GST Our Analysis

GOODS AND SERVICES TAX (GST)
Operational Impacts and Concerns
GST: OPERATIONAL IMPACTS & CONCERNS
Table of Contents
INTRODUCTION: ........................................................................................................... 4
GOODS AND SERVICES TAX: A CLOSER LOOK .................................................................. 5
I.
Dual GST Model: .............................................................................................................................. 5
II.
Taxes to be subsumed: ..................................................................................................................... 6
III.
GST Rates: ....................................................................................................................................... 7
IV.
GST Thresholds: ............................................................................................................................... 7
V.
Integrated GST (IGST): ..................................................................................................................... 7
VI.
GST Input Credit (ITC) Mechanism: .................................................................................................. 8
VII.
GST Administration: .......................................................................................................................... 8
VIII. GST: IT Strategy ............................................................................................................................... 9
GST : IMPACTS ON INDUSTRY...................................................................................... 11
A. Manufaturing Industry .........................................................................................................................11
B. Service Industry ..................................................................................................................................14
GST: OPERATIONAL IMPACTS AND CONCERNS: ............................................................. 18
A. REGISTRATION: A TAX ENTITY .......................................................................................................18
B. PROCUREMENT OF GOODS & SERVICES ......................................................................................22
I.
Domestic Intrastate Procurement Goods (Raw Material)................................................................22
II.
Domestic Interstate Procurement Goods (Raw Material)................................................................25
III.
Domestic Procurement : Capital goods.............................................................................................29
IV.
Domestic Procurement Services ...................................................................................................31
V.
Import Procurement Goods (Raw Material)....................................................................................34
C. SALE OF GOODS & SERVICES ........................................................................................................38
I.
Domestic Intrastate Sale Goods (Raw Material).............................................................................38
II.
Domestic Interstate Sale Goods (Raw Material).............................................................................41
III.
Domestic Sale Services ................................................................................................................45
IV.
Export Sale Goods (Raw Material) ................................................................................................48
D. STOCK TRANSFERS.........................................................................................................................51
E. SUBCONTRACTING ..........................................................................................................................54
F. DEPOT OPERATIONS .......................................................................................................................57
I.
Depot Procurement Goods ............................................................................................................57
II.
Depot Sales Goods .......................................................................................................................58
G. LEGAL REPORTING ..........................................................................................................................61
ANNEXURE I : ACCOUNTING TREATMENT FOR BUSINES SCENARIOS....................... 63
I.
Domestic Intrastate Procurement : Goods (Raw Material).................................................................63
II.
Domestic Interstate Procurement : Goods (Raw Material).................................................................63
III.
Domestic Procurement : Capital Goods ............................................................................................64
IV.
Domestic Procurement : Services ....................................................................................................64
V.
Import Procurement : Goods (Raw Material).....................................................................................65
VI.
Domestic Intrastate Sale : Goods (Raw Material) .............................................................................66
VII.
Domestic Interstate Sale : Goods (Raw Material) .............................................................................66
VIII. Domestic Sale : Service ...................................................................................................................67
IX.
Export Sale : Goods (Raw Material) .................................................................................................67
X.
Stock Transfers................................................................................................................................68
XI.
Subcontracting .................................................................................................................................68
XII.
Depot Procurements ........................................................................................................................69
XIII. Depot Sales .....................................................................................................................................69
GLOSSARY:
Acronym
Meaning
A/C
Account
BED
Basic Excise Duty
CG
Capital Goods
CGST
Central Goods and Service Tax
CST
Central Sales Tax
CVD
Countervailing Duty
DEPB
Duty Entitlement Pass Book
ECess
Education Cess
EOU
Export Oriented Unit
EPCG
Export Promotion Capital Goods
GST
Goods and Service Tax
IGST
Interstate Goods and Service Tax
ISD
Input Service Distributor
LTU
Large Taxpayer Unit
PLA
Personal Ledger Account
RM
Raw Material
SAD
Special Additional Duty
SED
Special Excise Duty
SEZ
Special Economic Zone
SGST
State Goods and Service Tax
SSI
Small Scale Industries
VAT
Value Added Tax
GSTN
Goods and Services Tax Network
Note:
Structural Overview
Starting from section "GST: Operational Impacts & Concerns, each subsection takes a closer
look at each of the impacted business processes, starting with an introduction to the existing
business process followed by the process flow diagram and process overview of the existing
scenario with the current prevalent indirect taxation structure.
This is followed by the GST scenario which covers the impact that the introduction of GST will
have on the same business process, along with an example scenario and a diagrammatic
representation of the business process in the GST era (wherever possible). In addition, finally
the subsection is ended with the list of clarifications sought by business software providers in
order to be able to have complete clarity on the process flow in the GST era so as to be able to
implement the new business process and the related taxation requirements in time for the GST
changeover date.
Annexure I highlights the accounting schemas for different business processes covered, as
per the current tax system inplace.
INTRODUCTION:
The introduction of Goods and Service tax (GST) in India by April 2012 promises to be one of the biggest and
most impactful changes in the history of Indian indirect taxation. This whitepaper focuses on the proposed
GST model for India and its impact on the manufacturing and services industry.
At present the tax structure in India is federal in nature with the power to levy taxes and duties distributed
among the Union Governments and the State Governments. The Goods and Service tax (GST) being
introduced in 2012 will replace the existing indirect taxes on consumption. GST will be applicable on both
goods and services. In respect of goods, the levy will be destination based whereas in respect of service tax,
the levy will be consumption based. GST will be charged and collected at each stage of the production/
processing / trading on the value added during that stage. GST proposes set-off of tax paid on inputs / capital
goods and services.
GST can be defined as a tax on goods and services, which is levied at each point of sale or provision of
service, in which, at the time of sale of goods or providing the services, the seller or service provider may
claim the input credit of tax which he has paid while purchasing the goods or procuring the service.
The GST introduction will have impact on Tax Structure, Tax Incidence, Tax Computation, Utilization and
Reporting leading to a complete overhaul of the current indirect tax system. At the organizations end, it would
mean change to business processes to align to the new tax regime, update of the various software solutions
across all locations to meet the proposed structure, training of all personnel to use the new process and in
addition ensuring smooth transition from the old regime.
GST will have a significant impact on almost all aspects of businesses operating in the country, including the
supply chain, sourcing and distribution decisions, inventory costs and cash flows, pricing policy, accounting
and and transactions management.
Application Systems act as a backbone support for the complex business structure and enable it to function
smoothly and seamlessly. As of today almost all the businesses, small or big, uses Application Software in
some form or the other to efficiently carry out their operations. Any changes to the business operations has a
direct impact on the software infrasturcture which has to be re-aligned to accomodate such changes.
GST being the structural change by nature, will of-course call for a significant re-structuring at the supporting
application sofware infrastructure at the business organization. Hence planning and execution of such a
transitional task is of utmost impartance for the organizations management at this moment as we move
closer to GST implamentation. First and foremost step in this direction is to completely understand the depth
and impact analysis of such a change with greater levels of clarity.
The intention of this whitepaper is to take a closer look at the impact of GST on business processes from a
systems prospective and also highlight the areas where further clarity is required in order to effect a smooth
and efficient transition to the GST era.
GOODS AND SERVICES TAX: A CLOSER LOOK

A. What is GST ?
Goods and Services Tax (GST), is a comprehensive tax levy on manufacture, sale and consumption of
goods and services with comprehensive chain of set-off benefits from the producers point and service
providers point upto the retailers level.
While the taxable event is supply of goods and supply of services, GST is essentially a tax only on value
addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism,
the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the
supply of goods and services. The final consumer will thus bear only the GST charged by the last dealer in
the supply chain, with set-off benefits at all the previous stages.
In a GST regime, goods and services are not differentiated as they move through the supply chain. Being a
destination based consumption tax, GST is usually levied on import of goods and services with export
transactions being zero rated under the GST scheme.
B. GST Model: As proposed for INDIA

I.
Dual GST Model:

The proposed Goods and Services Tax will be a destination based tax measure, with tax set offs
available across the production value-chain. Consistent with the federal structure of the country GST
structure is expected to have two components: one levied by the Centre, Central GST (CGST) and
the other levied by the State, State GST (SGST). Both components would be applicable on all
taxable transactions of goods and services. The Centre and the States would have concurrent
jurisdiction for the entire value chain for all tax-payers on the basis of thresholds for goods and
services prescribed for the States and the Centre.
The Central GST and the State GST would be levied simultaneously on every transaction of supply
of goods and services except the exempted goods and services, goods which are outside the
purview of GST and the transactions which are below the prescribed threshold limits. Further, both
would be levied on the same price or value unlike State VAT which is levied on the value of the
goods inclusive of CENVAT.
It is also proposed that an Integrated GST model (IGST) model be adopted for taxation of interstate transactions of goods and services.
II.
Taxes to be subsumed:
The current indirect system in India imposes multiple levies on sale and purchase of Goods and
Services within its jurisdiction. With an attempt to simplify this tax structure for the benefit of both
trade and consumers, following are the taxes, proposed to be subsumed under the dual component
structure GST.
CGST will subsume:

Central Excise Duty
Additional Excise Duties
The Excise Duty levied under the Medicinal and Toiletries Preparation Act
Service Tax
Additional Customs Duty, commonly known as Countervailing Duty (CVD)
Special Additional Duty of Customs 4% (SAD)
Surcharges and Cesses.
SGST will subsume:

VAT / Sales tax
Entertainment tax (unless it is levied by the local bodies).
Luxury tax
Taxes on lottery, betting and gambling.
State Cesses and Surcharges in so far as they relate to supply of goods and services.
Entry tax not in lieu of Octroi.
Exclusions:
Basic Customs Duty, Octroi, Stamp Duty and Electricity duty may be kept outside the GST. Levies
like the toll tax, environment tax and road tax will be outside the GST ambit, as these are user
charges. A basket of petroleum products and natural gas likely to be charged with GST and an
additional levy by both the Central and States. No input credit would be available against on the
additional levy. A similar treatment might be provided to alcohol and tobacco.
III.
GST Rates:
The Empowered Committee has decided to adopt a two-rate structure a lower rate for necessary
items and goods of basic importance and a standard rate for goods in general. There will also be a
special rate for precious metals and a list of exempted items.
First discussion paper on GST did not specify any GST rate. Currently, the standard Cenvat, VAT,
CST and Service Tax rates are 8%, 12.5 %, 2% and 10% respectively. The Task Force on GST of
Thirteenth Finance Commission (TFC) has worked out a Revenue-Neutral Rate (RNR) of 12% (5%
CGST and 7% SGST) assuming there is a single GST rate and stamp duty & electricity duty are also
subsumed in the GST. With dual GST in place, this RNR is going to change.
The exact value of the SGST and CGST rates, including the rate for services, will be made known
duly in course of appropriate legislative actions.
IV.
GST Thresholds:
A dual threshold is proposed by EC for CGST and SGST. For CGST, the basic exemption for goods
would remain at rupees 1.5 Crores and for services a similar exemption would be provided later. For
SGST, the basic exemption for goods and services would be rupees 10 Lakhs. Department of
Revenue has expressed concerns in having two different thresholds and has proposed a uniform
threshold for goods and services for both SGST and CGST. Also, a threshold of rupees 50 Lakhs
has been proposed under the composition scheme for small taxpayers. The threshold exemption
might not apply to persons engaged in inter-State business.
Further there would be a compounding/composition scheme for the small tax payers similar to the
one under VAT system. As per the First Discussion Paper, there would be a compounding cut-off at
Rs. 50 lakh of gross annual turnover and a floor rate of 0.5% across the States. The scheme would
also allow option for GST registration for persons with turnover below the compounding cut-off.
V.
Integrated GST (IGST):

