Introduction

Tax is a way of collecting revenue from individuals, companies or other

entities by the government in order to finance state expenditure. It is
considered as the most important sources of government’s income todrive
the economic growthandachieve thestatusof a developed countryandhigh
income. Thus, there are various taxes levied on the users such as direct
taxes and indirect taxes.As tax contributes to the development of the
country, lowturnovertax revenueswill affect thecountry's
developmentandfinancial position of thecountryis likely toresult ina
deficit (Ahmad Azrin, 2015). Taxes have a significant function in
determining the direction of economic and social system of a country.
Based on Malaysia’s situation, contributions raised through the tax
revenues have become an important factor as a percentage of the tax
revenue of the government's total revenue is higher compared to other
sources. Tax is a mandatory fee imposed by the government on the use,
income, wealth or any other basis for the interest and benefit of the
people of a country. It does not include fines or fees for specific purposes
for individuals who pay for licenses, permits, tolls, entrance fees and
special assessments.All informationis paramount for young people
especially for those who have high academic achievement. As the
potential leader, they should be alert and concern with the matters that
happen in Malaysia.
Literature Review

In Malaysian context, there are two types of taxes, namely direct

taxes and indirect taxes. The role of direct tax collection is carried out by
the Inland Revenue Board (IRB) and the Royal Malaysian Customs
Department (KDM) accounts for collecting indirect taxes. Direct taxes,
such as income tax, corporate tax, individual tax, and petroleum tax and
stamp duty, are referred to taxes levied directly on individuals who must
pay it compulsorily. The burden of paying direct taxes cannot be avoided
or transferred to another person. Another kind of tax isindirect taxes
which imposed tax indirectly. For example, tax which levied on alcohol,
purchase taxes, and customs clearance of imported goods such as cars and
electrical appliances. This tax is imposed on a person and this person can
transfer the tax burden to other people. Such situations may occur, for
example, when a businessman or trader acting transfers the tax burden of
a product to consumers by raising the prices of certain goods. (Muhamad
Khan, 2012). Good and Services Tax (GST) is a tax that was newly
introduced in Malaysia. Before implementing GST, Malaysian tax system
was enforced through the Sales Tax Act 1972 (Act 64) and Tax Service
1975 (Act 151). These two legislations were under the control and
supervision of Malaysian Customs (Nor Hafizah&Azleen 2013). The
implementation of GST is not only to raise government’s revenue but it
also allows more revenue distribution to low-income earner, thereby
making the gap of the economies smaller between the people (Abdul Aziz
Awang, 2011).
 Foreword

Tax policies play an important role on the economy through their impact
on both efficiency and equity. A good tax system should keep in view
issues of income distribution and, at the same time, also endeavour to
generate tax revenues to support government expenditure on public
services and infrastructure development. Cascading tax revenues have
differential impacts on firms in the economy with relatively high burden
on those not getting full offsets.

This argument can be extended to international competitiveness of the

adversely affected sectors of production in the economy. Such domestic
and international factors lead to inefficient allocation of productive
resources in the economy. This results in loss of income and welfare of
the affected economy.

Value added tax was first introduced by Maurice Laure, a French

economist, in 1954. The tax was designed such that the burden is borne
by the final consumer. Since VAT can be applied on goods as well as
services it has also been termed as goods and services tax (GST). During
the last four decades VAT has become an important instrument of indirect
taxation with 130 countries having adopted this, resulting in one-fifth of
the world’s tax revenue. Tax reform in
many of the developing countries has focused on moving to VAT. Most of
these countries have gained thus indicating that other countries would
gain from its adoption. For a developing economy like India it is
desirable to become more competitive and efficient in its resource usage.
Apart from various other policy instruments, India must pursue taxation
policies that would maximise its economic efficiency and minimise
distortions and impediments to efficient allocation of resources,
specialisation, capital formation and international trade.
Traditionally India’s tax regime relied heavily on indirect taxes including
customs and excise.
Revenue from indirect taxes was the major source of tax revenue till tax
reforms were undertaken during nineties. The major argument put forth
for heavy reliance on indirect taxes was that the India’s majority of
population was poor and thus widening base of direct taxes had inherent
limitations. Another argument for reliance on indirect taxes was that
agricultural income was not subjected to central income tax and there
were administrative difficulties involved in collecting taxes.
The broad objectives of our report relates to analysing the impact of
introducing comprehensive goods and services tax (GST) on economic
growth and international trade; changes in rewards to the factors of
production; and output, prices, capital, employment, efficiency and
international trade at the sectoral level.
Analysis in this report indicates that implementation of a comprehensive
GST in India is expected to lead to efficient allocation of factors of
production thus leading to gains in GDP and exports. It will also ensure
better compliance of tax law and will remove cascading effective which
is still present in the taxation system. This would translate into enhanced
economic welfare and returns to the factors of production, viz. land,
labour and capital.
 Executive Summary

The differential multiple tax regime across sectors of production leads to

distortions in allocation of resources thus introducing inefficiencies in the
sectors of domestic production. While indirect taxes paid by the
producing firms get offsets under state VAT and CENVAT, the producers
do not receive full offsets particularly at the state level. The multiplicity
of taxes further adds the difficulty in getting full offsets.
Add to this, the lack of full offsets of taxes loaded on to the fob export
prices. The export competitiveness gets negatively impacted even further.
Efficient allocation of productive resources and providing full tax offsets
is expected to result in gains for GDP, returns to the factors of production
and exports of the economy.

The Joint Working Group of the Empowered Committee of the State

Finance Ministers submitted its report on the proposed Goods and
Services Tax (GST) to the Finance Minister in November 2007. A dual
GST, one for the Centre and other for the states, was to be implemented
by 1 April 2010. The new system would replace the state VAT , CENVAT,
and some other taxes.

The proposed GST would eliminate the cascading effect and would
integrate hitherto disjointed goods and service taxes. It will lead to
uniformity in tax rates and procedures throughout the country. It will
ensure better compliance and thus will increase the revenue of both centre
and states. The export sector will also gain from this integration of state
and centre taxes. Consumer will be benefited in form of lower tax rates.
There will be dual tax rate viz Central GST(CGST) and State
GST(SGST). Also, for interstate sales there will be an Integrated GST.
However cross credits among CGST and SGST will not be allowed. The
rates for CGST and SGST are yet to be decided. It is also proposed to
keep certain taxes such as taxes on petroleum products to be kept out of
purview of GST.

However, there are major challenges to introduction of GST like

amendment of constitution of India to alter power of taxation of centre
and state, rates of SGST and CGST, standardisation of procedure,
compensation for revenue loss to states, etc.
 Backdrop

Tax policies play an important role on the economy through their impact
on both efficiency and equity. A good tax system should keep in view
issues of income distribution and, at the same time, also endeavour to
generate tax revenues to support government expenditure on public
services and infrastructure development. Cascading tax revenues have
differential impacts on firms in the economy with relatively high burden
on those not getting full offsets.

