Overview of Goods and Services Tax (GST)

Q 1. What is Goods and Services Tax
(GST)?

Ans. It is a destination based tax on consumption of goods
and services. It is proposed to be levied at all stages right
from manufacture up to final consumption with credit of
taxes paid at previous stages available as set-off. In a
nutshell, only value addition will be taxed and burden of
tax is to be borne by the final consumer.

Q 2. What exactly is the concept of destination based
tax on consumption?

Ans. The tax would accrue to the taxing authority which
has jurisdiction over the place of consumption which is
also termed as place of supply.

Q 3. Which of the existing taxes are proposed to be
subsumed under GST?

Ans. The GST would replace the following taxes:

(i) 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. Central Surcharges and Cesses so far as they relate to supply of goods and services

(ii) State taxes that would be subsumed under the GST
are:

a. State VAT

b. Central Sales Tax

c. Luxury Tax

d. Entry Tax (all forms)

e. Entertainment and Amusement Tax (except when levied by the local bodies)

f. Taxes on advertisements

g. Purchase Tax

h. Taxes on lotteries, betting and gambling

i. State Surcharges and Cesses sofar as they relate to supply of goods and services

The GST Council shall make recommendations to the Union
and States on the taxes, cesses and surcharges levied by
the Centre, the States and the local bodies which may be
subsumed in the GST.

Q 4. What principles were adopted for subsuming
the above taxes under GST?

Ans. The various Central, State and Local levies were
examined to identify their possibility of being subsumed
under GST. While identifying, the following principles were
kept in mind:

(i) Taxes or levies to be subsumed should be primarily in
the nature of indirect taxes, either on the supply of goods
or on the supply of services.

(ii) Taxes or levies to be subsumed should be part of
the transaction chain which commences with import/
manufacture/ production of goods or provision of services
at one end and the consumption of goods and services at
the other.

(iii) The subsumation should result in free flow of tax
credit in intra and inter-State levels. The taxes, levies and
fees that are not specifically related to supply of goods &
services should not be subsumed under GST.

(v) Revenue fairness for both the Union and the States
individually would need to be attempted.

Q 5. Which are the commodities proposed to be kept
outside the purview of GST?

Ans. Article 366(12A) of the Constitution as amended by
101st Constitutional Amendment Act, 2016 defines the Goods
and Services tax (GST) as a tax on supply of goods or
services or both, except supply of alcoholic liquor for human
consumption. So alcohol for human consumption is kept out
of GST by way of definition of GST in constitution. Five
petroleum products viz. petroleum crude, motor spirit
(petrol), high speed diesel, natural gas and aviation
turbine fuel have temporarily been kept out and GST
Council shall decide the date from which they shall be
included in GST. Furthermore, electricity has been kept out
of GST.

Q 6. What will be the status in respect of taxation of
above commodities after introduction of GST?

Ans. The existing taxation system (VAT & Central Excise)
will continue in respect of the above commodities.

Q 7. What will be status of Tobacco and Tobacco
products under the GST regime?

Ans. Tobacco and tobacco products would be subject to
GST. In addition, the Centre would have the power to levy
Central Excise duty on these products.

Q 8. What type of GST is proposed to be
implemented?

Ans. It would be a dual GST with the Centre and States
simultaneously levying it on a common tax base. The GST
to be levied by the Centre on intra-State supply of goods
and / or services would be called the Central GST (CGST)
and that to be levied by the States/ Union territory would
be called the State GST (SGST)/ UTGST. Similarly,
Integrated GST (IGST) will be levied and administered by
Centre on every inter-state supply of goods and services.

Q 9. Why is Dual GST required?

Ans. India is a federal country where both the Centre and
the States have been assigned the powers to levy and collect
taxes through appropriate legislation . Both the
levels of Government have distinct responsibilities to
perform according to the division of powers prescribed in
the Constitution for which they need to raise resources. A
dual GST will, therefore, be in keeping with the
Constitutional requirement of fiscal federalism.

Q 10. Which authority will levy and administer
GST?

Ans. Centre will levy and administer CGST & IGST while
respective states /UTs will levy and administer SGST/
UTGST.

Q 11. Why was the Constitution of India amended
recently in the context of GST?

Currently, the 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 States. As for services, it is the Centre alone that
is empowered to levy service tax.

Introduction of the GST required amendments in the
Constitution so as to simultaneously empower the Centre
and the States to levy and collect this tax. The Constitution
of India has been amended by the Constitution (one hundred
and first amendment) Act, 2016 for this purpose. Article
246A of the Constitution empowers the Centre and the
States to levy and collect the GST.

