GOODS AND SERVICES TAX (GST) - AN

ANALYSIS

PROJECT SUBMITTED TO

Army Institute of Law Mohali

By

Under the guidance of

Ms. EKJYOT KAUR GUJRAL

ECONOMICS

In partial fulfilment of the requirements for the award of

Degree [Link]
Punjabi University, Patiala (Punjab)

DECLARATION
It is certified that the project work presented in this report entitled “Goods and Services
Tax-An Analysis.” embodies the results of original research work carried out by me. All
the ideas and references have been duly acknowledged.

Date:

ACKNOWLEDGEMENT
This project consumed huge amount of work, research and dedication. Still, implementation
would not have been possible if I did not have a support of many individuals and
organizations. Therefore, I would like to extend my sincere gratitude to all of them.

Ms. Ekjyot Kaur gujral, our Economics teacher for provision of her expertise, and technical
support in the implementation. Without her superior knowledge and experience, the Project
would lack in quality of outcomes, and thus her support has been essential.

I would like to express my sincere thanks towards all who devoted their time and knowledge
in the implementation of this project

.
Nevertheless, I express my gratitude toward my family and colleagues for their kind co-
operation and encouragement which help me in completion of this project.
INTRODUCTION

The introduction of the Goods and Services Tax (GST) is a very significant step in the field
of indirect tax reforms in India. By amalgamating a large number of Central and State taxes
into a single tax, GST will mitigate ill effects of cascading or double taxation in a major way
and pave the way for a common national market. From the consumer’s point of view, the
biggest advantage would be in terms of a reduction in the overall tax burden on goods, which
is currently estimated to be around 25%-30%. It would also imply that the actual burden of
indirect taxes on goods and services would be much more transparent to the consumer. The
introduction of GST would also make Indian products competitive in the domestic and
international markets owing to the full neutralization of input taxes across the value chain of
production and distribution. Studies show that this would have a boosting impact on
economic growth. Last but not the least, this tax, because of its transparent and self-policing
character, would be easier to administer. It would also encourage a shift from the informal to
formal economy. The government proposes to introduce GST with effect from 1st July 20171.

Goods as well as services have been defined in the GST Law. “Goods”2 has been defined as
every kind of movable property other than money and securities but includes actionable
claim, growing crops, grass and things attached to or forming part of the land which are
agreed to be severed before supply or under a contract of supply. “Services” means anything
other than goods, money and securities but includes activities relating to the use of money or
its conversion by cash or by any other mode, from one form, currency or denomination, to
another form, currency or denomination for which a separate consideration is charged.

he idea of moving towards GST was first mooted by the then Union Finance Minister in his
Budget speech for 2006-07. Initially, it was proposed that GST would be introduced from 1st
April [Link] Empowered Committee of State Finance Ministers (EC) which had
formulated the design of State VAT was requested to come up with a roadmap and structure
for GST. Joint Working Groups of officials having representatives of the States as well as the
Centre were set up to examine various aspects of GST and draw up reports specifically on
exemptions and thresholds, taxation of services and taxation of inter-State supplies. Based on
discussions within and between it and the Central Government, the EC released its First
Discussion Paper (FDP) on the GST in November, 2009. This spelt out features of the
1
Goods and Service Tax, Council.
2
GST, the meaning scope and supply, National Academy of Customs, Indirect Taxes and Narcotics.
proposed GST and has formed the basis for discussion between the Centre and the States so
far.

The Goods and Service Tax Council (hereinafter referred to as, “GSTC”) comprises of the
Union Finance Minister, the Minister of State(Revenue) and the State Finance Ministers to
recommend on the GST rate, exemption and thresholds, taxes to be subsumed and other
matters. One-half of the total number of members of GSTC form quorum in meetings of
GSTC. Decision in GSTC are taken by a majority of not less than three-fourth of weighted
votes cast. Centre has one-third weightage of the total votes cast and all the states taken
together have two-third of weightage of the total votes cast.

