GOODS AND SERVICE TAX

(GST)
Prof. Vaibhav S Arwade
Soundarya Institute Of Management And Science, Bangalore
vaibhavarwade@soundaryainstitutions.in
DIRECT AND INDIRECT TAXES
INTRODUCTION

• Goods and Service Tax is very much similar to Value Added Tax, where tax
is levied on value addition in goods and service and tax paid on inputs
(goods and services) can be claimed as credit.
• It was first introduced in France in 1954 and today almost 160 countries
have adopted it and many more are in the process of adoption.
• There are two systems of GST. i.e., Unified GST and Dual GST.
HISTORY
• Feb, 2006: First time introduced concept of GST and announced the date
of its implementation in 2010.
• Jan. 2007: First GST study by ASSOCHAM (The Associated Chambers of
Commerce & Industry of India )(ASSOCHAM) is the country's oldest apex
chamber. released by Dr. Shome.
• Feb. 2007: F.M. Announced introduction of GST from 1 April 2010 in
Budget, Since then, GST missed several deadlines and continued to be
shrouded by the clouds of uncertainty.
• The Government came out with a First Discussion Paper on GST in
November, 2009
• Introduced the 115th Constitution Amendment (GST) Bill in the year
2011, but failed to implement GST.
HISTORY
• In 2014, NDA Government presented The Constitution (122nd Amendment) Bill
on GST in parliament on 19th December, 2014. The Lok Sabha passed the Bill on
6th May, 2015 and Rajya Sabha on 3rd August, 2016. Finally the Bill received the
assent of President on 8th September 2016 and became Constitution (101st
Amendment) Act, 2016 which paved way for introduction of GST.
• In the year 2017, Four Bills relating to GST were introduced in Lok Sabha on 27th
March, 2017
✓ Central Goods and Services Tax Bill, 2017.
✓ Integrated Goods and Services Tax Bill, 2017.
✓ Union Territory Goods and Services Tax Bill, 2017.
✓ Goods and Services Tax (Compensation to States) Bill, 2017.
These Bills were passed on 29th March, 2017 and received the assent of
President on 12 April, 2017.
HISTORY

• The enactment of the Central Acts is being followed by the enactment of

the State GST laws by various State Legislatures, like Telangana, Rajasthan,
Chhattisgarh, Punjab, Goa and Bihar are the among the first ones to pass
their respective State GST laws.
• Finally, by achieving consensus on all the issues relating thereto, the GST
is set to be implemented from 1st July, 2017 across India.
THE KELKAR TASK FORCE COMMITTEE FOR TAX
REFORMS
• The Kelkar Task Force was constituted with the mandate to recommend
measures to enable the Government of India to implement the Fiscal
Responsibility and Budget Management (FRBM) Act2003, which seeks to
eliminate revenue deficit by March 31st, 2008.
• As the main proposal for tax reform, Dr.Vijay Kelkar and his team have
recommended a single GST(Goods and Services Tax) - replacing the
Cenvat/excise duty, sales tax, service tax, etc. It would use the VAT
principle to tax consumption of almost all goods and services - with full
tax
THE KELKAR TASK FORCE COMMITTEE FOR TAX
REFORMS
• The Task Force has suggested Unified GST (A single GST) which classically
entails unification of all levies on goods and services. In the Indian
context, this would mean merging the following:
 ax on manufacture of goods (excise duty levied by the Centre).
 Tax on sale of goods (CST / VAT levied by both Centre and states).
 Tax on services (levied by Centre and to some extent by states such as
Entertainment tax ,electricity cess, etc.)
But, The Empowered Committee of State Finance Ministers has proposed a
dual GST - both at Central and State level.
TAX EVASION UNDER GST
• To check tax evasion, the Task Force has proposed an IT-intensive 'Risk
Intelligence Network' (RIN).This would put three sets of databases together
 What the firm tells CBDT, Central Board of Direct Taxes
 What it tells CBIC Central Board of Indirect Taxes and Customs, and
 What it puts forth to the public, including shareholders.
An information network allowing states to cross-check payment information
(TINXSYS) has been put to trial and is expected to improve compliance and reduce
evasion. What is needed is an IT system like the Tax Information Network (TIN),
where the TDS or the VAT credit is recorded in a central database. Through this,
paper bills and fraud are largely eliminated. It is unfair to expect such an initiative to
come from the committee working on state VAT, given the lack of sustained
organizational capacity required.
MEANING OF GST
• Goods and Services Tax is a comprehensive tax levy on manufacture, sales
and consumption of goods and services at national level. Through a tax
credit mechanism, this tax is collected on value added goods and services
at each stage of sale or purchase in the supply chain.
• The system allows the set off of GST paid on the procurement of goods and
services against the GST which is payable on the supply of goods or
services. However, the end consumer bears this tax as he is the last person
in the supply chain.
• Experts say that GST is likely to improve tax collections and boost India's
economic development by breaking tax barriers between States and
integrating India through a uniform tax rate.
 DIFFERENCE BETWEEN DIRECT AND INDIRECT TAX
Basis Direct tax Indirect tax
Meaning The tax that is levied by the government directly The tax that is levied by the government on one
on the individuals or corporations. entity (manufacturer of goods), but is passed on
to the final consumer by the manufacturer.

