Unique features of Indian GST

By Registrationwala

3rd April 2017


Good and Service Tax is a proposed system of indirect taxation introduced by the Constitution act 2016.GST principles chosen in India are one of the most ambitious forms of GST in the entire world. In the entire country, there will single common market with goods and service. GST application passed in India will lead to more transparency and less confusion among the taxpayers.GST system will include all forms of indirect tax such as sales tax, excise duty, VAT, service tax.All goods mainly operate on a negative concept.

Points of Indian GST

  • Goods and Services Tax is a dual tax system to be levied on the same taxable event by both the states and the union government.
  • Tax levied by the state on a supply of goods within a state.
  • Integrated Tax will be levied by the centre in the case of inter-State supplies and import or exports.
  • In the present case of CST, the tax will be collected by the GST.
  • There will be as well as the state as well as the central tax on each supply of goods/services. Accordingly, tax system will be called state GST and central GST.
  • The Information will be split between the centre and the relevant states. Through the single document for tax purposes and a single return filed with a central registry.

Present Scenario of Tax System

In Current Scenario, the centre alone can tax services. After the service tax was introduced, this was an item not mentioned anywhere in Lists 1, 2 or 3 of the Seventh Schedule and was therefore covered under the residual entry number 97.

Manufacturers commercial invoice reflects both central excise duty and state VAT on the same goods. Since the indirect taxes are collected from the customer.

Presently, centre taxes manufacture, and thereafter the state taxes sale of the goods. Central excise duty is imposed first on the goods, and the state tax comes after that, on a value that is price plus central excise duty.

Suppose goods are priced at Rs 100, and excise duty is 10% and VAT is 14%.

Assumption of Tax rates according

Goods                        Rs. 100.

Excise duty @ 10% Rs. 10.00

Sub-total                    Rs. 110.00

VAT               @ 14% Rs. 15.40

Presently there is a pan-India input tax relief mechanism for only the central taxes on goods and services which is in the form of Cenvat credit. As In case of the state taxes, each state charges VAT on sale of goods within the state and provides input VAT credits for taxes paid by the state.

The reason for the absence of tax credits in inter-state sales is a loss of revenue that would ensue by allowing tax paid to another state to be reduced from tax payable.

In Future during GST Regime

In case the same transaction of ‘supply’ is being taxed by both centre and states, According to it,  a tax will be levied simultaneously on the same value. The rate of GST will be 24%, split as 10% central GST and 14% state GST.

Assumption of Goods and Services Tax rates

Goods                  Rs. 100.00

C.GST @ 10%    Rs. 10.00

S.GST @ 14%     Rs. 14.00  

There will be a reduction in the amount of VAT (to be known as SGST) payable if the rate remains the same.

In case there was no incentive for the states to do this or agree with it, as it involves a reduction in their revenue.

GST will provide input tax relief in inter-state transactions

The major gain from GST will be an extension of input tax relief to an inter-state sale of goods.

GST model is the central clearing house to mediate inter-state credits, with central compensation built into the system. CST will be replaced by integrated GST (IGST) and the originating state will charge on the sale.

IGST can be taken as a credit in the destination state. The transaction will be electronically routed through the central clearing house. This tax will also be tracked with the use of IGST to pay SGST and will compensate the state to that extent. The loss caused to the destination state by tax paid in another state being adjusted against tax payable to the destination state will be made up by the centre.

Different stages in the progression of goods in the supply chain are levied to different taxes,

There is no input tax relief for most of the case so that the price of goods gets correspondingly inflated.

The taxes on goods are

  • Excise duty
  • VAT / CST
  • Purchase tax (if applicable),
  • Entry tax (in various forms and names),
  • State cesses and surcharges.

Manufacture, sale, and service are at present taxed differently, there are much ambiguity and litigation over legal concepts of what constitutes

  • Manufacture
  • Sale
  • Service [as distinct from deemed sale under Article 366(29A) of the Constitution4]

The rationale for this is to encourage the growth of the market, which in turn is expected to spur production and increase revenue. This system of input tax credit in inter-state sales is a major salutary feature of the proposed GST model.

Differential treatment for alcohol, tobacco and petroleum products

Alcoholic liquor for human consumption has been excluded from the purview of GST.

GST definition in the proposed clause-12A to be inserted in Article 366 of the Constitution is “tax on the supply of goods or services or both are except the tax on the supply of alcoholic liquor for human consumption.

 The manufacture and sale of the product will be in continuity and will be taxed by states.

Tobacco products will be subject to central excise duty in addition to GST.

Since Petroleaum products have been excluded from the present GST scenario it will continue to be taxed as the present mode.

This will be according to the central excise duty on manufacture and VAT or CST on sale. Constitutional amendment requires the GST Council to fix the date by which these products will be brought into the purview of Goods and Services Tax.

Additional 1% for originating state on an interstate supply of goods – non-VATable in addition to Goods and Services tax, an amount of 1% of an inter-state supply of goods will be charged by the centre and assigned to the originating state, According to the Section 18 of the Constitution Amendment bill. The originating state will be determined in terms of the rules for a place of supply. It will be framed by the Parliament in terms of the same section. This type of tax will be 1% on interstate supply of goods will not be available as input tax credit. In this case, the tax will be levied for an initial period of two years and can be extended on the recommendation of the GST Council.


Unique features of Indian GST