GST: An Introduction:
Now a day, there is only one topic which is talk of the town and that is Goods and Services Tax.
The move towards the Goods and Services Tax (Herein after referred to as the GST) is regarded as the historic achievement in the history of taxation since independence.
The GST is in the nature of Indirect tax i.e. the burden of the same will be bear by the ultimate consumer.
And this is the reason why there have been many representations from various stakeholders and government wants to have consensus with regards to the rates of the various goods and services.
Following tax laws to be replaced:
The GST has replaced following indirect tax laws from the Indian taxation system:
- Central Excise Duty
- Service Tax
- Additional Customs Duty
- Value Added Tax
- Central Sales Tax
- Entertainment Tax
- Entry Tax
- Purchase Tax
- Octroi etc.
In nutshell, the GST will replace all the taxes levied on the goods and services by the Central and State Govt. However, the tax to be levied by the local bodies will continue to exist.
To understand any historic move and the historic achievement, it is very essential to understand the history of the same. It is not a sudden move but has long history of more fifteen years in itself.
First time introduction:
In the year around 2000, former Prime Minister Shri A.B.Vajpayee understands the glitches in the current taxation structure and hence started the discussion on the Goods and Service Tax (GST) for the first time in Indian history.
He set up a committee which was headed by Asim Dasgupta (Former Finance Minister, Government of Bengal). The committee was given a task of designing and establishing the GST model which suits the Indian federal structure well. It was also given a task for designing the back end system for the effective implementation of the GST rollout.
During the phase of 2000 to 2005, Indian indirect tax structure was also witnessing a historic change in the name of VAT. VAT in India was introduced at the centre level first. VAT was first introduced in 1986 for few commodities which were then called MODVAT which was later on extended to other commodities and stages and hence renamed as CENVAT w.e.f 1.04.2000.
After implementation of VAT a central level, Government of India was keen to introduce VAT at the state level. The implementation of VAT somehow overshadows the discussion on GST. Somewhere in between, the Kelkar task force in the year 2003 suggested a comprehensive GST based on VAT principle. It pointed out that there is no doubt that India has a steady momentum regarding reforms and taxation; however, there is a need of a new comprehensive GST which shall be based on VAT principles.
The idea for introduction of VAT was also very novel. The Govt. had prepared a model law for VAT and insisted the same to be uniformly passed by the State Assemblies without much modification. However, with the passage of time, various State Assemblies have amended various provisions and the now the position is that all the states have different law and its provisions for VAT.
Then there was general election in India and Mr. Vajpayee was campaigning under the theme of ‘Shining India’. However, the India selected the then opposition party and the Congress came into power.
Introduction in Budget Speech:
Then the Finance Minister P.Chidambaram in his budget speech for the Year 2006-07 talked about the GST and he said,
“It is my sense that there is a large consensus that the country should move towards national level Goods and Services Tax (GST) that should be shared between the Centre and the States. I propose that we set April 1, 2010, as the date for introducing GST. The World over, goods and services attract the same rate of tax. That is the foundation of a GST. People must get used to the idea of a GST. Hence, we must progressively converge the service tax rate and the CENVAT rate.”
So, it was that the first year where serious discussions were carried out. The responsibility of preparing a design and roadmap for the seamless implementation of GST was assigned to Empowered Committee of State Finance Minister.
The empowered committee of State Finance Minister releases their first discussion paper on November 10, 2009.
Deferred for One year:
It was the year 2010 which had been arrived but GST was ready to be moved out. The then Finance Minister and the current President of India Mr. Pranab Mukharjee in his budget speech of the year 2010-11 states that,
“On Goods and Services Tax, we have been focusing on generating a wide consensus on its design. In November 2009 the Empowered Committee of the State Finance Ministers placed the first discussion paper on GST in the public domain. The Thirteenth Finance Commission has also made some significant recommendations relating to GST, which will contribute to the ongoing discussions.
