INDIRECT TAX INTRODUCTION TO GST

Indirect Taxes – Goods and Services Tax

What is Tax?
• A Tax may be defined as a “Pecuniary burden laid upon individual or property owner
to support to Govt., a payment exacted by legislature authority”.
• A Tax is not a voluntary payment or donation, but an enforced contribution, exacted
permanent to legislature authority.
• In simple words, Tax is nothing but money that people have to pay to the Govt.
which is used to provide public services.
• Tax is the price which we pay for a civilised society.
• A Tax is a mandatory financial charge/levy imposed upon a person by Govt. in order
to fund various public expenditure.

Tax is classified into

1) Direct Tax
2) Indirect Tax

Direct Tax: Direct Taxes are those which are the tax payer directly from his income/
wealth/ estate etc. while indirect tax are those which the tax payer pays indirectly i.e. while
purchasing goods and commodities, paying for service etc.

Indirect Tax: Indirect taxes are paid by one person, but he recovers the same from another
person. Thus, the person who actually bears the tax burden (the ultimate ‘consumer’) pays
it indirectly through some person, who practically, merely acts as collecting agent.

Q: Who is liable to Pay tax to the Govt. Examples of indirect Tax

Govt.
Ans: Mr. X
Mr. X
(1) Custom Act, 1962 ✓
Deposit
To (2) Goods and Services Tax ✓
the
S Price = 100
Govt. Mr. Y
+ Tax = 10
@ 10%
110

Q: Who bears the actual burden of Tax

Ans: Mr. Y

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INDIRECT TAX INTRODUCTION TO GST
Advantages of Indirect Taxes:
1. Psychological Advantages to tax payer.
2. Manufactures/ Dealers psychology favors indirect taxes.
3. Easier to collect.
4. Slightly less tax evasion.

Disadvantages of Indirect Taxes:

1. Regressive in nature
2. Reduces Demand of goods
3. Increases project cost
4. Modern Technology becomes costly
5. Increase Smuggling

Distinguish between Direct tax and Indirect tax.

S.No Direct Tax Indirect Tax

.
1. The burden directly felt by the payer. The burden is indirectly felt by the payer.

2. The burden cannot be shifted. The burden can be shifted.

3. Price of the product doesn’t reflect Price of a product reflects the tax.
the tax.
4. Examples of direct tax are income- Examples of indirect tax are GST and
tax. customs duty.
5. Taxation system can differentiate Taxation system does not differentiate
and usually does between rich and between rich and poor.
poor.

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INDIRECT TAX INTRODUCTION TO GST
Why / Need for GST in India
Deficiencies in the existing Indirect Taxation structure has led to introduction of GST.
GST is a cure for ills of existing Indirect Tax structure.

Multiplicity of Taxes
Why GST/Need for GST 17 indirect taxes subsumed in one tax….i.e. GST
Indirect Taxes
1. Multiplicity of Taxes
Central Govt. State Govt.
2. Cascading effect
1. Central Excise Duty 1. State VAT
2. Duties of Excise (Medical and 2. Central Sales Tax
3. Uniformity Toilet Preparations)
3. Luxury Tax
3. Additional Duties of Excise
(Goods of Special Importance) 4. Entry Tax (all forms)
4. Additional Duties of Excise 5. Entertainment and Amusement Tax
(Textiles and Textile Product) (except when levied by the local bodies)
5. Additional Duties of Customs 6. Taxes on advertisements
(commonly known as CVD)
7. Purchase Tax
6. Special Additional Duty of Customs (SAD)
8. Taxes on lotteries betting and gambling
7. Service Tax
9. State Surcharges and Cesses so far as they
8. Central Surcharges and Cesses relate to supply of goods and services

