Goods and Service Tax (GST) - A CURTAIN RAISER

7th January, 2015

By Kaustubh Ram Karandikar

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Background

In the year 2000, Vajpayee Government started discussion on GST by setting up an
empowered committee. The committee was headed by Mr. Asim Dasgupta, (Finance
Minister in the Government of West Bengal).

However, due to lack of consensus between the Centre and the States, had made it
impossible to get the levy in place on the original start date of April 1, 2010.

But, as per the latest news, in a big step forward for the long-delayed goods and services tax
(GST) regime, the Union Cabinet had given its assent to the constitutional amendment bill
that needs to be approved before the levy can become reality, with the Centre having made
significant concession to get states on board.

The constitution has to be amended to allow states to tax services and the Centre to tax
goods at the retail level besides laying down the basic framework for GST by creating a
council and a dispute settlement mechanism.

The Narendra Modi government hopes to roll out GST on April 1, 2016, replacing a range of
indirect taxes levied by the Centre, states and local bodies with one unifying levy.

Meaning of GST

Goods and Services Tax (GST) is a value added tax at each stage on goods and services. It
is collected on value added at each stage of sale or purchase.

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

Input tax credit is available at each stage to the tax payer and the methodology of taxation
will be devised in such a manner that only the end user of the goods or services bear the
final cost of the tax. Generally, same rate of GST applies on goods and services.

Latest on GST

In a big step forward for the long-delayed goods and services tax (GST), the Union Cabinet
had given its assent to the constitutional amendment bill that needs to be approved before
the levy can become reality, with the Centre having made significant concession to get
states on board.

The constitution has to be amended to allow states to tax services and the Centre to tax
goods at the retail level besides laying down the basic framework for GST by creating a
council and a dispute settlement mechanism.

The Narendra Modi government hopes to roll out GST on April 1, 2016, replacing a range of
indirect taxes levied by the Centre, states and local bodies with one unifying levy.

On 19th of December, 2014, the 122nd Constitutional Amendment Bill (hereafter referred as
“Bill”) was introduced in Parliament.

A new Article 246A is proposed which will confer simultaneous power to Union and State
legislatures to legislate on GST.

Accordingly, it will enable the Centre, State Government and Union Territories to levying
GST on goods and services.

Definition of GST

Article 366 (12A) defines GST as "any tax on supply of goods or services or both except
taxes on supply of the alcoholic liquor for human consumption”.

Therefore, supply of goods or services or both will attract CGST which is to be levied by
Centre and SGST which is to be levied by State barring few which will be out of the net of
GST. Going by the definition, it will also cover Works Contract Services.

Meaning of ‘Service’

Article 366 (26A) defines it as 'services means anything other than goods'. The definition
being very broad in nature, will cover almost everything under the sun other than goods, but
may help to reduce litigation to a great extent.

Inter-State Transactions

As on today, inter-State transactions are leviable to CST. Under the GST regime, as per
Article 269A, inter-State supply of goods or services will attract IGST.

IGST will be levied and collected by the Centre but the revenue will be shared both by
Centre and the States.

As per the Bill, an additional tax up to 1% will be levied by Centre on inter-State supply
of only goods and not the services. This additional tax will be assigned to States from where
the supply of goods originates. This additional tax will be applicable for a period of two years
and could be extended further by GST Council.

Imports

As per Article 269A, import of goods will attract Basic Customs duty and IGST. Similarly for
import of services, it will attract IGST under reverse charge mechanism.

Taxes to get subsumed

Tax Rates

GST rates will be uniform across the country. However, to give some fiscal autonomy to the
States and Centre, there will a provision of a narrow tax band over and above the floor rates
of CGST and SGST.

GST Council

As per Article 279A Goods & Services Tax Council will be created which will be a joint forum
of the Centre and the States. This Council would function under the Chairmanship of the
Union Finance Minister and will have Ministers in charge of Finance/Taxation or Minister
nominated by each of the States & UTs with Legislatures, as members. The Council will
make recommendations to the Union and the States on important issues like tax rates,
exemptions, threshold limits, dispute resolution modalities etc.

Preparation for the Proposed GST by the Companies

The concerned Head of Indirect Tax department first should get himself fully acquainted with
the new provisions under GST and then educate to all other concerned Departmental Heads
on the new model of GST and impact thereof such as:

Purchase – Marketing – Systems – Commercial – Logistics – Accounts – Finance – Taxation
– Service.

To Form separate group of all the concerned department heads to implement GST (GST
Cell).

To work on changes in the Company’s accounting systems with the help of Information
Technology (IT) department:

When introduced, it will certainly be a movement in history to remember and all those who
worked for making GST a reality, would be remembered for their contribution to the nation.
However, though the approach of the new government in whatever they do seems to be positive, my only apprehension is that the new GST regime should not result in to something
like an old wine in a new bottle!!!