1

A PROJECT REPORT ON

COMPARATIVE ANALYSIS OF GOOGLE PAY AND PAYTM

SUBMITTED BY

MISS. ROSHANI BALDEEN CHAUHAN

M.COM Semester IV
(2022-2023)

Project Submitted To “University of Mumbai”

In Partial Fulfilment for the
Award of Post Graduation Degree in M.com (Business Management)

UNDER THE GUIDANCE OF

DR. ASIF BAIG

AFFILIATED TO UNIVERSITY OF MUMBAI

GURUKUL COLLEGE OF COMMERCE
GHATKOPAR (E), MUMBAI- 400077
2023-2024
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DECLARATION

I, MS. ROSHANI BALDEEN CHAUHAN student of M.COM ADVANCED

ACCOUNTANCY III Of GURUKUL COLLEGE OF COMMERCE, Tilak
Road, Ghatkopar East, MUMBAI-400077 to hereby declare that I have
completed the project work COMPARATIVE ANALYSIS OF GOOGLE
PAY AND PAYTM as a part of academic fulfilment.

THE INFORMATION CONTENT IN THIS PROJECT WORK IS TRUE AND ORIGINAL

TO THE BEST OF MY KNOWLEDGE AND BELIEF.

SIGNATURE OF

ROSHANI BALDEEN CHAUHAN

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ACKNOWLEGEMENT

Firstly, I wish to express my sincere and heartfelt thanks to my

Project Guide
DR. ASIF BAIG, for her distinctive guidance and encouragement
throughout the project work.
I also take this opportunity to express my deep sense of gratitude to
our principal,
DR. MAMTA RANE, M. Com Co-Ordinator Dr. Mamta Rane and
our college Librarian for their continuous support to complete this
project.
Lastly, I wish to express my heartfelt gratitude to my beloved
parents and to all my friends for their encouragement and support
in
Completing this project work.
Above all I thank Lord Almighty for abundant mercies and infinite
grace which showed upon me to complete the project work.

SIGNATURE OF
ROSHANI BALDEEN CHAUHAN
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CERTIFICATE

This is to certify that ROSHANI BALDEEN CHAUHAN the

student of
GURUKUL COLLEGE OF COMMERCE Studying in
M.Com Semester III Advanced Accountancy ROSHANI
BALDEEN CHAUHAN has successfully completed the
project entitled COMPARATIVE ANALYSIS OF GOOGLE AND

PAYTM as a part of assignment under my supervision

during the academic year 2023-24.

External Guide

SIGNATURE OF GUIDE
DR.
ASIF BAIG
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INTRODUCTION

Automobile sector in India is growing fast and the growth pattern seems to
have a clear correlation with the reforms related policies thoseinfluenced both
domestic demand pattern as well as trade. India is globalmajor in the two
wheeler industry producing motor cycles, scooters andmopeds principally of
engine capacities below 200cc. The two wheelerindustry in India has grown at
a compounded annual growth rate of morethan 15% during the last five years
and Indian two wheelers complywith some of the most stringent emission and
fuel efficiency standardsmaintained world wide. In India two wheelers is the
second largest
producer in the world and the world‟s number one producer is located in
India. India is the largest tractor manufacturer, the fifth largestcommercial
vehicle manufacturer and the thirteenth largest producer of passenger cars in
the world.The Auto industry currently employs more than 30 million
people both directly and indirectly. The auto industry is a key employmentgen
erator in the OEM factory that manufacturers the vehicles, in theinbound auto
component and logistics industry that makes and deliverscomponents &
systems and the out bound logistics and dealer networkthat sells, maintains

and distributes the cars. Every vehicle produced, generates secondary and

tertiary employment. The industry generatesemployment of 13 persons for

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each truck, 6 persons for each car andfour persons for each three wheeler and
one person for two wheelers. It
is important to appreciate the sector‟s multipl
ier effect on economicactivity. If the industry produces as per its potential, it
could generateemployment of over 35 million people by 2020.

ABOUT THE GST

The GST as the biggest taxation reform and is basically a proposedtax reform
at the moment. This is indirect tax much like the VAT,Service tax,
entertainment tax, etc. and this would be levied by the stateand center in the
form of State GST and Centre GST on themanufacture, sale and consumption
of almost all goods and services allacross India. The auto industry is likely to
gain from the implementationof the GST since it is expected to reduce
logistics costs by removingtrade hurdles, paving way for more competitive
manufacturing. Theexecution of GST will remove the effect of multiplicity of
taxes on thecost of goods and services. Currently, most of car manufacturers
arelocated in few of the states in India and by some estimates, 80% of
thesecars are sold to dealers in states outside the state in which they
aremanufactured. Moreover, with the effective tax rate dropping to around18%
from up 27% fro some segments currently, it will result in lower prices
and consecutively, boost the demand for automobile with respect of taxation
and duties, cars have been classified into four categories (i)Small cars with
petrol engine capacity below 1200cc and under fourmeters in length, (ii) Mid
size cars with petrol engine below 1200cc ,(iii) Diesel engine below 1500cc ,
(iv) Luxury cars with engine capacityof 1500cc and above, (v) SUVs with
engine capacity above 1500cc, 170mm of ground clearance and longer than
four meters. On small cars, atotal tax of around 28% is levied currently which
includes VAT and
excise duty while for Mid size cars, it‟s around 39% once GST gets
implemented, the total taxes levied on cars is likely to be reduced.The industry
requires the Government to support by providing itan atmosphere that
facilitates growth. While the auto industry is focusedon generating volumes in
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the different segments to garner growth, it is inthe interest of the Government

to continue with the lower excise rates asthis will help increase volumes and
garner additional tax revenue. Hightax rates and consequent high prices of
vehicles have a harmful effect oflowering volumes, lowering gross tax
collections and ultimatelylowering growth in the auto sector.The Government
should facilitate a conducive environment forgrowth of the auto industry by
defining favorable long-term policy forinvestment. Due to the unfavorable
policy environment in the countrywhere tax rates on vehicles are getting
changed every year andGovernment is negotiating FTAs where custom duties
are likely to come

down, many international companies that had planned to enter themarket

have stalled the plan and are now considering other emergingmarkets, such as
China and Brazil.The industry has potential to grow to become a major
economiccontributor. The Government also recognizes the importance
theautomobile industry holds in the Indian economy and hence is
currentlyworking on Automotive Mission Plan 2026 to set targets for the
industryfor the year 2026 and to suggest interventions that would be critical
forgrowth of the industry. The industries identified by the Prime Minister
for “Make in India” also include the automobi
le and auto componentindustry. The Ministry of Finance has laid down the
roadmap forimplementing Goods & Services Tax (GST) from April 1, 2010
and theEmpowered Group of State Finance Ministers on Value-Added
Tax(VAT) has accepted the report of the Joint Working Group whichsuggests
a dual GST structure (a central GST and a state GST).
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IMPACT OF THE GST ON AUTOMOBILE SECTOR

