successful implementation would give a strong signal to the foreign
investors about India’s ability to support business.
  GST will be beneficial with more transparency, efficient compliance, ramp
up in GDP growth to the Centre, states, industrialists, manufacturers, the
common man and the country at large.

Advantages of GST

 GST eliminates the cascading effect of tax

 Higher threshold for registration
 Composition scheme for small businesses
 Simple and easy online procedure
 The number of compliances is lesser
 Defined treatment for E-commerce operators
 Improved efficiency of logistics
 Unorganized sector is regulated under GST

Disadvantages of GST

 Increased costs due to software purchase

 Being GST-compliant
 GST will mean an increase in operational costs
 GST came into effect in the middle of the financial year
 GST is an online taxation system
 SMEs will have a higher tax burden

Some of the Hits of GST:

1. GST Council plays principled diplomacy & and thestatesmanship shown

by the members is surely a hit!
2. Technological Support to the Structure of GST law: The new GST
system runs under a canopy of strong technological support and we can
expect more GST services to be digitalised in the months to come.
3. GST -A boon to Micro, Small & Medium Enterprises: MSMEs are
now less dependant on tax experts when compared to the earlier regime, due
to a simplified return filing system in place. Rationalisation of the
composition scheme and introduction of quarterly filing option for taxpayers
having turnover below Rs 1.5 crores was a wise decision.

Few Misses of GST: Need of recovery:

1. Delayed IGST refund has hit Exporters and caused a slowdown:

Although efforts are being made by the department towards timely
sanctioning of refund, yet over a few months, we can expect a slowdown in
the Export sector in India.
2. Sentiments around claiming of Input Tax Credit: admission of ITC is
currently being allowed on a provisional basis to the recipient of the credit.
Authorities are in process of reconciliation between Different GST returns
and hence, many taxpayers are receiving mismatch notices for ITC claimed
as per GSTR-3B and allowed as per GSTR-2A supplier data. Development
of recon. tools on the GST portal will help a buyer be cautioned before
claiming any wrong ITC, thus avoiding the interest or penalties that follow.

Diffrence gst and other tax

Migration to GST
Provisional Registration

 On enrollment, the taxpayer will get a provisional certificate of registration

in FORM GST REG-25, which will have the GSTIN
 If the taxpayer has had multiple registrations under the previous law on the
basis of a single PAN, he will now be granted only one provisional
registration under GST
 A person with centralized registration under service tax will be granted only
one GST provisional registration in the State which he is registered under
the service tax

Final Registration

 If the person is liable to register under GST (or wishes to voluntarily register
under GST), then he will submit an application electronically in FORM
GST REG–26. Any information must be furnished within a period of three
months

 If the information is correct and complete, the final GST registration will be
given in FORM GST REG-06
  If the information is not correct, then the officer will issue a show cause
notice in FORM GST REG-27. A reasonable opportunity of being heard
will be given, after which the provisional registration will be cancelled
in FORM GST REG-28

 If the applicant’s reply is satisfactory, the show cause notice issued can be
nullified by issuing an order in FORM GST REG- 20

Cancel Provisional Registration

 If a person who is registered under any of the existing laws, is not liable to
be registered under GST then can cancel his provisional registration within
30 days from the appointed day

 He has to submit an application electronically in FORM GST REG-29 at

the Common Portal for cancellation of the registration granted to him

 The officer will then cancel the registration after conducting an enquiry

Note: EVC is Electronic Verification Code, a new mode of electronic verification based on

Aadhar card. All forms uploaded on GST Portal must either be signed or verified through
EVC.

What Will happen if an Existing Person is Required to Migrate to GST but Does Not Do So?

Then he will not be eligible to claim the input tax credit of excise & VAT paid on stock. If he
does not register under GST (even though he is liable to), then he has committed an offence,
and will be liable to a penalty.

Migration to GST – Summary

Registration of Dealers under GST, Exempted
List
The GST Network that controls and monitors GST returns filings has further simplified the
registration process for filings under the new indirect tax regime. Earlier, traders had
complained that they were still facing some issues related to GST and returns sunder it.

So, the authorities took it upon themselves and started educating the trader community.
Knowing GST rules and methods of filing returns under it are very important. This write-up
explains in detail GST registration for new dealers.

Step by step guide

Here is a step-by-step guide that will further simplify for new dealers to understand the
method for registration under the regime.

1– New dealers are required to fill and submit online a single application form to get
themselves registered for GST transactions.

2– A PAN-based registration will serve the purpose of the Centre and the states.
3– A unified application to both tax authorities, in this case, the central and the state
authorities.

4– Each dealer will get or to be given a unique identification that is known as GSTIN.

5– Users will get a deemed approval within three days.

6– Post registration verification in risk based cases only.

GST Exempted List

Exempt supplies comprise the following three types of supplies:

1. Supplies taxable at a ‘NIL’ rate of tax* (0% tax);

2. Supplies that are wholly or partially exempted from CGST or IGST, by way
of a notification amending Section 11 of CGST Act or Section 6 of IGST
Act;
3. Non-taxable supplies as defined under Section 2(78) – supplies that are not
taxable under the Act (For Example Alcoholic liquor for human
consumption.

Central or the State Governments are empowered to grant exemptions from GST. Conditions are:

1. Exemption should be in public interest

2. By way of issue of notification
3. Must be recommended by the GST Council
4. Absolute exemption or conditional exemption may be for any goods and / or
services of any specified description.
5. Exemption by way of special order (not notification) may be granted
exceptional circumstances.
6. Registered person supplying the goods and / or services is not entitled to
collect tax higher than the effective rate, where the supply enjoys an
absolute exemption.

Types of Exemptions:
Absolute exemption: Exemption without any conditions.

Ex: Transmission or distribution of electricity by an electricity transmission or distribution

utility, Services by Reserve Bank of India.

Conditional Exemption: Exemption subject to certain conditions.

Ex: Services by a hotel, inn, guest house, club or campsite, by whatever name called, for
residential or lodging purposes, having declared tariff of a unit of accommodation less than `
1000/- per day”.

Conditional or partial exemption:

Intra-State supplies of goods and/or services received from an unregistered person by a

registered person is exempted from payment of tax under reverse charge provided the
aggregate value of such supplies received by a registered person from all or any of the
suppliers does not exceed ` 5000/- in a day.

Rate structure under GST

GST has been structured in a way that essential services and food items are placed in the
lower tax brackets, while luxury services and products have been placed in the higher tax
bracket.