Incidence The incidence and impact of the direct tax falls on The incidence and impact of the direct tax falls
the same person. Ex: Income Tax, Wealth Tax. on different persons. Ex: GST, Excise Duty.

Nature They are Progressive in nature. it means that the They are regressive in nature. they tend to have a
tax rate increases as the taxable income of an greater impact on low-income earners than on
individual or entity increases high-income earners.

Objective Both Social and Economical Only Economical- Both Rich and Poor must pay
Social- Distribution of Income. the at the same rate.

Impact Not at all Inflationary Is Inflationary This is because indirect taxes

increase the cost of goods and services, which
can lead to an increase in prices.
 DIFFERENCE BETWEEN DIRECT AND INDIRECT TAX
Context Direct Tax Indirect Tax

1. Imposed on Income and profits All the goods and services

2. Who pays Individuals and businesses End-consumers

3. How much Depends on income and profits Same for everyone

4. Transferability Not transferable Transferable

5. Tax Evasion Possible Not possible

6. Nature Progressive Regressive

7. Collections Complex Convenient

8. Common examples Income tax and securities transaction GST, excise duty, and VAT
tax
OBJECTIVES OF GST
1. To ensure One Country - One Tax.
2. To ensure consumption based tax.
3. To ensure Uniform GST Registration, payment and Input tax Credit.
4. To eliminate the cascading effect of Indirect taxes on single transaction.
5. To ensure the subsummation of all indirect taxes under the Centre and
State Level.
6. To reduce tax evasion and corruption.
7. To increase productivity.
8. To increase Tax to GDP Ratio and revenue surplus.
9. To increase Compliance.
10.To reduce economic distortions.
SALIENT FEATURES OF GST ACT IN INDIA
1. GST, or Goods and Services Tax, will subsume (includes) central indirect taxes
like excise duty, countervailing duty and service tax, as also state levies like
value added tax, octroi and entry tax, luxury tax.
2. The final consumer will bear only the GST charged by the last dealer in the
supply chain, with set-off benefits at all the previous stages.
3. Apply to all taxable supplies of goods or services (as against manufacture, sale
or provision of service) made for a consideration except.
 Exempted goods or services - common list for CGST & SGST.
 Goods or services outside the purview of GST.
 Transactions below threshold limits.
SALIENT FEATURES OF GST ACT IN INDIA
4. It will have two components- Central GST levied by the Centre and State GST
levied by the states.
5. 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, on the
recommendations of the GST Council.
6. CGST and SGST on intra-State supplies of goods or services in India.
7. IGST (Integrated GST) on inter-State supplies of goods or services in India -
levied and collected by the Centre.
8. IGST applicable to
 Import of goods and services.
 Inter-state stock transfers of goods and services.
 SALIENT FEATURES OF GST ACT IN INDIA
9. Export of goods and services - Zero rated.
 All goods or services likely to be covered under GST except:
 Alcohol for human consumption - State Excise plus VAT
 Electricity - Electricity Duty
 Real Estate - Stamp Duty plus Property Taxes
 Petroleum Products (to be brought under GST from date to be notified on
recommendation of GST Council).
10. Tobacco Products under GST with Central Excise duty.
11. Uniform return & collection procedure for central and state GST.
12. The GST Council is to consist of the union finance minister as chairman, the union
minister of state of finance and the finance minister of each state.
SALIENT FEATURES OF GST ACT IN INDIA

