GST concept July '17

GST 

(Goods & Services Tax) 

—Concept & Impact 

Presented by 

Anand Chhabra 

Former Chief Commissioner 

Customs, Central Excise & Service Tax 

+91 98718 55829

In Praise of GST 

The Goods & Services Tax is here. 

Most other taxes will disappear. 

One massive overhaul. 

One tax to rule them all, 

Till the slabs and 

Exemptions appear.

Indirect Taxation 

—The Present 

v Inefficient and distortionary Cascading (burden of "tax on tax”): 

Lowers productivity, resources are misallocated, hampers 

economic growth 

v Inhibits voluntary compliance as taxation regimens confusing to the 

tax payer & to the tax collector 

v Plethora of tax laws; rates; agencies; processes in different States 

v Chaotic, for lack of synchronization in the taxation regimens of 

Centre & the States 

v Huge wastage of time & effort involved in tax collection 

v Limited number of taxpayers, so the honest ones are at a 

disadvantage; huge tax evasion

GST Features 1 

v A destination-based tax on consumption of goods & services. To be 

levied at all stages right from manufacture up to final retail sale (before 

consumption) with credit of taxes paid at previous stage available as 

setoff. In sum, only value addition is taxed & the burden of tax is entirely 

borne by the final consumer 

v The tax to accrue to the taxing authority having jurisdiction over the 

place of consumption or place of supply. ‘Supply’ includes sale, transfer, 

barter, exchange, licence, rental, disposal for a consideration 

v Replaces origin-based multiple taxes on manufacture, distribution, sale, 

services; dual taxation ‘goods’ & ‘services’; MRP based valuation 

v A robust, uniform & comprehensive tax, removes differentiation as 

goods & services move through the supply chain 

v Standard slabs: 0% (0-2), 5% (3-8) 7%, 12% (9-14) 28%, 18% (15-20) 

31%; 28% (21 & above) 25% (% of tax base) 

v One country, One tax


v Proposes to subsume the following indirect taxes levied by the 

Centre on goods & services: 

Central Excise; Duties of Excise (Medicinal and Toilet 

Preparations); Additional Duties of Excise (Goods of Special 

Importance); Additional Duties of Excise (Textiles and Textile 

Products; Additional Duties of Customs (commonly known as 

CVD); Special Additional Duty of Customs (SAD); Service Tax; 

Central Surcharges and Cesses 

v Proposed to subsume the following indirect taxes levied by the 

States on goods & services: 

State VAT; Central Sales Tax; Purchase Tax; Luxury Tax; Entry Tax 

(all forms); Entertainment and Amusement Tax (except those levied 

by the local bodies); Taxes on advertisements; Taxes on lotteries, 

betting and gambling; State Cesses & Surcharges

GST Features 3—ITC 

v Full Input Tax Credit (ITC) on capital goods on one go 

v Proportionate credits allowed in case inputs, inputs services & 

capital goods are partly used for business & partly for non-business 

purposes 

v Proportionate credits allowed in case inputs, inputs services and 

capital goods are used for taxable including zero rated and exempt 

(including non-taxable) supplies 

v ITC cannot be availed after filing of return for the month of 

September of next Financial Year or filing of Annual Return 

v ITC available only on provisional basis for a period of two months 

until payment of tax and filing of valid return by the supplier 

v Matching of supplier’s and recipient’s invoice details 

ü ITC to be confirmed only after matching of such information 

ü ITC to be reversed in case of mis-match 

v Input Service Distributor mechanism for distribution of ITC of input 

services

GST Features 4—IGST 

v The Centre to collect IGST (=CGST+SGST) on all inter-State 

supplies 

v The inter-State supplier would adjust credit of IGST, CGST and 

SGST on his purchases (in that order) 

v The exporting State will transfer to the Centre the credit of SGST 

used in payment of IGST 

v The importing dealer will claim credit of IGST while discharging his 

output tax liability (both CGST and SGST) 

v The Centre will transfer to the importing State the credit of SGST 

used in payment of IGST 

v Since GST is a destination-based tax, all SGST on the final product 

will ordinarily accrue to the consuming State in seamless flow of 

input tax credit from one State to another


v Dual GST (simultaneous)—CGST & SGST—to maintain uniformity 

in the fiscal federal structure: 