The GST council has fitted over 1300 goods and 500 services under four tax slabs of 5%,
12%, 18% and 28% under GST. This is aside the tax on gold that is kept at 3% and rough
precious and semi-precious stones that are placed at a special rate of 0.25% under GST.

A total of 81% of all the goods and services fall below or in the 18% tax slab. This means 7
% of the items come under the exempted list, 14% of the items attract a 5% tax, 17% of the
items attract a 12% tax, and 43% of the items attract an 18 % tax slab, while only 19% of the
items fall under the highest slab of 28% in the new regime. Below is a list of some of the
products that will be a part of the respective slabs:
Exempted GST Rate Slab (No Tax)

7% goods and services fall under this category. Some of these that are of regular consumption
include fresh fruits and vegetables, milk, butter milk, curd, natural honey, flour, besan, bread,
all kinds of salt, jaggery, hulled cereal grains, fresh meat, fish, chicken, eggs, along with
bindi, sindoor, kajal, bangles, drawing and coloring books, stamps, judicial papers, printed
books, newspapers, jute and handloom, hotels and lodges with tariff below INR 1000 and so
on.

5% GST Rate Slab

14% goods and services fall under this category. Some of these include apparel below INR
1000 and footwear below INR 500, packaged food items, cream, skimmed milk powder,
branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, cashew
nut, cashew nut in shell, raisin, ice, fish fillet, kerosene, coal, medicine, agarbatti (incense
sticks), postage or revenue stamps, fertilizers, rail and economy class air tickets, small
restaurants, and so on.

12% GST Rate Slab

Edibles like frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal
fat, sausages, fruit juices, namkeen, ketchup & sauces, ayurvedic medicines, all diagnostic
kits and reagents, cellphones, spoons, forks, tooth powder, umbrella, sewing machine,
spectacles, indoor games like playing cards, chess board, carom board, ludo, apparels above
INR 1000, non-AC restaurants, business class air ticket, state-run lottery, work contracts and
so on attract a 12% GST. 17% of goods and services fall under this category.

18% GST Rate Slab

43% of goods and services fall under this category. Pasta, biscuits, cornflakes, pastries and
cakes, preserved vegetables, jams, soups, ice cream, mayonnaise, mixed condiments and
seasonings, mineral water, footwear costing more than INR 500, camera, speakers, monitors,
printers, electrical transformer, optical fiber, tissues, sanitary napkins, notebooks, steel
products, headgear and its parts, aluminum foil, bamboo furniture, AC restaurants that serve
liquor, restaurants in five-star and luxury hotels, telecom services, IT services, branded
garments and financial services and so on attract an 18% GST.

28% GST Rate Slab

19% of goods and services fall under this category. The rest of edibles like chewing gum,
bidi, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, pan
masala, aerated water, personal care items like deodorants, shaving creams, after shave, hair
shampoo, dye, sunscreen, paint, water heater, dishwasher, weighing machine, washing
machine, vacuum cleaner, automobiles, motorcycles, 5-star hotel stays, race club betting,
private lottery and movie tickets above INR 100 etc. have been clubbed together under the
28% GST slab.
Some other items that will get costlier also include:

 Courier services, mobile phone tariffs, Mobile bills, tuition fees, salon visits,
insurance premiums, banking charges, broadband services will get costlier
by 3%. These were earlier charged a 15% service tax, and will now fall
under 18% tax slab.
 Taxes on aerated drinks, tobacco and luxury goods will now come under the
28 percent tax bracket under GST, so it will get costlier.
 Real Estate will also get expensive as it will now attract a GST of 12% as
opposed to 6%.

Procedure for obtaining Registration

Certificate
The following documents are required for obtaining service tax registration in India:

 Self-attested copy of the PAN Card of the Proprietor or Company or LLP or

Legal entity;
 Photograph and proof of identity of the person filing the service tax
registration application
 PAN card;
 Passport;
 Voter Identity Card;
 Aadhar Card;
  Driving license;
 Any other Photo-identity card issued by the Central Government, State
Government or Public Sector Undertaking.
 Address proof for the address submitted along with proof of ownership,
lease or rent agreement, allotment letter from Government.
 No Objection Certificate from the legal owner.
 Bank Account Details
 Memorandum of Association (For Company)
 Articles of Association (For Company)
 List of Directors (For Company)
 Authorisation by the Board of Directors/Partners/Proprietor for the person
filing the application.
 Business transaction numbers obtained from other Government departments
or agencies such as Customs Registration No. (BIN No), Import Export
Code (IEC) number, State Sales Tax Number (VAT), Central Sales Tax
Number, Company Index Number (CIN) which have been issued prior to
the filing of the service tax registration application.

Procedure for Applying for Service Tax Registration

To obtain service tax registration, the applicant can file the ST-1 application for service tax
through the Automation of Central Excise and Service Tax (ACES) website. The documents
listed above along with the requisite information must be submitted online.

On filing the ST-1 service tax registration application online, the applicant must submit a self
attested copy of the above documents by registered post/speed Post to the concerned
Division, within 7 days for the purposes of verification.

If the documents and information submitted are acceptable, service tax registration would be
granted within 2 days of filing ST-1 online – based on trust.  The service tax applicant can
use the electronic service tax registration certificate as proof of registration and begin
electronic payment of taxes.

In case there is a need for verification of the premises or documents submitted, the same can
be requested by an authorised Service Tax Officer. Further, under the following
circumstances, the service tax registration certificate may be revoked by the service tax
department:

1. The premises are found to be nonexistent or not in possession of the

assessee.
2. No documents are received within 15 days of the date of filing the
registration application.
3. The documents are found to be incomplete or incorrect in any respect.
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Concept of IGST, CGST, SGST and its
calculation
To determine whether Central Goods & Services Tax (CGST), State Goods & Services Tax
(SGST) or Integrated Goods & Services Tax (IGST) will be applicable in a taxable
transaction, it is important to first know if the transaction is an Intra State or an Inter-State
supply.

 Intra-State supply of goods or services is when the location of the supplier

and the place of supply i.e., location of the buyer are in the same state. In
Intra-State transactions, a seller has to collect both CGST and SGST from
the buyer. The CGST gets deposited with Central Government and SGST
gets deposited with State Government.

 Inter-State supply of goods or services is when the location of the supplier

and the place of supply are in different states. Also, in cases of export or
import of goods or services or when the supply of goods or services is made
to or by a SEZ unit, the transaction is assumed to be Inter-State. In an Inter-
State transaction, a seller has to collect IGST from the buyer.

