Ankita Khetan | Sep 9, 2017 |
GST CONCEPT & STATUS updated by CBEC on 01.09.2017
GST CONCEPT & STATUS
Updated as on 01st September 2017
The introduction of Goods and Services Tax on the 1st of July 2017 was avery significant step in the field of indirect tax reforms in India. Byamalgamating a large number of Central and State taxes into a single tax, theaim was to mitigate cascading or double taxation in a major way and pave theway for a common national market. From the consumer point of view, thebiggest advantage would be in terms of a reduction in the overall tax burden ongoods, which was estimated to be around 25%-30%. Introduction of GST wouldalso make Indian products competitive in the domestic and internationalmarkets. Studies show that this would have a boosting impact on economicgrowth. Last but not the least, this tax, because of its transparent and self policingcharacter, would be easier to administer.
2. The idea of moving towards the GST was first mooted by the then UnionFinance Minister in his Budget for 2006-07. Initially, it was proposed that GSTwould be introduced from 1st April, 2010. The Empowered Committee of StateFinance Ministers (EC) which had formulated the design of State VAT wasrequested to come up with a road map and structure for the GST. Joint WorkingGroups of officials having representatives of the States as well as the Centrewere set up to examine various aspects of the GST and draw up reportsspecifically on exemptions and thresholds, taxation of services and taxation of
inter-State supplies. Based on discussions within and between it and the CentralGovernment, the EC released its First Discussion Paper (FDP) on GST inNovember, 2009. This spells out the features of the proposed GST and hasformed the basis for discussion between the Centre and the States.
3. Currently, fiscal powers between the Centre and the States are clearlydemarcated in the Constitution with almost no overlap between the respectivedomains. 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 sale of goods. In case of inter-Statesales, the Centre has the power to levy a tax (the Central Sales Tax) but, the taxis 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 notempowered to levy any tax on the sale or purchase of goods in the course oftheir importation into or exportation from India, the Centre levies and collectsthis tax as additional duties of customs, which is in addition to the BasicCustoms Duty. This additional duty of customs (commonly known as CVD andSAD) counter balances excise duties, sales tax, State VAT and other taxeslevied on the like domestic product. Introduction of GST would requireamendments in the Constitution so as to concurrently empower the Centre andthe States to levy and collect the GST.
The assignment of concurrent jurisdiction to the Centre and the States for thelevy of GST would require a unique institutional mechanism that would ensurethat decisions about the structure, design and operation of GST are taken jointlyby the two. For it to be effective, such a mechanism also needs to have
Constitutional force.
4. To address all these and other issues, the Constitution (122nd Amendment)Bill was introduced in the 16th Lok Sabha on 19.12.2014. The Bill provides fora levy of GST on supply of all goods or services except for Alcohol for humanconsumption. The tax shall be levied as Dual GST separately but concurrentlyby the Union (central tax – CGST) and the States (including Union Territorieswith legislatures) (State tax – SGST) / Union territories without legislatures(Union territory tax- UTGST). The Parliament would have exclusive power tolevy GST (integrated tax – IGST) on inter-State trade or commerce (includingimports) 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. Thetax on supply of five specified petroleum products namely crude, high speeddiesel, petrol, ATF and natural gas would be levied from a later date on therecommendation of GST Council.
5. A Goods and Services Tax Council (GSTC) was constituted comprisingthe Union Finance Minister, the Minister of State (Revenue) and the StateFinance Ministers to recommend on the GST rate, exemption and thresholds,taxes to be subsumed and other features. This mechanism would ensure somedegree of harmonization on different aspects of GST between the Centre andthe States as well as across States. One half of the total number of members ofGSTC would form quorum in meetings of GSTC. Decision in GSTC would betaken by a majority of not less than three-fourth of weighted votes cast. Centreand minimum of 20 States would be required for majority because Centrewould have one-third weightage of the total votes cast and all the States takentogether would have two-third of weightage of the total votes cast.
6. The Constitution Amendment Bill was passed by the Lok Sabha in May,2015. The Bill was referred to the Select Committee of Rajya Sabha on12.05.2015. The Select Committee had submitted its Report on the Bill on22.07.2015. The Bill with certain amendments was finally passed in the RajyaSabha and thereafter by Lok Sabha in August, 2016. Further the bill had beenratified by required number of States and received assent of the President on 8thSeptember, 2016 and has since been enacted as Constitution (101st Amendment)Act, 2016 w.e.f. 16th September, 2016.
