GOODS & SERVICE TAXUnleashing of the new era in

the Indirect Taxation Arena

Date : 21st May 2015Venue: Hotel ADR

Residency

Section Particulars Details

1 EMERGENCE OF GOODS & SERVICE TAX

1. Current Indirect Tax Structure2. Issues with Current Indirect

Taxation

2 GOODS & SERVICE TAX DEMYSTIFIED

1. What is GST?2. Transaction Flow Analysis under

GST3. GST- Key Features4. Subsumation of Taxes in GST5. IGST Model 6. Understanding the Impact of GST

3 GOODS & SERVICE TAX WAY FORWARD

1. Way Forward for Introduction of GST

2. GST Open Issues

Flow of Presentation

Section 1

EMERGENCE OF

GOODS & SERVICE TAX

CGA

Indirect Tax – Current Structure in IndiaPresent Indirect Tax Structure

(Four Major Constituents)

Excise Duty (CENVAT)

Service Tax Sales Tax/VAT

Customs Duty

Entry No. 84, List I, Schedule

VII of the Constitution of

India (COI)

Residuary Entry No. 97, List I,

Schedule VII, of COI

Entry No. 54 of List II (State

VAT) and 92A of List I (Central

Sales Tax), Schedule VII of

COI

Entry No. 83, List I, Schedule

VII, (COI)

Taxable Event is

Manufacture

Taxable Event is

Provision of Service

Taxable Event is

Sale

Taxable Event is

Import & Export

Median Rate- 12.50%

Single Rate- 12%(Plus cess)

– Proposed @14% in Budget

2015

Rates- 0%, 4%, 12.5% & 20%

Median Rate- 24% (plus cess)

Tax

Relevant Entry in

Constitution

Taxable Event

Rate of Taxation

Central Government

Central Government

State Government

Central GovernmentLevied By

CGA

CGA

Indirect Tax – Issues in Current Structure

Multiplicity of Duties/ Taxes Lack of Uniformity of Provisions in State Vat Statutes

- Definition of goods, capital goods, thresholds, classification, exemptions, procedures etc.

Sale of Goods Vs Provision of Services- Composite Contracts, Works Contracts, Housekeeping contracts, software development contracts,

software upgrades etc.

Inability of State to levy Tax on Services Distortion of Tax Base with Multitude of Exemptions

CGA

Indirect Tax – Issues in Current Structure

Cascading Effect of Taxes

- Due to Vat/ CST on Excise, CST, various Exemptions etc.

Complexities in Tax Administration

- Multiple Acts/levies leading to various procedures, returns, assessments,date of payment of taxes, dispute resolution

etc.

- Problem of Multi-locational corporates

Section 2

CGA

GOODS & SERVICE TAXDEMYSTIFIED

Road Map to GST in India

TIME EVENTS2004 Dr. Kelkar II Task force recommended need for National GST

Jan, 2007 First GST report by Dr. Shome

Feb, 2007 FM announced implementation of GST by April, 2010 and Set up EC

April, 2007 Phasing out process of CST Started

May, 2007 Joint Working Group (JWG) Constituted by Empowered Committee

Nov,2007 Report of JWG discussed by Empowered Committee

Nov,2007 13th Finance commission constituted by President

April, 2008 Recommendations report is sent by EC to Govt.

Dec, 2008 The Govt. submitted its comments on EC report

Nov, 2009 Release of First Discussion paper by EC

Dec, 2009 13th Finance Commission submitted its report

April 1, 2010 Introduction of GST missed its first deadline

March 22, 2011 The Constitution (One hundred and fifteenth Amendment) Bill, 2011 introduced (this lapsed due to dissolution of Lok Sabha)

August 2013 Submission of report by Standing committee on Constitution (115th Amendment) Bill, 2011

December 19, 2014 The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 introduced

February 24, 2015 Fourteenth Finance Commission Report tabled before Parliament

May 6,2015 Constitution (122nd Amendment) Bill, 2014 passed in Lok Sabha

May 12,2015 Constitution (122nd Amendment) Bill, 2014 referred to Select Committee of Rajya Sabha

April 1, 2016 Implementation of GST [target date as per Budget 2015]

What is GST ? Goods and Service Tax is

- a comprehensive value added tax on supply of goods or services or both

- levied at every stage of production –distribution chain

- Ensures seamless input tax credit throughout the supply chain

- At all stages of production and distribution, taxes are a pass through and tax is borne by the final consumer

No differentiation between Goods and Services as GST is levied at each stage in the supply chain

Internationally, comprehensive Goods & Services tax has already been introduced in more than 100 countries across the world.