Central Goods and Services Tax (CGST)

Under GST, CGST is a tax levied on Intra State supplies of both goods and services by the
Central Government and will be governed by the CGST Act. SGST will also be levied on the
same Intra State supply but will be governed by the State Government.

This implies that both the Central and the State governments will agree on combining their
levies with an appropriate proportion for revenue sharing between them. However, it is
clearly mentioned in Section 8 of the GST Act that the taxes be levied on all Intra-State
supplies of goods and/or services but the rate of tax shall not be exceeding 14%, each.

State Goods and Services Tax (SGST)

Under GST, SGST is a tax levied on Intra State supplies of both goods and services by the
State Government and will be governed by the SGST Act. As explained above, CGST will
also be levied on the same Intra State supply but will be governed by the Central
Government.

Note: Any tax liability obtained under SGST can be set off against SGST or IGST input tax
credit only.

An example for CGST and SGST:

Let’s suppose Rajesh is a dealer in Maharashtra who sold goods to Anand in Maharashtra
worth Rs. 10,000. The GST rate is 18% comprising of CGST rate of 9% and SGST rate of
9%. In such case, the dealer collects Rs. 1800 of which Rs. 900 will go to the Central
Government and Rs. 900 will go to the Maharashtra Government.

Integrated Goods and Services Tax (IGST)

Under GST, IGST is a tax levied on all Inter-State supplies of goods and/or services and will
be governed by the IGST Act. IGST will be applicable on any supply of goods and/or
services in both cases of import into India and export from India.

Note: Under IGST,

 Exports would be zero-rated.

 Tax will be shared between the Central and State Government.

An example for IGST:

Consider that a businessman Rajesh from Maharashtra had sold goods to Anand from Gujarat
worth Rs. 1,00,000. The GST rate is 18% comprised of 18% IGST. In such case, the dealer
has to charge Rs. 18,000 as IGST. This IGST will go to the Centre.

GST council, its Members, Composition, its

role
Goods & Services Tax Council is a constitutional body for making recommendations to the
Union and State Government on issues related to Goods and Service Tax. The GST Council
is chaired by the Union Finance Minister and other members are the Union State Minister of
Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.

The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2016, for introduction
of Goods and Services tax in the country was introduced in the Parliament and passed by
Rajya Sabha on 3rd August, 2016 and by Lok Sabha on 8th August, 2016. Consequent upon
this, the Hon’ble President of India accorded assent on 8th September, 2016, and the same
was notified as the Constitution (One Hundred and First Amendment) Act, 2016. As per
Article 279A (1) of the amended Constitution, the GST Council has to be constituted by the
President within 60 days of the commencement of Article 279A. The notification for bringing
into force Article 279A with effect from 12th September, 2016 was issued on 10thSeptember,
2016.

As per Article 279A of the amended Constitution, the GST Council which will be a joint
forum of the Centre and the States, shall consist of the following members: –

1. The Union Finance Minister….. Chairperson;

2. The Union Minister of State in charge of Revenue or Finance….. Member;
3. The Minister in charge of Finance or Taxation or any other
Minister nominated by each State Government….. Members.

As per Article 279A (4), the Council will make recommendations to the Union and the States
on important issues related to GST, like the goods and services that may be subjected or
exempted from GST, model GST Laws, principles that govern Place of Supply, threshold
limits, GST rates including the floor rates with bands, special rates for raising additional
resources during natural calamities/disasters, special provisions for certain States, etc.

The Union Cabinet in its meeting held on 12th September, 2016 approved setting-up of GST
Council and setting up its Secretariat. The Cabinet inter alia took decisions for the following:

1. Creation of the GST Council as per Article 279A of the amended

Constitution;
2. Creation of the GST Council Secretariat, with its office at New Delhi;
3. Appointment of the Secretary (Revenue) as the Ex-Officio Secretary to the
GST Council;
4. Inclusion of the Chairperson, Central Board of Excise and Customs
(CBEC), as a permanent invitee (non-voting) to all proceedings of the GST
Council;
5. Create one post of Additional Secretary to the GST Council in the GST
Council Secretariat (at the level of Additional Secretary to the Government
of India), and four posts of Commissioner in the GST Council Secretariat (at
the level of Joint Secretary to the Government of India).

The Cabinet also decided to provide for adequate funds for meeting the recurring and non-
recurring expenses of the GST Council Secretariat, the entire cost for which shall be borne by
the Central Government. The GST Council Secretariat shall be manned by officers taken on
deputation from both the Central and State Governments.

The provisions of Article 279A of the Constitution of India with respect to constitution of
GST Council and its mandate are as below:
GST COUNCIL
Mandate of GST Council

1. (279A.) The President shall, within sixty days from the date of
commencement of the Constitution (One Hundred and First Amendment)
Act, 2016, by order, constitute a Council to be called the Goods and
Services Tax Council.
2. The Goods and Services Tax Council shall consist of the following
members, namely: —
1. the Union Finance Minister….. Chairperson;
2. the Union Minister of State in charge of Revenue or Finance…..
Member;
3. the Minister in charge of Finance or Taxation or any other
Minister nominated by each State Government….. Members.
3. The Members of the Goods and Services Tax Council referred to in sub-
clause (c) of clause (2) shall, as soon as may be, choose one amongst
themselves to be the Vice-Chairperson of the Council for such period as
they may decide.
4. The Goods and Services Tax Council shall make recommendations to the
Union and the States on:

 The taxes, cesses and surcharges levied by the Union, the States and the
local bodies which may be subsumed in the goods and services tax;
 The goods and services that may be subjected to, or exempted from the
goods and services tax;
 Model Goods and Services Tax Laws, principles of levy, apportionment
of Goods and Services Tax levied on supplies in the course of inter-State
trade or commerce under article 269A and the principles that govern the
place of supply;
 The threshold limit of turnover below which goods and services may be
exempted from goods and services tax;
 The rates including floor rates with bands of goods and services tax;
 Any special rate or rates for a specified period, to raise additional
resources during any natural calamity or disaster;
 Special provision with respect to the States of Arunachal Pradesh,
Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland,
Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
 Any other matter relating to the goods and services tax, as the Council
may decide.
5. The Goods and Services Tax Council shall recommend the date on which
the goods and services tax be levied on petroleum crude, high speed diesel,
motor spirit (commonly known as petrol), natural gas and aviation turbine
fuel.
6. While discharging the functions conferred by this article, the Goods and
Services Tax Council shall be guided by the need for a harmonized structure
of goods and services tax and for the development of a harmonized national
market for goods and services.
7. One-half of the total number of Members of the Goods and Services Tax
Council shall constitute the quorum at its meetings.
8. The Goods and Services Tax Council shall determine the procedure in the
performance of its functions.
9. Every decision of the Goods and Services Tax Council shall be taken at a
meeting, by a majority of not less than three-fourths of the weighted votes of
the members present and voting, in accordance with the following
principles, namely:

1. The vote of the Central Government shall have a weightage of one third
of the total votes cast, and
2. The votes of all the State Governments taken together shall have a
weightage of two-thirds of the total votes cast, in that meeting.

