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Goods and Service Tax (GST) is intended to ensure one tax in the entire country at one rate with one assessment and one payment leading to one return being filed in compliance by the taxpayers. The system of “Tax on Tax” will be modified as well as simplified to claim tax at the point of production and grant benefit of the same at all levels thereafter by doing away the cascading effect of taxes.
Goods and Services Tax issue is in the limelight due to the proposed Constitution Amendment Bill No. 122/14. This bill proposes to amend several provisions of the Constitution of India by inserting a new article 246 A after Article 246 of the Constitution of India with corresponding proposed amendments in Articles 248, 249, 250, 268, 269, 270, 271, 279, 286, 366, 368 and 6th and 7th schedules. The proposed amendments introduce Goods and Services Tax for conferring concurrent taxing powers on the Union as well as the States including the Union Territories with the legislature to make laws of levying Goods and Services Tax on every transaction of supply of Goods and Services or both. The proposed Goods and Services Tax shall replace the number of indirect taxes being levied by the Union and the States Governments and will do away with the complications of State and Centre Taxes to facilitate a common national market for Goods and Services throughout the country.
Existing CENVAT scheme does not include the chain of value addition in the distributive trade below the stage of production hence VAT and CENVAT are still not available against each other. This has credited serious anomalies in the situation during the operations as CENVET has not included several central taxes as Additional Excise Duties, Additional Customs Duties, Surcharges, etc. whereas VAT has not reconciled the Luxury Tax, Entertainment Tax and other types of Trade Taxes in vogue in the country.
The proposed GST Bill aims to levy the tax on Goods and Services which will have two component; one of Central GST which would be levied by the Centre and the other of State GST which would be levied by the State. The taxes above under the broad heads of GST would be levied on all transactions of Goods and Services made for consideration.
The Central Taxes which would be included in the Central GST are as under:
- Central Excise Duty.
- Addition Excise Duty.
- Excise Duty levied under the Mutational and Toiletry Proportion Act.
- Services Tax.
- Additional Customs Duty (VCD).
- Special Additional Duty of Custom.
- Central Cesses and Surcharges in so far as there relate to Supply of Goods and Services.
State GST would include the following Taxes:
- Value Added Tax/ Sales Tax (VAT).
- Entertainment Tax imposed by the State Governments including the Entertainment
- A tax levied by Local Bodies, Central Sales Tax.
- Octroi and Central Sales Tax.
- Octroi and Entry Tax.
- Luxury Tax.
- Taxes on Lotteries, Betting, and Gambling.
- State Cesses and Surcharges in so far as there relate to supply of Goods and Services.
The proposed tax rate as named as Revenue Neutral Rate (RNR) is at the rate of 11% with a cap of 20% .
The two most important feature of the GST relating to taxes is that Taxes paid against the Central GST shall be allowed to be taken as input tax credited for Central GST and could be utilized only against payment of Central GST. Whereas taxes paid against State GST shall be allowed to be taken as input tax created for State GST and could be utilized only against payment of State GST. This would clearly demarcate and distinguish the nature of taxes paid and the credits claimed in the entire business process which at present is very clumsy with the multiplicity of taxes and value added levies thereby creating the mess in the entire situation.
In the proposed scheme, cross utilization of credits between central and the state would not be allowed except under IGST, and the refund/adjustment of Central GST and State GST would be completed in the time bound manner in case of exporters, taxpayers, etc.
The proposed exemption of the GST will be for all public services of Government including the Civil Administration, Health Services, and the services being provided to Government schools and colleges etc. the public services such as Railways, Post and Telegraph and other commercial departments providing services to the public, commercial establishments, PSUs, Banks, and Insurance Companies of Government would not be exempted. Some more services are also exempted from the GST. The proposed Act would seek an amendment in various provisions of the Constitution of India thereby empowering Central Government to levy taxes on State Governments which are otherwise not provided in the Constitution. The concept of IGST for the Interstate transactions which would supply on all interstate supplies on taxable goods services the taxes charged under IGST can be utilized as input IGST, Central GST and State GST thereby demarcating the nature of tax applicable to the particular goods and services. It is proposed that both Central GST and State GST would be levied on import of goods and services and the full set off is allowed on GST paid on import of goods and services. Besides the proposed GST, the following taxes would continue:
Basic Customs Duty.
Excise and State VAT on Petroleum Products.
Excise on Tobacco Products.
State VAT on Alcoholic Liquor.
GST is aimed to simplify the taxation process for goods and taxes on the one hand and to check the evasion of taxes on the other hand which will ultimately lead to increase in the tax revenue of the country.