Goods and Services Tax(GST) - Competitive Exams

Introduction
Goods and Services Tax is a comprehensive indirect tax which is to be levied on the manufacture, sale and consumption of goods and services in India. This is so far the biggest tax reform in the country. GST eliminates the cascading effect of taxes because it is taxed at every point of business and the input credit is available in the value chain.
Goods and Services Tax(GST) - Competitive Exams

Historical Background
France was the first country to introduce GST system in 1954. More than 140 countries have implemented the GST. Genesis of GST occurred during the previous NDA Government under Atal Bihari Vajpayee Government when it set up the Asim Dasgupta committee to design a model for GST. The UPA Government took the matter further and announced in 2006 that this tax would be introduced from April 1, 2010. However, so far it was not introduced. All the GST bills including Constitution (101st Amendment) Act have been passed now and GST is set to come into force from July 1, 2017.
GST Council
The mechanism of GST Council would ensure harmonization on different aspects of GST between the Centre and the States as well as among States. It has been specifically provided that the GST Council, in its discharge of various functions, shall be guided by the need for a harmonized structure of GST and for the development of a harmonized national market for goods and services. The GST Council shall establish a mechanism to adjudicate disputes arising out of its recommendation or implementation thereof.
Taxes Replaced by GST
GST would replace almost all vital indirect taxes  and cesses on Goods & services in the country. Among the taxes levied by centre, GST will subsume the following:
  • Central Excise duty & Service Tax
  • 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)
  • Central Surcharges and Cesses so far as they relate to supply of goods and services
Among the state taxes that would be replaced by GST include:
  • State VAT
  • Central Sales Tax c. Luxury Tax
  • Entry Tax (all forms)
  • Entertainment and Amusement Tax (except when levied by the local bodies)
  • Taxes on advertisements
  • Purchase Tax
  • Taxes on lotteries, betting and gambling
  • State Surcharges and Cesses so far as they relate to supply of goods and services
Principles followed in subsuming the taxes
The following principles were adopted while subsuming the above taxes under GST. 
  • Firstly, the taxes to be levied should primarily indirect taxes and should be part of the transaction chain that commences with production or manufacturing or import of good / service at one end and consumption at other. 
  • Secondly, such replacement of taxes should result in free flow of tax credit in intra and inter-state level. 
  • Thirdly, the GST should give fair revenue to both centre and states.
Commodities Not under GST
Kindly Note that following have been kept out of the ambit of GST:
  • Potable alcohol
  • Five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel
  • Electricity
The above arrangement is “temporary” and the GST Council will decide the date from which they shall be included in GST. For these commodities, the existing VAT and central excise will continue to operate until they are included in GST. It’s worth note here that Tobacco and Tobacco Products have been included in GST and centre will have power to levy the GST on tobacco and tobacco products.
Apart from the above, there will be no GST on the sale and purchase of securities, which shall continue to be governed by Securities Transaction Tax (STT).
Understanding Dual GST
Most of the countries have a unified GST system. Brazil and Canada follow a dual system where GST is levied by both the Union and the State governments. India also has dual GST where Centre and States simultaneously levying it on a common tax base. The structure is as follows:
For intra-state trade
The GST levied by centre is called Central GST (CGST) while that levied by states / UTs is State GST (SGST) or UTGST.
For inter-state trade
For inter-state supply of Goods & Services, an Integrated GST (IGST) will be levied and administered by Centre.
CGST and IGST will be levied and administered by Centre; while SGST / UTGST will be levied and administered by respective states and UT administrations.
Principles followed in adopting dual GST
The principle of fiscal federalism has been adapted where by centre and states have been assigned powers to levy and collect taxes through appropriate legislations.
GST Legislation
The entire GST legislation is based on six separate acts / bills. Their current status (April 4, 2017) is as follows:
  1. Constitution 101st amendment Act, 2016: This act was passed in September 2016 and comes into force in July 1, 2017.
  2. Central GST (CGST) Bill, 2017
  3. SGST (state GST) Bill, 2017
  4. Union Territory GST (UTGST) Bill, 2017
  5. Integrated GST (IGST) Bill, 2017
  6. GST (Compensation to States) Bill, 2017 (Compensation Cess Bill)
They were passed by the Lok Sabha on 29th March, 2017 and by the Rajya Sabha on 6th April, 2017.
GST provides for a Compliance rating mechanism for tax payers
As per Section 149 of the CGST/SGST Act, every registered person shall be assigned a compliance rating based on the record of compliance in respect of specified parameters. Such ratings shall also be placed in the public domain. A prospective client will be able to see the compliance ratings of suppliers and take a decision as to whether to deal with a particular supplier or not. This will create healthy competition amongst taxable persons.
GST Provides for an Anti-Profiteering measure
As per section 171 of the CGST/SGST Act, any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. An authority may be constituted by the government to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.
For GST to be levied – there must be business and quid-pro-quid
In order to be a supply which is taxable under GST, the transaction should be in the course or furtherance of business. As there is no quid pro quo involved in supply for charitable activities, it is not a supply under GST.
GST differentiates between composite supply and mixed supply
Composite supply is a supply consisting of two or more taxable supplies of goods or services or both or any combination thereof, which are bundled in natural course and are supplied in conjunction with each other in the ordinary course of business and where one of which is a principal supply. For example, when a consumer buys a television set and he also gets warranty and a maintenance contract with the TV, this supply is a composite supply. In this example, supply of TV is the principal supply, warranty and maintenance service are ancillary.
Mixed supply is combination of more than one individual supplies of goods or services or any combination thereof made in conjunction with each other for a single price, which can ordinarily be supplied separately. For example, a shopkeeper selling storage water bottles along with refrigerator. Bottles and the refrigerator can easily be priced and sold separately.
Under GST, Composite supply shall be treated as supply of the principal supply. Mixed supply would be treated as supply of that particular goods or services which attracts the highest rate of tax.
Final Structure of GST
  • The threshold limit for exemption from GST is Rs. 20 lakh for the State and Rs 10 Lakh for the special category states.
  • A four slab tax rate structure of 5%, 12%, 18% and 28% has been adopted for GST.
  • A cess would be levied on certain goods such as luxury cars, aerated drinks, pan masala and tobacco products, in addition to the GST rate of 28% .This would be used for payment of compensation to the states. (A cess is a tax that is levied by the government to raise funds for a specific purpose)
  • The threshold for availing the Composition scheme is Rs. 75 lakh. (Rs.50 lakh for special category states) and they are required to file quarterly returns only.
  • Certain categories of manufacturers, service providers (except restaurants) can not avail the Composition Scheme.


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