Traditionally India’s tax regime relied heavily on indirect taxes including

customs and excise. Revenue from indirect taxes was the major source of
tax revenue till tax reforms were undertaken during nineties. The major
argument put forth for heavy reliance on indirect taxes was that the
India’s majority of population was poor and thus widening base of direct
taxes had inherent limitations. Another argument for reliance on indirect
taxes was that agricultural income was not subjected to central income
tax and there were administrative difficulties involved in collecting taxes.
However, it became evident that indirect taxes lead to undesirable effects
on prices and allocation of resources. The Government of India
constituted Indirect Taxation Enquiry Committee in 1976 headed by Shri
L. K. Jha to study the structure of indirect taxes, central, state and local
level taxes and suggest policy reforms. Indirect Taxation Enquiry
Committee submitted its report in 1978. The committee found a major
problem with indirect tax regime as it had caused unintended distortion in
the allocation of resources and cascading effects. The committee
recommended that indirect taxation should move towards taxation of final
products and introduce modified form of value added tax. However, a
major obstacle in rationalisation of indirect tax system was the levy of tax
on commodities by government at different levels viz., centre, state and
local authorities. This multiple taxation provides incentives for tax
evasion and undermines efficiency. Further, there is lack of uniformity in
the pattern of commodity taxation resulting in harassment to the public by
multiple tax authorities. Heavy reliance on indirect taxes for raising
revenue was also found to increase cost and fuel inflation.

The Government of introduced the Long Term Fiscal Policy (LTFP) on

19 December 1985 for prudent fiscal management. Major excise and
custom reforms were introduced in LTFP. The reforms in excise relates to
introduction of modified value added tax i.e MODVAT. However, fill up
in the tax policy came with introduction of economic reforms in 1990.
The system of MODVAT was progressively converted into VAT and
CENVAT was introduced at centre level. Subsequently, after
Constitutional Amendment empowering the Centre to levy taxes on
services, these service taxes were also added to CENVAT in 2004-05.At
state level also VAT was introduced in 2005.

Despite all the various changes the overall taxation system continues to
be complex and has various exemptions. The Government of India
constituted a Task Force on implementation of Fiscal Responsibility and
Budget Management Act, 2003 (FRBMA) to chalk out a framework for
fiscal policies to achieve FRBM targets. The Report of the Task Force on
implementation of the FRBMA, chaired by Dr. Vijay Kelkar, submitted
its Report in July 2004. It has recommended introduction of a national
VAT on goods and services (GST) which would help improve the revenue
productivity of domestic indirect taxes and enhance welfare through
efficient resource allocation.
The Joint Working Group of the Empowered Committee of the State
Finance Ministers submitted its report on the proposed Goods and
Services Tax (GST) to the Finance Minister in November 2007. A dual
GST, one for the Centre and other for the states, was to be implemented
by 1 April 2010
OBJECTIVES OF THE STUDY

The following are the objectives of the study: 1. To have a study on

awareness towards knowledge of GST. 2. To provide suggestions based
on the findings of the study.

NEED FOR THE STUDY

After the implementation of GST, many State and Central taxes have
been subsumed. This awareness about the change in Indirect taxation
system must exist among commerce students as it would help in their
professional career. So, this study is undertaken to focus on whether
commerce students are aware of basic GST knowledge

METHODOLOGY

The research was based on both primary data and secondary data.
Primary data was collected by using questionnaire and secondary data
have been collected from journals, websites and so on. The researcher
was not possible to study the entire population of Commerce Students, so
the researcher has collected only limited respondents i.e. 50 respondents.

LIMITATIONS

The limitations of the study include 1.The area of the study is restricted to
St. Joseph's Degree & PG College, Hyderabad only. 2.The content of the
study is subject to change as GST is in the Introductory phase. 3.The
researcher has collected data only from 50 Commerce Students due to
time constraint.
86% of the respondents are aware of GST being implemented in India,
52% of them are not aware that it is an Indirect tax, 90% of them know
that it is shared among State & Central Governments, 88% of the
respondents know that the Regulatory body for GST is GST Council &
82% are aware about the existing slab rates.

FINDINGS

The following are the findings of the study:

1. It is found that 62% of the respondents are male.

2. The Analysis revealed that 22% of respondents are B.Com IFA

Students.

3. It is found that half of the respondents (50%) are 3rd Year students.

4. More than 85% respondents know about introduction of GST in India.

5. More than 50% of respondents are not aware that it is an Indirect tax.

6. Most of the respondents (90%) know that it is shared among State &
Central Governments.

7. 88% of the respondents know that the Regulatory body for GST is GST
Council. 8. Majority of the respondents (82%) are aware about the
existing slab rates.
SUGGESTIONS

The following are the suggestions of the study:

1. It is suggested that GST should be incorporated in the Commerce

Educational Curriculum.

2. Awareness and knowledge about GST should be imparted through

regular seminars and workshops.

3. Practical knowledge about GST should be disseminated by

professionals like C.A's.

CONCLUSION

Due to the Introduction of GST, there are increasing prospects in the

finance, banking and related sectors. Students are not yet aware of the job
avenues provided by new regulations, portfolio management, investment
banking, securities markets and others. Therefore, it is the need of each
and every Student to have awareness about the new GST Regime.
STATUS OF IMPLEMENTATION OF GST

To be fully viable by law in all the States, the GST Bill needs to be passed
by a two-thirds majority in both Houses of Parliament and by the
legislatures of half of the 29 States. In December 2014, Finance Minister
Arun Jaitley introduced the constitutional amendment Bill of the GST in
the LokSabha. He announced that the GST would be a major reform in
India’s taxation system since 1947, which would reduce transaction costs
for business and boost the economy. Earlier, the Bill was rejected by a
few States saying that it does not include the issues of compensation,
entry tax and the tax on petroleum products. Jaitley while introducing the
Bill said that all efforts have been taken to make sure that the States do
not suffer any loss of revenue with the implementation of the GST. The
States will receive Rs 11,000 crore this fiscal year so that it would
compensate the losses suffered by them for decline in Central sales tax
(CST) and subsequently financial assistance would be provided for a
fiveyear period. All said and done, the GST Bill which was conceived
way back in the year 2000 has not seen the light of the day as yet. If
everything goes well, most likely the Bill will be legislated by April
2016. According to a study by the National Council of Applied Economic
Research (NCAER), full implementation of the GST could expand India’s
growth of gross domestic product by 0.9-1.7 percentage points. By
removing the system of multiple Central and State taxes, the GST can
help in reducing taxation and filing costs and expand business
profitability, thereby attracting investments and promoting GDP growth.
Simplification of tax norms can help in improving tax compliance and
increasing tax revenues.
HOW GST WORKS?