 No act or proceedings of the Goods and Services Tax Council shall be

invalid merely by reason of:
1. Any vacancy in, or any defect in, the constitution of the Council; or
2. Any defect in the appointment of a person as a Member of the Council;
or
3. Any procedural irregularity of the Council not affecting the merits of the
case.
 The Goods and Services Tax Council shall establish a mechanism to
adjudicate any dispute:
1. Between the Government of India and one or more States; or
2. Between the Government of India and any State or States on one side
and one or more other States on the other side; or
3. Between two or more States, arising out of the recommendations of the
Council or implementation thereof.
GST infrastructure, impact of GST on Business

Passage of the Goods and Services Tax (GST) has been one of the most important tax
reforms of modern India. Ever since its introduction on July 1, 2017, the issue of compliance
has been in the limelight, as GST’s success depends on timely compliance. 

GST calls for digital transformation. Hence, technology, specifically tax automation, has
been a key factor to meet compliance requirements. The main advantage of a technology-
driven system is that it is easier to detect the anomaly earlier.

GST requires a host of compliances — from passing accounting entries, to GST computation,
to return filing. Apart from invoice matching, businesses need to ensure that not only do they
file their own returns and pay their own taxes on time, but that any other firms with which
they do business do so as well. If other firms fail to file or make payments on time, payments
such as input tax credits will not be available to the businesses, and both firms could incur
substantial financial losses.

Numerous extensions were filed in 2018 due to painstaking procedures and issues with online
utilities. Many of the requirements for filing returns were not clear, which also led to
confusion for businesses. 

The new return filing system

The GST Council has approved sweeping changes to the tax return filing system, with a
simplified returns format expected to be rolled out in April 2019. This may be delayed,
however, due to general elections as well as extensive testing procedures to ensure the system
performs as expected. 

The draft plan of the new return filing system calls for first releasing a prototype of the
software, which will be connected to a small server, followed by the release of a beta version.
This beta version will be available to certain industry bodies and tax practitioners who can
test the software in real world applications and look for any bugs. Many people felt that a
major downfall of the previous return filing system was that it had only been tested in-house,
never in an actual working environment. The GST Network (GSTN), the return filing system
and IT backbone of the gigantic tax reform, was required to process as many as 3.5 billion
invoices each month. Although the GST Council knew there would be a large number of
transactions, the server was still not prepared to take such an overwhelming number of
returns. As a result, the load and the system collapsed several times.

With new leadership in the GSTN authority, businesses throughout India are anticipating an
improved IT infrastructure in 2019 that will allow for more efficient GST compliance.

Under the new system, it is likely that taxpayers with an annual turnover of more than INR 5
crore will need to file only one monthly return. Those with an annual turnover of less than
INR 5 crore can opt for quarterly filing in either regular quarterly returns or the GSTR Sugam
or GSTR Sahaj return.

Furthermore, the new system will require HSN details, which were not mandated until now.
With this information, the government will be in a better position to analyze data and
pinpoint industries where they have a very huge supply input but are not proportionately
showing production output.

Invoice matching
GST had been perceived as a remedy for tax evasion. However, since invoice matching was
put on hold, this purpose has not been realized so far. To date, return filing in GST has been
confined to summary returns (GSTR 3B) and details of outward supply (GSTR 1).

The new return filing system as envisaged is simple, with two main tables: one for reporting
outward supplies, and one for availing input tax credit based on invoices uploaded by the
supplier. Invoices can be uploaded by the seller at any time during the month. These invoices
can be viewed and locked by the buyer in order to avail the input tax credit. Once the invoice
is locked by the buyer, it will become the confirmed liability of the seller. This mechanism
will ensure that a large part of the return is automatically filled in with information from the
invoices previously uploaded by the buyer and seller, thereby making the entire process less
cumbersome. Once invoice matching is established in the coming year with the new GST
system, tax evasion can perhaps be taken care of.

Accounting 
Businesses will need to adopt robust technology solutions to meet their end-to-end GST
requirements. The process-oriented system of GST requires businesses place an emphasis on
updating their accounting systems, as proper recording of transactions and uploading invoices
on time and accurately will be key to compliance under GST. Because specialized software
will be required, adopting new accounting technology or upgrading accounting systems might
become a costly issue, depending on the size of the business. Businesses will need to invest in
software that facilitates direct integration of data, as seamless integration with GSTN for
information upload and download will be imperative. Currently, the emphasis is more on
application service providers, ERPs, or accounting software that can take this challenge head
on and make the process smoother. GST has opened avenues for companies that provide
accounting solutions, and we are likely to see more such companies competing in 2019.

Change in refund filing

The government has announced that it has cleared GST refunds amounting to INR 0.91
trillion, which is almost 94% of the total refunds claimed. With the new GST refund filing
system being introduced on a pilot basis in April 1, 2019, officials insist that new IT
infrastructure will be superior and the refund processing will be even faster.

Compliance rating system

In 2019 we can expect the compliance rating system to finally kick in. A good GST rating is
something every business will endeavour to achieve, as it will enable businesses to take
advantage of various benefits including faster refunds and less scrutiny. We can anticipate
that the technological setup for ratings will finally be in place in 2019.

Objectives to be achieved in 2019

The main objective for the introduction of GST was to reduce tax evasion and simplify tax
compliance, with Information Technology being the mainstay of GST. GST, so far, has been
a failure on both the counts. Just like the quote, “a little knowledge is a dangerous thing,”
similarly, semi complete technological compliance creates conflict of interest and increases
mistrust. With the extensive changes taking place in IT, we can hope that 2019 will provide
us with better GST system.

Going forward, it will be essential for businesses to explore the use of technology to ensure
timely and effective compliances. Presently, many companies are providing cloud-based GST
compliance software. Businesses should recognize their needs and accordingly select a
software that is best suitable for them.

GST is a single tax on the supply of goods and services, which will make India a unified
common market. GST will replace all current indirect taxes with a multi-point consumption
tax.

