GST Introduction
GST Introduction
GST: An Introduction
What is a tax?
A tax may be defined as a "pecuniary burden laid upon individuals or property owners to support the
Government, a payment exacted by legislative authority. A tax "is ot a voluntary payment or donation,
but an enforced contribution, exacted pursuant to legislative authority".
In simple words, tax is nothing but money that people have to pay to the Government, which is used to
provide public services.
Direct & Indirect Tax
Direct Tax
A direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the
Government by the persons (juristic or natural) on whom it is imposed. A direct tax is one that cannot
be shifted by the taxpayer to someone else. A significant direct tax imposed in India is income tax.
Indirect Tax
- If the taxpayer is just a conduit and at every stage the tax-incidence is passed on till it finally
reaches the consumer, who really bears the brunt of it, such tax is indirect tax. An indirect tax
is one that can be shifted by the taxpayer to someone else.
- Its incidence is borne by the consumers who ultimately consume the product or the service,
while the immediate liability to pay the tax may fall upon another person such as a
manufacturer or provider of service or seller of goods.
- Also called consumption taxes, they are regressive in nature because they are not based on
the principle of ability to pay. All the consumers, including the economically challenged bear
the brunt of the indirect taxes equally.
- Administration of the law:
3- Shifting of burden
4- No perception of direct pinch
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5- Inflationary
6- Wider tax base
7- Promotes social welfare
8- Regressive in nature
1- An important source of revenue: Indirect taxes are a major source of tax revenues for Governments
worldwide and continue to grow as more countries move to consumption oriented tax regimes. In
India, indirect taxes contribute more than 50% of the total tax revenues of Central and State
Governments.
2- Tax on commodities and services: It is levied on commodities at the time of manufacture or
purchase or sale or import/export thereof. Hence, it is also known as commodity taxation. It is also
levied on provision of services.
3- Shifting of burden: There is a clear shifting of tax burden in respect of indirect taxes. For example,
GST paid by the supplier of the goods is recovered from the buyer by including the tax in the cost
of the commodity.
4- Inflationary: Tax imposed on commodities and services causes an all-round price spiral. In other
words, indirect taxation directly affects the prices of commodities and services and leads to
inflationary trend.
5- Wider tax base: Unlike direct taxes, the indirect taxes have a wide tax base. Majority of the
products or services are subject to indirect taxes with low thresholds.
6- Promotes social welfare: High taxes are imposed on the consumption of harmful products (also
known as ‘sin goods’) such as alcoholic products, tobacco products etc. This not only checks their
consumption but also enables the State to collect substantial revenue.
7- Regressive in nature: Generally, the indirect taxes are regressive in nature. The rich and the poor
have to pay the same rate of indirect taxes on certain commodities of mass consumption. This may
further increase the income disparities between the rich and the poor.
Concepts of GST
1- VAT
2- Continuous chain of tax credits
3- Burden born by consumer
4- No cascading tax
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1- VAT: GST is a value added tax levied on manufacture, sale and consumption of goods and
services 2- Continuous chain of tax credits: GST offers comprehensive and continuous chain of tax
credits from the producer's point/service provider's point upto the retailer's level/consumer’s level
thereby taxing only the value added at each stage of supply chain.
3- Burden born by consumer: The supplier at each stage is permitted to avail credit of GST paid on
the purchase of goods and/or services and can set off this credit against the GST payable on the
supply of goods and services to be made by him. Thus, only the final consumer bears the GST
charged by the last supplier in the supply chain, with set-off benefits at all the previous stages.
4- No cascading tax: Since, only the value added at each stage is taxed under GST, there is no tax
on tax or cascading of taxes under GST system. GST does not differentiate between goods and
services and thus, the two are taxed at a single rate.
Benefits of GST
1- Creation of unified national market
2- Mitigation of ill effects of cascading
3- Elimination of multiple taxes and double taxation
4- Boost to ‘Make in India' initiative
5- Buoyancy to the Government Revenue
1- Creation of unified national market: GST aims to make India a common market with common tax
rates and procedures and remove the economic barriers thus paving the way for an integrated
economy at the national level.
2- Mitigation of ill effects of cascading : By subsuming most of the Central and State taxes into a
single tax and by allowing a set- off of prior-stage taxes for the transactions across the entire value
chain, it would mitigate the ill effects of cascading, improve competitiveness and improve liquidity of
the businesses.
3- Elimination of multiple taxes and double taxation: GST has subsumed majority of existing indirect
tax levies both at Central and State level into one tax i.e., GST which is leviable uniformly on goods
and services. This will make doing business easier and will also tackle the highly disputed issues
relating to double taxation of a transaction as both goods and services.
4- Boost to ‘Make in India' initiative: GST will give a major boost to the ‘Make in India' initiative of the
Government of India by making goods and services produced in India competitive in the national as
well as international market.
5- Buoyancy to the Government Revenue: GST is expected to bring buoyancy to the Government
Revenue by widening the tax base and improving the taxpayer compliance.
What not changed after GST?
1- Central excise duty continues to be levied on manufacture/production of tobacco, petroleum crude,
diesel, petrol, ATF (Aviation turbine fuel) and natural gas.