13. Uniform classification and Harmonized System of Nomenclature (HSN)

to be applied for goods.
14. 13 digit PAN based common TIN Registration and TINXSYS to track
transactions.
The bill proposes an additional tax not exceeding 1% on inter-state trade in
goods, to be levied and collected by the Centre to compensate the states for
two years, or as recommended by the GST Council, for losses resulting from
implementing the GST.
NEEDS FOR GST IN INDIA

• There is a saying in Kautilaya's Arthshastra, the first book on economics in the

world, that the best taxation regime is the one which is "liberal in assessment
and ruthless in collection".
• The proposed GST seems to be based on this very principle. Firstly, while the
present system allows for multiplicity of taxes being collected through an
inefficient and non transparent system, the introduction of GST is likely to
rationalize it and there by plug the loop holes in this system.
• This will enable the government to stop pilferage and rationalize the overall
taxation regime. While many areas are either under-taxed or non-taxed or over-
taxed, the GST will help reduce overall tax burden of many organizations.
NEEDS FOR GST IN INDIA

• Introduction of an integrated Goods and Services Tax (GST) to replace the

existing multiple tax structures of Centre and State taxes is not only desirable but
imperative in the emerging economic environment.
• Increasingly, services are used or consumed in production and distribution of
goods and vice versa. Separate taxation of goods and services often requires
splitting of transactions value into value of goods and services for taxation, which
leads to greater complexities, administration and compliances costs.
• Further, Indian economy is getting more and more globalised. In recent times, a
number of Free Trade Agreements (FTAS) have been signed, which will allow
imports into India duty free or at very low duties.
• Hence, there is need to have a nation-wide simple and transparent system of
taxation to enable the Indian industry to compete not only internationally, but
also in the domestic market.
NEEDS FOR GST IN INDIA
• Integration of various Central and State taxes into a GST system would make it possible to
give full credit for inputs taxes collected. GST being a destination-based consumption tax
based on VAT principle, would also greatly help in removing economic distortions caused
by present complex tax structure and will help in development of a common national
marked.
• A basis pre-requisite for introduction of GST meaningfully is that both the Centre and the
State should replace existing taxes like Excise, State Sales Tax/ VAT, CST, Entry Tax and all
other cascading-type Central/ State levies on goods and services.
• Any losses on account of abolition of multiple taxes are likely to be balanced by the
additional GST revenues that will obtain from taxation of services and from access to GST
on imports.
• Moreover, India would obtain full efficiencies of a single national VAT, while retaining a
federal structure. This would also be the logical conclusion of the efforts that have been
made in the country during last 2 decades in moving towards VAT.
SCOPE OF GST

• GST shall cover all goods and services, except alcoholic liquor for human consumption,
for the levy of goods and services tax.
• In case of petroleum and petroleum products, it has been provided that these goods shall
not be subject to the levy of Goods and Services Tax till a date notified on the
recommendation of the Goods and Services Tax Council.
• Promulgation of GST Council: Proposed Article 279A of the Bill provides for constitution
of Goods and Services Tax Council to examine issues relating to goods and services tax
and make recommendations to the Union and the States on parameters like rates,
exemption list and hold limits.
 SCOPE OF GST

• The Council shall function under the Chairmanship of the Union Finance Minister and
will have the State Union Minister as its members.
• All goods and services are covered under GST Regime except Alcoholic liquor for
Human Consumption,
• Tobacco Products subject to levy of GST and Centre may also levy excise duty
• GST Council yet to decide the incidence and levy of GST on following:
a) Crude Petroleum
b) Motor Spirit (Petrol)
c) Aviation Turbine Fuel
d) High Speed Diesel (HSD)
e) Natural Gas
IMPACT OF GST
• GST would be one of the most significant fiscal reforms of independent India.
• GST is expected to result in major rationalization and simplification of the
consumption tax structure at both Centre and State levels.
• It is expected to replace all indirect taxes, thus avoiding multiple layers of
taxation that currently exist in India.
• Depending on the final GST base and rate, there will be a significant
redistribution of tax across different goods and services.
• Goods currently subject to both Centre and State taxes should experience a net
reduction in tax, with positive impact on consumer demand.
• Besides simplifying the current system and lowering the costs of doing business.
IMPACT OF GST
• GST will call for a fundamental redesign of supply chains.
• It will affect how the companies operate their businesses, presenting significant
opportunities for long-term revenue and margin improvement.
• For instance, under the current tax structure, supply chains are invariably
designed to minimize the burden of the Central Sales Tax, with distribution
centers located in individual States where the consumers are located.
• They are sub-optimal from a strategic and economic perspective.
• The elimination of the central sales tax will provide an opportunity to optimize
supply chains, enabling companies to re-evaluate existing procurement patterns
and distribution and warehousing arrangements.
IMPACT OF GST
• GST is also expected to result in a reduction in inventory costs.
• Dealers would be able to claim a credit for the tax paid on their
inventories, leading to improved cash flows.
• A successful implementation of GST is significantly dependent on IT
capability not just at the tax administration level but also at the taxpayer
level.
• Efforts will be required to change existing IT systems for GST enablement
which could be complex, challenging and lengthy task for the IT
department.
ADVANTAGES OF GST (FOR CITIZENS)

