Window to Goods & Service Tax (GST) 

by

Jyoti Raj

Tax Consultant,   

Mr. Jyoti Raj, has in this interesting and detailed article discussed the broad contours of the proposed Dual GST, the concepts and likely procedures. He has also analysed the impact of GST on Individual Industries. Mr. Jyoti Raj is the Associate Consultant to STVAT Consulting in Uttaranchal

GST Rate Structure

GST is expected to have a dual structure with multiple rates on goods at both the centre and state level. Officials said the two rates being considered are 8-10% for the lower slab and 16-18% for the higher slab. In addition states will levy a 1% on precious metalsand a list of exempted items.

Purchase tax: Some of the States felt that they are getting substantial revenue from Purchase Tax and, therefore, it should not be subsumed under GST while majority of the States were of the view that no such exemptions should be given.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of GST. Sales Tax/VAT can be continued to be levied on alcoholic beverages as per the existing practice. In case it has been made Vatable by some States, there is no objection to that. Excise Duty, which is presently being levied by the States may not be also affected.

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST without ITC.

Tax on Petroleum Products: As far as petroleum products are concerned, it was decided that the basket of petroleum products, i.e. crude, motor spirit (including ATF) and HSD would be kept outside GST as is the prevailing practice in India.  

Taxation of Services : Both the Centre and the States will have concurrent power to levy tax on all goods and services.  

Cross utilization of credits between goods and 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. Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit. Further, the rules for taking and utilization of credit for the Central GST and the State GST would be aligned. Thus 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.

Taxation of Stock Transfer

The GST regime would work under a destination/ consumption based concept and hence the tax on inter-state sale transactions will accrue to the destination State. As a corollary, it will be zero rated in the Origin State. 

Inter-State Transactions of Goods and Services

The Empowered Committee has accepted the recommendations of the Working Group of concerned officials of Central and State Governments for adoption of IGST model for taxation of inter-State transaction of Goods and Services. The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.  

Single return or multiple returns

It is expected that a single return will be required to be prepared by the assessee and copies filed with the central GST and State GST authorities.

Process of assessment under the dual GST

The dual GST is expected to be a self assessed tax. The tax administration would have powers to audit and re-assess the taxpayers on a selective basis.

Benefits availed presently by EOU's (exemption from excise duty and Central Sales Tax (CST) on domestic procurement of goods.

CST will be phased out and will have no place in the GST regime. It is expected that the benefits presently availed by the EOUs by way of exemptions would continue to be available in the GST regime as well.

Continuation of exemption currently available

After the introduction of GST, the tax exemptions, remissions etc. related to industrial incentives should be converted, if at all needed, into cash refund schemes after collection of tax, so that the GST scheme on the basis of a continuous chain of set-offs is not disturbed. Regarding Special Industrial Area Schemes, it is clarified that such exemptions, remissions etc. would continue up to legitimate expiry time both for the Centre and the States. Any new exemption, remission etc. or continuation of earlier exemption, remission etc. would not be allowed. In such cases, the Central and the State Governments could provide reimbursement after collecting GST.

GST and works contract

Works contract can straddle three taxable activities as per the current law. There is of course supply of goods. Then due to the very nature of the contract, there is supply of services. Further, if in the process of completing the works contract a new commodity comes into existence, there is the taxable event of manufacture. As of now the supply of goods is taxable in the form of Value Added Tax (VAT), while the services element is taxable as service tax. Hence, different aspects of the same activity have a potential to be taxed by different statutes.

GST AND ITS IMPACT ON VARIOUS SECTORS 

1. Impact of GST on Revenue States

2. GST to reduce Manufacturing cost

3. Implications of GST on imports & exports

4. Impact on Pharma Industry

5. Impact on FMCG Industry

6. Impact on Auto Industry

7. Impact on Logistics Sector

8. GST regime to Realign Firms' Warehousing Needs. 

Impact of GST on Revenue States

GST is a consumption based tax and not origin based. Under GST structure, the tax would be collected by the states where the goods or services are actually consumed i.e., where the goods are actually sold and not the goods where it is actually originated. Hence, losses could be heavy for producing states. In view of the above, the Centre is considering a proposal to compensate states for any revenue loss.

 

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