Centre would levy Integrated GST (IGST) which would be CGST plus SGST on all inter-State
transactions of taxable goods and services with appropriate provisions for consignment or stock
transfers. The inter-State seller will pay IGST on value addition after adjusting available credit of
IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit
of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging
his output tax liability in his own State. The Centre will transfer to the importing State the credit of
IGST used in payment of SGST. There will be a Central IGST authority for facilitating this. The
existing CST will be abrogated.
VI.
GST Input Credit (ITC) Mechanism:

A definite set of rules are proposed for treating Input Tax Credit and its utilitization for discharge of
tax liabilities, with respect to Central GST , State GST and Integrated GST as described below:
Central GST and State GST are proposed to be treated separately for the purposes of
availing input tax credit (ITC). Cross utilization of ITC between Central GST and State GST
is not proposed to be allowed.
Utilization of ITC would be as under:
Input Central GST to be utilized against output Central GST and IGST;
Input State GST to be utilized against output State GST and IGST; and
Input IGST to be utilized against output IGST, Central GST and State GST.
Further, it appears that the protocol for utilizing credit against output IGST would be in the
order of input IGST, input Central GST and input State GST.
It is proposed to align the rules for availment and utilization of ITC for both Central GST and
State GST; and
Taxpayers (including exporters) may be required to maintain separate books of account for
utilization and refund of ITC.
There is an in principle assurance that refund/ adjustment of accumulated ITC would be granted/
completed in a time bound manner in certain cases; however how this will get implemented is yet
open for debate.
VII.
GST Administration:
It proposed that, to the extent feasible, uniform procedure for collection of both Central GST and
State GST would be prescribed in the respective legislation for Central GST and State GST.
The administration of the Central GST would be with the Centre and for State GST with the States.
The taxpayer would need to submit periodical returns to both the Central GST authority and to the
concerned State GST authorities.
Each taxpayer would be allotted a PAN linked taxpayer identification number with a total of 13/15
digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for
Income tax facilitating data exchange and taxpayer compliance. The exact design would be worked
out in consultation with the Income-Tax Department.
Keeping in mind the need of tax payers convenience, functions such as assessment, enforcement,
scrutiny and audit would be undertaken by the authority which is collecting the tax, with information
sharing between the Centre and the States.
VIII.
GST: IT Strategy
On the IT front, there has been consensus that there will be a common portal providing three core
services (registration, returns and payments). The broad services framework of the portal has been
discussed with the Sub Working group for IT.
Empowered Group on IT Infrastructure on GST has recommended setting up Goods and Services
Tax Network (GSTN), for managing the IT systems for GST implementation, including the Common
GST Portal.
GSTN will perform the following functions:
Provide common infrastructure and services to Central and State Governments
Ensure integration of the Common GST Portal with existing tax administration systems of Central
and State Governments
Build efficient and convenient interfaces with tax payers and tax administrators
Facilitate, implement and set standards for providing common GST services to the Central and State
Governments
Carry out research, study global best practices and provide training to the stakeholders.
The GSTN solution architecture for information flow is designed to ensure timely delivery of
information through the Common GST Portal, and timely delivery of funds directly through the
banking system.
GSTN : Proposed Information Flows
Source: TAGUP_Report , By Mr. Nandan Nilekani
The Common GST Portal is simply a pass-through device for information, while enhancing it with intelligence
to plug leakages. The taxpayer sends the return with GSTN, which keeps a copy of the return for analysis,
and forwards it in near real-time to the respective State and CBEC. The taxpayer pays the actual duty in the
bank, which uploads only the challan details into the GSTN. Actual funds never pass through the GSTN.
The Common GST Portal reconciles the returns and the challans. In addition to its pass-through role, the
portal would also play two other critical roles:
1. It would act as a tax booster, matching the input tax credits in the returns to detect tax evasion. It can
also integrate with various other systems at MCA and CBDT for verification of PAN or other
corporate information and perform data mining and pattern detection to detect tax fraud. It would
send this information as alerts/ reports to the respective tax authorities.
2. It would also compute inter-State settlement, netting IGST across States.
The Ministry of Finance, with the concurrence of the Empowered Committee of State Finance Ministers, has
set up an Empowered Group on IT Infrastructure for GST with, inter alia, the mandate of approving the
Solution architecture of the Common GST portal to be set up, Suggesting the modalities for setting up of a
GSTN and evaluating the suitability of the existing infrastructure namely NSDL & NPCL for incubating the
GSTN.
The Empowered Group on IT Infrastructure for GST in its first meeting evaluated the feasibility of incubating
the GSTN under NSDL and came to the conclusion that NSDL is well suited for this purpose. The scope of
the project and implementation strategy is being worked out with the NSDL.
Note: For further details on GSTN, please refer http://www.finmin.nic.in/GST/IT_Strategy_GST.asp .
10
GST : IMPACTS ON INDUSTRY

The indirect taxation revenue for the 2010 fiscal year was approximately INR 2.4 trillion and Indian
government forecasts the revenue to grow by 29% to INR 3.5 trillion during this fiscal year. (Source:
http://www.cainindia.org/news/4_2010/india_official_last_fiscal_year_indirect_tax_revenue.html)
Collection of such magnitude is only possible if industries comply to the indirect taxation laws prevalent in the
country. In order for industries to be compliant, it is necessary that the taxation regulations are simple and
cost of being compliant isnt high.
Change in the indirect taxation structure will impact all industry sectors. Starting from the taxes paid on raw
materials by a manufacturer to the invoices raised by a retailer for an end consumer of a good all steps of
the value change will experience a change in how taxation takes place.
Let us take a closer look at the different sectors and how they are impacted by the introduction of GST.
A. Manufacturing Industry
Manufacturing sector in India is a highly taxed sector. Despite of low manufacturing cost of products in India,
multistage taxation i.e. customs duty on imports, central excise duty on manufacture, central sales tax (CST)
/ value added tax (VAT) on sale of goods, service tax on provision of services and levies such as entry tax,
octroi and cess by the State or local municipal corporations add to the cost of the product.
Introduction of GST will reduce the disadvantage of the complex and high taxation structure in India which is
currently increasing the cost of the products and sometimes even rendering them as uncompetitive in the
international market.
Manufacturers produce goods production might be completely in-house wherein production of raw
materials and the building of the final product is carried out by the manufacturer itself or else the process
might involve sourcing of raw materials externally or subcontracting of job works in order to carry out the final
assembling and building a product.
Goods which are manufactured in India attract the indirect tax: Central Excise Duty. This tax is collected by
the central government and the duty collections are managed by the Central Board of Excise and Customs
functioning under Ministry of Finance, Department of Revenue.
The manufacturer collects excise duty from the buyer and remits this duty to government. Goods can be
removed from their place of manufacture only while being accompanied with an excise invoice, while
contains information about the excise rate and duty applicable of the goods being moved.
11
Tax Incidence:
The manufacturer is liable to pay the excise duty to the government as soon as the excise invoice has
been issued and can avail input credit of excise duties once the goods and excise invoice has been
received in his premise.
(a) Input Credit at Excise Invoice Posting after Receipt of Goods
(b) Output Tax Payable on Excise Invoice Generation at Billing
GST impacts:
With the introduction of GST, the Central Excise duty will no longer be applicable (except on Petroleum
products and alcoholic products). The manufactured products will attract CGST and an SGST
component.
For example, in the existing tax regime, a company producing furniture will be charged with excise duty
by the Central Government at the time of dispatching the goods from their premise. However, when a
retailer sells the end products to consumers, the goods attract VAT governed by the laws of the state
where the goods are being sold.
VAT rates differ from state to state adding to the complexity and making certain product more attractive
to procure in certain states compared to others. Also the retailer will not be able to avail any input credit
against the incoming excise duty paid by him earlier on the purchase of the goods. In such a case, the
incoming excise duty will be added on to the cost of the product making it more expensive for the end
consumer.
Let us now consider the same scenario in the GST regime. GST (central and state component) will be
collected at each point of sale irrespective of the nature of transaction be it from a manufacturer to a
retailer or from a retailer to the end user.
GST will be levied on the transaction cost and in the case of sale from manufacturer to retailer, the CGST
and SGST levied will be available as input credit for the retailer while selling the goods to the end user.
This means that the retailer will be liable to pay tax only to the extent of the value added by him to the
goods value. This in turn will mean reduced burden of taxes on the end consumer due to avoiding of
double taxation on the goods.
12
The above illustration demonstrates the tax levy, collection and set off mechanism in the existing tax
regime, wherein input excise duty cant be set off against output VAT and hence the excise duty adds to
the product cost during the value change and burdens the product cost for the end consumer.
In the GST era however since each of the above transactions will attract CGST and SGST component
which will be set off against the output CGST and SGST component, the product will be taxed only on
the value addition carried out at each step of the value change.Hence, double taxation of the product will
be avoided, thereby reducing the taxation burden on the end consumer.
13
B. Service Industry
Services covers a wide gamut of activities like trading, banking & finance, infotainment, real estate,
transportation, security, management & technical consultancy among several others. The various sectors
that combine together to constitute service industry in India are:
Trade
Hotels and Restaurants
Railways
Other Transport & Storage
Communication (Post, Telecom)
Banking
Insurance
Dwellings, Real Estate
Business Services
Public Administration; Defence
Personal Services
Community Services
Other Services
There was marked acceleration in services sector growth in the past two decades, with the growth being
the fastest in communications, banking, hotels and restaurants, community services, trade and business
services.
Service Tax is a form of indirect tax imposed on specified services called "taxable services". Service tax
cannot be levied on any service which is not included in the list of taxable services. Service Tax was first
brought into force with effect from 1 July 1994. Over the past few years, service tax been expanded to
cover new services. The objective behind levying service tax is to reduce the degree of intensity of
taxation on manufacturing and trade without forcing the government to compromise on the revenue
needs.
In the current tax regime, service tax is applicable on the sale of taxable services. The service provider is
liable to pay the output service tax to the government while the customer can use the input service tax
credit to pay off his output service tax liability or output excise duty payable. Service tax credit can be
used to pay off output excise duty payable and vice versa.
14
In cases of manufacturers having different units spread over various parts of the country, invoice for input
services can be received by the head office (or corporate office/ registered office), while the services are
actually rendered in the factories or premises of the service provider.
Similarly, in the case of services which are not specific for any particular factory or premises, such as
advertising, market research, management consultancy, the invoices may be received directly at the
head office. The head office will then need to distribute or transfer the service tax credit availabed to its
manufacturing locations and/or other taxable service providing units.. Such offices of the manufacturer or
service provider are designated as input service distributor (ISD) under rule 2(m).
Service provider
Value : 1000
Ser. Tax:12%
+ 120
ISD
Customer
Ser. Tax:
20
Value : 200
Ser. Tax:12%
+ 24
Ser. Tax:
100
Value : 2000
Ser. Tax:12%
+ 240
Mfg Plant
Mfg Plant with O/P