The introduction of a GST is certainly going to have a huge impact on the nation as a whole,
which will include small and medium businesses (SMBs) and startups, as well as big
enterprises. All these will, in turn, create an additional market for IT and ERP providers.

Impact on small & medium enterprises

A larger portion of small and medium enterprises will be covered by GST, as the exemption
limit proposed has been fixed at Rs 20 lakhs for all India, except for northeastern states,
where the threshold limit has been fixed even lower, at Rs 10 lakhs.

There is relief, however, for the SME sector in that jurisdiction. Businesses with a turnover of
Rs. 1.5 crore and below would solely be assessed by the states, while for those above, it
would be jointly assessed with the central and state governments.

How SMEs will be effected by GST

 Wider base of SMEs: In the excise arena, the minimum exemption limit was
Rs.1.5 crores for the manufacturers, which has been substantially reduced to
Rs. 20 lakhs to cover a major portion of SMEs in the GST bracket.
 Increase in customer base: Currently, SMEs restrict their trade to local
purchases and sales, as they have to bear the tax burden on interstate sales
for which they cannot avail the input set-off, thereby increasing their cost of
production. This will no longer be the case under the new GST. Also, in the
new GST regime, tax credits will be transferred irrespective of buyers’ and
 sellers’ location, which will allow the SMEs to expand beyond their local
tax district.
 Dual tax rate: GST will operate as a dual tax rate (CGST & SGST) for local
supplies, which will increase the intricacies of maintaining books of
accounts and lead to additional audits from tax authorities.

India for startups in GST regime:

Before GST, new businesses had to contend with tax bureaucracy earlier, which restricted the
ease of doing business. The GST regime is likely to be friendlier for startups, due to the
following measures:

 Single-point registration: Currently, new enterprises must register with

VAT Authorities, Service Tax Authorities, and other local bodies, which
increase the burden of tax compliance for startups. As a single-point
registration tax, GST will eliminate multiple points of registration. The GST
registration procedure will be standardized, making it easier to start a
business in India.
 Integration of multiple taxes: GST will simplify the current taxation
scheme, as only one tax (GST) will prevail for all indirect taxes. This will
directly lead to lower and standard tax compliances resulting in simplifying
the Tax procedures.
 No separate distinction in sales & service: GST is calculated on total
value: there is no distinction between sales and services, eliminating
complex WCT calculations necessary under the old regime.
 Input tax credit: Upon registration for the GST, new startups will
immediately be eligible for input tax credits on all purchases, both in-state
and out-of-state. This will lead to expansion of cross border business and
reducing the cascading effect of tax. Full credit on capital goods is claimed
in one installment under the GST regime, which will have a direct impact on
the cash flow of new companies, as full input credits will be available to
discharge GST payments.

New IT systems to address challenges: GSTN at Macro Level

The GST system depends on online matching of supplier GST liabilities to buyers’ input GST
credit claims.
In order to have a seamless system of matching credits, GSTN will provide an online
generation mechanism for supplier tax invoices, which will:

 Eliminate the need for data entry by buyers. This will leave no need for
reconciliation/matching of the output GST database with the input credit
claims database.
 Relieve the purchaser from the burden of entering supplier bill data, as well
as from following up with suppliers for unmatched credits.
 Make documentation easy and automatic by using uniform software.
  Lead to accuracy with a smaller staff and less effort.

ERP updation for big enterprises

Upgrading Enterprise Resource Planning (ERP) software will be one of the main ways
corporations adapt to GST. ERP plays a major role in managing & monitoring the
transactions for an origination which includes all the support models for business functions
and integrate them in one package.
Migrations are obvious to happen due to the complexities that will come along with GST.
Every business’s ERP must have strong features and easy adaptability, which will help
companies migrate from the present regime to the GST regime.

Possible reasons for required updates to ERPs will be:

 Change in master data with respect to registration details of vendors,

customers as all of them will be required to obtain GSTIN.
 Legal compliance with respect to return filing will undergo a huge change
due to new return formats under GST.
 Matching of ledgers will be another complicated job, requiring up-to-date
transactional data.
 MIS reporting will undergo a substantial change, as information required
will be on real-time basis, requiring on accurate and complete information.

To summarize, GST is bringing along major changes for Indian businesses. Beneath all the
excitement is the fear of unknown, which needs to be resolved by indirect tax automation
providers who understand and handle GST globally and can handle the impact of changing
taxes
Salient features of GST Model
1. The GST would be applicable on the supply of goods or services as against
the present concept of tax on the manufacture or sale of goods or provision
of services. It would be a destination based consumption tax. This means
that tax would accrue to the State or the Union Territory where the
consumption takes place. It would be a dual GST with the Centre and States
simultaneously levying tax on a common tax base. The GST to be levied by
the Centre on intra-State supply of goods or services would be called the
Central tax (CGST) and that to be levied by the States including Union
territories with legislature/Union Territories without legislature would be
called the State tax (SGST)/ Union territory tax (UTGST) respectively.
2. The GST would apply to all goods other than alcoholic liquor for human
consumption and five petroleum products, viz. petroleum crude, motor spirit
(petrol), high speed diesel, natural gas and aviation turbine fuel. It would
apply to all services barring a few to be specified. The GST would replace
the following taxes currently levied and collected by the Centre:
3. Central Excise Duty
b.Duties of Excise (Medicinal and Toilet Preparations)
c. Additional Duties of Excise (Goods of Special Importance)
d. Additional Duties of Excise (Textiles and Textile Products)
e. Additional Duties of Customs (commonly known as CVD)
f. Special Additional Duty of Customs (SAD)
g. Service Tax
h. Central Surcharges and Cesses so far as they relate to supply of goods and
services
4. State taxes that would be subsumed under the GST are:
5. State VAT
b.Central Sales Tax
c. Luxury Tax
d. Entry Tax (all forms)
e. Entertainment and Amusement Tax (except when levied by the local
bodies)
f. Taxes on advertisements
g. Purchase Tax
h. Taxes on lotteries, betting and gambling
i. State Surcharges and Cesses so far as they relate to supply of goods and
services
6. The list of exempted goods and services would be common for the Centre
and the States.
7. Threshold Exemption: Taxpayers with an aggregate turnover in a financial
year up to Rs.20 lakhs would be exempt from tax. Aggregate turnover shall
 be computed on all India basis. For eleven Special Category States, like
those in the North-East and the hilly States, the exemption threshold shall be
Rest. 10 lakhs. All taxpayers eligible for threshold exemption will have the
option of paying tax with input tax credit (ITC) benefits. Taxpayers making
inter-State supplies or paying tax on reverse charge basis shall not be
eligible for threshold exemption.
8. Composition levy: Small taxpayers with an aggregate turnover in a financial
year up to Rest. 50 lakhs shall be eligible for composition levy. Under the
scheme, a taxpayer shall pay tax as a percentage of his turnover during the
year without the benefit of ITC. The rate of tax for CGST and
SGST/UTGST each shall not exceed –

-2.5% in case of restaurants etc

– 1% of the turnover in a state/ UT in case of a manufacturer
-0.5% of the turnover in state/UT in case of other suppliers

A taxpayer opting for composition levy shall not collect any tax from his customers nor shall
he be entitled to claim any input tax credit. The composition scheme is optional. Taxpayers
making inter-State supplies shall not be eligible for composition scheme. The government,
may, on the recommendation of GST Council, increase the threshold for the scheme to up to
rupees one crore.