The Goods and Service Tax is a single rate tax levied on themanufacture, sale
and consumption of goods as well as services at anational level. In this system
the GST is implemented only on the valueadded at every stage of production.
This will ensure there is nocascading effect of taxes (tax on tax paid) on inputs
that are used inmanufacturing goods. With the GST in place, the prices of
goods are expected to fall, and in the long term we can expect the dealers to
passon these benefits to the end consumer as well. The Automobile
industryhas seen significant disputes under central excise valuation like,
sale below the cost for market penetration, inclusion of State IndustrialPromoti
on subsidies retained by the manufacture, deductibility of pastsale discounts
from value under excise, valuation of demo cars treatmentof PDI charges and
other dealer reimbursement advertisement chargesrecovered from dealers etc.,
and sales though marketing companies andmutuality of interest. The model
GST law continues with the concept oftransaction value which is a welcome
measure, however the powers forrejection of the transaction value are very
wide, and could lead tosignificant valuation disputes.The GST is working
towards a more viable approach when itcomes to tax, which is applicable in
the manufacturing process. The taxunder the new regime which the
manufacturer has already levied in themanufacturing process in deducted when
the final product created by themanufacturer is produced in the market. Hence,
the tax on products inoverall reduced as the tax otherwise charges on the final
product doesnot include the pre charged one. The same process is followed on
thelevel of the wholesaler who sets off the tax when he purchases the
goodfrom the manufacturer and releases them in the market. The
product passes from the wholesaler to the retailer the retailer after adding valu
10

eto the product again sets off the tax when releasing the goods finally in the
market. In this chain of passing the goods from one to another, thetax sets off
at every level, releasing a bit of pressure on all the people onthe respective
stages. Hence, when the final product is released theoverall value of the good
when taxed has a marginal variation in favor ofthe consumer as to re-existing
rate of taxes. The double tax burden
is being eliminated from this region as taxes that may have been chargedand
again charged on the tax that was already paid has been done awaywith the
section, though has variations as per type of vehicle dependingon the size and
emissions by the same. Moreover the overall
compliance burden is expected to decrease and bring lots more efficiency inop
erations of the indirect tax prospective the whole country will betreated as one
market and will add to operational efficiencies.The GST will be positive for
the automotive sector,
primarily because of the efficiency and the removal of cascading that is expect
edwith GST, example a car is manufactured in a particular state andgenerally
80 percent of these cars are sold to states outside the state ofmanufactures to
dealers outside the state. So today, to straight away giveyou an example, the
two percent central sales tax (CST) that they paywill not be there tomorrow
because hopefully origin tax is not there.Even the two percent CST will be an
integrated GST (IGST) which
will be fully creditable by the dealer when he sells the car in the other state,and
even from a procurement point of the view, if there is
interstate procurement we suffer today at two percent CST which is a cost to
manufacturer, that also will not happen because those
interstate procurements will have an IGST in it which is again available as a fu
llcredit to the manufacturer if the credit rules are simple and easy. Thesecond
efficiency could be also on the input side, a bigger, more easycredit
mechanism so that all the taxes on the input side, whether it isinput services,
whether it is capital goods, whether it is manufactured products are set off
against the output liability of GST.
The GST law treats job work as a service and seeks to maintainexisting excise
procedures for the job work transactions, i.e. nontaxability of job work
transaction and providing credits to the principalfor supplies to job worker 180
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days condition for bringing back goodsafter job work. The automobile industry
for vendors to develop tools forthe manufacture of parts of automobiles. The
ownership of such tools istransferred to the OEMs, and the cost is also
recovered from OEMs.However, the tools are physically located in the
vendor's factory formanufacture of parts. As specified in model GST law the
definition ofcapital goods covers only those goods which are used at the place
of business of supply of goods. Thus, only goods which are used in the place o
f business of OEM seem to be eligible for GST credit in the
OEM‟s hands.
This could possibly result in increase in the cost oftotaling and cost for
manufacture. The automotive industry haswitnessed several cesses including
automobile cess, NCCD, tractor cess and infrastructure cess. In the discussions
on GST, the Government hasindicated its intention to subsume all Central and
State cesses into GST.The existing CENVAT credit rules the input tax credit
will beallowed only of those goods falling within specified chapters to
themodel GST law. Further the definition of inputs and input services
also provides for exclusions. Therefore, it appears that even under GST,restrict
ions on input tax credit will continue. Generally, , states providefor various
incentives including investment promotion subsidies (IPS).A majority of the
automobile manufacturers enjoy special benefits fromthe State government in
the form of State investment promotionsubsidies (IPS). This is given in the
form of refund of VAT/CST paid.The implementation of GST, taxes move
from the origin state to theconsumption state. This could result in significant
reduction of
flow back of IPS, since GST on inter state sales is not credited to the originstat
e unless on inter state sales is not credited to the origin state unlessthere is a
compensation mechanism to the states or to the OEMs withregard to the
impact on the IPS due to GST.
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EXISTING EXCISE DUTY RATES

