Concept of Indirect Taxes at a glance – CS Executive Income Tax

GST – ONE NATION ONE TAX An Indirect Tax

Notes of CS Executive Income Tax

In India 2 types of taxes prevails: Direct Taxes & Indirect Taxes. GST is an indirect tax.

According to Article 366(12A),

  • Goods and Services Tax is a tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption.

Constitutional Provisions related to GST

To make laws related to GST, COI was amended. GST Bill was introduced under 122nd Constitutional Amendment Bill, but passed under 101st Amendment Act, 2016.

According to Article 246,

  • Only Parliament has the power to make laws on the maters enumerated in the List I of Schedule 7
  • Only Parliament has the power to make laws in respect of Union Territories
  • Only State Legislature has the power to make laws on the maters enumerated in the List II of Schedule 7
  • Both Parliament and State Legislature may make laws on the maters enumerated in the List III of Schedule 7.

According to Article 254,

  • in case of any conflict b/w the provisions of law made by Parliament and provisions of law made by State Legislature, provisions of law made by Parliament shall prevail.

Article 246A – A new Article introduced by Constitution 101st Amendment Act, 2016
It says that

  • Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.
  • Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.

Thus, according to Article 246A,

  • Both Union and States in India now have “concurrent powers” to make law with respect to goods & services tax
  • The intra-state trade now comes under the jurisdiction of both centre and state; while inter-state trade and commerce is “exclusively” under central government jurisdiction.

Article 248 – Residuary powers of legislation (Amended by Constitution 101st Amendment Act, 2016)

  • Subject to Article 246A, Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List.
  • Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists.

 

Article 269A – Levy and Collection of GST in the course of Inter-state trade or commerce (Inserted by Constitution 101st Amendment Act, 2016)

  1. Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the GST Council.
    Explanation: Supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-state trade or commerce.
  1. The amount apportioned under clause (1) shall not form part of the Consolidated Fund of India.
  2. Where an amount collected as tax levied under Clause 1 (IGST) has been used for payment of the tax levied by a State under Article 246A (SGST), such amount shall not form part of the Consolidated Fund of India.
  3. Where an amount collected as tax levied by a State under article 246A (SGAT) has been used for payment of the tax levied under clause (1) (IGST), such amount shall not form part of the Consolidated Fund of the State.
  4. Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes places in the course of inter-state trade or commerce.

Article 279A – Goods and Services Tax Council (Inserted by Constitution 101st Amendment Act, 2016)

  1. The President shall, within 60 days from the date of commencement of the Constitution (101st Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council.
  2. The Goods and Services Tax Council shall consist of the following members, namely:
    • the Union Finance Minister…………………… Chairperson;
    • the Union Minister of State in charge of Revenue or Finance…………….. Member;
    • the Minister in charge of Finance or Taxation or any other Minister nominated by each State Government………………..Members.
  3. The Members of the Goods and Services Tax Council referred to in sub-clause (c) of clause (2) shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide.
  4. The Goods and Services Tax Council shall make recommendations to the Union and the States on:
    • the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;
    • the goods and services that may be subjected to, or exempted from the goods and services tax;
    • model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply;
    • the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
    • the rates including floor rates with bands of goods and services tax;
    • any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;
    • 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
    • any other matter relating to the goods and services tax, as the Council may decide.
  5. The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.
  6. While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services.
  7. One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings.
  8. The Goods and Services Tax Council shall determine the procedure in the performance of its functions.
  9. 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 : –
    • the vote of the Central Government shall have a weightage of one-third of the total votes cast, and
    • the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.
  10. No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reason of:
    • any vacancy in, or any defect in, the constitution of the Council; or
    • any defect in the appointment of a person as a Member of the Council; or
    • any procedural irregularity of the Council not affecting the merits of the case.
  11. The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute —
    • between the Government of India and one or more States; or
    • between the Government of India and any State or States on one side and one or more other States on the other side; or
    • between two or more States, arising out of the recommendations of the Council or implementation thereof.
  •  

Article 366 – Definitions (New Clause inserted by Constitution 101st Amendment Act, 2016)
Clause (12A) – Definition of ‘Goods and Services Tax’
Goods and Services Tax is a tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption.