HISTORY OF INTRODUCTION OF GST

 The then Prime Minister Atal Bihari Vajpayee proposed the idea of GST in the year
2002. A committee was then set up to design a Goods and Services Tax Model for the
country.
 In 2004, Kelkar Task Force on Fiscal Responsibility and Budget Management
proposed a nationwide implementation of fully integrated GST.
 While presenting the Union Budget of 2007-08, the Union Finance Minister
announced the GST launch date as 1st April 2010. However, the lack of political
consensus deferred the GST start date several times.
 On 19th December 2014, the NDA government presented the Constitutional (122nd
Amendment) Bill 2014 on GST in Parliament. The Lok Sabha eventually passed the
bill on 6th May 2015.
 On 14th May 2015, the bill was referred to a Joint Committee of both the Houses of
Parliament. After incorporating recommendations from the committee, the Rajya
Sabha passed the GST Bill on 3rd August 2016.
 The Constitution (101st Amendment) Act 2016 came into force after ratification by
the required number of State governments and the approval of the President of India.
 On 29th March 2017, after the approval of the GST Council, the Lok Sabha passed
the following Central legislations :

1. GST Bill, 2017

2. IGST Bill,2017
3. UTGST and SGST Bill, 2017
 4. GST (Compensation to Cess) Bill, 2017

 All States and Union territories passed their respective SGST and UTGST Acts by
30th June 2017. Hence the GST implementation date was set as 1st July 2017. It
marked the beginning of a path-breaking tax reform in our country

OBJECTIVES OF GST

1. To achieve the ideology of ‘One Nation, One Tax’

GST has replaced multiple indirect taxes, which were existing under the previous tax
regime. The advantage of having one single tax means every state follows the same
rate for a particular product or service. Tax administration is easier with the Central
Government deciding the rates and policies. Common laws can be introduced, such as
e-way bills for goods transport and e-invoicing for transaction reporting. Tax
compliance is also better as taxpayers are not bogged down with multiple return forms
and deadlines. Overall, it’s a unified system of indirect tax compliance.

1. To subsume a majority of the indirect taxes in India

India had several erstwhile indirect taxes such as service tax, Value Added Tax
(VAT), Central Excise, etc., which used to be levied at multiple supply chain stages.
Some taxes were governed by the states and some by the Centre. There was no unified
and centralised tax on both goods and services. Hence, GST was introduced. Under
GST, all the major indirect taxes were subsumed into one. It has greatly reduced the
compliance burden on taxpayers and eased tax administration for the government.
2. To eliminate the cascading effect of taxes
One of the primary objectives of GST was to remove the cascading effect of taxes.
Previously, due to different indirect tax laws, taxpayers could not set off the tax
credits of one tax against the other. For example, the excise duties paid during
manufacture could not be set off against the VAT payable during the sale. This led to
a cascading effect of taxes. Under GST, the tax levy is only on the net value added at
each stage of the supply chain. This has helped eliminate the cascading effect of taxes
and contributed to the seamless flow of input tax credits across both goods and
services.
3. To curb tax evasion
GST laws in India are far more stringent compared to any of the erstwhile indirect tax
laws. Under GST, taxpayers can claim an input tax credit only on invoices uploaded
by their respective suppliers. This way, the chances of claiming input tax credits on
fake invoices are minimal. The introduction of e-invoicing has further reinforced this
objective. Also, due to GST being a nationwide tax and having a centralised
surveillance system, the clampdown on defaulters is quicker and far more efficient.
Hence, GST has curbed tax evasion and minimised tax fraud from taking place to a
large extent.
4. To increase the taxpayer base
GST has helped in widening the tax base in India. Previously, each of the tax laws had
a different threshold limit for registration based on turnover. As GST is a consolidated
tax levied on both goods and services both, it has increased tax-registered businesses.
Besides, the stricter laws surrounding input tax credits have helped bring certain
unorganised sectors under the tax net. For example, the construction industry in India.
5. Online procedures for ease of doing business
Previously, taxpayers faced a lot of hardships dealing with different tax authorities
under each tax law. Besides, while return filing was online, most of the assessment
and refund procedures took place offline. Now, GST procedures are carried out
almost entirely online. Everything is done with a click of a button, from registration to
return filing to refunds to e-way bill generation. It has contributed to the overall ease
of doing business in India and simplified taxpayer compliance to a massive extent.
The government also plans to introduce a centralised portal soon for all indirect tax
compliance such as e-invoicing, e-way bills and GST return filing.
6. An improved logistics and distribution system
A single indirect tax system reduces the need for multiple documentation for the
supply of goods. GST minimizes transportation cycle times, improves supply chain
and turnaround time, and leads to warehouse consolidation, among other benefits.
With the e-way bill system under GST, the removal of interstate checkpoints is most
beneficial to the sector in improving transit and destination efficiency. Ultimately, it
helps in cutting down the high logistics and warehousing costs.
7. To promote competitive pricing and increase consumption
Introducing GST has also led to an increase in consumption and indirect tax revenues.
Due to the cascading effect of taxes under the previous regime, the prices of goods in
 India were higher than in global markets. Even between states, the lower VAT rates in
certain states led to an imbalance of purchases in these states. Having uniform GST
rates have contributed to overall competitive pricing across India and on the global
front. This has hence increased consumption and led to higher revenues, which has
been another important objective achieved.