Vehicle Category Excise Dut

y
Small cars 12.5%

Length >4m but engine capacity less than 1500 24%

cc
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SUVs/MUVs (length >4m, 30%

engine capacity >1500cc and
Ground clearance >170mm)
Hybrid cars 12.5%
Specified compnents of 6%
electric vehicles
Buses 12.5%
Trucks 12.5%
Three wheelers 12.5%
Electric cars , 6%
Buses ,2W&3W
Two Wheelers 12.5%

EXISTING IMPORT DUTY RATES

Criteria / Applicability Import Duty in %

Used Car import 125
Cars CBUs whose CIF 100
value is more than $
40000
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Or Diesel engine 100

>2500CC
Cars CBUs whole CIF 60
value is less than $
40000
And Petrol engine < 60
3000CC
Or Petrol engine 100
>3000CC
And Diesel engine 60
<2500CC

Two-wheeler CBUs with engine capacity <800 cc

60

Two-wheeler CBUs with engine capacity >=800 CC

75

Commercial Vehicle CBUs (Trucks & Buses)

20

CKD containing engine or gearbox or transmission

mechanism in pre-assembled form, but not
mountedon a chassis or a body assembly
30

CKD containing engine, gearbox and transmission

mechanism not in a pre-assembled condition
10
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TAX RATE FOR THE INDUSTRY

The tax rate on inputs and output should be fixed considering

the pattern of input purchase and output sales which varies considerably.This
has implications for the input tax credit. While vehiclemanufacturing takes
place in a few states with supply to other states(local sales account for less
than 10% of total domestic sales), themajority of components (around 70% -
80%) are procured from vendorswithin the state. If tax rate of
components/inputs is more than the taxrate at the time of supply of complete
vehicles (Completely Built Units),then refund would arise.

SUGGESTIONS OF TAX BASE & LEVY

1.Uniform rate of tax should be charged on complete vehicles(whether by way

of sale or by way of transfer) and inputs, againstwhich input credit should be
allowed.

2.Tax paid on complete vehicles on movement from factory should be made

available as input credit to the vehicle dealers.

3.Manufacturers could give state-wise break-up at periodically torespective

state governments who may settle it through theappropriate clearing house
mechanism.
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4.Considering the current level of taxation, a suitable tax rate may beadopted.
Tax rates should be uniform across states and thereshould be one authority to
which payment would be made by wayof one Challan.

5.Goods and services should be classified on the basis of HSN and GATTS (at
both central and state levels).

6.A common base should be adopted for taxation of both Central andState
GST. Under the
present taxation system, interstate sales taxand local sales tax is levied on
excise duty in respect of themanufactured goods resulting in cascading of
taxes.

7.In case of non-sale, where the transaction value of goods orservices is not
determinable and when GST is charged, a simplemechanism of valuation
could be adopted on the basis of cost.

8.Under GST, it is suggested that the basis of tax credit should be on

„Cost to Business‟, i.e. tax, which is paid and forms cost to
business should be allowed as a tax credit, both at the Central &State level.

9.The document based credit should also be dispensed with andcould be

substituted by appropriate certification by an independentChartered
Accountant (or the Appointed CompanyAuditors). Thesame could be subject
to appropriate audits by trained governmentofficers and could be IT enabled.

10. Diesel and motor spirit should be brought under GST withinput tax credit
and mechanism to avail the same. VAT on dieseland motor spirit constitutes a
significant element of cost for thetransport industry.

11.In the proposed GST system, it is not known whether thestock transfer
would remain exempted from tax (at present, salestax is not levied on Stock
Transfer) or would be made taxable inthe importing state; the industry needs to
understand the treatmentof stock transfers for the purpose of input tax credit.
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12.There should be no distinction between input and capitalgoods. Presently,

definition of Capital Goods under Central exciselaw and state VAT is not
uniform. Under State VAT, definition ofcapital goods and also the rate of
taxation vary from state to state.

13.In respect of existing exemptions having sunset clause,appropriate

transitional provisions should be introduced to ensurecontinuity of existing
benefits. A clarification is needed on howthe existing sales tax benefit schemes
e.g. loan, deferral would beaffected.

14.The State Goods and Services Tax Act, State GST Actshould be a common
Act operated/implemented by all the statesand Union Territories (similar to
present Central Sales Tax Act)covering transactions related to goods, services
and exports.

15. Concept of „Tax Invoice‟ should be continued for availing

State GST credit.

16.To ensure viability of EOU under severe competition, timelyrefund of tax is

needed. Effective refund system should be in placefor smooth operations of
EOUs. Presently, EOUs are eligible toget refund of CST on interstate purchase
of inputs used in
the production of export goods and local VAT content of the export product is
allowed to be deducted against the DTA Sales and the balance, if any, is
allowed as refund.

17.Under a dual GST structure (a Central GST and a StateGST), there could be
a situation where the Input Tax credits whichremain assizes would be refunded
to the assizes. Since the cross tilization of input tax credits should be allowed.

18.Procedural changes should be notified in advance. Theindustry should be

given 6 months lead time before theintroduction of GST.
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19.State specific incentives should be protected under GST.

GST IMPACT ON AUTOMOBILE AND SPARE PARTSINDUSTRY IN

INDIA

The automobile Industry is coping up with the GST regime as thegovernment

is very cautious particularly for this sector. The industry ofautomobiles is
tremendously big which tackles the manufacturing of avery large chunk of cars
and bikes every year. The population across thenation is also the major factor
of this turbulence as it constantly seeks fordynamic technology and newer
models. The GST subsumes almost allthe taxes under its ambit like excise,
VAT, sales tax, road tax, motorvehicle tax, registration duty which will further
benefit the proceduralways of the automobile industry.