Services
Periodic Utilization and Tax Payment
Tax Incidence:
A service provider is liable to pay service tax to the government as soon as he receives payment from
customer (in part or full) whereas the input credit is available to a service receiver as soon as he makes
payment to the vendor to the extent of amount paid.
(a) Input Credit on full payment of vendor invoice
(b) Output Tax payable on part / full receipt from Customer
This was true till the Union budget announcement of 2011- 2012 wherein a change in the service tax
rules was made. With the introduction of the amendments to the service tax regulations, from 1st April
2011, the point of taxation for service tax and availability of service tax credit will be determined in the
following manner:
15
Point of Taxation:
Rule 3 has been amended to provide that the point of taxation shall be whichever is earlier from the
following:
(a) Date of invoice or payment, whichever is earlier, if the invoice is issued within the prescribed period
of 14 days from the date of completion of the provision of service.
(b) Date of completion of the provision of service or payment, if the invoice is not issued within the
prescribed period as above.
Illustration of applicability of this rule:
S.No.
Date of
completion
of service
Date of
invoice
Payment
Receipt
Date
Point of
Taxation
10-Apr-11
20-Apr-11
30-Apr-11
20-Apr-11
Invoice issued in 14 days and

before receipt of payment
10-Apr-11
26-Apr-11
30-Apr-11
10-Apr-11
Invoice not issued within 14 days

and payment received after
completion of service
10-Apr-11
20-Apr-11
15-Apr-11
15-Apr-11
Invoice issued in 14 days but

payment received before invoice
26-Apr-11
April 5,
2011 (part)
and April
25, 2011
(remaining)
April 5, 2011
and April 10,
2011 for
respective
amounts
Invoice not issued in 14 days.

Part payment before completion,
remaining later
10-Apr-11
Remarks
In case of Continuous Supply of Services, the Rule 6 relating to continuous supply of service has been
aligned with the revised rule 3 and the date of completion of continuous service has been defined within
the rule. This date shall be the date of completion of the specified event stated in the contract which
obligates payment in part or whole for the contract.
For example, in the case of construction services if the payments are linked to stage-by-stage completion
of construction, the provision of service shall be deemed to be completed in part when each such stage
of construction is completed. Moreover, it has been provided that this rule will have primacy over rules 3,
4 and 8.
While the rules shall come into force from 01.04.2011, an option has been given in rule 9 to pay tax on
payment basis, as at present, till 30.06.2011.
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CENVAT Credit:
The CENVAT credit on input services can be availed on receipt of invoice. However, the payment has to
be made within three months. If the payment is not made within three months, then the credit availed has
to be reversed/paid. However the same can be taken back as credit on making payment. In case of
service tax paid by the recipient of service on reverse charge basis, the credit can be taken on making
payment of the value of service to the service provider and service tax to the Government. This is
effective from 01.04.2011 irrespective of the fact that the service provider may continue to pay service
tax on receipt basis.
GST impacts:
The proposed Goods and Service Tax will lead to the evolutoin of an efficient and harmonized
consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the
Central and State level. Successful integration of goods and service tax, would give India a world-class
tax system and will bring in improved tax collection. It will also end the long standing distortions of
differential treatments to the manufacturing and service sectors.
For example, after the introduction of GST, a retailer can set off the input credit of CGST and SGST on
procurement of services like rentals, freight, advertisement, which currently attract service tax, against
the output tax levied on the sales of goods from his premise.
Currently such services attract service tax and this input service tax credit cant be used to pay off output
tax such as VAT. Since in the current tax regime, output VAT can be only be set off by utilising the input
VAT, the input service tax becomes a cost in the system and results in increased cost for the end
products being sold to consumers. With the introduction of GST, the issue of inability to offset the input
taxes should get resolved.
17
GST: OPERATIONAL IMPACTS AND CONCERNS:

Business Operations currently involves various processes with diverse complexity levels. Taxation has a
direct effect on the way the operations are modeled and carried out in order to maintain profitability and
growth. GST will bring out a revolutionary change in the Indian Taxation system and thereby will force
business organizations to rethink and rework their operational strategy and planning.
At the same time going deeper into the operational ends of the business processes, the impact on application
systems being the backbone cant be ignored. In other words, GST will also bring in a significant change in
the application systems design and modeling, which will be required in order to sustain the existing business
processes and enable the changes brought in.
In the context, heres an attempt to highlight some of the Impact areas and concerns with respect to GST as
shared by the organizations having operations in that area. The subsequent sections look at the different
areas of impact for industries / businesses.
A. REGISTRATION: A TAX ENTITY

At present each business unit of an organization is governed by specific legislation in force with respect to
taxation based on the nature of operation carried out. For example, a business unit carrying out the process
of manufacturing commonly known as a Plant comes under the purview of Excise Laws and on the other
hand a business unit primarily acting as a service provider is governed by Service Tax Laws. Similarly the
operations related to sales are governed by VAT laws of the state.
Now for the purpose of monitoring the transactions with respect to Taxation, each business unit is required
to obtain a Registration No. from the Tax authority based on nature of operation carried out and governing
law. For example, manufacturing units are required to have Excise Registration No., a warehouse / Depot is
required to have Depot Excise Registration No., a Service provider unit is required to have Service Tax
Registration No. and lastly a commercial unit carrying out sales and invoicing activities is required to have
VAT Registration No.. Hence there are multiple levels of Tax registrations that exist as of today which are
needed to be correlated with each commercial transaction carried out by the organization based on its nature
and scope.
In the GST regime, these taxes will get subsumed into GST and their registrations will no longer hold value.
There will be a need for a new registration number which will uniquely identify the GST tax payer.
18
Registration Applicability:
In the GST regime, all business entities with annual aggregate turnover of goods and services exceeding
Rs.10 lakh (excluding CGST and SGST) need to mandatorily register and obtain a GST registration number.
Small dealers (including service providers) and manufacturers should be exempted from the purview of both
CGST and SGST if their annual aggregate turnover (excluding both CGST and SGST) of all goods and
services does not exceed Rs.10 lakh. Those below the threshold limit may voluntarily opt to register.
The 13th Finance commission has recommended that the threshold exemption limit should be uniform for
both CGST and SGST and across states. At present as well, theres a separate threshold for services (Rs.
10 lakh) and goods (Rs. 1.5 crore) for Service Tax and CENVAT and also the VAT thresholds vary from state
to state.
GST Registration Number:

The discussion paper on GST proposed that each GST taxpayer will be allotted a PAN-linked taxpayer
identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the
prevailing PAN-based system for Income tax, facilitating data exchange and taxpayer compliance.
However, the recommendation from the 13th Finance commission committee was that the GST registration
number should be a twelve digit alpha numeric number, wherein the first ten digits should be the alphanumeric Permanent Account Number (PAN) followed by a space and two more digits indicating the state
code. This number should be self-generated after obtaining a PAN.
19
Illustration of proposal of GST Registration Number:
The last two digits in the illustration KA denote the state code for Karnataka. The GST registration number
for a person having operations in multiple states will have the same prefix of the PAN number which is
unique for the person and for each state where he has operations and needs to remit SGST, the GST
registration number will be suffixed with the respective state code.
The unit of taxation for the purposes of GST should be persons as defined under the Income Tax Act.
Consequently, for the purposes of CGST, all production units/branches of a person located anywhere in the
country will be treated as a single taxable entity eligible for CGST input credit across units/branches.
Similarly, for the purposes of SGST, all production units/branches of a person located anywhere within the
State will be treated as a single taxable entity eligible for SGST input credit across units/branches in that
State.
From application software prospective, this would also mean that there is a need to uniquely identify the
entity at the transaction level so that the reporting can be done appropriately. The system should have the
capability to distinguish the origin and destination state during each business process (like procurement,
sales, stock transfer etc) so that at the time of reporting, it is able to classify under which GST registration
number this transaction needs to be reported.
For example, in case of a sale of a goods within Karnataka, the application software used to generating
invoices and reporting purpose, must be able to determine and capture the state to which the SGST is to be
remitted and accordingly while reporting for the GST registration number corresponding to the Karnataka
state, it should report this sales of goods.
* Rates are only for illustration. Final GST rates have not yet been fixed by the government
20
Clarifications sought:
1. Has the recommendation from the 13th Finance commission of having a 12 digit alpha numeric GST
registration number which is suffixed with a 2 digit state specific code been accepted?
2. Will Small Scale Industries (SSI) exemptions continue to exist?
3. How will Large Taxpayer Units (LTU) be handled? For large units under LTU, would there be a single
registration for all the states as well as for CGST?
4. How will the treatment of procurement and sales vary if its from a non GST registered vendor or to a
non GST registered customer?
5. Will the accumulation of input credits and payables be at the Registration level? Will all reporting be
at the Registration level?
6. Will all the entities belonging to a company in a state have the same GST registration number? For
example, if a company has a plant, a depot and a retailing outlet in the same state, will the same
GST registration number be applicable for each of these entities. Will the GST credit accumulation
and the returns be required to be filed at the entity level or at the GST registration level at the state
level?
Need from software application vendors:

The government is currently developing the GSTN (GST network), which is a portal for handling registrations,
filling of returns and payments for GST. This portal will be launched for 11 pilot states by June 2011.
There is a need from software application vendors for the availability of a Test (dummy) registration on the
Portal for testing handling of Registrations, Payments and Returns process for GST. This will help software
vendors to deliver the right software to businesses in time.
Such practices are widely followed in many other countries and also in India. Some illustrations of such
provisions from Governments in other areas/ Countries are:
India File Validation Utility for TDS Quarterly Returns (Form 24Q)
UK Test URL for Software providers to test & validate year end Payroll Returns format
21
B. PROCUREMENT OF GOODS & SERVICES