GST is collected and paid at all stages of the supply chain. All businesses
pay GST when they buy supplies, assets or services for running their
business. GST registrants will charge and collect GST on taxable goods
and services that they provide (taxable supplies). The GST paid on their
purchases (input tax credit) will be set off from the GST they charged and
collected (output tax). If the output tax exceeds the input tax, the
difference is to be remitted to the customs authorities. On the other hand,
if output tax is less than the input tax, a refund will be given by the
Customs authorities. The end consumer is borne to pay the ultimate

GST WHY INDIA APPLYING GST

In India economy the service sector contributes 0ver 55%. Separate

taxation of goods and services is neither viable nor desirable. Value added
in manufacture and sale of goods require inputs of both- goods and
services and vice versa, which is often not separable. Introduction of a
GST to replace the existing multiple tax structures of Centre and State
taxes is not only desirable but imperative in the emerging economic
environment. Increasingly, services are used or consumed in production
and distribution of goods and vice versa. Separate taxation of goods and
services often requires splitting of transaction values into value of goods
and services for taxation, which leads to greater complexities,
administration and compliances costs. Integration of various taxes into a
GST system would make it possible to give full credit for inputs taxes
collected. GST, being a destination-based consumption tax based on VAT
principle, would also greatly help in removing economic distortions and
will help in development of a common national market.
REVIEW OF LITERATURE:

Ehtisham Ahmed and SatyaPoddar (2009) have found that GST

introduction will provide simplier and transparent tax system with
increase in output and productivity of economy in India. But the benefits
of GST are critically dependent on rational design of GST1 . Pinki, et.al.
(2014) have concluded that the new NDA government in India is
positive towards implementation of GST and it is beneficial for central
government, state government and as well as for consumers in long run if
its implementation is backed by strong IT infrastructure. AgogoMawuli
(2014) has found that GST is not good for low-income countries and
does not provide broad based growth to poor countries. If still these
countries want to implement GST then the rate of GST should be less
than 10% for growth. Nurulhasnishaari, Alizah Ali, and Noraini Ismail
(2015), have concluded that to provide adequate and relevant
fundamental information is necessary to make them better understand the
general principle of GST by organizing seminar, talk, training, course and
forum in order to increase awareness and knowledge and also conform to
regulation.
STATEMENT OF THE PROBLEM

GST is deemed as one of the steps in making India as a country which

has a high income tax system, comprehensive, efficient, transparent and
business-friendly. It is also considered the world's best tax system based
on the implementation of the country which has implemented the
GST.GST has just being applied in India. The government and its crew
are still in their way to spread out the information of GST in order to
combat confusion among people. Sales and contracts are made almost
every day and some of these transactions required people to pay the GST.
It is an issue if people are still unaware or confuse with the tax system of
GST and become worst when people ignore and boycott not to pay the
tax. GST is a popular issue that is being discussed by people day to day, it
is necessary to know whether the students are aware of the government’s
plan and do they have knowledge on this issue. Therefore this study
makes an attempt to analyze the College Student’s Awareness and
Knowledge on the Implementation of Goods and Services Tax (GST) in
Sivakasi.
 LEVEL OF STUDENT’S KNOWLEDGE ON THE ISSUE
OF GST

The respondent’s level of student’s knowledge on the issue of GST has

been determined by 9 statements. The level of student’s knowledge on the
issue of GST has been determined by the score values calculated from 9
statements by adopting scaling techniques. The responses observed for
each statement in the schedule has been scored. To secure the total
customer satisfaction score for the respondents, five points are given for
“strongly agree”, four points are “Agree”, three points for “Neutral”, two
points for “Disagree”, and one point for “Strongly disagree” responses.
The level of student’s knowledge on the issue of GST has been derived
from the mean (� ) 𝑎𝑛� � values of the 60 respondents. The calculated
values of Mean and S.D are 3.3685 and 1.2753 respectively. If the score
values are greater than X+�.�,It has been taken as high level of student’s
knowledge on the issue of GST whereas, if the score values are less than
X – S.D, it has been taken as low low level of student’s knowledge on the
issue of GST. However the difference between than (X+S.D) and
(X−S.D) has been International Journal of Engineering Science and
Computing, April 2017 11069 http://ijesc.org/ classified as medium level
of student’s knowledge on the issue of GST. Therefore X+ S.D =
3.3685+1.2753= 4.6438 X− S.D = 3.3685−1.2753= 2.0932 (X+ S.D) to
(X− S.D) = 2.09 to 4.64 The level of student’s knowledge on the issue of
GST is measured in the three levels, High, Medium and Low level. The
respondents who have scored 4.64 and above are come under high level.
The respondents whose scores fall between 2.09 to 4.64 are medium level
and those whose score is 2.09 and below have low level of student’s
knowledge on the issue of GST. Table 5 shows that the level of students’
knowledge on the issue of GST.
Table. 5. Level of student’s knowledge on the issue of GST S. No
Particulars No. of. Respondents Percentage 1 High 56 46.67 2 Low 52
43.33 3 Medium 12 10.00 Total 60 100 Source: Primary data From Table
5 it has been observed that out of 120 respondents, 56 (46.67%) students
have high level of knowledge on the issue of GST, maximum of 52
(43.33%) students have medium level of knowledge on the issue of GST
and 12 respondents (10 %) of them who come under the category of low
level students of knowledge on the issue of GST.
 II INDIA’S TAX REGIME

In India the power for taxation has been divided between centre and state
under article 246 of the constitution. As per the said article the centre has
power to tax under list I of the Schedule VII of the constitution, the state
can tax under list II of the schedule and both can make law under list III
of the schedule. Therefore, there is a clearly defined and multiple tax
regime in India.

Taxation structure existing in country:-

Taxes levied by Centre Taxes Levied by State

Central Excise and Value Added Tax( state
Custom sales tax)
Service Tax Local taxes
Direct Taxes

Prior to the introduction of VAT in the Centre and in the States, there was
a burden of multiple taxation in the pre-existing Central excise duty and
the State sales tax systems. Before any commodity was produced, inputs
were first taxed, and then after the commodity got produced with input
tax load, output was taxed again. This was causing a burden of multiple
taxation (i.e. “tax on tax”) with a cascading effect. Moreover, in the sales
tax structure, when there was also a system of multi-point sales taxation
at subsequent levels of distributive trade, then along with input tax load,
burden of sales tax paid on purchase at each level was also added, thus
aggravating the cascading effect further.
In India, VAT was introduced at the Central level for a selected number
of commodities in terms of MODVAT with effect from March 1, 1986,
and in a step-by-step manner for all commodities in terms of CENVAT in
2002-03. Subsequently, after Constitutional Amendment empowering the
Centre to levy taxes on services, these service taxes were also added to
CENVAT in 2004-05.

When VAT is introduced in place of Central excise duty, a set-off is given,

i.e., a deduction is made from the overall tax burden for input tax. In the
case of VAT in place of sales tax system, a set-off is given from tax
burden not only for input tax paid but also for tax paid on previous
purchases. With VAT, the problem of “tax on tax” and related burden of
cascading effect is thus removed. .

Before introduction of VAT, in the sales tax regime, apart from the
problem of multiple taxation and burden of adverse cascading effect of
taxes as already mentioned, there was also no harmony in the rates of
sales tax on different commodities among the States. Not only were the
rates of sales tax numerous (often more than ten in several States), and
different from one another for the same commodity in different States,
but there was also an unhealthy competition among the States in terms of
sales tax rates – so-called “rate war” – often resulting in, revenue-wise, a
counter-productive situation.

It is in this background that attempts were made by the States to introduce

a harmonious VAT in the States, keeping at the same time in mind the
issue of sovereignty of the States regarding the State tax matters. The
States started implementing VAT beginning April 1, 2005. After
overcoming the initial difficulties, all the States and Union Territories
have now implemented VAT.
Rationale for GST
Despite this success with VAT, there are still certain shortcomings in the
structure of VAT both at the Central and at the State level.

The shortcoming in CENVAT of the Government of India are as follows:-

 non-inclusion of several Central taxes in the overall framework of

CENVAT, such as additional customs duty, surcharges, etc., and
thus keeping the benefits of comprehensive input tax and service
tax set-off out of reach for manufacturers/dealers.

 no step has yet been taken to capture the value-added chain in the
distribution trade below the manufacturing level in the existing
scheme of CENVAT.