GST IMPACT ON AUTOMOBILE INDUSTRYTHROUGH E-

COMMERCE PLATFORM

The Co-founder of Boodmo, Oleksandr Danylenko, said in astatement that, E-

commerce businesses especially auto components andlogistics of spare parts
have been adversely influenced by complex GST process. With the several
factors like uplifting of composition scheme one-commerce businessalong
with higher 28 percent tax on both auto-components and spare parts logistics
involving complex GST processhas lead to negative impact on e-commerce
start-ups concerningautomobiles industry. Automobile manufacturers were not
able to fileclaims since July and nearly Rs 1,000 crores have been stuck in
GSTrefund.Automobile exporters are in worrisome as the current GST
schemeof making paymentsupfront and claiming of input tax credit refund
isnot working properly. The working capital requirement for
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automobilesindustry has enhanced and they could consider on exports till their
issuesare not resolved. David Schock, CFO of Ford India said that
thecompensation cess has enhanced to 1-22 percent under GST, earlier itwas
1-4 percent. Discussing on issues faced by automobile exporters,Society of
Indian Automobile Manufacturers (SIAM) Deputy DirectorGeneral Sugato
Sen said that, the automobile companies which areespecially dealing in export
are facing problems, as the current GST system of making payments upfront
and claiming of refund tax systemindirect tax regime is not working properly
under ST

.However, going in deep and bifurcating per product impact will besenseless
as the GST rules and ratesmay get a shuffle due to individual exemptions and
incentives provided according to the model and its growth.

GOVERNMENT NOTIFIED GST TAX ON AUTOMOBILES

Category Engine Pre GST Post GST Cess Final

Under-4meters Under 1.2-liter petrol 31.5% 28%+1% 29%

Under- 4 meter Under 1.5-liter diesel 33.25% 28%+3% 31%

Under- 4 meter Above 1.2-liter petrol 44.7% 28%+19% 47%

or 1.5-liter diesel
Above Above 1.2-liter 51.6% 28%+25% 53%
4-meters petrol or 1.5-liter
diesel
SUVs _ 55% 28%+29% 57%
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In the previous form of taxation, advance received on goods supplyis not

attracting Excise/VAT and composite rate while in some of thestates there is
VAT applicable on used cars sales. While many of thestates do make available
OEM Original Equipment Manufacturers(OEMs)/component manufacturer
linked with a various investmentlinked incentive scheme. The significant
components can be consideredas interest-free loans and subsidies being
attached with CST/VAT paidon the sales.Read Also: GST vs VAT: Simple
Way to Describe the DifferencesIt is also learned that the selling of goods and
services unattached to aform of consideration is exempted from taxes under
the service tax andVAT. While the dealers and importers are not eligible for
the excise dutyand CVD which is paid by the OEMs (Original
EquipmentManufacturer). The current tax rules mentioned that VAT/CST is
notapplicable but excise duty is certainly on the tax part while transferringany
goods from the manufacturers place and factories. As these vehicleshave
exemptions from auto cess/Nccd: electrically operated vehicles,three-wheeled

vehicles, hydrogen vehicles based on fuel cell technology, vehicles used

solely as taxis, the ones used by physically handicapped persons, hospital

ambulances.
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GST IMPACT ON INDIAN AUTOMOBILE INDUSTRY

Overall it is defined that the GST impact on the automobileindustry is less than
the previous tax scheme due to the lowered taxscenario. As the automobile
industry has already gone through sometough situations like demonetization
and after which emissions normsrule hit the grounds of automobiles sector. It
is now done that theindustry will get benefits out of GST
with minimum hassle-free procedures and rate fixation across the nation.As
there will be more or less similar case for the smaller cars dueto the analytics
of rates comparing from both the pre-GST and post-GSTeffects. The tax
scenario has been adjusted in between 1 to 15 percent inwhich the small cars
are being charged with 1% Cess rate with 28%GST while talking about the
middle sized cars it is being levied with the3% Cess and for the luxury cars
segment, it is fixed at 25% Cess.Recommended: GST Master Class: Schedule
and Time Table for LiveStreaming

IRONY OF GST ON SPARE PARTS: TAX ON

HIGHESTLEVEL

According to the recently surfaced, spare parts bill of anautomobile, it seems

that the GST rates are a big issue within theindustry. On a bill of 35,000, it was
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seen that a tax of 10000 was levied.It was a hefty charge upon the billing as
tax amount is taking a toll onthe pockets of the consumers.A tax rate of 28
percent on the spare parts is a heavy tax rate asmost of the consumer base pay
the charges on a natural act of wear andtear or upon accidental damages.
Bringing such a heavy tax rate uponsuch incidents have made the market much
more sensitive regarding the price issues.As the spare parts of vehicles both
commercial and private hadfallen into the bracket of highest slab rate i.e. 28
percent, it made amisery moments for the spare parts trading community.
Also, thecomplex compliance makes it more vicious for the traders to indulge
inany kind of taxing activity. The trading of spare parts is completelydisrupted
after the implementation of GST including the much-hyped
Delhi’s Hamilton road.
Many of the traders complained that the GST made their businessto the lowest
rank and are expecting only 10 percent of the business ofwhat they were
earlier doing. The tax rates of 28 percent are much of taxes.

ON THE BASIES OF THIS , THE CONCLUSION COMES

AT:

 Luxury cars-The tax rates are combined at 42 to 45% in the GSTera as

compared to more than 50% above rates previously and hasmade a cheap tax
rate scenario for the luxury cars GST rates.

 Small cars-The earlier tax rates were concluded at 29% includingVAT and
other local levies while in the GST scenario, the sameimpact is created with
28% GST and 1% cess rate on it.

 Hybrid cars-The biggest damage considered in the automobilesector can be

attributed to the hybrid vehicle despite its promisingfuture in the
environmental sustainability. It has been levied with28% GST rates along with
the 25% extra cess on it.
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 Spare Parts- Spare parts are levied with 28% tax rate which ishighest of the
slab. Although the tax rates are recovered in initialstate but the government
choose to carry forward tax scenario onsecondary items also.

