Goods and Service Tax - UPSC Analysis

What is Goods and Service Tax?

• Through 101st Amendment Act guided by Art 301 Govt introduced GST (Goods and Service Tax) includes both Goods and Services
• Art 279 A is introduced to make GST workable. Enforced from 1 July 2017.
• Exceptions
  1. Except for Alcohol and Electricity, all items included.
  2. 5 Petroleum products are temporarily out of Goods and Service Tax (to control losses to the State): Crude Oil, petrol, diesel, ATF and Natural Gas.

• GST Council

  1. Constitutional Body. Responsible for Tax rates, a listing of items and any dispute resolution among States and providing participation of all States and UTs.
  2. Headed by FM. Represented by FM of States. Vice Chairperson from respective State FM.
  3. Voting: 2/3rd State and 1/3rd Center. The decision is based on majority voting.
  4. Quorum = 50% and Majority = 75% members present.
• It preserves the Principle of Cooperative Federalism. But if Tax rates are decided States have no autonomy to modify them which goes against Cooperative Federalism.
• Goods and Service Tax tried to provide a Single Tax for the supply of all goods and services (solved the problem of multiple taxations).
• It is a destination-based tax (opposite of VAT) guided by 1 Tax 1 Nation 1 Market to decrease cascading effect and decrease the cost of production and increase export and control inflation.
• It is based on IT technology hence the minimum interface between tax officials and citizens.
• It is a part of Ease of Doing Business by doing away with multiple taxation, multiple filling and multiple compliances. Now all firms can file the same tax, get a Goods and Service Tax number to get the benefit of Input Tax Credit.

• For PAN India Company a person should take different Goods and Service Tax numbers in different States because State has State GSTs.

• Taxes subsumed under Goods and Service Tax

  1. Central Taxes = Excise Duty (Medicinal and Toiletry Goods), Additional Duties of Excise (Goods of special importance), Additional Custom Duties, Special Additional Custom duties, Service Tax, Central Surcharges and Cess.
  2. State Taxes = State VAT, Central Sales Tax, Luxury Tax, Entry Tax, Entertainment tax, Tax on Ads (other than Newspapers), Tax on Lotteries, Betting and Gambling, Purchase Tax, State Surcharge and Cess.

Provisions of GST

1. As it is a Destination Based Tax, Chances is that UP Govt (Destination State) can earn more Goods and Service Tax than Maharashtra which is a manufacturing state. Hence Govt came up with Cess @ 15% on more luxurious goods to compensate lossmaking states at 15% over the peak rate of 28% but at times the effective rate is < 40%. Hence, an effective rate of cess is 12%.
2. Exemption limit in the plain area increased from 20 to 40 lakh rs. and in Northeast and Hilly regions, increased from 10 to 20 lakhs.
3. Govt introduced GST Composition Scheme:

1. If a Trader, manufacturer and restaurant; if annual turnover <= 1.5 crores then the Trader and Manufacture must pay 1% of Goods and Service Tax and Restaurant can pay 5% of GST. But they are not eligible for the input tax credit mechanism.
2. In the service sector, 18% is GST but if any enterprise has a turnover of 50 lakhs then you can pay 6% They are not eligible for input tax credit off. Under it, the Center and State share are 50:50.
3. 4 Types of GST: CGST, SGST, UTGST and IGST imposed on imported goods or custom duties and interstate trade distributed to state as per FC recommendations.

4. Rates under Goods and Service Tax

1. 0% = Essential goods. Unbranded. Unpacked. Export and supplies to SEZ are 0 rated.
2. 5% = Packed essential goods. Branded. Important for consumption of masses.
3. 12% = Daily health and hygiene. Basic Raw material for industries, few construction items (except Cement).
4. 18% = Majority services.
5. 28% = Luxury goods and Cement.
6. Separate rate for precious metals = 3% and semi-precious stones = 0.25%.
7. For administrative convenience, if a Business has a turnover of < 1.5 crores 90% belongs to State and 10% = Central. But if Business > 1.5 crore turnover then Centre: State share has 50:50.
8. Now J&K is also a part of Goods and Service Tax.

5. Exceptions

• Except for Alcohol and Electricity, all items included.
• 5 Petroleum products are temporarily out of GST (to control losses to the State): Crude Oil, petrol, diesel, ATF and Natural Gas.

6. Input Tax Credit Off of State GST will be adjusted from State GST.
7. e-filing of returns from e-payment, net banking, RTGS.
8. Refund of taxes to be sought by taxpayers or any other person is within 2 years time period from date.
9. Self-assessment of tax payable by a registered person provided by audit and he should comply provisions.
10. Formation of advanced ruling authority in every State to enable taxpayers to seek a binding clarity on taxation matters, Center should adopt such authority.
11. Goods and Service Tax Appellate Tribunal = Head Commissioner Level to solve disputes relating to GST amount.
12. Anti Profiteering Clause: To ensure that benefit of Goods and Service Tax and Input Tax credit off can pass to consumers like Monetary Transmission of RBI.

13. 3 Tier Structure

1. Standing Committee on Anti Profiteering
2. Screening Committee at State Level
3. NAPA: (National Anti Profiteering Authority) to ensure that benefits that occur to entities due to decreased cost are passed on to customers. Entities that hike prices to get profits will be checked.

14. They will 1st identify the business and ask him to comply. They can ensure payment of compensation to consumers at 18% from the date of imposing high prices. If they do not accept, they can cancel their licence.