GUJARAT NATIONAL LAW UNIVERSITY

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Article on GST And It’s Impact

Submitted By:-
Abhishek Chattejree

Reg No: 11A006

 In India taxes are levied by the Central Government and the State Governments.The
municipality and other local authorities have also levy some miscellaneous taxes. Article 246 of
The Indian Constitution provides the authority to the Central and State government to levy taxes
through legislation in parliament or state legislature.

Some of the important taxes are as follows:

 CENVAT or central value added tax. Cenvat (Central Value Added Tax) has its origin in
the system of VAT (Value Added Tax) Concept of VAT was developed to avoid
cascading effect of taxes. VAT was found to be a very good and transparent tax
collection system, which reduces tax evasion, ensures better tax compliance and increases
tax revenue.
 Service Tax : Service Tax is a tax imposed by Government of India on services provided
in India. The service provider collects the tax and pays the same to the government t is
charged on all services except the services in the negative list of services. The
exemptions i.e those activities which are part of negative list are found in Finance act.1

The 2016 Budget has imposed a cess called the krishi kalian cess at the rate of 0.5% on
all taxable services. A swachh bharat cess has also been introduced at the rate of 0.5% on
entire taxable amount of a service. The rate of service tax was increased from 12% to
14.5 in % plus education and higher education cess in 2015. Now 2016 budget proposes
to increase it to 15% with the introduction of krishi kalian cess. With effect from June 1
2016.2
 Customs Duty : A tax issued on the import of products, it is governed by the customs act
of 1962

LIMITATION OF INDERECT TAXES

Initially , the taxes on the sale of goods were imposed with respect to respective Sales Tax and
the 'entry of goods' was liable to be taxed by relevant State Entry Tax enactments and this state
of affairs persisted until reforms took place which resulted in VAT replacing these State Entry
Taxes. The levy of tax on providing services was initiated for in 1994. This has been challenged
stubbornly and persistently in Courts.

The need to transition from the Sales Tax for taxing merchandise to a value added tax (VAT)
was being realized . However the move to VAT cascading realities were not put to rest. This was
occurring because Parliament has continued to go forth with its own VAT model3 while the state
legislatures do the same , no nexus existed between the two and therefore the credit of duties

1
Section 66 of finance act 1994
2
http://economictimes.indiatimes.com/wealth/personal-finance-news/budget-2016-service-tax-proposed-to-be-
increased-from-14-5-to-15/articleshow/51194043.cms
3
Excise duty on manufacture
paid on manufacture are not presented towards adjustment on duties payable on sale of
commodities.

Thus it is obvious that the transitioning to VAT has not solved he issue of non-creditable duties
and the resulting cascading effect which desperately needs further reform in the area and as a
result the need for GST has been felt.

In 1994 Service tax was introduced. Current service tax rate is 15%. The extent of service tax has
since been extended constantly by successive Finance Acts and now about 119 services are
covered. However there are many service sectors which remain beyond the purview of Central
Government which has the potential to create more revenue for the Government.

In spite of the of existence of various taxes like Excise, Customs, Education Cess, Surcharge,
VAT, Service Tax etc. GDP of India is significantly lower than the GDP of countries like USA,
China and Japan. India has miles to go to achieve this level.

Therefore, the Indirect Taxes need to be immediately rationalized and unified. If the G.S.T. is
introduced it would without doubt increase the amount of tax collection. The implementation of
GST would ensure that India provides a tax regime which is comparable to the rest of the world.
It will also develop the international cost competitiveness of domestic goods and services.

Why do we need GST model in India?

n the current system there exists multiple taxes; the introduction of GST is expected to
rationalize it.Several areas of Services are untaxed. Once the GST is introduced they will
get covered as well. TheGST aid in avoiding distortions caused by the expansive and complex
tax structure which is in exisistence today and will aid in the development of a common national
market.

The taxes which exist today i.e. Excise, VAT, CST, Entry Tax have the cascading effects of
taxes. Therefore, we end up in paying tax on tax. Current taxes will be replaced by GST. Credit
will be available on interstate purchases and there will be reduction in compliance requirements
because of GST.

Introducing GST will do much more than just reallocating the tax burden from one sector or
Group in the economy to another. GST will help in achieving, uniformity of taxes across the
territory, despite of place of manufacture or distribution. It willprovide, greater precision and
transparency of taxes as well as ensuring tax compliance across the country with precise
accuracy.

