GST Defined

• GST is defined in Article 366 (12A) to mean “any tax on

supply of goods or services or both except taxes on
supply of the alcoholic liquor for human consumption”.

• Thus all supply of goods and services will attract GST.

• The term supply is not defined or elaborated or qualified

such as supply for a consideration etc.

• For instance Fee supply will attract GST – in the case of

a branch transfer.
 122nd Constitution Amendment bill
• Declared Goods of special importance dropped

• Constitutional amendment bill defines services

• Services means anything other than goods.

• Interstate supply of goods (not services), to attract

additional tax up to 1%.

– This additional tax would be applicable for a period of two years

– The tax will be collected by centre and assigned to the states
from where the supply of goods originates
Additional Tax on Interstate supply of goods
• GST council could further extend the period beyond 2 years.

• This additional tax will not pass through the transaction chain as tax
credit

• Hence it would become cost and cascade the value of supply, as in

the case of CST. This will lead to supply-Chain inefficiencies.

• Efficiency of the supply chain will be compromised more so when

there are multiple movements.

• Much worse even branch transfer of goods will suffer this

inefficiency, disturbing the Make in India initiative.
 Import of Goods and services
• Import of Goods attract BCD / ACD / SAD
• Import of services attract service tax.

• Under GST
– import of Goods will attract BCD and IGST
– Import of Services will attract IGST
– BCD on import of goods not part of Tax
credits.
 Petroleum Products and Tobacco
• Bill specifically provides that petroleum products
might not attract GST.

• The present taxes levied by the states and the

centre on petroleum and petroleum products , ie,
sales tax/VAT, CST and Excise duty will
continue to be levied in the interim period.

• GST council empowered to decide at a later

stage with respect to levy of GST on petroleum
products
 GST Rates
• GST is a destination based tax. All SGST on the final
product will ordinarily accrue to the consuming State.

• GST rates are expected to be uniform across the

country. However respecting the fiscal autonomy to the
states, there will be a provision of a narrow tax band
over and above the floor rates of the CGST and SGST.

• The floor rates are expected to be around 27%

 GST Council
• The GST council will consist of the Union Finance
Minister, Minister of State and State Finance Ministers.

• The constitution amendment bill provides for voting

powers of the members of the GST Council.

• The administration of GST would be the responsibility of

the GST Council. GST council becomes the apex
indirect tax policy making body of the country.
 GST Council
• GST council is empowered to
– provide floor rates with bands for rate of GST for different items
– exemptions of tax
– Threshold limits
– Framing model laws and principles of levy
– Apportionment of IGST

• GST council is also empowered to

– Resolve disputes arising out of its own recommendations
– Imposition of additional taxes in times of calamities and disasters
– Introduction of special provisions with respect to tall Himalayan
States in India.
 Compensation to states
• Compensation to states on revenue loss on account of
introduction of GST would be based on the
recommendations of the GST council.

• It is the GST Council and not the Centre, that would be

the decision making authority on the computation of
compensation to the states for any revenue loss

• The GST council would consider the general concerns of

the States towards revenue shortfalls by allowing for
determination of compensation by a body with
“Democratic Representation “ by all states
 Compensation to states
• Centre to compensate States for loss of revenue arising on account
of implementation of the GST for a period up to five years

• The compensation is set to be on a tapering basis, i.e. 100% for first

three years, 75% for the fourth year and 50% fo the fifth year.

• Parliament by law, on recommendation of GST Council, shall

provide for compensation to states for loss of revenue arising out of
implementing GST up to 5 years.

• This clause in the Constitution, dispels the fear of these states

regarding fear of loss of revenue.
 GST Act would address
• Norms for movement of supplies
• Credit mechanism
• Assessments
• Dispute resolution
• Transitioning of existing tax holidays and incentive
schemes

• Setting up of Information technology infrastructure

– For administration of GST on a Pan-India basis

• Gearing up and training the revenue authorities at the

center and state