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Introduction to GST

S Venkataramani

Chartered Accountant

Bangalore

Bangalore Branch – 30.10.2009

Basic Elements of GST

• GST is an indirect tax on consumption.

• GST (multi-stage) is contemplated to be charged andcollected at each stage of the production / processing /trading, on the value addition of goods and services

• A dual GST is being proposed wherein a Central Goodsand Services Tax (CGST) and a State Goods andServices Tax (SGST) will be levied on the taxable valueof a transaction.

• Imports would be subject to GST.

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Basic Elements of GST

• Exports would be zero-rated.

• GST must contemplate set-off of tax paidon inputs / capital goods and services.

• GST will require maintenance of accountsof tax paid on purchases and sales of goodsand services.

• In a GST regime the tax component in anytransaction is identifiable /computable

VAT vs GST - PreambleVAT / CST

• Governed under entry no. 54of List II and entry no. 92Aof the List I to the SeventhSchedule

GST

• GST will be governed underList I of the SeventhSchedule

• GST will be governed underList II of the SeventhSchedule

Or

• Possible that both CGSTand SGST will be governedunder List III of the SeventhSchedule

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VAT vs GST – Preamble

VAT / CST

• Article 286 lays down theprinciples for formulatingthe transactions relating toexport / import / saleeffected outside the State

GST

• It appears that Article 286may continue even underGST regime with certainmodifications to includeinterstate movement ofgoods and principlesrelating to services

GST Preamble

• Taxes most likely to be subsumed by GST

Central Excise

Service tax

Additional duty of customs

VAT

Entry tax not in lieu of Octroi

Luxury tax, Entertainment tax, Electricity taxes. Most ofthe Local laws, except stamp duty.

State surcharges related to supply of goods and services

Customs duty will remain outside GST

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VAT vs GST – Preamble

VAT / CST

• Currently there are 29 StateVAT laws

• CST law – applicable incase of inter-Statetransaction and subject totax at the rate of 2% (againstC Form) or local rate(without C Form) as thecase may be

GST

• It appears that even underGST regime there will be 29SGST laws and one CGSTlaw.

• IGST law will be favouredin respect of inter-Statemovement of Goods. Thetaxes charged under IGSTcould be available for set-off.

VAT vs GST - PreambleVAT / CST

• VAT is not adopted inits pure form

• No set-off is allowedon central sales taxpaid and other Statelevies such as luxurytax, entry tax etc

GST

• Same will be the case even underGST regime

• No set-off will be allowed underother State levies

• It appears there will be certainrestrictions in respect of allowingset-off of Central GST against StateGST or vice versa. FurtherCustoms duty paid may not beallowed as set-off under StateGST.

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VAT vs GST - Preamble

VAT / Service Tax / Excise

• Under VAT law – Goodsare listed for the purpose oflevy of taxes

• Under Service Tax –Taxable services are defined

• Under Excise Law –Excisable Goods are listedfor the purpose of levy oftaxes

GST

• Under CGST / SGST –– Goods will be listed for the

purpose of levy of taxes. Thiswill be based on the HSNclassification

– Services will be defined as –those which are not goods.The law will only list downthe exempted services.

VAT vs GST - Registration

VAT/CST

• Registration mandatoryif the total turnover is inexcess of Rs. 2 lakhs(Rs. 1 lakh in certaincases).

• One registration number(TIN) applicable forVAT / CST / KTEG /PT.

GST

• Registration is mandatory under– SGST –threshold limits will be in

the range of Rs. 10 lakhs.

– CGST – threshold limits will be inthe range of Rs. 10 lakhs

• Two registration numbers maybe applicable – one for CGSTbased on PAN number andother for SGST State wisewhich may include KTEG / PT

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VAT vs GST - Transitional Provision

VAT / CST

• Transitionalprovisions – allowedto avail set-off onlyin respect of thosepurchases which are:– effected within the

State;

– effected within oneyear; and

– Lying in the closingstock

GST

• Transitional provisions – Set-offmay be allowed in the followingmanner:– Excise duty / service tax (CENVAT

credit) will be allowed only againstCentral GST;

– VAT will be allowed to be set-off onlyagainst State GST;

– CST paid would not be entitled for set-off;

– Credits relatable to immediatelypreceding 6 months or 1 year and arelying in the stock / WIP in respect ofgoods. Services is an issue.

VAT vs GST – Output tax / Output service

VAT

• Applicable on sale ofgoods

• It is an origin based levy

The rate of tax followedby different States are:– 1%, 4%, 7.5%,8%, 12.5%,

20%, 2%, 5%, 15% etc

GST

• Applicable on both goods andservices

• In respect of goods, the SGSTlevy will be origin based whereasin respect of service tax the levywill be consumption based.

• The rate of tax that may befollowed by different States are:– Central GST - 8% to 10%, 0%, 1%,

4%, 20% and exempt

– State GST - 8% to 10%, 0%, 1%,4%, 20% and exempt.

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VAT vs GST – Output tax / Output service

VAT / CST

• Few commodities aresubject to tax under the KSTlaw even after VAT isintroduced.