• Simpler tax system.

• Increase in employment opportunities.
• Reduction in prices of goods and services due to elimination of cascading.
• Uniform prices throughout the country.
• Transparency in taxation system.
• Increase in employment opportunities.
ADVANTAGES OF GST (FOR TRADE & INDUSTRY)

• Reduction in prices of goods and services due to elimination of cascading.

• Mitigation of cascading/double taxation.
• More efficient neutralization of taxes especially for exports.
• Development of common national market.
• Simpler tax regime-fewer rates and exemptions.
ADVANTAGES OF GST (FOR STATE AND CENTRAL
GOVERNMENT)

• A unified common national market to boost Foreign Investment and "Make in

India“ campaign.
• Boost to export/manufacturing activity, generation of more employment, leading
to reduced poverty and increased GDP growth.
• Improving the overall investment climate in the country which will benefit the
development of states.
• Uniform SGST and IGST rates to reduce the incentive for tax evasion.
BENEFITS OF IMPLEMENTING GST
(FOR BUSINESS AND INDUSTRY)
• Easy compliance: A robust and comprehensive IT system would be the
foundation of the GST regime in India. Therefore, all tax payer services such
as registrations, returns, payments, etc. would be available to the taxpayers
online, which would make compliance easy and transparent.
• Uniformity of tax rates and structures: GST will ensure that indirect tax
rates and structures are common across the country, thereby increasing
certainty and ease of doing business. In other words, GST would make doing
business in the country tax neutral, irrespective of the choice of place of
doing business.
BENEFITS OF IMPLEMENTING GST
(FOR BUSINESS AND INDUSTRY)
• Removal of cascading: A system of seamless tax-credits throughout the value-chain and
across boundaries of States, would ensure that there is minimal cascading of taxes. This
would reduce hidden costs of doing business.
• Improved competitiveness: Reduction in transaction costs of doing business would
eventually lead to an improved competitiveness for the trade and industry.
• Gain to manufacturers and exporters: The subsuming of major Central and State
taxes in GST, complete and comprehensive set-off of input goods and services and
phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured
goods and services. This will increase the competitiveness of Indian goods and services
in the international market and give boost to Indian exports. The uniformity in tax rates
and procedures across the country will also go a long way in reducing the compliance
cost.
BENEFITS OF IMPLEMENTING GST
(FOR CENTRAL AND STATE GOVERNMENTS)

• Simple and easy to administer: Multiple indirect taxes at the Central and State
levels are being replaced by GST. Backed with a robust end-to-end IT system, GST
would be simpler and easier to administer than all other indirect taxes of the Centre
and State levied so far.
• Better controls on leakage: GST will result in better tax compliance due to a robust
IT infrastructure. Due to the seamless transfer of input tax credit from one stage to
another in the chain of value addition, there is an inbuilt mechanism in the design of
GST that would incentivize tax compliance by traders.
• Higher revenue efficiency: GST is expected to decrease the cost of collection of tax
revenues of the Government and will therefore, lead to higher revenue efficiency.
BENEFITS OF IMPLEMENTING GST
(FOR CONSUMERS)
• Single and transparent tax proportionate to the value of goods and services:
Due to multiple indirect taxes being levied by the Centre and State, with
incomplete or no input tax credits available at progressive stages of value
addition, the cost of most goods and services in the country today are laden with
many hidden taxes. Under GST, there would be only one tax from the
manufacturer to the consumer, leading to transparency of taxes paid to the final
consumer.
• Relief in overall tax burden: Because of efficiency gains and prevention of
leakages, the overall tax burden on most commodities will come down, which
will benefit consumers.
SUBSUMING OF TAXES