Models of GST- An International Experience

GST at Union Govt Only Australia Best Model creates a Common market

Requires a Change in Federal Structure

GST at State Government Only United States Each state enjoys

complete autonomyRequires Constitutional

Amendment

GST at Both Levels Union & State Canada, Brazil Aligned to the Federal

structure of IndiaInter-governmental co-

ordination is an essential

India has opted for Concurrent Dual GST

Transaction Flow ( Present Regime)

Input Manufacturer

Output Manufacturer Dealer Consumer

Excise = INR 10Excise = INR 11ITC = INR 10 INR 1

Tax Invoice (A) Value = INR 100Excise= INR 10VAT= INR 11Total = INR 121

Tax Invoice (B)Cost = INR 100Value = INR 110Excise= INR 11VAT= INR 12.10Total = INR 133.10

Tax Invoice (C)Cost = INR 121Value = INR 133.10VAT= INR 13.31Total = INR 146.41

VAT = INR 11VAT = INR 12.10ITC = INR 11 INR 1.1

VAT = INR 13.31ITC = INR 12.10 INR 1.21

State Tax (11+1.1+1.

1.21)= 13.31

Central Tax (10+1)= 11

No Credit of Excise Available to Dealer

Transaction Flow ( GST Regime)

CGST = INR 10CGST = INR 11Input CGST= INR 10 INR 1

Tax Invoice (A) Value = INR 100CGST= INR 10SGST= INR 10Total = INR 120

Tax Invoice (B)Cost = INR 100Value = INR 110CGST = INR 11SGST= INR 11Total = INR 132

Tax Invoice (C)Cost = INR 110Value = INR 121CGST = INR 12.10SGST= INR 12.10Total = INR 145.20

SGST = INR 10SGST = INR 11Input SGST = INR 10 INR 1

SGST = INR 12.10Input SGST = INR 11 INR 1.10

State Tax (10+1+1.1.10)= 12.10

Central Tax (10+1+1.10)

= 12.10

CGST = INR 12.10Input CGST = INR 11 INR 1.10

Input Manufacturer

Output Manufacturer Dealer Consumer

Destination based Multipoint levy

Applicability of GST to all transactions except

o Exempted goods and Services

o Goods which are outside the preview of GST and

o Transactions which ate below the prescribed thresholds

Taxable Event

o Will be supply of goods or services or both

Dual GST

o Central GST will be levied and collected by the Centre

o State GST will be levied and collected by the States

Common & Identical Tax base

GST- Key Features

Payment of GST

o CGST and SGST are to be paid to the accounts of the Centre and the States separately

Intra-State supplies of goods or services

o Liable to CGST & SGST on identical tax base

Inter-State supplies of goods or services

o Liable to Integrated Goods & Service Tax (IGST) by the Centre

IGST on Imports into India

Stock transfers outside State will also liable to IGST

Additional Tax of 1% on Inter State Taxable supply of Goods by State of Origin and non CENVATABLE

GST- Key Features

Input Tax Credit Set off Cross Utilization of ITC

o No Cross Set off of ITC between CGST & SGST

Special Industrial Area Schemeso Will be converted into cash refund schemes, if at all needed so

that continuous chain of set off is not disturbed.

Registration & Tax Payer Registration Numbero PAN Linked GST Registration

Zero rating of Exports

Maintenance of Books of Accounts

o Taxpayer to maintain separate details in books of account for

availment, utilization or refund of Input Tax credit of CGST, SGST and

IGST

GST- Key Features

Periodic Return

Administration & Assessment of GST

o CBEC responsible for Administration & Assessment of CGST

o State VAT Administrations are responsible for Administration &

Assessment of SGST

Threshold Limit under GST

GST- Key Features

Establishment of Goods & Service Tax Council:– GST council shall make recommendations on matters relating to

GST to both Union and States to ensure harmonization.

– The GST Council shall make recommendations on the following:

(a) taxes to be subsumed in GST;

(b) the goods and services that may be subjected to GST;

(c) the goods and services that may be exempted from GST;

(d) model Goods and Services Tax Laws;

(e) the threshold limit;

(f) the rates including floor rates with bands of goods and services tax;

(g) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;

(h) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur; Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand and

(i) any other matter relating to the goods and services tax, as the Council may decide.

Key Features of GST –GST Council

• Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:

(a) the vote of the Central Government shall have a weightage of one-third of the total votes cast, and

(b) the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.