I.
Domestic Intrastate Procurement Goods (Raw Material)

Intrastate procurement of Goods / Materials refers to the process of purchase of goods by a business
organization (Manufacturing entity, Dealer, Depot etc.), wherein Buyer and the Selling organizations
reside in the same State (Region). Any such transactional movement of excisable goods is levied
with Excise tax as per the central excise legislation. On the other hand Value Added Tax (VAT) is a
consumption tax levied on the commercial distribution of goods.
22
Process Overview:
a) Create Purchase order with Non- exempt Vendor for Excisable Raw Material and Tax-Code for
Excise Tax + VAT.
b) Goods are delivered at buyers premises and Goods receipt is carried. This will update the RM stock
and RG23A Part -1 register with quantity of material receipt accepted.
c) Excise Invoice is then captured in the system either with GR or explicitly, depending on the
configuration. RG23A Part -2 register will also get updated with Input Excise Credit booked for each
duty component.
d) Supplier invoice received is then captured, booking the vendor payable clearing the Cenvat Account
and booking VAT credit.
e) Vendor due payment is done to clear the account payables.
GST Scenario:
Under GST era, in case of domestic procurement of goods within the same state, the applicable indirect
taxes will be CGST and SGST. The vendor will issue an invoice charging the CGST and SGST components
as tax. The purchaser will claim credit of the CGST and SGST paid to the vendor by him.
Let us consider an example of sales of raw material used in manufacturing:
A factory in Karnataka raises an order of 100 pieces of steel rods used for manufacturing from a vendor in
the same state. The vendor receives the order and dispatches the steel rods to the factory. He then issues
an invoice for the steel rods.
Invoice details:
Steel Rods @ Rs 550 per piece = Rs 55, 000 for 100 pieces
CGST @ 8 %* = Rs 4400 / SGST @ 6%* = Rs 3300
Final invoice amount = Rs 62,700/* Rates are only for illustration. Final GST rates have not yet been fixed by the government
The purchaser will have to pay the vendor Rs 62,700/- towards the goods and taxes. He will get the following
CGST and SGST credit:
CGST credit = Rs 4400
SGST credit = Rs 3300
The vendor will have a CGST payable of Rs 4400 and SGST payable of Rs 3300 to the government.
However, he will actually pay a CGST and SGST payable only on the value addition after adjusting the
CGST and SGST credits he received on the input side.
23
1. It needs to be clarified at what point the purchaser become eligible for the credit of CGST and SGST.
Would the purchaser be allowed to take the CGST and SGST credit once he receives the GST
invoice from the vendor (as is the case with CENVAT currently) or will it be at the time of making the
payments to the vendor (deferred tax concept which existed for service tax).
2. Proof of credit: Would commercial invoices act as proof of Input tax credit. Or would there be a
separate tax invoice like excise invoice? Will Excise Invoice continue?
3. Would the purchaser need to maintain registers for tracking the CGST and SGST credit, similar to
the RG23 registers maintained for CENVAT credit?
4. Does the purchaser need to record SGST credit accumulated from different states in different
registers since the SGST will be state specific?
5. Would the CGST and SGST collected by the vendor have to be paid to a common tax authority
present in the state or would this have to be remitted to different authorities one specific to the
state and one central authority?
6. Will there be any difference in treatment of raw material, capital goods and finished goods in the
procurement process or reporting process?
7. For capital goods, will the rule of only 50% of credit being available in the first year of purchase still
hold good for CGST and SGST?
8. Will Daily Stock Account (RG1) and RG23 Registers still be valid?
9. Will input credit be available for First Stage Dealers?
10. Evaluated Receipt Settlements: In this case invoices are not raised by the vendor. How can this be
addressed?
24
II.
Domestic Interstate Procurement Goods (Raw Material)

Interstate procurement of Goods / Materials refers to the process of purchase of goods by a business
organization (Manufacturing entity, Dealer, Depot etc.), wherein Buyer and the Selling organizations
reside in different State (Region). Any such transactional movement of excisable goods is levied with
Excise tax as per the central excise legislation and is subject to Central Sales Tax (CST) w.r.t
commercial distribution of goods. CST paid cannot be used as tax credit and will be added to the
cost of the Material.
25
Process Overview:
Excise Tax + CST.
b) Goods are delivered at buyers premises and Goods receipt is carried out. This will update the RM
stock and RG23A Part -1 register with quantity of material receipt accepted.
c) Excise Invoice is then captured in the system either with GR or explicitly, depending on the
configuration. RG23A Part -2 register will also get updated with Input Excise Credit booked for each
duty component.
d) Supplier invoice received is then captured, booking the vendor payable clearing the Cenvat Account.
GST Scenario:
In case of inter-state domestic procurement of goods the IGST model for taxation will be applicable.
As per the IGST model, the center will levy IGST on all inter-State transactions of taxable goods and
services. IGST will be computed as CGST plus the SGST component of the destination state.
The IGST model will work in the following way:

The Centre will levy an IGST (rated at the combined Central GST plus State GST rates) on all
inter-state transactions of goods and/or services with appropriate provisions to be made for
consignment or stock transfer of goods
Inter-state vendor would levy the IGST (CGST + SGST) on inter-state transactions involving
sale of goods
The exporting vendor will have to pay IGST on value addition after adjusting available input tax
credit of IGST, CGST, and SGST.
Exporting State will transfer to the Central Government the amount of SGST credit utilized by the
inter-state vendor to discharge output IGST liability in that State;
Importing purchaser will claim the input tax credit of the IGST in his own state by adjusting this
credit against his output liability
Central Government would accordingly transfer the amount of IGST used in payment of SGST to
the account of importing State; and
26
Central agency will act as clearing house mechanism and be responsible for monitoring and
verifying credit movements and accordingly inform respective Government authorities to transfer
funds.

A factory in Karnataka raises an order of 100 pieces of steel rods used for manufacturing from a
vendor in Madhya Pradesh. The vendor receives the order and dispatches the steel rods to the
factory. He then issues an invoice for the steel rods.
Invoice details:
IGST = CGST + SGST = Rs 7700 / (CGST @ 8 %* = Rs 4400 and SGST @ 6%* = Rs
3300)
The purchaser will have to pay the vendor Rs 62,700/- towards the goods and taxes. He will get the
following IGST credit in Karnataka:
IGST credit = Rs 7700
The purchaser can use this IGST to set off his output tax liability in Karnataka.
The vendor will have a IGST payable of Rs 7700 to the Center. However, he will actually pay a IGST
payable only on the value addition after adjusting the IGST, CGST and SGST credits he received on
the input side.
27
1. Would the IGST rate differ from state to state based on the destination state regulations or would
there be a common IGST rate defined for goods / services which will be applicable in case of any
inter-state transactions?
2. What is the information required to be submitted by any organization to ensure that IGST credit
can be taken and at what frequency?
3. When would the purchaser in the importing state be availing the input credit on the IGST paid?
4. Will the procedure related to road permits/ way bills be discontinued?
5. Would C forms / F forms no longer be applicable?
6. Would there be an introduction of a centralized tool which will allow for tracking of IGST credit
transfer between states? Would there be a provision for end-users to track the status of credit
transfer in case of inter-state transactions through such a tool? Would the document submission
for this tool be in the form of a e-file?
7.
In case of a inter-state transaction, would the vendor selling out of state need to maintain a
separate register for such transactions? Would the inter-state transactions need to be reported
separately by the vendors and would there be any difference in the IGST payment to the tax
authority from the normal SGST payment?
8. Would separate reporting / book keeping for inter-state transactions (New register)be required?
9. Can SGST Input credit be used to utilize IGST payable?
10. Destination plant/customer takes full credit of IGST. If he does not have output IGST, can this be
utilized against SGST payable?
11. If all states do not move to the GST regime, how will inter state sales/transfer between GST and
Non GST states be managed?
28
III.
Domestic Procurement : Capital goods

Capital Goods are procured by the organizations and treated as Fixed Assets in the books. Tax Credit
with respect to such procurement of capital goods received in a factory at any point of time in a given
financial year shall be taken only for an amount not exceeding a certain percentage (as defined by the
state legislation) of the duty paid on such capital goods in the same financial year. The balance of credit
may be taken in any financial year subsequent to the financial year in which the capital goods were
received in the factory of the manufacturer, if the capital goods, are in the possession of the
manufacturer of final products.
29
Process Overview:
a) Create Purchase order with Non- exempt Vendor for Excisable Capital and Tax-Code for Excise Tax
(CG).
b) Goods are delivered at buyers premises and Goods receipt is carried out. This will update the CG
stock and RG23C Part -1 register with quantity of material receipt accepted.
c) Excise Invoice is then captured in the system either with GR . RG23C Part -2 register will also get
updated with x% Input Excise Credit booked for each duty component. Whereas the balance x%
Credit will be posted to Cenvat on Hold A/c and will not be available for set-off in the current financial
yr.
d) Supplier invoice received is then captured, booking the vendor payable and clearing the Cenvat
Account.
f)
Subsequent Credit can be availed in the next financial year. This will transfer the x% credit on hold to
input credit A/c.
GST Scenario:
Under GST era, in case of domestic procurement of capital goods, the applicable indirect taxes will be CGST
and SGST, in case of intrastate procurement and IGST, in case of interstate procurement. The CENVAT
credit rules in case of capital goods state that the purchaser can avail only upto 50% of the input credit during
the first year of purchase of the capital good. The remaining credit can only be availed in the next year
onwards.
The 13th Finance commission however recommends that there should be no difference between the
treatment of raw material and capital goods in terms of the input credit in the GST regime.
Clarifications Sought:
1. Will input credit arising out of capital goods be treated the same as the input credit from raw material,
i.e., the entire input credit can be used for setoff during the first year of purchase itself?
2. Will there be no need to maintain separate registers for raw material and capital goods stock and
credit account like the existing RG23A/ RG23C Part 1 and RG23A/ RG23C Part 2 registers?
30
IV.
Domestic Procurement Services

