For Departmental Officers only
Introduction
The
introduction of Goods and Services Tax (GST) would be a very significant step
in the field of indirect tax reforms in India. By amalgamating a large number
of Central and State taxes into a single tax, it would mitigate cascading or
double taxation in a major way and pave the way for a common national market.
From the consumer point of view, the biggest advantage would be in terms of a
reduction in the overall tax burden on goods, which is currently estimated at
25%-30%. Introduction of GST would also make Indian products competitive in the
domestic and international markets. Studies show that this would instantly spur
economic growth. Last but not the least, this tax, because of its transparent
character, would be easier to administer.
Genesis
2. The idea of moving towards the GST
was first mooted by the then Union Finance Minister Shri P. Chidambaram in his
Budget for 2006-07. Initially, it was proposed that GST would be introduced by
1st April, 2010. The Empowered Committee of State Finance Ministers (EC) which
had formulated the design of State VAT was requested to come up with a roadmap
and structure for the GST. Joint Working Groups of officials having
representatives of the States as well as the Centre were set up to examine
various aspects of the GST and draw up reports specifically on exemptions and
thresholds, taxation of services and taxation of inter-State supplies. Based on
discussions within and between it and the Central Government, the EC released
its First Discussion Paper (FDP) on the GST in November, 2009. This spells out
the features of the proposed GST and has formed the basis for discussion
between the Centre and the States so far.
Salient Features of GST
3. The salient features of GST are as
under:
(i)
GST would be applicable on
supply of goods or services as against the present concept of tax on the
manufacture of goods or on sale of goods or on provision of services.
(ii)
GST would be a destination
based tax as against the present concept of origin based tax.
(iii)
It would be a dual GST with
the Centre and the States simultaneously levying it on a common base. The GST
to be levied by the Centre would be called Central GST (CGST) and that to be
levied by the States would be called State GST (SGST).
(iv)
An Integrated GST (IGST)
would be levied on inter-State supply (including stock transfers) of goods or
services. This would be collected by the Centre so that the credit chain is not
disrupted.
(v)
Import of goods or services
would be treated as inter-State supplies and would be subject to IGST in
addition to the applicable customs duties.
(vi)
For an initial period of
two years or as further extended on the recommendation of the GST Council, a
non-vatable Additional Tax not exceeding 1% on inter-State supply of goods
would be levied and collected by the Centre and assigned to the originating
State.
(vii)
CGST, SGST & IGST would be levied at rates
to be mutually agreed upon by the Centre and the States under the aegis of the
GST Council.
(viii)
GST would replace the following taxes
currently levied and collected by the Centre:
a) Central Excise duty
b) Duties of Excise (Medicinal and Toilet
Preparations)
c) Additional Duties of Excise (Goods of Special
Importance)
d) Additional Duties of Excise (Textiles and
Textile Products)
e) Additional Duties of Customs (commonly known
as CVD)
f) Special Additional Duty of Customs (SAD)
g) Service Tax
h)
Cesses and surcharges insofar as far as they relate to supply of goods
or services
(ix)
State taxes that would be subsumed within the
GST are:
a) State VAT
b) Central Sales Tax
c) Purchase Tax
d) Luxury Tax
e) Entry Tax (All forms)
f) Entertainment Tax (not levied by the local
bodies)
g) Taxes on advertisements
h) Taxes on lotteries, betting and gambling
i) State
cesses and surcharges insofar as far as they relate to supply of goods or
services
(x)
GST would apply to all
goods and services except Alcohol for human consumption.
(xi)
GST on petroleum products would be applicable
from a date to be recommended by the Goods & Services Tax Council.
(xii)
Tobacco and tobacco
products would be subject to GST. In addition, the Centre could continue to
levy Central Excise duty.
(xiii)
A common threshold exemption would apply to
both CGST and SGST. Taxpayers with a turnover below it would be exempt from
GST. A compounding option (i.e.to pay tax at a flat rate without credits) would
be available to small taxpayers below a certain threshold. The threshold
exemption and compounding provision would be optional.