Double Tax Cascading Effect

Problem of taxing certain transactions – whether

as goods or as service
Manufacturer
Earlier i.e. Pre GST After GST Earlier i.e. Pre GST After GST
Value 100 Restaurant bill
Value 100
(+) Excise duty @ 10% 10 Basic 1000 Basic 1000 Basic 100
(+) Excise duty 10
110 (+) VAT @ 10% 100 (+) GST 50 (+) GST 18
@ 10%
@5% 110 @18%
(+) VAT @ 10% 11 (+) S. Tax @ 6% 60
(+) VAT @ 10% 11
121 1160 1050 118
121
As we know that Double taxation – due to same subject-matter being
treated as goods & services
Trader will not get the benefit/credit of excise duty
Schedule II of CGST Act, 2017
So there is cascading i.e. Tax on Tax. Classifies activities as
Goods or Services

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INDIRECT TAX INTRODUCTION TO GST

Uniformity
1. Taxable event
1. Manufacture

2. Sales
3. Provision of services provided or agreed to be provided

So, there is number of Taxable events

AND Now there is one taxable event i.e. supply of goods/services or both.

2. VAT Rates
Different rates for different states
Now there will be uniform Rates i.e.

0%, 5%, 12%, 18%, 28%

Concept of GST

1) GST is applicable to whole of India

2) GST is based on VAT Principle
3) Seamless flow of credit
4) No differentiate between Goods/Services
5) Destination Based Consumption Tax
6) Dual Model of GST
7) Exemption Limit (threshold limit) : Every supplier of goods and/or service is
required to obtain registration in the State/UT from where he makes the taxable
supply if his aggregate turnover exceeds Rs. 20/40 lakh during a FY.
However, the limit of Rs.20 lakhs will be reduced to Rs.10 lakh if the person is
carrying out business in the 4 special category States – [ Manipur, Mizoram,
Nagaland, Tripura]

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INDIRECT TAX INTRODUCTION TO GST

Collection by Govt.
10 + 9 + 10 = 29

Mr X Mr Y Mr Z
(Manufacturer) (Dealer) (Dealer)
Purchase NIL Purchases 100 Purchases 190

GST BASED
Input GST NIL Input GST 10 Input GST 19
NIL 100 190
+ V|A + V|A + V|A

(i.e. Cost + 100 (i.e. Cost + 90 (i.e. Cost + 100

ON
Profit) Profit) Profit)

Sale Price 100 190 290

VAT PRINCIPLE
Output GST @ 10% on 10 Output GST 19 Output GST 29
Rs. 100
Input GST NIL Input GST 10 Input GST 19

Net GST Payable at Govt. 10 9 10

TAX Invoice TAX Invoice Tax Invoice

Sale Price 100 Sale Price 190 Sale Price 290

+ GST 10 + GST 19 + GST 29

110 209 319

Important Notes
1. GST is fully transparent i.e.

GST paid by final consumer = GST collected by Govt.

2. GST is multi-stage/multi-point tax but tax paid on input will be allowed as credit. Destination Based Tax
3. Input GST will not become part of cost because input GST will be allowed as credit.

4. Tax If credit is available Will not become part of cost No cascading

Tax If credit is not available If will become part of cost No cascading

Concept of OBT/DBT
S. No. Particulars OBT/DBT

1. Intra – State Supply

Delhi – Delhi No concept of
Tax = Delhi OBT/DBT

2. Inter – State Supply

Delhi – Punjab
DBT
Tax = Punjab
3. Inter – Country (Import – Export)
India – UK
DBT
UK – India

* Loss to manufacturing states

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INDIRECT TAX INTRODUCTION TO GST

GST – International Scenario

Internationally, countries are moving towards simplification of tax structures. The adoption
of Goods and Services Tax has been the most important development in several countries
over the last half-century. Today, it is one of the widely accepted indirect taxation system
prevalent in more than 160 countries across the globe. Globally, GST has been structured
as a destination based comprehensive tax levied at a specified rate on sale and consumption
of goods and services within a country. It facilitates creation of national tax standards with
consumers paying uniform rates of GST, thereby enabling flow of seamless credit across
the supply chain.