The introduction of GST at the Central level will not only include
comprehensively more indirect Central taxes and integrate goods and
service taxes for the purpose of set-off relief, but may also lead to
revenue gain for the Centre through widening of the dealer base by
capturing value addition in the distributive trade and increased
compliance.

In the existing State-level VAT structure there are also certain

shortcomings as follows:-

 several taxes which are in the nature of indirect tax on goods and
services, such as luxury tax, entertainment tax, etc., have yet not
been subsumed in the VAT.

 CENVAT load on the goods remains included in the value of

goods to be taxed under State VAT, and contributing to that extent
a cascading effect on account of CENVAT element.
  non integration of VAT on goods with tax on services at the State
level and cascading effect of service tax.

In the GST, both the cascading effects of CENVAT and service tax are
removed with set-off, and a continuous chain of set-off from the original
producer’s point and service provider’s point upto the retailer’s level is
established which reduces the burden of all cascading effects.

GST is not simply VAT plus service tax but an improvement over the
previous system of VAT and disjointed service tax.

Implementation of GST will also remove several roadblocks in the

existing taxation system in India.

Some of these are:

a)Tax cascading – The Goods and Services Tax Act will overcome the
problem of tax- cascading through input tax credit mechanisms. Under
this system, sellers or vendors of goods and services are eligible to avail
tax credits on the amount of GST paid to eligible procurements.
Manufacturers can avail credits for the GST paid to procure inputs,
capital goods and services used in the manufacturing process. In the same
way, wholesalers and retailers can avail credits for the GST paid on
procurement of stock. But the final customer who purchases the product
for consumption will not be able to avail and utilize any tax credit. Tax
cascading can be understood by the following example:-
A tax is applied on a particular product at each stage and and no credit is
available, then tax will be charged at each stage whenever a good or
service changes hands. In other words, tax is applied several times and is
charged even on the tax which forms part of the inputs.
The following taxes will be applied to the product:
 While purchasing inputs i.e. raw materials for the product, the
manufacturer pays sales tax.
 When a wholesaler purchases the product from the manufacturer,
then he pays tax on procurement of the product.
 When the retailer purchases the product from the wholesaler, the
wholesale again charges tax.
 Lastly, the customer purchases the product from the retailer; the
retailer again charges a tax. This layering of sales tax will
significantly increase the final sales price as each party in the
supply chain increases the price of the product to recover the tax
they paid. The cascading effect will increase then tax is paid on tax.

There are a large number of products and range of services that are
outside the ambit of CENVAT and service tax. The exempts sectors are
not allowed to claim any credit of the input tax. In the same way, under
the state VAT, no credits are allowed for the inputs procured and used
towards exempted sectors. Non-eligibility for availment of credits leads
to tax cascading. Due to large number of exemptions, the effect of tax
cascading in India is significantly high.
b) Complexity – Presently in India, for taxing sale of goods, there is
Central Sales tax and
respective VAT Acts for each state and Union territory. The Goods and
Services Tax will remove this complication by having a unified code for
implementation of State GST in different states. The GST will not only
subsume a large number of indirect taxes but also solve the classification
issues by introducing only one or two rates of tax. Other than this there
would be categories that are exempted or zero rated.
Presently the activities in a supply chain are subject to several taxes. For
example – the manufacture of goods is subject to excise duty and sale of
these manufactured goods is subject to state VAT or CST. The GST will
ensure uniform single tax across the entire supply chain.

c) Double taxation – The GST will not make any difference between
goods and services as GST will be levied at each stage in the supply
chain. This will help in solving the problem of double taxation. The issue
is not only between the taxes of customs duties, excise duties and service
tax but also between service tax and VAT. The issue of double taxation
was addressed by the Honorable Supreme Court in the case of BSNL vs.
UOI (2006(3)SCC-1), wherein the Court held that the same activity
cannot be regarded as both goods and services and hence both service tax
and VAT should not be applicable on the same set of transactions.
The implementation of GST will resolve the dilemma of a large number
of assessee who are not sure of application of the type of tax on certain
specified transactions like software development, sale of sim cards by
telecom operators, online subscription of newspapers, value added
services provided by telecom operators, right to distribute movies etc.
d) Composite contracts – There are a large number of works contracts
which involve the supply of goods and services which are available to
customers under different supply chain arrangements. Such situations
arise in a gap or overlapping in taxation of goods and services as the
States do not have the power to impose tax on services and the Centre
does not have the power to impose tax on sale of goods within the state.
In such cases, a comprehensive solution can be provided only by
implementation of GST.
e)Revenue growth- The introduction of GST along with prudent
accounting policies, transparency and supported by a robust electronic
controls will bring down the peak rates of taxation and enhance revenue
growth. This can be understood by the following table by comparing the
present rates of tax and the proposed GST.

Goods from producer to Present taxes GST (Rs.)

wholesaler (Rs.)
Cost of production 80,000 80,000
Producers margin of profit 20,000 20,000
Producer’s price 1,00,000 1,00,000
 Central Excise duty at 14% 14,000 Nil
 VAT at 12.5% 14250 Nil
 Central GST at (expected Nill 12,000
rate )12%
 State GST at (expected rate) Nill 8,000
8%
Total Price 1,28,250 1,20,000
Goods from wholesaler to retailer Present taxes GST (Rs.)
(Rs.)
Cost of goods to wholesaler 1,14,000 1,00,000
 Profit margin at 5% 5,700 5,000
Total 1,19,700 1,05,000
 VAT at 12.5% 712.5 Nill
 Central GST (expected rate ) Nil 600
12%
 State GST at (expected rate) Nill 400
8%
Total 1,20,412.5 1,06,000
Goods from retailer to final Present taxes GST (Rs.)
consumer (Rs.)
Cost of goods to wholesaler 1,20,412.5 1,06,000
 Profit margin at 10% 12,041.25 10,500
Total 1,32,453.75 1,16,500
 VAT at 12.5% 1,505.15 Nill
 Central GST (expected rate ) Nill 1,050
12%
 State GST at (expected rate) Nill 840
8%
Total price to the final consumer 1,33,958.9 1,18,390

Tax component in the price to the 30,467.65 22,890

final consumer
Final price exclusive of taxes 1,03,491.25 95,500
 BENEFITS OF GST
4.1 Benefits for centre

As per the existing taxation system the centre does not has power to tax on production of
goods. The power to levy tax on sales rests with state except in case of inter state sales.
Therefore, introduction of GST would empower centre to tax sales also.