While it is totally upon the discretion of automobile manufacturers to increase

or decrease the prices of vehicles, it is to be seen inupcoming future to have
stable effects on the whole industry

GST BECOMES POSITIVE FOR COMMERCIALVEHICLES

SALES

As soon the GST got to see the day of light in India, there weresome foremost
benefits emerged in the economy as well as in many ofthe sectors. One of
them is automobiles sectors, including all thesegments, passengers as well as
commercial vehicle segments. Also,the GST e-way bill made some
possibilitiesfor the vehicles to roam freewithout any border checking.In the
same manner, the commercial vehicles are now way muchahead in
productivity than earlier situations. The logistics companies areconsidering to
increase the inventory of the commercial vehicle as thevehicles are now
capable to take the much higher load and can transporteh cargo in much less
time than previously taken.
Binaifer Jehani, director, CRISIL Research stated that “As hubs get
bigger, and more concentrated for a few industries, preference will shiftto
much higher-tonnage HCVs (towards 37T multi-axle vehicles andhigher-
tonnage tractor-trailers). Also, new product offerings by OEMs inthe higher
tonnage intermediate commercial vehicles (ICVs) segment
will continue to gain traction along the spoke routes.”
The automobile manufacturer is also in discussion to make highercapacity
vehicles to serve the industry which is ready to offer an order ofcommercial
vehicles in anytime soon. The sales trend in the 35T, 40T,49T tractor-trailer
segment has been providing much evident proof thatthe logistics industry will
24

be improving soon.With GST in the picture, good roads with better

compliance procedure in the middle of the journey as well as better technology
hasgiven a positive hint to the automobile manufacturers to make more
andmore commercial vehicle. Tata Motors, Ashok Leyland,
BharatBenz,Mahindra & Mahindra and VE Commercial vehicles are some of
thevehicle providers who are standing in the first row to cater theevergrowing
logistics industry.

LUXURY CARMAKER MERCEDES OBJECTION

Even Mercedes Benz is not at all happy with the frequent tax ratechanges done
by the GST Council. Earlier in July when the GST wasimplemented across the

nation, there was not much-known information available on the topic but

now as the time passes, it has unveiled that theactual implementation has taken
a toll on various business.The impact has certainly reached to the luxury
carmaker Mercedes andhas gone up to say that frequent tax rate changes may
take away
future projections under anonymity. The luxury cars put down into sin taxcate
gory with an increased charge of Cess overall taking the tax incidentup to 50
percent on various models.The sale of luxury automobiles is already under
lower stats andhigher tax applicability will take away its chance to grow
further in thecountry. The carmaker also made some unexpected comments
and saidthat there is higher risk involved in planning as the government tax
ratetweaking is more than enough.
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AUTO SECTOR WANTS THE GOVERNMENT TOELIMINATE CESS ON

CARS UNDER GST
The sharing of GDP in the automobile sector of the country is
7 percent, so it is important to discuss this issue in the budget. With thefifth
position in four-wheeler sales and first position in the sales of two-wheelers,
India is the largest automobile market in the world.

OCIETY OF INDIAN AUTOMOBILE MANUFACTURER

(SIAM) Association had demanded earlier this year that
all passenger vehicles should be categorized into two separate slab rates.

under GST. Currently, 28 percent tax and an additional 1 percent cessare being
levied on small petrol cars whereas 28 percent tax and anadditional 3 percent
cess is being imposed on small diesel cars. All othercars including Hybrid ones
attract a 28 percent GST and an additional
15 percent cess. SIAM is demanding that the government should removethe
26

cess completely from all these cars. However, this is not expected tohappen as
the government cannot actually remove cess from allcategories of cars.

CHAPTER:-3
REVIEW OF LITERATURE

The structure and loopholes of the Goods and Services Tax inIndia
was examined in the first discussion paper of the EmpoweredCommittee of
Finance Ministers (2009). Poddar & Ahmad (2009)discuss different aspects of
GST implementation, relating to
the principles, issues, and procedures. The paper cited the introduction ofGST
to be the most significant tax reform in India, increasing taxcompliance and
transparency. Vasanthagopal (2011) focussed on howGST would be a
significant improvement over the prevalent complexindirect tax system in the
context of different sectors in the economy.FICCI (April 2013) emphasized
GST to be a necessary condition forachieving double digit growth in India,
provided all the stakeholders
are prepared for the change. Mawuli (2014) suggested GST to be less than10%
in low income countries to mitigate the adverse effect of GST.
Kumar (2014) highlighted GST’s role in eliminating economic
27

distortions by enabling the developing a unified national market with

acommon tax rate. Pinki and Verma (2014) illustrated that GST wouldresult in
a number of benefits for all the stakeholders involved,consumers, government
at the central and state level. The study alsohighlighted robust IT infrastructure
to be imperative for GST to beimplemented successfully. Sehrawat and
Dhanda (2015) concluded GST to result in increased output, employment and
economic growth, owingto greater transparency. Caruso et al. (2016)
suggested GST to aideconomic development of India and also lead to an
increase in the GDP by more than 2%. Khurana & Sharma (2016) point to the
role of set offsavailable, as an advantage to the producers and consumers in the
Indianeconomy. Rizwana (2016) found GST to have a positive impact on
theemployment and economic stability, thus improving the growth prospects
of India. Kumar (2016) compares GST and the present systemof taxation and
mentions tax credit set off to be an importantdistinguishing factor.
Lourdunathan & Xavier (2017) discuss thechallenges in implementation of
GST and identify prospects of GST thatwould benefit the producers and
consumers. The prior literaturediscusses GST as a concept and illustrates its
benefits theoretically.Empirically, the focus on the impact of GST on
economic growth,employment exists. The present study attempts to fill this
research
gap by empirically examining the impact of GST on the two chosen sectorsof
the economy
–
Real Estate and Automobiles sector, with significantcontribution to the
economic growth. The study also provides acomprehensive view on the GST
implementation in this context.

AUTOMOBILE SECTOR

India’s automobile exports contracted 9.7% during the first quarter

28

of this fiscal year with a growth of approximately 1.91% over

the previous fiscal year, with commercial vehicle segment leading theexport
growth. The automobile industry seems to be thrilled with thenotion of a
simplified tax regime, which can be achieved through theintroduction of GST.
The current tax structure on automobiles is riddledwith complexities.
Currently, automobile sales are subject to sixdifferent types of tax at various
rates, which includes Excise Duty,Infrastructure Cess, Octroi, VAT, Motor
Vehicle Tax/Road Tax and TaxCollected at Source (TCS). At present, the
excise duties on vehicles aredivided into four slabs, in which the smallest tax
rate is applicable tosmall cars. The current indirect tax provision comprises
of: Small cars(less than 1200 cc) attract 27.6% tax (Excise Duty 12.50% + sees
1.1 %+ VAT 14%)

 Medium cars (1200 cc - 1500 cc) attract 39.1% tax(Excise Duty 24% + sees 1.1
% + VAT 14%).