7. The GSTC has been notified with effect from 12th September, 2016. GSTCis being assisted by a Secretariat. Twenty meetings of the GSTC have been heldso far. The following major decisions have been taken by the GSTC:
i. The threshold exemption limit would be Rs. 20 lakh. For special categoryStates (except J&K) enumerated in article 279A of the Constitution,threshold exemption limit has been fixed at Rs. 10 lakh.
ii. Composition threshold shall be Rs 75 lakh. Composition scheme shall notbe available to inter-State suppliers, service providers (except restaurantservice) and specified category of manufacturers. For special categoryStates (except J&K and Uttarakhand) enumerated in article 279A of theConstitution, threshold exemption limit has been fixed at Rs. 50 lakh.
iii. Existing tax incentive schemes of Central or State governments may becontinued by respective government by way of reimbursement throughbudgetary route. The schemes, in the present form, would not continue inGST. Further, 50% exemption of the CGST portion will be provided toCSD (Defense Canteen).
iv. There would be four tax rates namely 5%, 12%, 18% and 28%. The taxrates for different goods and services have been finalized and notified.Besides, some goods and services would be under the list of exempt items.The exempted services has been finalized which is same as the services
exempted under existing service tax law, except services supplied byGoods and Services Tax Network which is the addition to the list ofexempted services under service tax. Rate for precious metals is anexception to four-tax slab-rule and the same has been fixed at 3%. A cessover the peak rate of 28% on certain specified luxury and demerit goods,like tobacco and tobacco products, pan masala, aerated waters, motorvehicles, would be imposed for a period of five years to compensate Statesfor any revenue loss on account of implementation of GST. The list ofservices in case of which reverse charge would be applicable has also beenfinalized.
v. The five laws namely CGST Law, UTGST Law, IGST Law, SGST Lawand GST Compensation Law have been recommended.
vi. In order to ensure single interface, all administrative control over 90% oftaxpayers having turnover below Rs. 1.5 crore would vest with State taxadministration and over 10% with the Central tax administration. Furtherall administrative control over taxpayers having turnover above Rs. 1.5
crore shall be divided equally in the ratio of 50% each for the Central andState tax administration.
vii. Powers under the IGST Act shall also be cross-empowered on the samebasis as under CGST and SGST Acts with few exceptions.
viii. Power to collect GST in territorial waters shall be delegated by CentralGovernment to the States.
ix. Formula and mechanism for GST Compensation Cess has been finalised.
x. Eighteen rules on composition, registration, valuation, input tax credit,invoice, accounts and records, returns, payment, refund, assessment andaudit, advance ruling, appeals and revision, transitional provisions, anti profiteering,E-way Bill, inspection, search and seizure, demands and
recovery and offences and penalties have been recommended and notified.
xi. www.gst.gov.in, managed by GSTN, shall be the Common Goods andServices Tax Electronic Portal.
xii. Rate of interest on delayed payments and delayed refund has beenrecommended and notified.
xiii. The rules for the National Anti-Profiteering Authority have beenrecommended by the GST Council, and a selection committee under theChairmanship of Cabinet Secretary for identification of eligible person forappointment of Chairmen and Members of National Anti-Profiteering
Authority has been appointed.
8. The salient features of GST are as under:
(i) GST would be applicable on supply of goods or services as against thepresent concept of tax on the manufacture of goods or on sale of goods oron provision of services.
(ii) GST would be based on the principle of destination based consumptiontaxation as against the present principle of origin-based taxation.
(iii) It would be a dual GST with the Centre and the States simultaneouslylevying it on a common base. The GST to be levied by the Centre wouldbe called Central GST (central tax- CGST) and that to be levied by theStates [including Union territories with legislature] would be called StateGST (state tax- SGST). Union territories without legislature would levyUnion territory GST (union territory tax- UTGST).
(iv) An Integrated GST (integrated tax- IGST) would be levied on inter-Statesupply (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 would be treated as inter-State supplies and would be subject to IGST in addition to the applicable customs duties.
(vi) Import of services would be treated as inter-State supplies and would besubject to IGST.
(vii) CGST, SGST /UTGST& IGST would be levied at rates to be mutuallyagreed upon by the Centre and the States under the aegis of the GSTC.
(viii) GST would replace the following taxes currently levied and collected bythe 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 they relate to supply of goods orservices.
(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 (except those levied by the local bodies);
g) Taxes on advertisements;
h) Taxes on lotteries, betting and gambling;
i) State cesses and surcharges insofar as they relate to supply ofgoods or services.