Q 12. How a particular transaction of goods
and services would be taxed simultaneously
under Central GST (CGST) and State GST (SGST)?

Ans. The Central GST and the State GST would be levied
simultaneously on every transaction of supply of goods and
services except the exempted goods and services, goods
which are outside the purview of GST and the transactions
which are below the prescribed threshold limits. Further,
both would be levied on the same price or value unlike
State VAT which is levied on the value of the goods inclusive
of CENVAT. While the location of the supplier and the
recipient within the country is immaterial for the purpose
of CGST, SGST would be chargeable only when the supplier
and the recipient are both located within the State.

Illustration I: Suppose hypothetically that the rate of CGST
is 10% and that of SGST is 10%. When a wholesale dealer
of steel in Uttar Pradesh supplies steel bars and rods to
a construction company which is also located within the
same State for, say Rs. 100, the dealer would charge CGST
of Rs. 10 and SGST of Rs. 10 in addition to the basic price
of the goods. He would be required to deposit the CGST
component in to a Central Government account
while the SGST portion into the account of the concerned
State Government. Of course, he need not actually pay Rs.
20 (Rs. 10 + Rs. 10) in cash as he would be entitled to set-
off this liability against the CGST or SGST paid on his
purchases (say, inputs). But for paying CGST he would be
allowed to use only the credit of CGST paid on his
purchases while for SGST he can utilize the credit of SGST
alone. In other words, CGST credit cannot, in general, be
used for payment of SGST. Nor can SGST credit be used for
payment of CGST.

Illustration II: Suppose, again hypothetically, that the
rate of CGST is 10% and that of SGST is 10%. When an
advertising company located in Mumbai supplies
advertising services to a company manufacturing soap
also located within the State of Maharashtra for, let us
say Rs. 100, the ad company would charge CGST of
Rs. 10 as well as SGST of Rs. 10 to the basic value of
the service. He would be required to deposit the CGST
component into a Central Government account while the
SGST portion into the account of the concerned State
Government. Of course, he need not again actually pay
Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to
set-off this liability against the CGST or SGST paid on
his purchase (say, of inputs such as stationery, office
equipment, services of an artist etc.). But for paying
CGST he would be allowed to use only the credit of CGST
paid on its purchase while for SGST he can utilise the
credit of SGST alone. In other words, CGST credit cannot,
in general, be used for payment of SGST. Nor can SGST
credit be used for payment of CGST.

Q 13. What are the benefits which the Country will
accrue from GST?

Ans. Introduction of 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
and allowing set-off of prior-stage taxes, it would mitigate
the ill effects of cascading and pave the way for a common
national market. For the consumers, the biggest gain 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 our products competitive in the
domestic and international markets. Studies show that this
would instantly spur economic growth. There may also be
revenue gain for the Centre and the States due to widening
of the tax base, increase in trade volumes and improved
tax compliance. Last but not the least, this tax, because of
its transparent character, would be easier to administer.

Q 14. What is IGST?

Ans. Under the GST regime, an Integrated GST (IGST)
would be levied and collected by the Centre on inter-State
supply of goods and services. Under Article 269A of the
Constitution, the GST 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 Goods and Services Tax Council.

Q 15. Who will decide rates for levy of GST?

Ans. The CGST and SGST would be levied at rates to be
jointly decided by the Centre and States. The rates would
be notified on the recommendations of the GST Council.

Q 16. What would be the role of GST Council?

Ans. A GST Council would be constituted comprising the
Union Finance Minister (who will be the Chairman of the
Council), the Minister of State (Revenue) and the State
Finance/Taxation Ministers to make recommendations to the
Union and the States on

(i) the taxes, cesses and surcharges levied by the
Centre, the States and the local bodies which
may be subsumed under GST;

(ii) the goods and services that may be subjected to
or exempted from the GST;

(iii) the date on which the GST shall be levied on
petroleum crude, high speed diesel, motor sprit
(commonly known as petrol), natural gas and
aviation turbine fuel;

(iv) model GST laws, principles of levy, apportionment
of IGST and the principles that govern the place
of supply;

(v) the threshold limit of turnover below which the
goods and services may be exempted from GST;

(vi) the rates including floor rates with bands of
GST;

(vii) any special rate or rates for a specified period
to raise additional resources during any natural
calamity or disaster;

(viii) special provision with respect to the North-
East States, J&K, Himachal Pradesh and
Uttarakhand; and

(ix) any other matter relating to the GST, as the
Council may decide.