France was the first country to implement GST in the year 1954.
Within 62 years of its advent, about 160 countries across the world have adopted GST.

Benefits of GST
GST is a win-win situation for the entire country. It brings benefits to all the stakeholders
of the industry, Govt. and the consumer.

The main aim of GST is to integrate state economies and boost overall growth by creating
a single, unified Indian market to make economic stronger.

Benefits for Industry

1) Reduction in multiplicity of taxes
2) No cascading of taxes
3) Easy compliance
4) Healthy competition
5) Gain to manufacturers and exporters

Benefits for the Consumer

1) Simple and Transparent tax system
2) Reduction in Prices of Goods
3) Relief in overall tax burden
4) Uniform price throughout the country

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INDIRECT TAX INTRODUCTION TO GST

Benefit for Central & State Governments

1) Simple and Easier to administer
2) Better controls on leakage
3) Higher revenue
4) Boost to make in India initiative

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INDIRECT TAX INTRODUCTION TO GST

Genesis of GST in India

Kelkar Task 16-07-2004 Dr. Kelkar Task Force recommended the need of a
Force in 2004 National GST
GST proposed in 28-02-2006 Budget Speech 2007-08
2007-08 Union FM moots the idea of GST from April, 2010
GST Revival in 19-12-2014 Constitutional (122nd Amendment) Bill, 2014
2014- introduced in Lok Sabha
Constitution
Amendment Bill
06-05-2015 Constitutional (122nd Amendment) Bill, 2014
passed in Lok Sabha
Constitution 03-08-2016 Constitutional (122nd Amendment) Bill, 2014
Amendment Act passed in Rajya Sabha
08-09-2016 Subsequent to ractification of bill by more than 50%
of the states, Constitutional (122nd Amendment)
Bill, 2014 received the assent of President of India.
• It became Constitutional (101st Amendment)
Act, 2016 which paved the way of GST in
India.
27-03-2017 Central GST Legislations introduced in Lok-Sabha
– CGST Bill, 2017, IGST Bill, 2017, UTGST Bill,
2017, GST (Compensation to states) Bill, 2017
introduced
29-03-2017 Central GST Legislations passed in Lok-Sabha –
Central GST Act CGST Bill, 2017, IGST Bill, 2017, UTGST Bill,
2017, GST (Compensation to states) Bill, 2017 passed
6-4-2017 Central GST Legislation passed in Rajya-Sabha –
CGST Bill, 2017, IGST Bill, 2017, UTGST Bill,
2017, GST (Compensation to states) Bill, 2017 passed
12-04-2017 Central GST Legislations received assent of
president and Bills enacted – CGST Act, 2017, IGST
Act, 2017, UTGST Act, 2017, GST (Compensation to
states) Act, 2017
Roll out from 1 01-07-2017 GST has been implemented across India w.e.f. 1st
st

July, 2017 July, 2017

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INDIRECT TAX INTRODUCTION TO GST

Definition of India

Sec 2(56) of the CGST Act defines India as: “India” means

• The territory of India as referred to in article 1 of the Constitution,

• Its territorial waters,
• Seabed and sub-soil underlying such waters,
• Continental shelf, exclusive economic zone or any other maritime zone as referred
to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other
Maritime Zones Act, 1976, and
• The air space above its territory and territorial waters.

Model – GST

National GST Tax Levied by Centre with sharing of revenue Australia

with State China
State GST Tax Levied by the state and retained by the USA
state themselves
Non Concurrent Dual GST Centre levies GST on services and State levies
GST on goods
Concurrent Dual GST Tax levied by center & state on both goods Brazil
and services Canada
India

From the various model of GST, India has proposed to adopt concurrent Dual GST Model
for implementing GST.

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INDIRECT TAX INTRODUCTION TO GST

Constitutional Provisions

Article 265
Taxes not to be imposed saved by authority of law
No tax shall be levied or collected except by Authority of Law.