Service Tax is an indirect levy and is applicable to certain services specified as per the Finance Act
1994 as amended. This tax is levied on the gross amount received by the service provider for taxable
services rendered. Service tax credit can be availed only after the payment to the service provider for
the amount of services provided.
31
Process Overview:
a) Create Purchase order with Non- exempt Vendor for Service Material and Tax-Code for Service Tax.
b) Services are rendered at buyers premises and Service Receipt is carried out . This will book the
service expense with the amount of service accepted.
c) Service Invoice is then received for the service s rendered and will be captured in the system,
debiting the Service tax applicable to an interim a/c and SR/IR Clg a/c . Vendor payable are also
credited for payment.
d) Vendor due payment is done to clear the account payables.
e) After the service payment only service tax paid will be transferred from interim a/c to service tax final
a/c and made available as input credit. ST credit will not be transferred unless full payment is done to
the service provider
GST Scenario:
In the GST regime, the applicable taxes on the procurement of services will be CGST and SGST instead of
the prevalent Service tax. In the case of inter-state procurement of services, IGST (CGST + SGST) will be
applicable and in case of imports of services, CGST and SGST will be applicable.
The vendor will issue an invoice charging the CGST and SGST components as tax and the purchaser will
claim credit of the CGST and SGST paid to the vendor by him.
Let us consider an example of a domestic intrastate provision of services:
A company in Karnataka requests for auditing services from a Chartered Accountancy firm. The audit is a
onetime service which the accountancy firm will be providing to the company. The firm provides the service
and raises an invoice for the same
Invoice details:
Auditing Service @ Rs 5000 per hour = Rs 50, 000 for 10 hours
CGST @ 8 %* = Rs 4000
SGST @ 6%* = Rs 3000
The purchaser will have to pay the vendor Rs 57,000/- towards the provision of the service. He will get the
following CGST and SGST credit:
The vendor will have a CGST payable of Rs 4000 and SGST payable of Rs 3000 to the government. He can
however adjust the input tax credit of CGST and SGST against his output tax liability.
32
Determination of origin and destination state in case of provision of Service:
1. In case of a scenario where the service provider and recipient are from the same state but service
provider engages 3rd party from a state. Will this be deemed as an inter-state transaction? How
would the credit distribution happen?
2. Consider the following scenarios extending to the example mentioned above:
3. If the company is in Karnataka and the Chartered Accountancy firm is also Karnataka, however the
CA firm hires external consultants from Maharashtra to complete the service. In such a case, will this
transaction be an inter-state transaction?
4. If the company is headquartered in Karnataka and the Chartered Accountancy firm is in Andhra
Pradesh, however the CA firm hires external consultants from Maharashtra to complete the service.
Which of the two states, Andhra Pradesh or Maharashtra, will be considered as the origin state?
5. In case of agreement contracts for services, will the SGST be from the state where the agreement
was executed or from the state where the services will be provided, in case the two states are
different?
6. Consider the following scenarios extending to the example mentioned above:
7. If the company is headquartered in Karnataka and the Chartered Accountancy firm is also Karnataka,
but the service is required to be provided in the companys office in Kerala. Considering that the
payment is being made from the headquarters in Karnataka, will this be considered as an inter-state
or intra-state transaction?
8. If the company is headquartered in Karnataka and the Chartered Accountancy firm is in Maharashtra,
but the service is provided by the firms external consultants situated in Kerala to the companys
office in Kerala. Considering that the payment is being made from the headquarters in Karnataka,
which of these states will be origin state and which will be the destination-state?
33
V.
Import Procurement Goods (Raw Material)

Import procurement of Goods / Materials refers to the process of purchase of goods by a business
organization (Manufacturing entity, Dealer, Depot etc.), wherein the Selling organization reside in a
different Country. Any such transactional movement of excisable goods is levied with Customs Duty
(CD) paid at the port of entry into the Buyer Country and Countervailing (CVD) Duty which is
equivalent to Excise duty and eligible as Input Tax Credit.
34
Process Overview:
Excise Tax.
b) Custom Duty needs to be paid on Goods Arrival before the goods receipt at the premises.
Commercial Invoice is captured in system for such customs duty payment to authorities, debiting the
CD and CVD Clg a/c against custom Duty payable A/c . Such payable gets cleared when the
payment is done by the buyer.
c) Goods are delivered at buyers premises and Goods receipt is carried out. This will update the RM
stock and RG23A Part -1 register with quantity of material receipt accepted. The customs duty paid
will be inventorized.
d) Excise Invoice is then captured in the system either with GR. RG23A Part -2 register will also get
updated with Input CVD Credit booked.
e) Supplier invoice received is then captured, booking the vendor payable and clearing the Cenvat
Account.
f)
Vendor due payment is done to clear the account payables.
GST Scenario:
All goods imported into India have to pass through the procedure of Customs clearance as they cross Indian
border. The goods are examined, appraised, assessed, evaluated and then allowed to be taken out of charge
of the Customs for use by the importer at the port of entry.
In the GST regime, both CGST and SGST will be levied on import of goods and services into the country.
The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to
the State where the imported goods and services are consumed. Full and complete set-off will be available
on the GST paid on import on goods and services.
The importer will need to pay the CGST and SGST components as tax and he will be able to avail input
credit on the entire CGST and SGST paid.
Let us consider an example of import of microchips from Korea to India:
An importer in Karnataka raises an order of 100 pieces of microchips from a foreign vendor in Korea. The
foreign vendor receives the order and dispatches the microchips to India via ship. The port of entry into India
is Bombay in Maharashtra state. The foreign vendor issues an invoice of the following amount:
Invoice details:
Microchips @ USD 20 per piece = USD 2000 for 100 pieces
Final invoice amount = USD 2000/At the port of entry, the following duties are charged by Indian government as imports duty:
CGST @ 8 % of goods value = Rs 8000 (exchange rate at Rs 50 per USD)
35
SGST @ 6% of goods value = Rs 6000

The purchaser will have to pay the vendor USD 2000 towards the payment of the goods and Rs 14,000 as
imports duty to the Indian government. He will get the following CGST and SGST credit:
The importer will get the credit of Rs 6000 as input credit in the state of Karnataka since the SGST is
collected by Karnataka which is the state where the goods are finally consumed and not in Maharashtra
where the goods are received into India.
1. Would the basic duty of customs (BCD) still remain? Would the Education Cess and Secondary and
Higher Education Cess applicable in case of imports still exist separately on the CGST and SGST or
would these be included in the CGST and SGST?
2. What will happen to the imports processes such as DEPB, EPCG? Will there be provision of advance
licenses like the ones existing for exempting CVD and SAD?
3. Import of Services: Will Reverse charge continue for Imports?
36
4. Would the appropriate state for collecting SGST on imports be the state where the goods are cleared
or the state where the goods are consigned for ultimate use or trading?
5. Would there be a case where SGST would be applicable based on the state of the port and then
IGST will be applicable in the transfer between the state of the port and the final destination state?
6. What will be the reporting requirements specific for imports process?
7. Will the importer need to maintain a separate register/ books for imports?
8. What will be the proof for taking credit for CGST and SGST? Will there be a GST invoice issued by
the customs department or will there be any other document issued in case of imports with reference
to which the credit of CGST and SGST can be taken?
37
C. SALE OF GOODS & SERVICES

I.
Domestic Intrastate Sale Goods (Raw Material)

Intrastate Sale of Goods / Materials refers to the process of sale of goods by a business organization
(Manufacturing entity, Dealer, Depot etc.), wherein Buyer and the Selling organizations reside in the
same State (Region). Any such transactional movement of excisable goods is levied with Excise tax
as per the central excise legislation. On the other hand Value Added Tax (VAT) is a consumption tax
levied on the commercial distribution of goods.
38
Process Overview:
a) Create Sales order with Non- exempt Customer for Excisable Raw Material and Tax-Code for Excise
Tax + VAT.
b) Goods are delivered from buyers premises and Goods Issue is carried out. This will update the RM
stock and RG23A Part -1 register with quantity of material Issued.
c) Customer invoice is then created, booking the Sales Revenue , Customer receivable and VAT and
Excise Payable. Excise Invoice can be posted in background or explicitly. RG23A Part -2 register will
also get updated with Excise Credit (immediate utilization).
d) Customer Receivable gets cleared on receipt of payment from customer.
GST Scenario:
In case of domestic sales of goods within the same state, the applicable indirect taxes will be CGST and
SGST. The vendor will issue an invoice charging the CGST and SGST components as tax. The vendor will
be liable to pay the CGST and SGST collected. The SGST must be remitted to the same state as the origin
and destination state are the same.
A vendor in Karnataka receives an order of 100 pieces of steel rods used for manufacturing from a factory in
the same state. The vendor receives the order and dispatches the steel rods to the factory. He then issues
an invoice for the steel rods.
Invoice details:
CGST @ 8 %* = Rs 4400
SGST @ 6%* = Rs 3300
The vendor will have a CGST payable of Rs 4400 and SGST payable of Rs 3300 to the government.
However, he will actually pay a CGST and SGST payable only on the value addition after adjusting the
CGST and SGST credits he received on the input side. Assuming he had bought raw material (steel) to make
the steel rods and had the following input credit:
Hence after carrying out the input credit setoff, he would pay the government:
CGST payable = Rs 4400 Rs 1000 = Rs 3300
SGST payable = Rs 3300 Rs 750 = Rs 2550
39
1. Would the CGST and SGST payable be due for payment once the invoice has been generated?
2. Would the tax payment be monthly?
3. Would there be a need to maintain a PLA register for payment of excessive payable amounts in case
of insufficient input credits available for set-off?
4. Will TR6C challan still be required? If not, what would be the new mode of payment?
5. Document Numbering- Would there be multiple document numbers required for CGST and SGST or
would it be a single document number?
6. VAT Numbering: What would be the new numbering rules for Intra State and inter state transactions?
40
II.
Domestic Interstate Sale Goods (Raw Material)