• GST is commonly described as indirect, comprehensive, broad based

consumption Tax.
• The Dual GST which would be implemented in India will subsume many
consumption taxes.
• The objective is to remove the multiplicity of tax levies thereby reducing the
complexity and remove the effect of Cascading Taxes.
• The objective is to subsume all those taxes that are currently levied on the sale of
goods or provision of services by either Central or State Government.
Subsummation of large number of taxes and other levies will allow free flow of
larger pool of tax credits at both Central and State level.
PRINCIPLES OF TAX SUBSUMATION
The various Central, State and Local levies were examined to identify their possibility of
being subsumed under GST. While identifying, the following principles were kept in mind:
1. axes or levies to be subsumed should be primarily in the nature of indirect taxes, either
on the supply of goods or on the supply of services.
2. Taxes or levies to be subsumed should be part of the transaction chain which
commences with import/ manufacture/ production of goods or provision of services at
one end and the consumption of goods and services at the other.
3. The subsumation should result in free flow of tax credit in intra and inter-State levels.
4. The taxes, levies and fees that are not specifically related to supply of goods & services
should not be subsumed under GST.
5. Revenue fairness for both the Union and the States individually would need to be
attempted.
 CENTRAL TAXES TO BE SUBSUMED IN GST
On application of the above principles and various papers which have been released in this
regard, it is decided that the following Central Taxes should be, to begin with, subsumed under
the Goods and Services Tax:
1. Central Excise Duty (CENVAT)
2. Additional Excise Duties.
3. The Excise Duty levied under the Medicinal and Toiletries Preparations (Excise Duties)
Act1955
4. Service Tax.
5. Additional Customs Duty, commonly known as Countervailing Duty (CVD).
6. Special Additional Duty of Customs.
7. Surcharges and Cesses levied by Centre are also likely to be subsumed wherever they are in
the nature of taxes on goods or services. This may include cess on rubber, tea, coffee, national
calamity contingent duty etc.
8. Central Sales Tax to be phased out.
STATE TAXES TO BE SUBSUMED IN GST
Following State taxes and levies would be, to begin with, subsumed under GST:
1. VAT / Sales tax.
2. Entertainment tax (unless it is levied by the local bodies).
3. Luxury tax.
4. Taxes on lottery, betting and gambling.
5. State Cesses and Surcharges in so far as they relate to supply of goods and
services.
6. Octroi and Entry Tax.
7. Purchase Tax.
TAXES WHICH ARE NOT TO BE SUBSUMED

• GST may not subsume the following taxes within its ambit:
1. Basic Customs Duty: These are protective duties levied at the time of Import of
goods into India.
2. Exports Duty: This duty is imposed at the time of export of certain goods which
are not available in India in abundance.
3. Road & Passenger Tax: These are in the nature of fees and not in the nature of
taxes on goods and services.
4. Toll Tax: These are in the nature of user fees and not in the nature of taxes on
goods and services.
STRUCTURE OF GST (DUAL MODEL)
STRUCTURE OF GST (DUAL MODEL)

• The Goods and Services Tax (GST) İs a comprehensive destination based tax. France
was the first country to introduce this value added tax system in 1954 devised by a
public servant. In India, due to non consensus between central and state government,
the proposal is to introduce a Dual GST regime i.e. Central and State GST.GST is a dual
concept tax system. Under this system, tax is administered, collected and shared by
both Centre and States based on the nature of transaction (within state or
interstate).The tax components of GST are:
1. SGST
2. CGST
3. IGST
BENEFITS OF DUAL GST:

The Dual GST is expected to be a simple and transparent tax with one or two CGST and
SGST rates. The dual GST is expected to result in:
1. Reduction in the number of taxes at the Central and State level.
2. Decrease in effective tax rate for many goods.
3. Removal of the current cascading effect of taxes.
4. Reduction of transaction costs of the taxpayers through simplified tax compliance.
5. Increased tax collections due to wider tax base and better compliance.
WHO WOULD BE IMPACTED

• All businesses, whether engaged in sales / supply of goods or services,

would be impacted by GST. The impact would be on supply chains, ERP,
product pricing, dealer margins etc.
APPLICABILITY TO SERVICE PROVIDERS