Article 245
Extent of law made by Parliament and by Legislature of States

1) Subject to the provisions of this Constitution, Parliament may make laws for the
whole or any part of the territory of India, and the legislature of a State may make
laws for the whole or any part of the State.

Article 246
Subject matter of laws made by Parliament and by the Legislatures of States

1) Notwithstanding anything in clause (2), Parliament has exclusive power to make

laws with respect to any of the matters enumerated in List I in the Seventh Schedule
(Union List)

2) Parliament, and, subject to clause (1), the Legislature of any State also, have power
to make laws with respect to any of the matters enumerated in List III in the Seventh
Schedule (Concurrent List)

3) Parliament has power to make laws with respect to any matter for any part of the
territory of India not included (in a State) notwithstanding that much matter is a
matter enumerated in the State List.

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INDIRECT TAX INTRODUCTION TO GST
Analysis of Article 246
the authority to enact law and levy taxes and duties has been given by the constitution vide
Article 246, According to Article 246, law can be enacted by Parliament or the State
Legislature, if such power is given by the Constitution of India.

Such power is given by Article 246 in Seventh Schedule of the Constitution of India under
the following three lists:

List I – Union List

Under List – I, the Parliament has exclusive power to make laws including the law for levy
of taxes in respect of the matter (entry) enumerated in that list.

List II – State List

Under List – II, the legislature of any State has exclusive power to make law for such state
or any part thereof in respect of the matter (entry) enumerated in that list.

List III – Concurrent List

Under List – III, the Parliament or the Legislature of a State has power to make laws in
respect of the matter (entry) enumerated in that list.

Further, the Parliament has power to make laws with respect to any matter for any part of
the territory of India not included in the State (i.e. for union territory) notwithstanding that
such matter is a matter enumerated in State list. In other words, for union territories,
parliament shall have the exclusive power to make laws even if that matter in included in
the State List.
onstitution o ndia

t Sc edu e

nion ist State ist on urrent ist

.G. as t e o er S.G. as t e o er ot t e Go t.
ntr Tax on
ncome Tax ntr
o.
o. a ricu tura income
ntr
o. ustom ntr co o ic i uor or
ntr o. 1 uman onsum tion
o. xcise
ntr ium ndian em and
o. ST ot er narcotic dru s and
narcotics
ntr Ser ice Tax
o. ntr ntr o oods
ntr esiduar o. into oca area
o. 7 Ser ice Tax ntr T
o.

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INDIRECT TAX INTRODUCTION TO GST
Article 254

Inconsistency between laws made by Parliament and laws made by the Legislature of
States

1) If any provision of a law made by the Legislature of a State is repugnant to any

provision of a law made by Parliament which Parliament is competent to enact, or
to any provision of an existing law with respect to one of the matters enumerated in
the Concurrent List, then, subject to the provisions of clause (2), the law made by
Parliament, whether passed before or after the law made by the Legislature of such
State, or, as the case may be, the existing law, shall prevail and the law made by the
Legislature of the State shall, to the extent of the repugnancy, be void.

2) Where a law made by the Legislature of a State with respect to one of the matters
enumerated in the concurrent list contains any provision repugnant to the provisions
of an earlier law made by the parliament or an existing law with respect to that
matter, then, the law so made by the Legislature of such State shall, if it has been
reserved for the consideration of the President and has received his assent, prevail in
that State:
Provided that nothing in this clause shall prevent Parliament from enacting at any
time any law with respect to the same matter including a law adding to, amending,
varying or repealing the law so made by the Legislature of the State.

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INDIRECT TAX INTRODUCTION TO GST
Why introduction of the GST required amendment in the Constitution?

Currently, the fiscal powers between the Centre and the States are clearly demarcated in
the Constitution with almost no overlap between the respective domains. The Centre has
the powers to levy tax, on the manufacture of goods (except alcoholic liquor for human
consumption, opium, narcotics etc.) while the States have the powers to levy tax on the
sale of goods. In the case of Inter-State sales, the Centre has the power to levy a tax (the
Central Sales Tax) but, the tax is collected and retained entirely by the States. As for
services, it is the Centre alone that is empowered to levy service tax.