 Luxury cars (beyond1500 cc) attract 42.1% tax (Excise 27% + sees 1.1 % +
VAT 14%).

 SUVs (beyond 1500 cc) attract 45.1% tax (Excise Duty 30% + sees 1.1% +
VAT 14%).

 Owing to different types of indirect taxes collected bythe Centre and State
separately, taxes paid on some of the inputs werenot set-off against the final tax.
With the GST implementation, theautomobile industry will be benefited in the
following ways: Taxeslevied by the Central government, such as Excise Duty
and by stategovernments as Sales Tax would b
 subsumed into one tax uniform tax.If the proposed tax rate of 18-20% are approved,
the prices of vehicleare expected to decrease by almost 8-18%,

 which will then lead to increase in demand for automobiles in the domestic
market but will alsomake India-made vehicles more cost-competitive in
export markets. Allinput taxes paid will be offset against the output liability of GST.
29

 SinceCST will be subsumed in GST, manufacturers will no longer be requiredto have

warehouses at multiple

 locations across states. The overallcompliance burden is expected to decrease and

bring lots moreefficiency in operations.

 Due to complexities in the current taxstructure Foreign investors were reluctant to

invest in India,
primari because of the country’s regulatory and bureaucratic complexities. A
successful enactment of the new indirect tax regime would have
atransformative effect on FDI in India. Since GST will also lessenoverall
production cost and hassles, thereby encouraging domestic aswell
as international car manufacturers to expand their businesses andmake Indian
products more qualitative and competitive across the world.While the
automobile industry is betting big on the new indirecttax regime, it still has
some apprehensions of the same: How will thenew rates be decided? Will
there be a uniform rate for all sizes of cars?Will they all fall under

 the same 18-20% tax rate bracket? TheAutomobile industry has seen significant
disputes under central excisevaluation.
 The GST law continue with the concept of 'transactionvalue' which is a welcome
measure, however the powers for rejection ofthe transaction value are very wide, and
could lead to significan
valuation disputes. The job work process is the backbone forautomobile industry
operations. The GST law treats 'job work' as aservice and seeks to maintain existing
excise procedures. However,some more clarity is needed in the conceptual
framework for job workas it will pose as a challenge. Lack of clarity on subsuming of
variouscases applicable in the automobile industry.

 In the proposed GSTsystem, it is not known whether the stock transfer

would remain exemptfrom tax
30

 (at present, sales tax is not levied on Stock Transfer) or would be made
taxable in the importing state; the industry needs to understandthe
treatment of stock transfers for input tax credit. Dealer
incentiveSchemes and MOU with the states.

 Overall economic activity isexpected to increase and we could expect a

better GDP growth thatshould push demand for vehicle across
categories. Impact of Taxcascading will also go away that will reduce
overall cost of vehiclemanufacturing as all taxes on input paid will be
offset with the outputliability of GST. The industry should be given
sufficient lead time foradaptation before the introduction of GST
 The Indian automobile market can be divided into several segmentsviz., two-
wheelers (motorcycles, geared and ungeared scooters andmopeds), three
wheelers, commercial vehicles (light, medium andheavy), passenger cars,
utility vehicles (UVs) and tractors.

 Demand is linked to economic growth and rise in income levels.Further, it is

inversely related to the interest rates and fuel prices as85% of the total
vehicles are bought on credit. Per capita penetrationat around eighteen cars
per thousand people is among the lowest inthe world (including other
developing economies like Pakistan insegments like cars).

 While the industry is highly capital intensive in nature in case offour-

wheelers, capital intensity is a lot less for two-wheelers.Though three-
wheelers and tractors have low barriers to entry interms of technology, four
wheelers are technology intensive. Costsinvolved in branding, distribution
network and spare partsavailability increase entry barriers. With the Indian
market movingtowards complying with global standards, capital expenditure
willrise to take into account future safety regulations.
31

 As compared to their global counterparts, both the two-wheeler aswell as

four wheeler segments are relatively lesser fragmented.However, things have
changed, especially on the passenger cars.
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CHAPTER:- 3 RESEARCH METHODOLOGY

 The Indian automobile market can be divided into several segmentsviz., two-
wheelers (motorcycles, geared and ungeared scooters andmopeds), three
wheelers, commercial vehicles (light, medium andheavy), passenger cars,
utility vehicles (UVs) and tractors.

 Demand is linked to economic growth and rise in income levels.Further, it is

inversely related to the interest rates and fuel prices as85% of the total vehicles
are bought on credit. Per capita penetrationat around eighteen cars per
thousand people is among the lowest inthe world (including other developing
economies like Pakistan insegments like cars).

 While the industry is highly capital intensive in nature in case offour-wheelers,

capital intensity is a lot less for two-wheelers.Though three-wheelers and
41

tractors have low barriers to entry interms of technology, four wheelers are
technology intensive. Costsinvolved in branding, distribution network and
spare partsavailability increase entry barriers. With the Indian market
movingtowards complying with global standards, capital expenditure willrise
to take into account future safety regulations.

 As compared to their global counterparts, both the two-wheeler aswell as four

wheeler segments are relatively lesser fragmented.However, things have
changed, especially on the passenger cars

FINANCIAL YEAR 16

 A total of 18.9 m two-wheelers was sold in FY16, a growth of atepid 2% over

the previous year. The slow growth was on accountof the tepid recovery in the
Indian economy. Motorcycles accountedfor 65% of the total two wheelers sold
and were flat YoY. Thescooters (geared & ungeared) segment was the only

hope the twowheeler industry logging in a growth rate of 8% YoY. In the

domestic market, volumes in the 3-wheeler segment were up 1%YoY.