Benefits of GST for Centre:

Increase in GDP
Increase in exports
Power to tax after production down to distribution point
Ensures better compliance and prevent tax evasion

4.2 Benefits to state

There is no uniformity in rate of taxes among the states. Even after

introduction of VAT there are different rates of tax in different states.
Therefore, there was rate war among states. GST will lead to uniformity
in tax rates. Other benefits for state are:-

Benefits for states

Will get power to tax services
Will reduce rate wars, therefore, outflow of investment to other states due
to rate war will be prevented
Introduction of comprehensive system of reliefs including set off of
CENVAT and service taxes
Increase in revenue due to broadening of tax base
Removal of burden of CST
4.3 Benefits to industry

Benefits to industry

Will provide comprehensive input tax credit, the service tax can be set off
with sales tax
No need to pay CST
Many central and state indirect taxes will be subsumed in GST, therefore,
a single tax is to be paid.
Uniformity in tax procedure throughout the country
Reduced tax burden will increase competitiveness of Indian products in
foreign markets

4.4 Benefits to consumer

Benefits to consumer

Reduced tax burden will be passed on to consumers in form of reduced

prices.
Better compliance and increased tax revenue will enable the government
to spend more on welfare

4.5 The GST at the Central and at the State level will thus give more
relief to industry, trade, agriculture and consumers through a more
comprehensive and wider coverage of input tax set-off and service tax
set-off, subsuming of several taxes in the GST and phasing
out of CST. With the GST being properly formulated by appropriate
calibration of rates and adequate compensation where necessary, there
may also be revenue/ resource gain for both the Centre and the States,
primarily through widening of tax base and possibility of a significant
improvement in tax compliance. In other words, the GST may usher in
the possibility of a collective gain for industry, trade, agriculture and
common consumers as well as for the Central Government and the State
Governments. The GST may, indeed, lead to the possibility of
collectively positive-sum game.
Overview of GST

WHAT IS GOODS AND SERVICE TAX ?

Goods and Service Tax is a tax on goods and services, which is leviable
at each point of sale or provision of service, in which at the time of sale
of goods or providing the services the seller or service provider can claim
the input credit of tax which he has paid while purchasing the goods or
procuring the service.

HOW WILL IT WORK?

GST will be paid at each step till final distribution stage. It will be
charged by dealers(manufacturer, trader and service provider) on the price
of goods and services. While GST is paid at each step in the supply chain
of goods and services, the paying dealers don’t actually bear the burden
of the tax because GST is an indirect tax and ultimate burden of the GST
has to be taken by the last Customer. This is because they include GST in
the price of the goods and services they sell and can claim credits for the
most GST included in the price of goods and services they buy. The cost
of GST is borne by the final consumer, who can’t claim GST credits, i.e.
input credit of the tax paid.

The working of GST with respect to manufacturer, trader and consumer

can be seen in the illustrations given below. The manufacturers will get
the input credit of all the taxes paid by them on the raw material and also
on the services.
Let us assume the rate of GST is 16 percent and a toy manufacturer used
following inputs for manufacturing toys and sells the goods at Rs 120
lakh to trader:-
Manufacturer

Item Particulars Amount Rate of tax Input tax

no (Rs in lakhs) ( in paid
percent) (Rs in lakhs)
1 Raw material 50 16 8
2 Stores and spares 25 16 4
3 Services 25 16 4
Total value of 100 16
inputs

The output tax to be paid

Sale Value Rate of tax ( in output tax to be paid

percent) (Rs in lakhs)
Rs 120 lakh 16 19.2

Net Tax payable by manufacturer

Total output tax to be paid Rs 19.2 lakh

Total Input tax Paid Rs 16 lakh
Net Tax to be Paid Rs 3.2 lakh

Suppose trader use services amounting to Rs 5 lakh paying service tax at

rate of 16 percent amounting to Rs 0.8 lakh. Therefore total input tax paid
by trader is:-
Trader

Item Particulars Amount Rate of tax Input tax

no (Rs in lakhs) ( in paid
percent) (Rs in lakhs)
1 Goods purchased 120 16 19.2
 from manufacturer
2 Services 5 16 0.8
Total value of 125 20
inputs

If trader sell goods to consumer by adding Rs 5 lakh profit margin .The output tax payable by
trader is :-

Sale Value Rate of tax ( in output tax to be paid

percent) (Rs in lakhs)
Rs 130 lakh 16 20.8

Net Tax payable by Trader

Total output tax to be Rs 20.8 lakh

paid
Total Input tax Paid Rs 20 lakh
Net Tax to be Paid Rs 0.8 lakh

Net Tax payable by consumer

Sale Value Rate of tax ( in output tax to be paid

percent) (Rs in lakhs)
Rs 130 lakh 16 20.8

From the above illustration it can be seen that the manufacturer and the
trader gets credit of the tax paid on good and services and had to pay tax
on value added only. Further, the government will get tax of Rs 20.8 lakh
which is tax on final sale value of the product though from different
sources as detailed below:-

Description Output tax Input tax credit Net tax payable

 (Rs in lakh) (Rs in lakh) to government
(Rs in lakh)
Raw material 8 0 8
supplier
Stores and spares 4 0 4
supplier
Service provider 4 0 4
I
Manufacturer 19.2 16 3.2
Service Provider 0.8 0 0.8
II
Trader 20.8 20 0.8
Total Tax payable 20.8
to Government

GST composition of manufacturer and dealer

Composition of tax paid by the consumer
Systems of GST
5.3 Internationally, there are three systems in vogue:
(a) Invoice System
(b) Payment System
(c) Hybrid System
Brief description of three systems is:

Type of System Input Credit Output Tax

Invoice system On receipt of invoice On issue of invoice
Payment system On making payment On making payment
Hybrid At the option of dealer At the option of dealer
to be declared in to be declared in
advance advance

(a) Invoice System: In the invoice system, the GST (Input) is claimed on
the basis of invoice and it is claimed when the invoice is received, it is
immaterial whether payment is made or not. Further the GST (Output) is
accounted for when invoice is raised. Here also the time of receipt of
payment is immaterial. One may treat it as mercantile system of
accounting. In India the present system of sales tax on goods is an invoice
system of VAT and here it is immaterial whether the taxpayer is following
the cash basis of accounting or mercantile basis of accounting. The
advantage of invoice system is that the input credit can be claimed
without making the payment. The disadvantage of the invoice system is
that the GST has to be paid without receiving the payment.

(b) Payment System: In the payment system of GST, the GST (Input) is
claimed when the payment for purchases is made and the GST (Output) is
accounted for when the payment is made. In this system, it is immaterial
whether the assessee is maintaining the accounts on cash basis or not. The
advantage of cash invoice system is that the Tax (output) need not be
deposited until the payment for the goods and/or services is received. The
disadvantage of the payment system is that the GST (input) cannot be
claimed without making the payment.

The Taxes on services in India are based on this payment system since
service tax is payable on receipt basis and further Cenvat credit is only
allowable when payment of the service is made. In some countries, this
system is also adopted for small traders to keep them away from the
complexities of the Invoice system, which is purely a mercantile system.

(c) Hybrid System: In hybrid system the GST (Input) is claimed on the
basis of invoice and GST (Output) is accounted for on the basis of
payment, if allowed by the law. In some countries the dealers have to put
their option for this system or for a reversal of this system
before adopting the same.
SALIENT FEATURES OF THE GST MODEL PROPOSED
IN INDIA

Rate Structure

6.1 The GST shall have two components: one levied by the Centre
(hereinafter referred to as Central GST), and the other levied by the States
(hereinafter referred to as State GST). Rates for Central GST (CGST) and
State GST ( SGST) would be prescribed appropriately, reflecting revenue
considerations and acceptability. This dual GST model would be
implemented through multiple statutes (one for CGST and SGST statute
for every State). However, the basic features of law such as chargeability,
definition of taxable event and taxable person, measure of levy including
valuation provisions, basis of classification etc. would be uniform across
these statutes as far as practicable.

The proposed rate structure is as follows:

 A lower rate for essential structure.

 Standard rate for general goods.

 Special rates for precious metals.

 For services their shall be single rate for SGST and CGST.

These GST rates are yet not announced by the government.

