Status of GST
The idea of moving towards the GST was first mooted by the then Union Finance Minister Shri P. Chidambaram in his Budget for 2006-07. Initially, it was proposed that GST would be introduced by 1st April, 2010. The Empowered Committee of State Finance Ministers (EC) which had formulated the design of State VAT was requested to come up with a roadmap and structure for the GST. Joint Working Groups of officials having representation of the States as well as the Centre were set up to examine various aspects of the GST and draw up reports specifically on exemptions and thresholds, taxation of services and taxation of inter-State supplies. Based on discussions within and between it and the Central Government, the EC released its First Discussion Paper (FDP) on the GST in November, 2009. This spells out the features of the proposed GST and has formed the basis for discussion between the Centre and the States so far.
Salient Features of GST
The salient features of GST are as under:
(i) GST would be applicable on supply of goods or services as against the present concept of tax on the manufacture or on sale of goods or on provision of services.
(ii) GST would be a destination based tax as against the present concept of origin based tax.
(iii) It would be a dual GST with the Centre and the States simultaneously levying it on a common base.
The GST to be levied by the Centre would be called Central GST (CGST) and that to be levied by the States would be called State GST (SGST).
(iv) CGST and SGST would be levied at rates to be mutually agreed upon by the Centre and the States.
(v) GST would replace the following taxes currently levied and collected by the Centre:
a. Central Excise duty
b. Duties of Excise (Medicinal and Toilet Preparations)
c. Additional Duties of Excise (Goods of Special Importance)
d. Additional Duties of Excise (Textiles and Textile Products)
e. Additional Duties of Customs (commonly known as CVD)
f. Special Additional Duty of Customs (SAD)
g. Service Tax
h. Cesses and surcharges
(vi) State taxes that would be subsumed within the GST are:
a. State VAT
b. Central Sales Tax
c. Luxury Tax
d. Entry Tax (other than those in lieu of octroi)
e. Entertainment Tax (not levied by the local bodies)
f. Taxes on advertisements
g. Taxes on lotteries, betting and gambling
h. State cesses and surcharges insofar as they relate to supply of goods or services
(vii) Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST paid on inputs may be used only for paying SGST. In other words, the two streams of input tax credit cannot be mixed except in specified circumstances of inter-State sales.
(viii) GST would apply to all goods and services barring a few to be specified.
(ix) Tobacco and tobacco products would be subject to GST. In addition, the Centre could continue to levy Central Excise duty and the States to levy sales tax / VAT.
(x) A common threshold exemption would apply to both CGST and SGST. Dealers with a turnover below it would be exempt from tax. A compounding option (i.e.to pay tax at a flat rate without credits) would be available to small dealers below a certain threshold. The threshold exemption and compounding provision would be optional.
(xi) The list of exempted goods and services would be kept to a minimum and it would be harmonized for the Centre and the States as far as possible.
(xii) Exports would be zero-rated.
(xiii) An Integrated GST (IGST) would be levied on inter-State supply of goods or services. This would be collected by the Centre so that the credit chain is not disrupted. Accounts would be settled periodically between the Centre and the State to ensure that the SGST used for payment of IGST is transferred to the destination State where the goods or services are eventually consumed.
(xiv) Import of goods or services would be treated as inter-State supplies and therefore, would be subject to IGST in addition to the applicable customs duties.
(xv) The laws, regulations and procedures for levy and collection of CGST and SGST would be harmonized to the extent possible.
GST and Centre-State Financial Relations
4. Currently, fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while the States have the powers to levy tax on the sale of goods. In the case of interState sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the States. As for services, it is the Centre alone that is empowered to levy service tax. Since the States are not empowered to levy any tax on the sale or purchase of goods in the course of their importation into or exportation from India, the Centre levies and collects this tax as additional duties of customs. This duty counterbalances excise duties, sales tax, State VAT and other taxes levied on the like domestic product. Introduction of the GST would require amendments in the Constitution so as to concurrently empower the Centre and the States to levy and collect the GST.