(xiv)
The list of exempted goods
and services would be kept to a minimum and it would be harmonized for the
Centre and the States as far as possible.
(xv)
Exports would be zero-rated.
(xvi)
Credit of CGST paid on inputs may be used only
for paying CGST on the output and the credit of SGST paid on inputs may be used
only for paying SGST. In other words, the two streams of input tax credit (ITC)
cannot be cross utilised, except in specified circumstances of inter-State
supplies, for payment of IGST. The credit would be permitted to be utilised in
the following manner:
a) ITC of CGST allowed for payment of CGST;
b) ITC of SGST allowed for payment of SGST;
c) ITC of CGST allowed for payment of CGST &
IGST in that order;
d) ITC of SGST allowed for payment of SGST &
IGST in that order;
e) ITC of IGST allowed for payment of IGST, CGST
& SGST in that order.
(xvii)
ITC of Additional Tax would not be permitted.
(xviii)
Accounts would be settled
periodically between the Centre and the State to ensure that the SGST used for
payment of IGST is transferred by the Centre to the Destination State where the
goods or services are eventually consumed. Similarly the IGST used for payment
of SGST would be transferred by the originating State to the Centre.
(xix)
The laws, regulations and procedures for levy
and collection of CGST and SGST would be harmonized to the extent possible.
GST and Centre-State Financial Relations
4. Currently, fiscal powers between the
Centre and the States are clearly demarcated in the Constitution with almost no
overlap between the respective domains. The Centre has the powers to levy tax
on the manufacture of goods (except alcoholic liquor for human consumption,
opium, narcotics etc.) while the States have the powers to levy tax on the sale
of goods. In the case of inter-State sales, the Centre has the power to levy a
tax (the Central Sales Tax) but, the tax is collected and retained entirely by
the originating States. As for services, it is the Centre alone that is
empowered to levy service tax. Since the States are not empowered to levy any
tax on the sale or purchase of goods in the course of their importation into or
exportation from India, the Centre levies and collects this tax as additional
duties of customs, which is in addition to the Basic Customs Duty. This
additional duty of customs counterbalances excise duties, sales tax, State VAT
and other taxes levied on the like domestic product. Introduction of the GST
would require amendments in the Constitution so as to concurrently empower the
Centre and the States to levy and collect the GST.
4.1 The assignment of concurrent
jurisdiction to the Centre and the States for the levy of GST would require a
unique institutional mechanism that would ensure that decisions about the
structure, design and operation of GST are taken jointly by the two. For it to
be effective, such a mechanism also needs to have Constitutional force.
Constitution (One Hundred and Twenty
Second) Amendment Bill, 2014
5. To address all these and other
issues, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha
on 22.03.2011. The said Bill lapsed with the dissolution of the 15th Lok Sabha.
The Constitution (122nd Amendment) Bill has now been introduced in the 16th Lok
Sabha on 19.12.2014. The Bill provides for a levy of GST on supply of all goods
or services except for the specified goods. The tax shall be levied as Dual GST
separately by the Union (CGST) and the States (SGST). The Parliament would have
exclusive power to levy GST (IGST) on inter-State trade or commerce (including
imports) in goods or services. The Central Government will have the power to
levy excise duty in addition to the GST on tobacco and tobacco products. As a
temporary measure, for two years (or for such further period as recommended by
the GST Council), a non-vatable additional tax not exceeding 1% on inter-State
supply of goods would be levied and collected by the Centre and assigned to the
originating State.
5.1 A GST Council (GSTC) would be
constituted comprising the Union Finance Minister, the Minister of State
(Revenue) and the State Finance Ministers to recommend on the GST rate,
exemption and thresholds, taxes to be subsumed and other features. This
mechanism would ensure some degree of harmonization on different aspects of GST
between the Centre and the States as well as among States.
