LAW OF TAXATION 2019

“GOODS AND SERVICES TAX IN INDIA”.

Submitted by:

Kunwar Ashish Singh

B.comLL.B(Hons*)
Roll No. 32
of
Faculty of Law

Dr. Shakuntala Misra National Rehabilitation University

,Lucknow
In
April, 2019

Under the guidance of:

Dr. Kamlesh Shukla sir

Faculty for “LAW OF TAXATION” (INDIRECT TAX)

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ACKNOWLEGEMENT
The completion of this Assignment could not have been possible without the participation and
assistance of so many people whose names may not all the be enumerated. Their contribution are

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sincerely appreciated and gratefully acknowledged. However, I would like to express my deep
appreciation and indebtedness particularly to the following
Dr. Kamlesh Shukla sir for him endless support, kind and understanding spirit during making of
this assignment.
To all relatives, friends and others who in one way or another shared their support, either
morally, financially and physically, thank you.
Above all, to the Great Almighty, the author of knowledge and wisdom, for his countless love.
I thank you all.

Kunwar Ashish Singh

4th year Student
B.Com. LL.B(Hons.)

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Table of Contents

1. INTRODUCTION
2. BACKDROP

3. INDIA’S TAX REGIME

4. BENEFITS OF GST
5. SALIENT FEATURES OF GST MODEL PROPOSED IN INDIA
6. TAXES TO BE SUBSUMED UNDER GST
7. CONCLUSION

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INTRODUCTION
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.

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Backdrop
1. 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.

2. 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.

3. 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.

4. 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

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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.

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.

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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.
 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
1.
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.

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 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.

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BENEFITS OF GST

 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.

1. Increase in GDP.

2. Increase in exports.

3. Power to tax after production down to distribution point.

4. Ensures better compliance and prevent tax evasion.

 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
1. Will get power to tax services.

2. Will reduce rate wars, therefore, outflow of investment to other states due to rate war will be
prevented.
3. Introduction of comprehensive system of reliefs including set off of CENVAT and service
taxes.
4. Increase in revenue due to broadening of tax base.

 Benefits to industry

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

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 Benefits to consumer
1. Reduced tax burden will be passed on to consumers in form of reduced prices.
2. Better compliance and increased tax revenue will enable the government to spend more
on welfare

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Salient features of the GST model proposed in India

 Rate Structure
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 follow:
1. A lower rate for essential structure.
2. Standard rate for general goods.
3. Special rates for precious metals.
4. For services their shall be single rate for SGST and CGST.
These GST rates are yet not announced by the government.

 Applicability
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).

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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.

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CONCLUSION
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 endeavor 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

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