Amendments in Schedule 7 by Constitution 101st Amendment Act, 2016

Amendments in List I (Union List)

Entries

Before Amendment

After Amendment

Entry 83 – Custom Duty

Duties of customs including export duties

Same

Entry 84 – Excise Duty

Duties of excise on tobacco and other goods manufactured or produced in India except—

  •  alcoholic liquors for human consumption;
  • opium, Indian hemp and other narcotic drugs and narcotics,

but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry

Duties of excise on the following goods manufactured or produced in India, namely-

  • Petroleum crude;
  • High speed diesel;
  • Motor spirit (petrol);
  • Natural gas;
  • Aviation turbine fuel; and
  • Tobacco and tobacco products.

Entry 92

Taxes on the sale or purchase of newspapers and on advertisements published therein

Omitted

Entry 92A – Sales Tax

Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.

Same

Entry 97 – Residual Entry

Taxes on services

Same

Amendments in List II (State List)

Entry 52

Taxes on the entry of goods into a local area for consumption, use or sale therein

Omitted

Entry 54 – VAT

Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.

Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods.

Entry 55

Taxes on advertisements other than advertisements published in the newspapers and advertisements broadcast by radio or television

Omitted

Entry 62

Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling

Taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council.

 

Indirect Taxes Subsumed in GST

Union Taxes

State Taxes

Central Excise Duty

VAT

Additional Duties of Excise (Goods of Special Importance)

CST

Duties of Excise (Medicinal and Toilet Preparations

Purchase Tax

Additional Duties of Excise (Textiles and Textile Products)

Entertainment Tax (except those levied by the local bodies)

Additional Duties of Customs (commonly known as CVD)

Taxes on advertisements

Special Additional Duty of Customs (SAD)

Taxes on lotteries, betting and gambling

Service Tax

Entry Tax (All forms), Octroi

Many Cesses and surcharges levied by Center

Many Cesses and surcharges levied by States

Matters which are currently outside the scope of GST

  • Entertainment tax collected by local bodies
  • Petroleum Products :Petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel
  • Motor vehicles tax
  • Property taxes, such as stamp duty
  • Electricity

Tobacco attracts both Excise and GST.

A comparison between Pre-GST and Post-GST scenario

Pre-GST

Post-GST

Lots of Indirect Taxes by Center and State Government like Excise Duty, Sales Taxes, VAT, Entry Taxes, Entertainment Taxes etc.

One Nation One Tax – GST
Majority of indirect taxes got subsumed in GST

Lots of Tax incidences like tax on manufacture/production of goods (excise duty), tax on sale of goods (VAT/CST), tax on entry of goods in a local market (entry tax/Octroi), tax on supply of services etc.

Only one tax and one incidence – Supply of Goods/Services/Both

Different tax rates in different states which leads to different prices of same commodity in different states 

GST – Same tax rate throughout the country

Too much documentations and compliances due to large number of taxes and tax incidences

Comparatively, very less documentations and compliances. Nearly every service/facility is available online starting from registration till payment of taxes and filing of returns.

An online portal (GSTN – Goods & Services Tax Network) has been set up primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST).

Unintentional defaults due to lots of tax incidences

Chances of unintentional defaults are very less

Different rules and procedures in different states due to different tax laws

Uniform procedure throughout the country

Cascading effect of taxes as ITC cannot be utilised properly.

No cascading effect. ITC of different varients of GST (IGST, CGST, SGST) can be utilised inter-se

Double taxation as same type of taxes could be imposed more than once on same value by different authorities or under different laws.

No double taxation – Only one tax i.e GST

Important Points – Overview of GST

  • In India, GST Bill was introduced under 122nd Constitutional Amendment Bill, 2014, but passed under 101st Amendment Act, 2016
  • France was the first country to implement GST in as early as 1954.
  • Assam was the first state to ratify GST Bill but Telangana was the first state to pass State GST Bill
  • India has the highest tax slab in the world i.e., 28%, next only to Argentina which is at 27%
  • Indian GST has four rate structure, viz. 5%, 12%, 18% and 28% with cess on sin goods and luxury items
  • There is a special rate of 3% on precious metals like gold
  • The taxable event under GST is supply.
  • GST is a destination based tax.
  • GST is covered under five legislations i.e.,
    • Central GST Act to impose CGST on intra-state supply,
    • State GST Act to impose SGST on intra-state supply in 29 states and 2 UTs,
    • Integrated GST Act to impose IGST on inter-state supply (it shall be equal to CGST+SGST),
    • Union Territory GST Act to impose UTGST on intra-state supply in 5 UTs and
    • GST (Compensation to States) Act to provide compensation to states by union for any loss in revenue due to implementation of GST. Compensation shall be provided only for 5 years.
  • All taxation policies and their implementation are based on the recommendations of the GST Council
  • GST Council was constituted with its headquarters in Delhi. The Union Finance Minister is the Chairperson
  • 1st July will be observed as the GST day
  • The threshold limit under GST is 40 Lakhs, for some special category states it is Rs. 20 Lakhs
  • There is a special purpose vehicle called GSTN incorporated under Companies Act, 2013 with combined stake of Central and State Governments is 49%. The rest is contributed by LIC Finance with 11% and ICICI Bank, HDFC, HDFC Bank and NSE Strategic Investment Corporation with 10% each. GSTN caters the IT needs of GST.

