GST

Indirect Taxes:
• Indirect tax is not directly levied on the taxpayers
• It is a tax levied by the Government on goods and services and not on the
income, profit or revenue of an individual and it can be shifted from one
taxpayer to another.
• An indirect tax meant paying more than the actual price of a product bought
or a service acquired
VAT:
• Value Added Tax (VAT) is an indirect value added tax which was introduced
into Indian taxation system on April 1, 2005.
• VAT replaced Sales Tax.
• VAT was introduced to make India a single integrated market. On June 2,
2014, VAT was implemented in all states and union territories of India,
except Andaman and Nicobar Islands and Lakshadweep Islands.
The Major Disadvantages of VAT were
– Cascading effect of taxes
– It was not possible to claim Input Tax Credit (ITC) on service under VAT
– Different VAT rates in different states
– Different VAT laws in every states
Illustration of cascading effect under VAT

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GST:
GST is a single, destination based indirect tax. It is levied on value added to goods
as well as services at each stage of the supply chain. The main objective behind
levying such a tax is to consolidate multiple indirect tax levies into a single tax. Thus,
GST subsumes a host of taxes. It overcomes limitations of the previous indirect tax
structure. Furthermore, it brings efficiency in the administration of tax.
GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods
and Service Tax Act was passed in the Parliament on 29th March 2017. The Act
came into effect on 1st July 2017; Goods & Services Tax Law in India is
a comprehensive, multi-stage, destination-based tax that is levied on every value
addition.
GST is one indirect tax for the entire country.
Two Principles That Define GST

To elucidate the above definition, we can say that GST is based on two principles:
‘Destination Principle’ and ‘Value Added Principle.

‘Destination Principle’ states that the supply of goods and services would be taxed
at the point of consumption. This means that GST replaces source based tax system
with destination based tax regime.

‘Value Added Principle’ on the other hand underlines that the tax shall be collected
on value-added to goods or services at each stage of the supply chain. Right from
the original producer or service provider to the ultimate consumer, GST will be
collected on value added at every stage of the supply chain

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Value Added Principle:

The manufacturer who makes biscuits buys flour, sugar and other material. The
value of the inputs increases when the sugar and flour are mixed and baked into
biscuits. The manufacturer then sells the biscuits to the warehousing agent who
packs large quantities of biscuits and labels it. That is another addition of value after
which the warehouse sells it to the retailer. The retailer packages the biscuits in
smaller quantities and invests in the marketing of the biscuits thus increasing its
value. GST is levied on these value additions i.e. the monetary value added at each
stage to achieve the final sale to the end customer
Destination-Based
 Consider goods manufactured in Maharashtra and are sold to the final
consumer in Karnataka. Since Goods & Service Tax is levied at the point of
consumption. So, the entire tax revenue will go to Karnataka and not
Maharashtra.

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Cascading Effect under GST Illustration:

Need for GST

The previous tax system involved multiple taxes, complex compliance procedures,
and intervention by several State and Central tax divisions. This made it highly
difficult to set up and run a business in India.
Under the GST regime, instead of applying taxes on the total value of the product
at each stage, the GST only imposes tax on value addition. Since it provides credit
for the input tax paid at each previous stage of a supply chain, this method
considerably reduces the overall cost of manufacturing and selling goods.
GST Framework
India is a federal country, where both Centre and States have powers to levy and
collect taxes under respective legislation. Hence, a dual GST model is implemented
in India. Under the dual model, the power to levy taxes is distributed between
Centre and States.
• Broadly there will be 2 forms of GST in India.
– At the intra-state level (when goods travel within a state) and at the
inter-state level (when goods travel between states).
– At the intra-state level two types of GST shall be levied CGST
(Central Goods and Services Tax) and SGST (State Goods and
Services Tax).