Constitution Act 2016 (101st Amendment)

The introduction of GST demanded an amendment in the Constitution of India to empower

the Centre and the States to levy and collect it. Thus, the Constitution (101st Amendment
Act) was passed. It is now known as the Goods and Services Tax Act, 2017.

Article 246A was brought, which had an overriding effect on Article 246. Article 246A gives
power to the Centre and States to make laws concerning GST. However, the Central
government has an exclusive power to make laws on any inter-State supply of goods.

 GST shall be imposed on the supply of goods and services except for alcoholic liquor
for human consumption.
 GST shall be applied on the following goods from the date of the notification by the
government as per the recommendation of the GST council:

1. Petroleum crude
2. High-speed diesel
3. Motor spirit(petrol)
4. Natural Gas
5. Aviation turbine fuel

IMPACT OF GST ON SERVICE PROVIDERS

As of march 2014, there were 12,76,861 service tax assesses in the country out of which only
the top 50 paid more than 50% of the tax collected nationwide. Most of the tax burden is
borne by domains such as IT services, telecommunication services, the industry, business
support services, the insurance industry, business support services, banking, and financial
services, etc. these pan India businesses already work in a unified market and will see
compliance burden becoming lesser.
ADVANTAGES OF GST

GST is a destination-based indirect tax imposed on the supply of goods and services. The pre-
GST era had a lot of shortcomings that required the uniformity of taxes. GST is a great
initiative taken by India. It is a win-win situation for the entire country. It is beneficial for the
whole country- its stakeholders, businessmen, consumers and government. GST has brought
a transparent system for the whole country that allowed the credit of taxes paid. Some of the
benefits of the GST regime are as follows:

1. Unified National Market

GST has made India a unified national market with standard tax rates and procedures. It
broke the barriers that were present due to the multiplicity of taxes.

2. Competitive

With the introduction of GST in India, the cost of goods and services has decreased. It gave
an advantage to the country by making the goods and services competitive at the International
level.

3. No Cascading of taxes

Cascading of taxes happens when a tax is imposed on every stage of production. This practice
ultimately increases the value of goods which leads to inflation. With the GST
implementation, suppliers can take credit on the taxes paid to the government. This resulted
in reducing the negative impact of the previous tax structure.

4. Benefit to stakeholders

GST is a single tax that subsumed various taxes and common people of the society. Now
suppliers don't have to pay unnecessary taxes

5 Automated process
Earlier, everything was manual which was a lengthy process. With the origin of GST,
every process is automated to reduce the human involvement.

6. Reduced compliance of taxpayers

Due to the multiplicity of taxes, taxpayers were required to comply with different taxation-
related laws. With the advent of GST, compliance on the part of taxpayers has declined.

7. Increased economic activity and investment

The cost of goods has declined with the introduction of GST. As goods are competitive in the
international markets, exports and investment are rising. Demand is huge due to the low-cost
products. People spend more when there is an increase in demand. This ultimately increases
economic activity and investment by generating more employment.

