FREQUENTLY ASKED QUESTIONS ON GST

[Dr. Sanjiv Agarwal]

Frequently Asked Questions (FAQs) on GST and their answers which would help the readers to know and understand about the concept and nuances of proposed Goods and Services Tax (GST) and its models.

These FAQs have been compiled with sole objective of providing a means of better understanding of GST. For details, readers may refer to Government portals / literature.

Q.1      What is Constitutional Amendment Bill in relation to GST?

Ans.    The Union Government in third week of December, 2014 (19 December, 2014) introduced Constitution (122nd Amendment) Bill, 2014 in Parliament which when passed shall pave the way for introduction of proposed Goods and Service Tax (GST) in India. This is an improvised version of lapsed 115th Amendment Bill of 2011.

The Bill on passage would enable the Central Government and the State Governments to levy GST. This tax (GST) shall be levied concurrently by various states as well as Union Government. Once this is passed by two-third majority in the Parliament, atleast 50 per cent of the states will have to pass it. Once this amendment is through, the road will be clear for GST Bill (and then Act), given the political will. Eventually, we will then have the following taxes -

• National level GST [Central GST (CGST) and Inter-state GST (IGST)]
• State Level GST (SGST)

Q. 2     Why does introduction of GST require a Constitutional Amendment? 

Ans.    The Constitution provides for delineation of power to tax between the Centre and States. While the Centre is empowered to tax services and goods upto the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on supply of services while the Centre does not have power to levy tax on the sale of goods. Thus, the Constitution does not vest express power either in the Central or State Government to levy a tax on the ‘supply of goods and services’. Moreover, the Constitution also does not empower the States to impose tax on imports. Therefore, it is essential to have Constitutional Amendments for empowering the Centre to levy tax on sale of goods and States for levy of service tax and tax on imports and other consequential issues.

As part of the exercise on Constitutional Amendment, there would be a special attention to the formulation of a mechanism for upholding the need for a harmonious structure for GST along with the concern for the powers of the Centre and the States in a federal structure.

Q. 3     What is cascading effect and how GST will address this?

Ans .   A tax that is levied on a good at each stage of the production process up to the point of being sold to the final consumer. Cascading effect of taxes is one of the major distortions of the Indian taxation regime. Federal structure of our democracy, allows both states and center to levy taxes separately and this has caused this cascading. While Income tax, Excise duty, Service tax and Central Sales tax (CST), Securities Transaction tax is levied by the center; VAT/sales tax, Entry tax, State excise, Property tax, Agriculture tax and octroi is charged by the State governments. There are many possible transactions which come under the ambit of two or more of these taxes and the value of the second tax is calculated on the value arrived at by adding the value of first tax to the value of transaction. For example, inter-state purchase of goods would attract both Central Service tax and Sales tax and manufacturing and sell would be liable to Cenvat over and above CST.

Implementation of GST promises many benefits as reduction in the number of taxes at the Central and state levels, cut in effective tax rate for many goods, removal of the current cascading effect of taxes, reduction of transaction costs for taxpayers through simplified tax compliance, and increased tax collections due to wider tax base and better compliance.

Q.4      How does  the proposed GST and present system of VAT compare?

Ans.   In principle, there is no difference between present tax structure under VAT and GST as far as the tax on goods is concerned because GST is also a form of VAT on Goods and services. Here at present the sales tax, with an exception of CST, is a VAT system and in case of service tax the system also has the Cenvat credit system hence both sales tax and service tax are under VAT system in our country. At present the goods and services are taxed separately but in GST the difference will be vanished. The overall system of GST is very much similar to the VAT, which can be considered as first step towards GST. Let us see the VAT implementation schedule of various states: 

Sr. no	States	Date of Levy of VAT	Number of States
1	Haryana	1-4-2003	1
2	Andhra Pradesh, West Bengal, Kerala, Karnataka, Orissa, NCT Delhi, Tripura, Bihar, Arunachal Pradesh, Sikkim, Punjab, Goa, Mizoram, Nagaland, Jammu and Kashmir, Manipur, Maharashtra, Himachal Pradesh, Assam and Meghalaya.	1-4-2005	20
3	Uttaranchal	1-10-2005	1
4	Rajasthan, Gujarat, MP and Chhattisgarh, Jharkhand.	1-4-2006	5
5	Tamil Nadu	1-1-2007	1
6	Uttar Pradesh	1-1-2008	1

All the states have their own VAT Laws comprising VAT acts and VAT rules and these acts and rules are formulated on the basis of “White Paper on VAT” issued by the empowered committee of states’ Finance Ministers on VAT headed by Dr. Asim Das Gupta, the Finance Minister of West Bengal. Due to the fact that the taxpayers are already using the Vatable sales tax and service tax system there may be a possibility that GST will be a matter of settlement between the Centre and the states and like VAT, the possibility of any resistance from the tax payers is somewhat less.

Q.5      At what points, GST will be levied?

Ans.    Both Centre and States will simultaneously levy GST across the value chain. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. 

The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. There will be seamless flow of input tax credit from one State to another. Proceeds of IGST will be apportioned among the States. 

GST will be a destination-based tax. All SGST on the final product will ordinarily accrue to the consuming State. 

Q.6      When will the liability to pay GST arise?

Ans.    The payment liability of CGST and SGST will arise at the time of supply as determined for goods and services. The provisions stipulate payment of GST at the earliest in case of:

Goods: On removal of goods or receipt of payment or issuance of invoice or date on which buyer shows receipt of goods

Services: On issuance of invoice or receipt of payment or date on which recipient shows receipt of services Given that there could be many parameters in determining ‘time’ of supply, maintaining reconciliation between revenue as per financials and as per GST could be a major challenge for businesses.

(To be continued …………)

Discussions to this article

[Ganeshan Kalyani]

Sir nice and useful article.

[Kishan Barai]

Thank you very much sir for all wonderful articles on GST. If possible please also guide us on in depth costing with real practical examples of goods and services. It would be great help. Really expecting more and more FAQ's articles about this subject. Thanks a lot sir.