(x) GST would apply to all goods and services except Alcohol for humanconsumption.
(xi) GST on five specified petroleum products (Crude, Petrol, Diesel, ATF &Natural gas) would be applicable from a date to be recommended by theGSTC.
(xii) Tobacco and tobacco products would be subject to GST. In addition, theCentre would continue to levy Central Excise duty.
(xiii) A common threshold exemption would apply to both CGST and SGST.Taxpayers with an annual turnover of Rs. 20 lakh (Rs. 10 lakh for specialcategory States (except J&K) as specified in article 279A of theConstitution) would be exempt from GST. A compounding option (i.e. topay tax at a flat rate without credits) would be available to smalltaxpayers (including to manufacturers other than specified category ofmanufacturers and service providers) having an annual turnover of up toRs. 75 lakh (Rs. 50 lakh for special category States (except J&K andUttarakhand) enumerated in article 279A of the Constitution). Thethreshold exemption and compounding scheme would be optional.
(xiv) The list of exempted goods and services would be kept to a minimum andit would be harmonized for the Centre and the States as well as acrossStates as far as possible.
(xv) All Exports and supplies to SEZs and SEZ units would be zero-rated.
(xvi) Credit of CGST paid on inputs may be used only for paying CGST on theoutput and the credit of SGST/UTGST paid on inputs may be used onlyfor paying SGST/UTGST. In other words, the two streams of input taxcredit (ITC) cannot be cross utilized, except in specified circumstances of
inter-State supplies for payment of IGST. The credit would be permittedto be utilized in the following manner:
a) ITC of CGST allowed for payment of CGST & IGST in that order;
b) ITC of SGST allowed for payment of SGST & IGST in that order;
c) ITC of UTGST allowed for payment of UTGST & IGST in thatorder;
d) ITC of IGST allowed for payment of IGST, CGST &SGST/UTGST in that order.
ITC of CGST cannot be used for payment of SGST/UTGST and viceversa.
(xvii) Accounts would be settled periodically between the Centre and the Stateto ensure that the credit of SGST used for payment of IGST is transferredby the originating State to the Centre. Similarly the IGST used forpayment of SGST would be transferred by Centre to the destination State.
Further the SGST portion of IGST collected on B2C supplies would alsobe transferred by Centre to the destination State. The transfer of fundswould be carried out on the basis of information contained in the returnsfiled by the taxpayers.
(xviii) Input Tax Credit (ITC) to be broad based by making it available in respectof taxes paid on any supply of goods or services or both used or intendedto be used in the course or furtherance of business.
(xix) Electronic filing of returns by different class of persons at different cut-offdates.
(xx) Various modes of payment of tax available to the taxpayer includinginternet banking, debit/ credit card and National Electronic Funds Transfer(NEFT) / Real Time Gross Settlement (RTGS).
(xxi) Obligation on certain persons including government departments, localauthorities and government agencies, who are recipients of supply, todeduct tax at the rate of 1% from the payment made or credited to thesupplier where total value of supply, under a contract, exceeds two lakh
and fifty thousand rupees. The provision for TDS has not been notifiedyet.
(xxii) Refund of tax to be sought by taxpayer or by any other person who hasborne the incidence of tax within two years from the relevant date.
(xxiii) Obligation on electronic commerce operators to collect tax at source, atsuch rate not exceeding two per cent. (2%) of net value of taxable supplies,out of payments to suppliers supplying goods or services through theirportals. The provision for TCS has not been notified yet.
(xxiv) System of self-assessment of the taxes payable by the registered person.
(xxv) Audit of registered persons to be conducted in order to verify compliancewith the provisions of Act.
(xxvi) Limitation period for raising demand is three (3) years from the due dateof filing of annual return or from the date of erroneous refund for raising demand for short-payment or non-payment of tax or erroneous refund andits adjudication in normal cases.
(xxvii) Limitation period for raising demand is five (5) years from the due date offiling of annual return or from the date of erroneous refund for raisingdemand for short-payment or non-payment of tax or erroneous refund andits adjudication in case of fraud, suppression or willful mis-statement.
(xxviii) Arrears of tax to be recovered using various modes including detainingand sale of goods, movable and immovable property of defaulting taxableperson.
(xxix) Goods and Services Tax Appellate Tribunal would be constituted by theCentral Government for hearing appeals against the orders passed by theAppellate Authority or the Revisional Authority. States would adopt theprovisions relating to Tribunal in respective SGST Act.
(xxx) Provision for penalties for contravention of the provision of the proposedlegislation has been made.