7. An Integrated tax (IGST) would be levied and collected by the Centre on

inter-State supply of goods and services. Accounts would be settled
periodically between the Centre and the States to ensure that the
SGST/UTGST portion of IGST is transferred to the destination State where
the goods or services are eventually consumed.
8. Use of Input Tax Credit:Taxpayers shall be allowed to take credit of taxes
paid on inputs (input tax credit) and utilize the same for payment of output
tax. However, no input tax credit on account of CGST shall be utilized
towards payment of SGST/UTGST and vice versa. The credit of IGST
would be permitted to be utilized for payment of IGST, CGST and
SGST/UTGST in that order.
9. HSN (Harmonised System of Nomenclature) code shall be used for
classifying the goods under the GST regime. Taxpayers whose turnover is
above Rs 1.5 crore but below Rs. 5 crore shall use 2-digit code and the
taxpayers whose turnover is Rs 5 crore and above shall use 4-digit code.
Taxpayers whose turnover is below Rs 1.5 crore are not required to mention
HSN Code in their invoices.
10.Exports and supplies to SEZ shall be treated as zero-rated supplies. The
exporter shall have an option to either pay output tax and claim its refund or
export under bond without tax and claim refund of Input Tax Credit.
11.Import of goods and services would be treated as inter-State supplies and
would be subject to IGST in addition to the applicable customs duties. The
IGST paid shall be available as ITC for further transactions
How to file refund under GST

GST is all about a smooth flow of funds and compliances till the end. To facilitate such a
smooth flow, it is imperative for the Government to provide for a hassle-free refund process.
The current tax structure is cumbersome, and it takes months and sometimes years to get
refunds from the Government’s kitty.

GST provides for a clearer and efficient invoice based tracking system, verifying the
transactions on an individual basis, thus, allowing systematic checking of the same. It comes
as a huge relief for manufacturers or exporters, especially those in a 100% EOU or Special
Economic Zone, whose working capital gets tied up in this cumbersome refund process.

In this article, we’ve covered the GST refund process in detail to make your life easy.

There are certain events where refund arises. Let us check out the transactions in details.

 In case of exports (including deemed exports), where there is a cumulative

balance of input credit arising out of such exports or under a claim of rebate.
 Where there is an excessive payment of tax due to an inadvertent mistake.
 When there is an accumulation of credit resulting due to the output tax being
nil or exempted from tax.
 A refund may arise after a provisional assessment.
 Where an appeal is for a respondent, then the amount made as a deposit
towards holding such appeal shall be refunded to the appellant
 Refund after investigation or findings by an adjudicating officer.
 Refund can be provided to foreign embassies or bodies of United Nations
when the purchases are made by them.
 When there is an accumulation of credit resulting due to the output tax being
of a lesser rate than the input.
 Suppliers receiving discounts or credits through the issuance of credit notes.
 GST paid by foreign or international tourists are subjected to refund.

The Government will not just give away the pending amount as a refund. The taxpayers have
to make an application and follow the correct procedure for fetching the refund amounts in
their bank accounts.

Refund Application Process Under GST

The refund application has to be made in Form RFD-01 (to be certified by a Chartered
Accountant)within a period of 2 years from the
“relevant date.” This relevant date is different for different scenarios.

1. When the goods are exported through air or sea, then relevant date shall be
the date on which such ship or aircraft leaves India.
2. When the goods are carried by a land vehicle, then relevant date shall be the
date when the goods cross the land frontier of the country
3. When goods are sent through post, then relevant date shall be the date of
despatch of goods from the Post Office.
4. When the supply includes services, and when the same is completed before
receipt of payment, then relevant date shall be the payment receipt date.
5. Similarly, when the services are performed after receipt of an advance, then
relevant date shall be the invoice date.
6. Where refund claim is made for excess input tax credit left unutilised, then
relevant date shall be the end of the financial year for which such refund
claim is being made.
7. Where the goods are supplied for deemed exports, i.e. supply to SEZ or
100% EOU, the relevant date shall be the return filing date related to such
deemed exports was filed.
8. Where refund arises due to an order passed in favour of the appellant, then
relevant date shall be the date of such order.
9. Where tax was paid following a provisional assessment and refund now
arises, then relevant date shall be date at which such tax was adjusted.

 When the person claiming refund is not the supplier, then relevant date shall
be the date at which the goods are received by such person.
 For all other cases, relevant date shall be the date of payment of tax.

It is mandatory to keep in mind these relevant dates as failure to file refund applications
within mentioned time can lead to blockage of credit.

Once the application made, an acknowledgement in Form RFD-02 will be auto-generated for

future references and sent across through an email and an SMS. In case the system finds
some deficiencies in the refund application, then Form RFD-03 shall be sent to the taxpayer
to correct his application.

Moreover, there are certain documents that must be enclosed along with the electronic refund
application. Where the refund application is below Rs. 5 lakhs, then a declaration shall be
made by the taxpayer indicating that the amount of refund has not been utilised by or
transferred to any other person. Where such application exceeds Rs. 5 lakhs, then apart from
the declaration above, a document evidencing that the amount was paid by the taxpayer shall
also be attached.

When the person filing refund claim is a United Nations’ body, Consulate or a foreign
embassy, then the application for refund has to be filed within 90 days from the end of the
quarter for which the goods or services were procured. The application should be made
in Form RFD-10.
Note: There shall be no refunds where the amount of refund is less than Rs. 1,000/

Scrutiny of the refund application

As per norms, it would take about 30 days to process a refund application. Where the refund
claim exceeds a prescribed amount, then the same shall be subjected to an audit process. If
the same qualifies for a refund, then an order shall be passed to that extent, or if it meets the
criterion for being “unjustly enriching” the taxpayer, then the amount shall be transferred to
the Consumer Welfare Fund. The above declaration may be required to be certified by a
Chartered Accountant.