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 • At the inter-state level IGST (Or Integrated Goods and Services Tax) shall be
levied

Constitutional amendments for GST

a) Introduced Article 246 A: - States and center to levy tax on goods and services
in the Union. On interstate supply only state can levy tax
b) Introduced Article 269A:- IGST will be distributed between center, state and
UT
c) GST council to be constituted by President of India. Union FM, Union
Ministers of State and State FM to be its members
GST Road map In India
Year Activity
2004 Kelkar committee recommends introduction of GST to replace all
indirect Taxes
2006 Finance Minister P Chidambaram in his budget speech proposes to
introduce GST from 2010
2007 Gradual reduction of CST
2008 GST implementation roadmap submitted to the Government
2011 Constitutional amendment bill introduced in Lok sabha for
introduction of GST
2012 Government convenes a meeting of all state Finance ministers to
discuss GST
2014 Arun Jaitley reintroduces constitutional amendment bill of GST

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 2015 GST bill successfully passed in Lok Sabha, but could not be passed
in Rajya sabha
2016 GST bill passed in Rajya Sabha
2017 GST finally passes all the tests – passed on 1/7/2017

Taxes subsumed under GST

The GST laws have been framed in such a manner that a multitude of taxes have
been replaced by one tax. The details of the taxes subsumed under GST are as
under.
(A) Taxes related to Centre:
i. Central Excise duty
ii. Duties of Excise (Medicinal and Toilet Preparations)
iii. Additional Duties of Excise (Goods of Special Importance)
iv. Additional Duties of Excise (Textiles and Textile Products)
v. Additional Duties of Customs (commonly known as CVD)
vi. Special Additional Duty of Customs (SAD)
vii. Service Tax
viii. Central Surcharges and Cesses so far as they relate to supply of goods or
services.
(B) Taxes related to State
i. State VAT
ii. Central Sales Tax
iii. Luxury Tax
iv. Octroi and Entry Tax (all forms)
v. Entertainment and Amusement Tax (except when levied by the local
bodies)
vi. Taxes on advertisements
vii. Purchase Tax
viii. Taxes on lotteries, betting and gambling

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 ix. State Surcharges and Cesses so far as they relate to supply of goods or
services.

Taxes not under GST:

1. Custom Duty
The Countervailing Duty (CVD) and Special Additional Duty (SAD) will
subsume under GST, but the Basic Customs Duty (BCD) will be charged
according to current law only and not GST.

2. Stamp Duty
The buyer has to the pay stamp duty for the registration of the property, and
GST will not cover Stamp duty and will be subsumed as per the tax levied by
the government.

3. Vehicle Tax
GST does not cover road tax, so the Vehicle Tax will not be charged under
GST, and will remain under the Motor Vehicle Act.

4. Excise on Liquor
For the time being, Liquor has been kept outside the GST. Alcohol needs a
constitutional amendment to be brought under the ambit GST. Though
Industry Experts suggest, the GST will impact the sector negatively in the
future.

5. Tax on Sale and Consumption of Electricity

GST will not affect the Electricity Bills as of now, and the existing tax system
of VAT and Central Excise will prevail on Electricity Bills. The state will charge
the VAT and Centre will levy the Central Excise.

6. Entry Taxes and Toll

GST will not cover the Toll Tax as such taxes like road tax, toll tax,
environment tax and others are directly paid by users and will be levied by
States directly.
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 7. Entertainment Tax (Levied by Local Bodies)
The imposition of the extra tax by local bodies is not covered under GST.
Hence, in addition to 28 per cent GST, the local body extra tax will lead
to Double Tax. This will indirectly lead to a sharp increase in the price of the
tickets.

8. Road Tax
GST will not cover the Road Tax as such taxes like toll tax, road tax,
environment tax and others are directly paid by users and will be levied by
States directly.