Interstate Sale of Goods / Materials refers to the process of sale of goods by a business organization
(Manufacturing entity, Dealer, Depot etc.), wherein Buyer and the Selling organizations reside in
different States (Region). Any such transactional movement of excisable goods is levied with Excise
tax as per the central excise legislation. On the other hand Central Sales Tax (CST) is a consumption
tax levied on the commercial distribution of goods.
41
Process Overview:
a) Create Sales order with Non- exempt Customer for Excisable Raw Material.
b) Goods are delivered from buyers premises and Goods Issue is carried out. This will update the RM
c) Customer invoice is then created, booking the Sales Revenue , Customer receivable and VAT and
Excise Payable. Excise Invoice can be posted in background or explicitly. RG23A Part -2 register will
also get updated with Excise Credit (immediate utilization).
GST Scenario:
In case of inter-state domestic sales of goods the IGST model for taxation will be applicable. As per the IGST
model, the center will levy IGST on all inter-State transactions of taxable goods and services. IGST will be
computed as CGST plus the SGST component of the destination state.
The IGST model will work in the following way:
The Centre will levy an IGST (rated at the combined Central GST plus State GST rates) on all interstate transactions of goods and/or services with appropriate provisions to be made for consignment
or stock transfer of goods.
Inter-state vendor would levy the IGST (CGST + SGST) on inter-state transactions involving sale of
goods
The exporting vendor will have to pay IGST on value addition after adjusting available input tax credit
of IGST, CGST, and SGST.
Exporting State will transfer to the Central Government the amount of SGST credit utilized by the
inter-state vendor to discharge output IGST liability in that State.
Importing purchaser will claim the input tax credit of the IGST in his own state by adjusting this credit
against his output liability.
Central Government would accordingly transfer the amount of IGST used in payment of SGST to the
account of importing State; and
Central agency will act as clearing house mechanism and be responsible for monitoring and verifying
credit movements and accordingly inform respective Government authorities to transfer funds.
A vendor in Madhya Pradesh receives an order of 100 pieces of steel rods used for manufacturing from a
factory in Karnataka. The vendor receives the order and dispatches the steel rods to the factory. He then
issues an invoice for the steel rods.
42
Invoice details:
IGST = CGST + SGST = Rs 7700
(CGST @ 8 %* = Rs 4400 and SGST @ 6%* = Rs 3300)
The vendor will have a IGST payable of Rs 7700 to the Center. However, he will actually pay IGST payable
only on the value addition after adjusting the IGST, CGST and SGST credits he received on the input side.
Assuming he had bought raw material (steel) to made the steel rods and had the following input credit:
CGST credit = Rs 1000, SGST credit = Rs 750
Hence after carrying out the input credit setoff, he would pay the government:
IGST payable = Rs 7700 Rs 1750 = Rs 5950
The SGST payable equivalent will be transferred to the destination state, i.e., Karnataka by the Center /
clearing house.
1. Would there be an introduction of a centralized tool which will allow for tracking of IGST credit
transfer between states? Would there be a provision for end-users to track the status of credit
transfer in case of inter-state transactions through such a tool?
2. Would the document submission for this tool be in the form of a e-file?
43
3. In case of a inter-state transaction, would the vendor selling out of state need to maintain a separate
register for such transactions? Would the inter-state transactions need to be reported separately by
the vendors and would there be any difference in the IGST payment to the tax authority from the
normal SGST payment?
4. Can SGST Input credit be used to utilize IGST payable?
5. Would separate reporting / book keeping for inter-state transactions (New register)be required?
6. Destination customer takes full credit of IGST. If he does not have output IGST, can this be utilized
against SGST payable?
7. If all states do not move to the GST regime, how will inter state sales between GST and Non GST
states be managed?
8. Will Sales return also have IGST as applicable?
44
III.
Domestic Sale Services

Service Tax is an indirect levy and is applicable to certain services specified as per the Finance Act
1994 as amended. This tax is levied on the gross amount received by the service provider for taxable
services rendered.
45
Process Overview:
a) Create Sales order for Service Material and Tax-Code for Service Tax.
b) Services are rendered at buyers premises and Service acceptance is carried out.
c) Service Invoice is then raised for the service s rendered. This books the Service revenue and Service
tax payable.
GST Scenario:
In the GST regime, the applicable taxes on the sale of services will be CGST and SGST instead of the
prevalent Service tax. In the case of inter-state sale of services, IGST (CGST + SGST) will be applicable and
in case of exports of services, GST will be zero-rated.
The vendor will issue an invoice charging the CGST and SGST components as tax and the purchaser will
claim credit of the CGST and SGST paid to the vendor by him.
Let us consider an example of a domestic intrastate sale of services:
A Chartered Accountancy firm in Karnataka receives a request for auditing services from a company. The
audit is a onetime service which the accountancy firm will be providing to the company. The firm provides
the service and raises an invoice for the same.
Invoice details:
Auditing Service @ Rs 5000 per hour = Rs 50, 000 for 10 hours
CGST @ 8 %* = Rs 4000
SGST @ 6%* = Rs 3000
The vendor will have a CGST payable of Rs 4000 and SGST payable of Rs 3000 to the government. He can
however adjust the input tax credit of CGST and SGST against his output tax liability.
Point of Taxation:
1. Point of Taxation is defined as the point at which the service tax payable liability is to be created. At
present, the point of taxation for service tax is defined as the following:
2. Date of invoice or payment, whichever is earlier, if the invoice is issued within the prescribed
period of 14 days from the date of completion of the provision of service.
46
3. Date of completion of the provision of service or payment, if the invoice is not issued within
the prescribed period as above.
4. In the GST regime, what will be the point of taxation during the sales of services?
5. Will the point of taxation for goods and services differ?
6. Will it be mandatory for service providers to record the date of provision of service for audit purpose?
Will there be a need for a separate register to track the provision of service?
7. What will be the reporting requirements for sale of service?
47
IV.
Export Sale Goods (Raw Material)
Export Sale of Goods / Materials refers to the process of sale of goods by a business organization
(Manufacturing entity, Depot etc.), wherein buying organization reside in different Country. Any such
transactional movement of excisable goods is levied with Excise tax.
However Manufacturing plants are entitled not to pay any basic excise duty on export sales, as long as
the goods are accompanied by required documentation (ARE forms linked to Excise Bonds issued by
Excise Authorities) as per the central excise legislation. An excise bond covers a fixed amount of excise
duty. The excise duty of the goods exported under bond cannot exceed the bond value.
If the Excise Bond cannot be obtained, the any excise duty liable when removing goods from your
premises for export must be paid. However, manufactured can claim a rebate for the excise duty once
you have completed the export if you fill out an ARE-1 to go with the export. In order to qualify for a
rebate on the excise duty, all exports must be accompanied by the appropriate paperwork, including an
ARE-1 document, and you must complete the export within the export period.
A sale of goods, in India, to a company that qualifies as an export-oriented unit or is located in one of the
following:
Export processing zone
Electronic hardware technology park
Software technology park
is termed as Deemed Export. Such companies export most of their goods; and so any goods that you
sell them are liable to be used in the production of goods for export, hence the term "deemed export."
Under the terms of the deemed exports scheme, these companies can obtain licenses that exempt them
from payment of basic excise duty on certain input materials. In order to qualify for an exemption from
excise duty, all deemed exports must be accompanied by the appropriate paperwork, including an ARE-3
document, and you must complete the deemed export within the re-warehousing period.
Lets take the scenario of Exports under Excise Bond, wherein Excise duties to the extent of Bond are
not payable to the authorities for an export sale.
48
Process Overview:
a) An Excise Bond is obtained from the Excise Authorities and Entered into the System for the purpose
of tracking and monitoring of the Export sales under the same.
b) Create a Sales Order with excisable material and with customer abroad (Ship to party outside the
country).
c) Good Delivery is carried out, with appropriate treatment to stock. ARE -1 document is then created
with the details of goods being delivered and corresponding reference to the Bond created in step (a)
is given.
49
d) Once ARE-1 document is posted corresponding Bond value get reduced by the export value.
e) An Excise invoice is also created and posted with type Under Bond with the details on goods
exported and the duties involved. Exports under bond are not subject to excise duty and thus do not
attract any excise taxes. Even though the excise duty is zero, when you print the excise invoice, the
system calculates the duty for the purposes of printing.
f)
Commercial Invoice / Billing document is then posted booking the Account receivables.
g) Receivables get cleared once the payment is received from the customer.
GST Scenario:
In the GST regime, all goods and services exported out of India will be zero-rated, i.e., no tax would apply on
exports, and the input credit relatable to such export supplies would be allowed to be used against other
domestic liabilities or refunded.
Treatment of SEZs:
The discussion paper stated that supply of goods and provision of services, to processing zones in a Special
Economic Zone (SEZ) would be zero rated. However, sales of goods and provision of services by a SEZ to
Domestic Tariff Area will be liable to GST.
The 13th Finance commission however recommends that there should be no such exemptions in SEZs.
Clarification Sought:
1. How will the SEZs currently having exemptions from central excise, CST, service tax and VAT be
treated in terms of GST applicability? What will be the status of all the exemption schemes available
for exports?
2. Would there no longer be exemptions for SEZs and EOUs? Will there be a refund process applicable
in these scenarios?
3. In case of taxes paid on exports will be refunded, what will be the refund mechanism? Will there be a
report which needs to be filed specifically for export transactions?
4. What will happen to the credit availed on GST paid on inputs for deemed export supplies?
5. Would ARE1 and ARE3 continue?
6. Would IGST be applicable for deemed exports?
7. Since exports will be zero-rated, will the concept of bond cease to exist in the GST regime?
50
D. STOCK TRANSFERS
Whenever there is movement of excisable goods excise duty needs to be paid to the kitty of the Government.
To facilitate the payment of Excise Tax, calculation and determination of Excise Tax needs to be carried out.
Stock transfers from one Manufacturing Location (Plant 1) to another (Plant 2) involve movement of goods
and is subject to excise tax payment. The same is passed to the receiving plant and can be utilized as input
credit.
51
Process Overview:
a) Create Stock Transfer order with respect to transfer of Excisable Raw Material, from Plant 1 to Plant
2.
b) Goods Issue is carried out at Plant 1 debiting the stock at Plant 1 and crediting the same at Plant 2
stock. Part-1 register is also updated with the quantity of stock transferred.
c) Excise Invoice is then issued for the Stock transfer posting the Cenvat payable RG23A Part -2
register will also get updated with Excise tax applicable.
d) Excise taxes are duly paid clearing the Cenvat Payable A/c.
e) Goods are then received at Plant- 2, with no accounting doc posted. Part -1 register gets updated
with Qty received.
f)
Incoming Excise Invoice gets captured, Part 2 register also gets updated with Input credit booked.
GST Scenario:
In case of domestic transfer of goods within the same state, the applicable indirect taxes will be CGST and
SGST. The transferring plant will issue an invoice charging the CGST and SGST components as tax. The
transferring plant will be liable to pay the CGST and SGST collected. The receiving plant will receive the
input credit for the CGST and SGST paid.
In case of inter-state transfer of goods, the IGST model for taxation will be applicable. IGST will be computed
as CGST plus the SGST component of the destination state.
Let us consider an example of transfer of raw material used in manufacturing from a plant A in Karnataka to
plant B also in Karnataka:
Plant A in Karnataka receives an stock transfer order of 100 pieces of steel rods used for manufacturing from
plant B in the same state.
GST Computation:
Assessable value of Steel Rods @ Rs 550 per piece** = Rs 55, 000 for 100 pieces
CGST @ 8 %* = Rs 4400
SGST @ 6%* = Rs 3300
** Our assumption is that in case of Stock Transfer, CGST and SGST will be computed on the assessable
value of the goods however this needs to be confirmed.
The transferring plant will have a CGST payable of Rs 4400 and SGST payable of Rs 3300 to the
government. However, he will actually pay a CGST and SGST payable only on the value addition after
adjusting the CGST and SGST credits he received on the input side.
The receiving plant will receive an input CGST credit of Rs 4400 and SGST credit of Rs 3300.
52
1. In case of stock transfer, on what base would the tax be computed on? Would it be on the
assessable value?
2. Will an invoice need to be generated from the transferring plant in case of stock transfer? Will there
be a fixed format for this invoice? (like excise invoice, would there be a GST invoice?)
3. Document Numbering- Would there be multiple document numbers required for CGST and SGST or
would it be a single document number? Would invoice numbering be valid even for stock transfers?
4. Destination plant/customer takes full credit of IGST. If he does not have output IGST, can this be
utilized against SGST payable?
5. If all states do not move to the GST regime, how will inter state sales/transfer between GST and Non
GST states be managed?
6. Will Stock returns or Sales return also have IGST as applicable?
53
E. SUBCONTRACTING
Subcontracting refers to the process wherein Raw materials or components are sent out to a subcontractor
for processing and receiving them back. There are two main parties involved in the process an Mfg Plant and
a Subcontractor. Since this process involves the movement of goods from manufacturing premises, it
attracts the excise tax provisions under Cenvat rules.
However, Under Excise law, when you send materials to a subcontractor for processing, Excise duty
payment is not required, even though the materials have left the premises. However, if the materials have not
been returned back within a given length of time specified by the law (180 days), Excise Credit posted at the
time of purchase of such goods have to be reversed . A Re-Credit can be taken if the material is returned
later against the pending-challan.
54
Process Overview:
a) Create Purchase order with Non- exempt Vendor for Excisable Raw Material and Tax-Code . Excise
tax applicable will be a condition type at the order.
b) Subcontracting Goods are then transferred from RM stock to Subcontracting stock, with reference to
PO created at step a..
c) Excise Invoice is then created and posted with reference to Transfer posting doc created at step b.
RG23A register will be updated with the Duties and qty of RM transferred to subcontractor.
d) ON receiving the goods from Subcontractor, Excise invoice is then captured w.r.t Subcontracting PO.
This will generate the Excise invoice no.
e) Goods Receipt is then carried out w.r.t the subcontracting PO and excise invoice no. is saved along
with material doc. This will also update the RM stock with the Material received. RG23A Part 1 is also
updated.
f)
Excise Invoice captured at step (d) is then posted with the duties involved. Part II register gets
updated with the Duties and the credit is available.
g) Subcontractors invoice is captured and posted
GST Scenario:
The discussion paper on GST does not explicitly describe how the subcontracting process will be impacted in
the GST era. Our assumption is that the existing subcontracting process, wherein a 57F4 challan is sent
along with the goods to the subcontractor and then the goods are reconciled against the challan upon
receipt, will no longer continue.
In the GST era, since CGST and SGST will be applicable for each transfer/ sale of goods, we assume that
the same will be applicable on subcontracting of goods. However this needs to be confirmed with the
authorities.
55
1. Will the 57F4 challan for subcontracting still be required to be sent along with the subcontracted
goods?
2. Will there be any specific report required for tracking of subcontracted goods?
3. Will the outgoing process from factory to subcontractor be treated as sales from factory with SGST
and CGST applicable?
4. Will the incoming process from subcontractor to factory be treated as procurement from vendor with
SGST and CGST applicable?
56
F. DEPOT OPERATIONS
I.
Depot Procurement Goods