8. Reduction in compliance costs

Taxpayers are not required to maintain multiple records with the origin of GST. They don't
need to pay different taxes to the government.

9. Increase in Government revenue

Government revenue jumped up to 24% with the introduction of GST.

DISADVANTAGES OF GST

 Petroleum products undefined under GST

Petroleum products have not been defined under the GST which means the states will
continue levying taxes and no input tax credit will be available in this industry and the related
ones.

 Implementation of GST in Mid-Year

Gst will roll out on July 1 which means the new financial year starts from April 1, old tax
structure will be carried out as soon as GST is implemented, the new structure would be
enforced. This would create confusion as the change would not take place in a day and two
systems would be running parallel for a while.
  Inevitable inflation

In many sectors, GST would result in inflation and there have been no measures to curb the
same. While there were steps taken to initiate anti-profiteering at the retail level, there have
been no concrete steps as such.

 Operating cost hike

For smaller enterprises that do not hire professionals to manage accounts and taxes, the new
system would compel them to require professional assistance as the sturucture would be
completely new.

 Business software updating

Businesses, up till now have been using accounting software with VAT, service tax
incorporated in it but as the reform would take place, these software would need to be
updated and that means extra cost of purchasing software and training the employees.

 Multiple Registration

For a business, GST requires to be registered in as many states in which the business is
operating and that means multiple registration leading to compliance burden. Once the GST
gets implemented, these challenges would follow it for a long time but as the benefits of GST
are sure to bind India into one tax, the end result is hoped to be positive.

STATISTICS

The Economic Survey 2017-18, presented in the Parliament today claims that post
introduction of Good and Services Tax (GST) regime, there has been a 50 per cent increase in
the number of indirect taxpayers, besides a large increase in voluntary registrations,
especially by small enterprises that buy from large enterprises and want to avail themselves
of Input Tax Credits (ITC).

A preliminary analysis of the GST data states that as on December 2017, there were 9.8
million unique GST registrants slightly more than the total Indirect Tax registrants under the
old system. the GST has increased the number of unique indirect taxpayers by more than 50
percent -a substantial 3.4 million

Maharashtra, UP, Tamil Nadu and Gujarat are the states with the greatest number of GST
registrants. the GST data suggests that India's internal trade in goods and services (excludes
non-GST goods and services) is actually even higher and is about 60 per cent of GDP.

Goods and services tax (GST) collections touched an all-time high of over ₹1.42 lakh crore
in March, boosted by improved economic activity as the Omicron wave waned as well as
anti-evasion measures and rate rationalisation
GST council announced the GST rates for goods & services which also contained the list of
exempted goods and services. On the other hand, there are certain activities that are items not
covered as supply under GST. They are beyond the scope of GST, i.e., GST will not apply to
them as they are neither supply of goods nor services in the first instance. These activities are
also similar to the negative list under the erstwhile Service Tax regime. The transactions are
classified under the Schedule III of the GST Act as “Neither good nor services
 C0NCLUSION

Implemented on July 1, 2017, the Goods & Services Tax (GST) regime completed its third
anniversary on Wednesday. The dream of ‘one nation, one tax’ was finally realised 14 years
after a government panel recommended a unified taxation system for the country.

A special Parliament session cleared the decks to replace the complex web of indirect taxes in
India and gave India GST -which became one of the most important flagship schemes of
Modi 1.0 government.

The GST has replaced at least a dozen taxes but revenues continue to remain subdued and
have been below expectations. The economic slowdown and a lockdown in 2020 have not
only affected revenue collection but also GST compensation cess fund which is used by the
Centre to compensate states.

Subdued revenues have further it difficult for the government to reduce tax slabs and tax rates
to declutter the flawed system and boost demand and production.

With a pandemic and an ugly by necessary lockdown, the compensation to the states has been
delayed they are now threatening to take legal recourse.

The central government ‘s GST collections in March 2020, were down a massive 87% as
compared to the same period last year.