Key Features of GST –GST Council

RNR : Ideally GST Rates should be such rates which would yield the same revenue as collected from various taxes which will be subsumed.

Empowered Committee

– GST rates to be based on RNR – Four rates

oMerit rate for essential goods and goods of basic importance

oStandard rate for goods in generaloSpecial rate for precious metalsoExempted List

- Single GST Rate for Services both for CGST and SGST

Sub Penal of Empowered Committee : 26.70% (SGST 13.91% and CGST 12.77%)

National Institute of Public Finance & Policy (NIPFP) : 20% ~ 23% (source : Business Standard)

GST Council othe rates including floor rates with bands of goods and services

tax

Key Features of GST- GST Rates

Taxes to be Subsumed in GST

Central Levies Subsumed under GST

• Central Excise Duty

• Additional Excise Duties

• The Excise Duty levied under the Medicinal and Toiletries Preparations (Excise Duties) Act 1955

• Service Tax

• Additional Customs Duty, commonly known as Countervailing Duty (CVD)

• Special Additional Duty of Customs - 4% (SAD)

• Surcharges and Cesses levied by Centre are also likely to be subsumed wherever they are in the nature of taxes on goods or services.

• Central Sales Tax to be phased out.

State Levies Subsumed under GST

VAT / Sales tax

Entertainment tax (unless it is levied by the local bodies)

Luxury tax

Taxes on lottery, betting and gambling

State Cesses and Surcharges in so far as they relate to supply of goods and services

Octroi and Entry Tax

Purchase Tax

TAX ON SUPPLY OF THE ALCOHOLIC LIQUOR FOR HUMAN CONSUMPTION

• The supply of the alcoholic liquor for human consumption will be out of the GST.

• Alcohol products for human consumption would continue to be exclusively taxed by the States. CST on inter-state sales of alcohol would also continue.

• Since the Bill specifically excludes alcohol products from the ambit of GST, bringing it within GST at a future date would require another constitutional amendment.

TAX ON TOBACCO PRODUCTS

• Tobacco and tobacco products would be subjected to GST. However, it can be subjected to a separate excise duty by the Centre.

Taxes to be Subsumed in GST – Specific Goods

TAX ON PETROLEUM CRUDE/ HIGH SPEED DIESEL/ MOTOR SPIRIT/ NATURAL GAS/ AVIATION TURBINE FUEL

• The States would continue as per the current laws to impose Value Added Tax (VAT) on these products.

• These products would be transitioned into the GST regime from a future date to be notified by the GST Council.

• The Constitution Bill also states that these products can be subjected to an excise duty imposed by the Centre; this levy would be imposed now and even after GST comes into force. Such duty can be in addition to the applicable VAT or GST imposed.

Taxes to be Subsumed in GST – Specific Goods

Taxes NOT to be Subsumed in GST

Taxes not to be Subsumed

Basic Customs Duty: These are protective duties levied at the time of Import of goods into India.

Exports Duty: This duty is imposed at the time of export of certain goods which are not available in India in abundance.

Road & Passenger Tax: These are in the nature of fees and not in the nature of taxes on goods and services.

Toll Tax: These are in the nature of user fees and not in the nature of taxes on goods and services.

Property Tax

Stamp Duty

Electricity Duty.

IGST will be levied on the Inter-state Supply of goods or services or both.

Tax revenues accrues to the destination/importing State based on Place of Supply Rules.

IGST will roughly be CGST+SGST

Inter-state seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases in sequence.

Additional Tax : An Additional non creditable 1% Tax on the value of Inter-state supply of goods will also be levied and will accrue to the Originating state.

Inter-state Transactions –Treatment under GST

Working of IGST- Cross levy Set Off

Input CGST

Output CGST

Output IGSTAdju

sted

Aga

inst

Taxpayer to track the input credits separately for IGST, CGST and SGST and the utilization of such credits

Taxpayer to track the input credits separately for IGST, CGST and SGST and the utilization of such credits

IGST credit adjustment is to be in order of IGST, followed by CGST, followed by SGST

Understanding the Impact of GST

Current scenario (DTA)

Outside India

India – state A India – state B

Customer

Import of goods/ services• Customs Duties

- BCD – cost - CVD – available as credit- SAD – available as credit

• Service tax – available as credit

Local sale of goods Credit eligibility of

Excise duty and VAT dependent on operations of customer

Inter-state sale / supply of goods

CST – cost / VAT retention

Credit of excise may be available to some customers

Vendor

Customer

Export of goods

No tax/ possible refunds

Customer

* Inter-state stock transfer attracts VAT retention; sale in transit as well as imports exempt from VAT/ CST