We are actively engaged with the Empowered Committee to finalise the structure of GST as well as the modalities of its expeditious implementation. It will be my earnest endeavour to introduce GST along with the DTC in April 2011.”
Introduction in the Lok Sabha:
On 22nd March 2011, the 115th Constitutional Bill was the first timetabled in Lok Sabha. The government was keen to introduce and pass the Constitution Amendment Bill, however, due to lack of political consensus; the bill was referred to standing committee on 29th March 2011.
After two years of waiting, the standing committee gives his report on 7 August 2013. It was the last year of the government and the bill if not passed, and then it shall lapse on the dissolution of Lok Sabha.
As expected, the 115th Constitutional amendment bill lapsed with the dissolution of Lok Sabha by the honourable President Pranab Mukherjee.
122nd Constitutional amendment bill, 2014
With the new government in charge, the 122nd Constitutional amendment bill was tabled in Lok Sabha on 19thDecember 2014. Since the new government has the required number in the Lok Sabha, it was expected that GST bill would be cleared in Lok Sabha. The major problem for the current government is to get the required number in Rajya Sabha.
As expected, 122nd Constitutional amendment bill, 2014 was passed by Lok Sabha on 6th May 2016.
Bill tabled in Rajya Sabha
It was not an easy job for the government to get the bill cleared from the Rajya Sabha. There were political differences between the government and the opposition mainly with the Congress party. Many times, Rajya Sabha was adjourned due to the unhealthy argument between the Members of Parliament. Lack of majority in Rajya Sabha was the major roadblock for the government.
Bill Passed by Rajya Sabha
Even after so many hurdles, the 122nd Constitutional Amendment bill was passed unanimously by the Rajya Sabha on 3rdAugust 2016 subject to some changes. The amendment made in the bill passed y Rajya Sabha was passed by Lok Sabha on August 8th, 2016.
Ratification by State government
For the amendment to become effective, the constitutional bill must be ratified by at least 50% of the states (i.e. by at least 16 states out of 31 state assemblies) within 30 days. Since, bill was passed by unanimous consent of all the parties; this condition was not so tough.
Within 23 days, 16 states ratified the GST bill. Assam was the first state to ratify the GST bill. After getting the requisite number, the GST bill was ready for the presidential nod.
President approves 122nd Constitutional Amendment Bill, 2014.
On 8th September 2016 history writes itself when President gave his nod to the GST bill. GST bill is now the law of the land.
Now, we have following laws with respect to GST:
- Central Goods and Services Tax Act, 2017
- Integrated Goods and Services Tax Act, 2017
- Union Territory Goods and Services Tax Act, 2017
- Goods and Services Tax (Compensation to States) Act, 2017
- State Goods and Services Tax Act, 2017.
How the states have consented for the GST:
GST is the consumption based tax. So, there will be loss to the states which are the manufacturing state. Therefore, the basic reason for the reluctance by the various states is loss of revenue to them. The stages have experienced the same at the time of introduction of CST also.
Therefore, the Union Govt. has formed a special act for the same Goods and Services Tax (Compensation to States) Act, 2017 and given the assurance for the compensation. (Of course, the compensation will be recovered by levying the compensation cess).
Whether GST is simple or complex?
This is the real dicey issue. What I can say for this – GST is the simple in a very complex manner. It is briefly explained in following manner:
For the intra state supply, there will be CGST and SGST. For inter state supply, there will be IGST. Now just assume a situation where you have charged CGST and SGST but the department took a view that IGST will be levied, then what? You have already paid the CGST and SGST and now you will again be required to pay IGST. And yes the earlier CGST and SGST will be not refunded if your recipient of goods or services has availed the credit for the same. (Of course, one will avail except in a situation where he is not eligible).
GST is levied on supply of goods and services. So, the ‘supply’ will be the issue which will bear most litigation.
Under the existing VAT law, if registered person purchases goods from unregistered person then he is required to pay tax on reverse charge basis and the credit will be available for the same except to some reduction.