At times the manufacturing organization requires to do procurement at its Depot for various business
needs. Any such transactional movement of excisable goods is levied with Excise tax as per the
central excise legislation. On the other hand Value Added Tax (VAT) is a consumption tax levied on
the commercial distribution of goods.
Process Overview:
Excise Tax.
b) Goods are delivered at buyers Depot and Goods receipt is carried out.
57
c) Excise Invoice is then captured in the system updating RG23D register with Input Excise Credit
booked for each duty component.
d) Supplier invoice received is then captured, booking the vendor payable and clearing the Cenvat
Account.
II.
Depot Sales Goods

At times the manufacturing organization first ships the Goods to at its Depot and sells it from
therefore various business needs. Any such transactional movement of excisable goods is levied
with Excise tax as per the central excise legislation. However Sales from depots are handled
differently from sales from factories because of excise law: Excise duty is payable when you send the
goods from the factory to the depot, but it is not levied again when you sell the goods. Sometimes
when you make a final sale of goods from a depot, price escalations could have happened with
retrospective effect. In such scenarios you need to pay the extra excise duty at the factory using an A
Certificate. You need to register the A certificate details in the RG 23D register and the excise
recovered from the customer.
58
Process Overview:
a) Create Sales order with Non- exempt Customer for Excisable Raw Material.
b) Goods are delivered from buyers premises and Goods Issue is carried out. This will update the FG
c) Assign Excise Invoices to the O/b Delivery. RG23D Part -2 register will also get updated with Excise
Credit.
d) Customer invoice is then created, booking the Sales Revenue , Customer receivable and VAT and
Excise Payable.
e) Customer Receivable gets cleared on receipt of payment from customer
GST Scenario:
The discussion paper on GST does not explicitly describe how the depot operations will be impacted in the
GST era. However, since in the GST era, CGST and SGST will be applicable for each transfer/ sale of
goods, we assume that the same will be applicable on case of transfer or sale to depots. However this needs
to be confirmed with the authorities.
59
1. Will the depot concept (being tax neutral) still exist post-GST since GST will be applicable at each
step of consumption and will not differ based on manufacturing or trading activity?
2. In case the depot concept will not continue, will a warehouse/ depot be treated in the same manner
as a factory?
3. Can credit be passed on to depot and utilized henceforth?
4. Will there be a need to maintain a register similar to the RG23D register which tracks the stock in the
depot?
5. Will there be a need to link the depot excise invoices to the mother excise invoices received from
factories?
6. In case of price escalations at the factory, would the process of A certificate issue to depot still hold
good?
7. In case of inter-state stock transfer from factory to depot, would IGST be applicable instead of
SGST?
60
G. LEGAL REPORTING
Tax Reporting is an integral part of the business operations with respect to leagl compliance. As of today
following are few of the Legal Reports (Tax Returns) required to be submitted to the Tax Authorities or
kept for by organizations for audit purposes, as mentioned below:
ER1 return (vide Notification No.71/ 2003-Central Excise (N.T.) )
ST3 for service tax
RG23 Register Reports (RG23A/C Part 1 and Part 2, PLA, RG23D, RG1)
Proforma Register under Rule 9(5) of Cenvat Credit Rules 2004
VAT Returns (state-specific)
Depot Stock Register
Exports related reports:
Proforma of Running Bond Account
Statement regarding Export of Excisable Goods
Bond Summary Report
Deemed Export License Summary
Ageing Analysis for ARE documents
1. Since these reports are applicable under the Cenvat Credit Rules, would these reports still be
applicable in the GST regime?
2. Which reports will be legally required by the tax authorities in the GST regime? Will there be different
reports for the central tax authority and for the states?
3. Will there be different state specific formats for State reports?
4. Will there be a need to report different business processes such as inter-state transactions attracting
IGST, import transaction, exports transactions etc, separately?
GST Returns E-Filing

Similar to the existing applications for E-filing of ER1, Service Tax and Dealers Returns, there is a need for efiling of GST Returns. This return would report details of all incoming and outgoing transactions attracting
GST. The understanding is that GST registered individuals will be able to file GST returns on the GST portal
(GST Network).
61
1. Who will be eligible to file GST returns online?
2. Will there be a common Return for central GST and state GST or will there be separate returns for
each state?
3. Will all different business processes need to be reported separately while filing the return?(e.g. would
imports and exports have to be reported differently from domestic procurement and sales?)
4. Will there be separate filing required for business processes attracting IGST, SGST?
5. At what level will the filing be done? Will it be at the central registration number for an enterprise
having cross-state operations or would it be at each state level registration?
6. Will an acknowledgement be generated once the Return is successfully filed?
7. Will e-payment also be possible for the payable CGST, SGST to the government?
Need for Software Vendors:

a) We understand that GST returns will have to be uploaded by customers on the GST Portal (GST
Network) which is being built by the government. Can the format of the return be shared with
software vendors so we can work on providing an automated solution for industries to fil this return.
b) Different applications for e-filing returns expect different input either by the means of upload of files
of a specified format or else manual input of each detail by the assesse in the online mode. However,
in case the assesse is expected to enter the values of each section of the report manually in the
online mode, this leads to risk of mistakes during entry. This can be avoided if the application
expects a file to be uploaded which contains all the information required for the return and this in turn
is interpreted by the application and the report is generated accordingly. The assesse can use their
ERP software like SAP to generate the file in the specified format containing all the details related to
the transactions carried out during the reporting period.
c) It would help to have a validation utility tool which will check the file for mandatory fields, incorrect file
format etc prior to the upload of the file into the E-filing interface. This will reduce the chances of
having files rejected by the tax authority due to incorrect format or missing data.
d) Our assumption is that the government will also provide interfaces for assesses to file GST Returns
on the GST Portal. In order to be compatible with the interface, SAP would require more information
on the E-filing tool being developed for GST Returns and on the file to be uploaded into the interface.
Important information like the format of the file (XML or txt file), whether a utility will be provided to
validate the return being uploaded and the information content required to be put in the file would be
needed by SAP in order to aid assesses with the e-filing process for GST Returns.
62
ANNEXURE I : ACCOUNTING TREATMENT FOR BUSINES SCENARIOS

I.
Domestic Intrastate Procurement : Goods (Raw Material)

Example: A PO is raised on Vendor for Material for Qty = 1 PC, at the rate of Rs.1000 per Pc, with
applicable BED @ of 16%, SED @ 4% and ECess @ 2%., VAT @ 10%.
Accounting scheme:
Sr.No. Particulars
Goods Receipt
1.
Raw Material Stock A/c
2.
GR/IR Clearing A/c
Excise Invoice Capture
1.
RG23 A A/c
4.
Cenvat Clearing A/c
Supplier Invoice Verification
1.
Cenvat Clearing A/c
4.
Input VAT Credit A/c
5.
GR/IR Clearing A/c
6.
Supplier Payable A/c
Supplier Payment
1.
2.
Bank A/c
II.
Debit
Credit
1000
1000
204
204
204
120
1000
1324
1324
1324
Domestic Interstate Procurement : Goods (Raw Material)

applicable BED @ of 16%, SED @ 4% and ECess @ 2%., CST @ 4%.
Accounting scheme:
Sr.No. Particulars
Goods Receipt
1.
Raw Material Stock A/c
2.
GR/IR Clearing A/c
1.
RG23 A A/c
4.
Cenvat Clearing A/c
1.
Cenvat Clearing A/c
5.
GR/IR Clearing A/c
6.
Supplier Payment
1.
2.
Bank A/c
Debit
Credit
1048
1048
204
204
204
1048
1252
1252
1252
63
III.
Domestic Procurement : Capital Goods

applicable BED @ of 16%, SED @ 4% and ECess @ 2%, VAT 10%.
Accounting scheme:
Sr.No. Particulars
Goods Receipt
1.
RM Stock A/c
2.
GR/IR Clearing A/c
1.
Cenvat on Hold A/c (x %)
2.
RG23 C A/c (x %)
3.
Cenvat Clearing A/c
1.
Cenvat Clearing A/c
2.
GR/IR Clearing A/c
3.
Input VAT A/c (x %)
4.
Cenvat on Hold A/c (x %)
5.
Vendor Payable A/c
Supplier Payment
1.
2.
Bank A/c
Subsequent Credit
1.
Input Credit A/c
2.
Cenvat on Hold A/c
IV.
Debit
Credit
1000
1000
102
102
204
204
1000
60
60
1324
1324
1324
162
162
Domestic Procurement : Services