(xxxi) Advance Ruling Authority would be constituted by States in order toenable the taxpayer to seek a binding clarity on taxation matters from thedepartment. Centre would adopt such authority under CGST Act.
(xxxii) An anti-profiteering clause has been provided in order to ensure thatbusiness passes on the benefit of reduced tax incidence on goods orservices or both to the consumers.
(xxxiii) Elaborate transitional provisions have been provided for smoothtransition of existing taxpayers to GST regime.
(A) Make in India:
(i) Will help to create a unified common national market for India, giving aboost to Foreign investment and Make in India campaign;
(ii) Will prevent cascading of taxes as Input Tax Credit will be availableacross goods and services at every stage of supply;
(iii) Harmonization of laws, procedures and rates of tax;
(iv) It will boost export and manufacturing activity, generate moreemployment and thus increase GDP with gainful employment leading tosubstantive economic growth;
(v) Ultimately it will help in poverty eradication by generating moreemployment and more financial resources;
(vi) More efficient neutralization of taxes especially for exports therebymaking our products more competitive in the international market and give boost to Indian Exports;
(vii) Improve the overall investment climate in the country which will naturally benefit the development in the states;
(viii) Uniform SGST and IGST rates will reduce the incentive for evasion byeliminating rate arbitrage between neighboring States and that betweenintra and inter-State sales;
(ix) Average tax burden on companies is likely to come down which isexpected to reduce prices and lower prices mean more consumption,which in turn means more production thereby helping in the growth of theindustries. This will create India as a Manufacturing hub.
(B) Ease of Doing Business:
(i) Simpler tax regime with fewer exemptions;
(ii) Reduction in multiplicity of taxes that are at present governing our indirecttax system leading to simplification and uniformity;
(iii) Reduction in compliance costs – No multiple record keeping for a varietyof taxes- so lesser investment of resources and manpower in maintainingrecords;
(iv) Simplified and automated procedures for various processes such asregistration, returns, refunds, tax payments, etc;
(v) All interaction to be through the common GSTN portal- so less publicinterface between the taxpayer and the tax administration;
(vi) Will improve environment of compliance as all returns to be filed online,input credits to be verified online, encouraging more paper trail oftransactions;
(vii) Common procedures for registration of taxpayers, refund of taxes, uniformformats of tax return, common tax base, common system of classificationof goods and services will lend greater certainty to taxation system;
(viii) Timelines to be provided for important activities like obtainingregistration, refunds, etc;
(ix) Electronic matching of input tax credits all-across India thus making theprocess more transparent and accountable.
(C) Benefit to Consumers:
(i) Final price of goods is expected to be lower due to seamless flow of inputtax credit between the manufacturer, retailer and supplier of services;
(ii) It is expected that a relatively large segment of small retailers will beeither exempted from tax or will suffer very low tax rates under acompounding scheme- purchases from such entities will cost less for theconsumers;
(iii) Average tax burden on companies is likely to come down which isexpected to reduce prices and lower prices mean more consumption.
9. Goods and Services Tax Network (GSTN) has been set up by theGovernment as a private company under erstwhile Section 25 of the Companies Act, 1956. GSTN would provide three front end services to the taxpayersnamely registration, payment and return. Besides providing these services to the taxpayers, GSTN would be developing back-end IT modules for 27 States whohave opted for the same. The migration of existing taxpayers has already startedfrom November, 2016. The Revenue department of both Centre and States arepursuing the presently registered taxpayers to complete the necessary
formalities on the IT system operated by GSTN for successful migration.
10. GSTN has selected more than 34 IT, ITeS and financial technologycompanies, to be called GST Suvidha Providers (GSPs). GSPs would developapplications to be used by taxpayers for interacting with the GSTN.
11. Four Laws namely CGST Act, UTGST Act, IGST Act and GST(Compensation to States) Act have been passed by the Parliament and sincebeen notified on 12th April, 2017. All the other States (except J&K) and Unionterritories with legislature have passed their respective SGST Acts. Theeconomic integration of India was completed on 8th August 2017 when the Stateof J&K also passed the SGST Act and the Central Government alsosubsequently extended the CGST Act to J&K.
12. On 22nd June 2017, the first Notification was issued for GST and notifiedcertain sections under CGST. Since than, 28 notifications under CGST Acthave been issued notifying sections, notifying rules, amendment to rules and forwaiver of penalty, etc. Six, three and one notifications have also been issued
under IGST Act, UTGST Act and GST (Compensation to States) Actrespectively. Further 23 rate related notifications each have been issued underthe CGST Act, IGST Act and UTGST Act. Four rate related notifications havebeen issued under the GST (Compensation to States) Act. Similar notificationshave been issued by all the States under the respective SGST Act.