Applicability

6.2 The Central GST and the State GST would be applicable to all
transactions of goods and services made for a consideration except the
exempted goods and services, goods which are outside the purview of
GST and the transactions which are below the prescribed threshold limits.

The Central GST and State GST are to be paid to the accounts of the
Centre and the States separately. It would have to be ensured that
account-heads for all services and goods would have indication whether it
relates to Central GST or State GST (with identification of the State to
whom the tax is to be credited).

Input Credit

Since the Central GST and State GST are to be treated separately, taxes
paid against the Central GST shall be allowed to be taken as input tax
credit (ITC) for the Central GST and could be utilized only against the
payment of Central GST. The same principle will be applicable for the
State GST. A taxpayer or exporter would have to maintain separate details
in books of account for utilization or refund of credit.

Cross utilization of Income Tax Credit between the Central GST and the
State GST would not be allowed except in the case of inter-State supply
of goods and services under the IGST model which is explained later.

Ideally, the problem related to credit accumulation on account of refund

of GST should be avoided by both the Centre and the States except in the
cases such as exports, purchase of capital goods, input tax at higher rate
than output tax etc. where, again refund/adjustment should be completed
in a time bound manner.
Procedures

To the extent feasible, uniform procedure for collection of both Central

GST and State GST would be prescribed in the respective legislation for
Central GST and State GST.

Administration

The administration of the Central GST to the Centre and for State GST to
the States would be given. This would imply that the Centre and the
States would have concurrent jurisdiction for the entire value chain and
for all taxpayers on the basis of thresholds for goods and services
prescribed for the States and the Centre.

The taxpayer would need to submit periodical returns, in common format

as far as possible, to both the Central GST authority and to the concerned
State GST authorities.

Each taxpayer would be allotted a PAN-linked taxpayer identification

number with a total of 13/15 digits. This would bring the GST PAN-
linked system in line with the prevailing PAN-based system for Income
tax, facilitating data exchange and taxpayer compliance.

Keeping in mind the need of tax payer’s convenience, functions such as

assessment, enforcement, scrutiny and audit would be undertaken by the
authority which is collecting the tax, with information sharing between
the Centre and state
TAXES TO BE SUBSUMED UNDER GST

The following taxes levied at centre will get subsumed under GST:-
i. Central Excise Duty

ii. Additional Excise Duties

iii. The Excise Duty levied under the Medicinal and Toiletries
Preparation Act

iv. Service Tax

v. Additional Customs Duty, commonly known as Countervailing Duty

(CVD)

vi. Special Additional Duty of Customs - 4% (SAD)

vii. Surcharges, and

viii. Cesses.

The following State taxes and levies would be, to begin with, subsumed
under GST:

i. VAT / Sales tax

ii. Entertainment tax (unless it is levied by the local bodies).

iii. Luxury tax

iv. Taxes on lottery, betting and gambling.

v. State Cesses and Surcharges in so far as they relate to supply of

goods and services.

vi. Entry tax not in lieu of Octroi.

Taxes to be kept out of purview of GST

However following taxes are proposed to be kept out of purview of GST

due the reasons as detailed:-

Purchase tax: Some of the States felt that they are getting substantial
revenue from Purchase Tax and, therefore, it should not be subsumed
under GST while majority of the States were of the view that no such
exemptions should be given. The difficulties of the foodgrain producing
States was appreciated as substantial revenue is being earned by them
from Purchase Tax and it was, therefore, felt that in case Purchase Tax
has to be subsumed then adequate and continuing compensation has to be
provided to such States. This issue is being discussed in consultation
with the Government of India.

Tax on items containing Alcohol: Alcoholic beverages would be kept out

of the purview of GST. Sales Tax/VAT could be continued to be levied on
alcoholic beverages as per the existing practice. In case it has been made
Vatable by some States, there is no objection to that. Excise Duty, which
is presently levied by the States may not also be affected.

Tax on Tobacco products: Tobacco products would be subjected to GST

with ITC. Centre may be allowed to levy excise duty on tobacco products
over and above GST with ITC. Tax on Petroleum Products: As far as
petroleum products are concerned, it was decided that the basket of
petroleum products, i.e. crude, motor spirit (including ATF) and HSD
would be kept outside GST as is the prevailing practice in India. Sales
Tax could continue to be levied by the States on these products with
prevailing floor rate. Similarly, Centre could also continue its levies. A
final view whether Natural Gas should be kept outside the GST will be
taken after further deliberations.
THRESHOLD LIMITS- SERVICES

In order to give relief to small dealers government has proposed to

provide exemption from SGST and CGST. Different threshold limits may
be specified for taxes on services and taxes on goods. The present
threshold prescribed in different State VAT Acts below which VAT is not
applicable varies from State to State. A uniform State GST threshold
across States is desirable and, therefore, it is considered that a threshold
of gross annual turnover of Rs.10 lakh both for goods and services for all
the States and Union Territories may be adopted with adequate
compensation for the States (particularly, the States in North-Eastern
Region and Special Category States) where lower threshold had prevailed
in the VAT regime. Keeping in view the interest of small traders and small
scale industries and to avoid dual control, the States also considered that
the threshold for Central GST for goods may be kept at Rs.1.5 crore and
the threshold for Central GST for services may also be appropriately
high. It may be mentioned that even now there is a separate threshold of
services (Rs. 10 lakh) and goods (Rs. 1.5 crore) in the Service Tax and
CENVAT.
The present threshold limit vis a vis proposed limit is:-

Turnover of Services Present System Proposed Syatem

Below Rs. 10 Lakh No Service Tax Neither SGST nor
CGST
Between Rs 10 lakh Service tax payable Only SGST
and Rs 150 lakh
Above Rs 150 lakh Service tax payable Both SGAT and CGST
Thresh hold limit for Differs from state to No exemption
goods state Threshold limit of Rs
In case of Centre it 150 lakh
is Rs 150 lakh
INTEGRATED GOODS AND SERVICE TAX (IGST):

The scope of IGST model is that, Centre would levy IGST which would
be CGST plus SGST on all Inter-State transactions of taxable goods and
services with appropriate provision for consignment or stock transfer of
goods and services. The inter-State seller will pay IGST on value addition
after adjusting available credit of IGST, CGST, and SGST on his
purchases. The Exporting State will transfer to the Centre the credit of
SGST used in payment of IGST. The Importing dealer will claim credit of
IGST while discharging his output tax liability in his own State. The
Centre will transfer to the importing State the credit of IGST used in
payment of SGST. The relevant information is also submitted to the
Central Agency which will act as a clearing house mechanism, verify the
claims and inform the respective governments to transfer the funds.

The major advantages of IGST Model are:

(i) Maintenance of uninterrupted ITC chain on inter-state transactions.
(ii) No upfront payment of tax or substantial blockage of funds for the
inter-state seller or buyer.
(iii)No refund claim in exporting State, as ITC is used up while paying
the tax.
(iv)Self monitoring model.
(v) Level of computerization is limited to inter-state dealers and Central
and State Governments should be able to computerize their processes
expeditiously.
(vi)As all inter-state dealers will be e-registered and correspondence with
them will be done by e-mail, the compliance level will improve
substantially.
 GST ON EXPORT
Zero Rating of Exports

Exports would be zero-rated. Similar benefits may be given to Special

Economic Zones (SEZs). However, such benefits will only be allowed to
the processing zones of the SEZs. No benefit to the sales from an SEZ to
Domestic Tariff Area (DTA) will be allowed.