5.2 The Constitution Amendment Bill needs
to be passed by a two-third majority in both Houses of Parliament and
subsequent ratification by at least half of the State Legislatures. The Bill
has been passed by the Lok Sabha on 06.05.2015. The Bill has, however, been
referred to the Select Committee (of 21 members led by Sh. Bhupendra Yadav,
Hon’ble MP) of Raj a Sabha on 12.05.2015. The Select Committee has been
requested to submit its report on the last day of the first week of the Monsoon
session of the Parliament. After passage of the Bill by both Houses of
Parliament, ratification by State legislatures and receipt of assent by the
President, the process of enactment would be complete.
Other Legislative Requirements
6. Suitable legislation for the levy
of GST (Central GST Bill and State GST Bills) drawi ng powers from the
Constitution can be introduced i n Parliament or the State Legislatures only
after the enactment of the Constitution Amendment Bill and on the
recommendation by the GSTC. Unlike the Constitutional Amendment, the GST Bills
would need to be passed by a simple majority. Obviously, the levy of the tax
can commence only after the GST Law has been enacted by the respective
legislatures. Also, unlike the State VAT, the date of commencement of this levy
would have to be synchronized across the Centre and the States. This is because
the IGST model cannot function unless the Centre and all the States participate
simultaneously.
Recent Developments on the GST
7. Five Committees have been constituted
by the Empowered Committee of State Finance M i ni sters (EC) to deal with the
various aspects of work relating to the introduction of GST. The Committees
are:
(i) The
Committee on the Problem of Dual Control, Threshold and Exemptions in GST
Regime;
(ii) The
Committee on Revenue Neutral Rates for State GST & Central GST and Place of
Supply Rules (A Sub-Committee has been constituted to examine issues relating
to the Place of Supply Rules);
(iii) The
Committee on I GST & GST on Imports (A Sub- Committee has been set up to
examine issues pertaining to I GST model);
(iv) The
Committee to examine Business Processes under GST Regime (Three Sub-Committees
have been constituted to examine issues pertaining to Registration &
Returns, Refunds and Payments);
(v) The
Committee to draft model GST Law (Three Sub-Committees have been constituted to
draft various aspects of the model law);
7.1 The first four Committees have
submitted their final reports which are under consideration of the Empowered
Committee / Government of India.
7.2 CBEC officials, as members of these
Committees / Sub-committees, are playing a significant role in the work
relating to design and contours of the proposed GST regime.
7.3 The meetings of the Empowered Committee
are attended by the Nodal Member of the CBEC and other officials.
7.4 A GST Cell headed by a Commissioner
level officer has been created within CBEC which functions in close
coordination with TRU. Three Groups have been constituted by CBEC to work on
various aspects of the GST.
Role of CBEC
8. The CBEC is playing an active role in
the deliberations in the various Committees constituted by the Empowered
Committee. It is expected to play an equally important role in the drafting of
GST law and procedures, particularly the CGST and IGST law, which will be
exclusive domain of the Centre. This apart, the CBEC would need to prepare, in
advance, for meeting the implementation challenges, which are quite formidable.
The number of taxpayers is likely to go up significantly. The existing IT
infrastructure of CBEC would need to be suitably scaled up to handle such large
volumes. Based on the legal provisions and procedure for GST, the content of
work-flow software such as ACES (Automated Central Excise & Service Tax)
would require review. DG Systems has recently constituted a Steering Committee
Steering Committee for implementation of GST System for CBEC. Augmentation in
human resources would be necessary to handle such large number of taxpayers
scattered across the length and breadth of the country. Capacity building,
particularly in the field of Accountancy and Information Technology, for the
departmental officers have to be taken up in a big way.
9. The GST law is still evolving and
the dialogue continues between the Centre and the States on related issues. A
number of procedural, legal and administrative issues relating to GST are under
active discussions in various Committees / Sub-committees constituted by the EC
and in various Groups constituted by the CBEC.
(This Note is for creating general awareness
about the GST among the officers and staff of CBEC)
*****
Source:CBEC