Supply in GST
• Supply includes sale, transfer, exchange, barter, license, rental, lease and
disposal. If a person undertakes either of these transactions during the
course or furtherance of business for consideration, it will be covered under
the meaning of Supply under GST.
• Supply has two important elements:
• Supply is done for a consideration
• Supply is done in course of furtherance of business
• If the aforementioned elements are not met with, it is not considered as a
sale.
Bundled Supply
• A bundled supply is a combination of goods and/or services
• If buyers mostly expect such services to be provided as a
package, then the package will be treated as naturally bundled.
• If most of the service providers in the industry provide a package
of services then it can be considered as naturally bundled.
• The nature of the various services in a bundle of services will
also help to identify whether the services are bundled.
• There is a single price for the package even if the customers opt
for less

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 • The components are normally advertised as a package
• The different components are not available separately
Composite supply means a supply is comprising two or more goods/services, which
are naturally bundled and supplied in with each other in the ordinary course of
business, one of which is a principal supply.
• It means that the items are generally sold as a combination.
• The items cannot be supplied separately.
• How to determine if it is a composite supply?
• A supply of goods and/or services will be treated as composite supply
if it fulfills the following criteria:
• Supply of 2 or more goods or services together AND
• It is a natural bundle, i.e., goods or services are usually provided
together in the normal course of business.
Examples: Rooms Bundled with Complementary Breakfast, Flight Tickets with
complementary Meal etc.
In a Composite Supply, there will be a single principle item and the tax rate
applicable on that item is applicable on the whole bundle.
What is mixed supply under GST?
– Mixed supply under GST means a combination of two or more goods
or services made together for a single price.
– Each of these items can be supplied separately and is not dependent
on any other
Examples: Monthly Saver Packages at Retail Stores.
The item with the highest tax rate in the Mixed Supply will be considered as the
main item in Mixed Supply and the tax rate applicable on the items in mixed supply
will be highest tax rates of all items.

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Taxability of Composite and Mixed Supply:

Types of Supply

Supply Description
Name

Zero Rated Exports or any Supplies made to SEZ or SEZ Developers. ITC can be
claimed on such items.

Nil Rated Supplies that have a declared rate of 0% GST.

Example: Salt, grains, jaggery etc.

Exempt Supplies do not attract GST and for which ITC cannot be claimed.

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 Example: Fresh milk, Fresh fruits, Curd, Bread etc.

Non-GST These supplies do not come under the purview of GST law.
Example: Alcohol for human consumption, Petrol etc.

Time of Supply of Goods

Time of supply of goods is earliest of:
1. Date of issue of invoice
2. Last date on which invoice should have been issued
3. Date of receipt of advance/ payment*.
For example:
Mr. X sold goods to Mr. Y worth Rs 1,00,000. The invoice was issued on 15th
January. The payment was received on 31st January. The goods were supplied on
20th January.
Let us analyze and arrive at the time of supply in this case.
Time of supply is earliest of –
1. Date of issue of invoice = 15th January
2. Last date on which invoice should have been issued = 20th January
3. Date of receipt of payment 31 st January
Thus the time of supply is 15th January.
What will happen if, in the same example an advance of Rs 50,000 is received by
Mr. X on 1st January?
The time of supply for the advance of Rs 50,000 will be 1st January (since the date
of receipt of advance is before the invoice is issued). For the balance Rs 50,000, the
time of supply will be 15th January.
Time of Supply for Services

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Time of supply of services is earliest of:
1. Date of issue of invoice
2. Date of receipt of advance/ payment.
3. Date of provision of services (if invoice is not issued within prescribed period)
Let us understand this using an example:
Mr. A provides services worth Rs 20000 to Mr. B on 1st January. The invoice was
issued on 20th January and the payment for the same was received on 1st February.
In the present case, we need to 1st check if the invoice was issued within the
prescribed time. The prescribed time is 30 days from the date of supply i.e. 31st
January. The invoice was issued on 20th January. This means that the invoice was
issued within a prescribed time limit.
The time of supply will be earliest of –
1. Date of issue of invoice = 20th January
2. Date of payment = 1st February
This means that the time of supply of services will be 20th January.
Place of supply
It is very important to understand the term ‘place of supply’ for determining the
right tax to be charged on the invoice.
Here is an example:

Location of Place of supply Nature of Supply GST

Service Receiver Applicable

Maharashtra Maharashtra Intra-state CGST + SGST

Maharashtra Kerala Inter-state IGST

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Place of Supply of Goods
Usually, in case of goods, the place of supply is where the goods are delivered.
So, the place of supply of goods is the place where the ownership of goods changes.