Example: A PO is raised on Vendor for Service for Qty = 10 PC, at the rate of Rs.1000 per Pc,
with applicable ST @ of 12% , ECess @ 2%.
Accounting scheme:
Sr.No. Particulars
Services Receipt
1.
Service purchase A/c
2.
SR/IR Clearing A/c
Service Invoice Capture
1.
SR/IR Clearing A/c
2.
ST Clearing A/c
3.
ECess on ST Clearing A/c
4.
Supplier Payment
1.
2.
Bank A/c
Debit
Credit
10000
10000
10000
1200
24
11224
11224
11224
64
Service Tax Credit Transfer

1.
Input ST Credit A/c
2.
Input ECess ST Credit A/c
3.
ST Clearing A/c
4.
ECess on ST Clearing A/c
V.
1200
24
1200
24
Import Procurement : Goods (Raw Material)

applicable CD @ of 30%, CVD @ 10%.
Accounting scheme:
S.No. Particulars
Customs/ Commercial Invoice Capture
1.
CD Clg. A/c
2.
CVD Clg. A/c
3.
Customs payable A/c
Customs Payment
1.
Customs Payable A/c
2.
Bank A/c
Goods Receipt
1.
RM Stock A/c
2.
GR/IR Clg A/c
3.
CD Clg A/c
1.
RG23 A CVD A/c
2.
CVD Clg A/c
1.
GR/IR Clearing A/c
2.
Vendor Payable A/c
Supplier Payment
1.
2.
Bank A/c
Debit
Credit
300
130
430
430
430
1300
1000
300
130
130
1000
1000
1000
1000
65
VI.
Domestic Intrastate Sale : Goods (Raw Material)

Example:
A Sales Order is raised for Material A for Qty = 1 PC, at the rate of Rs.1000 per Pc,
with applicable BED @ of 16%, SED @ 4% and ECess @ 2%., VAT @ 10%.
Accounting scheme:
Sr.No. Particulars
Goods Issue
1.
FG Stock A/c
2.
COGS A/c
Excise Invoice
1.
Cenvat Clearing A/c
4.
Cenvat Payable A/c
Customer Invoice / Billing
1.
Cenvat Clearing A/c
4.
VAT Payable A/c
5.
Sales Rev A/c
6.
Customer A/c
Customer Receipt
1.
Customer A/c
2.
Bank A/c
VII.
Debit
Credit
1000
1000
204
204
204
120
1000
1324
1324
1324
Domestic Interstate Sale : Goods (Raw Material)

Example: A Sales Order is raised for Material A for Qty = 1 PC, at the rate of Rs.1000 per Pc, with
applicable BED @ of 16%, SED @ 4% and ECess @ 2%., CST @ 4%.
Accounting scheme:
Sr.No. Particulars
Goods Issue
1.
FG Stock A/c
2.
COGS A/c
Excise Invoice
1.
Cenvat Clearing A/c
4.
Cenvat Payable A/c
1.
Cenvat Clearing A/c
4.
CST Payable A/c
5.
Sales Rev A/c
6.
Customer A/c
Customer Receipt
1.
Customer A/c
2.
Bank A/c
Debit
Credit
1000
1000
204
204
204
48
1000
1252
1252
1252
66
VIII.
Domestic Sale : Service

Example: A sales order is raised for Service for Qty = 10 PC, at the rate of Rs.100 per Pc, with
applicable ST @ of 12%, ECess @ 2%.
Accounting scheme:
Sr.No.
Service
1.
2.
3.
Receipt
1.
2.
IX.
Particulars
Invoice
Customer A/c
Service Tax Payable A/c
Sales Revenue A/c
Customer A/c
Bank A/c
Debit
Credit
1122
122
1000
1122
1122
Export Sale : Goods (Raw Material)

Example: A sales order is raised for material for Qty = 10 PC, at the rate of Rs.100 per Pc, with
applicable BED @ of 12%, ECess @ 2%.
Accounting scheme:
Sr.No. Particulars
Invoicing
1.
Customer A/c
2.
CENVAT A/c
3.
Sales Revenue A/c
Receipt
1.
Customer A/c
2.
Bank A/c
Debit
Credit
1000
0
1000
1000
1000
67
X.
Stock Transfers
Example: STO (treated as sale) is raised for Material for Qty = 1 PC, at the rate of Rs.1000 per
Pc, with applicable BED @ of 16%, SED @ 4% and ECess @ 2%.
Accounting scheme:
Sr.No. Particulars
Goods Issue @ plant 1
1.
Plant 2 RM Stock A/c
2.
Plant 1 RM Stock A/c
Excise Invoice Issue
1.
Cenvat Clearing A/c(BED+SED+Cess)
2.
Cenvat Payable A/c
Excise Payment
1.
Cenvat Payable
5.
Bank A/c
Excise Capture at Plant - 2
1.
RG 23A Plant 2 A/c
4.
Cenvat Clearing A/c(BED+SED+Cess)
XI.
Debit
Credit
1000
1000
204
204
204
204
204
204
Subcontracting
Example: A Sub-Con PO is raised on Vendor for Material for Qty = 1 PC, at the rate of Rs.1000
per Pc, with applicable BED @ of 16%, SED @ 4% and ECess @ 2%.
Accounting scheme:
Sr.No. Particulars
Transfer Posting
1.
Subcontracting Stock A/c
2.
RM Stock A/c
Excise Invoice Create and Post
1.
Cenvat Clearing A/c
2.
Cenvat Payable A/c
Goods Receipt
1.
RM Stock A/c
2.
GR/IR Clg A/c
Capture and Post Subcontractors Excise Invoice
1.
Cenvat RG23A A/c
2.
Cenvat Clg A/c
Subcontractors Invoice Verification
1.
GR/IR Clg A/c
2
Cenvat Clg A/c
3
Vendor Payable
Debit
Credit
1000
1000
204
204
1000
1000
204
204
1000
204
1204
68
XII.
Depot Procurements
applicable BED @ of 16%, SED @ 4% and ECess @ 2%.
Accounting scheme:
Sr.No.
Particulars
Goods Receipt
1.
RM Stock A/c
2.
GR/IR Clearing A/c
1.
RG23 D BED A/c
2.
RG23D SED A/c
3.
RG23D ECess A/c
4.
Cenvat Clearing BED A/c
5.
Cenvat Clearing SED A/c
6.
Cenvat Clearing ECess A/c
1.
Cenvat Clearing BED A/c
2.
Cenvat Clearing SED A/c
3.
Cenvat Clearing ECess A/c
4.
GR/IR Clearing A/c
5.
Supplier Payment
1.
2.
Bank A/c
XIII.
Debit
Credit
1000
1000
160
40
4
160
40
4
160
40
4
1000
1204
1204
1204
Depot Sales
Example: A Sales Order is raised for Material A for Qty = 1 PC, at the rate of Rs.1000 per Pc, with
applicable BED @ of 16%, SED @ 4% and ECess @ 2%., VAT @ 10%.
Accounting scheme:
Sr.No. Particulars
Goods Issue
1.
FG Stock A/c
2.
COGS A/c
1.
Cenvat Clearing A/c
4.
VAT Payable A/c
5.
Sales Rev A/c
6.
Customer A/c
Customer Receipt
1.
Customer A/c
2.
Bank A/c
Debit
Credit
1000
1000
204
120
1000
1324
1324
1324
69
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GOODS AND SERVICES TAX (GST)

Operational Impacts and Concerns

GST: OPERATIONAL IMPACTS & CONCERNS

GST: OPERATIONAL IMPACTS & CONCERNS

Basic Excise Duty

Central Goods and Service Tax

Central Sales Tax

Duty Entitlement Pass Book

Export Oriented Unit

Export Promotion Capital Goods

Goods and Service Tax

Interstate Goods and Service Tax

Input Service Distributor

Large Taxpayer Unit

Personal Ledger Account

Special Additional Duty

Special Excise Duty

Special Economic Zone

State Goods and Service Tax

Small Scale Industries

Value Added Tax

Goods and Services Tax Network

GST: OPERATIONAL IMPACTS & CONCERNS

GST: OPERATIONAL IMPACTS & CONCERNS

GST: OPERATIONAL IMPACTS & CONCERNS

GOODS AND SERVICES TAX: A CLOSER LOOK

B. GST Model: As proposed for INDIA

Dual GST Model:

GST: OPERATIONAL IMPACTS & CONCERNS

CGST will subsume:

SGST will subsume:

GST: OPERATIONAL IMPACTS & CONCERNS

Integrated GST (IGST):

GST: OPERATIONAL IMPACTS & CONCERNS

GST Input Credit (ITC) Mechanism:

GST: OPERATIONAL IMPACTS & CONCERNS

GSTN : Proposed Information Flows

Source: TAGUP_Report , By Mr. Nandan Nilekani

GST: OPERATIONAL IMPACTS & CONCERNS

GST: OPERATIONAL IMPACTS & CONCERNS

GST : IMPACTS ON INDUSTRY

GST: OPERATIONAL IMPACTS & CONCERNS

GST: OPERATIONAL IMPACTS & CONCERNS

GST: OPERATIONAL IMPACTS & CONCERNS

GST: OPERATIONAL IMPACTS & CONCERNS

Mfg Plant with O/P

Periodic Utilization and Tax Payment

GST: OPERATIONAL IMPACTS & CONCERNS

Invoice issued in 14 days and

Invoice not issued within 14 days

Invoice issued in 14 days but

Invoice not issued in 14 days.

GST: OPERATIONAL IMPACTS & CONCERNS

GST: OPERATIONAL IMPACTS & CONCERNS

GST: OPERATIONAL IMPACTS AND CONCERNS:

A. REGISTRATION: A TAX ENTITY

GST: OPERATIONAL IMPACTS & CONCERNS

GST Registration Number:

GST: OPERATIONAL IMPACTS & CONCERNS

Illustration of proposal of GST Registration Number:

GST: OPERATIONAL IMPACTS & CONCERNS

Need from software application vendors:

GST: OPERATIONAL IMPACTS & CONCERNS

B. PROCUREMENT OF GOODS & SERVICES