2- State excise duty is leviable on manufacture/production of alcoholic liquor, opium, Indian hemp and
narcotics, and
3- VAT is leviable on intra-State sale of petroleum crude, diesel, petrol, ATF, natural gas and alcoholic
liquor.
4- Petroleum crude, diesel, petrol, ATF, natural gas are presently not taxable under GST and alcoholic
liquor is outside the ambit of GST.
Features of GST
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1- Dual GST
India has adopted a Dual GST model in view of the federal structure of the country.
Consequently, Centre and States simultaneously levy GST on taxable supply of goods or
services or both which, takes place within a State or Union Territory. Thus, tax is imposed
concurrently by the Centre and States, i.e. Centre and States simultaneously tax goods and
services. Now, the Centre also has the power to tax intra-State sales & States are also
empowered to tax services. GST extends to whole of India including the State of Jammu and
Kashmir.
2- CGST/SGST/UTGST/IGST
GST in India comprises of
- Central Goods and Services Tax (CGST) - levied and collected by Central Government,
- State Goods and Services Tax (SGST) - levied and collected by State Governments/Union
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- Legislative Framework
- There is single legislation – CGST Act, 2017 - for levying CGST.
- Similarly, Union Territories without Legislatures are governed by UTGST Act, 2017 for levying
UTGST on the following states: a- Chandigarh b- Lakshadweep
e- Laddakh
- Following Union territories with their own legislatures have their own GST legislation for levying
UTGST:
a- New Delhi,
b- J&K and c-
Puducherry
Though there are multiple SGST legislations, the basic features of law, such as chargeability,
definition of taxable event and taxable person, classification and valuation of goods and
services, procedure for collection and levy of tax and the like are uniform in all the SGST
legislations, as far as feasible. This is necessary to preserve the essence of dual GST.
State authorities; computation and settlement of IGST; matching of tax payment details with
banking network; providing various MIS reports to the Central and the State Governments
based on the taxpayer return information; providing analysis of taxpayers' profile.
However, it is important to note that the Common GST Electronic Portal for furnishing
electronic way bill is www.ewaybillgst.gov.in [managed by the National Informatics Centre,
Ministry of Electronics & Information Technology, Government of India]. E-way bill is an
electronic document generated on the GST portal evidencing movement of goods.
4- GSPs/ASPs
GSTN has selected certain Information Technology, Information Technology enabled Services
and financial technology companies, to be called GST Suvidha Providers (GSPs). GSPs
develop applications to be used by taxpayers for interacting with the GSTN. They facilitate the
tax payers in uploading invoices as well as filing of returns and act as a single stop shop for
GST related services. They customize products that address the needs of different segment of
users. ASPs will focus on taking taxpayers' raw data on sales and purchases and converting it
into the GST returns. These GST returns, or GSTRs, will then be filed on behalf of the filer with
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GSTN via the GSP. GSPs may take the help of Application Service Providers (ASPs) who act
as a link between taxpayers and GSPs.
Statutory Interpretations and Legal Maxims
The legislations through which GST has been introduced in India have to be read considering the
general principles of interpretation and may also need to follow legal maxims laid down over centuries.
Some principles and legal maxims have been set out below:
1- When reading a law, the plain language is to be given effect.
lThe plain meaning rule dictates that statutes are to be interpreted using the ordinary meaning of
the anguage of the statute. In other words, a statute is to be read word for word and is to be
interpreted according to the ordinary meaning of the language, unless a statute explicitly defines
some of its terms otherwise or unless the result would be cruel or absurd. Ordinary words are
given their ordinary meaning, technical terms are given their technical meaning, and local, cultural
terms are recognized as applicable.
The plain meaning rule, also known as the literal rule, is one of three rules of statutory
construction. The other two are the "mischief rule" and the "golden rule".
According to the plain meaning rule, absent a contrary definition within the statute, words must be
given their plain, ordinary and literal meaning. If the words are clear, they must be applied, even
though the intention of the legislator may have been different or the result is harsh or undesirable.
The literal rule is what the law says instead of what the law was intended to say.
Apparent omission in law cannot be made good or rectified by the Courts. These are
2- necessarily to be amended by making representation. (Casus Omissus i.e. “cases of omission”)
Notifications issued to further the objective of public welfare, the law should be reasonable,
3- just, sensible and fair. Normally not to cause hardship, inconvenience, injustice and avoid
friction in the system.
Act prevails over Rule.
4-
Illustrations cannot modify the law.
5-
Explanation cannot expand the scope of the provision.
6-
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7- In multiple non obstante clauses the last provision would prevail. (means notwithstanding
clauses)
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8- In case of doubt, the later provision prevails.
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9- Parliament can make law retrospectively to cure defects.
10- Levy provisions must be interpreted to favour the tax payer, if the wordings are not clear.
11- Exemption provisions must be interpreted strictly and to favour the Revenue.
12- Exemptions in GST cannot be notified retrospectively, even if omission was erroneous.
13- No presence of guilt needed to be proved for penalty unless specified specifically
14- In GST, ‘burden of proof’ lies on revenue to impeach liability self-assessed by taxpayer.
The above are some indicative principles and not exhaustive.
: GST: An Introduction