• VAT, where only businesses dealing in goods were affected, in the case
of GST, as the name suggests, both goods and service providers will be
impacted. Thus, even pure service providers need to plan for the
transition to the GST.
• Taxable event: The "Taxable event" will be the "supply of goods" and
the supply of services. Hence, the current taxable events such as
'manufacture of goods', 'sale of goods’ and 'rendition of services' will
not be relevant under the GST regime.
APPLICABILITY OF BOTH CGST AND THE SGST ON
ALL TRANSACTIONS

• A transaction of supply of goods' will attract both the CGST & SGST as
applicable on goods. Similarly, a 'supply of service' will attract both the
CGST & SGST as applicable on services.
GST COLLECTION MODEL:

• GST is collected on the value added at each stage of sale or purchase in

the supply chain. The tax on value addition is ensured through a tax
credit mechanism throughout the supply chain. GST paid on the
procurement of goods and services is available for set-off against the
GST payable on the supply of goods or services. The idea is that the
final consumer will bear the GST charged to him by the last person in
the supply chain. It is thus a consumption based indirect tax.
APPLICABILITY OF TAXES ON IMPORTS OF
GOODS:

• It must be understood that customs duties will remain outside the GST
regime. Thus, the applicable basic customs duty will continue to be
leviable on import of goods. Thus, the additional duty of customs in lieu
of excise (CVD)and the additional duty of customs in lieu of sales tax /
VAT will both be subsumed in IGST.
TAX ON IMPORT OF SERVICES AND PERSON
LIABILE TO PAY:

• Importation of services will be taxed and IGST will apply on such

imports. The tax will be payable on a reverse charge mechanism and
the importer of services will hence need to self declare and pay the tax.
As to which State will have authority to collect the relevant SGST, this
will be determined based on the place of supply rules that the
government is expected to notify for this purpose.
CARRY FORWARD OF INPUT TAX CREDITS (ITC)
AND CENVAT CREDIT (CC) BALANCES

• Going by the precedence at the time of VAT implementation, it is

believed that the accumulated ITC and CC will both be allowed to be
carried forward under the GST regime, albeit upon fulfilment of
prescribed conditions, if any.
REFUND OF UN-UTILIZED CC ON INPUTS AND
INPUT SERVICES:

• It is envisaged that under the proposed Dual GST model there would be
refund of unutilized accumulated CCs at the end of each fiscal year and
that refunds would not be restricted only to those relating to exports.
CROSS UTILIZATION OF CREDITS BETWEEN
GOODS AND SERVICES:

• Under the GST regime, the incidence of tax will be on supplies, be it

supplies of goods or services. The taxes will be levied in parallel by the
Centre and the States who will levy the CGST and SGST respectively on
each supply of goods/services. Accordingly, the cross utilization of
credits for goods and services would be allowed subject to the fact that
cross utilization of credits between the CGST and SGST would not be
permissible.
Position With Regard To Investors Who Enjoy Area-based
Exemptions Or Who Have entered Into A Memorandum Of
Understanding With The Governments In Respect Of exemption,
Subsidy Etc

• All exemption schemes will be converted to post-tax cash refund

schemes. However, it is advised that companies approach the
Government to negotiate their MOUS so that their interests are not
jeopardized and that the incentives granted under the present tax
regime are protected.
TREATMENT OF STOCK TRANSFERS:

• The taxable event will be the supply of goods and therefore the stock
transfers will be taxed.
ADVANTAGES OF DUAL GST
1. Simple and transparent tax: Dual GST is the best solution for countries like
India because it will reduce the number of taxes at central and state level. This
will also be easy to implement and create accountability for.
2. Decreasing tax rate: Dual GST will also result in reduction in the effective tax
rates for many goods.
3. Removal of cascading effect of taxes: The implementation of GST will reduce
the cascading effects of the present taxation system.
4. Simplified tax compliance: By reducing the transaction costs of taxpayers, dual
GST will bring about simplified tax compliance.
5. Increase in the amount of tax collection: Better compliance and a wider tax
base will lead to increased tax collections.
ADVANTAGES OF DUAL GST
6. India is a federal country with disparate states: Dual GST is ideally suited for a country
like India to ensure unity through diversity. Single point GST is neither desirable
economically nor practical administratively, because it means central excise duty, sales tax
and service tax will be merged to be collected as a single tax.
7. Questions about the Constitution: The Constitution of India does not permit the Centre
to be in charge of sales tax and states similarly are not permitted to levy central excise duty
and service tax. If the Constitution is amended to combine all taxes in 1 list (whether
Union/State/Concurrent), present federal structure will change fundamentally. This is
because the Centre will levy everything if it goes to the Union List and the States would not
agree to this. If this goes to the State List, Centre will protest against loss of fiscal power.
Concurrent list would be even bigger problem with no one being able to control the power
of states to increase taxation rates.
ADVANTAGES OF DUAL GST