Introduction of the GST required amendments in the Constitution so as to simultaneously

empower the Centre and the States to levy and collect this tax. The Constitution of India
has been amended by the Constitution (One Hundred and First Amendment) Act, 2016 for
the purpose. Article 246A of the Constitution empowers the Centre and the States to levy
and collect the GST.

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INDIRECT TAX INTRODUCTION TO GST
Article 246A

Special provision with respect to goods and services tax

After constitution (One Hundred and First Amendment) Act, 2016

1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject
to clause (2), the Legislature of every State, have power to make laws with respect
to goods and services tax imposed by the Union or by such State.

2) Parliament has exclusive power to make laws with respect to goods and services tax
where the supply of goods, or of services, or both takes place in the course of Inter-
State trade or commerce.

Explanation: The provisions of this article, shall, in respect of goods and services
tax referred to in clause (5) of article 279A, take effect from the date recommended
by the Goods and Services Tax Council.

Analysis of Article 246A (1)

Parliament and State Legislature both having power to make law w.r.t. GST
imposed by Union or by State.

Analysis of Article 246A (2)

Parliament has the exclusive power to make laws w.r.t. Goods & Services Tax
in case of inter-state supply of goods or services.

Explanation: The provisions of Article 246A in respect of GST referred to in

Article 279(5) i.e. petroleum crude, high speed diesel, motor spirit, natural
gas and aviation turbine fuel shall take effect from the date recommended by
the Goods and Services Tax Council.

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INDIRECT TAX INTRODUCTION TO GST
Article 269A

Constitution of India 1950 (Inserted by the Constitution (One Hundred and First
Amendment) Act, 2016, w.e.f. 16-9-2016)

1) Goods and Services tax on supplies in the course of Inter-State trade or commerce
shall be levied and collected by the Government of India and such tax shall be
apportioned between the Union and the States in the manner as may be prescribed
by Parliament by law on the recommendations of the Goods and Services Tax
Council.
Explanation – For the purpose of this clause, supply of goods, or of services, or both
in the course of import into the territory of India shall be deemed to be supply of
goods, or of services, or both in the course of Inter-State trade or commerce.

2) The amount apportioned to a State under clause (1) shall not form part of the
Consolidated Fund of India.

3) Where an amount collected as tax levied under clause (1) has been used for payment
of the tax levied by a State under article 246A, such amount shall not form part of
the Consolidated Fund of India.

4) Where an amount collected as tax levied by a State under article 246A has been used
for payment of the tax levied under clause (1), such amount shall not form part of
the Consolidated Fund of the State.

5) Parliament may, by law, formulate the principles for determining the place of supply,
and when a supply of goods, or of services, or both takes place in the course of Inter-
State trade or commerce.

Analysis of Article 269A

The Central Government shall levy and collect goods and services tax (GST)
on supplies in the inter-state trade or commerce. The collected GST shall be
distributed between the Union and the States in the manner as may be
decided by the Parliament by law on the recommendation of the Goods and
Services Tax Council.

Article 269A gives the Central Government power to levy Integrated Goods
and Services Tax (IGST) by treating supply of goods, or of services, or both
in the course of import into the territory of India as supply of goods, or of
services, or in both in the course of inter-State trade or commerce.

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INDIRECT TAX INTRODUCTION TO GST
Article 279A
Goods and Services Tax Council

1) The President shall, within 60 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 –
a) The Union Finance Minister _Chairperson;
b) The Union Minister of State in charge of Revenue or Finance __________
Member;
c) 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 –
a) The taxes, cesses and surcharges levied by the Union, the States and the local
buddies which may be subsumed in the goods and services tax;
b) The goods and services that may be subjected to, or exempted from the goods
and services tax;
c) 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;
d) The threshold limit of turnover below which goods and services may be
exempted from goods and services tax;
e) The rates including floor rates with bands of goods and services tax;
f) Any special rate or rates for a specified period, to raise additional resources
during any natural calamity or disaster;
g) 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
h) Any other matter relating to the goods and services tax, as the Council may
decide.