However, given the currency issues in the major emergingeconomies the
exports declined by 15% YoY.
42

 After good growth in last year, FY16 also proved to be strong yearfor the
medium and heavy commercial vehicles (M/HCVs) segmentas volumes
increased 28% led by reversal of mining bans,resumption of some stalled
infrastructure projects, improvement infreight rates and overall operations of
fleet operators. LCVs, afterfacing a heat in FY15 continued the tepid trend and
was flat for theyear. As a result, volumes for the overall CV industry grew by
12%YoY.

 Volumes of passenger vehicles (PV) declined by 1% YoY. Withinthis,

passenger cars grew by 6% YoY, however with some exciting products
launched in FY16, the Utility vehicles (UVs) grew by 11%.

In the 2-wheeler segment, motorcycles are expected to witness aflurry of new

model launches. Though the market size is expected togrow by 10% to 12%,
competitive pressure could keep prices andmargins under control. TVS, Honda
and Hero Motocorp willcontinue to benefit from higher demand for ungeared
scooters in theurban and rural markets. In the last four years, scooters have
grownat a faster clip than motorcycles and this trend is expected tocontinue
going forward. The 3 wheeler industry, where Bajaj Autois the market leader,
is also poised for growth on the back of new permits and increase in exports.

o While good monsoon is a positive for the tractor sector, assumingthat non-
farm incomes climb up, volumes should hold up well in thelonger run despite
a year or two of poor monsoons. The longer-
term picture is healthy in light of poor mechanization levels in the
o country’s farm sector and the thrust of the government on
o improving rural infrastructure.

o Demand for HCVs is expected to grow by 7% to 8% over the longterm. The

privatization of select state transport undertakings bodeswell for the bus
segment.
43

IMPACT ON COST OF PRODUCTION

ANDDISTRIBUTION:

Under the present tax structure, the OEMs are eligible for input taxcredit of
Central Excise Duty and VAT on their procurement of inputsand capital goods
as well as for input tax credit of service tax on most ofthe services they avail.
Their transactions are with registered entities andcredit chain is well
established to capture and avail of the input taxcredits eligible. However, in
the current structure there are inherentlimitations on credit eligibility whereas
under GST, input tax creditwould be fully allowed barring a few exceptions,
44

thereby cost incidenceof tax paid at earlier stage in the supply chain would be
totally avoided.This would lead to tax neutrality in both inward and
outwardtransactions and business decisions can be made based purely
onoperating efficiency rather than on tax considerations. All this in
effectwould reduce the cost of procurement & production as well as cost

ofdistribution which would be the biggest benefit to industry in GST. The .

main potential areas for saving / additional benefit under GST are asfollows
:a) Saving of 2% CST on inter- state procurement.
B)Saving in VAT surrender where the sales to customers in other Statesare
routed through depots - commercial vehicles as well as on transfersof semi-
finished goods to other factories
–
4% or even more ofcorresponding purchases within State.
c) Saving in octroi/ LBT/ Entry Taxes without credit on procurement.
d) Input tax credit on outward transportation
net benefit where thevehicles are sold through depot commercial vehicles.
e)Vendor price reductions for corresponding benefits in supply chainas also
towards excise duty on any transactions in the supply chain withentities not
registered. Tax cascading effects in supply chain which caninvolve 3/4 levels
will be avoided and which can also be built innegotiations.

f)Wider input tax credit availability e.g. warranty parts, servicesrelated to

trading activities, items like furniture, office equipment etc.currently out of
credit chain.
45

g) Rationalization of procurement decisions due to flexibility arising outof tax

neutrality e.g. decisions on job work, location of vendor no bar,level of
assembly
all decisions can be made based on operatingefficiency alone.
h) Rationalization of vendor base.
i)Tax neutrality will support procurement of higher level assemblies
andconsequently more outsourcing if economical.
j) Realignment of production processes even if the units are in twodifferent
States e.g. centralized production of certain components and itssupply to other
units if operationally more efficient.
k) Eventually, vendors will also rationalize their processes andlocations to
optimize costs.
l)Realignment of distribution chain e.g. with no specific tax benefit toanyone
in effecting sales through depots, depot operations can berestricted only based
on business needs e.g. proximity to customer
and possibilities of more direct sales from factory can be explored. Theconcept
s like regional depots at central places to cater to dealers in morethan one State
due to tax neutrality and have the benefit of existence ofdepot at lower cost,
bulk transportation by railway or even waterways upto certain central place for
further distribution there from without taximplication etc. can be put through.
m)Saving in current cost of non-abatement of Excise Duty on post-sale
incentives,However, the requirement for working capital on inventory at
allstages in factory, at depots, in transit, at dealerships will go up
with blocking of more funds in taxes in the absence of transactions aconcessal.
46

While the scope for input tax credit is widened, compliance effortfor the same
would considerably go up with credit matching concept andnew issues on
reconciliation will arise.
IMPACT ON THE STATE INCENTIVE SUBSIDIES ONCURRENT
INVESTMENTS / AREA BASED CENTRALEXCISE EXEMPTION
IN UTTARAKHAND

Most of large OEMs have made huge investments in particularStates providing

special incentives and are currently availing
various package scheme incentives from the respective State governments.The
se schemes provide for payment of incentive based on the outputState
VAT/CST paid on the sales made from that State net of input taxcredit availed
in the particular State. In some cases the refund
is provided for the State taxes paid on the gross basis. Further in someStates
there is upfront exemption from payment of sales tax.With the advent of GST
Regime the entire taxation concept forgoods would be moving from origin
based taxation to destination basedconsumption tax. Hence an OEM which is
having a plant in a State andis making interstate sale from that plant, under
GST Regime it
would pay IGST which would accrue to the receiving State. Under the currentr
egime the OEM would have paid CST which was collected by theoriginating

State. Therefore, in GST Regime the concerned State.