8. Upset fiscal federalism: If dual GST is not adopted and a unified GST system is
preferred, this will upset the notion of fiscal federalism which is the fundamental
cornerstone of India polity. Moreover, the fundamental structure of the Constitution
cannot be changed through an amendment.
9. Unified GST would therefore go against the spirit of the Constitution Unified
GST does not exist in most federal States: With the exception of Australia, unified
GST system does not exist in any nation with a federal structure. Countries that
have combined GST are unitary states mostly. Though Canada has a single federal
GST, it also has states sales taxes and Brazil does not follow a pure single GST
system either.
ADVANTAGES OF DUAL GST
10. Who will collect the GST?: This becomes an issue if single point GST is
implemented. States will not allow Centre to be sole tax authority. System will
malfunction further if tax collection services at Union and State level are merged.
11. Dual GST most practical for federal India: As Centre already levies CENVAT
and tax services, CGST will work well with some harmonization as will SGST with
symmetry in a dual GST system.
12. Easily attainable: The dual GST system is easy to attain in the current
structure, given that India is following an Indirect taxation system. Certain
amendments may be required, but on the whole, the transition will be easier.
13. Good balance: The dual GST will strike a good balance between need for
harmonisation and fiscal autonomy of Centre and States. Both levels of Government
will be able to apply taxes to goods and services at various points in the supply
chain.
ADVANTAGES OF DUAL GST

14. Least changes, most benefits: Dual GST will provide a competitive atmosphere for companies to
work on an international scale. Moreover, single taxation system will also reduce costs to customers.
15. Single point GST will impair Centre's revenues: Dual GST will prevent a dent in the Centre's
revenue. Reduction in fiscal transfers will offset losses and Centre will also have access to revenue
resources for future needs. Any other option may not be revenue neutral for state.
16. Better for business: Single GST will mean that businesses will have to comply with different task
laws for different states and this will affect business stability.
17. Undermines States powers, is not workable: Unhealthy competition can result among states
using tax structures to attract industries if single GST is implemented. Dual GST Is more workable and
a complete withdrawal of Centre from State's taxation could impair the ability of the latter to collect
revenue in a symmetrical manner.
TYPES OF GST

1. CGST-
 CGST means Central Goods and Service Tax.
 CGST is a part of goods and service tax. It is covered under Central Goods and Service Tax
Act 2016.
 Taxes collected under Central Goods and Service tax will be the revenue for central
Government.
 Present Central taxes like Central excise duty, Additional Excise duty, Special Excise Duty,
Central Sales Tax, Service Tax etc. will be subsumed under Central Goods And Service Tax.
TYPES OF GST

2. SGST
 SGST means State Goods and Service Tax.
 It is covered under State Goods and service TaxAct 2016. A collection of SGST will
be the revenue for State Government.
 After the introduction of SGST all the state taxes like Value Added Tax,
Entertainment Tax, Luxury Tax, Entry Tax etc. will be merged under SGST.
For example, if goods are sold or services are provided within the State then SGST
will be levied on such transaction.
TYPES OF GST

