Goods and Service Tax (GST) Working In India

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Author : suvigyasaxena
Published on : August 12, 2016

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Myself Advocate Suvigya Saxena (LL.M.) and engaged in corporate legal practice.

Goods and Service Tax (Gst) Working In India

On passing of 122nd Amendment Bill 2014 from the Parliament GST will get implemented to subsume the Excise duty, Additional Excise duty, Service Tax,Countervailing or additional Custom duty besides this the indirect taxes on State level i.e. VAT, Entertainment Tax, Luxury Tax, Octroi Entry tax, now there will be a National level Central GST (CGST) and State level GST (SGST) for all goods and services with some exceptions. CGST will replace Central Excise duty, Excise duties on medicial and toilet preparations, Additional Excise duty for the goods of special importance and textile products, additional Excise duty of customs i.e. CVD, SAD, cess and charges for supply of goods or services State VAT, CST and Purhase Tax.

The GST will work on three stages 1.The Manufacturer 2.The Wholesaler and 3. The Retailer

Stage No. 1:The Manufacturer:

Where the manufacturer of a bag purchases the raw material and inputs from the suppliers say of Rs. 100(on paying tax @ 10% i.e. Rs.10) and adds the value of Rs. 30 on it resulting its gross value of Rs. 130 when he transfrer it to the wholesaler the tax incidence comes to him is Rs. 13 but he is not liable to pay tax of Rs. 13 because the amount which he had paid earlier, will set off (Rs. 10) from the tax liability of Rs. 13 resultantly the net GST he will liable to pay is only Rs. 3 as GST.

Stage No. 2: The Wholesaler:

Where the wholesaler purchases the bag at Rs.130 from the manufacturer he pays tax of Rs. 13 on its purchase and if he adds the value on it say Rs. 20 then the gross value of the bag comes to Rs. 150 and thus the tax incedence on its tranfer to retailer comes to Rs. 15 but the advantage of set off of Rs. 13 will be given to the wholesaler resultantly he will have to pay only Rs.2 as GST.

Stage No. 3: The Retailer:

Where the retailer purchases the bag from the wholesaler at Rs. 150 and adds his margin @20% (assumed) then the gross value of the bag comes to Rs.180 on which the tax incidence comes to Rs.18 but he is not required to pay that amount as the benefit of set off of Rs. 15 shall also be given to him and the net GST he liable to pay is Rs.3 only which he will charge from the customer.

Thus from the above analysis we can understand the total tax revenue generated is Rs.10 Rs.3 Rs.2 Rs.3 iwhich equals to Rs. 18 which shows that there is tax on value addition only and set off is available against the taxes on inputs and previous purchase. Present there is no set off is available to manufacturer, wholesaler or retailer on their previous purchases so they have to charge that amount of tax from the buyer who will now feel relaxed from that burden and will prohibit tax evasion because somebody is not paying tax on his sale he will not gat the credit of tax on his inputs. thus the purchaser will only deal with the suppliers who pay tax on their supplies. This will also stop underground transactions which has now became a practice.

There will be a GST Council which will play a very important role. It will consist the Union Finance Minister who will be the Chairman and the Minister of States incharge of Revenue, incharge of Finance and Taxation and other Ministers as nominated by the State. decision in the Council will be made by three - fourth majority of votes cast, the centre shall have a third votes cast, State shall have together two - thirds. The mechnism of ressolving disputes will also be decided by the council. As there will be an exclusive power to the Centre to levy and collect the GST in the course of inter state trade or commerce and imports this will be Integrated GST (IGST). The CST Council will also decide the manner in which the IGST will be shared between Centre and the State.