Refund Order
When the taxpayer claims refund of monies arising out of exports of goods or services, then
an authorised officer can issue a provisional refund order in Form RFD-04 of an amount of
90% of the refund claim. Such a provisional refund can be made when the taxpayer:

 Has not been prosecuted for evading taxes for an amount exceeding Rs. 250
lakhs over a period of 5 years.
 Has a GST compliance rating of more than 5 out of 10.
 Has no appeal or review pending with respect to refunds.

Where the authorised officer feels that documents are in consonance with law, then he may
pass a final order to that effect.

The Government shall maintain a cash ledger for the taxpayer. It will be constantly updated
with the figures as mentioned or declared in the returns. The credit must match with the
ledger or else the credit cannot be availed. It is similar in lines of Form 26AS in case of
Income Tax, where the amount of TDS and TCS matches with the Form.

In all other cases, the refund application shall be processed within 60 days from the
application date. Once the authorised officer adjudges the refund to be true, then he will issue
a final order in Form RFD-05within a period of 60 days from the application date. If the
officer fails to pass an order within the said 60 days, then the taxpayer shall receive an
interest @ 6% p.a. for the period exceeding the expiry of 60 days until the receipt of refund.

When the refund has to be adjusted against the taxable amount, then Form RFD-06 shall be
passed.

Other forms that are important for refund claims:

 RFD-07: this is a show cause notice for complete rejection of a refund

application
 RFD-08: Payment advice
 RFD-09: In case of delayed payments, this is an order for interest on late
payments.
Refund of Input Tax Credit
There are 3 cases against which a refund claim can be made with respect to input tax credit.
All the above scenarios covered refund emanating from certain specified transactions.

1. Input tax credit left unutilized when the goods or services being supplied are
zero rated or exempted from GST.
2. When input goods or services have a higher rate of tax and the same goods
or services have a lesser output tax, then the accumulated input tax credit
can be claimed as refund.
3. In case of a partial reverse charge, where the input tax credit cannot be used
completely against the output tax.

Furthermore, no refund against unutilized input tax credit can be given when:

 Input arises out of GST paid against goods exported out of India, that were
taxable to excise duty
 The supplier has already availed the benefit of duty drawback paid with
respect to excise duty.

The process is very thorough in itself and once followed properly, then availing refund can
become very smooth and hassle free. It will change the face of the long drawn refund process
and give a boost to the manufacturing or export industry. Those refunds, which usually took
years to pass can now be taken in just 60 days. The strong IT system and forward thinking of
the GSTN have enabled this initiative.
Transfer of input tax credit and its related
issues

Input credit means at the time of paying tax on output, you can reduce the tax you have
already paid on inputs and pay the balance amount.

Here’s how:

When you buy a product/service from a registered dealer you pay taxes on the purchase. On
selling, you collect the tax. You adjust the taxes paid at the time of purchase with the amount
of output tax (tax on sales) and balance liability of tax (tax on sales minus tax on purchase)
has to be paid to the government. This mechanism is called utilization of input tax credit.

For example- you are a manufacturer: a. Tax payable on output (FINAL PRODUCT) is Rs
450 b. Tax paid on input (PURCHASES) is Rs 300 c. You can claim INPUT CREDIT of Rs
300 and you only need to deposit Rs 150 in taxes.

Who can claim ITC?

ITC can be claimed by a person registered under GST only if he fulfills ALL
the conditions as prescribed.

1. The dealer should be in possession of tax invoice

2. The said goods/services have been received
3. Returns have been filed.
4. The tax charged has been paid to the government by the supplier.
5. When goods are received in installments ITC can be claimed only when the
last lot is received.
6. No ITC will be allowed if depreciation has been claimed on tax component
of a capital good

Reversal of Input Tax Credit

ITC can be availed only on goods and services for business purposes. If they are used for
non-business (personal) purposes, or for making exempt supplies ITC cannot be claimed.
Apart from these, there are certain other situations where ITC will be reversed.

ITC will be reversed in the following cases:

1) Non-payment of invoices in 180 days: ITC will be reversed for invoices which were not
paid within 180 days of issue.

2) Credit note issued to ISD by seller: This is for ISD. If a credit note was issued by the
seller to the HO then the ITC subsequently reduced will be reversed.

3) Inputs partly for business purpose and partly for exempted supplies or for personal
use: This is for businesses which use inputs for both business and non-business (personal)
purpose. ITC used in the portion of input goods/services used for the personal purpose must
be reversed proportionately.

4) Capital goods partly for business and partly for exempted supplies or for personal
use: This is similar to above except that it concerns capital goods.

5) ITC reversed is less than required: This is calculated after the annual return is furnished.
If total ITC on inputs of exempted/non-business purpose is more than the ITC actually
reversed during the year then the difference amount will be added to output liability. Interest
will be applicable.

Reconciliation of ITC
ITC claimed by the person has to match with the details specified by his supplier in his GST
return. In case of any mismatch, the supplier and recipient would be communicated regarding
discrepancies after the filling of GSTR 3.  Please read our article on the detailed explanation
of the reasons for mismatch of ITC and procedure to be followed to apply for re-claim of
ITC.

Documents Required for Claiming ITC

The following documents are required for claiming ITC: 1. Invoice issued by the supplier of
goods/services 2. The debit note issued by the supplier to the recipient (if any) 3. Bill of entry
4. An invoice issued under certain circumstances like the bill of supply issued instead of tax
invoice if the amount is less than Rs 200 or in situations where the reverse charge is
applicable as per GST law. 5. An invoice or credit note issued by the Input Service
Distributor(ISD) as per the invoice rules under GST. 6. A bill of supply issued by the supplier
of goods and services or both.

All these documents are to furnished at the time of filing form GSTR-2.

Special cases of ITC

A. ITC for Capital Goods

ITC is available for capital goods under GST.

However, ITC is not available for- i. Capital Goods used exclusively for making exempted
goods ii. Capital Goods used exclusively for non-business (personal) purposes.
Note: No ITC will be allowed if depreciation has been claimed on tax component of
capital goods.

Penalties and appeals under GST

Offences
There are 21 offenses under GST. We have mentioned a few here. For the entire list of 21
offenses please go to our main article on offenses.