GST will aid in avoiding the unfortunate phenomenon of double taxation to some extent. The
implementation of GST shall ensure that India provides a tax regime that is almost comparable to
the rest of industrialized world. International cost competitiveness of domestic Goods and
Services would be ensured. GST would aid in providing unbiased tax structure that is neutral to
business processes and geographical locations.
SALIENT FEATURES
Some of the salient features of GST are mentioned below:

i. Harmonized system of nomenclature (HSN) will be applied for goods4.

ii. Uniform return & collection procedure for central and state GST.
iii. PAN based Common TIN registration5.
iv. Turnover criteria to be prescribed for registration under both central goods and
services tax (CGST) and state goods and services tax (SGST).
v. TINXSYS to track transactions6.
vi. Tax Payment will be by exporting dealer to the account of receiving state.
vii. Credit will be allowed to the buying dealer by receiving state on verification.
viii. Submission of declaration form is likely to be discontinued.
ix. Area based exemptions will continue up to legitimate expiry time both for the Centre
and the States.
x. Product based exemptions to be converted into cash refund.
xi. Limited flexibility to be given to Centre and States for exceptions like natural
disasters etc.
xii. Simplified structure to reduce transaction cost xiii. Separate rules and procedures for the
administration of CGST and SGST.
xiv. Specific provisions for issues of dispute resolution and advance ruling.

IMPACT OF GST
1. Food Industry
The application of GST to food items will have a significant impact on those who are living
under subsistence level. But at the same time, a complete exemption for food items would
drastically shink the tax base. Food includes grains and cereals, meat, fish and poultry, milk
and dairy products, fruits and vegetables, candy and confectionary, snacks, prepared meals
for home consumption, restaurant meals and beverages.

Even if the food is within the scope of GST, such sales would largely remain exempt due to
small business registration threshold.
Given the exemption of food from CENVAT and 4% VAT on food item, the GST under a
single rate would lead to a doubling of tax burden on food.

2. Housing and Construction Industry

In India, construction and Housing sector need to be included in the GST tax base because
construction sector is a significant contributor to the national economy.

3. FMCG Sector
Despite of the economic slowdown, India's Fast Moving Consumer Goods (FMCG) has
grown consistently during the past three – four years reaching to $25 billion at retail sales in

4
http://www.wcoomd.org/en/topics/nomenclature/overview/what-is-the-harmonized-system.aspx
5
http://blog.reachaccountant.com/tin-number-apply-tin-number/
6
https://www.tinxsys.com/TinxsysInternetWeb/index.jsp
2008. Implementation of proposed GST and opening of Foreign Direct Investment (F.D.I.)
are expected to fuel the growth and raise industry's size to $95 Billion by 2018. Implemtayion of
GST will also help in uniform, simplified and single point Taxation and thereby reduced prices. 7

4. Rail Sector
There have been suggestions for including the rail sector under the GST umbrella to bring
about significant tax gains and widen the tax net so as to keep overall GST rate low. This will
have the added benefit of ensuring that all inter – state transportation of goods can be tracked
through the proposed Information technology (IT) network.

5. Financial Services
In most of the countries GST is not charged on the financial services. Example, In New
Zealand most of the services covered except financial services as GST. Under the service tax,
India has followed the approach of bringing virtually all financial services within the ambit of
tax where consideration for them is in the form of an explicit fee. GST also include financial
services on the above grounds only.

6. Information Technology enabled services

To be in sync with the best International practices, domestic supply of software should also
attract G.S.T. on the basis of mode of transaction. Hence if the software is transferred through
electronic form, it should be considered as Intellectual Property and regarded as a service.
And If the software is transmitted on media or any other tangible property, then it should be
treated as goods and subject to G.S.T.

7. Impact on Small Enterprises

There will be three categories of Small Enterprises in the GST regime.
Those below threshold need not register for the GST
Those between the threshold and composition turnovers will have the option to pay a
turnover based tax or opt to join the GST regime.
Those above threshold limit will need to be within framework of GST
Possible downward changes in the threshold in some States consequent to the
introduction of GST may result in obligation being created for some dealers. In this
case considerable assistance is desired.

CONCLUSION
In respect of Central GST, the position is slightly more complex. Small scale units
manufacturing specified goods are allowed exemptions of excise upto Rs. 1.5 Crores. These
units may be required to register for payment of GST, may see this as an additional cost.

The enumeration of benefits casts a welcome setting for GST.Proving GST as a superior and
sufficient system depends upon the structure it is designed into and the manner of
implementation. While it serves to be beneficial set up for the Industry and the Consumer, it
would lead to increase in revenue to Government.

7
According to a FICCI – Technopak Report