Q 17. What is the guiding principle of GST Council?

Ans. 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
provided in the Constitution ( one hundred
and first amendment) Act, 2016 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.

Q 18. How will decisions be taken by GST Council?

Ans. The Constitution (one hundred and first amendment)
Act, 2016 provides that every decision of the GST Council
shall be taken at a meeting by a majority of not less than
3/4th of the weighted votes of the Members present and
voting. The vote of the Central Government shall have a
weightage of 1/3rd of the votes cast and the votes of all the
State Governments taken together shall have a weightage
of 2/3rd of the total votes cast in that meeting. One half
of the total number of members of the GST Council shall
constitute the quorum at its meetings.

Q 19. Who is liable to pay GST under the proposed
GST regime?

Ans. Under the GST regime, tax is payable by the taxable
person on the supply of goods and/or services. Liability to
pay tax arises when the taxable person crosses the turnover
threshold of Rs.20 lakhs (Rs. 10 lakhs for NE & Special
Category States) except in certain specified cases where the
taxable person is liable to pay GST even though he has not
crossed the threshold limit. The CGST / SGST is payable on
all intra-State supply of goods and/or services and IGST is
payable on all inter- State supply of goods and/or services.
The CGST /SGST and IGST are payable at the rates
specified in the Schedules to the respective Acts.

Q 20. What are the benefits available to small tax
payers under the GST regime?

Ans. Tax payers with an aggregate turnover in a financial
year up to [ Rs.20 lakhs & Rs.10 Lakhs for NE and special
category states] would be exempt from tax. Further,
a person whose aggregate turnover in the preceding
financial year is less than Rs.50 Lakhs can opt for a
simplified composition scheme where tax will payable at a
concessional rate on the turnover in a state.

[Aggregate turnover shall include the aggregate value of
all taxable supplies, exempt supplies and exports of goods
and/or services and exclude taxes viz. GST.] Aggregate
turnover shall be computed on all India basis. For NE
States and special category states, the exemption
threshold shall be [Rs. 10 lakhs]. All taxpayers eligible for
threshold exemption will have the option of paying tax
with input tax credit (ITC) benefits. Tax payers making
inter-State supplies or paying tax on reverse charge basis
shall not be eligible for threshold exemption.

Q 21. How will the goods and services be classified
under GST regime?

Ans. HSN (Harmonised System of Nomenclature) code
shall be used for classifying the goods under the GST regime.
Taxpayers whose turnover is above Rs. 1.5 crores but below
Rs. 5 crores shall use 2-digit code and the taxpayers whose
turnover is Rs. 5 crores and above shall use 4-digit code.
Taxpayers whose turnover is below Rs. 1.5 crores are not
required to mention HSN Code in their invoices.

Services will be classified as per the Services Accounting
Code (SAC)

Q 22. How will imports be taxed under GST?

Ans. Imports of Goods and Services will be treated as
inter-state supplies and IGST will be levied on import of
goods and services into the country. The incidence of tax
will follow the destination principle and the tax revenue in
case of SGST will accrue to the State where the imported
goods and services are consumed. Full and complete set-off
will be available on the GST paid on import on goods and
services.

Q 23. How will Exports be treated under GST?

Ans. Exports will be treated as zero rated supplies. No tax
will be payable on exports of goods or services, however
credit of input tax credit will be available and same will be
available as refund to the exporters. The Exporter will
have an option to either pay tax on the output and claim
refund of IGST or export under Bond without payment of
IGST and claim refund of Input Tax Credit (ITC).

Q 24. What is the scope of composition scheme under
GST?

Ans. Small taxpayers with an aggregate turnover in a
preceding financial year up to [Rs. 50 lakhs] shall be
eligible for composition levy. Under the scheme, a
taxpayer shall pay tax as a percentage of his turnover in a
state during the year without the benefit of ITC. The rate
of tax for CGST and SGST/UTGST shall not be less than
[1% for manufacturer & 0.5% in other cases; 2.5% for
specific services as mentioned in para 6(b) of Schedule II
viz Serving of food or any other article for human
consumption]. A tax payer opting for composition levy
shall not collect any tax from his customers. The
government may increase the above said limit of 50 lakhs
rupees to up to one crore rupees, on the recommendation
of GST Council.
Tax payers making inter- state supplies or making
supplies through ecommerce operators who are required
to collect tax at source shall not be eligible for
composition scheme.