What if there is no movement of goods

In this case, the place of supply is the location of goods at the time of delivery to
the recipient.
For example: In case of sales in a supermarket, the place of supply is the
supermarket itself.
Place of supply in cases where goods that are assembled and installed will be the
location where the installation is done.
For example, A supplier located in Kolkata supplies machinery to the recipient in
Delhi. The machinery is installed in the factory of the recipient in Kanpur. In this
case, the place of supply of machinery will be Kanpur.
Place of Supply for Services
Generally, the place of supply of services is the location of the service recipient.
In cases where the services are provided to an unregistered dealer and their
location is not available the location of service provider will be the place of
provision of service.
In case of services related to immovable property, the location of the property is
the place of provision of services.
Example 1:
Mr. Anil from Delhi provides interior designing services to Mr. Ajay(Mumbai). The
property is located in Ooty(Tamil Nadu).
In this case, place of supply will be the location of the immovable property i.e. Ooty,
Tamil Nadu.

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Example 2:
A registered taxpayer offers passenger transport services from Bangalore to
Mumbai. The passengers do not have GST registration. What will be the place of
supply in this case?
The place of supply is the place from where the departure takes place i.e. Bangalore
in this case.

GST Reverse Charge:

Reverse charge is a mechanism where the recipient of the goods and/or services is
liable to pay GST instead of the supplier.

Normally, the supplier of goods or services pays the tax on supply. In the case of
Reverse Charge, the receiver becomes liable to pay the tax, i.e., the chargeability
gets reversed.
When is Reverse Charge Applicable?
A. Supply from an Unregistered dealer to a Registered dealer
If a vendor who is not registered under GST, supplies goods to a person who
is registered under GST, then Reverse Charge would apply. This means that
the GST will have to be paid directly by the receiver to the Government
instead of the supplier. The registered dealer who has to pay GST under
reverse charge has to do self-invoicing for the purchases made.
B. Services through an e-commerce operator

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 If an e-commerce operator supplies services then reverse charge will be
applicable to the e-commerce operator. He will be liable to pay GST.
C. Supply of certain goods and services specified by CBEC
• What is Self Invoicing?
– Self-invoicing is to be done when you have purchased from an
unregistered supplier AND such purchase of goods or services falls
under reverse charge.
– This is due to the fact that your supplier cannot issue a GST-compliant
invoice to you, and thus you become liable to pay taxes on their behalf.
Hence, self-invoicing, in this case, becomes necessary.
GST Compliance Rating
• GST compliance rating is akin to a performance ranking of all registered
taxable persons which tells you how compliant they are with respect to the
GST provisions. This will be irrespective of nature, size, or turnover of the
business.
• The idea behind this concept of tax administration is to compel people to be
fully GST compliant and on time with uploading invoices and other necessary
documents.
• Under GST, a person can claim input tax credit in GSTR-2 (return with
purchase details for the month) only when the seller has also filed his GSTR-
1 (return with monthly sales details), and the details on both these forms
match or reconcile with each other.
• Under the current regime, businesses often delayed filing return and
payment of taxes to gain time. Continuing this practice under GST will result
in a delay in input tax credit across the chain and severely affect the working
capital of businesses. The rating system will prevent the delay of credit for
bona fide buyers due to the non-compliance of certain persons.

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How will someone be rated under GST?
• GST Rating will be based on certain criteria which are yet to be
prescribed. However, experts believe that the following factors could
play a key role in deciding compliance ratings:
• Timely payment of taxes
• Timely filing of returns
• Timely reconciliations
• Compliance with various other time limits under GST
• Cooperating with the GST authorities

What are the benefits that vendors can enjoy?

Some of the benefits that compliant vendors may be able to enjoy include:
• Get refunds immediately
• Buyers can get input tax credit immediately
• Attract more business
• Reduce chances of an audit by the tax authorities.
• Enjoy better reputation

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