The major offenses under GST are:

 Not registering under GST, even though required by law. (Read our article
for the list of those who have to register mandatorily under GST)
 Supply of any goods/services without any invoice or issuing a false invoice
 The issue of invoices by a taxable person using the GSTIN of another bona
fide taxpayer
 Submission of false information while registering under GST
 Submission of fake financial records/documents or files, or fake returns to
evade tax
 Obtaining refunds by fraud
 Deliberate suppression of sales to evade tax
 Opting for composition scheme even though a taxpayer is ineligible

Penalty
If any of the offenses are committed then a penalty will have to be paid under GST. The
principles on which these penalties are based are also mentioned by law.

For late filing

Late filing attracts penalty called late fee. The late fee is Rs. 100 per day per Act. So it is 100
under CGST & 100 under SGST. Total will be Rs. 200/day*. The maximum is Rs. 5,000.
There is no late fee on IGST in case of delayed filing. 

Along with late fee, interest has to be paid at 18% per annum. It has to be calculated by the
taxpayer on the tax to be paid. The time period will be from the next day of filing to the date
of payment.

For not filing

If you don’t file any GST return then subsequent returns cannot be filed. For example, if
GSTR-2 return of August is not filed then the next return GSTR-3 and subsequent returns of
September cannot be filed.  Hence, late filing of GST return will have a cascading effect
leading to heavy fines and penalty (see below).

For the 21 offenses with no intention of fraud or tax evasion

An offender not paying tax or making short payments must pay a penalty of 10% of the tax
amount due subject to a minimum of Rs. 10,000.

Consider — in case tax has not been paid or a short payment is made, a minimum penalty of
Rs 10,000 has to be paid. The maximum penalty is 10% of the tax unpaid.

For the 21 offenses with the intention of fraud or tax evasion

An offender has to pay a penalty amount of tax evaded/short deducted etc.,
i.e., 100% penalty, subject to a minimum of Rs. 10,000.

Additional penalties as follows-

Tax amount involved 100-200 lakhs 200-500 lakhs

Jail term Upto 1 year Upto 3 years

Fine In all three cases

Cases of fraud also face penalties, prosecution, and arrest.

Inspection Under GST

The Joint Commissioner of SGST/CGST (or a higher officer) may have reasons to
believe that in order to evade tax, a person has suppressed any transaction or claimed excess
input tax credit etc. Then the Joint Commissioner can authorize any other officer of
CGST/SGST (in writing) to inspect places of business of the suspected evader.

Search & Seizure Under GST

The Joint Commissioner of SGST/CGST can order for a search. He will order a search on the
basis of results of inspection (or other reason) if he has reasons to believe:

 There are goods which might be confiscated

 Any documents or books or other things which are hidden somewhere. Such
items can be useful during proceedings
Such incriminating goods and documents can be seized.

Goods in Transit 
The person in charge of a vehicle carrying goods exceeding Rs. 50,000 is required to carry
the following documents:

 Invoice or bill of supply or delivery challan

 Copy of e-way bill (hard copy or via RFID)

The proper officer has the power to intercept goods in transit and inspect the goods and the
documents.

If the goods are in contravention of the GST Act then the goods, related documents, and the
vehicle carrying them will be seized. The goods will be released only on payment of tax and
penalty.

Before confiscating the goods, the tax officer shall give an option of paying a fine instead of
confiscation.

Compounding of Offences Under GST

Compounding of offenses is a shortcut method to avoid litigation. In case of prosecution for
an offense in a criminal court, the accused has to appear before the Magistrate at every
hearing through an advocate. This becomes expensive and time-consuming.

 In compounding, the accused is not required to appear personally and can be discharged on
payment of compounding fee which cannot be more than the maximum fine as applicable
under GST.

Compounding will save time and money. However, compounding under GST is not available
for cases where the value involved exceeds 1 crore.

Prosecution Under GST 

The prosecution is conducting legal proceedings against someone in respect of a criminal
charge.

A person committing an offense with the deliberate intention of fraud, becomes liable

to prosecution under GST, i.e., face criminal charges. A few examples of these offenses are:

1. Issue of an invoice without supplying any goods/services- thus taking input

credit or refund by fraud
2. Obtaining refund of any CGST/SGST by fraud
 3. Submitting fake financial records/documents or files, and fake returns to
evade tax
4. Helping another person to commit fraud under GST

Arrest Under GST

If the Commissioner of CGST/SGST believes a person has committed a certain offense he
can be arrested under GST by any authorized CGST/SGST officer (click here for the list of
offenses for which one can be arrested).

The arrested person will be informed of the grounds for his arrest. He will appear before the
magistrate within 24 hours in case of a cognizable offense (Cognizable offenses are those
where the police can arrest a person without an arrest warrant. They are serious crimes like
murder, robbery, counterfeiting).

Appeals
A person unhappy with any decision or order passed against him under
GST can appeal against such decision.

The first appeal against an order by an adjudicating authority goes to the First Appellate
Authority. 

If the taxpayer is not happy with the decision of the First Appellate Authority they can appeal
to the National Appellate Tribunal, then to the High Court, and finally to the Supreme Court.

To avoid the long process of appeal and litigation, a taxpayer may request for the advance
ruling under GST. The taxpayer asks for clarification from GST authorities on GST treatment
before starting the proposed activity. The tax authority gives a written decision (called
advance ruling) to the applicant on the query.

Future of GST in INDIA

In the long-term, GST would be simplified even more. Globally, countries that have
benefitted from GST implementation typically deploy two- or three- rates, as compared to the
five-rate structure in India. As the cascading effect disappears, inflation will reduce, thus
leading to a positive consumer outlook.  As the tax revenue rises, the fiscal deficit would
improve.

The international business community has welcomed this changing landscape of Indian
business,  and noted that the GST has helped improve the ease of doing business in India.
This is expected to attract more FDI investments and help growth in exports.
Upcoming initiatives need to focus on capacity-building and digital adoption

As immediate next steps, the government needs to address capacity-building and digital
adoption among the SMEs and MSMEs in India. The overall compliance cost needs to be
lowered and technology is a great enabler here. Shifting a pen-and-paper economy like India
to a completely digital platform is a good start. However, there has to be considerable
investment both from the government as well as the industry in this direction. Counseling
services and hand-holding guidance to file returns will be important.

In hindsight, the GST has been a step in to the right direction. It will have a long-term impact
on the country’s GDP growth, ease of doing business, expansion of trade and industry,
and the ‘Make in India’ initiative. Most importantly, it will be significant in establishing and
promoting honest business practices, which will propel India towards becoming a significant
economic power.