GST

• It appears that KST / VAT /CST law will continueparallelly even under theGST regime and may not berepealed till such timelitigation concludes andtime for revision exists.

• In respect of inter-Statemovement of goods IGSTwill be introduced.

Integrated GST (IGST)

• In case of inter-State movement of goods– The dealer is required to charge IGST.

– IGST will be administered by the CentralGovernment.

– The buyer will be entitled to avail IGST ascredit and can claim set-off against onlyCGST or IGST

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VAT vs GST – Output tax / Output serviceVAT / CST

• The concept of HSNclassification is notfollowed in totality.

• Tax will be levied onsale price

GST

• It is widely expected that HSNsystem of classification will beimplemented only in respect ofGoods but not in respect of services.Both Centre and State will list downthe services which would beexempt.

The same concept will beimplemented wherein the taxes willbe levied on sale price. However, inrespect of services, valuation rulesmight be considered.

VAT vs GST – Output tax / Output service

VAT / CST

• Declared goods under theCST law is subject to tax atthe rate of 4%

• Each State has the power toexempt few commodities

• C Form / Form F / Form H /Form I

GST

• The concept of declaredgoods may be continued evenunder the GST regimespecifically under State GST

• Same may be continued evenunder the GST regime

• Similar statutory forms willbe continued in order to havecontrol over the movement ofgoods from one State toanother State

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VAT vs GST – Output tax / Output service

VAT / CST

• Works contract is acomplex issue andsubject to tax only inrespect of goods sold.

• Composition scheme isapplicable for workscontract

GST• Possible that there will be a

different chapter itself in respectof works contract. However, eachState may have its own method oflevying taxes on works contract.A set-off valuation rules might beintroduced in this regard.

• Same may not be continued underthe GST regime. However, eachSGST law may have compositionscheme for small dealers, subjectto threshold.

VAT vs GST – Input tax / CENVAT creditVAT / CST

• No set-off againstinter-State purchases

• No set-off againstduty paid under bothCentral Excise andService Tax

• No set-off againstCustoms duty paid

GST

• Set-off may be permissible in respectof inter-State purchase – since theIGST payable in the buying Statewill be subject to e-clearing homemechanism.

• Set-off may not be allowed inrespect of customs duty underSGST.

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VAT vs GST – Input tax / CENVAT credit

VAT / CST

• Partial rebating isallowed in respect ofgoods used for bothtaxable and exempted

• Stock transfer to a placeoutside the State - notliable to tax but subjectto input tax restriction

GST

• Partial rebating concept may beintroduced even under the GSTregime. There will be differentformulae one needs to adopt forCGST and SGST

• Major issue under the GST lawmore specifically concerned withstock transfer of services. Itappears that there will not be anystock transfer concept under GSTregime in respect of services.

VAT vs GST – Input tax / CENVAT credit

VAT / CST

• Input tax credit in respect ofspecified capital goods isallowed immediately in fewStates.

• Movement of capital goodsfrom one State to another –input tax credit is allowedpartially

GST

• IGST – set off may beallowed over a period oftime;

SGST – May vary betweenthe States

• SGST – May be allowedpartially and be subject torestrictions

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VAT vs GST – General Exemption

VAT / CST

• Sale to SEZ unit /International Organization

• Based on white paper –around 50 commoditieswere identified for thepurpose of exemption

GST

• Same will continue evenunder the GST regime

• Similarly, States may beempowered to exemptcertain commodities. Inother words, goods whichare exempt from State GSTneed not be exempted fromIGST.

VAT vs GST - Administration

VAT / CST

• VAT / CST law –administered by oneauthority

• Clarification / Notificationissued by the authorities /Government is applicableonly in the State

GST

• State GST will beadministered by the Stateand Central GST will be bythe Union.

• Clarification / Notificationissued by the Union inrespect of Central GST maynot hold good in theappropriate State and viceversa

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VAT vs GST - Administration

VAT / CST

• Assessee / Dealer is subjectto various assessments,appeals etc.

• Few States have abolishedAdvancing Ruling Authority

GST

• Even under the GST regime,the dealer / assessee willhave to undergo variousassessments, appeals etc.

• Advance Ruling provisionmay be enacted subject tocertain conditions. Itappears that two authoritieswill be constituted.

VAT vs GST - Administration

VAT / CST

• In respect of inter-Statetransaction – CST lawmonitors the movement ofgoods and also theapplicability of taxes

• Checkpost is established formonitoring the movement ofgoods within the State

GST

• There will be clearing housingmechanism which will beadopted in the GST regime forinter-State transactions.

• The concept of checkpost willbe continued even under GSTregime

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VAT vs GST - Appeals

VAT / CST

• Decision rendered underother Central statutecannot be madeapplicable under the VATlaw

• Dispute in a particulartransaction say –classification of goods,appeal to be preferredonly under VAT law

GST

• Decision rendered under theCGST may not be acceptable tothe authorities of SGST andvice – versa

• Dispute in respect of aparticular transaction say –classification of goods, appealmay have to be preferredseparately under both CGST aswell as SGST.

Thank you