INPUT TAX CREDIT ON GST TRANSITION STOCK:

This may not normally be a major issue for OEMs at their factoriessince
purchases are from registered entities and credits will be carriedforward on the
47

basis of returns. However, during transition, ensuring thatcredit is timely

availed for all receipts will be challenge due to largevolumes and diverse
locations, though well set processes exist. Thedepots, predominantly in
commercial vehicles, will have Excise Invoicesas they receive vehicles from
OEM factories. Problem would berestricted to any vehicles transferred from
other depots without ExciseInvoice but the depot registrations and provision
introduced for CreditTransfer Document will help in most such cases.As far as
dealers are concerned, in Cars and two wheelers, wherethere are direct sales to
dealers, the dealers will have Excise invoices. Asfor sales from
depots, ,commonly done in commercial vehicles, depotregistrations have been
taken by OEMs so that the dealers have exciseinvoices and problem is
restricted to old stock prior to such arrangement.The provision introduced for
Credit Transfer Document will help herealso in most cases.
The ‘eligible duties’ on which credit is available to traders on
transition do not include Infra-structure cess applicable on Cars. To thatextent,
credit will not be available to the dealers on the transition stockand the same
would be a cost.

FINANCE, ACCOUNTING, COSTING, LEGALCOMPLIANCE, TAX

ADMINISTRATION, IT,TRAINING ETC.
The areas of implication which could be favourable or adverse aswell as the
areas which would need lot of effort are:
(a) Overall reduction in cost but working capital requirement likely to goup.
Continuation of quantum of Government incentives can be a concernfor some
OEMs.

(b) Current VAT accumulation problem at manufacturing locations(due to

transfers to depots/ CST sales at 2%) will not be there but the problem may
shift to depots and need close monitoring .

(c) Easier compliance in some matters e.g. no Section4A / Rule 10Avaluation, no

GAQ computation on stock transfers, lesser classificationissues, no Forms
collection, no issue of pre-determined sale etc
48

(d) Big challenge of setting up new internal processes, accounting andIT system to
comply with GST provisions in particular with newconcepts like tax on
advances received (a common practice inautomobiles), credit matching,
taxability of internal services, newvaluation provisions, extension of related
person concept & coverage ofemployees therein, ITC at depots, concept of
composite supply and
in particular its implications in services etc., some of which are verydifficult to
implement in OEMs who have complex operations and organization. Carried
forward issues under old laws like assessments,litigations etc. will
simultaneously continue.
(e) Study of cost implication at Vendor end and re-negotiate
the prices. Similarly, study of the cost implications
at dealer end and dealerincentive schemes and re- work compensation and
incentive schemes.Dealer incentives will have to be passed on with invoice
reference.
(f) Re- working of product and services pricing
.(g) Extensive training –
internal as well as external to Vendors andDealers as they become partners in
credit chain and any tax optimizationefforts.
(h)Absence of LTU & Centralized Service Tax registration underGST
major tax administration concern for several companies operatingunder the
same. Internal monitoring processes will change
.(i)Tax function at States / depots / branches will have to be strengtheneddue to
State level compliances and changes will be required in internalmonitoring
process
.(j) Compliance of anti-profiteering provisions .
(k) Raising of self- invoicing on all purchases from
unregistered persons. Plain reading and absence of clarification results in all i
mportsalso requiring self- invoicing - compliance efforts.
49

GST ON PETROLEUM PRODUCTS

–
A LOSTOPPORTUNITY:
The diesel, petrol and CNG are and can reasonably be expected tocontinue for
next few years at least to be the main fuel for MotorVehicles on Indian roads.
They constitute largest part of the cost ofrunning a Motor Vehicle. As such,
any policies concerning them
have bearing on automobile industry. Diesel and petrol are heavily taxed by bo
th the Centre and the States. Their inclusion in GST and theconsequent
benefits to Petroleum companies could rationalize their prices and also
made extension of full GST principles to transport sector possible. This could
possibly have helped Automobile sector in terms ofdemand for Motor
Vehicles. However, with the decision to defer GSTimplementation for
petroleum products for the time being, theautomobile industry has lost the
opportunity till the policy decision ismade to include petroleum products under
GST.

LONG TERM IMPACT ON ITS OWN PRODUCTS?

The tax neutrality because of GST would remove one barrier viz.tax cost in
free movement of goods within country. Government isseriously pursuing the
initiatives to reduce the road transportation timethrough improvement of road
infrastructure as well as through variousmeasures to reduce time involved in
any procedural issues in transit.One such initiative being implemented along
with GST is E way bill.
50

PROSPECTS

 With the Modi government in power, there are expectations

ofincreased focus on reforms and ramp up in infrastructure.
Thus,government spending on infrastructure in roads and airports
andhigher GDP growth in the future will benefit the auto sector
ingeneral. We expect a slew of launches both in passenger cars
andutility vehicles (UVs) given that the competition has intensified.

 The multi-year low interest rates and subdued petrol prices augurswell
for the Indian auto sector. Historically, the demand for the PVshas been
negatively correlated to the interest rates. Further, the 7th pay
commission payout will also play out well for the auto Industryin
FY17.

 Historically, the Indian Passenger car market has been skewedtowards

small passenger cars. However, there is a structural changetaking place
in the industry with demand for UVs taking over
the passenger car. This shift is paving a way towards new avenues ofth
e growth and will result in a more profitable growth for the sector.

 In the 2-wheeler segment, motorcycles are expected to witness aflurry

of new model launches. Though the market size is expected togrow by
10% to 12%, competitive pressure could keep prices andmargins under
51

control. TVS, Honda and Hero Motocorp willcontinue to benefit from

higher demand for ungeared scooters in theurban and rural markets. In
the last four years, scooters have grownat a faster clip than motorcycles
and this trend is expected tocontinue going forward. The 3 wheeler
industry, where Bajaj Autois the market leader, is also poised for
growth on the back of new permits and increase in exports.

 While good monsoon is a positive for the tractor sector, assumingthat

non-farm incomes climb up, volumes should hold up well in thelonger
run despite a year or two of poor monsoons. The longer-
term picture is healthy in light of poor mechanization levels in the
country’s farm sector and the thrust of the government on improving
rural infrastructure.
 Demand for HCVs is expected to grow by 7% to 8% over the longterm.
The privatization of select state transport undertakings bodeswell for
the bus segment.
52