However, under the GST regime, there will not be credit for tax paid on reverse charge basis for purchase from unregistered persons. This will majorly affect the MSME sectors. The same issue has also been raised by Mr. Kapil Sibbal, MP of Rajya Sabha during the discussion at Rajya Sabha.
The compliance level expected by the Govt. from the taxpayers is at the highest level till date. The Govt. has expected the taxpayers to upload the details of outward supply within 10 days from the end of the month for which details are to be filed, 11th to 15th date for verification of purchases, 16th and 17th date for rectification and 20th date for payment of tax and payment. So, the taxpayers are required to maintain books in real time system.
The Govt. will even give rating based on compliance and based on that rating, refund etc. provisions will be applicable.
There will be also black list which will be displayed at the govt. portal mentioned the taxpayers who are not much compliant.
The businesses cannot be carried out now in the traditional manner. The govt. wants the digitalization of the business and the simple rule they are expecting: Either this way or no way.
There is also provision for separate registration for each state from where the supply of goods / services / both are being carried out. So, unlike centralized registration for service tax, there will be separate registrations for each state.
The GST is also aiming as ‘One Nation, One Tax’ but…..
So, a business man needs to change the way of its doing the business from the root.
It is like
Appointed date of GST:
Appointed date is the date from which the GST will be applicable in the country.
The Govt. has expected the roll our date as the 01st of July, 2017. However, it seems very difficult to meet the deadline even though agreed by the states in the GST Council Meeting held on 03rd June, 2017 with following reasons:
- All the existing taxpayers under the VAT, Service Tax, Central Excise have not been migrated to GST yet. Therefore, the Govt. has again enabled the procedure for migration from 01st of June, 2017 onwards.
- The next meeting of GST Council is on 11th June, 2017 to finish the unfinished matters. There are also hundreds of things in all the acts where the matter will be decided by the GST Council and yet now decided.
So, when the Govt. itself is not ready, how can it expect the entire country to be ready for the same?
- The council in a meeting held on 18th and 18th May, 2017 decided the rates of taxes for almost all the goods and services. However, still there are various representations being made to the govt. for the rates from various industries.
- It is to be noted that Mr. Hasmukh Adia, Revenue Secretary, has informed that the Govt. will in force the anti profiteering measures so that the there will not be any profiteering measures be carried out by the taxpayers with the tax rates under GST regime compared to old regime. However, they are notified yet.
- The Govt. has not yet educated the people about the GST in a way people expected the Govt. to educate them.
- Subramaniam Swamy, nominated member of Rajya Sabha raised the issue regarding the shareholding pattern of GSTN (GSTN refers to Goods & Services Tax Network which will be the I T body for storing GST data and all other I.T. process). He said that the GSTN is majorly owned by private banks and the shareholding of private banks is with the foreign owners. So, the data for the entire country cannot be shared with foreigners. It should be retained by the Govt. itself. This will affect the national security of our country. This is what said by him.
He said that before implementing GST, if the GSTN structure is not revised then he will move PIL to the Hon’ble Supreme Court of India. So, that task is also pending.
The interesting point here is that the same issue is raised by Mr. Kapil Sibbal during the Rajya Sabha debate but the thing he forget is that the GSTN was constituted during their government only.
Mr. Hasmukh Adia, revenue secretary has repeatedly said that the roll out will be from July 01, 2017 only. However, the above points create little confusion for this date.
Yes, it is to be noted that it will definitely be rolled from September 01, 2017 as the validity of the constitutional amendment will end in the month of September and if it’s ended then again to have consensus from all the parties will be a very difficult task for the BJP led NDA Govt.
So, whatever will be date of implementation, we should be ready for this.
As now majority of the things have been finalized, so now we will update you on the various topics based on the prescribed law in simple and understandable manner and we will provide the advisory services with regards to transitional provisions and other normal provisions for implementation of GST into your system.