ü On every transaction 

ü On common tax base 

ü At the same price or value 

ü On same classification for goods—Harmonised System 

Nomenclature (use of nil, 2-digit, 4-digit codes relate to turnover) 

ü On same classification of services—Services Accounting Code 

v The Centre would levy and administer on all supplies (goods & 

service): 

ü CGST (Central GST) on Intra-State supplies 

ü IGST (Integrated GST) on Inter-state supplies 

v SGST (State GST) would be levied and administered by the States 

on all Intra-state supplies


v No cross utilization of credit would be permitted between the 

Centre & the States 

ü The input tax credit (ITC) of CGST available for discharging the 

CGST on the output at each stage 

ü ITC of SGST allowed for paying the SGST on the output 

v Cross utilization of credits of CGST & SGST is permissible but 

under IGST model 

v GST payments to be deposited with respective agency 

v The list of exempted goods and services would be kept to a 

minimum 

v GST would be harmonized among the Centre & the States


IMPORTS 

v Import of goods and services will be treated as inter-state supplies 

and IGST levied 

v Incidence of tax will follow the destination principle and the tax 

revenue will accrue to the State where the goods & services are 

consumed 

v Full & complete set off will be available on GST paid on import 

EXPORTS 

v Export will be treated as Zero-rated supplies & hence no tax 

v However, credit of ITC available and granted as refunds to the 

exporters

GST Example 

Without GST 

With GST 

Sale from Mumbai to Nagpur 

Price Rs. 1000 

VAT (10%) – Rs. 100 

Sub Total: Rs. 1100 

Further sale from Nagpur to Chennai 

Profile – Rs. 1000 

Selling Price – Rs. 2100 

CST (10%) – Rs. 210 

Total Cost: Rs. 2100+210=2310 

Sale from Mumbai to Nagpur 

Price Rs. 1000 

CGST (5%) – Rs. 50 

SGST (5%) – Rs. 50 

Sub Total: Rs. 1100 

Further sale from Nagpur to Chennai 

Profit – Rs. 1000 

Selling Price – Rs. 2100 

IGST (10%) – Rs. 210 

Tax Payable – Rs. 210-(50+50)=Rs.110 

Total Cost: Rs. 2100+110=2210

GST Features-- 

Exceptions 

v GST would apply to all goods & services except Alcohol for human 

consumption 

v GST on five Petroleum Products viz. Crude, Petrol, Diesel, ATF & 

Natural Gas would be applicable from date to be announce later 

v Tobacco and Tobacco products would be covered by GST but the 

Centre would continue to levy Central Excise duty on them 

v Tax payers will annual turnover below Rs. 20 lakh (Rs. 10 lakh for 

North Eastern States) would be exempt from GST 

v Optional compounded levy at flat rate would be available for 

turnover up to Rs. 50 lakh. However, both these are optional 

v Statutory services rendered by Govts., Local, Panchyat authorities 

rendered to citizens (section 9 read with Schedule IV) 

v The States still may opt for continuance of Stamp Duty, Vehicle Tax

GST Governance 

v The GST policy will be governed by the GST Council, under the 

Union Finance Minister, to make recommendations to the Union 

and the States on parameters like rates; exemption list; threshold 

limits; model GST Laws; principles of levy, place of supply; 

apportionment of IGST; modalities for dispute resolution with the 

taxpayer; mechanism to resolve cases of dispute in between Centre 

and State(s) or between one or more States 

v Administration: 

ü CGST & IGST, to be administered by CBEC, Ministry of Finance 

ü SGST to be administered by the respective State Commercial 

Tax Depts. 