Local purchase of goods/ services

• Excise duty – available as credit

• VAT – available as credit• Service tax – available as

credit

VendorVendor

Inter-state purchase of goods / services

• Excise duty – available as credit

• CST – cost • Service tax – available as

credit

Factory (dutiable goods)

Understanding the Impact of GST

Likely Scenario GST (DTA)

Outside India

India – state A India – state B

Customer

Local sale of goods• CGST + SGST – Should

be available as credit Inter-state sale /

supply of goods IGST A/c state B – Should

be available as credit 1% non creditable

additional tax

Vendor

Customer

Export of goods Input CGST / SGST

/ IGST should be available as refund

Customer

Local purchase of goods/ services

• CGST + SGST – Should be available as credit

VendorVendor

Inter-state purchase of goods / services

• IGST A/c State A – Should be available as credit

• 1% Additional Tax on Supply of goods -Cost

Factory (dutiable goods)

Import of Goods/ Services- BCD – cost- IGST A/c State A –

Should be available as credit

- 1% Additional Tax on import of goods -Cost

* Inter-state stock transfer, imports, sales in transit expected to attract IGST which is creditable

Procurement Output

Provision of taxable services within India (intrastate) CGST + SGSTIndustry

Customer

Export of taxable servicesZero rated

Customer

Service provider

Local Purchases/ Intra-state purchases of goods/ servicesCGST + SGST

Inter-state procurement of ServicesIGST

Import of servicesIGST

Provision of taxable services within India (interstate)IGST

Non-Creditable input taxesCreditable taxes input taxes

Customer

Creditability of output taxes to depend upon status of customer

Understanding the Impact of GST on Services

Inter-state procurement of GoodsIGST 1% Addl Duty

Import of GoodsBCDIGST1% Addl Duty

Section 3

CGA

GOODS & SERVICE TAXWAY FORWARD

Way Forward for Introduction of GST

GST IMPLEME

NTATION

April 2016

GST Constitution Bill

Setting up of IT Network by GSTN

Constitution Bill tabled

at the Parliament

Approval by both houses of Parliament

Ratification by more than 50% of State Legislatures

GST Council set up – within 60 days of presidential assent

Bill sent for Presidential

assent

Bill receives assent and becomes Act

Draft legislations of CGST / IGST

Model SGST legislations

Final GST legislations (Centre, States and IGST)

GST legislations

Questions & Suggestions

For Any Further Query on the Subject , Kindly contact us at:

FCA Chitresh GuptaMob no : 09910367918Email Id: gupta_Chitresh@yahoo.comOffice Address: M/s Chitresh Gupta & AssociatesLG-CS-24B, Ansal Plaza, Vaishali Ghaziabad 201001

GST OPEN ISSUES

Tedious process of

Constitutional Amendment

One CGST, 29 SGSTs, IGST- Multitude of

laws

Uniformity of Provisions

Taxable Event- Definitive Place of Supply Rules

GST Rates Threshold Limit Determination

ITC Credit Availment & Utilization

Refund of Taxes to

Exporters/EOU/SEZ

GST OPEN ISSUES

Stock Transfers within and

Outside State

Inter State Supply of Services

Treatment of High Sea EI/EII

Sales

Requirement of Training

Assessment & Dispute

Resolution under Dual GST

IT Infrastructure

GST OPEN ISSUES

Data Migration Issues

Status on Unutilized ITC

Pending Disputes and their Disposal

Compensation Package to

States

Disclaimer

• Purpose of this presentation is to give a highlights of the proposed GST regime in India . It does not render any definitive opinion on any of the activities of Industry

• Our comments in relation to GST are based on the GST framework outlined in the First Discussion Paper on GST (2009) and the draft Constitution Amendment Bill, 2014

• Some of the features highlighted including the IGST model for interstate supplies are understood to be under reconsideration

• It is likely that the final model would differ from our understanding and the implications discussed herein would accordingly vary and the contents of this presentation would need to be updated basis the revised GST frame-work in the offing

• Prior professional advice is recommended before implementation of the aspects covered under this presentation

• The instant presentation is for sole benefit of Mahangar Tax Bar Association

• CA. Chitresh Gupta & M/s Chitresh Gupta & Associates are under no obligation to update this presentation for future changes