13. Apart from the notification 7 circulars have also been issued by CBEC on proper officers, ease of exports and reconciliation of returns.
14. CBEC is playing an active role in the drafting of GST law and procedures,particularly the CGST and IGST law, which will be exclusive domain of theCentre. This apart, the CBEC has prepared itself for meeting theimplementation challenges, which are quite formidable. The number oftaxpayers is likely to go up significantly. The existing IT infrastructure ofCBEC has been suitably scaled up to handle such large volumes of data. Basedon the legal provisions and procedure for GST, the content of work-flow
software such as ACES (Automated Central Excise & Service Tax) wouldrequire re-engineering. The name of IT project of CBEC under GST isSAKSHAM involving a total project value of Rs. 2,256 crores.
15. It was also felt that the organizational structure and deployment of humanresources needed a review for smooth and effective implementation of GST. AWorking Group has after extensive deliberations and studies, submitted itsReport which has been approved by the Government and has since been
implemented.
16. Augmentation of human resources would be necessary to handle largetaxpayers base in GST scattered across the length and breadth of the country.Capacity building, particularly in the field of Accountancy and InformationTechnology for the departmental officers has to be taken up in a big way. Amassive four-tier training programme has been conducted under the leadershipof NACEN. This training project is aimed at imparting training on GST law andprocedures to more than 60,000 officers of CBEC and Commercial Tax officersof State Governments. Officers of the office of CAG are also participating andgetting trained in this training programme. More than 52000 officers (including
around 20000 officers from States) have already been trained. Out of these7000 officers have attended refresher training course also.
17. It is expected that a momentous reform like GST is popularized andfamiliarized to the trade and industry who are the vital stakeholders insuccessful implementation of this reform.
18. CBEC would be responsible for administration of the CGST and IGST law.
In addition, excise duty regime would continue to be administered by the CBECfor levy and collection of central excise duty on five specified petroleumproducts as well as on tobacco products. CBEC would also continue tohandle the work relating to levy and collection of customs duties.
19. Director General of Safeguards, CBEC has been mandated to conductdetailed enquiry on anti-profiteering cases and should give his recommendationfor consideration of the National Anti-profiteering Authority.
20. CBEC has been instrumental in hand holding the implementation of GST.It had set up the Feedback and Action Room which monitored the GSTimplementation challenges faced by the taxpayer and act as an active interface between the taxpayer and the Government.
21. Out of total 72.33 lakh taxpayers, 58.53 lakh taxpayers have completely migrated to the GSTN and 13.80 lakh taxpayers are yet to complete theirprocedural formalities to migrate to the GSTN. The number of new taxpayers whohave registered with the GSTN is 18.83 lakhs.
22. The last date for payment of GST for the month of July 2017 was 25th August, 2017. The last date for filing returns in cases, where the taxpayer wantedto avail transitional credit was 28th August, 2017 and, in all other cases, it was 25thAugust, 2017.
23. If we exclude the taxpayers who have registered with the GSTN in August2017 and the composition dealers, total number of tax payers who were requiredto file the returns for July 2017 is 59.57 lakhs, of which, as on 29th August, 201738.38 lakh returns have been filed, which is 64.42% of the total number ofreturns, which were to be filed for the month of July 2017.
24. The total revenue of GST paid under different heads for the month of July,2017 is Rs. 92,283 crore. The total CGST revenue is Rs. 14,894 crore, SGSTrevenue is Rs. 22,722 crore, IGST revenue is Rs. 47,469 crore (of which IGSTfrom imports is Rs. 20,964 crore) and Cess is Rs. 7,198 crore (of which Rs. 599crore is Compensation Cess from imports).
25. To guide taxpayers in relation to GST matters, CBEC has issued a range offrequently asked questions on 11 sectors and other topics related to GST law,procedures, tax rates, specific industry or sector. The information is available onCBEC GST portal http://cbec-gst.gov.in under Services section as well as on
www.cbec.gov.in.
26. Though, GST has already been implemented from the 1st of July 2017 anumber of implementation issues related to IT systems, legal challenges, exports,return filing and reconciliations, passing on transition credit, anti-profiteering inGST etc. are being faced by field formations and CBEC. In the current set-up theaim is to ensure that all these challenges / feedback effectively reaches the
Government and both short term and long term solutions are provided.
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