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INDIRECT TAX INTRODUCTION TO GST
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 harmonised structure of goods and
services tax and for the development of a harmonised 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 –
a) The vote of the Central Government shall have a weightage of one-third of
the total votes cast, and
b) The votes of all the State Governments taken together shall have a weightage
of two-thirds of the total votes cast, in that meeting.

10) No act or proceedings of the Goods and Services Tax Council shall be invalid merely
by reason of –
a) Any vacancy in, or any defect in, the constitution of the Council; or
b) Any defect in the appointment of a person as a member of the Council; or
c) Any procedural irregularity of the Council not affecting the merits of the case.

11) The Goods and Services Tax Council shall establish a mechanism to adjudicate any
dispute –
a) Between the Government of India and one or more States; or
b) Between the Government of India and any State or States on one side and one
or more other States on the other side; or
c) Between two or more States.

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INDIRECT TAX INTRODUCTION TO GST
Definitions:

Article 366(12A)
Goods and services tax: It means any tax on supply of goods, or services or both except
taxes on the supply of the alcoholic liquor for human consumption. Consequently, GST
can be levied on supply of all goods and services except alcoholic liquor for human
consumption.

Article 366(26A)
Services: It means anything other than goods.

Article 366(26B)
State: With reference to articles 246A, 268, 269, 269A and article 279A, includes a Union
territory with legislature.

Article 366(12)
Goods: The term goods has already been defined under clause (12) of Article 366 in an
inclusive manner to provide that “goods includes all materials, commodities, and articles”.

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INDIRECT TAX INTRODUCTION TO GST
Goods and Services Network (GST Common Portal)

Goods and Services Network (GSTN) a special purpose vehicle has been set to provide a
shared IT infrastructure and services to Central and State Governments, taxpayers and other
stakeholders for implementation of GST. The functions of the GSTN, inter alia, include:
i) facilitating registration;
ii) forwarding the returns to Central and State authorities;
iii) computation and settlement of IGST;
iv) matching of tax payment details with banking network;
v) providing various MIS reports to the Central and the State Governments based on
the taxpayers return information;
vi) providing analysis of taxpayers’ profile; and
vii) running the matching engine for matching, reversal and reclaim of input tax credit.

GSPs & ASPs

GSTN has selected certain IT, ITeS and financial technology companies, to be called GST
Suvidha Providers (GSPs). GSPs develop applications to be used by taxpayers for
interacting with the GSTN. They facilitate the tax payers in uploading invoices as well as
filing of returns and act as a single stop shop for GST related services. They customize
products that address the needs of different segment of users. GSPs may take the help of
application service providers (ASPs) who act as a link between taxpayers and GSPs.

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INDIRECT TAX INTRODUCTION TO GST
Kinds of Supply

Intra-State Supply Inter-State Supply

Supply within same state Supply between Two State
Section 8 of IGST Act, 2017 Section 7 of IGST Act, 2017

How to decide?
Whether a supply is Intra-state supply or Inter-state supply.

Location of supplier and Place of supply

Between
Is in the same state or UT ❖ two different state
❖ two different UT
❖ state & UT

Intra-state supply

Inter-state supply

Example:

(i) UP UP (ii) Delhi Delhi

(i.e. within same state) (i.e. within same state)
However following shall be deemed to be Inter-state supply
CGST CGST
SGST SGST
1. Import of goods into India

2. Export of goods out of territory of India (iii) Chd. Chd. (iv) UT UT

Chd. Daman
3. Supply of goods/services to or by a SEZ developer or SEZ unit CGST IGST
UTGST Inter state

(v) UT Delhi (vi) Uk Delhi

Chd.
Import of goods
IGST
Inter state

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