4.1 The assignment of concurrent jurisdiction to the Centre and the States for the levy of GST would require a unique institutional mechanism that would ensure that decisions about the structure, design and operation of GST are taken jointly by the two. For it to be effective, such a mechanism also needs to have Constitutional force.
Constitution (One Hundred and Fifteenth) Amendment Bill, 2011
5. To address all these and other issues, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha on 22.03.2011. The Bill provides for a levy of GST on all goods or services except for the specified goods. The tax shall be levied as Dual GST separately by the Union and the States. The Parliament would have exclusive power to levy GST on inter-State trade or commerce (including imports) in goods or services. The Central Government will have the power to levy excise duty in addition to the GST on tobacco and tobacco products.
5.1 A GST Council would be constituted comprising the Union Finance Minister, the Minister of State (Revenue) and the State Finance Ministers to recommend on the GST rate, exemption and thresholds, taxes to be subsumed and other features. This mechanism would ensure some degree of harmonization on different aspects of GST between the Centre and the States as well as among States.
5.2 The Constitution Amendment Bill needs to be passed by a two-third majority in both Houses of Parliament and subsequent ratification by at least half of the State Legislatures. The Bill was referred to the Parliamentary Standing Committee on Finance for examination and its report has since been received. Certain official amendments are under discussions in the light of latest developments in the matter and the report of the Standing Committee. After passage of the Bill by both Houses of Parliament, ratification by State legislatures and receipt of assent by the President, the process of enactment would be complete.
Other Legislative Requirements
6. Suitable legislation for the levy of GST (Central GST Bill and State GST Bills) drawing powers from the Constitution can be introduced in Parliament or the State Legislatures only after the enactment of the Constitution Amendment Bill. Unlike the Constitutional Amendment, the GST Bills would need to be passed by a simple majority. Obviously, the levy of the tax can commence only after the GST law has been enacted by the respective legislatures. Also, unlike the State VAT, the date of commencement of this levy would have to be synchronized across the Centre and the States. This is because the IGST model cannot function unless the Centre and all the States participate simultaneously.
Recent Developments on the GST
7. In 2013, four Committees have been constituted by the Empowered Committee of State Finance Ministers (EC) to deal with the various aspects of work relating to the introduction of GST. The Committees are:
(i) The Committee on the Problem of Dual Control, Threshold and Exemptions in GST Regime;
(ii) The Committee on Revenue Neutral Rates for State GST & Central GST and Place of Supply Rules (A Sub-Committee has been constituted to examines issues relating to the Place of Supply Rules);
(iii) The Committee on IGST & GST on Imports (A Sub- Committee has been set up to examine issues pertaining to IGST model);
(iv) The Committee to draft model GST Law (Three Sub-Committees have been constituted to draft various aspects of the model law).
7.1 The first three Committees have submitted their interim reports and final reports are awaited
7.2 CBEC officials, as members of these Committees / Sub-committees, are playing a significant role in the work relating to design and contours of the proposed GST regime.
7.3 The meetings of the Empowered Committee are attended by the Nodal Member of the CBEC and other officials.
7.4 A GST Cell has been created within CBEC which functions under the Joint Secretary TRU –II. Two Groups have been constituted by CBEC to work on various aspects of the GST.
Role of CBEC
8. The CBEC is expected to play an important role in the drafting of GST law and procedures, particularly the CGST and IGST law, which will be exclusive domain of the Centre. This apart, the CBEC would need to prepare, in advance, for meeting the implementation challenges, which are quite formidable. The number of taxpayers is likely to go up significantly. The existing IT infrastructure of CBEC would need to be suitably scaled up to handle such large volumes. Based on the legal provisions and procedure for GST, the content of work-flow software such as ACES (Automated Central Excise & Service Tax) would require review. Augmentation in human resources would be necessary to handle such large number of taxpayers scattered across the length and breadth of the country.
9. The GST law is still evolving and the dialogue continues between the Centre and the States on related issues. A number of procedural, legal and administrative issues relating to GST are under active discussions in various Committees / Sub-committees constituted by the EC and in various Groups constituted by the CBEC.
(This Note is for creating general awareness about the GST among the officers and staff of CBEC)