3. IGST
 IGST means Integrated Goods and Service Tax.
 IGST falls under Integrated Goods and Service Tax Act 2016. Revenue collected
from IGST will be divided between Central Government and State Government as
per the rates specified by the government.
 IGST will be charged on transfer of goods and services from one state to another
state.
 Import of Goods and Services will also be deemed to be covered under Inter state
transactions so IGST will be levied on such transactions.
For example, if Goods or services are transferred from Rajasthan to Maharashtra
then the transaction will attract IGST.
GST OPERATIONS
• The dealers registered under GST (Manufacturers, Wholesalers and retailers and service
providers)will charge GST on the price of goods and services from their customers. They will
claim credits for the GST included in the price of their own purchases of goods and services
used by them.
• The sellers or service providers collect the tax from their customer, who may or may not be the
ultimate customer, and before depositing the same , they deduct the tax they have already paid.
• The utilisation of Credits on input tax paid on Excise, Service and Sales Tax (i.e., interstate and
intrastate sales) will be in the following manner.
Case 1: Sale in one state, resale in the same state.
Case 2: Sale in one state, resale in the other state.
Case 3: Sale outside the state, resale in that state.
• In the example illustrated above, goods are moving from Bangalore to Mysore .
Since it is a sale within a state, CGST and SGST will be levied. The collection goes
to the Central Government and the State Government as pointed out in the
diagram. Then the goods are resold from Mysore to Mandya. This again a sale
within a state, so CGST and SGST will be levied. Sale price is increased so tax
liability and input SGST (Rs. 8) is claimed will also increase. In the case of resale,
the credit of input shown; and the remaining taxes go to the respective CGST
governments.
• In this case, goods are moving from Tumkur to Kolar. Since it is a sale within a
state, CGST and SGST will be levied. The collection goes to the Central
Government and the State Government as pointed out in the diagram. Later the
goods are resold from Kolar to Vellore (TN) (outside the state). Therefore IGST
will be levied.
• Whole IGST goes to the central government Against IGST, both the input taxes
are taken as credit. But we see that SGST never went to the central government,
still the credit is claimed. This is the crux of GST. Since this amounts to a loss to
the Central Government, the state government compensates the central
government by transferring the credit to the central government.
• In this case, goods are moving from Delhi to Bangalore. Since it is an interstate
sale, IGST will be levied. The collection goes to the Central Government.
• Later the goods are resold from Bangalore to Mangalore (within the state).
Therefore, CGST and SGST will be levied.
• Against CGST and SGST, 50% of the IGST, that is Rs. 8 is taken as a credit. But we
see that IGST went to the state government, still the credit is claimed against
SGST. Since to a loss to the State Government, the Central government
compensates the State government by transferring the credit to the State
government.
 GST COUNCIL
• As per Article 279A of the amended Constitution, the GST Council will be a joint forum of the
Centre and the States, and it consists of the following members: -
a) Union Finance Minister - Chairperson
b) The Union Minister of State, in-charge of Revenue of finance - Member
c) The Minister In-charge of finance or taxation or any other Minister nominated by each State
Government – Members to the Union and the States
As per Article 279A (4), the Council will make recommendations on important issues related to GST,
like the goods and services that may be subjected or exempted from GST, principles that govern
Place of Supply, threshold limits, GST rates, special rates for raising additional resources during
natural calamities/disasters, special provisions for certain States, etc.
The GST council shall establish a mechanism to adjudicate any dispute between GOI and one or
more states or between 2 or more states.
All decisions of the GST Council will be made by three fourth majority of the votes caste, the centre
shall have one-third of the votes cast and the states together shall have two-third of the votes cast.
FUNCTIONS OF GST COUNCIL
1. List number of Taxes, cesses and surcharges to be subsumed under GST.
2. Preparation of list of goods and services subject to, or exempt from GST.
3. Determination of threshold limit of turnover for application of GST.
4. Fixation of rates.
5. Preparation of model GST Laws, principles of levy, apportionment of tax benefits.
6. Setting up Place of supply Rules.
7. Recommend on Compensation to states losing on revenue post implementation
of GST, subject to maximum time limit of 5 years.8.
8. Passage of SGST laws by all State legislatures.
9. Recommendation of Model GST Rules by GST Council.
10.Notification of GST Rules.
11.Recommendation of GST Tax rates by GST Council. Establishment and
upgradation of IT framework.
POWERS OF THE GST COUNCIL
• The GST council shall make recommendation to the Union and State on the
following matters
1. On subsuming of various taxes, cess, and surcharge in GST.
2. Details of services and goods that will be subjected to GST or which will be
exempted from GST.
3. On Threshold limit below which services and goods will be exempted from GST.
4. On GST rates including floor rate with bands of GST and any special rate for time
being to arrange resources to face any natural calamity.
5. Making special provisions for the following states: Arunachal Pradesh, Assam,
Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,
Himachal Pradesh and Uttarakhand.
6. The GSTC is vested with powers to regulate all aspects relating to GST, though
the role is only recommendatory.