GST on Imports:

The GST will be levied on imports with necessary Constitutional

Amendments. Both CGST and SGST 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.

Special Industrial Area Scheme

After the introduction of GST, the tax exemptions, remissions etc. related
to industrial incentives should be converted, if at all needed, into cash
refund schemes after collection of tax, so that the GST scheme on the
basis of a continuous chain of set-offs is not disturbed. Regarding Special
Industrial Area Schemes, it is clarified that such exemptions, remissions
etc. would continue up to legitimate expiry time both for the Centre and
the States. Any new exemption, remission etc. or continuation of earlier
exemption, remission etc. would not be allowed. In such cases, the
Central and the State Governments could provide reimbursement after
collecting GST.
 MISCELLANEOUS MATTERS

Refunds: If for a tax period the input credit of a dealer is more than the
output credit then he is eligible for refund subject to the provisions of law
applicable in this respect. The excess may be carried forward to next
period or may be refunded immediately depending upon the provision of
law.

Exempted Goods and Services: Certain goods and services may be

declared as exempted goods and services and in that case the input credit
cannot be claimed on the GST paid for purchasing the raw material in this
respect or GST paid on services used for providing such goods and
services.

Tax Exemptions : Various tax exemptions have been granted both by the
Centre and States to achieve objectives of promoting a particular sector or
to reduce tax burden on a particular segment of society in the interest of
fairness or to promote a particular economic activity etc. Tax exemptions
have the effect of narrowing the tax base and increasing the
administrative and compliance cost of GST. Therefore, it is felt that
exemptions should be minimized. Direct and transparent subsidies,
instead of tax exemptions, are more efficient way to achieve the targeted
objective. It is recommended that apart from a dual rate GST structure at
the Central and the State levels, there should be a common exemption
list. Further, specific provisions to provide limited flexibility to the States
within a set of prescribed criteria may need to be incorporated, as in the
prevailing VAT structure, in order to accommodate exemption of goods of
local importance. Similar limited flexibility would need to be provided to
the Centre to address exceptional situations such as natural disasters.
Advance Ruling : Advance ruling and dispute resolution authorities
should be set up by the Centre and States to ensure uniformity and
fairness in decision-making.

Joint Authority and Legislation : The authority to amend the common

exempted list and the common composition scheme should rest with a
joint authority of Central and State Governments to ensure that no single
State or Central Government amends either of these unilaterally.

IT Infrastructure : The success of the GST largely depends upon IT

infrastructure available for collection, compilation and exchange of data
at the shortest possible time. IT infrastructure with national coverage and
extensive reach is critical for the successful implementation of GST. For
this, an initiative at the Central Government level needs to be taken in
order to put in place a strong IT infrastructure.
 ROADBLOCK TO IMPLEMENTATION OF GST
Bringing about an integration of all taxes levied on goods and services in
a federal polity with sharp distribution of legislative powers is a
Herculean task to say the least. The Constitution of India, 1950
demarcates taxing powers in a two-tier structure wherein levies on
production and international imports are with the Union and post-
production levies rest with the states. The Centre levies duties of excise
on manufactures and import/countervailing duties on international
imports apart from levying a tax on services under various taxing and the
residuary entry in the Union List. The states levy VAT on goods sold or
entering in the state under various entries of the state list. Even if all
Union-level levies are integrated into a single levy and all state level
levies culminate in a single State level levy; this may still have two levies
and the resultant cascading and administrative burdens may nevertheless
remain to an extent, though this may go a long way in harmonising levies.
A harmonised, integrated and full fledged GST calls for the following:

1) Constitutional Amendments: Implementation of GST calls for

effecting widespread amendments in the Constitution and the
various constitutional entries relating to taxation. As per
provisions of Article 368 of the constitution , the bill for
amendment is to be passed by majority of the members of both
houses and two third of the members present and voting. Also,
the amendment is to be approved by fifty percent of the state
legislative assemblies.In the current scenario it is difficult to
visualise constitutional amendments of such far reaching
implications going through, more so in view of the fact that
sharing of legislative powers is such an essential element of our
 federal polity and it may be perceived to be a basic feature of the
Constitution;

2) Integration of Services: Services have to be appropriately

integrated in the tax network;

3) Design and structure of GST: No less significant is the issue of an

appropriate design and structure of GST. For instance, how the
issue of inter-state movement of goods and services may be
addressed. The phasing out of CST may go a long way in
addressing the issue of inter-state trade and commerce in goods
but the crucial issue regarding services originating in one state
and being consumed in other state still remains;

4) Resources Sharing: Another contentious issue that is bound to

crop up in this regard is the manner of sharing of resources
between the Centre and the states and among the states inter se as
also the basis of their devolution;

5) Flow of Goods and Services: Apart from all these, there has to be
a robust and integrated MIS dedicated to the task of tracking flow
of goods and services across the country and rendering accurate
accounting of levies associated with such flow of goods and
services; and
6) Determination of Revenue Neutral Rate (RNR): At present States
are charging VAT rates 0%, 4%, 12.5% and 20% besides other
levies and thus the average rate of tax comes to 17%. Similarly,
Centre is charging Central Excise duty @ 14%, CST 2%, Service
Tax 10%. The combined effect of all the taxes taken together
comes to an average rate of tax @ 27.5%. The proposed GST rate
is mooted @ 20% both for the Central GST @ 12% and the State
GST @ 8%. Assuming that the States may agree on the
implementation of GST based on compensation being given to
them like what was decided at the time of introduction of VAT i.e.
1st April, 2005, the Centre may suffer loss while satisfying the
needs of about 30 states.
 SOME QUESTIONS TO BE ANSWERED

The following issues are yet to be answered even after the release of the
Discussion paper

1. Does Exemption of 1.5 Crores in CGST for goods equally apply to

dealers?
As GST will cover in its scope the levy of excise and VAT therefore the
exemption limit of 1.5
Crores specified in the discussion paper will extend its hands to dealers
also or the same will be limited to the manufacturers. If the second view
is opted then the definition of Manufacture will be rolled back in the GST
tax regime.

2. What is the Service tax threshold exemption limit under CGST?

The Empowered Committee has not specified the threshold exemption
limit applicable to services under CGST. However they have clarified that
the same will be in conformity with the existing threshold exemption of
Rs. 10 Lakhs.

3. IGST (Inter-state transaction of GST) levy will be equal to CGST

plus SGST, thus the same will be single rates. Are separate records
are to be maintained in this respect also?
It has been clarified that the IGST credit will be allowed to be set off
against IGST, CGST or SGST payable by the taxpayer. In the current
scenario CST is levied on interstate sale of goods, but the dealers aren't
allowed to avail the credit of the same and they are emphasizing on the
scenario to buy the goods from within the state so as to avail the credit of
VAT. However in this new tax regime the IGST will be levied at the rate
which will be equal to CGST plus SGST, this leads to a new issue that
IGST will be levied at a single compound rate or two different rates i.e.
CGST and SGST will be levied differently or not.
If the rear view is adopted then the question arises that the credit of the
IGST will be allowed to be set off against both CGST and SGST
separately or cross adjustments will be allowed. If the cross adjustment is
allowed then the taxpayers availing exemption of 1.5 Crores under CGST
will be willing to purchase goods and sale them outside the state as in that
situation they will be getting the full credit of IGST thus benefiting them
utmost. This scenario changes the complete situation as it exists presently.
This difficulty is yet to be sorted and clarified by the Government.