Q 25. Whether the composition scheme will be
optional or compulsory?

Ans. Optional.

Q 26. What is GSTN and its role in the GST regime?

Ans. GSTN stands for Goods and Service Tax Network
(GSTN). A Special Purpose Vehicle called the GSTN has
been set up to cater to the needs of GST. The GSTN shall
provide a shared IT infrastructure and services to Central
and State Governments, tax payers and other stakeholders
for implementation of GST. The functions of the GSTN
would, inter alia, include:

(i) facilitating registration;

(ii) forwarding the returns to Central and State authorities;

(iii) computation and settlement of IGST;

(iv) matching of tax payment details with banking network;

(v) providing various MIS reports to the Central and the State Governments based on the tax payer return information;

(vi) providing analysis of tax payers’ profile; and

(vii) running the matching engine for matching, reversal and reclaim of input tax credit.

The GSTN is developing a common GST portal and
applications for registration, payment, return and MIS/
reports. The GSTN would also be integrating the common
GST portal with the existing tax administration IT systems
and would be building interfaces for tax payers. Further,
the GSTN is developing back-end modules like assessment,
audit, refund, appeal etc. for 19 States and UTs (Model
II States). The CBEC and Model I States (15 States) are
themselves developing their GST back-end systems.
Integration of GST front-end system with back-end systems
will have to be completed and tested well in advance for
making the transition smooth.

Q 27. How are the disputes going to be resolved
under the GST regime?

Ans. The Constitution (one hundred and first amendment)
Act, 2016 provides that the Goods and Services Tax Council
shall establish a mechanism to adjudicate any dispute-

(a) between the Government of India and one or more
States; or

(b) between the Government of India and any State or
States on one side and one or more other Sates on the other
side; or

(c) between two or more States,

arising out of the recommendations of the Council or
implementation thereof.

Q 28. What is the purpose of Compliance rating
mechanism?

Ans. 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.

Q 29. Whether actionable claims liable to GST?

Ans. As per section 2(52) of the CGST/SGST Act
actionable claims are to be considered as goods. Schedule III
read with Section 7 of the CGST/SGST Act lists the activities
or transactions which shall be treated neither as supply of
goods nor supply of services. The Schedule lists actionable
claims other than lottery, betting and gambling as one of
such transactions. Thus only lottery, betting and gambling
shall be treated as supplies under the GST regime. All the
other actionable claims shall not be supplies.

Q 30. Whether transaction in securities be taxable in
GST?

Ans. Securities have been specifically excluded from the
definition of goods as well as services. Thus, the transaction
in securities shall not be liable to GST.

Q 31. What is the concept of Information Return?

Ans. Information return is based on the idea of verifying
the compliance levels of registered persons through
information procured from independent third party sources.
As per section 150 of the CGST/SGST Act, many authorities
who are responsible for maintaining records of registration
or statement of accounts or any periodic return or
document containing details of payment of tax and other
details of transaction of goods or services or both or
transactions related to a bank account or consumption of
electricity or transaction of purchase, sale or exchange of
goods or property or right or interest in a property under
any law for the time being in force, are mandated to furnish
an information return of the same in respect of such
periods, within such time, in such form and manner and to
such authority or agency as may be prescribed. Failure to do
so may result in penalty being imposed as per Section 123.

Q 32. Different companies have different types of
accounting software packages and no specific
format are mandated for keeping records. How
will department be able to read into these
complex software?

Ans. As per Section 153 of the CGST/SGST Act, having
regard to the nature and complexity of a case and in the
interest of revenue, department may take assistance from
an expert at any state of scrutiny, inquiry, investigation or
any other proceedings.

Q 33. Is there any provision in GST for tax treatment of
goods returned by the recipient?

Ans. Yes, Section 34 deals with such situations. Where the
goods supplied are returned by the recipient, the
registered person (supplier of goods) may issue to the
recipient a credit note containing the prescribed
particulars. The details of the credit note shall be
declared by the supplier in the returns for the month
during which such credit note was issued but not later
than September following the end of the year in which
such supply was made or the date of filing of the relevant
annual return, whichever is earlier. The details of the
credit note shall be matched with the corresponding
reduction in claim for input tax credit by the recipient in
his valid return for the same tax period or any
subsequent tax period and the claim for reduction in
output tax liability by the supplier that matches with the
corresponding reduction in claim for ITC by the recipient
shall be finally accepted and communicated to both
parties.

Q 34. What is Anti-Profiteering measure?

Ans. 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.