GST Consultant in Jaipur

GST (Goods and Services Tax)

GST or Goods and Services Tax was first introduced in the Budget Speech presented on 28th February 2006. It laid the foundation for a complete reform in India’s indirect tax system. Finally implemented on 1st July 2017 as Goods and Services Tax Act, the indirect taxation system thus went through a chain of amendments since its inception.

With this tax reform, GST replaced multiple indirect taxes that were levied on different goods and services. The Central Board of Indirect Taxes and Customs (CBIC) is the regulatory body governing all changes and amendments regarding this tax.

Before going into GST details, let’s take a quick look at its meaning and what it comprises.

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GST – It’s Meaning and Scope

Goods and Services Tax is a destination-based, multi-stage, comprehensive tax levied at each stage of value addition. Having replaced multiple indirect taxes in the country, it has successfully helped the Indian Government achieve its ‘One Nation One Tax’ agenda.

The tax is levied on goods and services sold within India’s domestic boundary for consumption. Implemented by a majority of nations worldwide with respective customizations, the tax has been successful in simplifying the indirect taxation structure of India.

GST is levied on the final market price of goods and services manufactured internally, thereby reflecting the maximum retail price. Customers are required to pay this tax on a purchase of goods or services as an inclusion in their final price. Collected by the seller, it is then required to be paid to the government, thus implying the indirect incidence.

The GST rates on different goods and services are uniformly applied across the country. Goods and services have, however, been categorized under different slab rates for tax payment. While luxury and comfort goods are categorized under higher slabs, necessities have been included in lower and nil slab rates. The main aim of this classification is to ensure the uniform distribution of wealth among residents of India.

With this understanding, now let’s have a look at other necessary GST details.

GST and Its Journey – A Look at the Chronology

Back in 2000, the then Prime Minister of India introduced the concept of Goods and Services Tax. He also formed a committee to draft new indirect tax law. It, however, took 17 more years for its implementation. Meanwhile, the bill went through multiple introductions, amendments, and rescheduling.

Here’s a summation of GST’s chronology, from drafting to final implementation.

2000 – Committee set up by the PM for drafting Goods and Service Tax law for India.

2004 – A task force reported a need to implement this law and improve the indirect tax system in India.

2006 – Goods and Services Tax introduction scheduled on 1st April 2010 by the Finance Minister of India.

2007 – Decision to phase out Central Sales Tax (CST).

Consequently, CST rates reduced to 3% from 4%.

2008 – GST’s dual structure finalized by the EC for separate legislation and levy.

2010 – Postponement of GST introduction due to structural and implementation hurdles. A project launched for the computerization of commercial taxes.

2011 – Introduction of Constitution Amendment Bill for enabling the Goods and Services Tax Law.

2012 – Discussion regarding the tax initiated by the Standing Committee; stalled due to lack of clarity regarding Clause 279B.

2013 – GST’s report presented by the Standing Committee.

2014 – The Finance Minister of India reintroduces the Goods and Services Tax Bill to the Parliament.

2015 – The Lok Sabha clears the bill, but it is stalled in the Rajya Sabha.

2016 – Goods and Services Tax Network (GSTN) went live. The law’s amended model passed in both the Houses of Parliament and received a nod from the President of India.

2017 – The Cabinet approves four supplementary bills on GST cleared by the Lok Sabha and the Rajya Sabha. The Goods and Services Tax Law was implemented on 1st July 2017.

List of Taxes Subsumed after GST Implementation

Goods & Service Tax was introduced as a comprehensive indirect tax structure. With this introduction, the government aimed to consolidate all indirect taxes levied under one umbrella.

Thus, except customs duty that is levied on import of goods, Goods and Services Tax replaced multiple indirect taxes. This introduction helped overcome the limitations of its previous indirect tax structure regarding implementation and inefficiency in the collection process.

Following is the list of indirect taxes that were subsumed by Goods and Service Tax.

Indirect taxes imposed by the central government

Central Sales Tax

Service Tax

Central Excise Duty

Excise Duty (Additional)

Countervailing Duty or Additional Customs Duty

Special Additional Customs Duties

Indirect taxes imposed by the state government

State VAT

Entry Tax and Octroi Duty

Luxury Tax

Amusement and Entertainment Tax

Taxes on Advertisements

Goods and services related to cess and surcharges

Purchase Tax

Tax on betting, lottery, and gambling.

Understanding the Dual Structure of Goods and Services Tax

Unlike a federal structure where the government collects taxes and distributes them to the states, a dual tax structure allows both the center and the state to levy and collect taxes.

Goods and Services Tax in India carries this same dual structure, thus having two components, state as well as a central levy. The structure is applicable to all transactions related to goods and services.

Concepts of GST Levy – Multi-Stage, destination-based, and Value Added

The comprehensive nature of Goods and Services tax levy takes into account every stage of manufacture whereby value-added to an item is taxable. Plus, a change of destination also attracts GST.

The various stages of GST application are discussed below –

Meaning of multi-stage levy

From production/manufacture to consumption, an item is passed from one link of the supply chain to another until it is finally purchased for consumption. An indirect tax is hence, levied at every stage, to be borne ultimately by a consumer.

The different steps of production of a finalized good and its corresponding sale in the market comprise the following in general.

Raw material purchase

Manufacture/production of raw material into finished goods

Storage of finished goods at the warehouse

Sale of goods to the wholesaler

Sale of goods to the retailer

Sale to an end-user/consumer

GST charged at each link of this chain makes it a multi-stage tax.

Meaning of destination-based levy

A destination-based levy means the item is to be taxed at a place where it is consumed, and not at its origin. This means that the location where an item is consumed will rightfully collect the tax.

In this context, it is essential to differentiate the concept of ‘supply’ from ‘place of supply’. The decision regarding whether a sale is intrastate or interstate will be taken accordingly.

Meaning of taxation on value addition

The concept of GST on value addition implies every addition made to an item to make it saleable to the end-user is taxable under this regime. Understand it with the help of an example.

The manufacturing unit of Britannia Industries Limited in Chennai, Tamil Nadu manufactures a variety of biscuits. During the manufacturing process, it goes through the following stages, with value-added at each stage.

Processing of flour, sugar, and other materials into a dough, and baked into biscuits increases the value of the material by making it saleable as units.

The biscuits are then sent to the warehousing agent for storage and further processing. He then packs the biscuits in sets of 10 for the next stage of the process. It is another value addition as it increases the monetary value of the biscuits, making them saleable.

Each packed unit is labeled as a product with Britannia’s brand logo. The act of labeling is the next stage of value addition.

The biscuits are packed in smaller cartons and re-labeled to be transported and sold to the retailer, crossing another stage of value addition.

Thus, for each monetary value added to these stages, making the product saleable, GST is levied thus making it a tax on value addition.

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