 

Model of GST in India

In India we have dual model of GST. Currently, Brazil and Canada also follow dual GST model. In Canada, though GST scheme closely resembles that of India, it failed to achieve consensus among states. As a result the GST was made optional not mandatory. States are free to adopt or reject GST. In India, GST is uniformly applicable all over India including the State of Jammu and Kashmir.

Constitutional structure of India is federal. In India both Central Government and State Governments have power to impose taxes according to Article 246 of Constitution of India. Thus, in India, dual model of GST was required.

In dual model, both Central Government and State Governments have power to impose GST. Central Government imposes CGST, IGST, UTGST and State Government imposes SGST.

Some of the other models are:

  • Australian Model wherein, tax is collected by the Centre and distributed to the States
  • Canadian Model wherein there are three variants of taxes
  • Kelkar-Shah Model based on Canada Model wherein taxes are collected by the Centre however, two different rates of tax are to be levied by the Centre and the States and
  • Bagchi-Poddar Model which envisages a combination of Central Excise, Service Tax and VAT to make it a common base of GST to be levied both by the Centre and the States separately.

Along with the amendment in the Constitution, to empower the Centre and the states to levy and collect the GST, four legislations were given assent by the President on April 12,2017, which include:

  • The Central GST Act, 2017; • The Integrated GST Act, 2017;
  • The GST (Compensation to States) Act, 2017; • The Union Territory GST Act, 2017.

Amended Threshold Limit

Amended Threshold Limit
The GST Council, on considering the demands raised by MSME, increased the threshold limits for GST registration. This helps to ease compliance under GST. The states have an option to opt for a higher limit or continue with the existing limits. This article explains the earlier threshold limits, new limits, their effective date of applicability and the persons to whom it applies.

Overview of earlier limits, new limits and the date of applicability

Aggregate Turnover

Registration Required

Applicability

Earlier Limits – For the sale of Goods/Providing Services

Exceeds Rs.20 lakh

Yes – For Normal Category States

Up to 31st March 2019

Exceeds Rs.10 lakh

Yes – For Special Category States

Up to 31st March 2019

New Limits – For Sale of Goods

Exceeds Rs.40 lakh

Yes – For Normal Category States

From 1st April 2019

Exceeds Rs.20 lakh

Yes – For Special Category States

From 1st April 2019

New Limits – For Providing Services

There has been no change in Threshold limits for Service Providers

States who opted for the new limit
The above changes were proposed in the 32nd GST Council Meeting held on 10th January 2019. An option was provided to the states to opt for the new limits or continue the earlier ones (status quo).

Normal Category States who opted for a new limit of Rs.40 lakh

Normal Category States who choose status quo

Special Category States who opted for new limit of Rs.20 lakh

Chhattisgarh, Jharkhand, Delhi, Bihar, Maharashtra, Andhra Pradesh, Gujarat, Haryana, Goa, Punjab, Uttar Pradesh, J&K, Assam, Himachal Pradesh, Karnataka, Madhya Pradesh, Odisha, Rajasthan, Tamil Nadu, West Bengal

Kerala and Telangana

Puducherry, Meghalaya, Mizoram, Tripura, Manipur, Sikkim, Nagaland, Arunachal Pradesh, Uttarakhand

Note 1: Two hilly states J&K and Assam have also opted to raise the limit to Rs.40 lakh. These two states had the option to remain under lower threshold limits as they fall under the Special Category States. Even previously when these two states had the option to charge GST only on aggregate turnover exceeding Rs.10 lacs, they had opted for a higher threshold limit of Rs.20 lakh.

Note 2: Kerala can now charge ‘calamity cess’ up to 1% on all intra-state supply of goods and services to cope up with natural calamities faced by the state last year.

 

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