Goods & Service Tax (GST) is an Indirect Tax which has substituted other Indirect Taxes which were applicable in India. GST was contemplated in the year 2000 when a committee was set up to draft the law. The evolved after 17 long years when in 2017, the GST Bill was passed in the Lok Sabha and Rajya Sabha. On 1st July 2017 the GST Law came into force.
The Goods and Service Tax Act was passed in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017; Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
GST mainly aims at consolidating different indirect taxes on goods and services and changing and reforming the powers of the Government to levy and collect indirect tax and revenue sharing arrangement between States and Centre. Accordingly, Article 246A has been inserted in the Constitution of India to the effect that notwithstanding anything contained in Article 246 and Article 254 of the Constitution of India, Parliament and Legislature of every State will have the power to make laws with respect to goods and services tax imposed by the Union or by such State and also that the Parliament has exclusive power where the supply of goods or services or both takes place in the course of inter-state or commerce. In simple words, GST is an indirect tax levied on the supply of goods and services. This law has replaced many indirect tax laws that previously existed in India.
The following Central Taxes has been covered under GSTa. Central Excise Duty
State Surcharges and Cesses relating to supply of goods and services
Under the GST regime, the tax is levied at every point of sale. In case of intra-state sales, Central GST and State GST will be charged. Inter-state sales will be chargeable to Integrated GST. The amended provision of Article 366(12A) of the Constitution of India defines GST as a tax which shall be levied and collected on supply of goods or services or both, except supply of alcoholic liquor for human consumption [Section 9(1) of CGST or SGST Act]. Apart from alcohol for human consumption, five petroleum products viz. Petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have been temporarily kept and the GST Council- constituted with the Union Finance Minister as the Chairman, the Minister of State (Revenue) and the State Finance/Taxation Ministers, shall decide the date from which the aforesaid products shall be included in GST.
An item goes through multiple stages along its supply chain: from manufacture to final sale to the consumer. Let us consider the following case:
A manufacturer who makes cakes buys milk, flour, sugar and other material. The value of the inputs increases when the milk, sugar, flour and other materials are mixed and baked into cakes.
The manufacturer then sells the cakes to the warehousing agent who packs large quantities of cakes and labels it. That is another addition of value after which the warehouse sells it to the retailer.
The retailer packages the cakes in smaller quantities and invests in the marketing of the cakes thus increasing its value.
GST will be levied on these value additions i.e. the monetary worth added at each stage to achieve the final sale to the end customer.
GST is levied at the point of consumption. For instance when goods are manufactured in West Bengal and sold to the final consumer in Madhya Pradesh the entire tax revenue will go to West Bengal and not to Madhya Pradesh.
There are 3 taxes applicable under this system: CGST, SGST & IGST.
In the case of Reverse Charge, the receiver of the goods and services becomes liable to pay the tax instead of the supplier of goods and services. The reverse charge mechanism is applicable in case where a vendor who is not registered under GST, supplies goods to a person who is registered under GST. This means that the GST will have to be paid directly by the receiver to the Government instead of the supplier.
The registered dealer who has to pay GST under reverse charge has to do self-invoicing for the purchases made. For Inter-state purchases the buyer has to pay IGST. For Intra-state purchased CGST and SGST has to be paid under Reverse Charge Mechanism by the purchaser.
GST has mainly removed the Cascading effect on the sale of goods and services. In the pre-GST regime, every purchaser including the final consumer paid tax on tax. This tax on tax is called Cascading Effect of Taxes.
Removal of cascading effect will directly impact the cost of goods. Since tax on tax is eliminated in this regime, the cost of goods decreases.
GST is also technologically driven. All activities like registration, return filing, application for refund and response to notice needs to be done online on the GST Portal. This has in a way makes the processes hassle free.
The indirect tax system under GST improved the collection of taxes as well as boost the development of Indian economy by removing the indirect tax barriers between states and integrating the country through a uniform tax rate.
GST also brought with it a single nationwide system of waybills by the introduction of “E-way bills”. This system started on 1st April 2018 for Inter-state movement of goods and 15th April 2018 for intra-state movement of goods in a staggered manner. By this system, manufacturers, traders & transporters have benefitted to a large extent as the e-way bills can be generated online. Tax authorities are also in vantage as this reduces the time at check -posts and also help reduce tax evasion.
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