A BRIEF DISCUSSION OF THE PREVIOUS CLASS (5:04 PM)

INDIRECT TAX (5:11 PM)

• The impact and the incidence of the tax are at different points.
• Impact is the first point of contact with its taxpayer.
• It is upon those who bear the first responsibility of paying it to the government.
• In the case of Income Tax (direct tax), it is the income recipient, and in the case of sales tax (Indirect tax), it is the seller or supplier of goods and services.
• Incidence of tax is the final resting place i.e. the economic unit which finally bears the money burden of the tax. For example, in sales tax, the tax is paid by the seller, but ultimately it is collected from the final consumer.
• Here seller X acts as an intermediary between the government and the consumer by collecting tax along with the price.
• Alcohol for human consumption, certain petroleum products, etc are outside the ambit of GST.
• On Petroleum product excise would be levied by the Center. Sales tax on petroleum products would be levied by State.
• Examples of indirect taxes are:
• (a) Excise duty
• It is the tax on the production of the commodity and not on the sale of the product.
• Excise duty is explicitly levied by the central government except for alcoholic liquors and narcotics.
• It is different from the customs duty as it applies only to the goods produced in India.
• The challenge of cascading effect was handled through the introduction of the MODVAT system.
• Based on the recommendation of the LK Jha committee MANVAT system was introduced, and subsequently changed to MODVAT in 1986-87.
• In the MODVAT SYSTEM, taxes levied on input were refunded as an input tax credit.
• In 2001, MODVAT was replaced by CENVAT with a uniform rate on all goods covered under the tax platform.
• Currently, CENVAT is subsumed into CGST.
• (b) Customs Duty
• It is the duty levied on the export and import of goods.
• Import duty is not only a source of revenue but also an instrument to regulate trade.
• Import duties in India have been levied on an Ad Valorem basis.
• Just a customs duty ensures that goods from other countries are taxed, Octroi ensures that goods crossing state borders are taxed appropriately.
• Octroi is levied by the state government. (Octroi is now subsumed into SGST)
• (c) Service Tax
• It was levied on services provided in India.
• It was introduced in 1994-95 on three services, telephone, general insurance, and share broking (positive list), since then every year the service net has been widened by including more and more services.
• After 2011, the government started implementing service tax using the negative list concept.
• It means very few services are excluded from the tax net.
• The service tax rate was about 15%, before being replaced by GST.

GST FRAMEWORK (5:50 PM)

• (a) Why GST?
• (b) What are GST and dual GST systems?
• (c) Different taxes subsumed under GST.
• (d) Different slabs under GST
• (e) Concept of IGST system.
• (f) Concept of GST Composition System
• (g) Concept of reverse charge mechanism
• (h) Products excluded from GST
• (i) Article 246 A, 269A, 279 A, GST Council
• (j) National Anti-Profiteering Authority
• (k) GSTN and E-way bills under GST
• (l) Positives and Negatives of GST 

GST HISTORICAL BACKGROUND (6:17 PM)

• France was the first country to introduce the GST system in 1954.
• Genesis of GST occurred during the previous NDA government under Atal Bihari Vajpayee, however, it took a very long time for implementation of GST.
• GST came into existence on 1st July 2017, through the 101st constitutional amendment act.

TAXES REPLACED BY GST

• Among the taxes handled by the center, GST has replaced the following:
• (a) Central Excise duty and service tax.
• (b) Duties on Excise (Medicinal and Toilet preparations)
• (c) Additional duties on textiles (Textile and textile products)
• (d) Additional duties on customs (Commonly known as Counter vailing duties)
• Countervailing duties are levied to counter the excess subsidies given by other countries and also offset excise duty paid by the domestic manufacturers.
• (e) Special additional duties on customs
• (f) Central Sales tax
• It is an origin-based tax levied by the center but given to the exporter state (Article 269).
• Among the state-levied taxes, GST replaces the following:
• (a) State VAT
• (b) Entry tax
• (c) Entertainment tax except when levied by local bodies.
• (d) Taxes on the advertisement.
• (e) Taxes on lotteries and betting.