4 The dual GST model would be implemented through multiple

statutes one for CGST and SGST statute for every State.
Different statues will govern the SGST levy. This will lead to non
uniformity in the tax structure at state levels. Further, there may be
complexities for smooth implementation of GST across the nation.

5 Transitional Issues
The transition would cause ambiguity with respect to issues like
treatment of "stock in hand", available CENVAT (Central Value Added
Tax), credit / VAT (Value Added Tax) credit. However, these should be
provided for much before the implementation of GST.

6 Exemptions
There should be a common exemption list for CGST (Central Goods and
Services Tax) and SGST (State Goods and Services Tax) so that there is
no discrepancy in the collection of taxes. Another important issue are
area-based exemptions.
A scheme for the treatment of such exemptions should be well devised so
that there is no adverse affect on the industry. Though Customs will
remain outside the GST regime, a large number of bonds executed by
importers and exporters with Government will have to be suitably
amended for changed liability in view of new GST.

7 Job Work
Issues such as what documents and records need to be prepared by the job
worker and the principal and time limits for claiming CENVAT credit are
to be decided. Since, the focus would be on 'supply' after the
implementation of GST, the status of job workers needs to be determined.

8 Assessable Value
The calculation of assessable value under GST is ambiguous since it still
unknown what the components of the assessable value are. Are discounts
and other charges such as loading/unloading, freight, cartage and packing
includible in the assessable value or would they be chargeable separately?

9 Place of Supply
In the GST regime, the taxable event would be 'supply' and it is very
essential to understand as to where the 'supply' actually takes place.
"Place of Supply" rules refers to the rules that allocate the right to tax
between the states. The main concern here is which state will collect the
SGST.
10Branch / Stock Transfer
An efficient provision for branch transfer / stock transfer should be put in
place under the GST regime. The system should enable the businesses to
make branch transfers without payment of tax and the procedure should
be simple to ensure maximum compliance and minimise disputes.

11 Return / Rejection / Replacement of Goods

There has been no clarification on the treatment of goods which are
returned, rejected or replaced. A major question here is whether the
treatment would be similar to the present system of reversing the credit or
whether new provision would be introduced.

12 Common Procedures
The industry expects that there would be similar formats for registration,
returns and other records for both CGST and SGST. Functions such as
assessment, enforcement, scrutiny and audit should be undertaken by the
authority which is collecting the tax with information sharing between the
Centre and the States.

Conclusion
GST, if implemented efficiently, could prove to be a "Good Sensible
Tax". But the Government should come up with the draft rules as soon as
possible so that there is enough time for industry to analyse the draft and
make representations to the concerned authorities with their suggestions.
 SUGGESTIONS FOR EFFECTIVE IMPLEMENTATION

Some suggestions for better administrative machinery to handle the

implementation of Goods and Services Tax Act in India are:

 Standardization of systems and procedures.

 Tax relief in case of branch transfer
 Well defined procedures in case of Job works
 Uniform dispute settlement machinery.
 Adequate training for both tax payers and tax enforcers.
 Re-organization of administrative machinery for GST
implementation.
 Building information technology backbone – the single most
important initiative for GST implementation.
 Uniform Implementation of GST should be ensured across all
states (unlike the staggered implementation of VAT) as many issues
might arise in case of transactions between states who comply with
GST and states who are not complying with GST.
 GST IMPLICATIONS FOR ORGANISATIONS

GST shall be the mother of all Indian tax reforms of this centaury and it
would subsume most (if not all) of the existing Central and State level
taxes on supply of goods and services.
Accordingly, GST would have a significant impact on business
environment and its operations. When undertaking oversight of
organizational readiness to adopt GST, independent directors need to
focus on the following aspects:

1 GST will have a multi-fold impact on operations – Besides the fiscal

impact and tax compliance, GST will have an impact on cash flows,
product pricing, supply chain arrangements, procurement, revenue
recognition and the IT systems. It is therefore important to assess whether
the organization is undertaking a holistic impact assessment of GST
encompassing all of the above.

2 Assess the impact on financial results – GST will have an impact on

the financial statements; for example the top-line may get reduced in
some cases (e.g. traded items) due to elimination of tax cascading. The
gross margins will also undergo changes as Cost of Goods Sold may
undergo changes as a result on input tax credits. For listed companies,
these changes will need to be factored in quarterly forecasts and earning
releases to the stock markets.

3 Monitor the impact on cash flows – Most of the planning in GST will
revolve around optimizing cash flows. The impact will be as a result of
GST on imports, stock transfers and changes in point of taxation/ tax
credits.
4 Organisations may need to re-design certain aspects of their Supply
Chain – The concept of mere supply of goods and services trigger tax
liability under GST as opposed to sale under the present VAT, will impact
Sourcing, Production and Distribution aspects of the Supply Chain. For
instance, sourcing considerations would involve revisiting sourcing mix
(local, inter-state and imports), stock transfer policy and renegotiation of
vendor price due to the GST impact. From a production perspective, GST
impact would vary depending upon the manufacturing and distribution
arrangements e.g. own/ job-work/ contract manufacturing. The “Place of
Supply” rules will determine state where GST is to be deposited.

5 Understand the linkages, differences for companies implementing

IFRS – For companies implementing IFRS, the requirements under IFRS
vary with those under GST. Organizations will need to consider necessary
re-alignments within their IT systems to effectively manage these
differences. For instance, there could be possible differences between
GST levy date and date of revenue recognition, accounting for multiple
element arrangements (e.g. the invoice value includes a supply and
maintenance element), accounting for barter transactions, reconciliation
of GST on stock transfers with accounting records etc.

6 Understand the implications on product pricing, marketing and HR

– The impact of GST needs to be considered in the margins of various
stakeholders in the distribution chain to ensure that GST does not
negatively impact product pricing and consequently market share. This
calls for a reassessment of exchange, discount and incentive schemes.
From a HR perspective, there may be a need to reconsider the indirect tax
management structure, training requirements of key indirect tax personnel
depending upon the impact assessment.
7 Assess if the IT systems are geared to address GST requirements
effectively with minimal manual workarounds – The Audit Committee
should at the outset require management to undertake necessary
enhancements to IT systems so that the necessary systemic alignments are
in place to manage GST MIS requirements. Changes in the system are
likely to be required primarily on account of change in taxes/ tax rates,
availability of credits for input taxes on purchases including inter-state
purchases and Import GST, availability of cross credits for goods and
services and GST on stock transfer.

To summarise, organizations need to undertake the following to enable a

smooth transition to GST:

 Have an internal core team which will closely monitor the GST
developments.
 Identify existing bottlenecks and those likely to arise from
proposed GST framework.
 Representation to the implementing agencies through appropriate
industry associations to
 Highlight issues and propose solutions in the proposed GST
framework.
 Ensure flexibility in new systems/ processes/ contracts, to
accommodate changes warranted by GST
 Identify need for restructuring business/ transactions/supply chain
in the light of the GST framework
 Modify internal IT, invoicing and other systems/ processes/
policies to make them GST compliant
 Create awareness within organization about changes, modifications
in roles/ responsibilities of team