ü The Centre & the States would have concurrent jurisdiction for 

the entire value chain

GSTN (GST Network) 

v GSTN, a not-for-profit, non-Govt. company, set up to implement the 

GST, with Central & State Govts. as partners. To provide shared IT 

infrastructure & services to tax-payers and other stakeholders 

v Common online portal provides three core front-end services: 

Registration, Returns and Payments 

v And backend (online): identifying mismatched returns, assessment, 

audits, appeals, links to banks & RBI 

v GSTN aims to go for: 

ü Simplicity for taxpayers 

ü Autonomy for the States 

ü Uniformity of policy administration 

ü Digitization and automation of whole chain 

ü Leakage reduction 

ü Leveraging existing investments

Benefits for Business 

and Industry 1 

v Common tax rates; simpler tax regimen—fewer rates, exemptions; 

subsuming of multiple taxes; efficient neutralization of taxes 

particularly for exports; cascading mitigation; a common PANbased 

taxpayer ID; a common return & challan for tax payment; 

quick refunds; a comprehensive & robust IT system; seamless taxcredits 

throughout the value-chain and across boundaries of 

States; stable, predictable, transparent laws & processes would: 

ü Foster a common market across the country (Uniform Prices) 

ü Create certainty & ease of doing investment/ business anywhere 

ü Self monitoring regimen & taxpayer friendly processes for 

migration, returns, refunds 

ü Reduce hidden, transaction & logistics costs (including time); 

lead to lower prices of goods & services

Benefits for Business 

and Industry 2 

ü Reduction in overall tax burden on goods 

ü Reduction in cost of manufactured goods & services improves 

competitiveness in the international market & hence promotes 

exports 

ü Spur economic growth (Increased GDP) 

ü Incentivize tax compliance by traders 

ü Huge dispute reduction 

ü Amenable to both ‘B2B’ as well as ‘B2C’ transactions (tax 

payable as Tax Collected at Source (TCS) 

ü Broadening of tax payer base, increase in trade volumes and 

improved tax compliance will lead directly to reduction of tax 

rate; uniformity in tax rates & taxation policies among the States

Benefits for Central & 

State Governments 

v Replacement of multiple taxes at the Central and State; fewer 

taxes & exemptions; seamless transfer of input tax credit from one 

stage to another; reduction in forms; backed with a robust end-toend 

IT system, GST would: 

ü Be simpler and easier to administer 

ü Reduce leakages drastically 

ü Decrease the cost of collection 

ü Higher revenue collection efficiency 

ü Improved forecasts in collections & hence improved budgeting 

ü Optimize efficiency, equity and effectiveness among the States 

and the Centre and thus strengthen the federal structure 

ü A unified common national market to boost FDI & Make in India

Benefits for the 

Consumer 1 

v Simpler tax system 

v Uniform prices throughout the country 

v Replacement of multiple Central and State Govt. taxes; removal of 

tax exemptions and input tax credits at each stage would: 

ü Provide transparent tax regimen 

ü Give relief in overall tax burden 

ü Reduce retails prices of most commodities & services on longterm 

v Increment in employment opportunities 

v Higher collections may lead to lower corporate and personal 

income taxes, which will encourage more foreign direct investment 

and finally to overall economic growth

Challenges 

v Rolling out GST a huge challenge involves: 

Huge volume of dynamic online transactions; security of 

transactions—making it hacker proof against frauds, cyber crime, 

sabotage; establishing administrative structure & expertise in the 

States; freezing processes; training; administrative work involved in 

compliances 

v Educating the tax-payers (manufacturers, traders, transporters, 

consumer) for the change 

v Training the Service Providers in the market place, such as CAs; 

Accountants; Company Secretaries; Legal Counsels so as to 

empower them to facilitate compliances 

v May initially increase selling prices (but it would be temporary, till 

the processes are in place)

Future 

v Transparent & uniform taxation regimen—politically insulated 

v Broaden tax base—that will lead to huge buoyancy in revenues 

v Huge reduction in tax burden over time—revival of industry/markets 

v Will eventually lead to single and lower tax regimen 

v Digitisation & e-payment revolution 

v Drastically reduce inefficiencies in logistics sector 

v Demand for PC, laptops, iPads goes up along with demand for 

skilled manpower 

v Huge opportunity for trainers/ entrepreneurs 

v Simple to implement processes & standardisation will boost 

confidence of the industry, the taxpayer & foreign investor in the 

Governments and will strengthen ‘Make in India’ & ‘One Nation 

One Tax’ projects

GST—At A Glance

GST concept July &#039;17

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GST concept July '17