COMMODITIES NOT UNDER GST (6:26 PM)

• (a) Potable alcohol
• (b) 5 petroleum products: Crude petrol, motor spirit, high-speed diesel, aviation turbine fuel, and natural gas.
• (c) Sale and consumption of electricity
• The above arrangement is temporary and the GST council will decide the date from which these shall be included in GST.
• The existing VAT and central excise will continue to operate until they are included in GST.
• Note: Tobacco and Tobacco products were included in GST and the center has the power to levy GST on tobacco products.
• Apart from the above, there is no GST levied on the purchase of securities which will be governed by a Securities transaction tax.

UNDERSTANDING THE DUAL GST SYSTEM

• Most countries have a unified GST system.
• Brazil and Canada follow a dual GST system, where GST is levied by both Union and State governments.
• India also has a dual GST system, where the center and state simultaneously levy GST on a common tax base.
• For intrastate trade
• The GST levied by the center is called CGST, while that levied by states/UTs is called State GST or UTGST.
• For interstate trade
• For the interstate supply of goods and services, an integrated GST will be levied and administered by the center.
• CGST and IGST will be levied and administered by the center, while SGST and UTGST will be levied and administered by respective states and UT administration.
• The Principle of Fiscal Federalism has been adopted where both center and state have been assigned powers to levy and collect taxes.

101st CONSTITUTIONAL AMENDMENT ACT (6:40 PM)

• The new articles added by this amendment are Article 246 A (Special provisions concerning goods and services tax), Article 269 A (levy and collection of GST in case of interstate trade), and Article 279 A (GST Council).
• Article 246A
• As per this article, both Union and States in India now have concurrent powers to make laws concerning goods and services.
• The intrastate trade now comes under the jurisdiction of both centers and states.
• Interstate trade is exclusively under the jurisdiction of the center.
• Article 269A
• As per this article, in the case of interstate trade, the tax will be levied and collected by the government of India and would be shared between unions and states as per the recommendations of the GST council.
• The article also makes it clear that the sharing mechanism will happen outside the consolidated fund.
• Article 279A
• It provides for the GST Council.
• GST Council will decide upon the slab rates, IGST system procedures, and threshold limits for the composition system.
• The Quorum of the council would be 50%. States have 2/3rd voting rights, and centers have one-third voting rights.

GST COMPOSITION SCHEME (7:12 PM)

• The Composition scheme under GST is a low-procedure and compliance-friendly tax scheme for small and medium enterprises.
• Under the scheme firms under a specific limit of turnover can pay a fixed percentage of their turnover as tax.
• The threshold limits are fixed by the GST Council.
• It is not applicable to interstate trade and e-commerce transactions.

DISCUSSION ON THE PRELIMS AND MAINS QUESTION (7:41 PM)

• Enumerate the indirect taxes which have been subsumed in the goods and services tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India in July 2017. 

CONCEPT OF REVERSE CHARGE MECHANISM (7:49 PM)

• In a normal charge mechanism generally, service tax is payable by the provider of service.
• Similarly, GST has to be paid by the supplier of goods and services.
• But in some cases, the liability to pay the tax falls on the buyer.
• This reverse charge is applicable only in certain circumstances, and the most common instance is when the business buys goods and services.

NATIONAL ANTI-PROFITEERING AUTHORITY (7:53 PM)

•  It is expected that when the government reduces the tax, the benefit would be passed onto the consumers.
• However, this might not be the case.
• To avoid such a situation, National Anti-Profiteering Authority was set up.
• It is an institutional mechanism under GST law to check unfair profit-making activities by the trading communities.
• Profiteering
• It means unfair profit realized by the trader through manipulation of prices, tax rate adjustments, etc.
• In the context of GST, profiteering means that the traders are not reducing the prices of commodities even after the GST council has reduced the tax rate.
• When profiteering is certified by NAPA, the supplier has to return the undue benefit along with the interest to the recipient of goods and services.
• If the undue benefit cannot be passed down to the consumer, it can be ordered to be deposited in the consumer welfare fund.
• In extreme cases, NAA can impose a penalty on defaulting business entities and can even order the cancellation of GST registration.

THE TOPIC FOR THE NEXT CLASS: GST (CONTINUED)